Transcript: The Problems with Economic Efficiency | Nov 23, 2020

Steve sits in the studio. He's slim, clean-shaven, in his fifties, with short curly brown hair. He's wearing a gray suit, lilac shirt, and purple tie.

A caption on screen reads "The problems with economic efficiency. @spaikin, @theagenda."

Steve says FOR MUCH OF THE 20TH CENTURY, THE DYNAMISM AND PRODUCTIVITY OF AMERICAN CAPITALISM WAS THE ENVY OF THE WORLD. IT YIELDED A BUOYANT MIDDLE CLASS AND OPPORTUNITIES FOR EVERY STRATA OF SOCIETY TO DO BETTER THAN THEIR PARENTS HAD DONE. THAT SEEMS NO LONGER TO BE THE CASE. ROGER MARTIN IS A LEADING GLOBAL THINKER IN BUSINESS MANAGEMENT, AND HIS NEW BOOK OFFERS AN IDEA OF WHY THAT IS. IT'S CALLED, "WHEN MORE IS NOT BETTER: OVERCOMING AMERICA'S OBSESSION WITH ECONOMIC EFFICIENCY." HE IS PROFESSOR EMERITUS AT THE UNIVERSITY OF TORONTO'S ROTMAN SCHOOL OF MANAGEMENT AND JOINS US NOW FROM FORT LAUDERDALE, FLORIDA...

Roger is in his sixties, clean-shaven, with short, receding gray hair. He's wearing glasses, a black suit, white shirt and gray sweater.
A picture of his book appears briefly on screen. The cover is yellow, featuring a picture of a cup of coffee spilled over.

Steve continues HOW ARE YOU DOING?

Roger says I'M DOING GREAT, THANKS.

Steve says I WANT TO JUST TAKE OUR VIEWERS AND YOU THROUGH A COUPLE OF GRAPHS THAT ARE IN YOUR BOOK HERE AND I'LL DESCRIBE THEM IN SOME DETAIL FOR THOSE LISTENING ON PODCAST WHO CAN'T SEE THEM. SO, SHELDON, LET'S BRING UP THE FIRST GRAPH HERE.

A slate appears on screen, with the title "Average income by percentile. 1913-2015."

A line chart shows that the increase in income for the top 0.01 percent has surpassed 30 percent in the last 60 years. For the top 0.1 percent the increase has been just under 10 percent. For the top 1 percent it has been under 5 percent and for the bottom 90 percent it has been virtually nothing.

Steve reads data from the slate and says
THIS IS AVERAGE INCOME BY PERCENTILE OFF THE TOP HERE. WE HAVE A TYPICAL GRAPH WITH A BUNCH OF LINES ON IT. THE LINES ON THE BOTTOM WHICH REPRESENT THE BOTTOM 90 percent OF INCOME EARNERS BASICALLY ARE... YOU KNOW, BASICALLY FLAT WITH A LITTLE BIT OF MOVEMENT IN THEM. BUT THE TOP 0.01 percent OF INCOME EARNERS, THOSE LINES ARE GOING STRAIGHT UP TO HEAVEN. SO THAT INDICATES OBVIOUSLY THAT THE RICHEST AMONG US HAVE DONE VERY WELL OVER THE LAST 100 YEARS. IF WE GO TO THE SECOND GRAPH, THIS ONE IS ABOUT PRODUCTIVITY GROWTH AND HOURLY COMPENSATION. THIS IS IN THE UNITED STATES, AND IT'S ABOUT THE LAST 75 YEARS OR SO.

A second chart appears titled "Productivity growth and hourly compensation growth in the United States."

A chart with two lines shows that while net productivity has increased non stop since 1950, hourly compensation has remained virtually the same since the 1970s.

Steve continues AND, AGAIN, THE NET PRODUCTIVITY IS A PRETTY GOOD STEADY LINE GOING NORTHEAST, IF I CAN PUT IT THAT WAY, BUT HOURLY COMPENSATION FROM ABOUT 1970 ON, JUST FLATLINES, LAGS, IT GOES UP A LITTLE BIT, BUT IT BASICALLY LAGS BEHIND. SO LET'S START HERE: WHAT'S THE OVERARCHING STORY, IN YOUR VIEW, THAT THESE TWO GRAPHS TELL?

The caption changes to "Roger Martin. Author, 'When more is not better.'"
Then, it changes again to "Income and wealth distribution."

Roger says WELL, THERE'S BEEN A DISCONNECT BETWEEN HOW THE ECONOMY AS A WHOLE IS DOING AND HOW THE AVERAGE AMERICAN OR THE MEDIAN AMERICAN IS DOING. AND SO IT USED TO BE THAT THOSE TWO WERE VERY CONNECTED, AND THAT PRODUCTIVITY GRAPH IS A GOOD EXAMPLE OF THAT. PRODUCTIVITY AND WAGES ROSE ALMOST EXACTLY, ALMOST EERILY EQUAL, SO THAT IF A WORKER BECAME MORE PRODUCTIVE, HE OR SHE WAS GOING TO FEEL IT IN THEIR PAYCHEQUE IN A POSITIVE WAY, AND THEN AROUND THE MID '70s, EARLY '70s, MID '70s, THERE WAS JUST A COMPLETE CHANGE IN THAT RELATIONSHIP SO THAT, AS YOU SAID, PRODUCTIVITY KEPT GOING UP, SO THE ECONOMY KEPT DOING JUST FINE, BUT THAT WORKER DIDN'T GET THE PAYOFF, AND THEN IT SHOWS UP IN THE EARLIER GRAPH, WHICH IS AROUND THAT SAME TIME, THE EARNINGS, THE WEALTH OF THE TOP 1 percent, TOP 0.01 percent, STARTED SKYROCKETING. SO THE GAINS FROM ECONOMIC GROWTH STARTED TO GO ALMOST EXCLUSIVELY TO THOSE AT THE TOP END OF THE ECONOMY AS OPPOSED TO GOING BROADLY ACROSS THE ECONOMY.

Steve says NOW, ONE OF THE POINTS YOUR BOOK MAKES IS THAT THIS IS OBVIOUSLY UNFAIR IN TERMS OF ECONOMIC PERFORMANCE, BUT IT'S ALSO, YOU SUGGEST, A PROBLEM FOR DEMOCRACY. HOW SO?

Roger says WELL, IF YOU THINK ABOUT IT, THAT GREAT MIDDLE CLASS THAT IS SORT OF THE UNDERPINNING OF EVERY ADVANCED DEMOCRATIC CAPITALIST COUNTRY ALSO HAPPENS TO BE THE SWING VOTER, RIGHT? IF YOU THINK ABOUT THE MEDIAN FAMILY, THE 50TH PERCENTILE, IN SOME SENSE THE GOVERNMENT IN POWER NEEDS TO HAVE THAT VOTER ON ITS SIDE, OR AT LEAST THE VOTERS IN THAT NARROW BAND AROUND IT, AND IF SUDDENLY THAT NARROW BAND HAS STOPPED ADVANCING, THEY MAY FUNDAMENTALLY ASK: HEY, WHY AM I CONTINUING TO VOTE FOR THE CONTINUATION OF THIS THING THAT ISN'T WORKING FOR ME OR WORKING FOR MY FAMILY ANYMORE. AND IF THAT HAPPENS, YOU'LL HAVE AN ELECTORATE SAYING, WELL, MAYBE WE'LL TRY SOMETHING ELSE. IT HAPPENED, YOU KNOW, IN THE GREAT DEPRESSION, RIGHT? IN THE GREAT DEPRESSION, WHICH WAS A WORLD-WIDE PHENOMENON IN ADVANCED COUNTRIES AROUND THE WORLD, MUCH OF EUROPE, MUCH OF THE FAR EAST WENT EITHER FASCIST, SOCIALIST, OR COMMUNIST DURING THAT PERIOD. SO WHEN YOU HAVE A MIDDLE CLASS THAT SAYS, "THIS ISN'T WORKING FOR US ANYMORE," THEY'RE PRONE TO TRY OTHER THINGS.

Steve says WELL, OKAY. BUT THE CONVENTIONAL WISDOM HAS ALWAYS BEEN: YEAH, BUT THAT COULD NEVER HAPPEN OVER HERE. THE TERRIBLE RECESSION OF THE 1980s DIDN'T RESULT IN A CHANGE OF STYLE OF GOVERNMENT, THE GREAT RECESSION OF 15 YEARS AGO DIDN'T RESULT IN A CHANGE OF STYLE OF GOVERNMENT. HERE WE ARE AGAIN WITH THE ECONOMIC DISLOCATION CAUSED BY COVID. WE DON'T SEE PEOPLE CLAMOURING IN THE STREETS FOR A CHANGE OF... I DON'T MEAN A CHANGE OF PARTY, I MEAN LITERALLY A CHANGE IN THE SYSTEM BY WHICH WE ARE GOVERNED. ARE YOU CONCERNED THAT COULD NO LONGER BE THE CASE?

The caption changes to "Roger Martin, @RogerLMartin."

Roger says YEAH, AND I THINK, STEVE, IF YOU LOOK AT THE POLLS... I QUESTION PEOPLE ABOUT HOW ABOUT SOCIALISM, THEY HAVE HIGHER FAVOURABILITY EVER BEFORE IN AMERICA. IT AIN'T EVEN CLOSE. I THINK IT'S UPON US, TO BE HONEST, AND I THINK THE KIND OF PROGRESSIVE SIDE OF THE DEMOCRATIC PARTY IS EXEMPLAR, IT'S SAY, MEH, CAPITALISM, THAT DOESN'T REALLY WORK SO WELL ANYMORE. LET'S TRY SOMETHING ELSE. NOW, YOU KNOW, I'M... I'M NOT SAYING THAT THE DEMOCRATIC ELECTED PRESIDENT NECESSARILY BELIEVES THAT, BUT, BOY, THE POLLS, ESPECIALLY AMONG YOUNG PEOPLE SAY, WE'D BE GAME TO TRY SOMETHING ELSE.

Steve says YOU KNOW, THERE'S A GREAT DEBATE ABOUT WHETHER OR NOT THE ECONOMY IS LIKE A MACHINE OR WHETHER IT'S A LIVING ORGANISM, AND YOU WEIGH IN IN YOUR BOOK ON THIS ISSUE. WHERE DO YOU COME DOWN AND WHY?

The caption changes to "Machine versus living organism."

Roger says WELL, I THINK IT IS A NATURAL SYSTEM OF LIVING ORGANISM AND TO BE HONEST THERE ISN'T A HELL OF A LOT OF DEBATE ON IT. THE DOMINANT VIEW IS THAT IT'S A MACHINE, AND THIS IS WHAT'S HAPPENED OVER THE LAST 50 OR 60 YEARS IS THAT ECONOMISTS HAVE BEEN TREATING IT MORE LIKE IT'S A MACHINE YOU CAN BREAK IT DOWN INTO PIECES, YOU CAN FIGURE OUT WHAT LEVER TO PULL, AND YOU DO THIS MACRO POLICY OR THIS FISCAL STIMULUS AND YOU EXPECT TO GET THIS, AND IT JUST... IT JUST ISN'T. AND I THINK THE DEGREE TO WHICH ECONOMISTS HAVE BEEN SO DEAD WRONG ON THEIR PREDICTIONS IS INDICATIVE OF THE FACT THAT EVEN THOUGH IT MAY APPEAR TO THEM TO BE MACHINE-LIKE, IT JUST REALLY ISN'T. THE RELATIONSHIPS BETWEEN THE PIECES OF THE ECONOMY ARE ONE BIG SYSTEM, AND IT'S COMPLEX IN THAT IT'S REALLY HARD TO TELL WHAT IS GOING TO BE THE EFFECT OF A CAUSE THAT YOU ATTEMPT TO MAKE HAPPEN...

Steve says GIVE ME AN EXAMPLE THEN OF HOW YOU SEE IT BEING MORE A LIVING ORGANISM THAN MACHINE.

Roger says WELL, I THINK WE CAN'T FORECAST WHAT'S GOING TO HAPPEN WHEN WE DO... WHEN WE MAKE ECONOMIC MOVES, AND THAT'S BECAUSE IT IS SUFFICIENTLY COMPLEX. THE OTHER THING IS IT'S ADAPTIVE, RIGHT? MACHINES DON'T ADAPT, RIGHT? A CAR DOESN'T DECIDE, OH, YOU PUSH ON THE GAS PEDAL QUITE A BIT, AND SO I'M GOING TO KIND OF AMELIORATE THE DEGREE TO WHICH THAT MOVES US FORWARD QUICKLY BECAUSE YOU'RE DANGEROUS, RIGHT? IT'S A MACHINE. BUT THE ECONOMY CONSTANTLY ADAPTS TO WHATEVER WE PUT IN PLACE. ECONOMIC ACTORS ADAPT TO IT IN WAYS THAT ARE UNEXPECTED. SO THE FED DECIDED AFTER THE DOT-COM BUST IN 2001-2 TO HAVE REALLY LOW INTEREST RATES TO STIMULATE THE ECONOMY. WELL, YOU KNOW, IT THOUGHT THAT WOULD STIMULATE THE ECONOMY, BUT IT DIDN'T CONSIDER THE FACT THAT IT WOULD ALSO CAUSE THE HOUSING BUBBLE, IT WOULD CAUSE PEOPLE TO START GIVING OUT CHEAP MORTGAGES AND THAT CHEAP MORTGAGE BUSINESS WAS A GOOD BUSINESS FOR THE ORIGINATOR, AND WE GOT INFLATED PRICES, SUB-PRIME MORTGAGES, AND A BIG SLOW-UP. THAT WASN'T AT ALL WHAT THE ECONOMISTS THOUGHT WOULD HAPPEN BECAUSE THEY DIDN'T UNDERSTAND THAT NATURAL SYSTEMS ARE ADAPTIVE. THE PLAYERS IN THE SYSTEM DON'T JUST SIT THERE AND SAY, "OH, YOU CHANGED THE RULES AND I'M NOT GOING TO DO ANYTHING." NO, YOU CHANGED THE RULES AND I'M GOING TO EXPLOIT THE RULES TO THE MAXIMUM EXTENT I CAN, IS THE REACTION. SO THOSE ARE FEATURES. THE COMPLEXITY, YOU CAN'T TELL CAUSE AND EFFECT SO EASILY, ADAPTIVITY THAT REPRESENTATIVE ASSUME IN THE MACHINE MODELS OF THE ECONOMISTS AND GOVERNMENT POLICY-MAKERS TEND TO USE.

Steve says BUT IT HAS BEEN, HAS IT NOT, ONE OF THE GREAT ECONOMIC TRUISMS EVER SINCE THE CANADIAN-AMERICAN FREE TRADE AGREEMENT IN THE LATE 1980s, THAT FREER TRADE WITH FEWER TARIFF BARRIERS, ET CETERA, IS GOOD FOR EVERYBODY. AND I CAN REMEMBER THE CONSERVATIVES OBVIOUSLY WINNING THAT ELECTION IN 1988 AND THEN WHEN THE LIBERALS CAME IN IN 1993, THEY AGREED, AND THEY ESSENTIALLY SAID, "YEAH, WE WERE WRONG. THIS IS IN FACT THE WAY TO GO." ARE WE NOW SAYING THAT THAT DOGMA IS NO LONGER THE CASE?

Roger says YUP. I MEAN, THAT'S THE DARN THING ABOUT DATA, RIGHT? IT JUST TURNS OUT THAT IT ISN'T GOOD FOR EVERYONE, RIGHT? SO THE NOTION THAT FREER TRADE HAS ITS ADVANTAGES IS UNQUESTIONED. DAVID RICARDO WAS RIGHT WHEN HE WROTE THIS SO MANY YEARS AGO, 200 YEARS AGO, BUT WE NOW HAVE MUCH BETTER DATA THAT SUGGESTS THAT EMPLOYEES IN THE INDUSTRIES THAT ARE MOST AFFECTED BY FREE TRADE NEVER GET BACK TO THE INCOME LEVEL THAT THEY PREVIOUSLY HAD. SO THERE ARE PLUSES AND MINUSES. DOES THAT MEAN YOU SHOULDN'T HAVE TRADE? NO. BUT DON'T THINK THAT WILL BE BETTER FOR EVERYBODY. WERE PEOPLE LYING ABOUT IT? NO. I THINK THEY JUST HAD THIS BELIEF, AS ECONOMISTS DO IN THESE MODELS THAT SAY, OH, THIS IS WHAT'S GOING TO HAPPEN. WE KNOW THIS IS GOING TO HAPPEN. AND SOME THINGS ARE RIGHT AND SOME THINGS ARE WRONG. AND THAT IS THE NATURE OF COMPLEX SYSTEMS, IS THE UNINTENDED CONSEQUENCES ARE OFTEN AS BIG, IF NOT BIGGER, THAN THE INTENDED CONSEQUENCES.

Steve says WELL, JEFF RUBIN WAS ON THIS PROGRAM NOT TOO LONG AGO IN WHICH HE WAS SAYING, YEAH, IT'S BEEN PROVEN IF YOU HAVE FREER TRADE AND YOU TAKE DOWN THE TARIFFS AND SO ON, YOU'LL GET A BIGGER ECONOMIC PIE, BUT, HE SAID, JUST DON'T... IN FACT, HE'S SAYING MUCH OF THE SAME THING YOU ARE. DON'T BE DISSUADED FROM THE NOTION, HOWEVER, THAT EVERYBODY IS GOING TO BENEFIT EQUALLY. CLEARLY THE RICH GOT RICHER. AND HE DOESN'T BLAME THAT, HE BLAMES WEAK GOVERNMENTS FOR REFUSING, I GUESS, TO IMPLEMENT POLICIES THAT WOULD HAVE LEVELLED THE PLAYING FIELD SOME MORE. DO YOU AGREE WITH HIM ON THAT?

The caption changes to "Solutions."

Roger says YES. I HAVEN'T READ WHAT HE SAID ABOUT THAT PARTICULAR THING... HE'S A SMART GUY. AND FROM WHAT YOU SAY, YES, IT SOUNDS LIKE HE HAS CONCERNS THAT ARE SIMILAR TO MY CONCERNS. YOU CAN'T JUST TAKE THESE BIG MASTER MOVES, I'M GOING TO PULL THIS LEVER AND THEN ASSUME THAT THE CONSEQUENCES YOU EXPECTED ARE THE ONLY CONSEQUENCES YOU GET. YOU GET THOSE AND YOU GET SOME OTHER ONES.

Steve says IN WHICH CASE, IF WE NEED A NEW PATH GOING FORWARD, I'D LIKE TO HEAR YOUR ADVICE FOR A VARIETY OF PLAYERS IN THE ECONOMY. LET'S START WITH BUSINESS EXECUTIVES. WHAT DO THEY NEED TO BE DOING DIFFERENTLY GOING FORWARD IF WE'RE GOING TO HAVE A FAIRER, MORE DEMOCRATIC UNIVERSE?

Roger says WELL, ONE THING IS TO TREAT THEIR ORGANIZATIONS MORE LIKE A NATURAL SYSTEM RATHER THAN A MACHINE AND NOT JUST TRY AND DO TWO THINGS. ONE, GET RID OF ALL SLACK. RIGHT? SO TO TRY AND PURSUE EFFICIENCY BY GETTING RID OF WHAT THEY THINK OF AS ALL SLACK. SO IF THEY THINK, WELL, WE'RE PAYING OR WORKERS MORE THAN THE ABSOLUTE MINIMUM WE COULD PAY IF WE WENT AND GOT PEOPLE AT MINIMUM WAGE. NO. THAT'S NOT GOING TO RESULT IN BETTER PERFORMANCE FOR YOU, IT WILL RESULT IN WORSE WORKER PERFORMANCE, MORE TURNOVER, ET CETERA. SO THINK ABOUT HAVING A BALANCE BETWEEN DRIVING FOR EFFICIENCY AND UNDERSTANDING THE BROADER SYSTEM YOU'RE OPERATING IN. SO COSTCO WOULD BE CONSIDERED BY MANY TO BE GROSSLY INEFFICIENT IN WHAT IT PAYS ITS WORKERS. IT PAYS ITS WORKERS IN EXCESS OF 20 dollars AN HOUR TO START IN JURISDICTIONS IN THE U.S. WHERE MINIMUM WAGE IS 11 dollars, 12 dollars AN HOUR AND MOST PEOPLE IN RETAIL START OUT AT MINIMUM WAGE. BUT COSTCO IS WAY MORE SUCCESSFUL THAN ALL OF THEIR COMPETITORS, I MEAN, WAY MORE SUCCESSFUL. AND IT'S NOT THAT THEY'RE IN SOME HIGH-END BUSINESS, THEY'RE IN THE CLUB STORE BUSINESS. BUT WHAT THEY REALIZE IS THAT ACTUALLY PAYING MORE GETS YOU BETTER WORKERS WHO COME TO WORK, MORE CAPABLE OF DOING GREAT WORK, AND THEY PUT SLACK IN THE SYSTEM. THEY SAY, WE'RE GOING TO NOT HAVE THE MOST EFFICIENT STORE ALGORITHM STAFFING LEVELS. WE'LL JUST ADD A SLUSH FACTOR SO THAT YOU'LL GET SERVED REALLY WELL. SO BUSINESSPEOPLE HAVE TO UNDERSTAND THAT THE SYSTEM IS MORE COMPLEX AND BREAKING IT INTO SILOS... WHICH IS THE REDUCTIONIST WAY BUSINESS WORKS... BREAKING THINGS INTO SILOS, YOU'RE RESPONSIBLE FOR LABOUR COSTS, OH, YOU'RE RESPONSIBLE FOR CUSTOMER SERVICE... THAT KIND OF SILOIZATION, WHICH IS MACHINE-LIKE, YOU CAN BREAK A MACHINE INTO PIECES AND OPTIMIZE EACH, DOESN'T OPTIMIZE BUSINESS AND IT ALSO HAS THE SIDE EFFECT OF DRIVING DOWN KIND OF THE LIVELIHOODS OF THE AVERAGE WORKERS AND THAT MAKES DEMOCRATIC CAPITALISM KIND OF HARDER TO BE SUSTAINABLE.

Steve says AND WHEN THE BUSINESS EXECUTIVE GOES TO HER ANNUAL SHAREHOLDER MEETING AND THE SHAREHOLDERS SAY, I GET YOU, YOU'RE INTO THIS TOUCHY-FEELY STUFF BUT YOU'RE NOT MAXIMIZING MY SHAREHOLDER VALUE, WHAT DOES THAT EXECUTIVE SAY BACK?

Roger says I THINK THE EXECUTIVE SAYS, THOSE TWO THINGS ARE NOT IN CONFLICT. CHECK OUT COSTCO. CHECK OUT TRADER JOE'S, CHECK OUT FOUR SEASONS. THESE ARE PLACES THAT HAVE A MORE HOLISTIC VIEW. IT'S NOT SO MUCH... AND I KNOW YOU'RE BEING FACETIOUS, TOUCHY-FEELY, IT ISN'T. IT IS BEING MUCH MORE SENSIBLE AND UNDERSTANDING THAT THE WAY THE WORLD WORKS RATHER THAN MODELLING IT IN THIS ARTIFICIAL WAY. AND BY THE WAY, STEVE, THERE IS NO EVIDENCE, RIGHT, THERE IS NO EVIDENCE THAT THE PURSUIT OF SHAREHOLDER VALUE MAXIMIZATION RESULTS IN SHAREHOLDER VALUE MAXIMIZATION. ISN'T THAT INTERESTING? YOU WOULD THINK IT WOULD. BUT IT DOESN'T. IT'S LIKE ARISTOTLE SAID MANY, MANY YEARS AGO: IF A MAN SETS OUT TO SEEK TO BE HAPPY, HE'S UNLIKELY TO END UP HAPPY. IF HE SETS OUT TO LIVE A GOOD LIFE OF SERVITUDE TO HIS FELLOW MAN, HE'S LIKELY TO END UP HAPPY. THAT'S THE STORY WITH SHAREHOLDER VALUE MAXIMIZATION. IT'S ONE OF THE GREAT MYTHS OF BUSINESS IN THE LATE 20TH CENTURY. THAT SAYING YOU WANT TO MAXIMIZE SHAREHOLDER VALUE DOES NOT POSITIVELY CORRELATE WITH ACHIEVING SHAREHOLDER VALUE MAXIMIZATION.

Steve says HMM. OKAY. I'M GOING TO ASK THIS NEXT QUESTION WITHOUT BEING NEEDLESSLY PROVOCATIVE THIS TIME.

Roger says NO, I LIKE IT!

Steve says THAT'S ADVICE FOR BUSINESS LEADERS. HOW ABOUT ADVICE FOR POLITICAL LEADERS. WHAT DO THEY NEED TO KNOW NOW?

Roger says I THINK WHAT THEY NEED TO UNDERSTAND IS THAT THEY ARE OPERATING IN A COMPLEX ADAPTIVE SYSTEM, AND THEY SHOULD, RATHER THAN THINKING THAT THEY CAN MAKE MASTER STROKES THAT FIX PROBLEMS, THEY SHOULD THINK THAT THEIR JOB IS TO KEEP ON TWEAKING AND IMPROVING, AND AS PART OF THAT, THEY SHOULD WRITE THE NEED FOR REVISION INTO EVERY PIECE OF LEGISLATION. SO ONE OF THE WORST THINGS THAT HAPPENS IN THE WORLD OF GOVERNMENT IS THAT THEY FIGHT AND FIGHT AND FIGHT AND FIGHT OVER A GIVEN PIECE OF LEGISLATION AND THEY MAKE THAT FOREVER. AND YOU CAN UNDERSTAND WHY IT HAPPENS. IT TAKES SO LONG TO FIGHT ABOUT IT THAT THEY WANT TO MAKE IT LAST FOREVER. BUT HERE CANADA PROVIDES A GREAT EXAMPLE. 1871, FOUR YEARS INTO OUR... THE CREATION OF OUR [indiscernible], THE BANK ACT WAS PASSED AND IT IS IN KIND OF NORTH AMERICAN TERMS, IT IS VAST. SO THE BANK ACT IS BIGGER THAN LIFE, PROBABLY A DOZEN U.S. FINANCIAL SERVICES REGULATIONS ALL PUT TOGETHER. SO IT'S SUPER, SUPER IMPORTANT. AND THEY WISELY PUT IN PLACE THE REQUIREMENT FOR A REVIEW AND REVISION OF THE BANK ACT EVERY 10 YEARS. IT WAS BRILLIANT. BASICALLY IT WAS LIKE, HEY, WE DON'T KNOW WHAT'S... THE ECONOMIC SYSTEM IS GOING TO BE, THE SITUATION IS GOING TO BE, HOW BANKS PERFORM 10 YEARS FROM NOW. LET'S MAKE SURE WE REVIEW IT. AND IT ACTUALLY WAS SO FAVOURABLY RECEIVED OVER TIME THAT IT WAS SHRUNK TO 5 YEARS IN 1992. NOW, WHAT WAS THE HUGE DIFFERENCE BETWEEN THE U.S. AND CANADA DURING THE GLOBAL FINANCIAL CRISIS? WE DIDN'T MELT DOWN AND THE U.S. DID. ITS SYSTEM DID. WELL, THEY HAD AN OLD, DILAPIDATED AND RIGID REGULATORY STRUCTURE. WE HAD ONE THAT HAD BEEN REVIEWED AND REVISED WITHIN THE PREVIOUS FIVE YEARS. AND THAT SHOULD HAPPEN FOR EVERYTHING, LITERALLY, EVERYTHING. EVERY SINGLE THING THAT WE PASS SHOULD HAVE THIS AUTOMATIC REVISION.

Steve says HOW ABOUT ADVICE FOR EDUCATORS WHO ARE STILL IN THE BUSINESS SCHOOLS OF THIS COUNTRY TEACHING PEOPLE THAT THE ECONOMY IS A MACHINE AND IF YOU PULL THIS LEVER, THIS WILL HAPPEN?

Roger says YEAH. I THINK WE'VE JUST GOT TO GET OUT OF THE REDUCTIONIST MODE OF EDUCATION. I MEAN, BUSINESS EDUCATION IS THIS WAY, BUT EDUCATION IN GENERAL. WE ARE CREATING PEOPLE WHO ARE ADEPT AT MANAGING SOMETHING THAT DOESN'T MATTER. A PIECE OF THE PUZZLE AS IF THE REST OF THE PUZZLE DOES NOT EXIST. AS THE GREAT PETER DRUCKER, THE GREATEST MANAGEMENT THINKER, THERE ARE NO ACCOUNTING PROBLEMS, THERE ARE NO TAX PROBLEMS, THERE ARE BUSINESS PROBLEMS, YET WE TEACH THE FORMER AND NOT THE LATTER. AND WE START OUT IN THE ELEMENTARY SCHOOL SYSTEM. WE START OUT TEACHING PERFECTION. WE TEACH THAT THERE'S A RIGHT ANSWER AND A WRONG ANSWER. AND YOU GET A CHECK MARK IF IT'S THE RIGHT ANSWER OR A GOLD STAR IF IT'S THE RIGHT ANSWER AND A RED "X" IF IT'S THE WRONG ANSWER. THAT, FOR THE VAST MAJORITY OF THE WORLD, IS NOT HOW THE WORLD WORKS. THERE ARE ONLY GOOD ANSWERS AND BETTER ANSWERS AND WORST ANSWERS. WE TAUGHT PHYSICS FOR OVER A CENTURY AS IF IT WAS FACT, RIGHT? WELL, IT WASN'T. IT WAS PRETTY GOOD. BUT EINSTEIN CAME ALONG AND SAID THIS IS HOW YOU MAKE IT BETTER, MORE ACCURATE. LET'S STOP TRYING TO TEACH PERFECTION AND CERTAINTY AND LET'S TEACH THAT YOU HAVE TO BE READY TO KEEP ON REVISING AND ENHANCING WHAT YOU KNOW AND WHAT YOU LEARN.

Steve says PROFESSOR MARTIN, LET'S FINISH UP ON THIS. I DON'T HAVE TO TELL YOU THAT YOU ARE SPITTING INTO A GALE-FORCE WIND THAT HAS BEEN GATHERING STEAM FOR MANY, MANY DECADES RIGHT NOW. WHAT KIND OF HOPE DO YOU HAVE THAT YOU'RE GOING TO BE ABLE TO CONVINCE PEOPLE TO THINK ABOUT THESE ISSUES DIFFERENTLY FROM THE WAY THEY HAVE FOR THE LAST HALF CENTURY OR MORE?

Roger says IT'S GOING TO TAKE A WHILE. SO MY VIEW IS, YOU KNOW, FAVOURED IS THOMAS CUNE, STRUCTURES OF REVOLUTION GUY, SAID THEORIES GET ENSCONCED IN THE WORLD, THEY BUILD OVER TIME UNTIL PEOPLE ALL BELIEVE IN THE GIVEN THEORY AND ANYONE WHO SAYS OTHERWISE GETS DISMISSED AND EXCLUDED FROM THE CONVERSATION, BUT THE FRIEND OF NEW THEORY IS ANOMALIES, WHEN THINGS CREEP UP AND SHOW THEIR FACES AND THE CURRENT THEORY CANNOT EXPLAIN THEM. AND IF ENOUGH OF THESE ANOMALIES SHOW UP, PEOPLE START TO SAY, "WELL, MAYBE, MAYBE, JUST MAYBE, WE NEED TO HAVE A DIFFERENT THEORY." I THINK WE'RE GETTING NOW ENOUGH ANOMALIES THAT THAT IS NOW GOING TO HAPPEN BUT IT'S GOING TO TAKE TEN YEARS, IN MY VIEW, OF MORE ANOMALIES WHERE ECONOMISTS ARE DEAD WRONG, WE'RE GETTING THE KIND OF INCOME DISTRIBUTION THAT WE DIDN'T EXPECT AND DIDN'T THINK SHOULD HAPPEN FOR THIS PROVERBIAL WORM TO TURN, BUT I'M OPTIMISTIC IT WILL IN DUE COURSE.

The caption changes to "Producer: Meredith Martin, @MeredithMartin."

Steve says WE'RE NOT GOING TO JUST WATCH THIS WITH GREAT INTEREST BUT DISCUSS IT WITH THREE OTHER GUESTS. THANK YOU FOR GETTING IT STARTED. "WHEN MORE IF NOT BETTER: OVERCOMING AMERICA'S OBSESSION WITH ECONOMIC EFFICIENCY," FROM THE FORMER DEAN OF THE ROTMAN SCHOOL OF MANAGEMENT AT U OF T, THAT'S ROGER MARTIN. THANKS SO MUCH FOR JOINING US ON TVO TONIGHT.

Roger says ANY TIME, STEVE. THANK YOU SO MUCH.

Watch: The Problems with Economic Efficiency