The Rot In The Heart Of Corporate America

 I'm old enough to remember when Jack Welch was considered one of the four or five greatest Americans, back in the '90s. He had saved (I guess) GE and was considered a savant of business management. There's a pretty good argument, however, that Welch's "Shareholder Value" school of management has been an unmitigated disaster for American industry, and the best example of this is Boeing.

Fundamentally, orienting your company's performance around increasing stock prices (shareholder value) is mistaking cause and effect. A successful company will grow and prosper over time. If you are consistently working to produce a better product, you should be fine, as long as it can be made at a price point that consumers want. There's a great passage from Henry Ford in a deposition when he was sued by the Dodge brothers, where he says that if you make a good product at a fair price, you can't help but make money. Ford didn't care about share price, he cared about the quality and price of his product. In the process, he incidentally became filthy rich.

Today's very savvy MBAs and corporate managers are all attuned to the price of their stock options. Under the Welch model, you give your executives these options so they are heavily incentivized to increase the short term increase in the price of the stock. You have made them partners in the success of the company. The problem with this theory is that stocks are volatile, and that volatility can warp the incentives of the corporation. 

The clearest outcome of this sort of thinking is seen in the McKinsey/Blackwater school of business. The basic idea is to "reduce costs", which is really just firing workers and shuttering long term investments. Blackwater comes into a company and strips it for parts which can be sold at greater profit as smaller segments than the whole might be worth. This is great for Blackwater, but the company is toast. 

All of this is fundamentally at the root of American inequality. That top 3% are making money - not off producing a superior product at a reasonable price, but by making short term decisions in return for short term gains. Even if that means ending democracy.

The obvious solution would seem to be rewriting the tax code to short circuit the incentives, but that will require a better Congress than the one we have now.