This post and future ones describe some of my core beliefs about business, politics and the economy by answering some fictitious Frequently Asked Questions. I’ve actually been asked these questions, but not frequently or in some cases not even recently. My purpose is to provide a context for interpreting past and future posts focused on specific issues. Your questions are welcome.
You’ve written several unflattering posts about executives of large corporations; Are you against big business?
No. Corporations are necessary legal constructs, much like traffic laws, for the economic and political systems in which we live. They enable people, other than the wealthiest or government itself, to pool resources to tackle substantial and long term opportunities. However, they are of necessity compromise legal constructs, which trade short term benefits of size and pooled resources for longer term risks. Both the public and Congress seem largely unaware of these trade-offs and the need to protect society from some of the risks. For example, when industries are dominated by a few behemoths― as is the case in the financial, automotive, oil and airline industries― they become strategic threats to our economy and to our national security. They should be hobbled by behemoth specific regulations, a few of which I’ve mentioned in previous posts.
The legal structure for behemoths with widely distributed ownership makes it highly probable that their Boards of Directors will be risk averse and subservient bureaucrats who choose mediocre or worse CEOs and then do nothing to replace them with better leadership short of corporate suicide. We have seen this played out at GM, Citibank, AIG, BP and a host of other behemoths. This risk is amplified because of the general mythology that CEOs are answerable to stockholders and through some mysterious process corporate boards usually choose excellent people whose enormous compensation packages are justified by market forces. This mythology promotes a hands-off approach to big businesses and too much unearned respect for their leaders, many of whom are merely parasitic executives. We need to get real about the trade-offs and modify aspects of our corporate constructs while developing better external oversight. I write about the flawed process and sickly outcomes to counteract the mythology.
Another risk of behemoths is that their cultures are fundamentally unalterable. Once they become corrupted, as in BP’s case, in the cases of the financial behemoths or in the case of the Catholic Church, it is virtually impossible to change the culture from within. Boards which replace existing leaders from within a corrupted organization are either incompetent or not serious about changing the culture. BP’s board just did this, for the second time in four years, and GM’s board seems to have made the same mistake. Future posts will elaborate on this assertion.
Are you a Socialist?
That’s an interesting question, and my answer is “I don’t think so.” Neither am I a “Free Market” nor “Free Trade” capitalist because these ideas aren’t realistic or practiced by anyone. In the present economic crisis, I’m a Keynesian who believes in stimulus spending by government to save and create jobs. (However, I’m also convinced that substantially raising taxes on the upper 10% of incomes and wealth would help, not hinder, economic recovery. There is no evidence that Bush’s tax cuts stimulated the economy, but they did weaken our government.)
I was, until a few years ago, a lifelong Republican. I would have classified myself as a Rockefeller Republican… fiscally conservative and socially liberal. For example, I’m for Social Security, Medicare and universal health coverage, but totally against the inadequate funding for these or any other programs. I happen to believe, in hindsight, that higher taxes equivalent to those which prevailed from WWII until about 1972 are essential to solving the deficit problem. We have chosen to borrow instead of tax, thus weakening our security and polluting the future when the debts come due. When Bush took us to war in Afghanistan and Iraq, he should have increased taxes to pay for it, not lowered them and borrowed the money. Had increased taxes been part of the equation, we might have had a more intelligent discussion of alternatives before going to war.
What I am for is a political culture that nourishes success, allows failure, encourages distributed decision making in all walks of life, including politics, and honors diversity.
In 2004 my dissatisfaction with the Republican Party reached a point where I could no longer go along with its policies and objectives. For a more detailed explanation of my political transformation read Why I Won’t Vote for George Bush. For the time being, I’m a registered Democrat because it enabled me to vote for Barack Obama in Oregon’s Democratic primary. Of the two parties, it is by far the lesser evil at this time, but I’m not all that enthused about how it operates and am disappointed in areas of Barack Obama’s performance thus far. On all but a few issues he seems to be overawed by experts and entrenched leaders. I can empathize with this, but had hoped for better. For example, his choice to escalate in Afghanistan rather than exit it seems to be a choice to prolong the status quo in the face of certain failure. It is a tactically safe, but strategically tragic choice. We need our troops back home, for their sakes and to become fiscally responsible. Were we to demand a tax increase to pay for the war, rather than borrowing to fund it, we’d be out of there in a flash. I still consider it essential to vote against conservative Republicans or Tea Party candidates.
I’d much prefer an election system in which centrist Independents could run and receive adequate funding.
Are you for big government or little government?
That is a simplistic question. I’m for a community of governments, large and small, that are appropriate to the task of governing our nation and supplying the infrastructure and services necessary to sustain a healthy economic system. As I see it, Government is another human construct that enables us to function cohesively as a nation. In most respects governments are comparable to businesses; they enable us to tackle a family of needs and opportunities in a coherent and sustainable way. Their services benefit everyone and taxes pay for their services. Chronic borrowing to pay for services is a road to ruin.
Governments are compromise solutions having the same trade-offs that businesses have. Large governments have the advantages of scale, but are more likely to select mediocre to poor leaders and be stuck with them. Large governments are slow to respond to needs and opportunities (just like large businesses or churches) and their responses are full of compromises to satisfy a range of intrinsically conflicting constituencies. Small governments are more effective for local needs and opportunities, are more accountable to their constituencies and act more quickly. They also fail more often, usually due to failed leadership, but within the context of healthy larger governments those failures can be processed.
I believe that our community of governments ranging from local to Federal, with representatives who are elected periodically by the people, is the most healthy and sustainable yet devised by mankind. Our only option is to maintain its health and effectiveness; which seems to require more work and diligence than we’ve been willing to invest. The real tragedy of Tea Partier’s, sovereign persons and others who call for radical changes in the system are that they seem to be ignorant of the benefits they receive from our governmental system even with its serious flaws. For example, without a healthy government to enforce laws we’d have no human or property rights and we couldn’t travel safely or be secure in our homes. Freedom and safety would depend on personal power derived from wealth, protected by mercenaries and reinforced by selective superstitions. That is the default condition of societies throughout history and in much of the world today; just as the default condition of an unmaintained building is a pile of rubble. The laws of increasing entropy apply to all systems, constructed, living and mental.
The only thing worse than a big-bad government is no government.
