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.
$5 billion given to GMAC Financial
GMAC Financing (GM’s financing arm) has been given $5 billion in addition to the already $17.5 billion given to GM in order for GM to sell vehicles. It was stated that GMAC had gotten tangled up in bad mortgage debt. Um, hello, what business did GMAC have in giving out HOME loans? I thought this company originated for the purpose of auto financing? If auto loan companies are sticking their hands into markets where they don’t belong, they deserve to get them slapped.
Again, here is another bailout that was unnecessary. Yes, I do understand that GM can’t sell cars without its financing arm. Again, who’s problem is this? GM needs to work through its issues itself. The citizens of the US do not need to be propping up these badly run organization through these bailouts. What business did GMAC have even issuing home loans? Yes, I realize they are a financing arm, but GM should have been keeping careful watch over them to prevent GMAC from offering loans on items other than cars or vehicles. Again, another company with no oversight that does not deserve a bailout, yet the government is handing them $5 billion. I understand the reasoning behind the money, but it doesn’t make the pill any less bitter to swallow.
Oh, and the worst part of all of these auto bailouts is that there is no guarantee they won’t go belly-up anyway. Giving the auto makers this money may all be completely pointless, but we the taxpayers will have to pay the price in the end no matter the outcome.
Bush approves $17.4 billion for auto makers
While this may come as no surprise to anyone, we really have to wonder if these bailouts are in the best interest of the US. Yes, yes, I understand the argument about people losing their jobs, the trickle down issue of suppliers going out of business, etc etc. I do understand all of that. But, the one significant question is… When did it become the government’s responsibility to make sure businesses remain in business? Isn’t that the business’s responsibility?
Credit Crisis
Clearly, every company that has to extend credit is at risk during the credit meltdown, but the Detroit car makers were in trouble long before the credit meltdown. It’s just that now it is making it even harder for them to sell cars. But, is this because of the credit meltdown or is it the types of cars they are producing?
While I would love to say that their woes can be entirely blamed on the credit crisis, it can’t. Detroit has been lagging behind producing unappealing cars for many years now. Is it no wonder no one is going to the dealership and buying their cars? Sure, consumers may not be able to get the credit necessary to get a new car now, but even when credit was readily available, consumers still weren’t buying. If Detroit were making cars that people want, their business would have been booming all along. Just look at Apple. They make appealing technological products. Even in this economy, people are still buying iPhones that come with $90-120 a month plans! It’s an amazing feat when people, who probably cannot afford that amount per month, are shelling out that money just to get an iPhone!
Yet, the car makers can’t get their cars into consumer’s hands. So, the big question is.. why? Clearly, they aren’t providing high enough quality or appealing enough design, nor are they doing anything about becoming ecologically friendly. When gas prices hit almost $4 a gallon, they were still cranking out cars producing 20 mpg. Does this make sense?
By Design
The Detroit design teams need to rethink their ideas. They need to come out with some innovative approaches to vehicles. That means, trying things that haven’t been done before. I don’t usually like to give out free ideas, but I’ll make an exception here. For example, Toyota put into the Prius a touch screen control panel for pretty much all of the necessary comfort and convenience systems of the car. That’s a great first step. But, let’s take that one step further. Auto makers need to put in a touch screen system to control all aspects of the car including such things as controlling and viewing the engine tuning, tire pressure, and setting and releasing cruise control.
They should probably team up with Apple (or Microsoft) to add a mainstream operating system (embedded, of course) into their cars. Cars should offer WiFi or 3G connectivity. Cars should also have a full fledge computer as an optional built-in. But, the computer needs to be removable to take in during excessive heat or cold.
Ecologically Friendly
Fuel cells have been talked about for quite some time. But, this and other forms of innovation has not progressed. For example, when you’re driving the car along, there are other ways to recoup energy into the batteries. For example, wind and sun. As you’re driving, there is wind against the car. It should be a simple matter to add a wind turbine to recoup energy during driving. Adding solar panels in strategic places would also allow for additional energy.
Frankly, I’m surprised someone hasn’t come up with a photo conductive paint surface to use the entire vehicle’s painted surface as a giant solar panel. These are the kinds of innovations that make you go, “Hmm”. These are also the kinds of innovations that lead energy conscious consumers to buy into them. Regenerative breaking is a great first step, but we need to take it far beyond that.
Business 101
The detroit car makers have become so distant from what people actually want, that they can’t consistently produce sellable products. When you’re putting a car together, which is not an insignificant task, you want to make sure that you produce the best product possible. Detroit seems to have lost that edge and, instead, is hiding in a cave producing things they feel are ‘safe’, but that don’t sell.
Government and Business
What it comes down to is that Government should not become (nor have to become) involved in the day to day operations of ANY business, let alone the car makers. So, if these companies can’t produce quality wanted products, perhaps it’s time we let them go. We don’t need to prop up industries that don’t deserve to be propped up… no matter how many employees or small companies that they may incidentally subsidize.
Does CitiGroup deserve a government umbrella?
I guess the broader question, does any large commercial business deserve to be bailed out? Well, clearly Mom and Pop businesses fail every day. Yet, the government does nothing. Why do large conglomerates deserve special treatment?
The short answer is that there is some magical threshold where there are too many people who would lose their jobs as a result of the failure combined with possible economic ramifications. But, still, does that warrant a bailout? No.
If a business cannot run itself in a fiscally appropriate manner (large or small) it deserves to fail and go away. If any of your family is employed by CitiGroup or any financial company caught up in the turmoil of the financial sector crisis, I feel for you. But, that doesn’t mean that the company deserves to continue to exist if they cannot maintain profitability even in the toughest of times. Fiscal responsibility starts at the top of the company and trickles down to even the most bottom level employee.
What does this mean? It means, don’t request a new computer every year. Don’t ask for Herman Miller chairs and the most expensive ergonomic keyboard simply because you can. If the item is considered ergonomic, the company is almost obligated to make sure you get it. Buying all of these expensive amenities for your desk makes you fiscally irresponsible to the company if you don’t really need it (and, in most cases, you don’t). But, that’s not to say that this is responsible for CitiGroup’s problems.
Who knows where the money hemmorage is going inside these companies. But, clearly, it’s not going back into the business. Again, I ask, why do these companies deserved to be bailed out? What makes them special? I have no sympathy for large companies that can’t properly manage themselves. Neither should the government. Spending all of this money to prop up these badly run organizations is clearly counter to free enterprise.
In Free Enterprise you have to take the good with the bad. That means, when business is good, you profit. When it’s bad, you bankrupt and close. There needs to be no governmental cushion here to soften the fall.
Does CitiGroup or any other badly run business deserve an umbrella? What do you think?
Random Thoughts - Randocity! 
4 comments