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The Problem Is Enterprise, Not Economics

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There has been consistently bad economic news for Washington: the job situation just will not turn around. So what's going on? While all the fixes have been economic; the problem may lie beyond the realm of economics.

To appreciate this, connect two dots: economy and enterprise. Then you will understand why all the president's horses and all the president's men will not be able to put the American economy back together again.

Economics, unlike other social sciences, sits in mid-air. Whereas psychologists and anthropologists study human behavior on the ground, much of economics is about analyzing statistics from above, and then applying rather narrow theories about human behavior to infer their causes. Economists often get these causes wrong.

Consider productivity. For years economists around the world have been lauding the productivity of the American economy. Since product output measured against labor input was going steadily up, they concluded that corporate America must have been doing things right. Maybe it was doing some things wrong.

Imagine a manufacturing company that fires everybody and ships from stock. That's productive (not to mention profitable) -- until, of course, the company runs out of stock. I believe that American enterprise has been running out of stock.

Enterprises are the heart and soul of an economy, especially the American one. Their activities on the ground generate those statistics in the air. Moreover, America's legendary sense of enterprise -- embodied in the energy and resourcefulness of its people -- has been the key to its economic miracle. The dismal state to which the American economy has now fallen can be attributed significantly to the steady deterioration of many of its large enterprises, which has undermined the country's very sense of enterprise. In a word, corporate America is sick.

If this sound overstated, then consider some evidence, which is everywhere except in those statistics of the economists. Most obvious has been the sorry state of a number of the country's most prominent companies, in banking, insurance, and automobiles. They are the tip of a rather large iceberg -- where many more companies with less exposure in the media can be found. Add to this some of the success stories -- for the shareholders at least -- which may in fact have been failures for the economy. What did the country get, for example, from a financial sector that was pocketing one-third of total domestic profits, much of it ripped off from people who didn't realize the risks that were being taken with their money? And what are we to make of some of the major pharmaceutical companies that, while unable to get their research acts together, have been masters at lobbying government and promoting me-too products, protected by patents that have allowed them to price carte blanche? A viable economy needs to be led by explorers, not exploiters.

There are, of course, notable exceptions among the large enterprises. Apple has certainly been an explorer par excellence. But it is hardly mainstream corporate America -- which is precisely what makes it so notable.

It has been said that a fish rots from the head down. So let's look at the heads of mainstream corporate American -- its leadership, so called.

Americans revere leadership, probably because they get so little of it. A leader is not the hero who rides in on the great white horse to save the day. He or she is a person who gets personally and deeply engaged, so as to engage others, in order to bring out the best in them. Above all, he or she sets an example for the others. Considering their bonuses, how many such leaders are there in the Fortune 500? As many as a dozen or two?

What kind of a leader allows him or herself to be so singled out, to be treated as the be all and end all of corporate success? Companies need to pay bonuses, we are told, to attract the right people. No, the companies that do pay such bonuses often get the wrong people: narcissists who put their own welfare ahead of the enterprises they are supposed to be leading.

A recent Gallup poll suggested that 55% of the American workforce is not engaged and another 16% is actively disengaged. Perhaps this is best explained by the relentless downsizing of the large American companies, which has undermined the enterprising spirit of the country and its workforce. Attribute this downsizing to the executive bonuses, not to the quest for productivity. No sooner did a public company miss its financial targets, often while remaining profitable, than out the door were sent thousands of its people: bones thrown to the baying wolves of Wall Street, in order to protect the price of the stock and thus the bonuses of the executives.

But how could so many people have suddenly become "redundant"? Who, we should ask, were running these companies before the firings? Did they not notice all these redundancies? Most of the time, of course, it was the very same CEOs who did the firing.

A robust enterprise is a community of human beings, not a collection of "human resources." What better way to destroy community, and discourage enterprise, than to fire so many people? Those left behind, with trust lost in their "leadership," have been inclined to put down their heads, cover their tails, and soldier on until they burned out or were themselves downsized. Call this productive if you care not a whit for the human beings of an enterprise.

So what are all the president's economic horses and men to do about this? Not much. In this storm, economists are like meteorologists: they can take their measurements and make some predictions, but they are unable to render the necessary changes. This problem was made in corporate America, and there is where it will have to be resolved -- patiently and deliberately.

The slow fix can begin with the rotting heads of the large corporations. The narcissists will have to be driven out of the executive suites, along with their shameful bonuses. In their place will have to come some real leadership: people truly engaged in their enterprise, personally and deeply, in order to rebuild its sense of community. Not birds of passage, not MBAs who macro-lead instead of micro-manage, who believe they can run anything by deeming performance, but people with a profound appreciation for their industry, their enterprise, its products and services, and especially its people.

Next will have to be an appreciation of the importance of the small and medium-sized companies in economic development. These are often the explorers. They need financial institutions that support them, in ways that do not push them toward exploitation as they grow. If that means keeping them out of the stock market, then so be it. At the very least, ways will have to be found to get the short-sighted pressures of that stock market off the backs of all enterprises: quarterly earning reports, myopic analysts, and all the rest.

There is more to an economy than economics, and more to capitalism than the financial markets that now dominate it. Americans will have to rebuild their enterprises carefully in order to recapture their legendary sense of enterprise.

Henry Mintzberg (www.mintzberg.org), Cleghorn Professor at McGill University, is the author of Managing (2009) and a founding partner of CoachingOurselves.com.