The prob­lems with CEO cap­i­tal­ism

The Washington Post Sunday - - SUNDAY OPINION - Thomas Pol­ing, Fred­er­ick

Robert J. Sa­muel­son’s June 22 op-ed col­umn, “The CEO back­lash,” stated the prob­lem with mod­ern cap­i­tal­ism very well: “CEO cap­i­tal­ism cre­ates in­cen­tives for ex­ec­u­tives to fa­vor poli­cies — re­duc­ing jobs or re­search and de­vel­op­ment— that boost stock prices for a few years at the ex­pense of long-term growth.” But Mr. Sa­muel­son dis­missed this by stat­ing that it is un­clear if it is re­ally a prob­lem.

Cap­i­tal­ism re­lies on ra­tio­nal ac­tors who trade cap­i­tal know­ing its true value. Cap­i­tal­ists are re­warded based on the value of the prod­ucts or ser­vices they pro­vide. Ideally, cap­i­tal­ism is a mer­i­toc­racy, yield­ing the best eco­nomic out­comes. How­ever, cap­i­tal­ism is frag­ile. Even a small de­vi­a­tion quickly leads to un­de­sir­able re­sults. Think, for ex­am­ple, of the mo­nop­oly that uses anti-com­pet­i­tive meth­ods to drive an in­no­va­tor out of busi­ness. This re­sults in a low­erqual­ity prod­uct at a higher price, among other un­de­sir­able things.

When high-level ex­ec­u­tives move from com­pany to com­pany ev­ery few years and are able to boost stock prices us­ing gim­micks and spec­u­la­tion, they cause a dis­tor­tion of the ideal con­di­tions on which suc­cess­ful cap­i­tal­ism re­lies. While the ex­ec­u­tive is re­warded, the com­pany gen­er­ally pays the price be­cause of re­duced in­vest­ment in the fu­ture. The slower long-term growth means fewer jobs and lower pay for those lower down, and it is a sig­nif­i­cant con­trib­u­tor to the in­equal­ity we see to­day.

So, yes, it is very clear that “CEO cap­i­tal­ism” is a real prob­lem and not just a “rhetor­i­cal de­bat­ing point.”

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