Do you know what the difference is between a successful business and an unsuccessful one? No … not ‘connections in Washington’, but in the future that might be true. The real difference between a successful business and an unsuccessful business is how the business makes decisions.
I once worked for a multi-billion dollar company where the CFO had to personally sign off for any purchase over $2,500. This probably saved some money on unnecessary pencils and toilet paper, but it had a big downside too. The downside was that any spending that was necessary for the firm was made more difficult and took much longer to happen. This made them slower to respond to changes in the industry when compared to their peers. But the company had thought that through and decided that they would prefer to control costs than to be ahead of the pack.
Prior to working for that firm, I worked for another where on occasion, multi-million dollar spending decisions were made at a moment’s notice and with no specific approval from a senior staffer. This made spending money to stay ahead of the competition easy, but it was probably at a cost in dollar terms that was higher than necessary. As you would expect, they spent far more money than the first firm on nearly everything. But because that always put them ahead of the competition, they also made more money too.
The first company generated a profit by slow growth and an even slower growth of costs. The second company generated a profit by being faster and more responsive to their markets, even if it spent a little more than it should have. The different styles of decision making created two completely different kinds of companies, with very different strengths, weaknesses and corporate cultures. And it was all because of the how they made the single decision of who should approve purchases.
This is the actual effect of the profit motive on the private sector. It doesn’t create ‘corporate greed’ (whatever the hell that is) or funnel money out to shareholders that don’t deserve it. What it does is provides incentive to the companies to make their internal procedures as effective as possible. Successful companies learn to make decisions in a way that makes the most of their strengths and minimize their weaknesses because ‘profit’ is only what’s left after you pay everyone else. It’s elusive, and rare, and requires fanatical discipline, or creativity, or both. There are lots of ways to make a profit, but none of them are easy or certain. And as soon as you manage it, a dozen other people appear who are more than happy to do the same thing you’ve been doing for a little less. That’s the way a free market works and what it does.
And after reading the prior few paragraphs, you now know more about ‘producing a profit’ than Barak Obama does.
Obama, like almost everyone in Washington, is a creature of politics. He’s never actually done anything that resulted in a profit for anyone, so he’s never learned how decisions should be made or who should make them. He’s never learned any of the myriad of ways to make an organization respond to a changing reality. Instead, he’s been educated to believe that reality must simply be subordinated to politics rather than the other way around.
To him a political laudable goal like a clean environment or a ‘living wage’ should be achieved by fiat; by command of the government. And if reality doesn’t want to go along with that, then according to the political classes it should be bent and twisted until it does. For example, if using windmills to generate electricity costs more than using less politically appealing methods, and that higher cost forces some companies to lay off workers, according to Obama we should just give those companies a tax subsidy to make up the difference. That way we get our cake and can eat it too. He doesn’t consider that the subsidy he’s included in the equation has consequences of its own. To him that’s a totally separate issue.
This is the kind of thinking that has driven our heavy industry to Mexico, our mining to Canada, our farming to Chile and will soon drive our finance and healthcare industries over seas as well. Manufacturing went to Mexico because it was cheaper and easier to abandon the Midwest and build new factories in Juarez than it was to deal with the unions, the environmentalists and the parasitic bureaucrats in government. The mining industry went to Canada, not because we’re out of oil, but because we’ve placed it all off limits through federal exclusions. California’s San Joaquin valley was the best, most productive farmland in the world until environmental activists and their lawsuits shut off the water for irrigation. Now it’s reverted to desert and we get our vegetables from China and Chile. And instead of learning from these lessons from political decisions past, instead we’re planning on doing much much more of the same.
The Car industry is entering that ‘invasion of the body snatchers’ world where what’s left of them may look like a real company, but in reality they’re just empty shells for the slug like alien parasites from Washington latched tick like on to their spines. Going forward they will be as quick to innovate and embrace new technology as Amtrak has been since it began taking government assistance. And because of that, their decision making processes will atrophy and become as efficient as a congressional budget debate.
To make up for this, they’ll get huge ‘incentives’ from the government to make their products conform to politics rather than the reality of the free market. But while the government subsidies will make their otherwise unpopular cars cheap enough to sell, they will eventually drive Ford out of business and cause the foreign manufacturers to cut back as well. The banking industry will be equally infected (after a fashion) with Citicorp and AIG continuing to function at some greatly reduced level. They’ll take deposits and make the occasional loan to a politically important customer. But the vital parts of those firms – the specific people who have made them profitable though hard work and creativity – will all have left the banks for Hedge Funds and Private Equity firms based in the Caribbean and out of reach of the DC parasites. (some of you may say 'good riddance' to this, but you shouldn't. The people who remain will be the ones who wrecked the banking industry not the people who go.)
The government will be having its problems too. Making reality subordinate to politics is a tough and expensive business, and there never seems to be enough of other people’s money to make the whole thing add up. And this is where those ideas of a politically induced nirvana always seem to end. But rather than go round and round describing some monetary policy issue let me boil it down to something simple enough for even a Maxine Waters or a Joy Behar to understand. Obama’s real problem is unemployment. In a democracy like ours unemployment is the one place where actual reality translates immediately into political reality and even the worst sort of populist, double talking; corrupt and dishonest flim-flam artist turned congressman can understand that. Here’s how this works:
Obama has spent vast sums and plans to spend much much more, but the money needs to come from somewhere. If he raises taxes it slows economic growth and increases unemployment. This is especially true if he only raises taxes on the rich because it’s the rich that actually provide the jobs for the ‘not rich’. But even if he raises taxes on everyone there still isn’t enough, so he’ll also need to borrow. When he borrows he raises interest rates, which slow growth and raises unemployment, putting him right back where he started. So if he doesn’t want to raise taxes, and he doesn’t want higher interest rates, and he doesn’t want to stop spending money to bend reality match his political view, then he only has one other option. He’ll print money, but the debt himself, and destroy it. That’s called ‘monetizing the debt’ and the result is inevitable price inflation and the collapse of the value of the dollar.
Personally I think this is the way he’s going to go. It’s the easiest of the three options for him because it’s the one he can most credibly blame on someone else. When inflation comes, it won’t be him and his policies that are responsible for soaring prices but evil ‘speculators’ in oil, metals and other commodities. I’m sure he’s got a whole plan of action involving busses full of ACORN staffers and a complex set of price fixes and rationing rules where people with odd number plates fill up on odd number days etc. It’s all been done before, but it won’t stop us from doing it again.
And his first step will be to get rid of Ben Bernanke at the Fed, and replace him with someone more … amenable to the administrations’ view. He needs someone in that role who will take orders and tell the story he wants them to no matter what it’s effect. He needs someone who can convincingly go before congress and misrepresent whatever facts are required to make reality match politics. He needs someone who can live with inflation if it means that he gets more power for himself. He needs someone like … well like Tim Geithner, who has proven himself perfectly happy to deal with whatever consequences his actions cause so long as he can find someone else to credibly blame for it.
For all the criticism that I and others have heaped on him over the last 24 months, Ben Bernanke would NEVER stand by and intentionally let the Whitehouse create inflation. He’s too smart for that and far too careful… and that’s why they’re going to get rid of him in January. All told he hasn’t done a terrible job, in totally unprecedented circumstances, but that’s not nearly enough to save him. In the public sector, like the private, they have a way of making decisions. Those decisions are designed to help them reach their goals... not of profit, but of power. And if you stand in the way of that you are out, no matter how sharp you are.
Look for Ben to ‘have a deep desire to return to academic life’ when his term is up in January. And brace yourself when he does.
