Thursday, February 19, 2009

Who's Really to Blame over the Economy?

In a Recent Time article, a list was made of the top twenty-five people who should be blamed for our current financial predicament. While blame is not generally helpful, I will jump on the bandwagon for a moment.

The Article lists people like President Bush, Bernie Madoff, Alan Greenspan and a batch of bankers and financiers. These are merely the usual suspects. They are, unfortunately, only visible faces of corrupt practices and poor ideologies. They are not really the ones to blame for this mess. The real culprits are the ideologues who started business practices down this road in the beginning, and they are the ones getting away without a smudge on their reputations.

I am referring to the Ivy League business schools, particularly those that adopted the Harvard Business School (HBS) models. It is these schools from whence our troubles have sprung. Ideas of bottom-lining, short-term capital gains, CEOs as investment magnates, squeezing workers and middle management in order to pay incredible salaries to upper-management, fudging numbers to appear more solvent, bullying corporate policies, knowingly offering poor service and products to make extra profits. In short, being in business in order to make money. All these actions may be perfectly justified, as long as the goal for the company is more profit.

Time's article did catch one actual perpetrator in its line-up. The consumer. We have bought into the HBS model without critical thought. We made money hand-over-fist in the '90's and turned a blind eye to the problematic practices. We allowed ourselves to be tempted into our situation with the promise of endless "stuff." When we finally notice that something is wrong and things are not as they seem, we bolt, each seeking to prevent our own misfortune. This stampede is the cause of the crash. In our terror we run, like so many cattle, over the cliff to our doom (o.k., a little melodramatic). Honestly, though, we all are to blame. We have ignorantly accepted wealth without counting its cost, and now we are paying the price.

Government bailouts are band-aids. They will not change the American Consumer's mistrust of the financial edifice. Not only that, bailouts will not remove the gangrene from our infected economy. As long as big business and financial institutions have a (essentially free) source of money to stem the tide, they will not learn their lessons. Notice how many layoffs are happening, when did we decide that our workers were a liability? It is the same thinking. Laying off employees to cut costs is only going to fuel a further economic downturn as it disables bill payment and product buying. We are circling the hole.

I suggest an entirely new outlook on business (which suspiciously looks a lot like the much older outlook). We should offer the best products we can make, the best services we can offer. We should charge fair prices and avoid any opportunity to gouge. We cater to our customers rather than forcing them to cater to the business. We should stop looking at only the quarter and start planning for five or even ten years down the line. We should pay our CEOs good but reasonable salaries. I can understand the CEO of a Fortune 500 company making a $1-2 million a year (let me say that this should not be a government-mandated cap, but a corporate general rule). That's between five and twenty times what many of their middle-management make. It may be up to sixty times what the average worker is making.

An illustration. In 2005, when Bob Nardelli was CEO of Home Depot, he was paid roughly $30 million. Not only did he do an abysmal job with the financial growth of the company, but he almost sunk H.D. His pay, by-the-way, was 1,500 times my own. When one man is essentially seen as worth 1,500 workers, there is something decidedly wrong.

No comments: