Posts tagged California

Column on Beautiful & Bankrupt

Beautiful & Broke

Tibor R. Machan

My favorite place to live in America is California. But don’t get me wrong–one size does not fit all. And how wonderful that is, that people differ so much that they could be quite happy living in very different places, some in Miami, some in Houston, some in Cleveland, and some in the San Francisco Bay area. I love this since it helps to confirm my individualist position about human social life.

On a recent visit to Portugal, near Lisbon and right off the Atlantic Coast, I rediscovered that country after having been away from it for 40 years. And it comes across very different now from what it was back then. Most surprisingly it comes across to me like, well, California. Not only is its coastal weather relatively mild anddry but the place is teeming with attractive neighborhoods–not to mention notable history–of all kinds.

Most noticeably, for someone just there for a few days, is how polished is Portugal’s infrastructure. The roads are spic and span; everything is squeaky clean; trains run on time, more or less, and so forth and so on. All in all Portugal looked to me well cared for, again kind of like much of California. (To know what I mean, one needs to check out the hundreds of California junior and community colleges, most of which are built like architectural wonders.)

And, sadly, Portugal and California share something else that’s not to be lost sight of: they are utterly broke and in deep, deep debt. Children and grandchildren in both lands are at this point on the hook for billions to pay back or must ready themselves for defaulting on the debt and having their credit rating destroyed. Unless some angel shows up to rescue these admittedly attractive, appealing communities, their populations are knee deep in trouble. Businesses will flee and are already doing so in droves.

Countries, communities of all sorts, have gotten themselves into this mess by politicians promising the sky to everyone and making good on their promises by way of phantom resources. We know about this from many of our own experiences andthose of our friends and neighbors. (I am no exception at all, what with having refinanced my home several times so as to fulfill the dreams of some of the members of my family and then ending up “upside down,” so much so that the notion that I might retire some day simply cannot be entertained–I will have to die “in office.”)

In the past the dire predictions of sensible economists could be met by reminding them that people tend to edge up to the brink of economic disaster but then start to contain themselves radically enough so as to avoid plummeting to ruin. But while this holds reasonably surely in most people’s private lives, public finance follows different patterns. The tragedy of the commons kicks in and instead of seriously changing from irrational enthusiasm toward caution prudence, public officials–politicians, their cheerleaders, bureaucrats and the rest–get caught up in the spirit of the ponzi scheme, trying to escape the burden of intolerable debt by way of dumping it on someone else, some other institutions, hoping this will avoid having to face the music at any time.

But it seems this scheme just has run its course in most welfare states, and near andfar off future generations will have to suffer. I do not see a way out unless the citizenry of these countries and communities assumes, voluntarily, a hard line stance in favor of austerity. Is that likely? I do not sell people short and very often they do get it right in a pinch but it could also turn out that the financially failed states such as California and Portugal–and a whole lot of others–will have to undergo some very hard times and perhaps the rule of some dictator who will distribute the burdens according to his or her lights, never mind fairness or justice resources. We know about this from many of our own experiences and those of our friends and neighbors. (I am no exception at all, what with having refinanced my home several times so as to fulfill the dreams of some of the members of my family and then ending up “upside down,” so much so that the notion that I might retire some day simply cannot be entertained–I will have to die “in office.”)

In the past the dire predictions of sensible economists could be met by reminding them that people tend to edge up to the brink of economic disaster but then start to contain themselves radically enough so as to avoid plummeting to ruin. But while this holds reasonably surely in most people’s private lives, public finance follows different patterns. The tragedy of the commons kicks in and instead of seriously changing from irrational enthusiasm toward caution prudence, public officials–politicians, their cheerleaders, bureaucrats and the rest–get caught up in the spirit of the ponzi scheme, trying to escape the burden of intolerable debt by way of dumping it on someone else, some other institutions, hoping this will avoid having to face the music at any time.

But it seems this scheme just has run its course in most welfare states, and near and far off future generations will have to suffer. I do not see a way out unless the citizenry of these countries and communities assumes, voluntarily, a hard line stance in favor of austerity. Is that likely? I do not sell people short and very often they do get it right in a pinch but it could also turn out that the financially failed states such as California and Portugal–and a whole lot of others–will have to undergo some very hard times and perhaps the rule of some dictator who will distribute the burdens according to his or her lights, never mind fairness or justice.

Column on Corporate Socialism

Corporate Socialism

Tibor R. Machan

The idea that making a profit is somehow ignoble has ancient roots. Partly it stems from the utterly fallacious notion that when someone wins, someone else must lose. So if you go to the mall and purchase a sweater you really like, you must rip off the store where you do this. It is only after modern economics got going full blast that it became clear that when there is a purchase, both sides win. Or at least they understand themselves as having won. You got the sweater, they got the money, you both got a deal!

The myth of the zero-sum exchange, however, continues and politicians and social agitators capitalize on it all the time. So when people in business make profits, the social commentators–advocates of the alleged social responsibility of corporations and business in general–insist they are engaging in illicit exploitation, kind of the way a drug pusher does when selling drugs to a junkie. (Junkies have hardly any will power, so there the idea makes some sense.)

Now this zero-sum idea has been an influential one within the fields of political economy and business ethics. It gives rise to such silly notions as that people doing successful business must “give back to their communities,” as if they had stolen their profits. So every time one is part of an exchange one finds satisfactory, one must have made gains illegitimately and needs to atone for it by “giving back”.

An entire movement has sprung from these ideas. It is called the corporate social responsibility (CSR) movement. It basically advocates that successful people in business have an obligation to do pro bono work in their communities, to do service free of charge, to settle up with the folks there whom they have ripped off. Never mind that all those folks who supposedly were ripped off actually made good deals as they traded with the businesses that are supposed to owe them! Another name for it is “stakeholder corporate management” in line with which managers of companies aren’t supposed to work for the owners and investors and deliver products or services at a good price to costumers so all are pleased with the results. No. Management is supposed to work for the community, for anyone who has his or her hand out for free goodies, for stuff that the business is supposed to pay for, not those to whom the business is providing work on mutually acceptable terms.

So what we have here is the slow but fundamental transformation of a commercial system into a socialist one where profit is demeaned, treated as something evil, and where people must become servants to each other and may not earn a profit from the work they do for others. This isn’t supposed to be something to be expected in an emergency–say when there’s a flood or earthquake–but the norm, the way businesses are supposed to carry on routinely.

We have here the basic idea that men and women aren’t supposed to embark upon good deals through which they can prosper in their lives. No, they are supposed to be part of a huge organism in which everything is shared and no one is ever to be compensated for the work done for someone else. As if everyone were part of one’s family or circle of intimates or even a bee hive. That’s the central idea behind corporate social responsibility once clearly understood, as well as behind socialism.

And now it is getting worse. CSR might be advocated as a voluntary policy by those running businesses. The same with stakeholder management. Though still destructive of business, at least no one is being forced to serve others. But now in several states across the U.S.A.–among them California, Vermont, Maryland and others–politicians have created, by legislation, “benefit corporations” in which managers may proceed to do pro bono work without having to answer to shareholders whose resources are being used for this.

Normally if managers mis-allocate company resources, they could be sued by the owners for malpractice but with this law they will become immune. The only recourse by shareholders will be to sell their stocks and of course these stocks will have lost a goodly portion of their value given that the company isn’t committed to making a profit any longer; nor does the management have to answer to the owners for abandoning this task.

Imagine if one were to hire a doctor to help with one’s medical condition and this doctor decided that during the hour one has set aside to go for a visit several nonpaying patients will come to the office and take up the time one needs to get one’s medical help. Such a doctor–indeed, any professional who is supposed to do work for clients–would be leaving his or her post, breaching his or her oath of office, which is to fulfill the terms of the contract with clients.

I teach classes at a university and my students can count on me to be there for them, given that they have been accepted by my institution on mutually satisfactory terms. But then imagine that I am told by local politicians and bureaucrats that instead of grading their papers, meeting them during office hours, and teaching them during class time, I must provide service to people in the neighborhood and if I do not, I will be in violation of the law!

We are certainly moseying toward a socialist system in which the decisions of professionals and clients are irrelevant and what matters is what the politicians want from us.