Monday, March 23, 2009

The Problem of Corporate Bonuses: A Problem and a Symptom

The grass roots uproar about corporate bonuses is a healthy thing. In most businesses, a person is rewarded for performing well and demoted or fired for big time mess ups. Somehow the capitalist incentive system seems to have gone out of capitalism.

The uproar over bonuses is not likely to subside. Unfortunately, the Obama administration seems to be manipulating it for their own purposes. A lot of the current difficulties resulted from government mismanagement. People who should not have gotten mortgages got in over their heads with debts to large to carry. The Madoff scandal is an instance where government regulators were asleep at the switch. In the current volatile political and economic climate, there are countless lightning bolts of public anger looking for a place to strike.

There is a need to examine the mistakes that were made in order that they not be repeated. Any successful business should examine its failures. Unfortunately, it is very easy for this constructive inventory of shortcomings to degenerate into recrimination and scapegoating. When healing our economy becomes a job for the government, the temptation for one party to blame another becomes overwhelming.

We are creating a demonised image of greedy capitalist magnates that is attracting a lot of anger, much of which is destructive. Millions of Americans are stock holders. As individuals, their net worth and economic clout is small. But on a mass level, the small scale investor, the holders of 401k's are potentially a powerful force for healing. It would be far better for our country if sick corporations appealed to shrewd and skeptical investors for free will investments instead of going to Washington to beg from Congress. The best thing Washington could do is to cut taxes on investments in troubled industries and to go light on everyone else. Unfortunately, Congress is giving welfare checks to corporations without making sure that they have found and corrected their mistakes.

There is a lot of grandstanding and finger pointing in the current deliberations about our sick economy. We have even found out that the knowledge of impending bonus payouts was concealed from the public for weeks on end. If we are going to solve our country's problems we can not work in a climate of demagoguery and media manipulation. The bonus payouts and obscene perks are a tiny fraction of corporate budgets in troubled businesses. But they are a symptom and a symbol of a skewed corporate philosophy. We need an honest accounting of what went wrong and what we must do in the future. We must restore the incentive to achieve and produce that has driven American capitalism until now. Most importantly, workers, managers and investors need each other. Class warfare, whether it is bosses who outsource work to China or extortionate union demands will kill our economy.

Patriotism is a lot more than waving a flag and having a cookout. It means recognising that we are all in this together and that we all have the potential of making a constructive contribution.

The greatest dangers in life must be faced not with clenched fists of rage but cool appraisal , calm calculation and steadfast resolution. I find these ingredients for national recovery to be in all too short supply. If we are serious about securing a stable future, we should demand this of our leaders and ourselves. Sphere: Related Content

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