RM: One of the nice things I think about growing up in a little town was that it worked for everybody. It felt as though everybody had a place, everybody could prosper. The blacksmith did fine, the guy who ran the harness shop did fine and the guy who ran the general store did fine. Lots of people seem to think that the American dream has disappeared. I don’t think that has to be the case. 

IG: That’s Martin Prosperity Institute executive director Roger Martin speaking in a clip from the new documentary short film ProsperUS. Produced by the Nantucket Project, an annual gathering of leaning thinkers and decision makers with a name to making meaningful change, ProsperUS puts the spotlight on the decline of the American Dream, and the dangers that imbalance poses to our capitalist democratic system. It also offers some solutions for this most wicked of problems.

Welcome to Shiftdisturbers, the MPI podcast that highlights the people, research, and ideas changing the way we think about the world. I’m your host Ian Gormely, writer and content producer here at the Martin Prosperity Institute at the University of Toronto’s Rotman School of Management.

Today we take a deeper dive into some of the themes explored in ProsperUS and the ideas around income inequality and its effects on democratic capitalism that Roger Martin, as well as MPI fellows Zeynep Ton have made the crux of their thinking.

For Roger, it all comes down to what he calls the 51st percentile voter, the majority group of voters who can swing an election. If the current system isn’t working for these voters they have the ability to change it to something they believe will better suit their needs and interests.

RM: Democratic capitalism in America, and I’m focusing on America because it’s been the leading democratic capitalist economy for the last 100 years or so; so why it worked as well as it did in one particular respect of Independence,1776, all the way to 1989. During that entire period for the vast majority of years the median family could expect next year to be economically ahead of where it was the year before.

There were two long periods where that wasn’t the case, what’s called the long depression in the late 1800’s, and then what we all know as the Great Depression in the 1930’s. But other than those two periods, there would only be a year or two of downtick and then increase again. Contrast that to 1989 to 2014 where the median income didn’t increase. That’s never happened before for that long in American history.

And the last time we had this, the Great Depression, the top one per cent of American income holders, their incomes decreased to a greater extent than the median. Now, they could afford it to a greater extent. There was real poverty and real terrible conditions. But at least in that period Americans could all say we’re in this terrible mess together, we’ve got to figure out how to get out of this terrible mess together. In this 1989 onward period, they can’t say that because the top one percent has been doing better than it has in any time in American history, and it’s getting ever more extreme with each passing year.

So the median income is of interest to me because it’s also the swing voter. And so, that swing voter in the Great Depression could at least say it’s miserable. I’m doing worse than the year before, and I’m doing worse than the year before that, but everybody is.

Now the swing voter can legitimately say, I’m not getting ahead but these rich people are getting way, way ahead. My concern is that in the great depression which was global, virtually all of Europe went either communist, fascist, or socialist. America, bless America, stuck with democratic capitalism and moved to the left. The Roosevelt administration moved America to the left. But they said we’re going to stick with democratic capitalism, I think in part because they were all in it together. I’m fearful that if this sustains and the top one percent keeps getting greater and greater distance from the median and the median consistently stays flat, that Americans will potentially give up on democratic capitalism, which I think is still best system.

IG: If you look at the problem from a business point of view, what Roger is saying is that up until 1989 America had a winning strategy. Then something went sideways and now it needs a new approach. Roger remains best known as a business strategist, author, and the former dean of Rotman. So on the surface his concern over problems like income equality seems like it’s coming from left field.

RM: I’ve been interested in this subject for a long time. I worked with Mike Porter in the late 80’s on work on the competitive advantage of nations, what made nations prosperous or not, and I’ve been involved in public policy ever since coming back to Canada as dean of the Rotman School in 1998. So it’s always been a great interest of mine. But I think I’ve gotten more troubled with the stagnation of median incomes. I guess I’m sort of a positive upbeat guy. I want to see the world work for everyone not just a narrow group, and this has become more of an obsession of mine, that we’ve got to make it work for more people or it’s just not going to work at all.

IG: As he said off the top, since 1989 the median income in the U.S. has not increased. And while that’s alarming, for him the direness of the situation came only after he saw the results of a study he conducted with the MPI’s Richard Florida, Charlotta Mellander and Melissa Pogue, that among other things, analyzed the composition of the U.S. labour force.

RM: That is when the penny dropped for me on just how serious this is. The results were just so striking and disturbing, the routine orientated jobs getting to be a bigger percentage of the workforce, up to over 44 per cent of the workforce, and making 37 per cent less than the median wage which is just a very low wage, that’s what you’d call a living wage or one that has promise of the things that the American dream always had. You could send your kids to college and they’d advance and be better off than you. Those wages are not high enough to do anything close to that. That got me to thinking that we can’t grow in the way we’ve been organically growing. Creativity intensive jobs, they’re increasing as a proportion of total jobs but not nearly fast enough.

And the jobs that aren’t, these more routine intensive jobs, the results for those jobs, the wages, the precariousness of employment, the benefits and all those things, are worsening so rapidly that those curves aren’t going to cross. Like we can’t wait and watch the new creative jobs being created to displace those other jobs and allow people to have those jobs.

I became committed to the notion that we have to fix those routine orientated jobs and that’s gotten me into a whole series of explorations. It’s got me working with Zeynep Ton, one of our other MPI Fellows, who’s an MIT professor, and got me very interested in the transformation of those jobs because we can’t get the substitution to go fast enough.    

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I do worry that the impact of America getting so rich makes Americans more inclined to take that for granted and not ask the question, well, how did that work. How did we grow to be such an economically prosperous country? Are we taking good care of that and we’re not.  I wonder about that.

IG: So just how bad are these jobs? Beside low pay and dull work many routine service jobs set employees up to fail in front of customers. Employers do this by failing to properly train workers or schedule adequate staff at any given time. The result, employees are publically demeaned while employers lose sales and customers. MPI fellow Zeynep Ton has proposed a strategy to alleviate this pressure. But while an expert in operations management neither she nor her colleague, Sarah Kalloch have basic retail experience. So to walk the walk Sarah took a job working the floor, stocking shelves, and helping customers at a major U.S. retailer. Over nine weeks she quickly learned the unenviable plight faced by so many in the American workforce.

SK: From the moment that I started the application process, my time and I think my dignity weren’t fully respected. We had an orientation but it started almost two hours late. It was a four hour orientation. I was not trained well enough when I started on the floor. And so I failed in front of customers. I didn’t get a store tour so I couldn’t help people find the things that they needed. It was very challenging personally but it was also very interesting to see all the dynamics of a large store and a large business.

And I think some of the things that I drew most from it are that people want to do a good job. And that’s something that we deeply believe, that people are reliable. They want to feel valued but that the systems in this particular store didn’t allow for people to really have a good impact. And second, definitely saw a huge gap in management. They didn’t hire enough people and then people would call out sick and so there would be too much work to do. And so the managers, instead of developing people and thinking about schedules and making sure that everyone had the right work to do, they were actually doing the work. And this created a huge gap in store operations and communication and people development and everything across that store.

IG: If that’s your day-to-day reality it’s easy to see how alternative systems might start to look and sound attractive.

RM: What if half of the electorate is in a low paying, precarious job with few benefits whose wages are getting lower relative to the average wage in America every year. Are they going to vote for continuation of that little game? No. They’re going to say it doesn’t work for me. We’ve got a democracy and in a democracy those 51 per cent can say, we’re out of here. We’re changing the system.

And my fear will be that would be changed to a system that we’re not going to like. When countries vote with optimism of 'we can do better, we can make this system better,' I think you get good results. When they vote with pessimism, ‘this all sucks and let’s heave the bastards out and try something else’ then you get Lenin, Mussolini, Hitler. And when you’re optimistic that’s making a shift with optimism rather than a shift that involves pessimism about how horrible it its.

I have a model that addresses one of the world’s most complex problems today. I believe we need to fundamentally change finance and business and its approach to labour.

IG: The solution conceived by Ton and championed by Roger, is the Good Job Strategy, paying workers more while empowering them with greater decision making.

RM: I believe that the corporate world, the business world, in general, big and medium sized companies, even small companies, have bought into a second half of the 20th Century notion that the way to scale your enterprise and get bigger is to routinize and standardize things and treat people, implicitly, maybe not explicitly, but implicitly as machines. And what that enabled them to do is hire kind of less skilled workers and not invest much in their skills because how long will it take you to sort potatoes by size, right. It would maybe take you an afternoon or a day and then you’re never going to get a hell of lot better at that.

Now what would make you better is if you were able to say, time out. The way you designed the conveyer belt system and the boxes in front of us and it is inefficient. Now that I’ve done this for several days here’s how we can make it more efficient. Then you’re super valuable. And so they’ve bought into the value to efficiency and wage rates of turning people more into machines. And what they’ve lost sight of, I think is the fantastic ability of human beings to think and figure out how to do things better. How to treat guests in your hotel better, how to treat customers in your retail establishment better, in a more customized way.

IG: It’s an approach we talked about with Zeynep back in Episode 4. And it was born out in Sarah’s experience working in retail.

SK: I wanted to earn my hourly rate. I wanted to make sure that customers got what they wanted and I couldn’t always do that. We didn’t either have it in stock or we couldn’t find it, or there were differences between what was being sold online and what was in the store. And I know that the store will make more money, and my customers will be happier if employees are truly empowered and truly able to find and serve customers better. This is about how you engage your employees in making the company better, and then constantly improving and being agile and able to handle all the 21st Century is throwing at us. So we think it’s applicable across many, many sectors.

IG: Best of all the Good Job Strategy works for both workers and corporations.

RM: I think Zeynep Ton’s fantastic work has shown that even in low end retail, the retailers who utilize the brains, not just the brawn, the arms and legs and backs of their workers, just do way better. And not a little bit better, crazy better.

So that what I’m not asking corporations to share the wealth, take some out of the pockets of your shareholders and give them to those poor workers. I mean, I think a bunch of corporations probably should do that but that’s not the argument I’m making, or Zeynep is making. The argument is I hate to tell you think corporations but you’re kind of being silly. You’re kind of being penny wise and pound foolish. The pound is in greater sales per square foot and half of your customers, and that takes a little bit of an investment to get a huge pay off. And so it’s just changing that mindset.

IG: Roger believes that the effects will ripple out beyond just the financial bottom line for workers and companies. He thinks it could become a pillar in turning the tide against income inequality and the social, economic and political upheaval it creates.

RM: We’re not a think tank, we’re an action tank. And so, we are now working with a major American retailer who has a bad job strategy to help them to turn to a good job strategy. We want them to make a ton more money doing that and use that as fodder for others. We want them to both have the theory from research but then also show that you can convert and start a revolution. We want to create success stories that are real where a CEO will stand up and say, we had bad jobs, we converted them to good jobs and we make more money. How do you like that? And so that’s what we’re trying to do, create a groundswell that shows there’s a different way to make a buck.

IG: Some might criticize Roger and Zeynep as dreamers, but then they don’t understand the world of business the way Roger does.

RM: I know how the giant American companies work. And I know what motivates them to change. What we have to show is that you can be a bad jobs company and convert to good jobs, and it’s all positive for the bottom line. All we have to do is have one prominent company show that you can do that and it will be copycatted six ways to Sunday.

IG: And so ends another episode of Shiftdisturbers; our thanks for Roger Martin and Sarah Kalloch for their time, and to the folks at the Nantucket Project for allowing us to use clips from the film. ProsperUS is currently making its way around the film festival circuit.

A huge thanks for listening to Shiftdisturbers. This episode was written and produced by myself, Ian Gormely.