ACCUMULATING PERIPHERALS


Anti-business conservatism by mattsteinglass
February 24, 2009, 9:59 am
Filed under: Uncategorized

There’s clearly a segment of the conservative intelligentsia that is launching a mighty struggle to restore the right’s reputation for having ideas. Along those lines, I note conservatives Daniel Larison and Freddy Gray approving of this sentiment by conservative Philip Delves Broughton:

MBAs in the public mind have become expert at extracting value from an economy, through fees, bonuses and exorbitant salaries, without knowing how to build value. They use their management voodoo to suck the blood of the real value creators in an economy. But really they are of less practical use to society than a decent carpenter or accountant.

Two years ago I could not have imagined encountering a self-described conservative who held the position that wages charged by managers can reflect expertise at siphoning money flows, rather than the market’s innately accurate rewards for value creation. Still today, when I raise this argument at, say, Megan McArdle’s blog, it is immediately shouted down by people who until recently embraced the Efficient Markets Hypothesis. I expect this “vampire MBA” thesis is an argument which will be more easily embraced by the communitarian side of the new conservative politics than by the libertarian side.

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4 Comments so far
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Two years ago–indeed, six years ago–you would have found me saying that very thing: http://www.janegalt.net/archives/001396.php I would also have said, as I still will, that it is considerably harder to mess with executive compensation without making things worse than it sounds when you’re typing from the comfort of your couch. Indeed, many of the laws that resulted in higher average CEO compensation were laws designed to lower it, like the tax laws that made stock compensation much more popular, and the laws ending deductibility of various expenses.

Comment by Megan McArdle

Megan, I wasn’t aware you self-identified as a conservative, and as I recall it was other commenters, rather than you, who objected to the idea that executive compensation might reflect siphoning rather than value creation. But having read the 2003 post you linked, I don’t read it as saying quite what you’re saying it said. Notably, you argued pretty strenuously that Krugman’s claim back then that there were once cultural and organizational restraints on excessive executive pay were just “Kennedy nostalgia”, and that there really hadn’t been any shift in executive eagerness to loot their companies for their own benefit. I think such an argument needs to have some explanation of why the ratio between CEO and median worker pay has exploded so dramatically over the past 50 years, and why that same ratio in the US and UK is double what it is in Europe.

Basically, I think a tendency to say “Maybe, but trying to do anything about it will only make it worse” exemplifies the reasons why libertarians have a harder time dealing with these kinds of issues than conservative communitarians do.

Comment by mattsteinglass

I stand by this. I don’t think executives got greedier. I think they were always greedy. Nor do I think society got more tolerant of greed. I think there were a whole bunch of institutional shifts that made CEO pay rise, and possibly the relative rise in market cap. But in fact, I’ve since found out that my theory back then–that it was in part board capture–is flatly contradicted by a pretty major piece of evidence, which is that private companies pay their CEOs about the same as public companies. That can’t be explained by board capture, it can’t be explained by shareholder norms–in fact, I’m hard put to come up with an explanation. But I still think it’s Kennedy nostalgia to believe that people simply got greedier than they were 30 years ago. Another interpretation is that in a fat, regulated monopoly environment, CEO talent is a lot less important. I don’t know if I buy that either. But you can as easily blame the environment of the fifties for creating managements that weren’t worth what they were paid as for putting a lid on pay. The fifties created the institutional culture that have driven the automakers into the ground.

Comment by Megan McArdle

Well, wouldn’t it be pretty handily explained by Krugman’s explanation, namely general organizational and cultural norms?

On the link between the institutional culture that has destroyed US autos and the whole semiotic complex of stuff we refer to as “the 50s”, I think I kind of agree with you. But the basket of goods one tosses into a container like “the 50s” is pretty broad, and for me it includes a lot of characteristics of the consumer base US automakers were designing cars for, who apparently seem to be finally giving in to changes in taste and lifestyle they long held out against. I think what Krugman was doing in that article was to take “the 50s”, generally taken as an unambiguous symbol of triumphant conservative Americana, and turn it around to show how it entailed a social compact on egalitarian wage growth, unions in the workplace, and communal responsibility for social investment (in education etc.). What you’re starting to do here is to say “Yes, the 50s did entail unionization etc., which is why the ’50s were bad.” Again, this is going to draw sharp distinctions between libertarian conservatives and communitarian conservatives.

Comment by mattsteinglass




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