Tyler Cowen verdedigt in dit boek de "big corporation". Hij doet dat zeer gedetailleerd op basis van wetenschappelijke studies en veel empirische gegevens.
- grote ondernemingen hebben twee grote verdiensten:
All of the criticisms one might mount against the corporate form—some of which are valid—pale in contrast to two straightforward and indeed essential virtues. First, business makes most of the stuff we enjoy and consume. Second, business is what gives most of us jobs. The two words that follow most immediately from the world of business are “prosperity” and “opportunity.” Without business we would not have:
• Ships, trains, and cars
• Electricity, lighting, and heating equipment
• Most of our food supply
• Most of our lifesaving pharmaceuticals
• Clothes for our children
• Our telephones and smartphones
• The books we love to read
• The ability to access, more or less immediately, so much of the world’s online information.
And let’s not forget your paycheck. “Meeting payroll,” to invoke a now old-fashioned phrase, is nothing less than a heroic act. Someone or some group put in the hard work and thought up the innovations required to create a company from scratch—I know it’s easy enough to take this for granted if you aren’t the one who did it. On top of the paycheck, jobs are among our biggest sources of pride and a significant way to meet friends and establish social networks.
- Grote ondernemingen kennen een hoge mate van vertrouwen op de werkvloer:
America’s relatively high level of workplace trust allows its companies to run with much greater efficiency. Trust allows businesses to decentralize decisions, so top managers do not become bottlenecks holding up progress. With trust, delegation to subordinates is much easier and more effective, and so businesses based on trust can scale more rapidly and have greater flexibility.
- Protectionisme beschadigt de werknemer:
The problem with protectionism, which at first glance looks appealing because it claims to protect our workers, is that it becomes much harder for more productive businesses to displace the less productive ones, a fundamental source of economic progress.
- Ondernemingen maken het leven AANGENAMER:
Business helps carve out spaces for love, friendship, creativity, and human caring by producing the resources that make our lives not just tolerable but comfortable. American big business in particular has led the way toward making America more socially inclusive. McDonald’s, General Electric, Procter & Gamble, and many of the major tech companies, among others, were defining health and other legal benefits for same-sex partners before the Supreme Court legalized gay marriage. Apple, Pfizer, Microsoft, Deutsche Bank, PayPal, and Marriott, among others, spoke out or protested the North Carolina law that sought to specify which restrooms transgender people had to use; the outcry led to the eventual repeal of that law. This push for tolerance shouldn’t come as any surprise. Big business has lots of customers and relies on the value of brand names. It doesn’t want any group of those customers to feel put out or discriminated against or to have cause for complaint, not least because we live in an age of social media. Profit maximization alone—not to mention the consciences of some CEOs—puts big business these days on the side of inclusion and tolerance.
- Grote ondernemingen behandelen werknemers en klanten vaak beter dan kleine ondernemingen
Larger firms, in particular, which you can think of as wildly successful businesses and thus embodiments of the logic of business, tend to be more tolerant of employee personal tastes than smaller firms. A local baker might be reluctant to make a wedding cake for a gay couple, but Sara Lee, which tries to build very broadly based national markets for its products, is happy to sell to all. The bigger companies need to protect their broader reputations and recruit large numbers of talented workers, including those from minority groups. They can’t survive and grow just by cultivating a few narrow networks of local white men.
- Grote ondernemingen betalen beter:
And yet big business on average pays much higher wages and offers superior benefits and workplace conditions compared with smaller business. In other words, arguably the biggest problem with American business is the politically incorrect truth that too often it simply isn’t big enough and successful enough. It isn’t ambitious enough or doing a good enough job boosting profits and growing toward gargantuan size.
- Ondernemingen frauderen veelal minder en gedragen zich niet minder moreel dan gewone mensen:
But here I’d ask you to step back and consider what standard we are measuring business against. The propensity of business to commit fraud is essentially just an extension of the propensity of people to commit fraud. When a manager tells his fish department to label some unknown fish as rainbow trout, it’s a person making this decision. To paraphrase Cassius from Shakespeare’s Julius Caesar, “The fault, dear Brutus, is not in our corporations, but in ourselves.” People commit fraud both in and out of businesses, and the evidence shows they are just as dishonest outside of a business context as within it. Businesses often limit fraud by creating institutional structures to constrain the worst sides of their managers and employees, if only to preserve the reputation of the business for fair and honest dealing. It turns out that is a strong means for simultaneously getting things done and limiting the extent of fraud and dishonest dealing.
Further, particularly now that digital communication has raised the price of corporate dishonesty, big business has by necessity, and despite its shortcomings, become one of the most effective institutions for limiting the extent of fraud. In fact, that is one significant reason big businesses became big in the first place—they evoke more trust in consumers, and rationally so. You’re more likely to be ripped off by your local TV repairman, your local doctor, or maybe even your cousin than you are likely to be cheated by McDonald’s or Walmart. McDonald’s and Walmart, quite simply, have valuable national and international reputations to lose, and they will act to preserve their brand identities. Big businesses have more to lose from fraud, they are monitored more closely, and they are more likely to depend on the commercial value of a respected national or international brand name. That comparison is something you won’t hear often enough from most politicians or from most critics of big business. Let’s now turn to this comparative perspective in more detail.
According to a 2002 University of Massachusetts study, 60 percent of adults will lie at least once within the course of a ten-minute conversation, with the average number of lies from the liars being three. And that is only what people admitted to. (If you are wondering, in this study men and women lied at about the same rate.) I don’t think there is any single number that captures how much people lie, as that depends greatly on context. Nonetheless, lying is rather deeply embedded in human nature.5 And how good should we feel about customer applications? What percentage of mortgage applications contain lies or half-truths? Are country club and other membership applications really so aboveboard in terms of their veracity? How many resumes present an accurate picture? Employees and job applicants leave blank spots on their resumes, they talk of “moving on” when they were fired, and they claim to have skills and talents they do not. A lot of these misstatements are harmless, but again they show that a tendency to stretch or violate the truth is hardly specific to business, businesspeople, and CEOs. One estimate I read, from an executive headhunter, claimed that at least 40 percent of resumes contained outright falsehoods. A more formal research study found that 31 percent of those submitting resumes fabricated information, 76 percent embellished the truth, and 59 percent omitted materially relevant information.6 Or compare business dishonesty with employee violations of trust. According to one estimate, retailers lost $32 billion to shoplifting and employee theft in 2014, and often it is the consumer who ultimately pays the bill, not some fat cat in a penthouse suite. That number, by the way, is not counting employee theft at wholesale levels. In 2014, 4.7 percent of American workers failed to pass their workplace drug tests, and many more simply didn’t show up for the test. Other employees who use drugs go undetected because there are active markets in phony urine samples and other workarounds, or they stop using drugs sometime before the test is given. We don’t know the underlying rate of lying here because we don’t know how many workers are using prohibited drugs, but still, these are disquieting numbers, all the more so because many of these individuals rather desperately need a decent job. Employee drug and alcohol abuse—which of course is also dishonest and in violation of any contract—is one of the biggest problems many employers face.7 The reality is that businesses are swimming in a broader environment where their most important partners—their workers and their customers—are lying to them, or at least trying to lie to them, on a pretty regular basis.
I know of one study that examined which kinds of library books are stolen most often. You might think the thieves, with perhaps their selfish commercial interests at heart, would target business manuals about how to make more profit and build large commercial empires. After all, critics of business suggest that the commercially minded are among the least honest people in American society. But no, the data tell a different story. The books that are most likely to be stolen from libraries are books on ethics, especially those that are likely to be read by faculty and advanced students in moral philosophy. Those books go missing at a rate 50 to 150 percent higher than comparable texts not about ethics. And if it is any consolation, books by Nietzsche are among the most likely to be snatched, and another target is Alasdair MacIntyre’s After Virtue. Again, maybe businesspeople are not the most dishonest group after all.
- Ondernemingen plegen minder fiscale fraude dan de gewone belastingbetaler:
The latest estimate I have available for the tax gap is for 2008–2010, in terms of an annual average. For the category “individual income tax,” the average tax gap for those years is $264 billion. Note that includes the category of business income filed on individual returns, but essentially these are decisions made by individuals rather than by businesses in the more formal institutional sense.11 For those same years, the corporate income tax gap averages about $41 billion, much smaller than the tax gap for individuals. In fact, the personal income gap is more than six times larger than the corporate gap. To be sure, that comparison by itself does not prove much, because it does not consider the size of the personal income tax sector relative to the size of the corporate income tax sector, among other things. But that we can do. For instance, if we look at total revenue collected from personal income tax and from corporate income tax for 2010, the ratio is about 4.7 to 1.
- CEO's zijn meer vertrouwend dan niet-CEO's:
Ernst Fehr and John A. List, two of the best known economists in the field of experimental economics, set up what is called a “trust game” and compared the performance of CEOs to non-CEOs. The results were pretty straightforward: the CEOs both were more trusting of others and exhibited more trustworthiness themselves.
- For-profit's zijn eerlijker dan nonprofits:
Another possible way to test the honesty of business would be to compare nonprofit and for-profit organizations. If you think profits induce corruption, you might then conclude that nonprofits should be especially trustworthy. The evidence, however, will show that for-profits and nonprofits, at least if we are comparing enterprises in the same basic economic sector, usually operate in pretty similar ways (with exceptions, which I will consider). This is a tricky test because very often nonprofits and businesses are engaged in quite different and sometimes noncomparable activities. It’s not right to criticize business by noting that the March of Dimes is more altruistic than U.S. Steel. For one thing, charities typically are funded by wealth earned through business and donated by businesspeople. It’s not right to say the charity is altruistic; rather, the donors are altruistic. And charities typically cannot extend their reach further than the donations from business-created wealth will allow. Furthermore, dishonesty and fraud are rife at nonprofits. In addition to headline-worthy cases of outright fraud, it is well known within the sector that many nonprofits manipulate metrics so that the resources devoted to fundraising or to overhead appear lower than they really are. Plenty of charities and nonprofits don’t actually change or improve the world or deliver any useful product at all, but rather simply continue as lost causes with no impact. The same cannot be said for most commercial businesses, at least not over extended periods of time. If I think “nonprofit sushi,” my first instinct is to run away, not to embrace it.
There is one area where the for-profits appear to be considerably more fraudulent than the nonprofits, and that is higher education. It has become increasingly clear that a lot of educational for-profits charge high fees and encourage students to run up debt without improving the job prospects of those students at all, or perhaps only by a small amount. So you can consider this as one piece of evidence weighing in favor of the honesty of the nonprofits. Still, the overall calculus isn’t so simple. Rather than proving to be an indictment of all business practice, these data may suggest simply that for-profit enterprises are ill-suited for that particular sector of education. There are plenty of for-profit educational ventures, ranging from science book publishers to software companies to Apple, that have quite good records in terms of probity, honesty, and keeping their promises. It’s just that one kind of educational for-profit seems to be too frequently a rip-off. Looking past this exception, the data indicate that the nonprofits do not in any obvious way behave more honestly.
- De farmaindustrie redt levens:
Frank Lichtenberg of Columbia University, arguably the leading economic expert on the benefits of pharmaceuticals, has shown that the drug companies are saving human lives at remarkably low cost—roughly $12,900 per year of life gained. He has also presented evidence that two-thirds of the life expectancy boost for elderly Americans over the period 1996–2003 was due to prescription drugs (0.41–0.47 years out of 0.6 years total increase). Furthermore, there is also good evidence, again from Lichtenberg’s work, that pharmaceuticals are among the most effective of all medical treatments. This research has not been seriously contested, least of all by Goldacre, who ignores it. You won’t find Lichtenberg’s name in the index of Goldacre’s book, nor will you find the word “innovation.” You will find a lot of one-sided moralizing about the shortcomings of pharmaceutical companies. Just ask the HIV-positive people who were preparing to die in the early 1990s when a new class of drugs allowed those receiving timely treatment a life expectancy close to the average for all people.
- CEO's krijgen in sommige gevallen wel degelijk hun verdiend (zeer hoog) loon:
Economists sometimes speak of CEOs as arbitrary beneficiaries of a variable called “skill-biased technical change.” That phrase refers to new technologies that boost the return to skilled labor. For instance, email and smartphones allow for easier management of global supply chains at a distance, and that in turn increases the influence and eventually the compensation of many of the best managers in multinational enterprises. But skillbiased technical change does not fall from the sky; rather, it comes about because it was the vision, deeply held and tenaciously enacted, of a number of CEOs. Steve Jobs saw and decided that an iPhone could be produced in a globally integrated supply chain, finished in China, and sold to the whole world, and then he figured out the process and made it happen—with the help of a lot of workers and other CEOs, of course. It’s not a popular thing to say, but one reason CEO pay has gone up so much is that the CEOs themselves really have upped their game relative to the performance of many other workers in the American economy.
Two economists, Xavier Gabaix and Augustin Landier, have studied this connection between firm market value and CEO pay more systematically. Gabaix and Landier show that CEO pay in a simple supply-and-demand model should move roughly in step with changes in the market value of the typical firm. As firms grow larger in market value (and there are more of them), they are willing to pay more to attract CEO talent. Under some fairly general assumptions, this can lead to increases in CEO pay in rough proportion to the increase in market value for the firms. If you pay CEOs to add value to their companies and added value goes up, those same CEOs will earn more. In the period 2000–2005, for the fifty largest American companies, the typical top-three executive (among the three most important in the company) held more than $31 million in effective equity ownership.5 So the sixfold increase in average CEO pay over the 1980–2003 period can be explained in large part by the roughly sixfold increase in average market capitalization over those same years. Gabaix and Landier, in a later study with Julien Sauvagnat, also showed that in bad times CEO pay goes down, and roughly in proportion to the loss in firm value. There is also a growing trend for boards to vote down, or at least question, proposed pay hikes for CEOs. In other words, it isn’t just an upward ratchet, as the system has checks and balances built in, most of all from the market itself.
I’ve found, by the way, that successful American CEOs are some of the biggest critics of CEO compensation for the leaders of other companies. It’s remarkable how many of them think the “other CEOs” don’t deserve it. I find this a bit like how readily some top athletes are willing to bad-mouth other top athletes, such as when former Lakers center Kareem Abdul-Jabbar, in my interview with him, referred to Dallas Mavericks forward Dirk Nowitzki as a “one-trick pony” for taking (and making!) so many jump shots. Such barbs are especially common if both players have made the Hall of Fame, or will make the Hall, or if they are rivals of sorts. Recently Charles Barkley and LeBron James have been taunting each other. In some cases these criticisms are valid—for instance, Larry Bird of the Boston Celtics did not always play conscientious defense or exhibit the proper lateral mobility. Still, in the corporate realm, the close movement between equity prices and CEO compensation suggests such criticisms are not valid for the system as a whole, no matter how justified some individual digs may be.
The parallel with top NBA athletes is a useful one. If you look at the top-performing teams in NBA history, they are almost always based around (at least) one player who is one of the top few in the NBA and playing at or near the top of his game. Bill Russell, Magic Johnson, Larry Bird, Michael Jordan, LeBron James, and Stephen Curry are some of the better-known examples of that phenomenon. That is a major reason teams pay so much for such players—they are hard to come by and they can add so much value in the right circumstances.
At the same time, not every gamble on a big star—or supposed big star—is going to succeed. The New York Knicks poured many millions of dollars into Carmelo Anthony, who is now well over thirty, and they remain a mediocre team and ended up trading him to Oklahoma for relatively little in return. Arguably Anthony has been paid much more than his performance has justified (don’t forget to blame the rest of the team too, though, and the coach and general manager). But how did Anthony get that money? By manipulating the shareholders and board of the company that owns the New York Knicks? No. Anthony offered the promise of something—a highly productive big-time star in the prime of his career—that is very hard to come by and also potentially highly value-enhancing. He was overpaid so much precisely because such deals often work out, and pay off bigtime when they do.
And so it runs with CEOs at the top. A good one is worth so much, and they are so hard to find and keep, that some companies end up overpaying for the Carmelo Anthonys of the corporate world. That’s actually a symptom of the importance and scarcity of top CEO talent, and of the fact that humans, including those on company boards, sometimes make mistakes. It’s not a sign that the system is morally bankrupt. That may be the hardest truth about CEO pay for the critics to grasp because they are falling into a case-by-case judgment of merit, rather than asking whether the rules of the game are delivering good practical results. The other side of the coin, of course, is that the very best CEOs, including start-up founders, can get locked into contracts where they are underpaid relative to the value they create for their company.
Today’s CEO, at least for major American firms, must have many more skills than simply being able to “run the company,” as that term might have been used in older times—that is, how to operate its core business, whether that be setting up oil rigs or manufacturing furniture. As the world has become more financialized, a CEO must have a good sense of financial markets and how to use them, and maybe even how the company should trade in them. It is common these days, for instance, for a large oil company to play a significant role in commodities and derivatives trading, so understanding a Texas oil rig is no longer enough. Outsiders need to trust that the CEO has enough understanding of financial markets that the firm will not lose its shirt through trading and speculation.8 Today’s CEOs also must have better regulatory and public relations skills than their predecessors, as media scrutiny is more intense, and the costs of even a minor public relations slipup can be significant. If a major company is reputed to be racist or sexist or homophobic, the CEO and other company leaders must act very quickly to counter this impression. Increasingly CEOs must have expertise in social media and public relations, and they need the ability to communicate in a wide variety of settings—on social media, on TV, in press conferences, and perhaps in testifying in front of Congress or trying to persuade regulators and legislators, including at the state, county, and city levels. Not surprisingly, it’s hard to find someone who can both run the day-to-day operations of a company and do these other things. And then there’s the fact that large American companies are much more globalized than ever before, and their supply chains are spread across a larger number of countries. Apple’s iPhone, for instance, relies on components and assembly from the United States, South Korea, Thailand, Malaysia, the Philippines, Taiwan, India, and China. A lot of Apple’s key innovation was not the technology behind the iPhone, much of which already was in place, but rather new ideas about how to build up and maintain such a supply chain. Steve Jobs and Tim Cook had to develop a great deal of knowledge about trade patterns, foreign direct investment, and the global economy more generally. In each of the countries in which it does business, Apple has faced unique institutional and regulatory obstacles. It’s not that any CEO comes to the job already having such knowledge inside his or her head; rather, a CEO must know which questions to ask and how to put the answers in the proper context. That skill requires a knowledge of the global economy that is actually fairly mind-boggling. Compared with earlier times, CEOs therefore must have a much better understanding of other countries and the global and cultural environments in which they work—a pretty tall order.
There is yet another trend: virtually all major American companies are becoming tech companies, one way or another. An agribusiness company, for instance, may use drones to monitor its fields, may utilize online business-to-business auctions to buy some of its materials, and may focus on R&D in highly IT-intensive areas such as genome sequencing. Thus, when we talk about our farmers, we must put aside simple notions of a company that produces corn or soybeans and instead conceive of a company very much at the heart of information technology. Similarly, it is hard to do a good job running the Walt Disney Company just by picking good movie scripts and courting stars; you also need to build a firm capable of creating significant CGI products for animated movies at the highest levels of technical sophistication and with many frontier innovations along the way. All of a sudden you need to know how to recruit and retain top programming talent, not a skill that was common in the Hollywood of earlier times.
On top of all of this, major CEOs still have to do the job they have always done—which includes motivating employees, serving as an internal role model, helping to define and extend a corporate culture, understanding the internal accounting, and presenting budgets and business plans to the board.
Again, the data show high returns to important general skills. For instance, all other things being equal, CEOs start with higher initial salaries if they come to the new company with a history of good press, a career history that fits a “fast track” pattern, and an education from a selective undergraduate college. To make that more concrete, CEOs who are one decile higher in the distribution of these credentials earn about 5 percent higher pay, or about an extra $280,000 a year.
The practices of private equity investment also help show that high CEO pay is not mainly about corrupt business leaders extracting more money from sluggish or corrupt public corporations. Think of a private equity firm as a concentrated vehicle for making major investments in other enterprises, either buying private companies (or parts of them) or taking public companies private, often as part of a broader restructuring process. The individuals who are the major players in private equity firms are very often potential or former CEOs themselves, and the firms they acquire are tightly held, so those individuals are not likely to be ripped off by the CEO of a firm they acquire. And in the private equity domain, the fees that accrue to the major investors—which are usually tied to the performance of the company they’re investing in—have gone up by a factor of five to eight since 1993, which is a bigger average gain than what CEOs of major corporations have seen. That suggests there are large and growing returns to managing significant business enterprises well—a task that demands the best CEO talent available.
Furthermore, as we’ve seen, the highest salaries are paid to outside candidates, not to the cozy insider picks, another sign that high CEO pay is not some kind of depredation at the expense of the rest of the company. One more piece of evidence: the stock market reacts positively when companies announce compensation plans tying CEO pay to stock prices or other long-term indicators of the company’s prosperity, a sign that those practices build up corporate value more broadly and not just for the CEO.
- De oorzaak van de toenemende ongelijkheid (een antwoord aan Pikketty):
In fact, the main driver of income inequality has been the blossoming of superstar firms that sell an innovative product and have global reach, as well as productivity shifts that benefit those companies especially. These firms include Google, Facebook, Boeing, and Verizon, as I’ll discuss in chapter 5. Typically, everyone in these companies—from senior managers to personal assistants and janitors—is paid more than workers at their older, more traditional counterparts.19 That is one of the truths about American business that you are least likely to read about in a major media outlet: income inequality is mostly about the differences between the superstar companies and the others. But that reality makes for a less juicy narrative than stories of CEOs taking money from their workers. And to tie this back to CEO pay, the overall value of superstar firms is yet another reason a first-rate CEO can be so very, very valuable. Building a superstar firm helps those firms raise wages for just about everyone. So the real question, looking forward, is what we might do to get more of those superstar companies, so that more people’s pay can go up.
- Wat draagt een CEO bij aan zijn onderneming?
It turns out that leader quality accounts for about 5 to 6 percent of the value of the company. In another study, the sudden death of a CEO causes a firm to lose, on average, 2.32 percent of its value over the succeeding three-day window. That is likely the best measure we have of how the long-run prospects of the company have changed. If it is a young, founder CEO who dies, the share price decline is 8.82 percent.20 A big study of CEO deaths from Norway reveals the power of leadership, most of all when it comes to corporate founders. Sascha O. Becker and Hans K. Hvide looked at CEOs deaths in companies where the founding entrepreneur owned at least 50 percent of the company shares initially (in general, those companies are smaller than the companies in the American study mentioned in the previous paragraph). When those companies are compared with similar “control” firms, on average their sales fell by about 60 percent after the death of the leader. Employment within the firm fell by about 17 percent. Two years after the CEO’s death, the survival rate for those firms was about 20 percent lower than the rate for the controls.
- Wat met de waanzinnige oprotpremies? Deze verhogen wel degelijk de efficiëntie:
One source of outrage is when failed CEOs walk away with very large “golden parachutes”—severance packages that can sometimes run into tens of millions of dollars. A lot of times this payout comes about because of entrenched special interests and rapacious senior managers, but such practices also have two efficiency justifications. First, throwing out the CEO can involve a destructive battle. A golden parachute can help ensure that a bad corporate leader will abandon the mess he or she has created and will do so in a relatively constructive manner, rather than just trying to dig in. The resulting payments (cue the word “exorbitant”) are probably unjust, but still they help solve a very real problem, even though we hate the idea of paying wrongdoers to go away. Second, in some cases the shareholders wish to encourage a CEO to explore risky new strategies that may fail. Generous severance payments make such risk taking more likely. I do think that a lot of supercharged severance payments are just manipulation of the system, but still, it would be quite wrong to think the practice has no efficiency justifications whatsoever. Consumers probably end up with a better mix of goods and services in a world where large severance payments are allowed than in a world where they are banned.
- Lange termijn denken is niet altijd goed. Balans is nodig, en vooral grote ondernemingen slagen in dat opzet:
It is not hard to think of examples where companies made big mistakes because they were thinking too longterm. For example, various tech companies have committed to major expansions in China, feeling that sooner or later its 1.3 billion citizens would pay off for them. In part because of ongoing hostility from the Chinese government, profits have not materialized, and many of those companies, including a number of major American tech and financial services companies, have pulled out. As another example, many recent tech startups have high valuations, even though their revenue is zero or near zero. A great many of these may end up being cases in which investors were lured by dreams of the long run and failed to be hardheaded enough about the short-term limitations. Tesla in 2017 achieved a higher market value than either Ford or General Motors, even though there are no visible signs that the company is capable of selling electric cars at an affordable price at a profit. Maybe they’ll pull a rabbit out of their hat, or maybe not (as I write, their prospects seem to be deteriorating). You can see the same kind of price spikes with a lot of biotech stocks, often before the companies have brought their products to market. From where I sit right now in 2018, I don’t know which of these high valuations are mistakes, and that is part of the point—most critics don’t either. But for sure, in many of these cases the market is thinking too long-term and should be more worried about the lack of revenue today. More generally, price-to-earnings ratios are historically high at the moment, and they have been so since the recovery from the 2008 financial crisis (that may or may not still be true by the time you are reading this). My point is that these currently high P/E ratios are directly inconsistent with the charge of excess short-termism. In essence, the price has been high because the market is expecting high forthcoming earnings, not because earnings are high enough today to justify those valuations.
Of course, markets also think long-term when it comes to successes, and that long-term mentality is encouraged through CEO pay structures. Consider Amazon, which has a stratospherically high share price, even though the quarterly earnings reports usually fail to show a sizable profit. Whether you think that valuation has been justified or not, it is a clear example of how markets can consider the broader, longer-term picture. Circa 2018, Jeff Bezos ended up as the richest man in the world, and he achieved that status by sticking with some long-run goals. Amazon does keep investing its profits in the future of the company. That suggests markets are striking a pretty decent balance between short-term and long-term considerations. There is even some research from two top finance researchers, Kenneth French and Nobel laureate Eugene Fama, suggesting that companies with high current cash flow are relatively undervalued by the market and subsequently earn above-par returns. Maybe their work isn’t the final word on this question, but it makes it much tougher to establish the charge that investors have excessively short-term time horizons.
If we look at the CEOs of major corporations, they seem to have pretty long time horizons. If we look at bosses who left S&P 500 companies in 2015, their average tenure in office was eleven years—the longest it has been over the past thirteen years.
More generally, short-termism does not have to be bad, if only because the short term is easier to manage. Companies very often see their short-term problems staring them in the face, such as the need to fire an incompetent manager or fix a broken machine. It is much more difficult to know what the overall market will look like twenty years hence, especially in sectors where information technology is a significant input, which of course is most sectors today. Planning for twenty years out can involve a lot of expense and a lot of risk, and it is not clear those plans will end up being useful anyway. In other words, it is often short-termism that is underrated.
- Werken voor een onderneming is een betere zaak dan gedacht en is vooral goed voor vrouwen:
So working is next to last in terms of producing a positive mood, and that is sad news. But that doesn’t mean we don’t like work; it only means we like other things better. And in fact, when you drill down, the ratio of people who have positive feelings about work to those who have negative feelings is just over 3.5 to 1. (That’s not as good as the 5.10 to 0.36 positive-to-negative ratio for intimate relations, but sex always was going to beat out work anyway.)
Consider also that the same data set shows people spending 6.9 hours a day working, whereas prayer/worship/ meditation is done only about 24 minutes a day. Presumably that is because you are paid to work but not paid to pray. If people prayed 6.9 hours a day, most of them probably would find it less intrinsically rewarding, and arguably it would have a much lower score. (If you are wondering, intimate relations averages 12 minutes a day, and that too might be less popular if it were at 6.9 hours a day.) In that regard, work doesn’t do nearly as badly as those numbers at first seem to indicate. People are doing so much of it precisely because it has a high net reward, even if not all of that reward is direct fun in the moment. Furthermore, work is often an important pathway toward both intimate relations and socializing, the two highest-rated activities on the list; that induces many people to work more than would otherwise be the case.
I am not trying to whitewash the burdens of the workday and the workplace. Nonetheless, a lot of the other evidence points us toward the more positive side of work. Work provides us with a lot of what we value in life, including affirmation of our social worth, a structure for problem solving combined with rewards, and an important source of social interactions with (sometimes) sympathetic or like-minded others. Many jobs are creative: 82 percent of all workers report that their jobs consist mainly of “solving unforeseen problems on their own.”3 Plus there is always the paycheck. It’s not just the food and rent; the money from work often gives us the means to make, keep, and stay in touch with some of those friends we value so much. In this regard, the value of work and the value of friends are by no means so separate.
Another way to think about the non-pay-related benefits of having a job is to consider the well-known and indeed sky-high personal costs of unemployment. Not having a job when you want to be working damages happiness and health well beyond what the lost income alone would account for. For instance, the unemployed are more likely to have mental health problems, are more likely to commit suicide, and are significantly less happy. Sometimes there is a causality problem behind any inference—for instance, do people kill themselves because they are unemployed, or are they unemployed because possible suicidal tendencies make them less well suited to do well in a job interview? Still, as best we can tell, unemployment makes a lot of individual lives much, much worse. In the well-known study by economists Andrew E. Clark and Andrew J. Oswald, involuntary unemployment is worse for individual happiness than divorce or separation.
First, the possibility of working outside the home has given women many more options for greater independence and reduced the net harassment they face in their lives overall, including from partners and spouses. A job and a paycheck mean that a woman (or a man, for that matter) has the option of leaving an abusive, harassing, or otherwise undesirable partner. Just ask a simple question: Is a woman more likely to be hit at work or at home? I think we know the answer is at home, unless of course she is a professional boxer. Second, harassment appears to be at least as common outside the corporate sector as in it. For instance, harassment scandals are hitting academia and politics too. It is striking that the first harassers to have to resign or otherwise cede power have been in the corporate world, not in politics. And quite a few famous media harassers have had to resign or give up their movie projects more or less immediately upon the revelations becoming public. By contrast, so much of politics is set up so that the perpetrators are relatively invulnerable. If we take the very centerpiece of American politics, the U.S. Congress, as a counterpoint to corporations, effective complaints are hard to lodge. As an employer, Congress is exempt from most of the laws governing employee relations; furthermore, any accusers who wish to file a lawsuit first must go through a lengthy series of counseling and mediation experiences. There is also a special congressional office that tries to resolve cases out of court. And if a settlement is ordered, the specified congressional office does not have to pay the settlement; rather, confidential payments come out of a special fund from the U.S. Treasury. As another example, a senator or president has a lot of power, often over the entire U.S. economy and legal system. In a case where a male leader is accused of abuse, many other people in the system will take the word of the man, even if deep down they probably know better. How can any of that be a disincentive for sexual harassment?
What I’ve seen so far is that companies have acted much more quickly to address harassment problems than the public sector has. Although companies have been out to lunch on this issue for far too long, competition nonetheless seems to be more of a constraining incentive within business than outside it. For instance, a company with a history of harassing female employees has to pay a wage premium—what economists call a “compensating differential”—to continue to hire women.
- Het "monopsony"-probleem (zie Amazon)
One recent trend among economists is to stress a concept known as “monopsony,” a term used to describe when a single company has a good deal of market power over the workers it employs. Think “monopoly” but inverted to be a problem for the worker rather than the customers. However, this has not yet been demonstrated to be a major problem or a significant force behind lower wages. The major reason wage growth has been so slow for decades is relatively slow productivity growth, not the power of employers. One study concludes that even Walmart—for a long time the largest private-sector employer in America—does not have significant monopsony power except in some parts of rural America. Without significant monopsony, the threat of workers leaving— and, more important, the desire to attract new and better workers—can enable and enforce a lot of worker freedoms. In other cases, monopsony may be present but not a problem. For instance, I much prefer to teach at George Mason University than at many competing universities. But that is because George Mason treats me well (so far!), and if many other workers are in a similar position, it is because they are relatively well matched to their current employers. In other words, although the word sounds a little sinister, monopsony does not have to represent a kind of exploitation.
The tax system is yet another nonsinister reason worker mobility is not as high as might be ideal. We all know that wages are taxed, sometimes at pretty high rates, but workplace perks generally are not. If the boss buys a comfy chair for you or gives you a flexible schedule, those are in essence forms of compensation, but you are not paying any income or Social Security taxes on them. So, at the margin, bosses will pay workers more in terms of perks than in terms of money. The perks-to-salary ratio will be relatively high, and distorted to the side of perks, relative to what would prevail if salaries and perks were taxed at the same rate. An economist would say that there are too many perks relative to base pay, given the overall level of compensation, because some of the perks are in essence a kind of tax avoidance. The cruder way of putting this economic point is that bosses treat workers too well and pay them too little. Keep that in mind the next time you hear that markets don’t give workers enough liberty or enough fun in the workplace.
- "Worker-owned entreprises" zijn geen paradijs:
The frank reality is this: most people don’t want their coworkers ultimately in charge of the company, for they place greater trust in their boss. They might in fact trust the boss more than they trust themselves, as many workers require some degree of external control, and often themselves recognize as much.
Also consider the comparative perspective. You can look at co-ops owned and run by their workers, or workermanaged firms, because those organizational forms are sometimes feasible in competitive markets. But those structures do not in fact offer significantly greater freedom for their workers. One problem is that these organizations simply are often less profitable and less efficient, and that makes it harder for them to help their workers with higher pay or better conditions. Another issue is that when workers are ostensibly in control, they can be consumed with the problem of trying to get the other workers to do the work, much as a traditional employer would be so concerned. The logic of capitalism is not so easy to replace, and different organizational forms, while they may sound better, usually do not improve the basic trade-offs that rule the workplace. Very often they actually make those trade-offs worse or harder to skillfully manage. To consider another example, labor-managed partnerships often give their workers less personal freedom. The old-style investment banking and legal partnerships expected their owner-members to adhere to some fairly strict social and professional codes, including outside the workplace. Those were codes of dress, behavior, and public manners. More generally, when workers are motivated to monitor each other through the holding of equity shares, monitoring becomes easier and so corporations engage in more of it. Again, the main issue is not control-seeking bosses versus freedom-seeking workers; very often the person most likely to restrict the workplace freedom of one worker is another worker.19 In other words, we can put the workers in charge, but they cannot escape the basic constraints of running a productive and successful business, which are enforced by marketplace competition.
- Ook grote ondernemingen zijn kwetsbaar:
Keep in mind that all companies, even the largest and longest-standing, have some degree of vulnerability. They become more bureaucratic, they fail to foresee new and important products, market conditions turn against them, foreign competitors enter the market, disruptive technologies can “change everything,” or their costs rise as they lose their dynamism. Most of all, the long-run story of capitalism is one of market churn. Not long ago it was feared that Nokia would dominate cell phone markets for a long time to come, and now the company is not even a major player. Myspace too was considered by many to have a dominant “first mover” advantage. In other words, the costs of monopoly dissipate more quickly than a lot of people realize. Incipient competition is powerful even when it is not always immediately visible.
- Concentratie en monopolievorming wordt veroorzaakt door overheidsregulering (waar Hayek al voor waarschuwde in The Road To Serfdom):
There is some evidence, by the way, that observed increases in concentration ratios are correlated with rising government regulation of business. As government regulates business more, that favors corporations large enough to have substantial legal and compliance departments. Regulation serves as a kind of fixed cost of doing business, discouraging market entry. Not only do higher rates of regulatory growth correlate with increases in market concentration ratios, but the period during which regulation increased significantly, 1990–2000, was followed by increases in market concentration. None of those correlations prove causality, but at the very least it is possible that government regulation is a major force behind the rise of market power.
Another area that might seem to demonstrate more economic concentration is the airline industry. From 2005 to2017, America has gone from nine major airlines to four. That might sound terribly monopolistic, but the classic economic sign of monopoly is a restriction of output. In fact, the total number of miles flown in the United States has risen steadily, and for the most part flying has continued to become cheaper, after adjusting for general inflation. In part this is because of a new class of much smaller, super-cheap airlines competing at the fringes to force down the prices of the major carriers. Yet again, just looking at the aggregate concentration ratios does not tell the real story; in fact, across individual markets concentration does not seem to have gone up at all. If there is any problem, it is the discontinuation of many air routes to some of America’s small and midsize cities, but that is not a monopoly issue; rather, it is simply unprofitable to fly those connections.8 Furthermore, one of the big problems with the domestic airline market is that foreign carriers, by law, are not allowed to serve domestic routes. Repealing that law would usher in much more competition and a new era of low-fare flights. So often when there is monopoly or partial monopoly, it is actually regulation that is at fault. Note that the entry of foreign carriers also could help lower costs through innovation, and that in turn could increase flights to those smaller and mid-tier cities that are currently underserved.
One rating of the top eight search engines goes as follows: Google Bing Yahoo Ask.com AOL Baidu WolframAlpha DuckDuckGo That’s actually plenty of choice, and even includes DuckDuckGo, whose chief selling point is that it attempts to offer complete confidentiality and doesn’t store or sell data on your browsing history.2 You might argue that Google is the best of the lot and that the company holds a kind of natural monopoly due to the data it has accumulated over the years. That is a plausible argument, but still, a natural monopoly based on higher quality of service is the way a lot of markets are supposed to work. Google keeps that leading position only by having, at least in the minds of most users, the best product, and indeed the best overall suite of associated products, such as its email, chat, and Google Docs services. Furthermore, a natural monopoly through data is unlikely to last forever. As the years pass, search engines will compete across new and hitherto unforeseen dimensions, just as Apple and many other competitors knocked out Nokia cell phones. There is no particular reason to think Google will dominate those new dimensions, and in fact Google’s success may stop it from seeing the new paradigms when they come along. I don’t pretend I am the one who can name those new dimensions of competition, but what about search through virtual or augmented reality?
Today YouTube is also a leader for academic video and online education, far beyond what it was before the Google purchase. When Alex Tabarrok and I started our online economics education site, Marginal Revolution University (MRUniversity.com), do you know where we decided to place the content? You probably can guess: YouTube. How much did Google charge us for this service? Absolutely nothing, nor does it charge the users anything, nor is our product connected with advertisements, either for Google, for us, or for any third party. This means that users around the world, in any non-censoring country, can access all kinds of video-based educational resources for free.
- Opsplitsen van grote techondernemingen lost niets op:
Overall, this is an area where we need to be careful, and I do in fact share the concerns of people who worry that public pressure will push the major tech companies into too many take-down or “no service” decisions. But it’s also not an easy problem to fix. Given that we’ve already decided they have the right not to carry images of beheadings and child porn, we really can’t deny them some discretion. And would it help to split either Facebook or YouTube into two or three entities? I don’t think so. That simply means that a slightly larger number of entities would face the same public pressures and quite possibly arrive at the very same content-carry decisions. Your real options are to find corners of the internet that will be interested in your ideas, and adjust accordingly. It’s still a far freer intellectual world than what we knew only a short time ago.
- De financiële sector levert een substantiële bijdrage aan de economische ontwikkeling (en daar mag vooral het Westen blij mee zijn):
If we look at the rise of the West over the centuries, the rise of civilization and the rise of finance have gone hand in hand. The first sophisticated city-states of Sumer appear to have made big advances in accounting, record keeping, lending, and banking by five thousand or so years ago. That helped the major ancient civilizations get their starts, eventually transforming Europe and the Middle East. The Greek city-states had advanced systems of banking for lending and also wealth storage. Later, the rise of the Renaissance, as well as the patronage of art, was closely connected to advanced systems of banking that tied together many parts of Europe through lending, capital accumulation, and bills of exchange. The medieval money fairs turned into more systematic and far-ranging institutions that were major drivers of economic growth. Accounting technologies advanced accordingly, and many of the prerequisites for the modern state were put into place, most of all through the record-keeping techniques of financial institutions. Later, banking and public credit helped Britain rise as a leading power and gave the country the ability to protect itself from European invasion and depredation, thereby enabling the later Industrial Revolution. In fact, the rise of banking and finance was essential to civilizational development, the rise of Europe, and the best parts of Western civilization. In other words, the growth of banking and finance has usually been very good for economies, and thus good for most citizens too. It can be debated to what extent banking and finance were causes or effects of earlier economic growth, but probably they were both. It is hard to imagine sustained economic growth without an ongoing and concomitant growth of banking and finance to allocate the capital that goes along with that new wealth. Banking and finance take society’s saved resources and convert them into higher-yielding investments, and without that function, economic growth won’t take off.
Consistent with this truth, banking and finance are important for the building of the American republic, the settling of the nation, and the rise of New York as a major global city. To side with banking and finance was to embrace these processes of development and to be on the right side of the debate. The more radical Jeffersonians, who were skeptical of banking in quite general terms, also were skeptical about the broader industrialization of the United States. Indeed, throughout the nineteenth century, anti-banking rhetoric was common in the United States and also quite similar to a lot of the current charges. The banks were supposedly parasites, sucking dry the body politic, rife with corruption and abuse, and using the patronage of Washington to win legal privilege and extract profits from the broader citizenry. Yet at the end of this entire process it turned out that American banks, for all of their imperfections at the time, had helped build an extensive network of roads, canals, waterworks, and ports, and a bit later railways and electrification facilities, all of which served to knit America together and make this country one of the wealthiest and freest in the world. The anti-banking vision of the critics was oddly consistent, but it reflected how a world without much banking is also an agrarian world, a world without powerful uses of energy, a world without much social or geographic mobility. Note also that the superior banking systems and finance of the North were essential to winning the Civil War, and thus for freeing the slaves.
- Door de financiele sector heeft de V.S. misschien wel een overschot op de handelsbalans:
A lot of subsequent writers have expressed skepticism that dark matter gains could be so high, and the dark matter hypothesis fell out of favor during the financial crisis, when American investments overseas lost a lot of their value and the chaos made a lot of these values yet harder to measure. Now, though, that value has mostly come back, and even the skeptics admit that American investments earn higher rates of return abroad than do foreign investments in the United States. There is also plenty of independent evidence that American corporations are especially well managed, as I discussed in chapter 3.17 So how large is the return to the American strategy? One economist, Pierre-Olivier Gourinchas, estimates that since 1973 the overseas assets chosen by Americans have yielded between 2.0 and 3.8 percent more than what foreigners are holding in the United States. These higher returns, in his view, allow America to run a trade deficit of about 2 percent of GDP a year without losing ground in terms of the country’s net asset position. In other words, that is about 2 percent of GDP each year as a kind of international free lunch—in absolute terms, about $334 billion a year. That is a pretty big gain to reap from the U.S. financial sector. In essence, you can think of America as the world’s largest and most successful hedge fund. That involves some risks, but it has made us a much wealthier nation.
Okay, so here is the key point (and, in fact, it is based on the recurring theme of finance helping to turn lowreturn assets into high-return assets): it is very hard for a country to sustain its role on the global stage without being a major financial center. The Soviet Union, for instance, had a major role in the world for decades, but eventually the country ran out of money. It couldn’t revitalize its technology or even pay the bills. There are numerous reasons for this, but the country’s underdeveloped capital markets were a major problem. Hard currency availability was always a significant constraint for the Soviets, even for the elites and for state-favored projects. The much smaller Great Britain, in contrast, was an effective global hegemon for much of the period from the mid-eighteenth century up through the First World War or even slightly thereafter. (I am not saying that all or even most of their colonialist decisions were good ones.) It is no coincidence that over this same period of time the country was the world’s economic and financial leader, and London was the world’s financial capital until the rise of New York City. If Great Britain needed to fund a war or an initiative abroad, it was able to raise the money, even during a time when general levels of taxation were quite low and governments were extremely fiscally constrained. Furthermore, the fall of Britain as a world power and center of empire coincides pretty directly with the country losing its capital market heft and having to approach the International Monetary Fund to borrow money in the 1970s.
- Banken opsplitsen is in het verleden geen goede zaak gebleken:
The current fear that banks are too big has an odd historical lineage. In the 1920s, it was commonly believed that American banks were too big, and so regulations were passed limiting their size, most of all by restricting interstate branching. The McFadden Act, passed in 1927, made American banks much smaller. When the Great Depression started, however, a large number of these small banks failed, as they were insufficiently diversified and had a hard time raising capital or otherwise protecting against sudden losses. In Canada there also was a severe depression, but the banking sector was much more concentrated, and so Canada did not see any bank failures at all. And so from 1929 through the 1990s, the dominant refrain was that American banks were too small and insufficiently concentrated (though in the postwar era restrictions on interstate branching were relaxed). In the 1980s, the common claim was that America should try to mimic the more concentrated “universal banking” systems of Germany and Japan, which had banks that were quite large relative to the GDPs of those countries.
The more important point is that the mantra “banks are too small” eventually became an overreaction to a singlehistorical event. Today the mantra “banks are too large” has a similar status—it is an overreaction to a single event. As the experience of the Great Depression shows, having a lot of very small banks is no guarantee against a terrible outcome and in fact may make an economy more vulnerable to systemic risk.
- De macht van "big business" is overroepen:
Even in 2018, big business is hardly dominating the agenda. America’s corporate leaders often promote ideas of fiscal responsibility, free trade and robust trade agreements, predictable government, multilateral foreign policy, higher immigration, and a certain degree of political correctness in government—all ideas that are ailing rather badly right now. Again, you can expect some cyclical ups and downs, but the losses sustained by these causes are a sign that big business is not in charge. The resurgence of interest in doing something about national infrastructure is another example of a business priority surviving in the national debate, but it may or may not happen, and it seems to depend more on the personal priorities of Donald Trump than the strength of the business lobby. Even if a major infrastructure program does break through and become policy, it will have taken decades for this talk to have come to fruition.
Or consider the regulatory apparatus. You can tell thousands of tales of businesses shaping regulations for their benefit, evading regulations, persuading regulators not to enforce statutes on the books, and so on. Yet businesspeople are almost always very unhappy about the current state of regulation. Most of them feel they are regulated by the government far too much, and indeed there is a lot of independent evidence that regulations, whether or not you favor them on net, do indeed impose fairly high costs on American business. Above and beyond the direct compliance costs they are a significant drain on the attention and energy of CEOs. It is pretty common to find estimates that the regulatory burden involves direct business costs of trillions of dollars a year, and some of this (we don’t know how much) eventually gets passed along to consumers. I don’t think we have a good grasp of these regulatory costs, but I hardly think of regulation as an area where business is getting its way, and I do believe those regulatory costs are in fact very high. Despite all the deregulatory initiatives of the Trump administration, the overwhelming majority of regulations are still in place and are not going away anytime soon.
- De middenklasse en de bovenklasse hebben vaak gelijkopende belangen:
First, rich and middle-class Americans agree on 89.6 percent of all legislation in the data sample. So it’s hardly the case that the wealthy, insofar as they are in charge, are acting in gross variance with the views of the middle class. Furthermore, on the remaining pieces of legislation on which the opinions of the wealthy and the middle class differ, those agreement gaps are mostly small. On average they are 10.9 points—something like 43 percent of middle-class individuals might support a bill, but 53.9 of the wealthy would support it, which is hardly a chasm in opinion. And on those bills on which the rich and the middle class do disagree significantly, the rich got what they wanted 53 percent of the time and the middle class won 47 percent of the time. Of course, that is a slight edge to the rich, but the middle class is hardly getting rolled. Finally, when the rich do win, their victories can be labeled “conservative” only slightly more often than they could be identified as “liberal.” In sum, the evidence suggests that the middle class is coming pretty close to getting what it wants, in terms of congressional votes, at least (and noting, of course, that the middle class does not always want whatever you might think are the right things).