A Country Is Not Like A Company
Businessmen are bad at government
Paul Krugman is a Nobel Prize winning economist who is a professor at Princeton. He also writes two columns a week for the NYTimes. He is a critic of economic policies all over the world right now that are driven by ideologically based austerity measures. These measures are exactly not what we need now. I've been reading him for 15 years now and he has again and again documented how countries do exactly the wrong thing when it comes to economics. (Full disclosure; he doesn't like Republicans much but those criticisms aren't really relevant to his core criticism of conventional economic wisdom.)
Today in a column he explored his core criticism of contemporary economic policy world wide.
(You can read it here:http://www.nytimes. com/2014/11/03/opinion/paul-krugman-business-vs-economics.html ?hp&action=click&pgtype=Homepage&module=c-column-top-spanregion®ion=c-column-top-span-region&WT.nav=c-column-topspan-region)
Basically the problem is that we have come to think that business people are the ones who know best how to run an economy. In this interesting article from 1996 he explores just why businessmen are not the best people to run an economy.
(You can read that here: http:// alvaroaltamirano.files.wordpress.com/2010/05/krugman_a-country-isnot-a-company.pdf)
The basic idea is that a company is not a country. They are categorically different things that operate by different rules. The rules for running a successful company are way different from the rules for running a successful economy.
He says today:
"National economic policy, even in small countries, needs to take into account kinds of feedback that rarely matter in business life. For example, even the biggest corporations sell only a small fraction of what they make to their own workers, whereas even very small countries mostly sell goods and services to themselves."
So, for instance, if a company is in trouble it can lay off workers to reduce it's costs. Those people are no longer the company's problem. A country can't do that because people without work are a country's problem. A country can't just turn it's back on those that business doesn't have job for.
Well every society that has left a big part of their people without a way of supporting themselves suffers a revolution going way back before there was business.
Another difference is that a country's economy is basically a zero sum game while that's not the case for a business.
Here's the difference. In a business there are inputs and outputs the output of a business is not it's input it's a flow stuff passes through.
With a country it's different. All of the outputs are also inputs. The wages I am paid (an output for my employer) are matched by the money I spend (the input to my vendors and suppliers).
With a country that has to be a zero sum game due to the restriction that you can't leave people outside the loop because that causes revolution. So we can see how business always get economies wrong. When a business is in trouble the prudent thing is to cut costs by slashing projects and employment.
With a country the exact opposite is the case.
When an economy is in trouble it has to do whatever it can to put money in people's pockets to stimulate the spending that is needed to consume the society's production.
We see this in our present economy. Companies are now sitting on mountains of cash that they refuse to spend. Why? They aren't stupid. If they spend on increased production now they know not enough people have enough money to make the production profitable.
These guys aren't stupid it's just that their mindset isn't the one needed to mind an economy. Here's the way Krugman puts it:
"I am not claiming that business people are stupid or that economists are particularly smart.On the contrary, if 100 top U.S. business executives get together with the 100 leading economists the least impressive of the former group would probably outshine the most impressive of the latter.My point is that the style of thinking necessary for economic analysis is very different from that which leads to success in business."
Jane Jacobs in Systems of Survival examined how what she called Traders and Guardians had very different moral imperatives. The traders are business people and the moral values that apply to them are things like risk taking, and competitiveness. The guardians are government people and the moral values that apply are things like social cohesion and compassion. Really different stances both necessary for any society.
Have we made a mistake by taking business values as social values?
What do you think?