the infragility created by inequality in business

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“The most dangerous moments are not when people are their poorest but rather when their expectations of significant improvement are raised … and end in frustration.”

de Tocqueville

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I once wrote a piece called “trickle down inequality” outlining the effect of trickledown effect of inequality.
The wealthier you are you get, or gain access to:

better healthcare.

better education <and opportunities>.

better start.

better everything.

You live longer, are healthier, are better educated, have better jobs and, ultimately, have better opportunities. In other words, the odds are forever in your favor.

I think it’s about time we took a look at how business is contributing to this and, maybe most importantly, how it affects hope.

Business has become weird <or maybe just weirder>. Hierarchies in the past were neat distributions of wealth. Even if incompetent people got promoted enough competent ones also did that as salaries, and wealth, got distributed you bitched, but didn’t feel like there was unsolvable inequality. That has changed. And just as extreme inequality attacks the underpinnings of democracy it also attacks the underpinnings of good business.

Let me explain.

Salaries/compensation.

Business espouses meritocracy until its blue in the face. What they neglect to mention is how they manipulate the meritocracy. Wage growth is usually discussed in some fairly superficial ways. We casually discuss ‘everyday worker’ wage growth and then quickly flip to the crazy high CEO compensation packages we see. The devil is in the details. For a very long time when businesses grew the poorest actually benefited the most. I am too lazy to research the details, but suffice it to say that when business grew the lowest incomes actually did better than the highest incomes <proportionally speaking> in reaping benefits. That meant economic growth was actually equitable and equalizing. That is no longer occurring. What has changed is how productivity is measured and compensated. In the past if you were more productive <economic output**> there was a fairly tight relationship to your compensation, no longer.

** note: Mariana Mazzucato has a fabulous Tedtalk on how economic output/productivity is out of whack

What that really means to us every day schmucks is that economic mobility came to a crashing halt. I could be smashing it out of the park from a daily productivity standpoint and all the business system did was say “you are doing what you are being paid to do.”

This happened for several reasons but let me focus on specialties or ‘roles.’ It’s not really reductionism, but has some aspects of it. It’s more a reflection of the machine-like mentality most businesses hold onto with ragged claws tied to the ‘measure everything’ focus. At my most cynical I could suggest business doubled downed on specialist/specific role mentality because it became easier to simplify compensation and employee competition/assessment. I knew who did more, best, in a very narrow measured space and could keep the best and get rid of the worst <note that this didn’t translate into a fair compensation just more for the best in that little space>. Unfortunately, this business philosophy often simply rewards the tallest midgets. This philosophy creates value, just not the type of value creation that makes people sit up and pay attention – its structural value creation which, in today’s business world, is not seen as the highest value creation necessary for “growth hacking”, “scale-able growth” or “hypergrowth” <all bullshit phrases>.

** note: I would be remiss if I didn’t point out this does not maximize either outcome potential or personal meaning. Reinforcing daily repetition <compensating an encouraged grind> increases disengagement and splitting value creation between everyday productivity and ‘occasional value creation’ opportunities doesn’t achieve the synergy necessary reform optimization.

As a counterpoint the ones the leadership have designated as the few scale-able value creation wizards have no discernable boundaries for wealth compensation.

In other words, the majority of productivity is mired in ‘livable compensation’ and the minority is given riches beyond the imagination.

Just to conclude. Some inequality has always threaded its way through business. There have always been employees who received higher compensation with no meaningful discernible value creation advantages <call them the Peter Principle employees>. But in the past, we could live with them as they went on longer vacations to Disneyland while we enjoyed Six Flags or the local lake. It became an issue when they started pulling up to their reserved parking spaces in Porsches while we kept driving a 10-year-old car because it was paid off.

Compensation inequality in business has repercussions in the community and society. People bring their business compensation home … as well as business perceptions of whether they deserved that compensation. What this begets, in the community, is cocooning of the ones who see themselves as the value creation wizards <hanging out with each other> and the productivity value creation grinders <hanging out with each other>. And they grow farther and farther apart while doing so.

Which leads me to.

Gamification.

A weird thing has happened in business psychology. While many businesses have admitted organizations aren’t really simple machines <albeit they keep many machine-like principles in place> they have embraced a slightly more ‘natural system’ belief. Let’s call it ‘organisms’ or ‘biological’ or whatever metaphor you want to apply to suggest adaptive and non-machine-like. Well. Natural systems continuously adapt, but human systems get gamed. I am not talking about selfishness/self-interest, per se, but rather a business system invariably uses some gamification to try and prompt the results they want and humans will game the gamification in order to access the rewards <incentives, not getting fired, promotions, etc>. I would be remiss if I didn’t point out that the majority of people who will game the gamification the best will most likely not be the best team players, best ethical people or best of your non-psychopath employees.

I am not suggesting business organizations don’t have some attributes of a natural system, but I am suggesting humans are not animals or insects and human systems will act differently than natural systems <particularly in business>. As someone at the Santa Fe Institute said “humans are not bees or ants.”

Business is in the business of doing business. Ignoring that is absurd. For decades business has gamed the stock market, financial statements, CEO compensation, etc. To not recognize how that self-gamification hasn’t contributed to an expanding societal inequality is ludicrous. To not recognize how that self-gamification hasn’t contributed to a decreasing ethical equality is ludicrous. How business is conducted, and gamed, bleeds out into the community and homes. Its absurd that business does not assume some responsibility for inequality <on a variety of issues> as they game the system and their employees.

Which leads me to

Hope.

Extreme inequality tests people. It tests character and integrity and honor and … well … good versus evil.

Extreme inequality provokes a generalized anger that finds targets where it can — immigrants, foreign countries, American elites, CEOs, government in all forms. Extreme inequality saps the will to conceive of ambitious solutions to large collective problems, because people lose hope that anything meaningful will be done to resolve them.

Look. Few gain true wealth. And that is actually okay. And, in fact, at most times people are okay with that. It is only when the extremes become, well, too extreme that the psychology falls apart. Extreme inequality hardens a business into a class system which means that extreme inequality corrodes trust among fellow employees, making it seem as if the game is rigged.

Extreme inequality screws with our hope, but when there is a fair and balanced dispersion of wealth everyday Hope is healthy. Hope starts getting attacked when the inequalities become so extreme as the rich and the poor become entrenched and there is an overall lack of opportunity for economic mobility <and social mobility>.

Balanced wealth.

Probably the most misunderstood and misdiscussed topic with regard to capitalism and a healthy economy.  A balanced wealth society far too often gets discussed as ‘inequality’ which then suggests we should be seeking wealth equality <which we do not>. A healthy capitalist society has income tiers in which some have less and some have more. But the less and the more, the have nots and the haves, need to have a balanced relationship. And the balance reaches into all aspects of society <which makes this topic even more complex>.

Inequality has always existed and it is part of the accepted American culture.

But it was a “balanced inequality.” It was a balanced wealth, fair dispersion, societal structure.

Now. Some people confuse economic mobility with ‘fairness.’ Fairness implies giving something to someone. Business, at its core, isn’t based on giving; it is based on earning. Earn respect, earn trust, earn relationships and, yes, earn money.  Therefore, economic mobility is the idea that if you work hard, play by the rules and do it all with purpose that you have the ability to move up from where you are. A failed economic mobility system is one in which you do those three things and either you don’t move at all or, worse, fall backwards.

Leaning in on that point, the main pervasive foundational belief is not actually about being fair, but rather if you work hard, you will be successful – if you are highly productive you get compensated.

Unfortunately, this is not true. Most of business these days does not provide wealth to hard-working individuals.

Yet. Most employees unconsciously form a wealth hope based on this attitude. Many employees will wonder what they did wrong but over time they will get a sense that the system itself should be blamed. Let’s be clear, our business system, for the most part, is not inherently fair. The reality is that under our business system the probability of success, regardless how much you may have worked, is fairly similar to lottery odds. Wealth, with rare exceptions, is not created by hard work, but is a result of merciless ambition and having initial wealth.

To be clear. Most of us do not have that initial wealth nor do most of us have some mercenary type ambition <do not confuse that with having dreams and aspirations>.

To be clear. Most people haven’t given up on hope and dreams, they are angry because they believe someone, or someones, are screwing with their hope and dreams.

Extreme inequality fucks with our hope.

I would argue business needs to move out of the profit-only business and get in the Hope business <not Purpose>. Business needs to offer solutions to which we can attach our hope to that we can tangibly attach our hope to. This will not just solve inequality, but <from their selfish perspective> it will make their business less fragile and more productive.

In the end.

The way business conducts itself echoes throughout homes, communities and society. To think business isn’t responsible, or plays a significant role, in inequality is absurd. So, while business may be showing profitability, high stock prices and growth, i.e., meet the measurements of business success, they are for the most part doing so not meeting the measurements of societal success. In fact, their success is killing society success. Yeah. I am suggesting money matters but I am doing so in a different way – tied to fairness, equity, productivity, all of which lead to meaning and mattering. Because isn’t that what inequality is really all about? Meaning and mattering? If business, where many people gain a significant portion of their identity, doesn’t offer up personal meaning <of which a component is equitable distribution of wealth based on productivity> then how can any society expect to create the attitudes necessary for healthy grounded meaning? Okay. You could, but it would be more fragile. And maybe that is my point. When business doesn’t get this right, it creates some unnecessary fragility to society. Ponder.