Why The Market is Broken

I wish I could say. I’ve been digesting so much reading on the topic that I find it difficult to speculate. At the same time I’ve been thinking about the relationship of labor to management; not of my own accord but in response to the recent discussions going on throughout many state capitols. I’m going to do my best over a series of posts to hash things out for myself.

I want to kick things off with a quote that just about sums up my reactions to the worker/manager relationship:

The workers at the recuperated enterprises in Argentina, forced to learn about managing factories for themselves, learned very quickly that the MBAs’ poor-mouthing about “labor costs” and “competitiveness” was so much horse shit. They found that when they eliminated all the high-salared managers, most of the unit cost problem just evaporated. Since they didn’t have accounting degrees, they also didn’t know anything about ROI and the theology of direct labor hours. So they essentially reinvented, without knowing it, the cash accounting model of Henry Ford: if you have more money at the end of the week than at the beginning, you’ve made a profit.

The above may be a simple understanding of business and accounting, but it provokes an interesting thought; when CEO compensation has grown and worker compensation has stagnated in comparison over the past 40 years, I have to wonder why?

For this bit of self-reflection I want to explore the following:

  1. I’ve come to the conclusion that we do not actively participate in a free-market economy as we might think.
    • Government regulation of the markets have been for the good of corporations rather than the good of consumers.
    • Most licensing requirements hurt competition more than anything else; rather than to protect consumers they’ve created artificial barriers to those seeking to enter the market.
    • Corporate America has a cozy relationship to both major political parties–whether they’ll concede that point is debatable.
  2. Where do workers stand in all of this?
    • What has all of this rent-seeking accomplished in relation to worker compensation?
    • Why have CEO salaries increased, but worker wages stagnated or declined? (CEO as a stand-in for upper-level management.)
    • Are unions necessary? Perhaps–without proper codified protections, anyway.
    • Public worker unions seem to be an excellent example of rent-seeking–though some protections are needed.

That’s a lot to cover, but I’ll try to tackle each in a separate post if possible.