Ayn Rand Hits the Fan, or What the Hell Happened to American Businesses

[rhett o rick]

Ayn Rand Hits the Fan, or What the Hell Happened to American Businesses

In 1963 Alan Greenspan said,

“Capitalism is based on self-interest and self-esteem; it holds integrity and trustworthiness as cardinal virtues and makes them pay off in the marketplace, thus demanding that men survive by means of virtue, not vices. It is this superlatively moral system that the welfare statists propose to improve upon by means of preventative law, snooping bureaucrats, and the chronic goad of fear.” (1)

What I hear Mr. Greenspan, a devout follower of the Ayn Rand god, saying is that if government (the inherent evil) would just leave the capitalists alone, their virtues, not vices would prevail and their companies would succeed. Of course per AynRandism if corporations succeed everyone would benefit (all boats rise...yada yada). Well, Saint Greenspan would be in for a shock in 2008. But let's not get ahead of ourselves.

Some excerpts from an article from "I, Cringely" (3)

In American business, especially, one key theory says that the purpose of corporate enterprise is to “maximize shareholder value.” Some take this even further and claim that such value maximization is the only reason a corporation exists.
It’s not even a very old theory, in fact, only dating back to 1976. That’s when Michael Jensen and William Meckling of the University of Rochester published in the Journal of Financial Economics their paper Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. (3)

Their theory, in a nutshell, said there was an inherent conflict in business between owners (shareholders) and managers, that this conflict had to be resolved in favor of the owners, who after all owned the business, and the best way to do that was to find a way to align those interests by linking managerial compensation to owner success. Link executive compensation primarily to the stock price, the economists argued, and this terrible conflict would be resolved, making business somehow, well, better. (3)

Link management compensation to stock price and all will be good, right? We all know that stock prices are a direct reflection of the strength of the company, right? Not really. Managers are masters of manipulating their companies stock prices and know full well how to personally profit from those actions.
Back to the article:

Maximizing shareholder return has given us our corporate malaise of today when profits are high (but are they real?) stocks are high, but few investors, managers, or workers are really happy or secure. Maximizing shareholder return is bad policy both for public companies and for our society in general. That’s what Jack Welch told the Financial Times in 2009, once Welch was safely out of the day-to-day earnings grind at General Electric: “On the face of it,” said Welch, “shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy… your main constituencies are your employees, your customers, and your products. Managers and investors should not set share-price increases as their overarching goal. … Short-term profits should be allied with an increase in the long-term value of a company.” (3) 

But the problem is that if you take the suggestions of Jensen and Meckling to the end, you get the corruption when -

management just cooks the books and lies. And so shareholder value maximization gave us companies like Enron (Jeffrey Skilling in prison), Tyco International (Dennis Kozlowski in prison), and WorldCom (Bernie Ebbers in prison). (3)

So where are we. In 2008 “Alan Greenspan, former chairman of the Federal Reserve, finally took some responsibility (sort of) for the crisis. He told Congress:

"Those of us who have looked to the self-interest of lending institutions to protect shareholder's equity – myself especially – are in a state of shocked disbelief…”

Translated, IMO he means he did not think bank bosses (or corporate CEO's) were so greedy as to drive their companies into bankruptcy for personal gain, but he admits he was wrong. Ayn Rand's John Gault was just a fantasy.

And whether irony or just corrupt stupidity, in 2008 those that worshiped Ayn Rand and demanded that the government stay out of their businesses, were begging for a bail out. If Ms. Rand were truly a god, lightening would have struck these weasels that thought they were the mighty capitalist John Gault. They had to bow to the gods of socialism and accept their hand-outs.

(1) The Assault on Integrity, 1963
(2) http://www.independent.co.uk/news/business/analysis-and-features/quotes-of-2008-we-are-in-a-state-of-shocked-disbelief-1220057.html
(3) http://www.cringely.com/2015/06/24/the-u-s-computer-industry-is-dying-and-ill-tell-you-exactly-who-is-killing-it-and-why/