Joseph E. Stiglitz, a professor at Columbia University, received the 2001 Nobel Prize (with George A. Akerlof and A. Michael Spence) for his analysis into how markets work with asymmetrical information. Since then, Stiglitz has written and lectured extensively about globalization and markets with this unsettling message: they aren’t working very well, especially in the context of the new realities of the twenty-first century.

Stiglitz expressed concerns about how businesses and organizations approach globalization well before the 2008 global economic and financial meltdown. His books on globalization, including Globalization and Its Discontents (2002) and Making Globalization Work (2006) were highly prescient. His most recent book, Freefall (2010), recounts the events of the 2008 economic collapse and how its effects still persist.

In a 2006 lecture on globalization Stiglitz said, “Something is wrong with the way globalization is turning out. It has not lived up to its promises, and the question is what to do about it.”

Stiglitz pointed to a critical flaw: “The global financial system is not working the way it ought to. Ordinary laws of physics say that water ought to flow downhill. The parallel in economics is that money is supposed to flow from rich countries to poor countries, and risk is supposed to be transferred from the poor, who are least able to bear it, to the rich. But in the world today, things are moving in the opposite direction. To be precise, for the last several years, money has been going from the poor countries to the rich – the net flow of funds is going in the opposite direction of the way it should.”

He continued: “Meanwhile, the poorest countries in the world are left to bear the risks of interest rate and exchange rate volatility. The result of this has been that, in spite of the fact that economists know a lot more about how to manage an economy today than they did fifty years ago, there have been more than a hundred crises in the last three decades.”

That’s a major flaw all right and there is much that outsource practitioners should heed in Stiglitz’s words—especially as they relate to supply chain sustainability. Globalization is not possible without sustainable, efficient supply chains and outsourcing arrangements, and vice-versa.

It’s no surprise that globalization has meant that we have become more integrated and more interdependent. While globalization brings much value, it also poses challenges in how we need to think (and rethink) existing approaches to globalization around intellectual property, trade, global financial markets, natural resources and the environment.

Stiglitz—like my fellow researchers at the University of Tennessee working with me on Vested Outsourcing—says that countries and businesses should move away from the old-school win-lose strategies aimed at rewarding some at the expense of others because it is an inherently unsustainable model.

In Freefall, Stiglitz points out that The Great Recession and its aftermath “is forcing us to rethink cherished views.” He asserts, “The issue is not whether globalization is going to change; globalization will change. The current system simply cannot continue.”

OK, but what is the answer? Stiglitz advocates for more collaboration and win-win approaches. “Greater inter-dependence means that we have to act together; we have, as economists would say, extra responsibilities which mean that we have more need to act cooperatively.”

The most successful outsourcing relationships revolve around collaborative rather than selfish or muscular me-first relationships. You don’t have to be an economic scientist to see that institutions and governments have not set very good examples on cooperation and collaboration. So without a true collaborative mindset from institutions and governments, it is very difficult to instill those qualities as a default top-down mindset in the globalized outsourcing, business and finance arenas.

That’s where the Vested approach can drive the needed change.

I’m confident that the collaborative Vested framework will help lead the way to achieving the win-win relationships that will leverage the skills and expertise inherent in collaborative partnerships and alliances to create a long-term strategic template for success.

That’s because the Vested model leverages the best aspects of human relationships—collaboration, flexibility, honesty, innovation and open communication—into the outsource business relationship. Those are precisely the qualities that will make globalization and capitalism work—or at least work better—for everyone.

Given the history of compensation over the several decades, the answer from the executive suite would of course be “Never!”

But another view is emerging, as highlighted by Vivek Wadhwa in a viewpoint column last week for Bloomberg Businessweek, “How to Fix Oversize Executive Compensation.”

Wadhwa is a visiting scholar at University of California-Berkeley, senior research associate at Harvard Law School, and director of research at the Center for Entrepreneurship and Research Commercialization at Duke University.

He notes that over the past 30 years the earnings of American workers has not kept pace with U.S. productivity growth. Meanwhile the earnings of corporate executives exploded.

Those who defend the explosion in executive compensation—and you know who you are—argue that executives deserve their princely salaries, stock options and bonuses because they make the most significant contributions to their companies’ success. Recent economic and financial history has shaken that idea, and now there’s evidence that the justification was hot air.

Wadhwa writes about a study from the National Bureau of Economic Research, a part of its Shared Capitalism Research Project, showing that “distributing rewards across the corporation—sharing them with workers—is the most efficient way of making businesses more successful. Motivated employees are more productive and spur innovation in products and processes.”

The Shared Capitalism Project has been around for about 10 years. According to Wadhwa, Harvard economist Richard Freeman, Rutgers sociologist Joseph Blasi, and Rutgers economist Douglas Kruse analyzed data from surveys of 41,206 employees at 323 work sites. They found that nearly half the employees of American corporations participate in some form of profit-sharing or stock-option plans, or what they call “shared capitalism.” The researchers found that shared capitalism improves company performance, improves worker well-being and complements other policies.

Incentives are an integral and necessary part of the Vested Outsourcing business model. It’s impossible to have a shared vision and collaborative framework without loyalty, trust and reward for hard work, innovation and participation in decision-making.

“It is no surprise that when workers share in the rewards, they are more likely to be committed to a company’s success,” Wadhwa says. “You would also expect workers to be happier when they have more responsibility and less supervision, as the researchers found.”

A great example of this collaborative, shared reward approach occurred with the closure and cleanup of the contaminated nuclear waste site at Rocky Flats, where plutonium triggers were manufactured for nearly 50 years. In an early and highly successful example of incentive-driven and performance-based contracting with the Department of Energy, CH2M Hill earned three times the average margins of usual DOE deals—all based on bonus money—by exceeding performance and reducing costs to DOE. CH2M Hill gave 20 percent of the incentive bonuses directly to the workforce. The result was that  CH2M Hill saved the DOE $30 billion and cleaned up Rocky Flats some 60 years ahead of the original cleanup schedule estimate.

Wadhwa says there is zero evidence that awarding grandiose executive incentives have caused the U.S. economy to perform better. “Instead, as we have seen with the demise of Enron and other companies—and the near collapse of our economic system—enormous payouts encourage risky behavior and lead managers to game the system.”

Freeman, Blasi, and Kruse suggest that tweaking the tax code can stop that type of game: allow executives to deduct incentive pay as a cost of business only if they offer the same incentive program to all workers.

“In other words, don’t give tax breaks to companies that provide stock options and bonuses to only a few executives. This would correct a major loophole in the tax system with which corporate executives have been enriching themselves at the expense of their stockholders and taxpayers.”

This is not an extreme idea; the same approach applies to pension and health-care plans, which are deductible as a cost of business only when they cover every employee.

So yes close that loophole, but more importantly discover the benefits of sharing value, rewards and innovation by fostering a Vested, “What’s in it for We” mind-set throughout the organization.

It’s on my mind because collaborative negotiation is an important theme in the new book, which will be published in June by Palgrave Macmillan. Collaboration and getting to the win-win  by agreeing on and achieving mutually Desired Outcomes is key to establishing a Vested business relationship.

Tim, in his recent post, talks about how “economic growth is something that can be shared – and indeed, if conflict is to be avoided, it must be shared” He adds that “adversarial, winner-loser thinking permeates” the business world. “Power is used to extract short-term economic gain at the expense of longer-term sustainability,” he writes. “This is nowhere more evident than in many contract negotiations, dominated by extracting the lowest possible price.”

Economics does not have to be a war with winners and losers at every turn; in simple terms markets determine success on their own. As in survival of the fittest. Adversarial approaches complicate and make matters worse. The idea of Vested Outsourcing is to compete, sure; but don’t compete to crush your competitors at all costs. That crushed competitor may one day come back to haunt you. Rather than competing to win, compete to succeed and get to the win-win over the long term.

In the same vein, Tim writes, “In a global context, the tensions created by adversarial economics are obvious. Such an approach limits the ability to cooperate and sets the stage for ultimate ‘revenge.’

“Those who view themselves as professional negotiators should be at the forefront in advocating approaches that create win-win economic outcomes. To achieve this, we must stop selecting trading partners based on the lowest price and instead focus on compatibility of organizational culture and synergy in long-term goals. It is on those foundations that we can achieve continued growth and superior performance.”

It’s more than simply negotiating a one-off or short-term deal or transaction in the easiest, most advantageous way possible; it’s much tougher stuff: negotiating a successful long-term relationship.

Vested Outsourcing and Five Rules lays the foundation, and is the clearest path for that to happen.

Technology and its continuous advances surround us, it’s embedded in our daily lives to a degree that even the most diehard science fiction fans could hardly have imagined even 20 years ago.

Today technology rules, but it wasn’t always that way.

More than 50 years ago Robert M. Solow, a professor at MIT, the next in my mini-series of the seminal economic thinkers that helped spur modern outsourcing, showed us that technology is the driving factor behind economic growth.

Solow’s growth model was first presented in a 1956 article, A Contribution to the Theory of Economic Growth. His premise was that without “technological progress” growth rates for capital, labor and total production would all remain about the same.

In fact, he found that about four-fifths of the growth in U.S. output per worker was attributable to technological progress. In other words, brains matter way more than brawn if you want to spur economic growth.

His work included a mathematical model which showed “technological change” would be the motor for economic growth over the long haul.  Solow’s growth model presented a framework that formed the basis of modern macroeconomic theory.  In fact, Solow won a Nobel Prize for his work in 1987 due to it’s significance.  In his precise and often aphoristic prize lecture, he said:  “Insiders are sometimes the slaves of silly ideas,” which to me is an early take on the value of thinking outside the box.  “You never know if you have gone as far as you can until you try to go further,” he continued.

For today’s outsourcing firms, the lesson I see is that most outsourcing agreements are transaction-based, meaning that a service provider gets paid for every activity – be it a rear-end in a seat to answer a call, two hands for packaging, or fingers for filing.   If economic growth is achieved from “technical change” then companies that outsource should focus their efforts around paying suppliers for their brainpower and not their brawn, or simply to perform an outsourced activity.  After all – if companies outsource because they believe that another company can do the work better, faster or cheaper – why are today’s deals so focused on simply doing activities?

I’m thinking specifically of Vested Outsourcing’s  Rule #1, which says we should should Focus on the What Not the How, and the next two, Rule #2, Focus on Outcomes and Rule #3, Agree on Clearly Defined  and Measurable Outcomes.

Those rules flow into directly into Vested Outsourcing’s basic mission and they address a big problem I describe in Ailment #2, The Outsourcing Paradox, where a company that decides to outsource can’t really let go and feels it has to define requirements and work scope so rigidly that the outsource provider ends up executing the same old inefficient, transaction-based processes.

That’s not progress, technological or economic.