Monday, November 29, 2010

Business and lowering costs

Rand's father was a businessman. Her character, John Galt, is a businessman. There is a general agreement among Rand's followers that being like a business makes delivery of services more efficient. So businessmen are highly prized. The basic presumption is that, in responding to market forces, businesses self-select from among competitors in each sector in a way that assure that the surviving businesses, over the long run, are those who have added the most enhancement to products and delivered them at lower costs. This generally-agreed point is flatly wrong and an unrecognized source of weakness in the American economy.
What makes it wrong is the belief within the company that the CEO hired from outside IS an incarnation of John Galt. The fact, however, is that CEOs are hired by corporate boards of directors. Boards of directors are made up of persons who are supposed to return value o investment to stockholders. In a circumstance where a board of directors hires a "John Galt," they will have hired someone with a track record of bringing other companies high levels of profitability. They will have negotiated a package of compensation that will have included severance. In this act alone, they will have fallen behind government in terms of efficiency. Any person who leads or administers services for government is hired at will. This means that when the board determines that the conditions warrant the removal of a leader or administrator, the person is simply removed and no further payment is made.
Positing that the Galts of the world are skilled enough and strong enough to know their own self-interest, the business boards of directors will have lost the battle with so strong a leader and offered the severance package. He is, after all, a John Galt, and therefore able to command what he wants. He, thus, seeks his own permanence which places his services outside of those whose services can be used efficiently. Businesses cannot get rid of their CEOs, and thus cannot lower costs. The hiring of a John Galt is, for the business concerned, a disaster.

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