Corporate Profits Trump Public Good

Professor Peter missed the point. According to the book The Peter Principle: Why Things Always Go Wrong, which remains good reading even after 25 years, in a hierarchy every employee tends to rise to his level of incompetence. Professor Peter assumed that a good salesman would be promoted to sales manager. A good accountant would be promoted to a managerial position in the accounting department. People, he assumed, would keep getting promoted until they reached a level where they were no longer competent. That meant that with rare exceptions, the people at the top of any pyramid were out of their depth.

What's missing from the Principle is the key observation that the skills needed to do a job aren't always the ones needed to get promotions. Promotions don't always come to those who are best at their jobs -&endash; they go to the people who are best at playing corporate politics. Talent at taking credit for other peoples' work, backstabbing and playing up to the boss are critical to success in any organization &endash;- and have nothing to do with the avowed organizational goals. When really able people turn up, they don't always make it smoothly to the top: Lee Iacocca was fired by Ford Motors, and Steve Jobs was forced out of Apple Computer, the company he had founded.

Every failed company has had a chairman of the board, a CEO and a CFO, and all of them drew high salaries, based, if you follow the logic, on the fact that high salaries are essential to recruiting and retaining the best people.

Then it turns out that these financial giants weren't even generating the profits they claimed, except for themselves. President John Kennedy once said "My Father told me all businessmen were sons of bitches, but I never believed it until now." It took the rest of us 40 years to catch up with Kennedy.

On Sunday, July 14, the New York Times ran a story about how the stock market collapse has destroyed the retirement plans of elderly people. The following day, on the op-ed pages, William Safire wrote a column about how we should all learn from our mistakes, pick up the pieces, ignore the few rotten apples, and go back to the stock market again. Mr. Safire's suggestion, if followed, would lead to stabilization and even increases in stock prices, which would restore the economy and the federal deficit, and increase the value of the dollar on the international markets, leading to lowered prices for imported goods. It makes sense as a matter of macroeceonomics -&endash; but as a matter of microeconomics, who wants to go first?

The recent wave of stock scandals have implicated every part of the industry. You can't trust the companies, can't trust the independent auditors, can't trust the brokerage house analysts, can't trust the Securities Exchange Commission or the president. Anyway, with the rapid slide of the market, and the low interests rates that banks have been paying, small investors simply don't have the money to go back into the market.

A perfectly rational skepticism about the probity of corporate bookkeeping can lead to the sort of economic trough that John Maynard Keynes warned against, when even the most dramatically lower prices aren't enough to stimulate spending. Of course, Keynes said that this type of situation could be fixed with governmental deficit spending; an economic stimulus package. Isn't it a shame that the president gave away all that money with his tax cut? Now he's like the rest of us, with nothing left to invest.

Additional deficit spending would be likely to lead to increased inflation, a decline in the purchasing power of the dollar. Usually inflation has benefits for people at the low end of the economic ladder, since it makes it easier to repay loans. Right now, it would be harmful, since so many people have seen their life savings reduced by the market decline. Inflation of the type seen during the Carter administration would further reduce the economic stability of people who have already seen their retirement plans destroyed.

We have, in other words, the basis for a fully justifiable crises of confidence in our financial institutions which could lead to a long-term reduction in economic growth.

Meanwhile, back in the Senate, there's a debate going on about adding a prescription drug plan to Medicare. The plan would be expensive, and was first conceived in the days of the Clinton budget surplus &endash;- but our elected representatives don't want to back down on such a heavily charged promise. Both the Democrats and Republicans have proposed plans. While the plans differ significantly in the types of coverage they offer, what may be more to the point is that the Democrats offer a plan that would be directly administered by the government, while the Republican plan would offer subsidies to insurance companies to provide drug coverage to Medicare beneficiaries. Insurance companies are businesses, run by businessmen, and will stop offering coverage to people when the profits aren't high enough &endash;- we've seen that with the Medicare HMOs. Just as HMOs cut off treatments that cost too much, prescription benefit plans are likely to withhold drugs that might be too expensive. Government agencies are motivated to pay bills, because it shows how busy they are -&endash; prescription benefit management companies are motivated not to pay bills, because it increases profitability.

For years we've been fed the line that anything the government can do, private industry can do better at lower prices. Now, the truth is being plastered all over the front pages, and written indelibly on 401(k)s that have lost most of their value. But the party of Lincoln is still determined to hand over the Medicare prescription benefit program to the private insurers. If it took most of us 40 years to learn what John Kennedy learned from his father, the Bushies haven't even learned it yet.

Sam Uretsky is a writer and pharmacist living on Long Island, N.Y.

Home Page

News | Current Issue | Back Issues | Essays | Links

About the Progressive Populist | How to Subscribe | How to Contact Us

Copyright © 2002 The Progressive Populist