oversight

Can Businessmen (and Women) Make Good Politicians

by Fred Smith on June 29, 2010 · 1 comment

in Culture, Odds & Ends, Politics as Usual, Zeitgeist

Mickey Edwards, former congressman from Oklahoma and guest lecturer at the Harvard School of Government, has written an interesting blog on the case for business leaders moving into politics. To Edwards, operational skills acquired in the private world are not easily translated to the political world:

I do have a problem, however, with the continued promotion of business success as a qualifier for public office. Success in the market is not an automatic disqualifier for public service, but it is a far different undertaking with different purposes and different values.

On this point, Edwards is absolutely correct, but I disagree with his conclusion that:

The business of business is business and the goal of business is to earn a profit in the provision of goods and services.

The goal of business is not merely to profit, but to create value for its shareholders. A firm must balance short and long term goals to produce wealth in both equity appreciation and dividends. How this is achieved depends on the interests of the shareholders. More importantly, the goal is not “profits” but “sustainable profits.” Firms that invest in productivity and new product development do so because they recognize that they live in the Schumpeterian world of creative destruction. Nothing they’re doing today will remain profitable in a decade. The firms who fail to acknowledge this fact do not survive, witnessed in the high turnover of the Fortune 500. The simple profit motive is a short-term, unsustainable notion of business practices.

To be sustainable, corporations must develop and maintain a good reputation with their customers, their employees, their suppliers, their shareholders, and any other group with whom they are economically-linked. The views of these groups can (and do) affect the ability of the firm to remain profitable over time. Moreover, a good reputation is hard to acquire, easy to lose. Considering these motivations, businesses are far more “political” than Edwards recognizes.

Business, however, is not guided by the benevolence Edwards attributes government:

The business of government is service- well managed, one hopes, and not wasteful, but never at a profit. There is no such thing as government money. Governments have no money; they have only what they take from their citizens, either in taxes or by inflation. And if government accrues profit, it can only have done so by taxing too much or eroding the value of the citizens’ income and savings — in either case doing harm, not good, to the people who have created it for the advantages such a common effort is presumed to bestow.

As a former congressman, Edwards certainly knows the appetite of government is infinite. Surplus revenues are never rebated to the taxpayers but spent without oversight on marginal projects. Increased cost of living allowances, earlier retirement programs, pork barrel spending to benefit local special interests. If government actually sought to advance the “public good”, the record would be far different.

Businesses seek maximum efficiency; governments seek sufficient efficiency. We might well save a considerable amount of money by delegating our national security to mercenary armies drawn from other countries (as opposed to keeping a high-cost standing army and paying U.S. wages to private combat zone contractors), thus erasing the need to maintain a perpetual and costly military infrastructure. We could assign the processing of Social Security checks and welfare payments to low-wage workers in Madras or Oaxaca. State governments could close welfare offices and require that all transactions with government be conducted electronically, with no recourse to potentially sympathetic human beings. These are choices governments make reluctantly and businesses make routinely.

This understates the problem. The concept of efficiency requires a metric. For business, it’s “sustainable profitability” whereas government is a grab bag of special programs, each administered by a siloed agency with a “mission” but no responsibility for the general public good.

Business cannot make utopian promises as government frequently does- social security, universal health care, generous cost-of-living increases, a cure for cancer, energy independence, zero pollution. And that lack of a metric can lead nations-and certainly firms- to bankruptcy. The plights of Greece and Illinois, to mention but two, are examples of the need for the “sustainability” virtue that business can offer to politics.

Even agencies with a clear mission- say the Department of Defense – are hindered by the political process and the 435 congressional districts continually second guessing their actions.

Yet, he is right. Those who’ve entered government from business have no great track record. Mitt Romney created a non-sustainable “universal” health care plan in Massachusetts allowing Obama his success at an even less sutainable plan at the federal level. Business doesn’t understand that the competitive forces that disciplined him in the private world are less present and much weaker in politics. Edwards argues that political leaders should ensure that government doesn’t impede profit-making unduly. But they do – and former business leaders freed of the sustainability restraints that made them successful in the private world may exacerbate the problems already extant.

So, in the end, I do find points of agreement with Edwards. The key role of a businessman turned politico would be to reform the institutions – the laws, the regulations, the legal structure – to remove all possible impediments to economic growth. Too few business leaders have ever sought to push for that role in the private sphere when the benefits would have been direct and immediate. Why should we expect them to do so in a world where the benefits would be privatized, the costs political?

Geithner Seeks More Power to Ruin Our Economy

by Hans Bader on March 26, 2009 · 6 comments

in Bailout Watch, Economy, Politics as Usual, Stimulus to Nowhere

Treasury Secretary Tim Geithner wants a “vast expansion” of his power over the financial system. This is the same guy whose bungled $170 billion AIG bailout gave billions of dollars to wealthy AIG clients like Goldman Sachs, which admits it neither needed nor expected the money it got from taxpayers.

Back in the 1990′s, Geithner, working with the IMF, destroyed Indonesia’s economy, by prescribing disastrous economic policies. The result was massive increases in child malnutrition, riots, and mushrooming poverty, in a major country that once boasted annual economic growth rates of 7 percent. Australia’s long-time Prime Minister Paul Keating has chronicled Geithner’s central role in this disaster repeatedly, but to no avail (Keating was the leader of his country’s Labor Party, so he’s not exactly a doctrinaire conservative. And his rule was marked by economic growth.).

Now, Geithner wants more regulatory power in his own hands, even though unregulated financial institutions (like hedge funds) are doing better than regulated ones, so much so that unregulated financial institutions are being relied upon to bail out regulated financial institutions in Geithner’s toxic-asset buy-up program!

Geithner sent the dollar tumbling yesterday by foolishly suggesting that the dollar might be losing its role as the world’s reserve currency. The head of the European Union yesterday called the Obama Administration’s policy of unprecedentedly massive deficit spending the “road to hell.” The prominent liberal economist Jeffrey Sachs says that the Administration’s toxic-asset buy-up program will “rob the taxpayer” by “buying up toxic assets from the banks at far above their market value.”

Historian and engineer Clayton Cramer has a fascinating analysis of how the mortgage crisis was spawned by regulations adopted under the Community Reinvestment Act, and special interest groups that learned how to game those regulations, like ACORN (a group Obama long worked with). ACORN, a beneficiary of the stimulus package, helped spawn the mortgage crisis by promoting “liar loans.” It has also engaged in extensive financial fraud and vote fraud. The Obama Administration has chosen ACORN to help conduct the 2010 census, which will be used to reallocate seats in Congress.

Obama Chief of Staff Rahm Emanuel received $320,000 while asleep at the switch as a director of the mortgage giant Freddie Mac, a fraud-ridden GSE that helped spawn the mortgage crisis and ended up being bailed out by taxpayers at a cost of over $100 billion.

James Piereson has insightful comments about Geithner’s demand for new regulatory powers (and unnecessary bailouts) here. He also notes that Fed Chairman Ben Bernanke has been essentially refighting the last war, applying remedies that might have been helpful in the Great Depression but are positively harmful now.

Perhaps Bernanke’s most controversial policy has been to print vast sums of money to buy up government bonds, under the rubric of “quantitative easing.” Congressman Ron Paul says this policy, and the massive bailouts, are an inflationary disaster, and that it would have been better for the government to do what it did in response to the sharp 1921 recession — nothing. “He cites the mini-depression of 1921, which lasted just a year largely because insolvent companies were allowed to fail. ‘No one remembers that one. They’ll remember this one, because it will last’” much longer, because the “government just won’t allow the correction the economy needs.”

The 1921 recession speedily ended, without any bailouts or government intervention, although it started out as a very nasty recession, with suffering much worse than in the early days of the Great Depression. The 1921 recession was followed by an economic boom, including 6 percent annual growth rates in the 1920s.

The Obama administration has never explained why such vast powers should be bestowed on Geithner, who cheated on his taxes, lacks expertise in economics, and receives a failing grade from economists. Yet it has relied on him to sell its economic policies, such as its proposed budget (which will add $4.8 trillion in additional debt), $8 trillion in bailouts, a trillion dollar toxic-asset buy-up program, and an $800 billion, economy-shrinking “stimulus” package, all of which contradict Obama’s campaign pledge of a “net spending cut.”

Federally Sanctioned Propaganda Machine

by Gary Howard on December 11, 2008 · 1 comment

in Bailout Watch, Economy, Intellectual Property, Nanny State, Odds & Ends, Privacy, Regulation, Tech & Telecom

 

Apple's 1984 "Big Brother" commercial.

Apple's 1984 "Big Brother" ad

An article over at Ad Age brings up an angle on the whole auto industry bailout probably not considered much before.  The fact that a yet-to-be-appointed “car czar” will have control over a multibillion dollar advertising budget for the big three.  Under the guise of “oversight,” this would effectively “Create World’s Most Powerful Marketing Exec[utive].”  

The draft rescue plan for Detroit sent to the White House by Congress yesterday calls for the appointment of a “car czar” who will oversee the Big Three automakers’ expenses over $25 million — which, by extension, would include media buys. Based on Advertising Age’s estimates of spending by General Motors Corp., Chrysler and Ford Motor Co., that would give the as-yet-unnamed car czar control over some $7.3 billion in marketing spending in the U.S. alone.

The most disturbing thoughts about this (particularly to those concerned with liberty) are provoked here: 

The car czar would wield a budget more than double those of AT&T, Verizon, Unilever and Johnson & Johnson, which round out the nation’s top five marketing spenders, and give the car czar more clout with media and agencies than such famed names in marketing as Walmart Chief Marketing Officer Stephen Quinn and Anheuser-Busch VP-Marketing Dave Peacock.

…If the bailout goes through, agencies that work for the Big Three will essentially be toiling on a government account, with all the associated red tape and strictures that involves.

So there you have it.  We should all be concerned about this for many reasons.  As mentioned, the large ad budget that comes with a czar-controlled U.S. auto industry will allow a government bureaucrat to wield unbalanced and unchecked influence over not only who gets ad contracts, but what media outlets get ad money. The czar can simply refuse to give business to an advertising agency who works for a foreign competitor of the big three (or a “non-compliant” corporation), or refuse to pay money to show ads on outlets that they deem “unfriendly” to the administration or its mission.   This will be an unequivocal disaster.  We have already seen the lengths to which administrations (and pre-administrations) have gone to influence and/or silence media they do not like.  What kind of power plays do you think are possible when the administration’s appointee controls a major source of media outlets’ ad revenue? Whatever it ends up being, it won’t be pretty.