The Grand Illusion
The biggest problem American companies and probably every other corporate-level business in the world has is that few of them, if any, understand that there can indeed be too much of a good thing, or at least too much trying to obtain too much of a good thing, especially when that “good thing” happens to be increased revenues or profits or increased CEO and high-level executive compensation. Revenue and profit have become such a dominating target that almost none of their CEOs or corporate boards ask, “How much is enough?” Those that do ask invariably answer, “As much as we can get.”
I’m not against profit, just as I’m not against eating, but trying to gorge on profits is the corporate equivalent of gluttony, and sooner or later it results in either corporate unwellness, terminal corporate illness, or societal malfunctioning on a grand scale. Corporations are continually trying to do more with less, in order to increase revenues and profits, but none of them ask what the results of their “success” will be, or the implications for the future.
The other day I went to get a plastic pipe joint for my sprinkler system – just a piece of PVC pipe maybe five inches long at most. When I got home I discovered I actually had an unused one, but I thought they were different. They were. The new one was almost an inch shorter than the older one, which means that it’s not as strong. I suppose it doesn’t make that much difference for a buried sprinkler system pipe, but the problem is that making things smaller and cheaper while selling them for the same price or even more doesn’t stop at PVC pipe. It goes into things like General Motors car ignition switches, whose failure resulted in people being killed, all for a savings of a dollar a car. And the only lesson Detroit has learned since the Pinto fuel tank disasters is that people eventually forget.
The problem with doing more with less and maximizing profits is that the goods and services are cheaper, that fewer employees have good paying jobs, and the profits go to those already well-off, either through dividends, capital gains, or higher compensation. All that makes executives happy and well-paid, and investors equally happy – but only for the moment. The problem is that ninety-five percent of Americans (and before long it’s likely to be 99.5%, it isn’t already) aren’t sharing in this wealth, and, as I’ve noted before, in a consumption driven economy that also imports more than it exports, as income inequality increases, the ninety percent have less and less to spend, and that means that they buy less and they buy cheaper goods. It also means that welfare and food stamp program costs go up, yet with tax revenues already in deficit, that means that infrastructure programs have lower funding, as do research, defense, and education, among others necessary for the successful functioning of society.
In effect, the quest for greater revenues at all costs is bankrupting the country, slowly but inexorably. And for what, so the top 25 hedge fund managers can make more money than all the kindergarten teachers in America? So U.S. corporations can outsource more and more jobs? Maybe, just maybe, if the top ½ of one percent of the earners in the United States had to pay taxes at U.S. levels in the 1960s, they might not be so obsessed with profits, and we could pay for the basics society needs without running deficits, and we might get back to 1960s prosperity. And… please… don’t talk about welfare cheats; the biggest cheats are in the finance industry.
But don’t count on any real tax and structure reform happening so long as the Republicans claim that higher taxes are job killers. Higher taxes on the right people aren’t. Tell me, honestly, exactly what benefit do all those exorbitant multi-million dollar compensation packages provide for the country?
To make matters worse, have you considered that when ‘jobs’ go out to tender; it’s usually the lowest one which wins. Think how that affects things like Ambulance services, airplane manufacture, you get the picture and it’s not good. There needs to be a balance between profits on the one hand and quality of both products and lifestyle for the ‘workers’ on the other. The old SF writer E.E. Doc Smith called it ‘Enlightened Self-Interest’.
There are conscientious people and even conscientious companies however there is no such thing as a conscientious corporation. Any corporation that “appears” to be conscientious is Acting so because they believe it will increase their profits. Corporations on a fundamental level are flawed instruments designed to maximize EPS & ROI with ZERO thought to anything else; in fact doing so is grounds to have the CEO terminated in most cases. The problem of course is with externalities; we typically incur the costs while the Corporations suffer the benefits. Corporations have to go, or more reasonably there needs to be some serious changes with how they are allowed to function.
I become sick when I think about the pay scales of CEOs in the U.S., while European scales merely make me nauseous. However the truth is that if the board of directors believe rightly (or wrongly) that a particular CEO is worth those obscene figures, who am I to argue. Investors are welcome to invest responsibly, and who knows…maybe that CEO really is worth it.
We ultimately have 3 Tax Systems to choose from: Progressive, Regressive, or a Flat Tax. They each have their Pros and Cons. We currently have a Progressive Tax system, meaning (in theory) that those with more money pay more. This of course doesn’t exactly work out simply because the government has intentionally made the system so complicated as to generate as many hidden loopholes as possible. Only the wealthy can afford full time lawyers to study the code and tell them how best to make use of it…(well those guys and the lawmakers themselves of course).
The only “Fix” to our Tax System is a complete simplification, regardless of which system we choose: the more simple, the fewer the loopholes. I would prefer a true Flat tax. The IRS would be able to shrink up to 90% and “doing your taxes” would become an anachronism as they would be so simple as to require no time. An alternative would be to do away with the Federal Income tax and to employ a Federal Sales Tax. This means that those with money to spend will pay more taxes, and those just getting by would be paying very little (of course, food & medicines would remain tax free, as they are now).
I often joke with my friends, “What changes would you make if you had Unlimited Executive Power for a Day?” The restrictions of course, would be to make the most benefit with the fewest changes… preferably only 1 change.
I used to think that my single change would be to do away with the Senate or the House and replace it with another institution that became decentralized into every city. The Mechanics of it might function similar to Jury Duty, where each day a random group of people have to show up and sit in a room for a few hours. All major bills are broken down into small pieces. One speaker tells the group why they should vote Yes, another speaker tells them why they should vote No…then everyone votes. Those votes across the country are tallied and a consensus is reached.
But recently I’ve begun thinking that perhaps the smallest change/biggest benefit might come from Campaign Reform. My idea? Every candidate must write down their Platform. If elected, they could be recalled by deviating from their campaign promises without just cause. This would actually give power to the voter, allowing them to vote for those policies that they want pushed forward and to vote against those they dislike. It would force the Candidates to intentionally differentiate themselves, giving you choices.
What would you do if you had Unlimited Executive Power for the day?
I don’t think a 1960’s progressive tax is the answer but I do agree that the focus on “profits” is out of control. It is not money that is evil but the “love of money” and that is what has pervaded our public corporations. They must keep their investors happy at all costs which can divert them from true growth of not only the company but their employees, customers and products. I feel extremely blessed to work for a company the “gets it” and while their focus is on growth, it is not at the expense of their product quality, customer service, environment and employees. (We are a private company so we do not have to answer to stockholders.)
We did not get into this mess overnight and we will not get out of it overnight but that doesn’t mean we shouldn’t chip away at the mountain.
I’m of a conservative bent and decided to look into the impact taxes have on growth. While I do not have the time to dig into every number I couldn’t see where raising or lowering taxes had a big impact on the nations GDP. Maybe they do at the extreme ends? What they did do is allow those who earn more to keep more of their own money. I don’t believe we should ever have a 90% tax bracket again but I believe our existing brackets would be just fine if the loopholes were eliminated.
Josh, I like your idea of holding candidates to their platform. I believe we would be presented with more realistic ideas instead of what they think would garner the most votes.
If corporations are individuals (as the courts seem to think they are), why don’t they get taxed at the “Single” tax rate, since neither of the married rates seem to really apply?
(yes, this is sarcasm).