Friday, May 18, 2012

Revisiting the Responsibility of Business Managers Tibor R. Machan People buy stocks, shares in a firm, mainly so as to delegate to the officers the job of securing for them economic prosperity. What else did all the folks who purchased the IPOs of Facebook want? (There is, of course, much more to living a successful human life than this but this is certainly not a negligible part of it–why all the fuss about poverty then?) Shareholders look to management for expertise with finances, etc. and those who take such a job promise shareholders this service. This isn’t so different from how people turn to other professionals, in medicine, education and such. When hired, these professionals have a responsibility to do their best to deliver on their promise. Once the shareholders gain wealth from this arrangement, they then are the ones who decide to what use the wealth should be put. They may spend it on their family, on some more or less important cause, on trivial pursuits, a nice vacation, or on a combination of many objectives. That is what property rights is mostly about, namely, to get clear on who is authorized to decide to what use the wealth created by management will be put. Freedom of choice! Just look at all the very wealthy who gain from such an arrangement and then proceed to make huge contributions to the arts, science, charities, etc. But as far as management is concerned they are responsible to produce wealth for the shareholders, just as doctors must care for the health of their patients (who then can devote themselves to all sorts of task in their healthful state). So then what is the problem with the stakeholder/corporate social responsibility view of the moral responsibility of business managers, the currently promulgated idea that business managers should not serve the owners or shareholders with their skills? Well, it plainly flies in the face of reality, which is that shareholders, investors, owners are the ones whom business managers are responsible to serve, just as patients are whom doctors ought to serve. (“Serve” may be a dubious notion here but the point is that the skilled service being provided ought to benefit clients and in the case of private (though publicly traded) companies, these are shareholders, investors, et al.) Those who aim to sneak in a contrary idea are attempting to violate the contractual agreement between clients and professionals. When challenged, the response is that since business firms benefit from various elements of the society in which they operate such as its infrastructure, national defense, police, the legal system, etc., they are not justified to claim that they are the ones who are owed the services of professional managers of the firm. Instead stakeholders are, that is to say anyone with an interest in the business such as employees, neighbors, subcontractors, unions, etc. Although somewhat plausible, unless the benefits were asked and paid for voluntarily, the relationship between firms and stakeholders is artificial and imposed without the consent of those involved. (Of course once the relationship has been imposed by politicians and judges, never mind the choices of the firm’s owners and managers, it is not easy to opt out! But there is no obligation owed to those who imposed the relationship. If I send you a cashier’s check for a thousand bucks, I have no claim on you to do anything for me that you didn’t freely agree to provide. It’s now mine free and clear.) More generally, the assault on private property rights, the rights the exercise of which creates business firms, secure for individuals their liberty to choose how they will make use of their own resources (“property”). That is what private property rights are ultimately about, securing one’s liberty to choose what to do with one’s resources, including one’s labor and time. The claim that because of benefits gained from operating in a society the rights may be violated is a non-sequitur. Moreover, the alternative to owners deciding the disposition of their resources is entirely arbitrary. Who if not the owners and why they? Some answer, that’s to be decided via the democratic method. Yet this begs the question of why others, members of the democratic assembly, are authorized to do so? Who delegated to them this authority? It is a ruse, when all is said. It is an attempt, sadly often successful, to grab unearned resources and the power over those who in fact own them.

Monday, May 14, 2012

Krugman’s Apologetic for Government Regulation Tibor R. Machan Paul Krugman, not unpredictably, once again (in The New York Times, Monday, May 14, 2012) went to bat to hit a home run for government regulation of, well, everyone (except the members of his own profession, namely, eggheads). His piece is titled “Why We Regulate?” but fails to address the most fundamental issue. This is “Who is the ‘we’ in his essay?” And why would "we" be wiser and more virtuous than those whom "we" regulate? Are there, as is implicit in Krugman’s thinking, two classes of human beings, the regulators who are superior, and the regulated who are prone to vice and stupidity? Somehow this issue never gets addressed by him and his allies. Nor do they seem to cope with the critique from public choice theorists such as Nobel Laureate Jim Buchanan, et al., who have pointed out that regulators and other government personnel are motivated pretty much as we all are, and will use their station to advance their preferred goals, not some vague notion of the public interest (which no one has ever managed to identify precisely enough). Since, however, they have political and often unchecked power as well as sovereign immunity--they cannot be sued since they are "us"--they are far more inclined to malpractice than are the regulated (who mostly make mistakes but are rarely out and out mendacious). I have studied government regulation of business for decades--even co-edited, with a fine economist, the late M. Bruce Johnson, the book Rights and Regulation (1983) which explores the topic from a great variety of perspectives, pro and con. Ok, never mind, I am and maybe so was Professor Johnson too low ranked to be worthy of Krugman’s attention. However, Professor James Buchanan and other public choice scholars are formidable within the terms that Krugman should take seriously. (Krugman got his Nobel for some technical work he did, which is rightly admired across the discipline, while Buchanan advanced a general theory in political economy and got the Nobel for that feat, something Krugman ought to recognize by dealing with his argument!) The ordinary issue to be addressed by champions of government regulation of business is, of course, “Who are these people to qualify as regulators--i.e., dictators--of millions of citizens engaged in business?” When the interstate commerce clause was included in the U. S. Federal Constitution by the framers, “to regulate” was widely taken to mean “to regularize.” This makes sense since the helter skelter economic policies among the several colonies had to be regularized once the colonies got united. A free market, more or less, was created without duties and tariffs and such. It is only some among the framers who took “regulation” to mean “manipulation” or “dictation.” But that is how the term got interpreted in the New Deal. But in a free society no such regulation, nor such regulators, make any sense, not when the citizens are all equally endowed by basic rights that no one may violate. Government intrusion in business does, however, violate those rights. Sadly, there hadn’t been sufficient influential protest against the changed usage of “regulate” and the ideological direction of the FDR era was inclined toward top down economic management. Yet, folks like Professor Krugman ought to take up the task of examining government regulation of commerce more fundamentally, more deeply, than simply to accept a highly ideology laden version of the term. I have no idea what reasoning might lie behind the fact that Krugman & Co. do not embark upon a serious examination of government intrusion in business, never ask just who are these people they wish to entrust with the power to order their fellow citizens about. I have my suspicions but I do not wish to deploy the ad hominem approach Krugman himself is so fond of when he deals with his intellectual adversaries.