Everyone is entitled to his own opinion, but not to his own facts.
--Daniel Patrick Moynihan

December 19, 2017

The Business Myth

By David K. Shipler

            Somewhere between the reverence for private business and the excoriation of capitalism there must be a middle ground where the virtues of free enterprise are recognized and its menaces are contained. Finding that territory of moderation seems especially difficult today, as President Trump and the Republican-led Congress move to unchain corporations from the taxes and the regulations that protect social justice, consumer interests, worker safety, and the environment. Meanwhile, the incipient revolution against corporate villainy, now led by Senators Bernie Sanders and Elizabeth Warren, remains alive but marginal.
            So Washington, for the moment at least, has a government of, by, and for the corporate elite, which was hardly enthusiastic about the Trump candidacy. That is the irony of Trump: a rich entrepreneur stirring up resentment toward powerful business, a splashy spendthrift touting himself as the voice of the “forgotten” struggling blue-collar class, which still approves of him after a year of getting nothing except slogans and wishful thinking.
            The wishful thinking relies on an old myth about business, which has two main parts. First, the notion that reduced corporate taxes will liberate cash to flow to workers, in the form of higher salaries and employment rates, has been a matter of debate for decades between conservatives and liberals. Despite the paucity of evidence from the past, conservatives insist that liberating private companies will boost the overall economy by enhancing capital investment. Liberal economists, by contrast, tend to see the gains going to the wealthy stockholders. Companies are expected to increase dividends and buy back shares, which will raise stock prices.
            The limited impact of reduced taxes was illustrated at a meeting last month, where very few CEOs raised their hands when a Wall Street Journal editor asked, “If the tax reform bill goes through, do you plan to increase investment—your company’s investment, capital investment?” Gary Cohn, the White House chief economic adviser, asked in dismay, “Why aren’t the other hands up?”
            It was no mystery to Paul Krugman, the New York Times columnist and Nobel winner in economics. “The answer,” he wrote, “is that C.E.Os, living in the real world of business, not the imaginary world of right-wing ideologues, know that tax rates aren’t that important a factor in investment decisions. So they realize that even a huge tax cut wouldn’t lead to much more spending.”
            The second part of the business myth is the popular notion that business executives will run government agencies better than professional government administrators, lawyers, or politicians. That dreamy idea was part of Trump’s appeal to voters weary of government inefficiency and congressional paralysis. Trump, seen as a successful businessman (a debatable characterization), would sweep in, overturn the tables and chairs, “drain the swamp,” and streamline government. So went the myth.
            In fact, neither Trump nor some others from business have managed their jobs competently. Surely there are corporate executives somewhere who could do this. But not Trump. He doesn’t really delegate authority and decision-making. He occupies himself with trivial disputes via Twitter. He reportedly spends little time studying complex issues that require considered judgment. Yet he can’t control his subordinates from going off message in public statements, especially in international affairs.           
Some of Trump’s policies are even likely to hurt certain businesses. His anti-trade posture is confusing, inconsistent, and ultimately damaging to American competitiveness in the global economy. Renegotiating NAFTA, whatever that eventually means, could handicap American companies that rely on intricate supply chains in Mexico and Canada. Some workers at home might be helped in the near term but not in the long run if American firms are put at a disadvantage.
 Trump’s decision to back out of the Trans-Pacific Partnership creates a vacuum that China will fill; it’s as if a CEO voluntarily yielded a big market share to a direct competitor. And his retreat from the Paris climate accord, from a strictly business point of view, is equivalent to turning his back on the future, when inventive alternative-energy technologies are destined to blossom and deliver rewards for those with enough foresight.   
No company head worth his salt would leave so many critical positions vacant as in the Trump administration, even to save money. You can’t run a firm well without expertise down the line, so no skilled executive eager for productivity would make hiring a subordinate dependent on commitments of personal loyalty to himself rather than high quality capabilities, as Trump has in government.
If Trump has been a textbook case of poor management, his secretary of state, Rex Tillerson, has proved to be the poster boy of clueless leadership. In a short time, he has pushed out so many State Department experts on various parts of the world and on multiple forms of international conflict that the collective IQ of the federal government in foreign policy has dropped by scores of points. The US doesn’t even have ambassadors in some key countries.
The dumber foreign policy is visible daily as the administration fumbles around without being able to make the most obvious calculation of what reaction to expect to this or that announcement of policy. And policy itself often stops at the White House door, without implementation in the real world, because the skilled officials who would make it happen are just not there. As one result, the Foreign Service—that cadre of career professionals willing to serve in hardship posts around the world—is becoming decimated, with fewer and fewer young people applying to enter the field.
Imagine if Tillerson, as CEO of ExxonMobil, had decided to save money by pushing out experienced foremen of refineries, geologists who could recommend optimal sites for drilling, skilled mechanics who could keep rigs operating, sales staff, savvy negotiators, technical specialists, and others essential in making the huge company expand and compete. The firm would have taken a nosedive, just as the State Department is doing. It could take years to recover.
So much for the myth that if you’re good in business you’re automatically good in government. Many of the business executives and the radical politicians whom Trump has brought in are so inept and dangerous that former military men have emerged as the most reasonable and stable members of the administration: his chief of staff, his national security adviser, and his defense secretary. One has the impression that they, not those who’ve come from the private sector, are preventing the administration from going totally off the rails. A sobering thought.  


  1. Sobering, indeed. I love your opening sentence. Says a lot very artfully in a few words. I try to imagine what can rescue this country from the clutches of these Super Idiots? Sadly I don't have an the answer! At least Tillerson - who clearly is a disaster at running the State Department - a smooth-operating wrecking ball - has a smidgeon of calming qualities - (i.e., doesn't seem inclined to press the Big Red Button!) - along with some recognition that Thump actually IS a moron! Let's give him credit for that! - along with his refusal to retract his words on that score.
    Yes - Krugman always seems to call these numbers right-on - but the Pubs pay him no mind at all. He's too intelligent and sensible for their simplistic, short-sighted minds.
    It's all so infuriating and I don't know what the way out is going to be except a Big Boot Out in 2020. But - what if a significant number of Idiot Republicans start thinking that President Bozo is actually a GREAT Prez?! And what if there's enough of them to re-elect the Clown?!... The Nightmare could go on and on. And that's a Nightmare itself!

  2. I wish more people wrote about the first myth, otherwise known as trickle-down economics. As to the second, perhaps the mismanagement is intentional. People have always said and assumed that government can't function (the old saying, "it's close enough for government work" comes to mind), but why not ensure it? The appointment of so many people with records of publicly criticizing their new agency homes, even claiming the agency should be closed, proves the point. Likewise with Obamacare: What better way to ensure its collapse and failure than to repeal its foundation (the individual mandate)?

    If nothing else, maybe this Presidency will teach important lessons about the basic differences between companies and governments. After all, learning is deepest when it arises from painful mistakes.

  3. I've never understood why business has been characterized in human terms--like a Greek hero or a Victorian villain. Corporations exist to make profits; they are not moral entities themselves. Managers respond to many kinds of pressure, and sometimes social or political pressure convinces them not to foist their negative externalities (pollution, depletion of resources, mistreatment of employees) on the populace without regulation. More often, those negative behaviors are reined in by legislation, which simply means businesses pay the true (or truer) cost of doing business. As citizens, we vote for representatives who value clean air and healthy communities as we do, we join unions for fair wages, and so on. And we enjoy choices--you like Skippy, I like Adam's Natural peanut butter--that reflect our preferences. But we have to stay involved as voters, not just consumers--the unintended consequence of Nader's war was that we think of ourselves as consumers first. I've worked in private enterprise and government, and there's no shortage of waste and inefficiency in private enterprise. It gets passed along to the customer in prices, or it lowers profits slightly in small cases, and it bankrupts some companies or makes them targets for takeovers. But it's there. Companies declare bankruptcy, governments cannot--not without leaving people without services like fire and police departments, road maintenance, defense from enemies, etc--so they cannot be viewed the same way. Doug Tompkins ran two companies, North Face and Esprit, that made him a ton of money. Neither survives in the same form (NF is around, but has been through Ch. 11, Esprit was bought by vulture investors and no longer operates in the US). Governments cannot do this, but Tompkins not only did so, but kept the profits made on his stock sales by diversifying. All of which is lost on Trump, who said he would restructure US debt, just like he did with his four (at least) bankruptcies. The veneration of business also ignores the vast role luck takes in business success. Anyone else remember the story of how Microsoft got the IBM OS contract? And what happened when IBM decided to develop a proprietary OS?
    What we are seeing here is really a heist of government by an administration that never met an emolument or crooked deal it didn't like. With luck, Trump's crooked deal for help getting elected will lead to his end, but, as Lynn Dickinson said above. we need to learn from this huge mistake.

  4. Mr. Shipler, that first sentence is awesome.

  5. I enjoyed reading your article. Please make more interesting topics like this on.
    I'll come back for more :)

    From Japs a researcher from Always Open Commerce