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Facing Capitalism’s Crisis

It’s now a cliché to say that capitalism is in crisis, and after that not much more of value gets said – just lots of hand-wringing and head-shaking about inequality, stakeholders, the 1%, and social responsibility. So it was refreshing to hear original thinking on the issue from two of the smartest people I know, the Peruvian author and researcher Hernando de Soto and former Treasury Secretary and Harvard president Larry Summers. Both spoke this morning at the Fortune Time Global Forum in Rome. As they showed, the problem isn’t quite what most people think it is, and the solutions may not be either.

Remember how the Arab Spring of 2011 got started? A Tunisian merchant set himself on fire as a protest, starting a cycle of rage that spread across the region. But as de Soto discovered when his Institute for Liberty and Democracy researched the events, dozens of other people soon also self-immolated, and some of them were saved by bystanders. When de Soto’s researchers asked those survivors why they’d done it, they didn’t talk about abstractions like religion or democracy; the word they used most was “expropriation.” Authorities were taking their capital. “This is the basis of revolutions,” de Soto said. And while we in developed economies see globalization as the underlying cause of voter revolts like Brexit and Donald Trump’s victory, that isn’t the problem with capitalism in most of the world. “The problems those people face don’t have to do with globalization,” he says. “They have to do with getting established identities and property rights.” Those are features of society that we take for granted. A driver license or other government document establishes who we are, and a strong system of contracts and laws establishes what we own. De Soto’s work over the past 30 years has shown that bringing those features into an economy can spark significant new, broad-based prosperity.

Summers, always iconoclastic, said something to the room of top global CEOs that they don’t often hear: “You deserve more credit than you get for doing what you do every day: making better products that cost less, which makes people richer and helps them live better lives. That’s a substantial accomplishment that we don’t give sufficient credit for.” He also pointed out that by some measures, inequality is actually decreasing rapidly; the gap between rich countries and the rest is shrinking because countries led by China and India are growing far faster than developed economies. The rise of inequality is within countries, not between them.

As for solutions: “We should support education that teaches people to do what machines can’t do,” Summers says. “A big sign that education needs a total reinvention is that every high school in America still teaches trigonometry, but virtually no one today has any reason to care about the cosine of an angle. Yet only about one-third of them teach probability and data analysis, skills we need today.”

While conventional thinkers worry about technology eliminating jobs, de Soto thinks it can help make billions of people more prosperous. That’s because in much of the world, antiquated record keeping makes property rights impossible to enforce. But blockchain technology “could get the whole world onto one system” – enabling a revolution in property rights that could transform economies for the better.

Original thinking like this sparks new ideas. The crisis of capitalism developed in a way that surprised most people. The resolution of the crisis may do the same.

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What We’re Reading Today

Starbucks is getting a new CEO
Howard Schultz said that he will step down as CEO in April, leaving Starbucks in the hands of COO Kevin Johnson. The incoming CEO’s background isn’t coffee or building brands, but in technology. It speaks to the growing importance that tech plays in connecting restaurants with customers. Schultz will continue as executive chairman. Fortune

Theranos chairman steps down
Bechtel Corp. Chairman Riley Bechtel had joined the Theranos board in 2014. The embattled blood-testing startup said that Bechtel has “health issues,” and Daniel Warmenhoven, a non-executive board member at Bechtel, will fill that role.  The Wall Street Journal reported earlier this week that Bechtel was a major investor in Theranos, which has been under a cloud due to revelations its blood tests failed to provide accurate results.  WSJ

Trump picks James Mattis for Secretary of Defense
The retired Marine General, dubbed “Mad Dog Mattis,” is known as a hawkish voice in dealing with the Middle East and advocates stronger protections against “political Islam.” After clashing with some in the Obama Administration, Mattis retired as head of the U.S. Central Command in 2013. Trump made the announcement at a rally. In order for Mattis to be approved, Congress will need to pass legislation to exempt Mattis from a federal law that states defense secretaries must not have been on active duty in the previous seven years. Washington Post

Trump threatens “consequences” for companies that leave the U.S.
While in Indiana, speaking on his efforts to save 1,000 Carrier jobs, President-elect Trump said that “there will be consequences” for companies that move jobs outside the U.S. He added that the companies would be taxed heavily if they choose to leave. Whether the rhetoric will be borne out is unclear. Carrier was promised $7 million in tax breaks over the next decade. BBC

Building Better Leaders

Prolific TV producer Shonda Rhimes says she logs the first hour…
…of her day at home. It allows her to focus, since at work, “people try to come into my office with fires that need to be put out, many of which they could solve themselves if they did not have me in front of them,” she says.  Fast Company

Have a seemingly impossible workload?
First find ways to delegate tasks that you don’t need to handle yourself, then cut out any conversations that aren’t pertinent to finishing. If the workload never wanes, have the discussion about making changes with your boss. Fortune

Office distractions create… 
…over 5 hours of lost productivity per week. The biggest complaints range from technology problems, the temperature and noisy eaters. BBC

World Affairs

South Korean president will face impeachment vote
The embattled President Park Geun-hye has been accused of colluding with a friend in a corruption scheme. Her friend is facing charges; Park has denied any wrongdoing. Next week opposition parties will hold a parliamentary vote on impeachment. The 165 opposition seats aren’t enough to carry the two-thirds vote needed; Park’s own party hasn’t decided whether it will force her out. Reuters

Italy’s Brexit vote?
On Sunday, Italians will vote on a constitutional referendum that could lead to the next political and economic upheaval. Prime Minister Matteo Renzi has said he will resign if his efforts to make Italy more governable aren’t passed. His departure could open the door for a former comedian, Beppe Grillo, to become Italy’s next leader; Grillo leads the Five Star Movement, which is anti-Euro. The Guardian

Austria could elect a far-right leader
The right wing populism that led to the election of Donald Trump and Britain’s Brexit vote, could have a hand in electing Austrians’ Norbert Hofer president on Sunday. Hofer, of the far-right Freedom Party, is facing off against Alexander van der Bellen, an ex-leader of the Greens party. In the original run-off, van der Bellen won by 30,000 votes. But due to election improprieties, a new vote was ordered. And, it appears to be a tight race, with Hofer supporters buoyed by the populist victories in other countries. Deutsche Welle

Up or Out

Twitter has hired Keith Coleman as vice president of product.  Fortune

Fortune Reads and Videos

Carlos Slim says it isn’t Mexico that should worry most about Trump
President-elect Donald Trump “has the risk [of losing] the international leadership of the United States,” said Slim. Fortune

Turner CEO John Martin says skinny TV bundles…
…are the future, because “there are too many shitty networks that have to go away.” Fortune 

It has gotten easier for families to pay medical bills
In the first half of the year, 44 million Americans said they had trouble paying medical bills. That’s down sharply from 2011, when 56.5 million expressed difficulties. A stronger economy and Obamacare are credited for the decline. Fortune

Obama administration appeals overtime ruling
A federal judge placed a temporary injunction on President Obama‘s order to raise the minimum salary eligible for overtime pay. Fortune

Happy Birthday

The retiring Nevada Senator Harry Reid turns 77 today.  Biography

Hal Steinbrenner, owner of the New York Yankees, turns 47 on Saturday.  Springfield Patch

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Produced by Ryan Derousseau