When More Is Not Better | Roger L. Martin

Summary of: When More Is Not Better: Overcoming America’s Obsession with Economic Efficiency
By: Roger L. Martin

Introduction

In the book ‘When More Is Not Better: Overcoming America’s Obsession with Economic Efficiency’, Roger L. Martin explores how the American capitalist system’s focus on efficiency has led to disappointing outcomes for many citizens. Identifying the historical roots of the issue, the book delves into the domination of industrial-era economic models and policy directions that prioritize efficiency. Martin argues that the pursuit of efficiency, coupled with the influence of proxies, has become a destructive force, making the economic landscape unequal and less resilient. Drawing from real-world examples, the author exposes the dangers of surrogation and the flawed machine-like understanding of the economy.

Disappointing Results of American Economy

In-depth interviews with diverse Americans have revealed that many are disappointed with the results of the US economy despite their hard work and educational achievements. Most Americans, especially working-class people, feel perplexed and frustrated with the American economic success formula that isn’t producing favorable outcomes. Although the American democracy and capitalist system have proved immensely valuable in the past, negative narratives could be fueled if the system fails to work for a large section of the population, endangering its sustainability.

Efficiency Obsession

Industrial-era economic models that promote efficiency still dominate American policy and business. This obsession with efficiency, which has led to significant growth and higher living standards in the past, continues to drive attitudes and policies in the 21st century. The “division of labor” and “comparative advantage” models generate economies of scale and encourage business leaders to reduce labor costs. However, this prioritization of efficiency is producing fewer gains and more negative effects, resulting in a more unequal and less resilient economy. As conditions change and new issues arise, it is crucial to re-evaluate the obsession with efficiency and explore alternative economic models that promote sustainability and equity.

The Pitfalls of Efficiency Proxies

The pursuit of efficiency is often measured through proxies which can lead to unintended consequences. These proxies transform into goals and drive decision-makers away from what is healthy for society and the economy. The American democratic capitalism system is a prime example. The proxies that measure and drive efficiency in this system become a destructive force. Wells Fargo is a prime example where the number of bank accounts held by each customer was used as a proxy to improve business. Scandals erupted when employees opened accounts for clients without their knowledge and permission. Similarly, standardized tests have been used to measure teacher efficiency, with educators teaching to the test and even cheating on student test scores to achieve better results. In the automotive industry, salespeople waste time negotiating sales targets with their managers and cheating customer surveys to achieve positive results, all of which cause setbacks. The pursuit of short-term stock price increases by CEOs also drives share price volatility, resulting in financial expectations management and target-setting tailored to suit compensation goals. In conclusion, it can be challenging to predict behavioral adaptation in social systems like the economy. Individually rational behaviors often have a dysfunctional effect on the system as a whole, highlighting the shortcomings of using efficiency proxies as a measure of growth.

The Fallacy of the Perfect Economic Machine

The economy should be viewed as a complex and adaptive system, similar to rainforests, rather than a machine with separate and perfect parts, argues the author. The parts of the economy are interconnected, leading to non-linear and unforeseen outcomes, illustrated by the “butterfly effect.” Rather than focusing on creating a perfect system, economists and politicians should follow the example of a software engineer or gardener, adapting and making regular interventions to respond to changing factors within the economy. The 2008 financial crisis, which experts failed to predict, is evidence of the weakness of compartmentalized policy decisions and assumptions about the efficiency of markets within the complex adaptive system of finance.

Avoiding the Surrogation Trap

The use of proxies in business can lead to surrogation, where the original goal is lost. Companies tend to chase after reduced labor costs, but this can lead to negative consequences like damaged customer service. To guard against surrogation, multiple measures should be used. Businesses can introduce desirable “friction” that recognizes the bigger picture to balance efficiency with the interest of prolonging the lifespan of a system. Successful companies like Southwest Airlines have contradictory metrics that avoid the surrogation trap and achieve customer and worker satisfaction, along with profitability. The Four Seasons hotel chain also addresses this balance by making customer service everyone’s job.

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