Communist corporations

Have you ever wondered why communist countries failed, or, at least, have had serious trouble making ends meet (with an exception of China¹)? Some will say it's due to the brilliant policies of the Saint Reagan, others will expound the inner evilness of totalitarian regimes. But the truth is much more prosaic: in communism there is no direct incentive to care. To care about anything, but most of all, there is no direct incentive to care about the work one is supposed to do. Everything is owned by the state, everything is a communal property, and so no one is taking care of it. Whether one does his job properly, or not, he or she will be paid the same at the end of the month. And so nobody did anything, except the few who deeply believed in their cause (anyone remembers Boxer from the "Animal Farm"?). Companies would fail, but since the state had to prop them up, they were not closed. They operated at a loss, doing nothing, or worse, depleting resources and polluting just so that they seem to operate, and contributing to the general decline of the economy.

Worse yet, since the person in charge had no vested interest in the success of failure of whatever he was doing, more often than not a small personal benefit would trump a big harm to the company. Can I get couple of bucks for signing a really harmful contract? Sure, why not, what do I care. Should I repair the phone line today, or go for a beer? Is that a trick question? Why should I bother fixing a phone if I can bask in the sun with a cold beer?

What all that has to do with US corporations? Well, look around. This is exactly what is happening to the big corporations now. Theoretically there is an owner - the shareholders, who, through he board of directors, exercise control over the company. But in fact, they do not. It is a rare case when the shareholders actually made any decision, including such a simple one as picking the right director. Everyone always vote just like the board recommends. And if one try to do something else, the sheer inertia of the rest, who do not even bother to vote at the shareholder meetings, will make that a futile effort. Thus those who have most interest in success of the company are left out.

So, who else have the incentive to take care of the company? The CEOs? The couldn't care less. Every day they are employed, they earn more than an average worker in a year. And if they grind the company to the ground, they just take their golden parachutes and leave. No incentive there.

The Board of Directors, perhaps? Well, they get paid a little, but they get paid regardless whether the company is doing well or not. And if the company goes bankrupt, the directors ask their friends on other boards to place them there...

Perhaps the workers? Yeah, right. Just tell me about the last time you have heard an employee in a big company saying "I pour my whole heart into the good of the company." The corporations treat the workers like trash, and get the same treatment in return.

The result is visible all around us. Consider the mortgage, or, in general, the financial crash of late. It is the direct result of big bank employees giving away loans that had no chance to be repaid. Just because they were on commission... If it was a small local bank, such employees would either be family or friends of the owner, or, at least, they would be closely scrutinized by the owner, and would not want to throw money away like that. The "Big Three" automakers - their response to soaring gas price is not making smaller, more efficient cars, but laying off workers and closing factories. Gas prices - the de facto monopoly of a small handful of gas companies makes them allows them to increase price instead of finding new oil sources. One does not need Dilbert to see that the "corporate" became synonymous with "lazy, stupid, and inefficient".

This lack of incentives was what made the communist countries fall, and it could be what will make the capitalistic countries fall - just more slowly.

Of course, the simple solution would be to make the companies smaller. Even though the "economy of scale" is an important factor in company's efficiency, the innovativeness, energy and true involvement of the employees are much, much more necessary (if you do not believe, compare the story of Southwest Airlines with American or United).

That could be accomplished by a steeply progressive revenue tax (tax on the revenue, not on profit), which would make two companies selling $1billion each more profitable than one company selling $2billion. But find me a politician that has the will and wisdom to do it...

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1. China is a special case for two reasons: enormous amounts of direct foreign investment, and the government, who, even though it is communist, encourages private small business ownership.

Carnival of Political Solutions -- June 20, 2008

Welcome to the June 21, 2008 edition of carnival of political solutions. The submissions are, as always, excellent, however, we still have a number of off-topic articles (either not solutions, or not political). I have not included those, even though they were very nice postings.

Edmund Ross presents So what are you going to do when gas hits $12/gallon? posted at Political Bull.

Kurt Yordy presents different solutions to high gas prices in Random Thursday posted at Lyving Well.

Doug Ragan presents My Presidential Campaign ? Oil and the Environment posted at I'm A Pundit Too, saying, "I am putting together a series of posts regarding my Presidential Campaign Platform. I am not actually running for President of the US for a few reasons. One reason is that I am 33. Another reason is that I have no political experience. And lastly, I am a very reasonable person who does not enjoy lying, therefore no one would ever vote for me. The first part of this series will be the issue of oil and the environment."

Charles H. Green presents What Malpractice Suits Teach Us About Trust posted at Trusted Advisor Associates, saying, "Even when it comes to something like a doctor saying sorry for messing up, politics, and laws, are involved."

Matthew presents I?m on the Pavement Thinking About the Government posted at Conservatives and Normals . Com - The Blog, saying, "Take time to learn about politics."

Vihar Sheth presents Living in the City is Greener posted at Vihar Sheth.

Edmund Ross presents Pursuing renewable energy will create jobs and get us off of oil posted at Political Bull.

APH presents Rent Control Part 4: Conclusion and Solutions posted at Market Urbanism, saying, "Discussion of solutions to rent control."

Collin Williams presents Assumptions of Competence posted at RejectSociety.com.

John Phillips presents Race and Gender Forever posted at The Word On Employment Law, saying, "Race and gender keep going and going and going."

Yi Hui Chang presents Ratings of Bay area hospitals from Consumer Reports posted at The Simple Wealth.

Andrew Heath presents How to Achieve Peace in the Middle East posted at Andy, saying, "Here is my proposed solution to our conflict in the Middle East"

Recoil presents Obama Will Raise Taxes - McCain Says DRILL! posted at Double Barreled Opinions.

Holly Ord presents John McCain Doesn’t Support the Troops posted at Menstrual Poetry.

Phil B. presents A Plan to Destroy All Weapons of Mass Destruction posted at Phil for Humanity, saying, "No leader and therefore no country can be trusted enough to control weapons of mass destruction."

Sammy Benoit presents Democratic Stupidity on Drilling Threatens Our Economy posted at YID With LID.

Allen in Fort Worth presents Libertarians Will Not Work Hard For You. We Promise. posted at The Whited Sepulchre, saying, "here's the libertarian solution to a lot of problems."

Phil B. presents Why Demonstrations and Petitions Do Not Work posted at Phil for Humanity, saying, "If demonstrations and petitions work, then the 1960s would have seen a lot more political, social, and environmental changes."

Joseph McClellan presents Revitalize Economy? Spend Says Obama posted at Debit versus Credit, saying, "Obama recently shared his opinions on what needs to be done to bring this economy out of its recession. I cover it and share my opinion on the matter. What is yours?"

Educatorblog presents ?Don?t tase me, bro!? (AKA - the Obligatory Edublogger TFA Post) posted at An (aspiring) Educator's Blog, saying, "An educator debates the merits of Teach For America."

Jeffrey Stingerstein presents Abortion (a secular response to Richard Dawkins) posted at Disillusioned Words.

Jeffrey Stingerstein presents A System to Replace Affirmative Action Points in College Admissions posted at Disillusioned Words.

That concludes this edition.

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