My success as chief economist at a major international consulting firm was not due to the lessons I learned in business school. It was not due to the competence of my staff of brilliant econometricians and financial wizards.
Those things may have helped at times. But there was something else that made it all happen. That something else was the same something else that elevated George Washington, Henry Ford, Mahatma Gandhi, Mother Theresa, Martin Luther King Jr, Steve Jobs, and other successful people to the heights of their success.
It is the ability to alter objective reality by changing perceived reality, what we might think of as the Perception Bridge.
As described in my book The New Confessions of an Economic Hit Man, I was in charge of convincing heads of state of countries with resources our corporations covet, like oil, to accept huge loans from Wall Street, the World Bank and its sister organizations. The stipulation was that these loans would be used to hire our engineering and construction companies, such as Bechtel, Halliburton, and Stone and Webster, to build electric power systems, ports, airports, highways and other infrastructure projects that would bring large profits to those companies and also benefit a few wealthy families in the country, the ones that owned the industries and commercial establishments. Everyone else in the country would suffer because funds were diverted from education, healthcare and other social services to pay interest on the debt. In the end, when the country could not buy down the principal, we would go back, with the help of the International Monetary Fund (IMF), and “restructure” the loans. This included demands that the country sell its resources cheap to our corporations with minimal environmental and social regulations and that it privatize its utility companies and other public service businesses and offer them to our companies.
It was a strategy of using perceived realities to change objective realities. In these cases, Objective Reality 1 was that the countries had resources. The Perceived Reality was that using those resources as collateral on loans to finance the building of infrastructure projects would create economic growth and prosperity for everyone. Objective Reality 2 was that economic growth was only created for the very wealthy. Since economic statistics (GDP) in such countries are skewed in favor of the wealthy, the fact was that only our companies and the wealthy families benefited. The rest of the population suffered. In many cases this has led to political unrest, resentment, and the rise of various forms of radicalism and terrorism.
“Reality is merely an illusion.”
We know from quantum physics and chaos theory that consciousness, observation, and changes in perception have impacts that can expand exponentially. Modern psychology teaches that perceived reality governs much of human behavior. Religion, culture, legal and economic systems, corporations – in fact, most human activities – are determined by perceived reality. When enough people accept these perceptions or when they are codified into laws, they have immense impact on objective reality.
Human activities – individual, communal, and global – are driven by this process of altering human perceptions of reality in order to change objective realities. A couple of cases from US corporations illustrate this.
Case #1: Ford Motor Company
In 1914 Henry Ford’s Objective Reality was: A) His company sold Model T cars that were produced through the assembly line process; and B) Because the assembly line was monotonous and workers were under a lot of pressure to reduce the amount of time to build a car from 12.5 hours to less than 100 minutes, there was an extremely high turn-over rate in Ford’s work force.
So Ford perceived a new reality. He raised wages from the standard $2.34 for a nine-hour day to $5 for an eight-hour day – at a time when every other car manufacturer was trying to reduce wages. In addition to keeping workers on his assembly line, Ford had a second motivation. He understood that the company, its workers and the buying public all came from the same population and he reasoned that “unless an industry can so manage itself as to keep wages high and prices low it destroys itself, for otherwise it limits the number of its customers. One’s own employees ought to be one’s own best customers.” Ford knew that increasing the buying power of his workers would have a multiplier effect; it would also increase the buying power of many others.
Objective Reality 2: Ford sold 308,000 Model Ts in 1914—more than all other carmakers combined. In 1915, sales soared to 501,000. In 1920, Ford sold a million cars. In the process, Ford’s actions helped stimulate unprecedented growth in the US middle class.
Case #2: Nike, Adidas and other Retailers
Objective Reality 1: These companies design high-end footwear and clothing that is manufactured in factories that the companies do not own in China, Vietnam, and other “sweatshop” countries.
The managements of these companies perceive that A) Outsourcing production releases their companies of worker-rights responsibilities and minimizes wages; B) Hiring highly-paid athletes to promote products counterbalances the negative publicity generated by activists who advocate more pay for sweatshop workers; and C) These policies, that are diametrically opposed to those of Henry Ford, will maximize profits.
Objective Reality 2: A) Low “non-living” wages and poor working conditions in overseas factories result in high worker turnover, illnesses, and adverse publicity; B) By negatively impacting consumer economic growth, such policies destroy opportunities for new markets that would result if workers were paid enough to buy the products they make and at the same time stimulate the multiplier effect; and C) Neither corporate profits nor overall economic growth in the countries where the factories are located are maximized.
I had the opportunity to highlight the difference between the two cases above when a Portland Oregon (home of Nike) radio station interviewed me. The host inquired “If you could ask Nike founder Phil Knight one question, what would it be?”
I didn’t have to give it much thought. “Hey Phil, why don’t you follow Henry Ford’s advice?” I went on to say, “Imagine if as part of an international advertising campaign those highly paid athletes were to say something like, ‘Instead of $X millions, I and a bunch of my friends – other Nike celebrities – have agreed to have Nike cut our fees by Y%. Nike’s top managers have agreed to similar cuts. That extra money will go toward paying workers who make Nike products around the world higher wages. We believe that by Just Doing It we will help make the world a better, more peaceful place.’” I paused.
“That’s an awesome idea,” the host said.
I couldn’t help adding, “What do you think that might do to Nike sales? How would it impact the rest of the industry?”
“It’s all in the mind.”
The above are two examples of how the Perception Bridge works. There are countless others. These range from the individual to the corporation and all the way to the governments and international relations. Human activity is determined by the ways perceptions impact physical reality – both consciously and unconsciously. Here’s an example of the global impacts that a perceived reality in the 1950s has had on every generation that has followed.
Case #3: US Government Policies in Iran
Objective Reality 1: A) Mohammad Mosaddegh was democratically elected Prime Minister of Iran in 1951; B) He introduced progressive reforms including social security, rent control, and land reform; C) He insisted that foreign oil companies pay a fair share of their income from Iranian oil to the Iranian people and when one – now known as BP – resisted, he set about nationalizing it.
Perceived Reality: The US government labeled Mosaddegh a Communist, Soviet puppet, and threat to democracy.
Objective Reality 2: A) The CIA overthrew Mosaddegh in 1953 and replaced him with the Shah, a brutal pro-Western dictator who “auctioned” Iran to foreign oil and other companies; B) Growing discontent led to the Iranian Revolution of 1979; C) The Shah was overthrown, Ayatollah Khomeini took control, 52 US diplomats and citizens were held hostage for 444 days, US and European countries broke relations with and initiated sanctions against Iran; and D) Islamist militarism expanded rapidly during the next decades throughout the Middle East.
We can only imagine how different the situation might be in Iran, the Middle East, the US, and the world if the perceived reality had been different – something like:
Perceived Reality: The US government supports Mossadegh’s policies and announces that it will only purchase oil from companies that pay a fair share of their income to the people of the countries where they extract oil.
The US overthrow of Mossadegh resulted in a series of tragic events that might be considered as “unintended consequences.” In my experience such consequences occur because the people making the decisions do not full understand the power of the Perception Bridge.
I’ve found in my role as advisor to executives and as a speaker at MBA and other programs that taking a good, hard look at the impact of perceived reality on objective reality is one of the most effective processes individuals, businesses, and other institutions can employ in order to achieve their true objectives.
I’m struck by how much the perceived realities in business have been altered since I was in school during the late 1960s. I was taught that a good CEO earns a decent return for his investors and also makes sure that his company is a good citizen, that it serves a public interest. We were instructed to take care of our employees, giving them health insurance and retirement pensions, to treat our suppliers and customers with deep respect, and to honor the idea that good business is a win-win for all stakeholders. In many cases, CEOs made sure that their companies not only paid their fair share of taxes but also contributed money to local schools, recreational facilities and other such services.
All that changed in 1976 when Milton Friedman won the Nobel Prize in Economics and stated, among other things, that the only responsibility of business is to maximize profits, regardless of the social and environmental costs. This was a perceived reality that became the defining goal for businesses. It convinced corporate executives that they had the right – some would say the mandate – to do whatever they thought it would take to maximize profits, including buying public officials through campaign financing, destroying the environment, and devastating the very resources upon which their businesses ultimately depend.
That perceived reality has resulted in a failed global economic system, one that is on the path to consuming itself into extinction – what some economists refer to as Predatory Capitalism.
It is time that we turn this around. How about:
Objective Reality 1: The glaciers are melting, the oceans rising, less than 5% of the world’s population lives in the US and we consume about 30% of the resources while half the world’s population lives in poverty, and the resource base that feeds the economy is in rapid decline.
Perceived Reality: A) When Milton Friedman espoused profit maximization in 1976, financial capital was seen as scarce while nature was considered abundant; the planet’s ability to absorb pollution and provide natural resources was considered practically unlimited; that has since changed; B) We can build an economy that rewards businesses that clean up pollution, regenerate devastated environments, and create new technologies for energy, transportation, communications, trade, and just about everything else – that recycle instead of ravaging the planet; and C) The responsibility of business is to serve a public interest while earning decent rates of returns for investors who develop an economy as defined in A) above.
Objective Reality 2: An economic system that is headed for disaster is converted into one that is itself a renewable resource.
The success stories of humans – as individuals and as communities – revolve around the relationships of perceived reality to objective reality. At this critical time in history, it is essential that we commit to consciously building a Perception Bridge that will take us into a world that future generations will want to inherit.