To paraphrase Winston Churchill, the American economic system is the worst one there is, except for all the others.

The system is not perfect. Over the last 25 years I have seen horrifying hardships wrought on hundreds (actually, now that I think of it, the number easily exceeds a thousand) of hard-working employees by the unchecked exercise of crony capitalism and by management for the benefit of managers, their bonuses and their parachute packages at the expense of the actual business. Mind you, the corruption is not universal, but it happens far more than you might think could even be possible.

However, solving those problems without killing the goose that lays the golden eggs presents a real live conundrum.

So, HT, what is stopping you from running a business with perfect transparency where you give all your money to your employees and take on all the risks yourself? (kinda like G.M.)

There is no conundrum. You can solve it yourself.

HT:

Easy enough to just pass a law that limits executive compensation to a set factor of his average employees salary.

big companies are dinosaurs.

"neither the '91 nor the '01 slowdowns will be considered recessions any longer. "

What will they called then?

Corrections? Hiccups?

Randall: the situations I mentioned were not cases of noble entrepreneurs risking their own money to hew a business out of the wilderness with their own two hands. They were managers playing with OPM (other people's money), specifically in publicly traded corporations. One fellow was chairman because his father was chairman. Another got his job as business unit president by assiduous apple-polishing and in turn hired a bunch of his completely unqualified cronies as senior managers. A third (another second generation chairman) took a company private thinking he and a select group of friends would score a quick profit. All of these individuals eventually fell back on the trick of slashing capital spending to zero and laying people off to bolster short term results at the expense of the long term survival of the business. Between them, they managed to close five manufacturing facilities and cost about 1500 people their jobs. Eventually, all were displaced as a result of mergers or forced sales which cost them their power base, but not until each had made millions in unwarranted compensation and received lovely parting gifts.

Another example, and a piece of advice. A lower-ranking individual I know (senior VP of sales) was an incompetent. He received his job because of, and staffed the organization under him, on the Crony Principle. Under his management, his business unit lost approximately $600 million in business (25% of the total) over the space of three years. Actually, now that I think about it, at least four facilities with another 4,000 employees disappeared as a result, so add that to my total in the first post. He was eventually "laid off" in a reorganization. Following this debacle, I am aware of a particular job application he made to another company, complete with glowing letters of reference describing his inspiring leadership and brilliant performance. The secret? All of the referrals came from his crony boss and underlings, who knew the jig was up at Company A and were hoping he would be able to hire them again at Company B! They talked about everything except the actual sales results, which leads to my piece of advice: never hire a sales manager whose resume and referrals don't tell you what his (or her) actual sales results were.

OJ: while I agree that executive compensation has become completely de-linked from actual performance and is generally decided upon by golfing buddies who pack boards of directors around the country, limiting it will only reduce the size of the prize, not eliminate the scourge of cronyism. Reforming or replacing boards of directors around the country would be a start, but the system is so entrenched that even well-connected dissidents can only muster 20-30% support (as at Disney, which is another great example of the problem, albeit one that I know only from the public records, never having actually worked there).

the system is self-correcting, just ask bernie or dennis.

cjm: none of the examples I cited have anything to do with fraud, and only involve theft in the moral, not the legal, sense. There is an old saying that democracy can only last until the majority figures out that it can vote itself benefits at the expense of someone else; Crony Capitalism has the same drawback, except it's generally senior managers doing it at the expense of shareholders and employees.

I didn't say that I support socialism as a result of my experience. I merely pointed out that there are problems with the American system that cause a great deal of economic inefficiency, individual suffering, and "breakage" in the process of generating, on average, acceptable results.

More shareholder control and auditing of publicly held businesses would probably be the least dangerous way to go, but the act of reform probably offers as many risks as rewards.

Hence, my initial "conundrum" comment.

cjm:

You're talking about crime, HT is talking about incompetence ansd self-dealing.

i was giving an example of self-correction. the self-correction in your examples of incompetence is implicit -- the lost business went to a competitor. socialism is unique in that it can subtract value in absolute terms, from a society.

we don't have a democracy, we have a republic.

we are on the verge of a huge paradigm shift; t. rex is going down and going down hard. ask aog.

cjm:

Not necessarily.

Wal~Mart is the world's largest retailer, and it got that way by being the firstest and the bestus at using IT - a process that they aren't slowing down. All Wal~Mart suppliers will be required to use RFID tags in the near future.

Toyota is a huge corp., and it's a very well-run company.

GE ain't going away.
Ditto P&G.

Point being, a well-run huge company is going to beat the tar out of a Mom & Pop three out of four times.

Hopefully we'll have more, and more successful, small businesses in the future, but they won't replace big business.

toyota already farms out a lot of its design work.

the media companies are way beyond obsolete.

wal-mart has peaked but might survive.

not every big company will die off but i think they will hollow out and become "master nodes" that direct the efforts of many sub-nodes.

the 19th century business model is going the way of the dodo, but that doesn't mean there won't be whales and elephants.

insurance companies i think are doomed because they don't really offer much value compared to their cost over-heads.

The American people don't need no stinkin' stats.

I'm not going to completely agree with cjm, but I think that one can make a strong case for the "Hollywood Studio" model becoming more prevelant, where the big corporation does very little itself but organizes the work of a large number of small, independent units, like a studio does the director, producer, actors, gaffers, special effects, marketing, etc. That would be very similar to what cjm describes as "hollowing out".