McKinsey Study on ‘Short-Termism’: Nice But Inadequate
McKinsey works well within the strict confines of corporate culture; its myopic mores and clearly defined silos. Although it presents its material holistically, it rarely trains its top faculties synoptically. That’s because McKinsey’s top people are secular, they’ve never had to think outside the commanding heights of modernity; put another way, McKinsey cannot, and will not strive to uncover the moral foundations of liberty. More Hayek and Tocqueville, less Keynes. Until McKinsey begins to articulate sources outside its dominant secular framework, it cannot hope to secure the kind of strategic clarity its clients seek.
Its latest research on economic growth and short-termism remains indicative of this problem. How can one ignore the mounting (monetarist-Austrian) school of thought that fiscal policy has on reality. Are McKinse-ites capable of discerning deeper competing theoretical trends in economics? Why haven’t they been assimilated into Robert Bartley’s Seven Fat Years. My guess is McKinsey doesn’t work outside dominant secular modes of thought; it will need to, if it is to secure strong intellectual, moral sources to ground its findings.
The past decade witnessed collapsing frameworks that underwrote hidebound central banks. They tried zero interest rate policies, quantitative easing, and hosts of other tricks to conjure growth. Nothing. Except for government and education, these clowns would have been shown the door. Seeking the excuse of weather, earthquakes (Japan), secular stagnation, debt hangovers, demography etc. . . have exhausted the credibility of once vaunted institutions.
Why did it never occur to McKinsey to look at the social impact of confiscatory taxation?
Why does the average share in the S&P 500 index change hands every 200 days? Why ignore the profound truth bestowed upon the followers of John Bogle, that the entire structure of contemporary finance is rent-seeking. Wait, it gets worse. Why is financialization easier than real growth? Because what matters is the perception of growth evidenced on paper. How do we know this?
The entire S&P 500 index shows that even the best companies with cash flow operate on slim margins; for every dollar of operating cashflow, companies spend 44 cents on capital investment (labor costs) and 56 cents on buy-backs and dividends. Their gaming the books!
And their doing it because America isn’t the land of capital, equity formation anymore. Our political economy is harnessed to the barrel of neoliberal thought, a parasite of government intervention that openly seeks the expropriation of civil society.
What did McKinsey show: they revealed that any company that invests very little in its capital stock, cuts costs to boost marginal (paper/accounting) growth, does lots of buy-backs, books sales before payment or raids quarterly forecasts, exhibit fiscal trends of un-sustainability.
Here’s the truth: the state of the U.S. economy is bad. Really bad. Our citizenry is exhausted, our industrial policy of depreciation has failed, our currency (although growing now) remains weak and we continue to permit Washington D.C. to expropriate the very source of renewal, our capital stock.
McKinsey needs to examine what underwrites our political economy. It needs to talk politically about why the greatest nation on earth is on its knees. Unless we examine the politics of our current fiscal state, we’re left listening to useful idiots like Lawrence Summers explain away our heritage.
McKinsey, call your office.
Originally published on William Holland’s blog.