By Peter High, published on Forbes
Roger Martin has been a leading strategist and consultant for many years. He is consigliere to CEOs of many multi-billion dollar enterprises. He also spent a decade and a half as the dean of the Rotman School of Management in Toronto, a post he took as an act of patriotism in the hopes of creating Canada’s first world-class business school. (He achieved that goal.)
Martin is also a prolific author, having written numerous business best sellers such as Playing to Win: How Strategy Really Works (co-authored with P&G CEO A.G. Laffley), The Design of Business: Why Design Thinking is the Next Competitive Advantage, and Creating Great Choices: A Leader’s Guide to Integrative Thinking (co-authored with Rotman School Adjunct Professor, Jennifer Riel), which is his most recent book.
In this interview, he reflects on the future of social democracy, and posits that economic shifts have transpired that have altered the viability of the American Dream.
Peter High: Please describe the work you are doing with the Martin Prosperity Institute on the future of Democratic Capitalism.
Roger Martin: We are in the middle of a six-year project with the goal of answering the following mystery: Between 1776 and 1989, a period of a mere 213 years, the median family in the U.S. economy had a 95 percent probability of their income being higher, in real terms, than it was the year before. In those 213 years, they were two bad periods where this was not true. The first was the Long Depression in the late 1800s. People know less about that depression than the Great Depression, but it was equally bad. The second was the Great Depression, which began in 1929 and went for several years. Other than those periods, it was only the odd year or two where the median income did not increase. Additionally, up to 1989, the income of the top 1 percent dropped dramatically more than the median person’s income. That is American history up to 1989. Then, between 1989 and 2014, where we have the latest revised figures, median income was flat. 2014 was not higher than 1989.
There are two things to notice here. One, that is longer than any other time in American history, by far, and it is continuing. Two, in this period, the top 1 percent has done better than any time in American history. It is not even close, and it is accelerating. The mystery we are trying to solve is what changed about the American economy that makes the post 1989 period different from the period prior to 1989 whereby the median income person now has no expectation that their income is going up next year or the year after. Meanwhile, the top 1 percent’s incomes are getting better every year.
Why do I care about that? In Democratic Capitalism, the median income family is the swing voter. Unless the public vote’s for the status quo, you will have the government producing that negative result punted out. After the Great Depression, if we consider the industrialized democratic countries of that era, which was Europe and the U.S., virtually all of Europe went either communist, socialist, or fascist in response to that stagnation. The United States did not. In fact, the FDR administration took the country leftward, but still it was avowedly democratic capitalist. The reason that was politically plausible was the median family, the swing voter, could say, “At least we are all in this together. The rich are getting slammed super hard. We are getting slammed. The whole economy is getting slammed. Let’s try to work our way out of it together.” We do not have that condition anymore. The median family, if they are paying any attention, is saying “We are getting slammed and those guys couldn’t possibly be doing more awesome.”