A “called out” comment on an article by Timothy Worstall
Following his interesting article, Soaring Inequality And CEO Pay Are Not Caused By The Principal/Agent Problem, Timothy Worstall “called out” this comment…
Thank you for your analysis. It may be correct but I am often (but not always) suspicious of the power and influence of large international companies. Is this a background to this issue? If there were no very large international companies, there would be much less income inequality.
I thought I might ask your view on this as a fellow of the Adam Smith Institute. Is the following summary of Adam Smith’s views on the topic accurate?
Such companies, in Smith’s view, had corrupted and captured many European and non-European governments and undermined their societies’ ability to engage in peaceful transnational affairs and equitable self-rule. In contrast with Smith’s well-known concerns about the rise of commerce in modern Europe in his four-stage account of social development— which were outweighed, in his view, by the many material benefits and personal liberties brought about by the eclipse of feudalism—his narrative of globalization offers a trenchantly critical appraisal of commercial practices that ultimately undermine many of the gains that the initial rise of modern commerce once made possible…
Timothy Worstall, replied
The but being that Smith’s international companies were state supported monopolies with their own armies and often fighting their own wars. That’s a rather different kettle of fish than that of our own dear multinationals of today really.
It is possible that Timothy meant “our own dear multinationals” to be ironic? Would he really argue that governments run by politicians are so hopeless we should leave everything to the market? In his book, Chasing Rainbows, he gives an example of government incompetance that I warm to (I once had a website www.dimbastardsattheODPM.org.uk)
John Prescott decided, while crafting his Pathfinder programme that best solution to the shortage of reasonably-priced housing in the UK was to demolish some 400,000 reasonably-priced houses. It’s very difficult indeed to understand the logic here and such was the now en-ermined Deputy Prime Minister’s rhetorical skills that he never did to explain it satisfactorily. “We had to destroy the village in order to save it” is usually used as an example of Pentagonese rather than the solution to housing the British Working classes.
Good stuff but possibly that’s a bit unfair on John Prescott because departments may really be run by their officials.
“Evil IBM” and “saintly IBM”
There are too many horror stories about multinationals for Timothy to defend them all – even if he wanted to. One possible example is discussed in a book by Edwin Black, IBM and the Holocaust: The Strategic Alliance between Nazi Germany and America’s Most Powerful Corporation. I believe that these days IBM is one corporations that is a force for good. An advertisement next to one of Timothy’s articles in Forbes Magazine led me to Energy and Environment in IBM’s green pages:
At IBM, our approach is twofold: we are working to make our existing products and processes more efficient for both the environment and for business, while also developing new innovations that can help the world become smarter, drive economic and operational improvements, increase accountability and lessen environmental impact.
The challenges have become clear: the need for clean water and air; affordable and reliable delivery of energy; the dwindling supply of fossil fuels; the reality of climate change and its implications for future generations.
(And as a computer programmer, I have been trying to escape the Microsoft software prison for decades – and failed – so I feel extra gratitude to IBM for their support for the open source Linux operating system.)
I’d like to know what makes the difference between “old evil IBM” and “modern saintly IBM” . Is it the moral fibre of those in charge? Possibly. Or is it that profitability determines the corporations actions for good or bad?
It will, of course, be a mixture. Decent people can find them selves controlling large corporations but so can nasty ones but both must have consideration for the interests of the shareholders. The Friedman Doctrine argues that shareholder value should be the only consideration:
Friedman argued that a company should have no “social responsibility” to the public or society because its only concern is to increase profits for itself and for its shareholders. He wrote about this concept in his book Capitalism and Freedom. In it he states that when companies concern themselves with the community rather than focusing on profits, it leads to totalitarianism.
This dogma drives directors and executives to run public firms with a relentless focus on raising stock price. In the quest to “unlock shareholder value” they sell key assets, fire loyal employees, and ruthlessly squeeze the workforce that remains; cut back on product support, customer assistance, and research and development; delay replacing outworn, outmoded, and unsafe equipment; shower CEOs with stock options and expensive pay packages to “incentivize” them; drain cash reserves to pay large dividends and repurchase company shares, leveraging firms until they teeter on the brink of insolvency; and lobby regulators and Congress to change the law so they can chase short-term profits speculating in high-risk financial derivatives. Yet many individual directors and executives feel uneasy about such strategies, intuiting that a single-minded focus on share price may not serve the interests of society, the company, or shareholders themselves.
Another piece by Timothy Worstall, The Shareholder Resolution Calling On Google Not To Be Evil makes the sensible point that it is up to govenments to raise taxes not for companies like Google to volunteer them. He also says:
For the point and purpose of a company is to be run in the (enlightened) self interest of the shareholders within the law.
But is the formal corporate motto of Google, “Don’t be evil” compatible with shareholder value? The law (whose law that? Ed) cannot prohibit eveything we consider to be evil. Is “enlightened” the escape word here?
Is it within enlightened self interest to “lobby regulators and Congress to change the law”. I hope Timothy has the time to look at Arctic Emergency: Scientists Speak. This outlines the dangers to the world of global warming – much worse than Timothy has so far acknowleged. Global warming is one of the places where interests in the fossil fuel industry are lobbying politicians and regulator to downplay its effects and its future threats. (See Senator Denies Climate Change On Senate Floor And Gets A Science Lesson From His Colleague, where Sen Whitehouse says “here in Congress where the money from the fossil fuel industry has a vicious effect”)
I’m left with this question
Would Adam Smith have classed this lobbying
by “our own dear multinationals”
as an attempt to corrupt government?
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