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, Continue reading →
