Mutual Interdependence Admits Relative Contribution

 The latest useless debate between Obama and Romney has to do with whether or not business owners or other successful business people did it on their own. Obama says that we all benefit from some help from somewhere. Romney interviewed business execs who pointed out how much they sacrificed to get where they are. This is like them debating whether my mother or my father was responsible for my birth. Geez guys, this is a no-brainer – this is another red herring (no offense to smoked kipper) to keep our eye off the ball.

No business executive could honesty say that he/she never got any help from anyone. We can be bright and driven but surely somewhere along the way a lion pulled a thorn from our paw. At the same time, in addition to friends and luck, success usually requires long and hard hours and family sacrifice. People who put in the time often get rewarded. People who don’t work so hard or who choose less risky occupations get less rewarded. Mentors often tell you that you have to be in the right line if you are going to receive the benefits of luck. You have to buy that lottery ticket if you are ever going to win the lottery. Young people find it hard to see why learning math is worth all that effort. Parents tell them to keep working because someday that effort will pay dividends. Those who do not follow that advice take themselves out of the math benefits line. 

While it is true that both sides are correct, the question is which one is “more-correct” when it comes to influencing the economy. That is, if you want to improve employment and output, where do you aim most of your policy? Here I am going to say a few things that seem very practical and normal to me – but I may stir the beast in some of my friends and family. But what’s a blog for if not to lose friends and gain enemies? J

An accounting or a snapshot of a mature business firm finds it with owners, managers, machines, real estate, and labor and 6,000 lawyers. There are a lot of components to make a business tick. Each is critical to the outcome. If one part fails to do its job then the business suffers. The human body has a lot of parts. If one loses a hand or foot then the whole body performs less well. This snapshot suggests that we all rise and fall together.

But depending on the specific company, there are parts that are more or less important when it comes to the overall functioning of the business. Some small firms in some lines of business may not need a lawyer. Those firms can get by with someone who wears a coat and tie, bathes daily, and looks and smells like a lawyer.

Other firms need an inventor or entrepreneur to get started and to continue being competitive. Let’s face it there are many lines of business today whose continued existence is based on staying ahead of the competition. In that kind of firm, a particular plant site or machine might not be so important. To stay alive that firm needs a particular kind of scientist or engineer or manager. Lose that professional and the firm and all its parts go under. Losing a machine or administrative assistant means a challenge. Losing a key professional means losing the firm.  

Many start-ups would have never gotten started without a capitalist. A capitalist is a saver who decides to take an equity or ownership position in a new company. This capitalist believes there is a chance that the new company will succeed but understands that it might not. Most new companies fail. Capitalists also provide money for existing companies and the equation is the same. They give their money for a return not knowing in advance how big that return might be. Capitalists are indispensable. Talented professionals and high tech machines matter little if the firm cannot adequately buy or finance them.

Am I putting you to sleep? Good. I am told that a lot of my friends don’t get enough sleep. I am happy to help. Now where was I?

You hopefully are getting my drift that depending on the company some components are more critical or important than others. Most basketball teams need five players but let’s face it – Lebron and Wade get paid more and are more important than the others.  Somehow the other members of the team get this fact and are not insulted by this reality.

Now we get back to Obama and Romney. Obama is right that it takes a village to help a company succeed. So we should pay attention to all the parts. But let’s not mistake the fact that many companies exist and survive because someone took the financial and personal and family risk. A worker or manager in that company is important but it is usually much easier to find another assembler or industrial engineer than it would be to replace the guy or gal who spent endless hours and gallons of perspiration getting the company started to begin with. To ignore this basic intuition is to put logic on its ear. It not only puts the cart before the horse but it puts the horse in the cart! And that makes the horse very uncomfortable.

This point applies to many companies—large or small, new or old. Betty asks me what I do all day now that I am retired. Much of what I do is read the FT and the WSJ as I sip a nice JD – and learn about companies. Okay I also fume about Paul Krugman’s latest brain-fart but I spend a lot of time reading about companies. Every time I do that I thank my lucky stars that at age 21 I decided to never work in a business. I don’t have the nerve or the stomach to run a business. It is a dogfight out there folks. Ask the owners at Nokia or Research in Motion how they are doing financially. Ask the guy who just started a new restaurant in your town how much he is raking in.

 

Some workers are lucky. All they have to do is come to work and follow the company manual and not smoke funny cigarettes in the parking lots at lunch time. They have an "investment" in their company and they depend very much on that employment but in no way does that compare to what others put in. Some distant and rich investor might have a billion dollars tied up. The entrepreneur may have planned, dreamed, and put his/her life on hold for years to get the company up and running.

Note: I recognize that some firms are run by incompetents. Some of you read the last paragraph and fumed about the fact that you are a key employee and if given the chance you would run the company better after you fired the existing management. You might be right. My point in no way supports the existing management.  My point underscores that some productive inputs are more effective and important than others. When firms get this backwards then they do not succeed. You are proving that point. It must be very frustrating to work in a company like that. Luckily you have the freedom to argue your point or to move on to another company to show that you are right.

While this might seem normal and practical to me some of you are already saying that I have given the working class or the middle class short-shrift. I don’t mean any insult and have tried to say above that all parts are important and valuable to a company. I also fully understand how the income distribution has changed and I know that many middle income Americans have lost ground.  My concern, as is yours, is the best bath to help these Americans improve their lives. It seems backward to help them at the expense of investors, entrepreneurs, and innovators. It seems more sensible to focus on the mutual dependency among the parts. Let’s make sure rewards for entrepreneurial activity are commensurate with the risks. Let’s make sure that our companies can compete as effectively as possible. Let’s improve our education and training. Let’s remove impediments to hiring and firing workers. Let’s take away all those loopholes and stupid illegal and immoral relationships between business and government.

There is a way to move this country out of recession. We do it by valuing mutual dependence with a mature understanding about what it takes to both create and sustain competitive labor and product markets. We all work hard but that does not mean that some are not more vital than others. Our policies should celebrate this fact and not pit one side against the other with inane arguments about whether someone got help or not.