Wednesday, June 15, 2011

Why businessmen shouldn't run the government

My friend Steve, whom I’ve known now for over forty years, does a lot better job of keeping up with the political players than I do. (He’s also smarter, more educated and quick-witted than I am; I’m the ugly friend, if you get the reference.)

Yesterday, he watched a debate between a collection of the current GOP presidential candidates. As he noted, none of them said much to distinguish between the lot of them; the strategy they’ve all apparently adopted is to be the Anti-Obama. Good luck, guys; it worked so well for John Kerry against Dubya back in ’04.

Now, I would hardly bother you with retailing a political nonevent secondhand if something didn’t get revealed worth ranting about. Newt Gingrich’s desire to repeal the Sarbanes-Oxley Act of 2002, as much as it is an indicator that he lives in cloud-cuckoo-land, is a pointer in the direction. But even more illustrative is the position of Herman Cain.

As is seemingly prerequisite of anyone who’s been a CEO of a large corporation, Steve said, “Cain advocated lowering corporate tax rates (OK with me, if you also close the loopholes), eliminating capital gains taxes altogether (sounds crazy and probably is, but sure, with the restrictions suggested by the first George Bush and others), and instituting a flat income tax structure (will he leave the federal government with any revenue?).”

In certain sectors of our society, it’s a point of unshakeable faith that federal regulations constitute burdens that are undue by definition; natural market operations are fully capable of weeding out the incompetent, the corrupt and the unfair. “If you just trust us,” the capitalists plead, “and take all these unnecessary chains off our business doings, the economy will right itself, everyone will have jobs, the GDP will skyrocket and the most happy state will arise.” Capitalists are anarchists with investment portfolios.

Being a Catholic, I must suppose that businesspersons have souls, that indeed they’re essentially good and for the most part mean well. Being a Catholic, though, also requires me to assert that, as humans, businesspersons are also creatures fallen from their state of original justice, that because of their fallen nature they are subject to concupiscence and thus tempted to sin.

The basic fallacy of the capitalists’ position is the belief that people — particularly businesspersons — see their best interests with crystalline clarity and prophetic foresight. This leads to a greater fallacy: that people working in their own self interests will do better for the community by accident than any organized effort to work collectively for the common weal will do intentionally. Were businesspeople possessed of such remarkable objectivity, the financial scandals of 2000-2001 (Enron, Tyco International, Adelphia, Peregrine Systems, WorldCom, etc.) would never have occurred, and Sarbanes-Oxley would never have been written let alone passed by Congress almost unanimously.

As for capitalist prescience, let’s look at the practice of outsourcing jobs to contractors in foreign markets. On the face of it, outsourcing certain expensive job functions decreases labor expenses, thus maximizing profit. However, outsourcing those jobs also takes wages out of the domestic market, depressing the purchase of domestic goods and services.

Now, if your industry makes passenger jets, you might not think such a move immediately affects you. But it does affect the general public’s ability to purchase air travel, which in turn affects demand for passenger jets. Now consider what happens when Ginormous Home Loans, Inc. outsources the function of an employee who has a home loan through GHL. In cutting off her wages, Ginormous has cut off her ability to pay her Ginormous debt, with no guarantee that she’ll be able to find an equally well-compensated job that will take up the slack before the loan goes into default. Result: GHL has decreased expenses and income, incurring the extra costs of collection and other default-prevention and recovery measures.

Taxation, on the whole, is a subject too complex for one post, especially as it’s connected to the question of government expenses. But the complexity of the issue is why I automatically write off a politician who calls for a flat income tax. A flat tax could not help but be a crushing burden on the poor and middle classes unless it were accompanied by draconian reduction of government outlays.

How draconian? To make it work, we’d not only have to eliminate all but the most basic social services, but also gut military and federal law enforcement expenditures. Not only would this throw thousands of servicepersons and government employees out of work, but it would also take money out of the hands of government contractors, forcing more employees out of work … and taking billions of dollars’ worth of wages out of circulation. Again, this would depress not only domestic purchases and drive down GDP, but also reduce tax receipts because of the losses of taxable income.

The capitalists’ advocacy of the self-regulating market is based on a hopelessly reductionist view of economic decisions, where rocks thrown into ponds create no ripples. In fact, the economy is neither a diagram nor a formula, but rather an organism where everything is connected to everything else, and what appears to be a “best practice” when adopted by one company sometimes becomes counterproductive — even a suicide pact — when copied by a hundred or a thousand companies.

The fact is, I don’t want the government to be run like a business; that thought frightens the dickens out of me. I want the government to be run like an organization dedicated to the common good of all citizens. That requires a mindset business schools don’t teach.

Even a so-called “enlightened self-interest” is in the end self-interest, with all the limitations and subjective skew that entails. We can pretty much depend on business types to do what they think serves their best self-interest; we can’t depend, however, on their actions serving the interests of the economy, or the community … or even their own businesses.

Just ask the defrauded employees and shareholders of Enron.