Random Thoughts – Randocity!

Is Obama hostile towards big business?

To answer this question, we need to delve a little deeper. Note, I am neither condoning nor praising Obama’s handling of his regulatory efforts. However, I would like to point out certain corrections that do need to be made.

“The truth is that not even the Franklin Roosevelt administration was as hostile to and ignorant about free enterprise as this [Obama’s] administration is.”
–Steve Forbes.

But, is Obama really hostile towards business? Or, is he making needed corrections? There is a fine line here. This issue also points out a serious problem in politics today. That problem is, you guessed it, money. Without money, the world doesn’t work. Without money, candidates don’t get elected. Without money, businesses don’t sell things and make money. Back up the train.. Businesses make plenty of money without governmental help. The trouble is that businesses want to be able to make laws that enable their businesses to make more money and then have the government be lenient with them when issues arise.

The reality, though, is that like the separation of church and state, the government now needs separation of business and state. The two are oil and water, they don’t mix. Government needs to be able to make law without interference from any party. But, businesses have deep pockets and hefty lawyers. These two elements help elect officials and help sway these same officials into making good on promises they made towards these businesses during the election.

Obama’s corrections

While I don’t agree with every single thing Obama has done, I do agree that change is necessary. The change that he is making is intended to correct the issues that led to the economic downturn. The trouble comes with statements from people like Steve Forbes. Mr. Forbes believes that he is the end-all-be-all-know-it-all when it comes to all-things-business. The trouble is, he doesn’t. Yes, he runs a successful magazine, but that doesn’t make him an authority. That makes him a successful business owner.

Obama is walking that fine line. A fine line that shouldn’t even be necessary. But, there it is. The line that’s there to help Obama help the economy, help spur business and growth and reduce the chances of a repeated failure. At the same time, the line is there to show that government values business, but isn’t there to socialize it. The trouble is, this economic downturn was of our own making. By our, I mean Wall Street. The housing bubble was just that, a bubble. Bubbles eventually burst and this bubble was no exception. It’s not as if analysts and intelligent minded people couldn’t see the handwriting on the wall. When the mortgage interest rates got down to 1% and all of those ARM and specialty loans were being issued like water flowing down the Mississippi, trouble was inevitable. We just didn’t know that banks and insurance companies were tying their financial soundness to these extremely risky loans using credit default swaps.

Until the bubble burst, no one really knew just how deep the rabbit hole went. Then, everything came crashing down and all of the nasty subprime mortgage and credit default swap issues came into view in their all fugly detailed glory. The first evidence of that was Bear Stearns followed by AIG (and the subsequent governmental bailout). I still think they should have let AIG fold, I digress.

Government and Business

It’s high time that government distanced itself from corporate businesses. It’s high time congress made laws to separate government from business (including political support). It’s high time that government stopped being a pawn for corporate businesses. Forbes clearly seems to think that Free Enterprise requires socialism to function. Free Enterprise is not part of and does not need socialism. Free Enterprise means that businesses can do whatever they need to do (within the limits of the laws) to make their business succeed. Clearly, there have not been laws enabled that have dramatically impacted Free Enterprise. The laws that have been enacted have been placed there to prevent corporations from producing risky investment vehicles with a high likelyhood of crashing down again. If businesses are now floundering, it’s not because of laws. It’s because corporations have lost their way and are still expecting handouts. Well, you can keep your hand out, but don’t expect the government to be dropping any coin in it.

Corporations have relied, no… depended on the US Government for handouts. That time needs to end. Subsidies for business need to go away. Businesses need to fend for themselves just like Free Enterprise mandates. If a business can’t make it on its own, then let it fail. I’ll repeat, LET IT FAIL. Failure is also part of Free Enterprise. Businesses that will succeed, will succeed because they produce a good product or service. Businesses that fail, will fail because they don’t produce good products or services.

Lost our way

America, and specifically corporate enterprises, have lost their way. For far too long have big corporations depended on favorable governmental conditions (sounds like a weather report) to help them stay in business. Well, that train has left (and must leave). It should be solely up to you and your business practices alone to make or break your company. It is the quality of your products, services and support that makes people want to buy your products or invest in your company. Nothing has changed about this aspect of Free Enterprise.

We need to go back to a time when quality was the key. When providing a superior product was the answer to getting people to buy things. If that also means deflation, then so be it. Businesses need to find their way by learning how to do more with less. How to manage their staff better and stop over-hiring. At the same time, many of them need to stop under-hiring and also value the employees that they have right now.

The key to keeping your business flowing is by keeping your employees active, productive and happy. Morale is a big problem in companies during any downturn. Once fear sets in over the next reduction in force (RIF), then morale falls to all-time-lows. No, taking the employees on an outing doesn’t boost morale. The way to boost morale is to stop RIFing the staff out the door. Yes, I know it gives a temporary boost to the stock price and makes the shareholders happy, but that’s a temporary fix with limited effects. Once the dust settles, the employees who are left become disgruntled, unhappy and produce less. This is completely backwards thinking. Which is why business has lost its way.

Shareholder value vs quality products

I know, someone’s going to say that it is all about ‘shareholder value’. That may be the way things seem now, but it is wrong. Currently accepted actions that lead to improved shareholder value tend to undercut production, stifle innovation, reduce profit margins and lower productivity. Why would you intentionally do this to your business? So, while these measures may seem to help the stock price, it does nothing to help the company improve its quality of products and services. In fact, in the long run, these actions almost always negatively impact the bottom line. So, the fundamental question is, are you in business to make the shareholders happy or are you in business to sell quality products and services? This fundamental question must be answered.

The true answer to this question also shows that Free Enterprise priorities today are all wrong. It used to be that the customer is #1. Now, shareholders are #1 and customers are #2. This is both wrong and stupid. Until businesses go back to the idea that the customer is #1, corporations will continue to fail and need governmental subsidies. While shareholders are considered #1, there is really no such thing as Free Enterprise when it comes to multi-million dollar corporations… which is why they always need a handout from the government.

4 Responses

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  1. rebby said, on October 16, 2010 at 12:26 pm

    The abysmal ignorance of the voting public as it relates to how businesses work and how a free market functions is the proximate cause of all of our current troubles: modern American’s have become predominantly workers for large organizations that plan those workers activities for them. 200 years ago, most adults were engaged directly in the economic enterprise and were well-acquainted with economic truths; the way a nomad is familiar with the climate and geology of his environment. A merchant who ignored that reality was no more likely to survive that a nomad who ignored the fact that monsoons come at a particular time of year.

    Now, most people have been relieved of the necessity of making such judgements: business management is just another specialization…one which insulates the average worker from having to make the hard decisions and to therefore appreciate timeless economic truths. Most of us float through the economy soley as consumers while our proxies in business do the dirty work of navigating the dangerous waters of the economy. It is no wonder that now most voters expect from government the kind of direction of the economy that they are accostomed to expect from the Department Director of a company. The danger of course is that the government is no ordinary organization.

    Combine this simplistic economic “headman” approach to social organization with ideas about “social justice” which demand that some members of society be treated solely as a means to the ends of other members, and you can see where we are headed.


    • commorancy said, on October 18, 2010 at 4:03 am

      After having a little bit of time to consider my response to your reasoned arguments, I’d argue another side to this. Yes, middle and upper management do have to make hard decisions to a point. And no, most low level employees do not have to make these hard choices (at least, the choices that can make or break a company). However, there’s a tipping point as well. Once a company has more than say, 10,000 employees or more, if that company folds, it takes a huge toll on the economy. Worse, when you have companies like AIG whose products directly manage our economic backbone, such as banks, the hard choices change. Basically, small business ends up making the hard choices because a single choice can make or break the company without directly affecting the economy. However, when dealing with very large corporations, the hard choices get a lot easier for management because these companies can go begging to the government for a handout to keep them afloat when they make mistakes.

      With small business, begging to government is not an option. This situation is really counter to the way government should work. In fact, small businesses should be fostered at all costs and big business should be left to their own devices. Once a company gets to billions in income and tens of thousands of employees, the government shouldn’t step in to manage this situation should it become problematic. Yet, it does meddle in big business for fear of economic upheaval.

      While I agree that most people do cruise through their career without having make or break choices, the hardest choices are made by the businesses that are startup to mid-size. These are the sized companies that are left to fend for themselves without government subsidies. These are the companies most likely to fail because there is no governmental subsidy net. It’s really unfortunate that our government is designed to help the rich get richer and basically do nothing for the poor or middle classes or even small-mid sized businesses. Honestly, this situation needs to change.


      • ArbutusJoe said, on October 20, 2010 at 1:18 pm

        I was actually trying to (clumsily) make a broader point about social values. I leave it to Prof. Hayek to make his point as only he can, here: http://www.spokenword.ac.uk/record_view.php?pbd=gcu-a0a5p1-a
        (Go to the 8 minute mark; BTW, the registration to the site is free.)

        But I would push back on the idea of “fostering” small business. If by that you mean, get out of their way, then I’m 100% on board. But if you mean something like, create a structure within government whereby small businesses have a priviledged status, then I’m afraid I can’t agree. Not because I don’t want full employment or other benefits that small business brings, but because I believe there are systemic forces with a) prevent government from acheiving those goals and b) lead to increased excercise of arbitrary power of one group of people over another.


        • commorancy said, on November 1, 2010 at 11:08 pm

          By ‘Foster’, I mean give the same protections afforded large businesses. It’s unfortunate, but small businesses are at a huge disadvantage compared to large businesses and I’m not talking about sheer dollars here. I’m talking about governmental favoritism. Once a business reaches a crux size, like Wal-Mart or Target or General Motors, the government feels the need to step in and keep them from failing of which that failure would allegedly lead to ‘economic impact’. In fact, these very large businesses don’t deserve or warrant such favoritism. Small businesses get none of this. They are left to their own devices.

          All I’m saying is that the playing field needs to be leveled and it presently isn’t. Extremely large businesses get a safety net when small businesses do not. Any safety net afforded to large businesses should also be afforded (in at least some way) to small businesses. Or, alternatively, government needs to step out and let large businesses fail (regardless of alleged economic impact). I’m not saying to give small businesses privileged status, but they should be afforded the same playing field and availability of funds as are extremely large players. In fact, the large players should 1) know better and 2) already have the funds to manage themselves. If they don’t, then they NEED to fail and go out of business. That’s free enterprise at work.


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