Jeffrey Sachs has a outstanding new book out called The Price of Civilization. The title of the book refers to remarks made by US Supreme Court justice Oliver Wendell Holmes, who spoke of the need for citizens of a country, who enjoyed the benefits of living in that country, to pay the price to support that civilization.
Sachs provides a thoughtful, cogent analysis of challenges facing America, and how to address those challenges. The book has a clean straightforward jargon-free narrative that is balanced and has elements that will appeal to conservatives, independents and progressives alike – though each group will find things to disagree with, there is much that will be embraced.
Sachs looks at the nature of America, through the lens of democracy, fairness, civic virtue, compassion, and happiness, and asks the question “What is our role in the 21st century?”
Sachs is the Director of The Earth Institute, Quetelet Professor of Sustainable Development, and Professor of Health Policy and Management at Columbia University.
Here’s Sachs being interviewed by Charlie Rose, about The Price of Civilization.
Here’s Sachs in the middle of the Occupy Wall Street demonstrations, taking questions from reporters. Sachs is articulate, plain speaking and clearly frustrated with the faltering state of the nation and the cozy monied relationship between government and big business.
On a related note, Charles M. Blow had an excellent graphic from the Bertelsmann Stiftung foundation report “Social Justice in the OECD — How Do the Member States Compare?” It helps give some context to issues driving the Occupy Wall Street demonstrations and challenges facing America.
With Bush-era tax cuts about to expire, a lot of attention is being focused on extending tax cuts for the rich – suggesting it will help the economy grow. Frank Rich, in his weekly op-ed piece at the New York Times, deconstructs that idea and examines the issue through the lens of income inequality.
The top 1 percent of American earners now have tax rates half what they were in the 1970s. And they took in 23.5 percent of the nation’s pre-tax income in 2007 — up from less than 9 percent in 1976. During the boom years of 2002 to 2007, that top 1 percent’s pre-tax income increased an extraordinary 10 percent every year. In that same period, the average inflation-adjusted hourly wage went down more than 7 percent and the poverty rate rose.
The rich have been getting richer as their tax rate has steadily eased. And they are taking the added wealth and using it to influence public policy, to the detriment of the middle class.
“How can hedge-fund managers who are pulling down billions sometimes pay a lower tax rate than do their secretaries?” ask the political scientists Jacob S. Hacker (of Yale) and Paul Pierson (University of California, Berkeley) in their deservedly lauded new book, Winner-Take-All Politics
…Inequality is instead the result of specific policies, including tax policies, championed by Washington Democrats and Republicans alike as they conducted a bidding war for high-rolling donors in election after election.
And as Frank Rich points out, the American Dream is not well. Rather than middle class wage earners moving up the ladder, there are less and less people becoming wealthy, and more and more of the wealthy simply becoming wealthier.
Nor are the superrich helping to further the traditional American business culture that inspires and encourages those with big ideas and drive to believe they can climb to the top. Robert Frank, the writer who chronicled the superrich in the book Richistan, recently analyzed the new Forbes list of the 400 richest Americans for The Wall Street Journal and found a “hardening of the plutocracy” and scant mobility. Only 16 of the 400 were newcomers — as opposed to an average of 40 to 50 in recent years — and they tended to be in industries like coal, natural gas, chemicals and casinos rather than forward-looking businesses involving the Green Economy, tech or biotechnology. This is “not exactly the formula for America’s vaunted entrepreneurial wealth machine,” Frank wrote.
Those in the higher reaches aren’t investing in creating new jobs even now, when the full Bush tax cuts remain in effect, so why would extending them change that equation? American companies seem intent on sitting on trillions in cash until the economy reboots. Meanwhile, the nonpartisan Congressional Budget Office ranks the extension of any Bush tax cuts, let alone those to the wealthiest Americans, as the least effective of 11 possible policy options for increasing employment.
The middle class is experiencing the twin stress of falling income and increasing expenses. The most significant household expense is healthcare.
Healthcare costs represent a stunning 17% of GDP. Politicians that cut taxes without a plan for how to cover the costs of Medicare are dooming the middle class to a future of just working to pay for out of control medical costs.
With the Income Inequality Gap growing, perhaps we can understand why, during the 2010 midterm election, only 40 percent of voters approved of an extension of all Bush tax cuts.
Measuring Income Inequality: The Gini Index
No society can sustain itself without a healthy middle class. No healthy society ignores it’s poor. As income inequality increases, social stability decreases.
Economists, the US Department of Labor, and analysts at the CIA, track Income Inequality using a metric known as the Gini Index (also known as the Gini Coefficient).
It is one of the essential metrics in the Political Instability Index, which is used to assess the level of threat posed to governments by social unrest. Zimbabwe, Chad and Congo rank most unstable, with Canada, Denmark, and Norway ranking most stable. Notably, the US, once the standard-setter of a stable democracy and middle class, has quickly fallen to an underwhelming rank 110 out of 165 countries.
The Gini Index is proportional to the Income Inequality of a nation. A Gini Index value of 0 indicates equal income for all earners. A Gini Index of 100 means that one person had all the income and nobody else had any.
A lower Gini Index indicates more equitable distribution of wealth in a society, while higher Gini Coefficients mean that wealth is concentrated in the hands of fewer people. Societies with high Gini Index tend to be unstable.
The chart below shows the historic trend of the Gini Index for the US, with tax rate and pre-tax income data for the top 1% of US earners in the background. On the right are various countries, with their associated Gini Index. Developed nations that take care of their own tend to have Gini indexes in the twenties and 30s. The US Gini Index is on track to breach 50 by the end of the decade, putting the US in the dubious country club of third world dictatorships and failing nations.
If you are a business leader, ask yourself, “Do I want to be living and building a business in world like that?” If the answer is NO, think about what public policy you are supporting through your contributions to politicians, associations and the Chamber of Commerce. Are the politicians you are supporting interested in a healthy middle class?
Business paid billions of dollars to politicians in the 2010 election. Paraphrasing W. W. Jacobs in his classic cautionary tale, The Monkey’s Paw, “Be careful what you wish for, you might get it.”
NPR had a fascinating story this morning on how height equals health. Northern Europeans are now the world’s tallest people, led by the Dutch. The average Dutch man is 6 feet tall, while the average American man maxes out at 5-foot-9. What’s going on, and why does height matter?
Good health care and good nutrition during pregnancy and early childhood are two reasons why the Dutch have grown so tall, Komlos says. In addition, the Dutch guarantee equal access to critical resources like prenatal care. That’s not the case in the United States, where 17 percent of the population has no health insurance.
Highlights from NPR’s report Measuring A Country’s Health By Its Height
Through most of American history, we’ve been the tallest population on the planet. Americans were two inches taller than the Englishmen they fought in the Revolutionary War, thanks to abundant food and a healthy rural life, far from the disease-ridden cities of Europe.
But we’re no longer at the top. Northern Europeans are now the world’s tallest people, led by the Dutch. The average Dutch man is 6 feet tall, while the average American man maxes out at 5-foot-9.
The height of Americans reached a plateau in the 1960s. As a nation, we have not grown taller but we also have not lost stature. Komlos says groups of people usually don’t lose height unless they’re in the midst of a famine or a war. “It has practically never occurred in peacetime,” he says.
Economists are interested in these biological questions about nations because while height is a reflection of health and nutrition, those factors usually result from economic well-being.
Economic success and height even correlate to some degree on an individual level. Taller people tend to be smarter, and to earn more.
Andreas Schick, a graduate student at Ohio State University in Columbus, is trying to figure out why. He thinks it gets down to the fact that someone who is healthy and well-fed enough to grow tall — or to the individual’s maximum potential genetic height — is also someone who is able to grow a strong, capable brain.
“If you’ve reached your maximum height, that probably means you’ve reached your physical and mental development,” Schick says. “That helps you reach your maximum potential, be that intellectually or socially.”
But the fact that Americans aren’t getting taller means more and more children won’t have the chance to reach their maximum potential, Komlos says.
And that has ramifications for the future. “A population that is not taking care of their children and youth is going to be in difficulties in a generation or two,” he says.
At Howard University Hospital in Washington, D.C., two miles northwest of the White House, Rana says he sees children in difficulty every day. Many of his young patients suffer health problems from obesity — too many empty calories and fat. Others are not getting enough to eat.
“You would be shocked by how many kids go without food in this town,” he says. “What you have to do is go to clinics like ours and ask people: Did you have a meal today?”
Keywords: healthcare, cost, life expectancy, t.r. reid, Japan, US
Washington Post reporter, documentary film correspondent and author T.R. Reid had a brief piece in Newsweek this week about Japan’s healthcare system. The article expands on an earlier interview Reid did on National Public Radio (NPR) – Japanese Pay Less for More Health Care – which you can listen to here.
To put Japan’s healthcare in perspective with the US and other countries, let’s look at healthcare performance data from the Organization for Economic Co-operation and Development (OECD). Using graphing approaches from National Geographic and Andrew Gelman we plot annual healthcare spending, life expectancy, and number of office visits per person, for a broad range of OECD countries. (NB: The area of the circle for each country is proportional to the number of doctor visits per person, e.g. Japan is 13.4 visits per year, US is 4 visits per year)
As can be seen, the US spends the most for healthcare, has middle of the road life expectancy, and few office visits. Japan has the highest life expectancy, three times as many office visits, at a third of the cost, compared to the US.
Commentary on the OECD data from National Geographic article The Cost of Care:
The United States spends more on medical care per person than any country, yet life expectancy is shorter than in most other developed nations and many developing ones. Lack of health insurance is a factor in life span and contributes to an estimated 45,000 deaths a year. Why the high cost? The U.S. has a fee-for-service system—paying medical providers piecemeal for appointments, surgery, and the like. That can lead to unneeded treatment that doesn’t reliably improve a patient’s health. Says Gerard Anderson, a professor at Johns Hopkins Bloomberg School of Public Health who studies health insurance worldwide, “More care does not necessarily mean better care.”
Highlights of T.R. Reids article – Japan shows how it’s done: keep quality up, costs down, and M.D.s on board
To gauge a health-care system’s success, it’s standard to consider three points: quality, coverage, and cost. On all three measures, Japan stands at or near the top in every comparative ranking.
Quality: The Japanese have the world’s longest life expectancy and the best recovery rates from just about every major disease. Infant mortality is less than half the U.S. rate. Japan usually leads the world in rankings of “avoidable mortality”—its effectiveness in curing diseases that can be cured.
Coverage: Japan’s health-insurance system covers everybody, including illegal aliens. It pays for physical, mental, dental, and long-term care. The Japanese are the world’s most prodigious consumers of medical care; on average they see the doctor about 15 times per year, three times the U.S. norm. They get twice as many prescriptions per capita and three times as many MRI scans. The average hospital stay is 20 nights—four times the U.S. average.
Cost: And yet Japan produces all that high-quality care at bargain-basement prices. The aging nation spends about $3,500 per person on health care each year; America burns through $7,400 per person and still leaves millions without coverage.
Japan has universal coverage, but it’s not “socialized medicine.” It’s largely a private-sector system. There is government insurance for the unemployed and the elderly, but most people rely on private plans. Japanese doctors are the most capitalist and competitive in the world. But we’re talking Japanese-style free enterprise here; there’s significant government regulation of the private players. Health insurers are required by law to cover everybody, and to pay every claim; the corollary is that everybody is required to buy health insurance. The price for a given treatment is identical everywhere in Japan. Officials say this is designed to attract doctors to rural communities, but that’s not working very well; many small towns on the outer islands have no doctor at all these days.
That fee schedule is the key to cost control in a country where people love going to the doctor. Basically, it shafts doctors and hospitals, paying some of the lowest fees on earth. As a result, doctors work long hours. They are comfortably middle-class, but not in the country-club set. But the savings can be huge in the high-tech realm that drives U.S. bills so high. An MRI scan of the neck region—routinely $1,400 or so in America—is $130 in Japan. Cost cutting like that has stimulated innovation and efficiency. Low fees are taking a toll, though. In a sense, Japanese medicine is the mirror opposite of America’s. We spend too much on health care, but still cover too few of our citizens; Japan provides lots of care to everybody, but probably spends too little to make its best-in-the-world system sustainable.
There is an interesting phenomena going on in some of the major business schools in Europe. In some – you are not allowed to mention environmental factors as a major catalyst for new business models/thinking. It is “understood” that as a lecturer, you inspire the students with fresh thinking but only so far. Go further, and people just roll their eyes and pigeon-hole you as a treehugger.
Here are three quotes from top business leaders:
“The era of ‘abundance’ is over. The future will see our natural resources, from oil to food, having some level of restriction placed on them.” – Andy Bond, CEO, Asda (May 2009)
“We must rapidly wean ourselves off our dependence on coal and fossil fuels.” – Richard Branson, announcing investment of all profits from Virgin transport business, estimated at $3 billion over 10 years, to be invested in fighting global warming. (21 September 2006)
“Sustainability is here to stay or we may not be.” – Niall Fitzgerald, UK CEO, Unilever
Now, none of these guys are particularly treehuggy. And most MBAs would give their eyeteeth to fill the shoes of these guys – and yet – in many MBA programs – coverage of sustainability issues is absent, apologetic, sidelined, or sketchy.
Let’s stop tiptoeing around the obvious. Business leaders can handle the truth. Though there is uncertainty on what the impact will be, climate change is a global issue that will impact business. Period.
“The United States depends on a smooth-functioning international system ensuring the flow of trade and market access to critical raw materials such as oil and gas, and security for its allies and partners. Climate change and climate change policies could affect all of these—domestic stability in a number of key states, the opening of new sea lanes and access to raw materials, and the global economy more broadly—with significant geopolitical consequences.”
“In addition, anticipated impacts to the Homeland—including possible increases in the severity of storms in the Gulf, increased demand for energy resources, disruptions in US and Arctic infrastructure, and increases in immigration from resource-scarce regions of the world—are expected to be costly. Government, business, and public efforts to develop mitigation and adaptation strategies to deal with climate change — from policies to reduce greenhouse gasses to plans to reduce exposure to climate change or capitalize on potential impacts—may affect US national security interests even more than the physical impacts of climate change itself.”
“Climate change is a threat multiplier in the world’s most unstable regions.”
“From a national security perspective, climate change has the potential to affect lives (for example, through food and water shortages, increased health problems including the spread of disease, and increased potential for conflict), property (for example through ground subsidence, flooding, coastal erosion, and extreme weather events), and other security interests.”
These leaders are talking about fundamental shifts in ‘givens’ that require action, a joined up way of behaving, new ways of thinking, and new approaches. And our top business schools should be on the leading edge.
I first got interested in business schools ignoring the big elephant in the classroom two years ago when I was delivering a course on dominant business metaphors and implementing change. I wanted to say one line – one sentence inviting students to ponder how the nature of sustainability planning would be different if organisations, in addition to approaching business as a ‘competitive sport’, also approached it as a living organism. The professor who brought me in said ‘no’ – that the MBAs would feel they were being hijacked away from the course they had paid for. There was a specific elective for sustainability – and outside of that – best not to mention those issues.
Over the past few months, I’ve been speaking with several top MBA programs in Europe. Each is saying that leaders need, more than at any other time in history, to be able to lead in the presence of ambiguity, and to be able to perform collaboratively with high levels of uncertainty. Applied Improvisation skills are rather good for that, which is why I’m there in the first place.
What I find interesting in talking with these top MBA programs is that many are not contextualising the WHY of this new emphasis. Not addressing why managers/leaders would need to be so good at ambiguity.
“Growth for the sake of growth is the ideology of the cancer cell.” – Edward Abbey
I sat up when I saw this quote. It was refreshing to see in a lecture to potential MBAs at a leading business school in the Netherlands a few weeks ago. During my time at the school, two of the guest lecturers talked about sustainability – kind of…
The first lecturer used the Abbey quote (Abbey is a renown outspoken sustainability activist) and talked about the need to create ‘sustainable businesses’ quickly dismissed the notion of ‘sustainable’ as being linked to any ‘environmental’ issues… – it was about a business which can keep going, despite ‘adversity’. Given what scientists are saying about increasing disruptions over climate change, peak oil, peak minerals, peak water, how could adversity due to these factors not be mentioned?
The other lecturer had just hosted a biomimicry event two weeks before and deeply cared about the environment and sustainability. He works with top leaders in the best companies around the world on developing leadership skills. In his session, he talked about the profound need for leaders to be comfortable leading in the presence of ambiguity, but didn’t say why. In the break he confided that there are some groups with which you cannot talk about the environment directly. He had been gently testing the water with that day’s group and found he could mention it a bit…but only a bit. Several people were there for the express purpose of earning more money with an emphasis on value extraction, not particularly wealth creation/exchange.
Contextualising is a vital part of learning. The military does this routinely in their simulations – creating real world scenarios in the classroom. If we are facing a series of challenges (climate change, scarcity of water, oil, minerals, etc.) we must mention that as part of what leaders will face.
One initiative that gives me hope is the UN Principles for Responsible Management Education (PRME) initiative. The head of a leading MBA program in the UK turned me on to it. Finally – a global effort is being made to transform business schools and the Assocation of MBAs is part of it. In theory – that should mean that the taboo-ness of sustainability issues being explicitly mentioned, or mentioned only in specific electives – disappears.
As I continue to work with MBA programs, I will keep you posted on what I see going forward in this arena. And if you know of any best practice in this area – please post it here. Let me know!
“Unless we change direction, we are likely to end up where we are going.” – Chinese proverb
My wife and I live on an island in the Pacific Northwest. We are in a county that has the lowest working wages in the state. As you can imagine, there is a lot of belt tightening going on as the economy craters.
In a future blog post I’ll talk about how our community is finding ways to innovate in tough times, but for now, what I am thinking about is something Joseph Stiglitz said last year in an interview at the Asia Society in New York City. Stiglitz is a Nobel Laureate and professor of economics at Columbia University.
Toward the end of the interview, talking about GDP, he describes the dramatic negative side-effects a metric like GDP can have on societal well-being. In short, something as simple as a measurement can lift a society up, or crush it.
Here is what Professor Stiglitz said:
What We Measure Affects Our Behavior
Accounting frameworks affect behavior. More generally, information affects behavior. What we gather our information about, and how we describe success, affects what we strive for. If GDP is what we think is success, people will strive for growing GDP. Politicians, for example, will then describe how they increased GDP x%, creating a sense of importance to the measure. By doing that though, they focus policies on things that will increase GDP.
We have identified a lot of ways in which GDP is not a good measure of economic performance or societal well-being. So we are working with others to try and focus a global conversation about alternative measures, and also come up with some summary accounting frameworks and statistics that more effectively represent the economic realities on the ground.
Measuring the Middle Class
For example, GDP doesn’t tell you about what happens to the typical citizen. This is an increasing problem because when you have growing inequality in society, you can have GDP going up, as it has in the US, but most people are getting worse off. Not just poverty going up, but the median income – 50% or more of people getting worse off.
We ought to know what’s happening to the median person. It’s very hard to find statistics about that.
There needs to be a focus on what we call “Green GDP” – taking account of environmental degradation and resource depletion. This is particularly important in developing countries that may, for example, be growing by cutting down their forests. But once they cut down the forests, there’s nothing there. And so unless they do something, it’s not sustainable. GDP tells you nothing about sustainability. Another example – the IMF thought Argentina was doing great in the early 1990s. In looking at the data though, in a more fine grained way, we found that their growth was not sustainable. If you only looked at GDP, you would not have realized that.
There are ways that you can adjust for depletion of natural resources and degradation of the environment. If you do that, China’s growth, for example, gets significantly lowered. It’s still doing well, but it is much lower than it otherwise would have been.
Special Interests – The Invisible Hand
Here’s an interesting story about the role of special interests: When we tried to push for this (Green GDP), and people in the Department of Commerce were excited about doing this, the coal industry basically threatened to pass a proviso to take away funding for any research that would support these alternative measures. Because they new that Green GDP would not be good for the coal industry. That reinforced our belief on why it is important to measure these things.
GDP and GNP
Here’s another example… the difference between GDP and GNP. Those of you who are older may remember GNP and around 1990 they switched to GDP. Well, everybody said it’s just a little bit of difference. It turns out that it makes a great deal of difference for many countries. And I am sure somebody is going to write an article about whether there was a political context to the switch. GDP looks at the output within the country. GNP looks at the income of the people, in the country. When you started privatizing a great deal, you had economic activity within the country, but the income from that economic activity more and more was going to people outside the country. So you have a mine, for example, somebody taking [resources] out of the mine, leaving behind environmental degradation, getting royalties in some cases of 1 or 2 percent, so almost none for the income from the mine goes to people in the country. So GDP is going up, but any measure of Green GNP would show the country going down. There are some really dramatic examples like in Papua New Guinea, where this actually is true.
GDP, Prisons and Healthcare
Two dramatic examples – The US has about 10 times as many people per capita in prison as other advanced industrial countries. That contributes to our GDP, because we have to spend money incarcerating them. In some states, we are spending as much on building prisons as we are on universities. That’s good for GDP, but any measure of societal well-being says it’s not good to have so many people in prison. And it’s a symptom of something dysfunctional. We can have a long discussion about what it is that’s dysfunctional, but the point is, it’s not positive.
Another example – We spend more on healthcare than any other country, as a percentage of GDP, yet our health outcomes are much lower than in other advanced industrial countries, and actually, lower than many developing countries. Well, the extra money we spent on healthcare shows up as a contribution to GDP. If we got more efficient our GDP could go down. But that is clearly not… you don’t want to… You’re looking at the wrong thing.
END OF INTERVIEW
You can watch the GDP portion of the interview video here.
For me, what Stiglitz is getting at is: We grow what we measure (GDP), and because we are measuring the wrong stuff, we are growing wrong.
It seems to be in our DNA to want to “grow,” but like a garden, don’t we have a choice about what we grow? Are there ways we can grow our economy that restore abundance rather than consume it? What are the essential things to measure so that we are growing good things?
What do you think? What would you like to see grow? What should we be measuring?