Archive for February, 2007
There has been a flurry of arguments about inequality ever since Bernanke made his remarks on the subject, a few weeks ago. After wading through these arguments - which Mankiw (correctly) sums up as all coming back to Rawls versus Nozick, one concludes that this argument could go on forever because there is little or no basis for rational agreement. But there is a new, more promising way of framing the issue that comes out of left-libertarianism.
Although Rawls in A Theory of Justice developed a complex and elegant argument to show that if self-interested, rational people were engaged in a bargaining game to establish a society they would agree on limiting inequalities to those that benefit the least advantaged group, there are a number of reasons why this argument is not convincing. For one thing, we are not in the position of establishing a society so it is not very relevant (we might very well be willing to accept such a society if we were born into it but that is not the same as being willing to change from our current system to that one). Also Nozick’s counter-argument in Anarchy, State, and Utopia is, I believe, devastating: that such a “patterned” system would require redistribution after virtually every transaction (because it would likely undo the previously acceptable distribution) and would be unjust because it would conflict with any kind of property right or “entitlement.”
Where does this leave us? The predominant view is that this is just one of many examples of our inability to find common ground for values and we simply have no choice but to accept this state of affairs. Others, such as Alasdair MacIntyre (see After Virtue) argue that this is the result of the failure of the “enlightenment project” which, in destroying the traditional religious and Aristotelian context for morality and failing to establish a new one, left modernity with fragments of what was once morality without providing a common ground for values. As a result, our debates about values ultimately rest on personal feelings or opinion and take the form of “my goal is better than your goal.”
Whether Gretchen Morgenson has stepped near the edge or over it in her recent column Memo to Shareholders: Shut Up seems to be triggering a debate. Brad DeLong introduces it in his blog - Gretchen Morgenson Has Eaten Her Wheaties, and Tears into Marty Lipton… with: “Marty Lipton has driven the New York Times’s Gretchen Morgenson into shrillness:”
Gretchen says that efforts by shareholders to make directors more accountable to owners seem to be working. The proof is that Martin Lipton, the country’s premier takeover lawyer and inventor of the poison pill, is complaining that many board of director candidates are declining to serve. He claims that the activists are “destroying the role, focus and collegiality of the board of directors” and that it is “time to recognize the threat to our economy and reverse the trend.” Morgenson argues that if this were really a problem, the costs of directors’ and officers’ liability insurance would be skyrocketing. But instead, these costs have plummeted by almost 40% in 2005 and another 10% last year. She ends by saying “Mr. Lipton’s fear-mongering . . . won’t stop the train.”
I hope she is right, that the worm is turning, that publicizing the undeserved rewards given to executives even though they have clearly screwed up will curb the behavior. I also hope that board members are forced to take their responsibilities more seriously.
But anyone who has been a CEO, worked alongside one and/or been married to one knows how difficult, lonely and all-consuming these jobs can be. While there certainly are CEOs that take the money and run, or coast along comfortably, those that actually succeed - especially those that successfully transform mediocre organizations into high-performing ones deserve to be rewarded handsomely for that success.
This is the other side of the story: transforming an organization from mediocrity to excellence requires top-down control by a CEO who knows what excellence involves and demands excellence from everyone. This cannot be a democratic process. Until the organization is fully transformed, in fact, democracy and equality are the enemy of excellence. Not only are there individuals who will actively fight this process before they are won over, but there will be many who will have to leave because they are just not capable of contributing to excellence. That can make the job of the CEO particularly arduous, lonely and all-consuming. Anyone who has been a CEO, worked alongside one and/or been married to one knows this very well.
Let’s not let this movement to curb undeserved rewards turn into anti-executive populism. If we do, mediocrity will drive out excellence.
There has been much written about our political system being broken. But very little about the specifics, of what exactly has gone wrong and what are the systemic causes.
Mostly people describe how money has corrupted the process and call for election reform to fix it. Take, for example, Public Funding of Elections. While this certainly needs to be done, it also needs to be made clear that this is not enough. Otherwise, people are disappointed and become discouraged when they finally get reform and it doesn’t really solve the whole problem.
Worse still is when reform bills get passed and they don’t even achieve their intended result. Take the recent attempt by Democrats to curb the influence of lobbyists: Congress Finds Ways to Avoid Lobbyist Limits.
More unusual are articles like You Want to See Broken Politics: Just Look at the Casinos which spell out the problems with the political decision-making process itself. Here we get detailed analysis of what was wrong - 1. Last minute, haphazard decision-making . . . Unfortunately, there are just not enough articles like these that really try to define the problem. How can we expect to fix a problem if we don’t even know specifically what the problem is?
I read an article recently - Kaizen, That Continuous Improvement Strategy, Finds Its Ideal Environment - describing how high tech companies like Apple and Google are using Kaizen to rapidly and repeatedly improve their product. Kaizen “refers to a disciplined process of systematic exploration, controlled experimentation and then painstaking adoption of the new procedures. In the original formulation, kaizen was applied to manufacturing, where experimentation could determine whether a new process resulted in quality improvements or cost savings in a matter of months. It is much more difficult to apply kaizen to product design, since it can easily take years to design and market a new product.”
It made me ask, why can’t government take a problem, actually provide a solution for its customers and then actually begin a process of improving that solution?
The conventional answer, of course, is that government isn’t designed to work that way. But that is precisely what we need to do - to consider how it can be redesigned to work that way.
Obviously, this involves more than just reform - how to reduce corruption and influence so that the people have more say in public decision-making. Reform cannot make politicians accountable for actual results rather than rhetoric. Reform cannot assure us that solutions will be found - in fact, more democracy may actually be counter-productive. Many of our most flagrant failures are the direct result of voters insisting on conventional solutions that have persistently failed in the past (think “being tough on crime” or “the war on drugs”). Reform cannot assure us that once solutions are found they become permanent and automatic, or that these solutions are built upon and continuously improved.
What is needed is much more than mere reform.
Gretchen has another good article on executive pay, this time on what Congress is contemplating doing about it - Is the Fix Worse Than The Problem?. It seems that Congress claims to have a “fix” to the problem of excessive executive compensation plans but this will do more to hurt midlevel workers saving for retirement and workers who have recently changed jobs than to limit greedy executives’ takes.
So how should we fix the problem? A later article - The C.E.O.’s Parachute Cost What? - suggests that just publicizing the issue may be enough. It seems that the whole reason all of this is coming to light in the first place is that new regulations forcing greater disclosure of executive pay - especially exit pay received by executives in pension plans and buyouts - are making them public. The problem may already be well on the way to being solved just because directors are suddenly having to justify these packages.
So maybe instead of making things worse, Congress ought to wait and see if disclosure solves the problem. On the other hand, if pressure is brought to end the disclosure requirements they need to stick to their guns.
