How the wealthy 1% controls the economy through their measures.
Summary
The most effective way to control the economy is to control its measures. That’s precisely what the wealthy one per cent have done. They control our macro and micro measures to make sure they work for them and nobody else. To get our dysfunctional economy to work for the majority, we need to change these measures.
Article
If you want to achieve a particular outcome, then introduce measures to make sure you achieve what you want.
Measures dictate outcomes by focusing your attention on what’s important to you.
The opposite is equally true - if you don’t measure something you don’t focus on it, or manage it correctly. That “something” is unimportant to you. Anything can happen to it - its outcome is unimportant.
So, if you want to control a system (whatever that may be) - then control the measures.
That’s why the wealthy one per cent control and dictate our economic measures at both the micro and macro levels, to produce the outcomes they want.
At a micro level, they control our business measurement standard, using the Accounting Model. It’s a financial measure, which looks after shareholder interests exclusively. It focuses businesses on making a profit for shareholders, as that’s what’s important to owners of businesses. It ignores all other stakeholders in business - their needs are unimportant and unmanaged. As it’s a one-sided financial measure, it encourages an adversarial approach to profit creation, where stakeholder demands for value are viewed as conflicting interests, and ignored. Often stakeholder value is stripped to bolster profits higher than market factors would allow.
Even a person uneducated in business matters appreciates that business is about more than just money. They know things like quality of product and service are important, as well as product awareness. And - they are right. Financial matters add less than twenty per cent to a business’s value. The business’s real value (more than eighty per cent of it) lies in non-financial matters. Given these facts, it’s strange that we measure and manage business on something which contributes insignificantly to value while ignoring the real contributors. This gives you a good indication of why our Accounting Model is an inadequate and inappropriate business measure. It’s okay as a financial measure, but business is so much more than just money.
So why use it as a business measure when it’s inadequate and inappropriate? As I explained earlier, it focuses on profit creation, which is the desired outcome of the wealthy one per cent. Further, all non-financial measures are of secondary importance and can be manipulated to bolster profits, as their outcomes are unmanaged and hidden from us. So, this measure produces good outcomes for business owners, but bad for the rest of us. Outcomes which affect you and I are unimportant to business and unmanaged.
Many businesspeople will respond by saying it’s not true to say businesses don’t measure non-financial processes - they do. However, they are not measured in accordance with a standard, universally accepted measure. This means the markets (investors and bankers) do not consider these measures as they are not comparable and comparability is essential for investment. Only the Accounting Model’s data is comparable. Therefore, business focuses on producing strong financials to attract investors and credit providers, often at the expense of non-financial processes, whose measures the markets ignore.
Until non-financial measures are comparable and verifiable, they will remain valueless to the market. They will remain subordinate to financial measures and malleable by owners to help them produce strong financial results. They will continue to strip value from non-financials, or under-invest in them as these measures remain hidden from scrutiny.
Therefore, the statement that we don’t measure non-financials (the major contributors to value creation) remains true, because the markets do not recognise these measures.
Our inadequate and inappropriate business measures are the primary cause of our imbalanced, dysfunctional economy. Our measures only serve the needs of the owners of the business. The needs of other participants in the economy, such as workers, community and environment (to name a few) are ignored. They are not managed correctly. An imbalanced economy also adversely affects business over the long-term. The quicker we adopt a more balanced approach to business measurement and management the better for all, including the wealthy one per cent.
At the macroeconomic level we have an equally inadequate and inappropriate measure - GDP (Gross Domestic Product.) A measure introduced by the wealthy one per cent to serve their needs at the expense of all others. It’s a measure which focuses governments on their financial performance. The more the government grows, the more profit opportunities exist for business. Governments are “punished” if they don’t grow, through higher borrowing rates and less investment, just like businesses who have poor financials. This measure ignores the interests of other stakeholders. Their outcomes are unimportant. However, these stakeholders represent the interests of society and the environment. Any democratically elected government must put the interests of their citizens first. This involves ensuring they have a safe and sustainable environment in which to live. While financial matters are important, they are substantially less important than the well-being of its citizens and the environment; aspects which are not measured or managed.
Placing financial considerations at the centre of what we do produces imbalanced outcomes, with undesirable consequences, not only for all the stakeholders ignored but for business as well. This is a short-sighted approach, fuelled by greed and hubris. The key to change lies in changing our measurement standards. We must ensure our measures serve the needs of all stakeholders, providing a balanced approach.
The most effective way to control the economy is to control its measures. That’s precisely what the wealthy one per cent have done. They control our macro and micro measures to make sure they work for them and nobody else. To get our dysfunctional economy to work for the majority, we need to change these measures.
Article
If you want to achieve a particular outcome, then introduce measures to make sure you achieve what you want.
Measures dictate outcomes by focusing your attention on what’s important to you.
The opposite is equally true - if you don’t measure something you don’t focus on it, or manage it correctly. That “something” is unimportant to you. Anything can happen to it - its outcome is unimportant.
So, if you want to control a system (whatever that may be) - then control the measures.
That’s why the wealthy one per cent control and dictate our economic measures at both the micro and macro levels, to produce the outcomes they want.
At a micro level, they control our business measurement standard, using the Accounting Model. It’s a financial measure, which looks after shareholder interests exclusively. It focuses businesses on making a profit for shareholders, as that’s what’s important to owners of businesses. It ignores all other stakeholders in business - their needs are unimportant and unmanaged. As it’s a one-sided financial measure, it encourages an adversarial approach to profit creation, where stakeholder demands for value are viewed as conflicting interests, and ignored. Often stakeholder value is stripped to bolster profits higher than market factors would allow.
Even a person uneducated in business matters appreciates that business is about more than just money. They know things like quality of product and service are important, as well as product awareness. And - they are right. Financial matters add less than twenty per cent to a business’s value. The business’s real value (more than eighty per cent of it) lies in non-financial matters. Given these facts, it’s strange that we measure and manage business on something which contributes insignificantly to value while ignoring the real contributors. This gives you a good indication of why our Accounting Model is an inadequate and inappropriate business measure. It’s okay as a financial measure, but business is so much more than just money.
So why use it as a business measure when it’s inadequate and inappropriate? As I explained earlier, it focuses on profit creation, which is the desired outcome of the wealthy one per cent. Further, all non-financial measures are of secondary importance and can be manipulated to bolster profits, as their outcomes are unmanaged and hidden from us. So, this measure produces good outcomes for business owners, but bad for the rest of us. Outcomes which affect you and I are unimportant to business and unmanaged.
Many businesspeople will respond by saying it’s not true to say businesses don’t measure non-financial processes - they do. However, they are not measured in accordance with a standard, universally accepted measure. This means the markets (investors and bankers) do not consider these measures as they are not comparable and comparability is essential for investment. Only the Accounting Model’s data is comparable. Therefore, business focuses on producing strong financials to attract investors and credit providers, often at the expense of non-financial processes, whose measures the markets ignore.
Until non-financial measures are comparable and verifiable, they will remain valueless to the market. They will remain subordinate to financial measures and malleable by owners to help them produce strong financial results. They will continue to strip value from non-financials, or under-invest in them as these measures remain hidden from scrutiny.
Therefore, the statement that we don’t measure non-financials (the major contributors to value creation) remains true, because the markets do not recognise these measures.
Our inadequate and inappropriate business measures are the primary cause of our imbalanced, dysfunctional economy. Our measures only serve the needs of the owners of the business. The needs of other participants in the economy, such as workers, community and environment (to name a few) are ignored. They are not managed correctly. An imbalanced economy also adversely affects business over the long-term. The quicker we adopt a more balanced approach to business measurement and management the better for all, including the wealthy one per cent.
At the macroeconomic level we have an equally inadequate and inappropriate measure - GDP (Gross Domestic Product.) A measure introduced by the wealthy one per cent to serve their needs at the expense of all others. It’s a measure which focuses governments on their financial performance. The more the government grows, the more profit opportunities exist for business. Governments are “punished” if they don’t grow, through higher borrowing rates and less investment, just like businesses who have poor financials. This measure ignores the interests of other stakeholders. Their outcomes are unimportant. However, these stakeholders represent the interests of society and the environment. Any democratically elected government must put the interests of their citizens first. This involves ensuring they have a safe and sustainable environment in which to live. While financial matters are important, they are substantially less important than the well-being of its citizens and the environment; aspects which are not measured or managed.
Placing financial considerations at the centre of what we do produces imbalanced outcomes, with undesirable consequences, not only for all the stakeholders ignored but for business as well. This is a short-sighted approach, fuelled by greed and hubris. The key to change lies in changing our measurement standards. We must ensure our measures serve the needs of all stakeholders, providing a balanced approach.
Copyright © Adrian Mark Dore 2019.
adrian.dore@growingvalue.net
adrian.dore@growingvalue.net