After decades of neglect by economists, markets must be empowered to do more.
“The American dream is alive, but fraying,” said Jamie Dimon, CEO of Chase last August. The Business Roundtable, where Dimon serves as Chairman, had just made headlines for updating their ‘Statement on the Purpose of a Corporation’ for the nearly 200 member companies to reflect a “commitment to a free market economy that serves all Americans.” Unfortunately, less than a year later in the midst of the global pandemic, Chase inadvertently hurt American small businesses. The process that Chase used to assist companies seeking federal loans under the Paycheck Protection Program prioritized large corporate clients ahead of small business.
In contrast, at the very onset of America’s economic shutdown, Facebook announced the unprecedented action of creating the Facebook Small Business Grant Program. Facebook pledged $100 million in grants directed at up to 30,000 companies across 30 countries. In describing the potential of the program on CNBC, Sheryl Sandberg, COO of Facebook said, “Well, we’re just starting here and we’re going to keep trying to respond to the need we see…” Sandberg continued, “This is unprecedented, I don’t think anyone knows what’s going to happen next. So we are very open to considering doing more in lots of different ways going forward.” Facebook did just that in June following the Black Lives Matter demonstrations sparked by the murder of George Floyd. Facebook announced a subsequent investment of “$100 million this year in Black-owned small businesses, Black creators, and nonprofits that serve the Black community in the US.”
Were Dimon and Business Roundtable members naive in believing that changing a purpose statement would reverse half a century of Wall Street culture? Do Sandberg and Mark Zuckerberg believe that they can help save the economy by giving away billions?
The short answer: They are flying blind.
Grounded: Supply Vs Demand
Over the past 50 years, global society has been dictated primarily by neoliberal economic theory that promotes lowering taxes and eliminating regulation to allow “free enterprise” to maximize profits. The professional economists who built models in support of their proposals believed that by minimizing the burden of government on businesses, the private sector and society would flourish. Known as supply-side economics, this paradigm maintained near complete dominance until the 2008 financial crisis.
In the decade that followed, an explosion in technical advances in automation exposed a critical flaw in supply-side models. While multinational corporations were accumulating increasingly larger amounts of capital, the need for labor was in massive decline. This paradox has provided little direction for capital to reach the market and society as a whole.
Contemporary economics restricts society to three methods of currency circulation. The first being the supply-side ability of the free market for voluntary exchange of capital for labor. The second being the demand-side ability of capital distribution by the government through taxation. The third being the donation of profits to charitable organizations to address societal challenges not met by the market or government. Due to the inability of supply-side models to provide a path forward, there has been a resurgence in the second; demand-side proposals that emphasize government taxation to fund social programs like universal education, healthcare, and basic income.
Lifted: Market-side Economics
Steve Jobs once said that everything around us is “made up by people that were no smarter than you. And you can change it.”
We can change economic modeling. However, in order for things to change, we must change what we measure. Financial capital alone cannot be the sole metric of societal well-being going forward. While society starves for competent government, economics must go beyond supply and demand and build models for the market itself. Bold, inspired, and competing models that allow the private and philanthropic sectors to fully address the needs of a global population.
Instead of flying blind, the market would gain a flight plan.
Jeff Bezos, among others, has committed billions to early childhood education and health equity. Dimon and Bezos, together with Warren Buffett, are experimenting with not-for-profit healthcare for their combined 1.5 million employees–an initiative with a population that could quickly match the scale of a Nordic country. Zuckerberg may have stumbled upon this century’s virtuous loop through the Small Business Grant Program, the same way Henry Ford inadvertently catalyzed the birth of middle class America.
Twitter CEO, Jack Dorsey, and recent presidential candidate, Andrew Yang, among numerous tech and business luminaries, have emphasized the necessity of Universal Basic Income. However, UBI is simply the de facto option because a market solution like that of Victor Lebow’s “Social Dividend” proposed in 1972 or the recent proposal by the team behind “Citizen Capitalism” to create a Universal Basic Asset have not yet been properly assessed.
The above are but a few market-side economic ideas flying blind, but nonetheless changing the global trajectory of work, wealth, and wellness. Ideas that can be given lift by an evolution in economics that actively provides guidance today. The financial capital to sustainably solve problems exists–without deepening the public debt or raising taxes. A century ago, John Maynard Keynes saw that only the government had the scale, capital, and leadership to pull an economy out of decline. In this century it is the market that now possesses those traits. But only if we build the market-side economic models to give free enterprise confidence in its own abilities and higher purpose.