Morte on 16/3/2009 at 12:10

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You've likely been told this by raging Friedmanites though. You can have a mixture of free market, regulation and (*gasp*) state-run companies that doesn't let people get away with the sort of abuse we've been seeing while still providing plenty of economic freedom.

Kaleid on 16/3/2009 at 14:08

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There's nothing unique about Jim Cramer
"What he did and the excuses he offered are ones that are embraced as gospel to this day by most of our establishment press corps, and to know that this is true, just look at what they do and say about their roles..."
(http://www.salon.com/opinion/greenwald/2009/03/13/cramer/index.html)

Gryzemuis on 16/3/2009 at 15:52

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There are many reasons why things aren't going as we hope they'd go. And imho the reason for that is that some of the fundamentals of how to run businesses, and how to run societies are gone wrong. Basic ideas on how things should work. Let me give a few examples, and let me try to explain what It think.

*) Who is in control of a company ?
It used to be that companies were owned by their founders and their families. Then it changed to stockholders. Then a lot of individuals started to become stockholers. As a result, companies are now owned by large investment companies, like pension funds, and by many small investors. The big investment companies seem to not care about how companies are run. They might think that they will get away from problems by selling and buying other stock in time. I've seen cases where large pension funds in Europe refused to vote against company decisions, because they didn't care. And the small stockholders are divided so much, that they can't have any influence.

As a result, it's the execs and the board of directors that run a company. Who appoint and hire each other. A very small group, with no control from outside. They reward each other richly, regardless of how a company is doing. Especially long term. They take no risk. The worst that can happen is they get fired. But they don't risk their own money. And they don't risk being arrested.

Companies need to be run by people who have an interest in the long-term success of their company.

*) Investment is based on making profits because of growth.
In the past, companies paid dividends. You invest $100 in a company, and hope to make $5 dividend per year from it. A little more than interest on a savings account. On top of that your company might grow a little.

For some reason (tax related), no company pays dividend anymore. They all promise their stockholder that they will grow each year. The problem is, unlimited growth is not possible. Not in the long term. Even if a particular company can grow for years, that doesn't mean all public companies can. And if they could grow, I'd say that huge growth is bad for people and the environment. Which brings me to my next point:

*) Growth is not always good.
It seems prosperity is measured only in how many dollars or euros change hands per year. The more money changes hands, the better the economy, and the better everyone does. That's nonsense imho. Even if you would look at only the amount of goods being produced, that does not relate to "how happy" a nation is. How well they did.

The idea of prosperity has been influenced by american thinking. A big car is better than a smaller car. Eating a doubleburger is better than a hamburger. Owning a 50" tv is better than a 40" tv. Etc. But the question is, will a new cellphone each year really make you happier ? I'd say that society should look at goals that we really want to achieve, and focus on those.

An example is housing. I think that how you live has a huge impact on how happy you are. If you have your own house, with a guarden, quiet, with a nice view, will make you a zillion times more happy than driving a BMW or having a new cellphone. However, the housing market is driven by many indirect forces. E.g. in my country land is scarce, and authorities keep it scarce. Bank, taxes, all have impact on making sure that existing house prices are kept high, and no new houses enter the market. This is done to protect financial interests of certain institutions and individuals.

*) Private companies are not always better than state-owned.
In europe we have privatized a lot of companies. Our telephone companies, cable companies, energy producers, energy transport, hospitals, public transport, you name it. First of all, I don't believe that private companies can do things cheaper than state-owned companies. We have lots of examples. Execs paying themselves too much, execs starting crazy projects, etc.

As an example: I believe that because of changes in cost in telephone technology, we could have had a flatcost phone network countrywide in my country. Digital technology and fibre bandwith allows that now. But because private phone companies need to maximize profit, we are still charged per time and distance.

We have privatised energy companies. But I still can't chose, because there's only 1 gas pipe and 1 electricity cable running along the road. Costs have gone up by a lot since privatization. And I still can't chose. Each city and village used to have a "central antenna system". Now we are forced to buy cable, and pay 10 times more than we did before.

*) Upscaling business is not always good.
For many years companies have merged. Or bought each other. To form huge internationals. Huge companies are harder to control. By either stockholders and by government. Same with schools and hospitals. I went to a highschool with 500 students (6 years school). Do you really think a school with 2k or 3k students would run more efficient ? Nope. And for sure it will be less fun. In my country we privatized energy companies. And now they want to sell them off to foreign energy companies. Do I really want the spanish to run a nuclear powerplant in my country ?

Mmmm, I typed a lot more than I intended. And I could go on for a while.

The idea is: some of the ideas that got forced upon us were not improvements. We need to rethink those. But current business leaders don't care. They want short term profits. And they want to maximize their own salaries, bonuses and stock options. Politicians don't care, because they only care about their own elections. And they are too stupid to think outside the box.

Chade on 16/3/2009 at 23:42

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Hrmm, I don't generally consider myself a champion of the free markets. As far as I can see, the libertarians have gone off on their own little tangent and divorced themselves from mainstream economic opinion (not that I know a lot about mainstream economic opinion).

But having said that, there seem to be a lot of statements here that seem iffy to me, at best. I don't mean to pick on LittleFlower, but it's more convienient to respond to one post.

"They reward each other richly, regardless of how a company is doing ... They take no risk ... they don't risk their own money"

While I certainly wouldn't argue that CEO's pay is fair, I am pretty sure this statement is just blatantly untrue, especially in America. I think roughly 80-90% of a CEO's pay (on average) is in shares - now mostly worthless. Note that unlike Enron, there hasn't been any (many?) cases of CEO's withdrawing stock just before their companies crashed. Of course they were paid plenty in cash too ... but they still lost a lot of money.

"For some reason (tax related), no company pays dividend anymore."

Again, AFAIK this is just blatently untrue. Even if it was true, I'm not really sure what it has to do with anything. Other then leading up to a rant about growth.

(As far as the whole growth/greed thing is concerned, I think there is a darwinistic thing going on here ... if you don't pursue growth, ten years later your company will have faded into obscurity, and you won't be a major player on the market. So over time the major players will be ones that care about growth. Same with countries, although I'm not sure how this will play out in the long run. Also, the stability of the financial system might be a common good. After all, it's not like Germany or Japan have fared any better then America or Britain in this crisis (high savings and high debt are two sides of the same coin anyway).)

The rest of your post is more reasonable, but still doesn't sit quite right with me. For instance:

"I don't believe that private companies can do things cheaper than state-owned companies ... [comparison of prices]"

This is fair enough, and you make a good point about monopolies. (Even Adam Smith recognised this... something to keep in mind when talking to a libertarian. :p)

But you can't directly compare costs between private and public companies ... this is usually a bogus comparison, because public companies often make a loss. So some (a lot) of the cost is hidden in the form of taxes.

"For many years companies have merged... To form huge internationals. Huge companies are harder to control"

This is not quite right. People are much smarter about merges then they were a century ago. AFAIK there has actually been a lot of research on this issue ... merging is something that can be good or bad, depending on the two companies involved and the economic climate.

jay pettitt on 17/3/2009 at 01:09

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You seem to be placing 'the government' in charge of quite a lot there Scots. Colour me just a tiny bit nervous.
(jay has OU essay to do, but I'll read the thread properly tomorrow and see if we can't put the world to rights dammit)