If you read only one article about Barack Obama this week -- hell, this campaign season -- make it "Obamanomics," by David Leonhardt, in Sunday's New York Times Magazine. Little I've read about Obama has provided more insight into the way he thinks, not only about economics, but also about public policy generally.
The framing here is the "battle of the Bobs" -- Clinton Treasury Secretary Robert Rubin, who prioritizes bringing down the deficit and strengthening markets, and Clinton Labor Secretary Robert Reich, who prioritizes substantial public investment and wealth redistribution via the tax code. Clinton famously favored Rubin, to the chagrin of the left.
Developments since then, among them Bush's disastrous tax policies, have moved the Bobs closer together. Where deficit reduction might legitimately have been a priority in the early '90s, today's historic inequality, crumbling infrastructure, and economic stagnation make Reich-style policy the more obvious need.
But Obama still heeds Rubinomics, still strives for fiscal responsibility, and still respects markets as fantastically efficient means of deploying capital. So the agenda is to combine some traditionally "leftist" policies like heavy infrastructure spending, job training, and higher income taxes on the rich with traditionally "conservative" policies like cutting taxes on the middle class and favoring market-based policies.
Interestingly, Leonhardt frames Obama's climate policy as a balance of these two impulses:
Most Congressional bills envisioned giving away many of the [cap-and-trade] permits to power companies. Economists, by and large, considered this giveaway to be the worst part of the plan. It would require Congress to decide how many free permits each company should get and would set off a frenzy of corporate lobbying.
The alternative was to auction off the permits -- to let the market set their value. "If you don't auction 100 percent of the permits," [Obama advisor Austan] Goolsbee told me, "this could be one of the biggest pieces of corporate welfare ever." With Congress making the decisions, the power companies with the best political connections might get the permits. With a full auction, the permits would end up with companies willing to make the highest bids. Presumably, these would be the most efficient companies, the ones able to produce the most energy (and profits) for a given amount of greenhouse-gas pollution.
The auctions would have another big advantage too. They would raise billions of dollars for the government, money that could then be returned to taxpayers to offset the higher energy prices created by the emissions cap.
So it's, in Leonhardt's words, "pro-market," but it raises a ginormous amount of revenue for public spending.
That basically nails the appeal (to me) of a fully auctioned C&T system. Generally, Obama's thinking, his struggle to reconcile or synthesize opposing economic impulses, turns out to mirror my own in a way that verges on creepy. It's all about finding ways to use the power of markets whenever they can work while also attending to the dire need for public spending. I know it's a cliche that everyone projects their own views on Obama, but Leonhardt says they're actually his views!
I suspect Obama and I are well to the right of most of the folks who comment here, at least on this subject. I hope y'all will weigh in.
Obama administration may (finally) offer greenhouse-gas targets
City preps and countries posture ahead of Copenhagen talks
Comments
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hapa Posted 5:28 am
25 Aug 2008
It's all about finding ways to use the power of markets whenever they can work while also attending to the dire need for public spending.
"whenever they can work."
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Jason D Scorse Posted 5:28 am
25 Aug 2008
The level of sophistication and depth that Obama and his team displays is very impressive- this is definitely the adults back in charge team, not the crony capitalism corporate giveaway team of McCain-Bush
Obama seems to get the fundamental nature of modern capitalism, which is:
create a strong regulatory environment in which markets can work effectively that protects labor and the environment and against crises
then let the market allocate resources and do what it does best- innovate
use the tax code to redistribute from very wealthy to middle class and poor
3. Is David right that people are much more to the left than this on Grist? I don't think so. This is solid progressivism that is smart, sophisticated, and has a real chance of success. This is center-left stuff that everyone should get behind if you care about inequality and increasing opportunity.
We need to focus on the root causes of problems. http://www.voicesofreason.info.
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Penfold007 Posted 5:42 am
25 Aug 2008
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amazingdrx Posted 6:55 am
25 Aug 2008
Gore's carbon tax, prices carbon without that danger, and it returns the raxes raised to moderate and lower income people via an income tax cut.
Beware the so-called market based approach, there are wolves in hedge fund suits on the ETF trading platforms. Collaborating illegally to steal everything they can get away with. and with no regulation, that is a LOT!
If you want market efficiency use small business capitalism, give subsidies per kwh of GHG free kwh generated or saved with solar panels on buildings, wind on farms, or farm biogas. The consumer/investor will decide which devices and systems to purchase.
Government can certify the GHG savings of the systems, and the utility can measure the kwh. Pretty simple, and a truly free market approach.
Similar wholesale rate subsidies could apply to larger businesses, malls and factories, with much larger kwh potential.
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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Jason D Scorse Posted 7:56 am
25 Aug 2008
http://en.wikipedia.org/wiki/Arthur_Cecil_Pigou
We need to focus on the root causes of problems. http://www.voicesofreason.info.
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Sean Casten Posted 8:28 am
25 Aug 2008
One of my favorite definitions of entrepreneurship is the practice of moving capital from low-value to high-value homes. Suppose a small business forms to capitalize on the local market for good, high quality bread and builds an organic baker. Suppose another small business forms to capitalize on the fact that you can buy dollar bills in Peru for $0.80 and sell them in Korea for $0.92. (The numbers are arbitrary, but this currency exchange "carry trade" is one of many opportunities that hedge funds exploit.)
What is the difference between these two levels of entrepreneurship? Is the one that is moving money less noble than the one making bread? If so, why? And given as the money mover is implicitly fixing exchange rate anomalies, they are creating export opportunities in one country and bringing capital into another to facilitate those nation's bakers and other small business owners.
This is not to say that there are not unethical people in financial services. But there are also unethical people in government. The relevant question is therefore not whether one system would allow profits, but rather which system would maximize CO2 reduction. And I would much rather bet on a system with the flexibility of a market (with all it's potential for abuse) than one with the stasis of a tax. Hedge fund managers aren't theives - they're just trying to make money, no different from anyone else (although admittedly, with a bigger bankroll).
Your plug for a tax & distribution calls to mind the old Churchill aphorism that the great sin of liberalism (in essence, free markets) is their unequal distribution of benefits, while the great sin of socialism (e.g., government collection of receipts and distribution of proceeds) is it's equal distribution of pain. Neither are perfect, but the former sure is preferable.
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RoninGeographer Posted 8:56 am
25 Aug 2008
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hapa Posted 9:10 am
25 Aug 2008
and with a carbon market, you get both!
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GreenMom Posted 9:48 am
25 Aug 2008
For example, financial markets went wild when the Congressional Republicans and the Bush Administration undercut the rules and the SEC. Put the oversight back, and better behavior will return.
David, I don't know why recognizing the value of markets should make you any less a progressive. You're not Milton Friedman - you recognize that markets need proper structure and limits. It's not whether you have a market -- it's how it's governed.
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GreenMom Posted 9:57 am
25 Aug 2008
For example, financial markets went wild when the Congressional Republicans and the Bush Administration undercut the rules and the SEC. Put the oversight back, and better behavior will return.
David, I don't know why recognizing the value of markets should make you any less a progressive. You're not Milton Friedman - you recognize that markets need proper structure and limits. It's not whether you have a market -- it's how it's governed.
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Tom Philpott Posted 11:23 am
25 Aug 2008
Victual Reality
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GreyFlcn Posted 11:25 am
25 Aug 2008
Since it's not about subsidizing renewable energy.
It's about removing the unpaid-externality from high carbon energy, and including that into the cost.
That way low carbon energy automatically gets more competitive.
And according to this study, costing for externalities is far more effective than subsidies.
http://i-r-squared.blogspot.com/2008/08/taxes-versus-subs ...
-David Ahlport
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GreyFlcn Posted 11:29 am
25 Aug 2008
What we need to make markets like that function well isn't to say "OMG NO MARKET".
It's to say "OMG WE NEED OVERSIGHT"
How about the phrase: "Transparent Markets"
-David Ahlport
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Tom Philpott Posted 12:28 pm
25 Aug 2008
http://www.nybooks.com/articles/20853
Here's an excerpt:
The new master narrative -- the way we think of our world -- has abandoned the social for the economic. It presumes an "integrated system of global capitalism," economic growth, and productivity rather than class struggles, revolutions, and progress. Like its nineteenth-century predecessors, this story combines a claim about improvement ("growth is good") with an assumption about inevitability: globalization -- or, for Robert Reich, "supercapitalism"-- is a natural process, not a product of arbitrary human decisions. Where yesterday's theorists of revolution rested their worldview upon the inevitability of radical social upheaval, today's apostles of growth invoke the analogously ineluctable dynamic of global economic competition. Common to both is the confident identification of necessity in the present course of events. We are immured, in Emma Rothschild's words, in an uncontested "society of universal commerce."[3] Or as Margaret Thatcher once summarized it: There Is No Alternative.
Like their political forebears, contemporary economic writers often tend to the reductive: "In the long run," three respected economists write, "only one economic statistic really matters: the growth of productivity."[4] And today's dogma--like other dogmas of the recent past--is indifferent to those aspects of human existence not readily subsumed into its own terms of reference: just as the emphasis of the old thinking was on behavior and opinions that could be categorized as a product of "social class," so contemporary debate foregrounds interests and preferences that can be rendered in economic terms. We are predisposed to look back upon the twentieth century as an age of extremes and delusions from which we have now, thankfully, emerged. But are we not also deluded?
In our newfound worship of productivity and the market have we not simply inverted the faith of an earlier generation? Nothing is more ideological, after all, than the proposition that all affairs and policies, private and public, must turn upon the globalizing economy, its unavoidable laws and its insatiable demands. Together with the promise of revolution and its dream of social transformation, this worship of economic necessity was also the core premise of Marxism. In transiting from the twentieth century to the twenty-first, have we not just abandoned one nineteenth-century belief system and substituted another in its place?
Like the old master narrative, the new one offers scant guidance to making hard political choices. To take a simple instance: the real reason Robert Reich's "citizen" might be confused about global warming is not because he is also a part-time investor and consumer. It is because global warming is both a consequence of economic growth and a contributor to it. In which case, if "growth" is good and global warming bad, how is one to choose? Is growth a self-evident good? Whether contemporary wealth creation and efficiency-induced productivity growth actually deliver the benefits they proclaim--opportunity, upward mobility, happiness, well-being, affluence, security -- is perhaps more of an open question than we are disposed to acknowledge. What if growth increased social resentments rather than alleviating them?[5] We should consider the noneconomic implications of public policy choices.
Victual Reality
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GreenMom Posted 2:33 pm
25 Aug 2008
But the climate problem is urgent, and clearly the world currently does worship at the alter of markets and productivity. So it's a crucial point that markets, structured correctly and overseen by readily enforced rules, are our best bet to reduce carbon emissions as quickly as possible.
And of course the role of government is to draft the rules - i.e. create the right market - and then enforce the rules - i.e. keep the market honest. (I say that as a career civil servant. Most of us really do try to do the right thing.)
At the same time, we should be subsidizing and mandating renewables, rewarding efficiency (and removing barriers to efficiency), and raising CAFE standards.
Oh, and I take your point about the dismantling of the regulatory structure starting well before Bush. I realize it's been going on since Reagan, including under Clinton. But the Bush Administration took it to extremes, taking every opportunity to place foxes in charge of all the bureaucratic chicken coops. I've been in government since the 1980s, and no other Administration has come close to their level of hubris.
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amazingdrx Posted 2:36 pm
25 Aug 2008
Just like the dems are telling the oil companies, if you don't drill the lease it goes to someone who will.
Furthermore, as with inventions like the NiMH battery patent, if Chevron won't use it, let someone else use it. In WW2 corporations couldn't horde patents to protect their product line. like Chevron is protexctin g its oil by shelving battery technology.
Hedge funds don't have to be predatory Sean, with proper regulation they would be a positive force. Speculation "hedges" risk for us. It's not the speculation or the funds, it's the insider trading corruption that is the problem. Honest investors, like your firm, benefit from transparent, honest, fair and free markets.
Small business just happens to be less monopolistic Sean, if real regulation is kept up, big business would not be able to squash out competition.
"It's not whether you have a market -- it's how it's governed."
Amen...and amen..G-mom.
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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amazingdrx Posted 2:53 pm
25 Aug 2008
That hits at the heart of it. The whole issue of free markets and multinational capitalism.
The problem is that most of the players in this supposed capitalist global system are state owned or controlled. The currencies they use are manipulated. The prices for the commodties, like oil based fuel, that they trade, fixed by state mandate and taxed and subsidized at whatever the state sets.
The markets manipulated by insider trading.
"Far from black and white"?, exactly right.
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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Colin Wright Posted 2:59 pm
25 Aug 2008
This sounds to my ears like:But the climate problem is urgent, and clearly the world currently does worship at the alter of maiden scrifice. So it's a crucial point that maiden scrifices, structured correctly and overseen by readily enforced rules, are our best bet to reduce carbon emissions as quickly as possible.
I don't mean to suggest that we need to resurrect Mao and Stalin. Only that continuing the trajectory of today into the unknown of tomorrow, whenever the present methods aren't working, is the definition of mental illness. Isn't it? (Sorry, couldn't resist the cheap shot!)
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David Roberts Posted 7:09 pm
25 Aug 2008
grist.org
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GreyFlcn Posted 10:20 pm
25 Aug 2008
"Markets are primarily a tool for finding the path of least resistance"
And just as with Fire. Fire can be our best Tool, or our worst enemy.
It all depends whether we control it, or it controls us.
-David Ahlport
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hapa Posted 12:26 am
26 Aug 2008
how can we. we don't yet know if humanity wants to flourish in the long term. what percent of the world really thinks of our great grandchildren's welfare as a current personal responsibility? we may actually want suicide, from a cosmological "told ya so" perspective.
large markets, using Other People's Money, encourage the selling of things that don't belong to you, such as the future.
to establish rules against selling the future one has to be able to outmaneuver people who are funded with the very stolen property one is trying to keep out of the marketplace. to maintain rules against selling the future one has to have a zero tolerance policy for secret rooms with secret doors.
which means: prevention before, transparency during, discovery after. past present future. or as ralph nader puts it, to have a right, to really have it, you need a remedy for when the right was trampled; and you also need facilities to ensure the right is available when needed.
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amazingdrx Posted 12:31 am
26 Aug 2008
Small business is the last remaining vestige of capitalism. Could our government try to ressurect capitalism? Extending it from the bottom all the way to the top of the biggest corporate power structure? That would be a positive step.
Real competition, real risk and reward for that risk. That would cure a lot of ills brought on by corporatism.
The cheaper, cleaner, GHG free energy systems would compete on a real level playing field.
VW and it's subsidiary Audi are now moving quickly to mass produce plugin hybrid models, for instance. But they are "not planning on introducing a plugin hybrid model for the US market", to quote a spokesperson.
Why is that? We know there is a huge demand here in the US, why would VW pass on market leadership here? Do they not want to be the next Toyota? don't they like to make money?
Yeah, that's probably it, hehehey.
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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GreyFlcn Posted 1:19 am
26 Aug 2008
-David Ahlport
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Bob Wallace Posted 2:19 am
26 Aug 2008
Among us are some people with few, if any, moral principals and some people who are extraordinarily greedy. Given an opportunity these people will steal, even kill, to get what they want.
We have to protect ourselves from this small, but dangerous, subset of us.
Now once that we first recognize the problem that not all people are "good" we have to design our regulations in a way that minimize the ways that this group can harm the greater population. These people make it impossible to have truly "free" market economies.
Then let's recognize another fact about humans. Human behavior is controlled by consequences.
Humans will work harder, more efficiently, and in more innovate ways if economic systems are structured to reward hard work, efficiency, and innovation.
Making markets as free as the "crooks" allow means rapid solutions and progress. (At least compared to systems such as centrally controlled systems as we watched in the Soviet Union.)
Many people decry market regulation. I'm betting that some of them are the crooks who are frustrated by the roadblocks put up to control them.
Others may be people who recognize only the gains that free markets can bring and aren't including the need to control miscreants in their thinking.
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josullivan58 Posted 2:32 am
26 Aug 2008
David Roberts and Obama are not dirty hippies like most of the folks who comment here. ;)
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Paleocon Posted 5:11 am
26 Aug 2008
How much can the consumers take from the producers before the producers decide producing just isn't worth the effort?
People make decisions at the margin. Is it worth working to earn the next dollar if you only get to keep 35 cents?
By the way, there is exactly ZERO nobility in spending other people's money against their will. If Reich wants to redistribute wealth, let him redistribute all of his own.
If Bill Gates and Warren Buffet have a problem with capital gains taxes being too low, they are free to send all of the money they currently spend on their foundations straight to the IRS.
"...a 90 percent chance that the US has contributed .2 degrees F of temperature increase in the last 50 years..." The IPCC Consensus in perspective
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Sean Casten Posted 6:09 am
26 Aug 2008
Small business just happens to be less monopolistic Sean, if real regulation is kept up, big business would not be able to squash out competition.
That's true, but in a way that's not relevant. Small business is less monopolistic. It's also less successful. Society wins with less monopoly. But society loses if goods & services are only provided by small businesses that don't give their customers what they want.
This isn't to suggest that big = good, but rather that big doesn't = bad. Of course, regulation has a responsibility to protect against monopoly, but that shouldn't be conflated into a protection against big businesses. (After all, there's not much incentive to start a small business if you don't have the chance to someday become a big one!) Also bear in mind that a monopoly can be really hard to define, to the degree that we want to block out those types that interfere with the public good. The big company that uses it's clout to squash competition is bad. But the big company that sells a cheaper, better product and thereby keeps the smaller company with the more expensive, worse product from gaining a foothold isn't doing anything wrong (and indeed, acting to stop that company would be socially disadvantageous).
There are of course many shades of gray... but that's my point. It isn't accurate to suggest that big, or even market dominating is universally bad, any more than it is to suggest that small is good.
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hapa Posted 6:51 am
26 Aug 2008
well, there's tradecraft. not something you can brag about in the wharton alum magazine, though. unless your trade is "business."
but i forget, all our purpose in life now is to make MBAs feel good about themselves. everybody else, everyTHING else, can go hang!
even when you're looking into the abyss as a civilization, the business class's self-image is the most important aspect to protect.
how very skunky.
this isn't really about capital or whatever. this is about the problem with big institutions, what galbraith attributed once to corporations but i think works for public institutions also, in that you can work all your life in one of these offices and never know what real effect your personal work had on the wider world. you're blurred out of the overall picture of your organization.
and big civilization begets big institutions. with their own internal mercantilist tendencies. unstoppably so.
because of this, it's really important to get "the system" to "tell the ecological truth," as lester brown puts it, and The Question we face now is whether the momentum of the big insitutions' outdated thinking, outdated assumptions about resource use -- will "the ecological truth" ever get told while it matters.
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Paleocon Posted 6:57 am
26 Aug 2008
"...even when you're looking into the abyss as a civilization..."
Please explain to those of us who see with eyes filled with wonder the progress in the world that has lifted so many beyond subsistence living.
What fuels your boundless hatred?
"...a 90 percent chance that the US has contributed .2 degrees F of temperature increase in the last 50 years..." The IPCC Consensus in perspective
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hapa Posted 7:50 am
26 Aug 2008
...it's coffee. but at other times, considering the rear-guard resistance the forces of ostrich-ness (such as yourself) are mounting against replacing dirty equipment with clean, against not poisoning all the fish in the ocean, not using up all the fresh water we get for free, not turning all the soil into salty dust -- when i think of all that know-nothing self-destructive behavior, my boundless hatred really just crumbles away and i wonder if any civilization will ever rise to fight off a true existential threat of its own devising. that'd be a neat trick.
ask wolverine, though. my standards on that stuff are pretty low, and i'll paint the wagon any color you want if that's what it takes to get you to pull it with me. but if you won't, nobody was expecting anything better.
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Sean Casten Posted 8:02 am
26 Aug 2008
Ignore the labels though and business is simply the vehicle by which resources are allocated (financial, human, and otherwise). If you like your job, your home, your dinner, your car, your computer... thank a business. This applies no less to the multinational with thousands of employees than it does to the small farmer - all of them are simply looking for ways to convert their intellectual assets into financial ones, for reasons that are no less noble for the size of their enterprise.
Which was my point. I have run small businesses, and struggled to make payroll as we waited for big orders to come through, knowing that if they didn't come through I would have to lay folks off and potentially wind down the operation. Being in that situation sucks. And the only reason you stay with it (unless you're a masochist) is because you believe that your idea has merit, you'll get through these slow times and you will eventually grow your business to a point where it is self sustaining and paying you back for all the sweat you poured in when it struggled.
So now let's contemplate a world where all Big Businesses are Bad and all Small Businesses are Super, with huge supports to the latter and huge penalties on the former. If nothing else, that world kills the entrepreneurial spirit. The first time you struggle to make payroll, you simply shut the doors. Why live with that stress when there are so many easier ways to feed your family - and no potential for upside if you succeed? Join the civil service, get a steady paycheck and de-stress. (The french economy is a close approximation of this model, although they do throw massive supports at their big businesses too.)
So do entrepreneurs start businesses just to "feel good about themselves"? Not in my experience. Indeed, most of the small - and large - business owners I know are motivated much more by a desire to impact the wider world in some way beyond what they can accomplish elsewhere. Not all of course, but many more than your stereotype would suggest. Many simply conclude - as I have - that if one wants to make a positive difference in the world, there are greater opportunities to do so via a business that can leverage it's financial and human resources than via any other path. Maybe you personally have concluded that you can affect more positive change through another path. That's fine, and it's your choice. But why begrudge the motivations of those who have choose differently?
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hapa Posted 8:24 am
26 Aug 2008
Ignore the labels though and business is simply the vehicle by which resources are allocated (financial, human, and otherwise).
exactly. and how have we allocated those resources? we blew them away. spent several lifetimes' supplies of good provisions to puff ourselves up and pad our bank accounts.
do i get to thank a business for the dark hole in front of us? no! for that, i have to thank, what, providence? bad luck? poor governance maybe?
anybody but the nice ladies and gentlemen in the middle class homes and nice cars and all that. they're following their dreams.
So do entrepreneurs start businesses just to "feel good about themselves"? Not in my experience. Indeed, most of the small - and large - business owners I know are motivated much more by a desire to impact the wider world in some way beyond what they can accomplish elsewhere.
and they have. they built the best possible fictional future and made themselves stars of it. all of us have.
you think i don't know that big name business school grads are idealistic. i know that. the issue that has to be raised is why anyone whose ideal is making the physical world irrelevant to human affairs should ever be allowed to wield power.
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caniscandida Posted 8:30 am
26 Aug 2008
Chickens deserve our true friendship! So do fish! So do other sentient beings! Let us learn to be kind.
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Pangolin Posted 10:07 am
26 Aug 2008
Without a major corporation to ride herd on them and force them to work 50-60 hour weeks a whole lot of people work some slack into their schedule. Then they spend that time doing that civic engagement stuff that actually makes towns and cities work as places to live. They donate stuff to local charities when WalMart refuses to.
Small business people didn't have enough clout to purchase large chunks of rice land, get them zoned as suburban housing instead of wetlands like they started out and build houses in a flood zone there. It's called Natomas California and it's being foreclosed on by other big businesses called banks that wrote mortgages on land that can't get flood insurance.
While small business can pollute, log, pave and fill with the best of them the sheer lack of capital to bribe their way through opposition limits the scale of resulting disasters.
You take what you can get.
Put the Carbon Back
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Colin Wright Posted 3:39 pm
26 Aug 2008
Our part of the bargain is just to sit back, watch ads and consume. Global warming is just another investment opportunity for these giants. Wait and see!
And speaking of the Olympics, don't you think that China Inc is probably the world's largest successful corporation?
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Biodiversivist Posted 3:59 pm
26 Aug 2008
We all have a propensity to place ourselves and/or our proclivities upon pillars, but most business owners I know, and I know a lot of them, are in it, by far and away, for the money. Look at the businesses around you. How can repairing cars, building houses, or baking goods "impact the wider world in some way beyond what they can accomplish elsewhere?" The profit motive is neither good or bad. It is a quest for higher status by social primates with the urge to seek it built into their genes. Controlling the labors of others is the most efficient way to build wealth. Always has been, always will be. No need to sugar coat it.
In the end, it all comes down to biodiversity. Poison Darts--Protecting the biodiversity of our world
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amazingdrx Posted 4:24 pm
26 Aug 2008
Strange but true bio-d. The money follows the golden rule. Small business depends on reputation and repeat business, a reference from customers so to speak.
A prospective client today got to meet a long term client. I pointed out after he left, he has been with us 5 years, and just signed another contract a few months ago.
While other small businesses and (bigger ones) in this same field in my area have huge loss rates from lack of business, my losses are a few percent of total sales.
A strange way to conduct absolutely competitive capitalism? It works for me. Of course I also keep overhead to an absolute minimum with ever increasing productivity and watch my pricing carefully.
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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amazingdrx Posted 4:42 pm
26 Aug 2008
Big business need not be more monopolistic Sean. If markets are properly regulated.
Small business wouldn't be pushed out with lower than cost pricing by a Walmart for instance, if the true cost of production were reflected in the price of the goods. The currency manipulation, price fixing, taxes, subsidies, in China where Walmart manufactures and in the US where a small business opeartes, skew everything.
Small and large, business could compete on the level if these factors could somehow be equalized. That would constitute real competitive capitalism from the smallest to the largest.
Mass production makes big business inherently monopolistic you say? Why not give small business access to the goods mass produced at a fair price? It's a possibility. If small biz could aquire a walmart product at factory price, why couldn't it be vended just as profitably as walmart sells it?
Provide the much better pesonal service that small biz does best and beat them at their own game. Access to the factory is the choke point for the Walmart monopoly gaming.
I'm anti-monopoly business. Only against unregulated big business as it now operates, not against big business per se, simply because of its size.
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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Sean Casten Posted 11:19 pm
26 Aug 2008
But my larger point is psychological. As an employer always trying to figure out how to motivate employees, and as a guy who's had the pleasure to know a lot of fellow CEO's, I can assure you that money is never a long-term motivator. The day you get a raise, you're psyched. Three weeks later, you've convinced yourself that you simply got your due and it no longer motivates. Those who actually stick with a company through the ups and downs are always motivated by something other than $, or else they wouldn't stay there. It's why the best and longest-lived companies (and indeed, some of the biggest ones) are those who's missions espouse a non-financial goal, and then run the company consistent with that mission. Check out Jim Collins' book Good to Great for all sorts of fascinating data points on that topic.
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Sean Casten Posted 11:47 pm
26 Aug 2008
The bigger the business, the greater the brand recognition. Crest toothpaste may not be a monopoly, and their toothpaste may be worse than Dr. X's Magical Whitening Dentu-scrub. But if both of them are on the same rack, Crest will sell more simply on brand strength. The only way Dr. X competes is to get big so that their brand is also recognized.
The bigger the business, the greater their ability to invest in capital-intensive production and then run at the marginal cost. To wit, let's say it costs $100 million to build a factory and $2 to manufacture a widget. If I'm big enough to have built that factory, I can now sell widgets at a profit at any price down to $2.01 per widget. I'd prefer to sell them for more, but in the face of competition, I'll lower my price. The small business who'd like to enter that space goes to the bank to get a loan and the bank officer says "widgets are selling for $2.01, which means it will take decades for you to earn enough pennies to pay off the loan. No thank you." (Note that this is true even if your widget manufacturing process has a slightly lower unit cost of production.) This is precisely what happens in the petroleum refining business, where returns on invested capital are terrible... but by virtue of that, it is really hard for alternative fuels to get a toehold. And it's not illegal - just a function of size.
The bigger the business, the greater their ability to monitor, respond to - and at some level, even influence - broader market and regulatory trends. Small businesses don't have gov't affairs offices. On the one hand, this means they can't lobby nearly as effectively, for better or for worse. But on the other, it means they are much less informed about pending regulatory changes, including those that could completely upend their business model. (This applies broadly to all external factors, from the emergence of new competitive products to changing market preferences.)
The bigger the business, the greater their access to capital, creating a virtuous (or vicious, depending on your perspective) cycle of winners accruing the spoils. If I have a small retail shop with limited cash flow, I've got a damn hard time getting cash to build a second shop. On the other hand, if I have 10 retail shops, I can probably put a business plan together extolling the success of our management team to raise money for a national franchise roll out and become the next Starbucks. Thus, the little guy struggles to make payroll while the big guy grows exponentially into little guy's market.
I could go on - but my point through all of these is that a bigger business naturally creates barriers to entry that are not always monopolistic in the legal sense, but absolutely serve to make it harder for competitors to emerge. It's why I wrote here that no business likes competition - and as you say, it is the role of the regulator to ensure that competitive markets remain in spite of these desires.
But the larger logical thread is thus. Small business + success = big(ger) business. More successful businesses = more difficult competitive landscape = harder for new market entrants to join the fray.
But bigger businesses that are providing better quality, more competitively priced goods & services and therefore making it harder for new entrants to join the market is not necessarily bad for society, even though it does pass some definitions of monopoly behavior. Ergo, a blanket embrace of small businesses can actually be a bad thing.
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Biodiversivist Posted 7:29 am
27 Aug 2008
"No shortage of research has shown that people start and stay at companies for reasons that. go well beyond $, pace Maslow."
If so, I certainly don't disagree. There are lots of reasons people start businesses and lots of reasons why an employee sticks with a given employer. Certainly, when I think back on why I started a business, the potential for greatly enhanced material gain was not the sole motivation. Certainly, if it were illegal for a business owner to make more than his or her employees, we would see a lot fewer entrepreneurs.
Parsing out which motivation of the many had the highest priority probably isn't possible. There is usually more than a single motive behind most major decisions. Buying a yellow Hummer or shiny red Prius is certainly a way to display status, but it is also a way to get around (and produce less CO2 in the case of the Prius).
But that wasn't my point exactly. I was poo pooing the statement "...business owners I know are motivated much more by a desire to impact the wider world in some way beyond what they can accomplish elsewhere."
Certainly, the business owners I know are hoping to impact their personal world just a little bit more than they are the wider world. They own restaurant and pharmacy chains, theaters, racetracks, law firms, hardware stores, rental properties, medical clinics, you name it.
OK, that addresses my initial comment. Your next comment has some interesting thoughts as well.
Indeed, the vast majority of the entrepreneurs our there are running small/mid-sized businesses that are long on equity and short on cash (translation: they'd make more money if they took a job working for The Man).
True, but they're all working hard to change that fact. Starting a business is a lot like playing a lottery. If you don't play the game, you have zero chance of winning. You cannot, statistically speaking, become wealthy as an employee (working for the man). To do that you have to own a business/play the lottery. The potential for greater material gain is why people play the lottery and one of the major motivations (not the sole motivation) for starting a business, statistically speaking, with exceptions to found here and there.
But my larger point is psychological. As an employer always trying to figure out how to motivate employees, and as a guy who's had the pleasure to know a lot of fellow CEO's, I can assure you that money is never a long-term motivator.
Maybe I misinterpreted what you just said. But if you just said that today's grossly overcompensated CEOs are not motivated by money, I have to disagree. And what employer isn't on an endless quest to find ways to get more from their employees without having to pay them more? What message would an employer want to hear more than "paying them more won't motivate them in the long term!" Good luck motivating your employees without giving them raises or paying them market rates--I'm being facetious :-)
The day you get a raise, you're psyched. Three weeks later, you've convinced yourself that you simply got your due and it no longer motivates.
This is not only true, but also a common everyday observation. Every once in a while a researcher will manage to discover what is already common knowledge in the real world. A raise or promotion kicks off a surge of endorphins but we soon acclimate. Yet knowing that to be true does not seem to quell the itch to make as much as one's cubicle mate. It's all relative. Employees instinctively, subconsciously, look to their peers to see where they rank in their status hierarchy. But this is as true for a business owner as it is for an employee. That's why business owners strive to grow their business. That's why Mulally left Boeing to be top dog at Ford. Although, if you were to ask Mulally why he left I wouldn't be surprised to hear something like "...a desire to impact the wider world." Business owners and employees will always struggle to increase their status in their respective monkey troops. Look around. CEOs also instinctively, subconsciously gravitate to appropriate peer groups of similar status levels.
Those who actually stick with a company through the ups and downs are always motivated by something other than $, or else they wouldn't stay there.
True, things like being unable to get another job, or being terrified of loosing their Medical insurance, or unwilling to move the family, start a new career, learn new skills and on and on. One would be hard pressed to find an employee who would work for no pay out of loyalty to his or her CEO. This isn't Japan. Japanese CEOs make a pittance compared to our version.
It's why the best and longest-lived companies (and indeed, some of the biggest ones) are those who's missions espouse a non-financial goal, and then run the company consistent with that mission. Check out Jim Collins' book Good to Great for all sorts of fascinating data points on that topic
Didn't read it but took a quick look at the reviews on Amazon.com. I'm going to pass on that one. Having been an employee inside a giant aerospace company bureaucracy, it was at times fascinating to watch its inner workings. I understand now what makes bureaucracies so brutally inefficient, and what brought the Soviet Union down!. I use the phrase "Emperor Syndrome" to describe the feelings of omnipotence that overcomes those of us put into leadership positions where mistakes cannot be measured. Over the years the company would try out one motivational guru's ideas after another--the "Five S's" being one of the most long-lived and ridiculous. Don't ask me what each "S" stood for, I never bothered to find out.
If the magic motivational bullet were to ever be discovered all employers would rapidly deploy it, resetting the bar and the competition would just start all over again. Clearly, there is more than one way to maximize profit. Happiness is not a steady state.
In the end, it all comes down to biodiversity. Poison Darts--Protecting the biodiversity of our world
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Sean Casten Posted 8:13 am
27 Aug 2008
I was poo pooing the statement "...business owners I know are motivated much more by a desire to impact the wider world in some way beyond what they can accomplish elsewhere."
I get it, and we're talking past one another. Pick a thing that a reasonable person might want to accomplish with their lives, in a self-actualizing, Maslowian way. Feed the poor. Protect the forests. Advance technologies for healthcare. Whatever. The professional question confronting an individual who seeks to accomplish one of those goals is "ok, so what job will you take to allow you to fulfill that goal?"
Some conclude that the best way to meet those goals is through government, and either pursue an elected or appointed route. Others don't want to be constrained by periodic shifts in policy, so they take the NGO / non-profit route. Others conclude academia is the place to be. And others conclude that none of those options provides the ability to leverage one's activities that is created in a for-profit business dedicated to those ends. (Count yours-truly among the latter camp.)
All of those conclusions have merit, and the world certainly benefits from having well-motivated people in all sectors. My point was simply that the stereotype of the corporate fatcat, motivated by nothing other than bonuses to gold plate the Cessna is utterly at odds with the reality of a huge number of people who enter business because they believe it is the best vehicle to achieve some broader purpose. This purpose may or may not be one you or I would personally find noble, but they are non-financial. (e.g., it may just be a geeky kid who wants to play with computers all day and be able to pay his own rent. That kid might stay in academia, might get a job with DARPA or might try to start a software company. In all cases, he can meet his - non-financial - life agenda.)
Re:
today's grossly overcompensated CEOs are not motivated by money, I have to disagree.
Again, be careful with the stereotypes. Fat bonuses to high-profile CEOs make good media copy, but they create the perception that most CEOs have huge pay packages. This isn't true (it certainly isn't for me!) But the majority of the poorly compensated dudes (excuse the personal judgment) don't make for a good magazine copy. Indeed, given the number of CEOs I interact with, I have a really hard time believing even those national statistics that claim that the average CEO makes hideous multiple of the average employee. My only guess is that this is a case where the average is wildly in excess of the mean - all my intuition says that for every Richard Grasso there are dozens of CEOs making just a few $K more than the rest of their team (in part because the really gaudy pay packages are only for the high profile public companies. The majority of companies - and hence, the majority of CEOs - are neither.) I can't prove the theory. But I'm sticking with it!
Finally, re: Good to Great, think about taking a closer look. I find 99% of the world's business books to be utter crap, mistaking alliterative rhymes and personal pronouns for wisdom. This one's different - they essentially asked if they could find any companies that consistently out-performed their competition and had a direct competitor at the start of a long ~ 20 year period (picked to be long enough to cover at least two CEOs) who failed to keep pace - but were successful in their own right during the period. They found only a dozen or so companies that fit that bill, and then sought to find commonalities between them to try and figure out what separated really successful companies from others.
The really interesting conclusion is that the commonalities are the opposite of conventional wisdom... as interesting things so often are. None of them had a CEO you could name. No Lee Iacoccas or Jack Welch's in the mix. (Not surprising, as it suggested that the corporate culture is bigger than the CEO's personality.) All of them had a passionate mission that was mirrored in what they did, and making $ was subservient to that mission. All of them focused on doing one thing really well, which all could articulate.
Here endeth the book report. My suggestion is simply because it does a much better job of reflecting the reality inside many companies that the stereotypes and business trade rags do - all of which would have you believe that money trumps all, big CEO personalities add value and the best companies are always adapting their strategy. Turns out that for the most profitable companies, none of these things are true.
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Jon Rynn Posted 9:05 am
27 Aug 2008
Robert Rubin is about as right-wing as someone can get and still have any ability to be called a Democrat, if being a Democrat has any meaning as something more "progressive" than Republicans. Robert Reich is about as "left" as one can get in the Democratic party, outside of a few Congressman (and remember Bernie Sanders is not in the Democratic party), and still be considered "relevant", but he certainly isn't on the "far left" according to any standard in European politics, for instance (most "conservative" parties in Europe are to the "left" of the Democratic party anyway).
The "left" idea that is completely ignored, to get back to my first paragraph, is the idea of government intervention in the economy, something the economist James Galbraith has discussed, but almost nobody else. I personally find that disappointing because, considering the huge ecological and economic problems we are facing, government intervention should at least be on the table. During WWII one third of the GDP was controlled by the government, which in today's dollars would be close to $5 trillion -- was that so bad? Should we have used market forces to win WWII?
It doesn't make sense to me to declare that life as we know it may be extinguished on Earth and then to dismiss out of hand the idea of simply rebuilding the society in sustainable ways, via a long and drawn-out participatory process of deciding on the best way to do that, using government resources. But even though at one time Robert Reich actually wrote a whole book on what used to be called "industrial policy", sort of government intervention-lite, I doubt he seriously considers it now. But we should.
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Head Coach Posted 10:52 am
27 Aug 2008
I believe where we lost it was when doing the right thing became an option. Its been a slippery slope ever since.
My best,
Mark Walker
Head Coach
Marketing Whisperers, Ltd.
http://www.marketingwhisperers.com
(425) 327-5548
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hapa Posted 3:49 am
29 Aug 2008
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fredfreemarket Posted 12:46 pm
22 Oct 2008
You people obviously have very little business experience. How is taking money from one area of the economy and giving it to another an "advantage" of any kind? It is extremely innefficient! What you are talking about is a net loss after it works it's way through government hands!
Fred Freemarket
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