Archive for May, 2012

Revisiting the Responsibility of Business Managers

Revisiting the Responsibility of Business Managers

Tibor R. Machan

People buy stocks, shares in a firm, mainly so as to delegate to the officers the job of securing for them economic prosperity. What else did all the folks who purchased the IPOs of Facebook want? (There is, of course, much more to living a successful human life than this but this is certainly not a negligible part of it–why all the fuss about poverty then?) Shareholders look to management for expertise with finances, etc. and those who take such a job promise shareholders this service.

This isn’t so different from how people turn to other professionals, in medicine, education and such. When hired, these professionals have a responsibility to do their best to deliver on their promise. Once the shareholders gain wealth from this arrangement, they then are the ones who decide to what use the wealth should be put. They may spend it on their family, on some more or less important cause, on trivial pursuits, a nice vacation, or on a combination of many objectives.

That is what property rights is mostly about, namely, to get clear on who is authorized to decide to what use the wealth created by management will be put. Freedom of choice! Just look at all the very wealthy who gain from such an arrangement and then proceed to make huge contributions to the arts, science, charities, etc. But as far as management is concerned they are responsible to produce wealth for the shareholders, just as doctors must care for the health of their patients (who then can devote themselves to all sorts of task in their healthful state).

So then what is the problem with the stakeholder/corporate social responsibility view of the moral responsibility of business managers, the currently promulgated idea that business managers should not serve the owners or shareholders with their skills? Well, it plainly flies in the face of reality, which is that shareholders, investors, owners are the ones whom business managers are responsible to serve, just as patients are whom doctors ought to serve. (“Serve” may be a dubious notion here but the point is that the skilled service being provided ought to benefit clients and in the case of private (though publicly traded) companies, these are shareholders, investors, et al.)

Those who aim to sneak in a contrary idea are attempting to violate the contractual agreement between clients and professionals. When challenged, the response is that since business firms benefit from various elements of the society in which they operate such as its infrastructure, national defense, police, the legal system, etc., they are not justified to claim that they are the ones who are owed the services of professional managers of the firm. Instead stakeholders are, that is to say anyone with an interest in the business such as employees, neighbors, subcontractors, unions, etc.

Although somewhat plausible, unless the benefits were asked and paid for voluntarily, the relationship between firms and stakeholders is artificial and imposed without the consent of those involved. (Of course once the relationship has been imposed by politicians and judges, never mind the choices of the firm’s owners and managers, it is not easy to opt out! But there is no obligation owed to those who imposed the relationship. If I send you a cashier’s check for a thousand bucks, I have no claim on you to do anything for me that you didn’t freely agree to provide. It’s now mine free and clear.)

More generally, the assault on private property rights, the rights the exercise of which creates business firms, secure for individuals their liberty to choose how they will make use of their own resources (“property”). That is what private property rights are ultimately about, securing one’s liberty to choose what to do with one’s resources, including one’s labor and time. The claim that because of benefits gained from operating in a society the rights may be violated is a non-sequitur. Moreover, the alternative to owners deciding the disposition of their resources is entirely arbitrary. Who if not the owners and why they?

Some answer, that’s to be decided via the democratic method. Yet this begs the question of why others, members of the democratic assembly, are authorized to do so? Who delegated to them this authority? It is a ruse, when all is said. It is an attempt, sadly often successful, to grab unearned resources and the power over those who in fact own them.

Machan’s Archives: Sandel’s Distortions

Machan’s Archives: Sandel’s Distortions

Tibor R. Machan

Some people lie without any hesitation. To bring lies to print, however, you need more than liars–you need editors who want the lies to circulate, good and hard.

Harvard University political theorist Michael J. Sandel is well know as a critic of the American political tradition of individualism, not so much by forthrightly disagreeing with its principles but, more often, by caricaturing what they actually are. He is a well published professor, with numerous scholarly books and papers to his credit. In recent years he has gone pop, though, with appearances on various television programs and articles in popular magazines.

Sandel is renown for misconstruing individualism as nothing but some fanciful vision that champions isolation, social alienation, and some sort of artificial self-sufficiency that can do without friendship, family, and community. If you think I am exaggerating, let me quote from one of Sandel’s recent articles in The Atlantic, which is itself an excerpt from his latest book, Democracy’s Discontents. Here is one thing he tells the reader, this famous, well positioned scholar of political theory: “The traditional Republicans are uncritical advocates of the free market, free trade and the global economy and at the same time they pose as advocates of community and family values. But it is precisely unfettered markets which are now most responsible for the breakdown of community and traditional values. Walmart, not big government, is responsible for the demise of Main Street across America. But most Republicans won’t face up to that contradiction.”

This passage contains so much distortion that it is difficult to pick which to expose in a brief commentary. But let’s try.

Traditional Republicans have never been uncritical champions of free markets. From Lincoln to Gingrich, all have agreed to massive government intrusions on the economy, advocated innumerable favors for big business, would not think of abolishing farm subsidies or repealing the interstate commerce clause of the US Constitution. Traditional Republicans have often been complicit in protectionism, even while giving some lip service to free trade. This was true with Reagan and Bush and is still true with many Republican members of Congress. There is no such system as an “unfettered market” anywhere in sight, in any goods or services trading in this country–government regulations from those enacted by city councils all the way to the federal government make sure of that fact and Professor Sandel knows this very well. Finally, the reason that Walmarts, Targets, etc. are overrunning the United States of American and every other nation is only partly a function of some efficiency they provide. Another reason is that small businesses are unable to cope with the thousands and thousands of government regulations. They haven’t the capital to fund teams of attorneys to figure out what they may and may not do or mount law suits in case they are found to be in violation of some of the millions of rules governments have decided they must live by.

Professor Sandel knows all this, of course, but he is not after offering some kind of objective understanding of American commercial or political life. He, like so many of his left-communitarian cohorts, wants, instead, to create an impression about the polity of liberty. Never mind that he needs to engage in massive distortions in order to achieve this, starting with maintaining the myth that America is true to its free market ideas laid out in the Declaration of Independence. But Sandel does not care about truth, only about his utopian communitarian vision. For the sake of realizing the dream of a well regimented collectivist society, in which the community they think all ought to be made a part of will be imposed on everyone, like it or not, they are willing to commit any kind of intellectual malfeasance. And it seems his cohorts have enough manuscript readers at the presses which publish them not to be called on the carpet for doing so.

Maybe what Professor Sandel ought to do is team up with Oliver Stone and pen some fictional accounts of American economic and political history.

Revisiting the Responsibility of Business Managers

Revisiting the Responsibility of Business Managers

Tibor R. Machan

People buy stocks, shares in a firm, mainly so as to delegate to the officers the job of securing for them economic prosperity. What else did all the folks who purchased the IPOs of Facebook want? (There is, of course, much more to living a successful human life than this but this is certainly not a negligible part of it–why all the fuss about poverty then?) Shareholders look to management for expertise with finances, etc. and those who take such a job promise shareholders this service.

This isn’t so different from how people turn to other professionals, in medicine, education and such. When hired, these professionals have a responsibility to do their best to deliver on their promise. Once the shareholders gain wealth from this arrangement, they then are the ones who decide to what use the wealth should be put. They may spend it on their family, on some more or less important cause, on trivial pursuits, a nice vacation, or on a combination of many objectives.

That is what property rights is mostly about, namely, to get clear on who is authorized to decide to what use the wealth created by management will be put. Freedom of choice! Just look at all the very wealthy who gain from such an arrangement and then proceed to make huge contributions to the arts, science, charities, etc. But as far as management is concerned they are responsible to produce wealth for the shareholders, just as doctors must care for the health of their patients (who then can devote themselves to all sorts of task in their healthful state).

So then what is the problem with the stakeholder/corporate social responsibility view of the moral responsibility of business managers, the currently promulgated idea that business managers should not serve the owners or shareholders with their skills? Well, it plainly flies in the face of reality, which is that shareholders, investors, owners are the ones whom business managers are responsible to serve, just as patients are whom doctors ought to serve. (“Serve” may be a dubious notion here but the point is that the skilled service being provided ought to benefit clients and in the case of private (though publicly traded) companies, these are shareholders, investors, et al.)

Those who aim to sneak in a contrary idea are attempting to violate the contractual agreement between clients and professionals. When challenged, the response is that since business firms benefit from various elements of the society in which they operate such as its infrastructure, national defense, police, the legal system, etc., they are not justified to claim that they are the ones who are owed the services of professional managers of the firm. Instead stakeholders are, that is to say anyone with an interest in the business such as employees, neighbors, subcontractors, unions, etc.

Although somewhat plausible, unless the benefits were asked and paid for voluntarily, the relationship between firms and stakeholders is artificial and imposed without the consent of those involved. (Of course once the relationship has been imposed by politicians and judges, never mind the choices of the firm’s owners and managers, it is not easy to opt out! But there is no obligation owed to those who imposed the relationship. If I send you a cashier’s check for a thousand bucks, I have no claim on you to do anything for me that you didn’t freely agree to provide. It’s now mine free and clear.)

More generally, the assault on private property rights, the rights the exercise of which creates business firms, secure for individuals their liberty to choose how they will make use of their own resources (“property”). That is what private property rights are ultimately about, securing one’s liberty to choose what to do with one’s resources, including one’s labor and time. The claim that because of benefits gained from operating in a society the rights may be violated is a non-sequitur. Moreover, the alternative to owners deciding the disposition of their resources is entirely arbitrary. Who if not the owners and why they?

Some answer, that’s to be decided via the democratic method. Yet this begs the question of why others, members of the democratic assembly, are authorized to do so? Who delegated to them this authority? It is a ruse, when all is said. It is an attempt, sadly often successful, to grab unearned resources and the power over those who in fact own them.

Krugman’s Apologetics

Krugman’s Apologetic for Government Regulation

Tibor R. Machan

Paul Krugman, not unpredictably, once again (in The New York Times, Monday, May 14, 2012) went to bat to hit a home run for government regulation of, well, everyone (except the members of his own profession, namely, eggheads). His piece is titled “Why We Regulate?” but fails to address the most fundamental issue. This is “Who is the ‘we’ in his essay?” And why would “we” be wiser and more virtuous than those whom “we” regulate?

Are there, as is implicit in Krugman’s thinking, two classes of human beings, the regulators who are superior, and the regulated who are prone to vice and stupidity? Somehow this issue never gets addressed by him and his allies. Nor do they seem to cope with the critique from public choice theorists such as Nobel Laureate Jim Buchanan, et al., who have pointed out that regulators and other government personnel are motivated pretty much as we all are, and will use their station to advance their preferred goals, not some vague notion of the public interest (which no one has ever managed to identify precisely enough). Since, however, they have political and often unchecked power as well as sovereign immunity–they cannot be sued since they are “us”–they are far more inclined to malpractice than are the regulated (who mostly make mistakes but are rarely out and out mendacious).

I have studied government regulation of business for decades–even co-edited, with a fine economist, the late M. Bruce Johnson, the book Rights and Regulation (1983) which explores the topic from a great variety of perspectives, pro and con. Ok, never mind, I am and maybe so was Professor Johnson too low ranked to be worthy of Krugman’s attention. However, Professor James Buchanan and other public choice scholars are formidable within the terms that Krugman should take seriously. (Krugman got his Nobel for some technical work he did, which is rightly admired across the discipline, while Buchanan advanced a general theory in political economy and got the Nobel for that feat, something Krugman ought to recognize by dealing with his argument!)

The ordinary issue to be addressed by champions of government regulation of business is, of course, “Who are these people to qualify as regulators–i.e., dictators–of millions of citizens engaged in business?” When the interstate commerce clause was included in the U. S. Federal Constitution by the framers, “to regulate” was widely taken to mean “to regularize.” This makes sense since the helter skelter economic policies among the several colonies had to be regularized once the colonies got united. A free market, more or less, was created without duties and tariffs and such. It is only some among the framers who took “regulation” to mean “manipulation” or “dictation.” But that is how the term got interpreted in the New Deal.

But in a free society no such regulation, nor such regulators, make any sense, not when the citizens are all equally endowed by basic rights that no one may violate. Government intrusion in business does, however, violate those rights.

Sadly, there hadn’t been sufficient influential protest against the changed usage of “regulate” and the ideological direction of the FDR era was inclined toward top down economic management. Yet, folks like Professor Krugman ought to take up the task of examining government regulation of commerce more fundamentally, more deeply, than simply to accept a highly ideology laden version of the term.

I have no idea what reasoning might lie behind the fact that Krugman & Co. do not embark upon a serious examination of government intrusion in business, never ask just who are these people they wish to entrust with the power to order their fellow citizens about. I have my suspicions but I do not wish to deploy the ad hominem approach Krugman himself is so fond of when he deals with his intellectual adversaries.

From Machan’s Archives: Business Versus Business

From Machan’s Archives: Business Versus Business

One of Karl Marx’s less notable mistakes was his belief that people in the world of business would promote their self-interest. If by self-interest we include, as I believe we ought to, the most rational social-political principles in support of a sound human institution’s flourishing, then clearly people in business, not to mention the wealthy, often act in a self-destructive manner. They promote policies that hurt them economically.

Examples of such self-destructive business conduct are not hard to identify. Consider Ted Turner, the multi-billionaire mogul, who went to Congress some years ago and asked the politicians in Washington to “shove down the throats of” broadcasters a TV violence rating system, unless the broadcasters adopt one pronto. Or consider how New York City’s wonder financier, Donald Trump, wanted legal action take against native Americans who were running gambling establishments, just because they are not forced to pay the taxes he has to pay. Furthermore, consider a decision of the U. S. Supreme Court some years back, followed by some state supreme court rulings, to refuse to place a cap on the amounts of punitive damage money that juries may award to plaintiffs who succeed in proving that some service or product has injured them. (I won’t even bother with anti-capitalists like Warren Buffet and George Soros!)

In each of these cases it is people in the business community who are advocating getting the government involved in the operations of the market place or to cut some slack for them from the processes of our system of justice. (What is a fine that fits the crime anyway?)

Turner’s advocacy of government censorship of broadcasting is perhaps the most disgusting of the three examples. Ted Turner, who is rumored to have admired the ideas of Ayn Rand earlier in his career, was actually promoting government’s intrusion on freedom of expression. He wanted the First Amendment to be voided when it comes to broadcasting. He should, instead, advocate the extension of First Amendment protection to the entire broadcast industry. He should advocate repeal of the federal law that has established the Federal Communications Commission–earlier the Federal Radio Commission–so that broadcasters and cable television operators could be enjoying the same freedom of communication as do the printed media. Instead, perhaps to appease the left wing liberals with whom he has been so socially chummy, he is asking the state to tell broadcasters how to run their business, what to do about its content, etc.

Trump, et al ought to be advocating the reduction of taxation on every front, including when it hurts their immediate, short term business objectives, but instead they cry “unfair” and ask government to hit up the few people who have managed to escape its thievery. Trump ought to use the example of native Americans to point out that taxation is blatantly unjust and it would be best to recognize this fact not only regarding native Americans but all of us who live in this country. But the wunderkind of New York, Atlantic City and Las Vegas seems to lack the integrity and is proceeding in a truly short sighted fashion.

Those people in business who want the government to limit the punitive sums juries may award to injured parties evade that such a limitation would be rather arbitrary. No doubt some juries are willing to indulge their collective prejudices against corporations by awarding larger than reasonable punitive sums to victims of corporate malpractice. But the remedy for this is not to subvert the jury system but to embark on a program of giving business a better press, demonstrating to the public that the business bashing attitudes so typical of the liberals are wholly unjust and injurious to our society. The source of jury’s prejudices need to be addressed, but not by trying to subvert the jury system.

The short cut method taken by too many prominent people in business ultimately undermines the system under which businesses can flourish in a human community. Such an approach–which includes advocacy of protectionist legislation, begging for subsidies, government backed loans, and bailouts, as well as protection of businesses against competition from new entrepreneurs at home and abroad–is surely sabotaging the entire business community, even while it may give a few particular enterprises a temporary leg-up.

That business people do not realize how dear a price they are paying for the relief government gives them indicates that they are no less savvy concerning the relationship between politics and business than are academic left wingers who advocate out and out socialism. Marx was wrong–people in business are in fact insufficiently self-interested!