Tag Archives: ayn rand

Multinational Corporations and the American Commons

Harvard Business School recently launched what it’s calling the US Competitiveness Project, which is “a research-led effort to understand and improve the competitiveness of the United States.” To publicize this effort, Harvard Magazine just published a series of interviews with some of the professors involved. I don’t normally like reading interviews, because they tend to have a ridiculously high length to content ratio, but these were quite dense in content, and I recommend the whole set of interviews as important reading for anyone interested in the state of US business or multinational corporations operate.

The interviews ran to almost 20 magazine pages, so I won’t even try to summarize them. But I will note a recurring theme, which was about American companies investing in America. The professors called this America’s “business commons,” which they defined as “a skilled workforce, an educated populace, vibrant local suppliers, basic rule of law, and so on.” They pointed out that “historically, American businesses invested in these resources deeply, and that helped to build many of America’s strengths.”

Copyright 2012 Thoughtbasket

Interestingly, the professors went back and forth between reasons to support America’s business commons, from what I call “hard” reasons (those that drive profitability) to “soft” reasons (patriotic calls to support America).

Hard reasons included:

  • Outsourcing calculations often overestimate cost savings
  • Local manufacturing can drive product and process improvements
  • For most multinationals, the US still makes up the majority of their business

Soft reasons were more vague, with a desire of “many in the business community to roll up their sleeves and do things in their communities” being a typical statement. Michael Porter (a giant in the strategy and competition fields) and Jan Rivkin define US competitiveness as including “raising the living standards of the average American.”

This all raises an interesting dilemma. If the role of corporate executives is to maximize returns to shareholders (this is how most US managers operate, although there is in fact disagreement regarding shareholder v. stakeholder approaches: read relevant articles here, here, here and here) then they shouldn’t care whether they build America’s business commons or China’s business commons or any other business commons, except to the extent that any given commons supports their business. In other words, if Jeff Immelt at GE thinks that investing in China’s educational system will generate higher returns than investing in America’s, that is what he should do.

However, I suspect that most executives at big US companies would feel uncomfortable with that. Since most of them were born in the US, raised in the US, and live in the US, there is probably some part of them that feels a loyalty to the US, that wants to build America’s commons even if building China’s commons has a higher ROI. How do these CEOs reconcile their duties to shareholders with their inherent patriotism? I don’t know. The professors in the US Competitiveness Project would suggest that the disconnect is not as great as many think; that building the US commons DOES have a high ROI. But based on my reading, it sounds like they would also give executives permission to foreground their patriotism over pure shareholder analysis, at least on borderline cases.

In addition to Michael Porter and Jan Rivkin, other professors interviewed included Willy Shih, Rossbeth Kanter and Thomas Kochan (who actually teaches at MIT, not Harvard).


First of all, how come nobody told me that Richard Posner and Gary Becker had their own blog? I have never referenced Becker in this blog, but he is a big hitter economist of the Chicago school. But I have … Continue reading

How Free Markets Should Work

If you really believe in the free market, you don’t think governments should bail out private entities. The whole essence of free marketeerism is the belief that markets will most efficiently allocate resources. Econ 101, and all that.

So why are so many “conservatives” defending too big to fail banks and pushing for Iceland to pay off investors in its private banks? Check out my friends at Baseline Scenario here and here for more investigation and analysis.

Links to Great Articles

Yves Smith on the macro effects of oversized Wall Street pay.

I normally don’t love Paul Krugman, despite his Nobel Prize, since he is too strident and preachy and predictable, but this take on what really separates Right from Left in America is pretty interesting.

John Mearsheimer on American foreign policy and realpolitik.

John Cassidy on whether Wall Street adds value to society. Hint: it doesn’t. This is from the New Yorker, so it won’t be available online forever.

Law professor David Beatty compares American constitutional jurisprudence to how they do it in other countries. I’m no expert, but I found it fascinating.

Are Businessmen Evil?

Jane Mayer’s article in the New Yorker about David Koch and his brother Charles and their massive funding of right wing political causes is an absolute must read. Regardless of political leaning, I think everyone should be disturbed by the ability of two incredibly wealthy men to so powerfully affect the political discourse in our society, and to do so anonymously.

But the article also made me think about how the Kochs and other businessmen are so determined to lobby government to support “free enterprise,” or at least to quash regulations that might hurt their business. The article discusses how the Kochs are using the same strategy on global warming – fund enough junk science to convince people that there is no scientific consensus – which the tobacco companies used so effectively to stall regulation of nicotine.

The issue I’m contemplating is not one of maximizing profits, but a broader moral issue. What makes a CEO who knows his product is harmful fight so hard against regulation? Does he take his fiduciary duty to maximize shareholder profits that seriously? Is he so focused on his own compensation that he doesn’t care what health problems he causes? The Kochs are nutjob John Birchers, so I expect them to screw over the world, but what about all the other CEOs? What about those who are fighting against environmental regulations even though they know that the global warming science is solid? Or Wall Street CEOs fighting against regulations when they know that their companies caused the financial meltdown? Or coal mining CEOs fighting safety regulation after an explosion in their mine killed 29 workers?

Look, I’m not anti-business. To the contrary, I am solidly pro-business. I’ve worked at companies, I’ve started companies, I consult to companies. My whole life is built on business. I understand the profit motive. What I don’t understand is the willingness to screw over the public in order to make more money. These CEOs would never in a million years think it was OK to stab a man and steal his wallet, but they have no problem poisoning him with industrial waste in order to save money. When do these people have enough? Where is their sense of human decency?

Paul Volcker on Financial Regulation

Speaking of reasonable voices when it comes to financial regulation (see my post below), Paul Volcker is coming out strong for a much more rigorous set of regulations. Volcker ran the Federal Reserve before Alan Greenspan, and was considered a guru while Greenspan was still ladling Ayn Rand’s soup on Saturday nights.

Here is a link to an interview Volcker gave to the WSJ, and here is a link to a New Republic article by Simon Johnson about that interview.

The money quote from Volcker: “I have found very little evidence that vast amounts of innovation in financial markets in recent years have had a visible effect on the productivity of the economy.”

Again, that is a voice of reason. We all agree that capital markets are important to the economy, and that some financial innovation is a good thing. For example, developing ways for big companies to hedge their raw materials risks can help the economy. But developing ever more complicated derivatives and securities which are backed by securities which are backed by securities which are backed by assets?  How do those innovations help the economy?

This last point is the one that puts the lie to free market ideologues. They say that financial innovation is key to fueling the American economy. But financial innovation has nothing to do with the economy outside of Wall Street. Think about the great engines of American growth that these ideologues love to mention: Wal-Mart, Apple, Home Depot, Google or Tommy Hilfiger. They all grew large and hired thousands of people without building their business on credit default swaps or mortgage backed securities. None of them care about the hundredth of a penny reduction in spread that dark pool trading creates. Real innovation in the American economy is disassociated with Wall Street. The only thing that Wall Street innovation drives is Wall Street pay packages.

More on Ayn Rand

Regular readers can safely assume that I am not a fan of Ms. Rand, but even I was surprised to see the conservative National Review take her to task last week. When even William F. Buckley’s publication calls her both “a nut” and “morally indefensible,” then maybe all those Rand-loving Republicans should revisit their thinking. After all, they probably haven’t read Rand’s books since they were college sophomores.

For a deeply intellectual approach to Rand, check out this blog entry, which compares her philosophy to that of the Stoics and Epicureans.

For a completely non-intellectual approach to Rand, here is another link to the funny GQ article I referenced in my prior post.

The Government Does Not Want to Run Your Life

The Wall Street Journal recently ran an article on low-flow shower heads and all the cool ways that faucet makers are trying to make less water feel like more water (turbines, anyone?). The federal government first set rules on shower head throughput in 1992, due to various water shortages throughout the country. Of course, many people like their high-pressure showers, so these rules are not necessarily popular. Or, as Ft. Worth cardiologist Michael Vaughan put it, those who would limit water flow are “just more of the self-appointed police that are going to tell you what’s the right way to live.”

I’m afraid I have to disagree with Dr. Vaughn. If there are water shortages, then rules on water usage are not telling you how to live, but rather classic government intervention to make society work. Maybe Dr. Vaughn didn’t study the tragedy of the commons in medical school, but if he did he would know that sometimes a larger party needs to set rules to ensure that even rational-acting individuals don’t utterly deplete a common resource. And Ft. Worth is definitely a place that needs to be careful about water. The local water district notes that “drought conditions are a part of life here in North Texas” and a southwestern farm magazine says:

“The Texas Water Development Board reports that by 2050 the state’s population will double from its current 22 million. Even with fairly strict conservation efforts, demand for water will increase by 20 percent to 25 percent. But water supply likely will decrease by 17 percent.”

More broadly speaking, in this year of tea parties it seems like there are folks who want to call every form of government regulation a case of “the self-appointed police that are going to tell you what’s the right way to live.” But in fact, government regulation is an inherent part of living in society. Part of the social contract we all enter is that government will limit our ability to do things that harm society. Rousseau said that in the 1700’s, and it hasn’t changed. Even J.S. Mill, the father of liberty, said that you are not free to do things that harm other people. Using the last drop of water qualifies as harming other people.

I don’t claim that all government regulation is warranted. There are plenty of examples of overzealous bureaucrats or legislators pushing nanny-state sort of rules. But neither is every government rule an example of overreaching state control into the quotidian details of our daily life. Rules and regulations are part of civilization; in fact, one could argue that civilization is nothing BUT a web of rules and regulations. Part of the democratic process is the citizens using their vote to adjust the level of regulation, but they will never be able to vote away all regulation. Unless you want to retreat into the woods like Jeremiah Johnson, you’re going to face some government regulation.

As for Dr. Vaughn, I don’t hear him complaining about the government that built the pipes and pumps and keeps them going to send clean water to his faucet. He only wants to complain when government limits the water that IT PROVIDES. I would be willing to bet that he views himself as some sort of Howard Roark of medicine, a rugged individualist who makes big money because of his vast knowledge, ignoring that much of his income is from prescribing drugs that were likely developed with NIH funding. And as long as I’m piling on Dr. Vaughn, I should note that the government is not “the self-appointed police.” The government is the actual police, empowered by the people to act.

The New Republic vs. Ayn Rand

Jonathan Chait of The New Republic recently took on Ayn Rand and her philosophy, and thus he took on the entire intellectual edifice of the right, which is built on Rand’s view that any restrictions on the activities of capitalism ubermen is a moral abomination.

Chait critiques Rand on moral and logical grounds, but he is strongest when he subjects Rand’s worldview to withering factual criticism (see page 3 of his article). Alan Greenspan, a famous Randian, recently admitted that his free-market ideology was wrong. Passages like the below, from Chait’s article, should convince more Randians of the error of their ways:

“In reality, as a study earlier this year by the Brookings Institution and Pew Charitable Trusts reported, the United States ranks near the bottom of advanced countries in its economic mobility. The study found that family background exerts a stronger influence on a person’s income than even his education level. And its most striking finding revealed that you are more likely to make your way into the highest-earning one-fifth of the population if you were born into the top fifth and did not attain a college degree than if you were born into the bottom fifth and did. In other words, if you regard a college degree as a rough proxy for intelligence or hard work, then you are economically better off to be born rich, dumb, and lazy than poor, smart, and industrious.”