Monday, November 30, 2009

No more executive bonuses!

I very much like the article in today's Wall Street Journal by Henry Mintzberg. I think he has the right idea. He sees the business firm as a community of people, and executives as leaders and members of that community. He also argues that the success or failure of a business can not be attributed to one or a few individuals with exalted titles. Under these conditions, bonuses can not be justified as in any sense deserved. Bonuses send the wrong message to employees, namely that their contributions to the firm don't matter. And bonuses create incentives for excessive risk-taking and short-term decision-making. It's better to loot the firm's intangible assets for short-term profit gains than to tend the business for a sustainable future.

Economists have a lot to answer for here, too. Once we began teaching that workers were interchangeable parts like machines, and just as replaceable, we opened the way for the idea that there is really only one person who counts in a business, and that's the CEO. While it may be a convenient way to model labor markets for some purposes, the unintended effects on business behavior, especially compensation practices, have been devastating. Not only the growing inequality of the American income distribution and American society, but also the modern wave of business scandals and the financial collapse of 2008 have their roots in this type of thinking. We need more people to say it out loud, as Prof. Mintzberg has.

Tuesday, November 24, 2009

I liked David Brook's framing of the health care debate as "The Values Question." He sums up the dilemma succinctly:

The bottom line is that we face a brutal choice.

Reform would make us a more decent society, but also a less vibrant one. It would ease the anxiety of millions at the cost of future growth. It would heal a wound in the social fabric while piling another expensive and untouchable promise on top of the many such promises we’ve already made. America would be a less youthful, ragged and unforgiving nation, and a more middle-aged, civilized and sedate one. [emphasis added]

I agree (mostly). He makes a strong assumption concerning the disastrous level of costs and drag on the economy from a revised health care approach. That may actually be the case, or it may turn out to be overstated. However, have we not also overestimated the boost to the economy of supply-side economics, and for that matter, underestimated the drag on the economy from the disparity in income and opportunity (e.g. lost H.C.)? I wonder, since we have erred on the side of allocation for so long, might it be time to err on the side of distribution and see what that might do for the well-being, and even productivity, of the nation? Is the choice between decency and vibrancy truly a zero-sum game?