Noted columnist Bob Herbert recently stepped down from his perch atop the New York Times to “write a book and expand my efforts on behalf of working people, the poor and others who are struggling in our society”. A noble calling. (And, after 18 years as a leading writer at one of the world’s leading newspapers, a move he could likely afford). In his farewell column, he wrote about how America has lost its way, that the American enterprise system is seriously skewed to the already rich and powerful. In fact, he says that “the current maldistribution of wealth is also scandalous. In 2009, the richest 5 percent claimed 63.5 percent of the nation's wealth. The overwhelming majority, the bottom 80 percent, collectively held just 12.8 percent. ” As an example, he cites that General Electric ( a mega-conglomerate by any measure) made $5.1 billion in profits in its U.S. operations by paid no taxes. He further laments that big government and big corporate America are, if not in cahoots, at least on each other’s speed dial lists ( Jeff Imelt, head of GE, is the leader of Obama’s Council on Jobs and Competitiveness – a relationship Herbert describes as “cozy”). Now, you could write this off as the parting shot of someone who is seeking to publicly justify his personal life choice, but the man has a point. Unfortunately, other than offering a general plea that “new ideas and new leadership have seldom been more urgently needed”; Bob say good bye without presenting any possible solution to this admitted mess.
A few days later, Stephen Moore observed in the Wall Street Journal that “more Americans work for the government than in manufacturing, farming, fishing, forestry, mining and utilities combined”. One of the main reasons he cited for this is that a government job is viewed as far more secure than a private sector gig, with better benefits, more generous retirement packages, and far fewer of those nasty layoffs and staff reductions. There are any number of problems with this trend. One of them, as Moore wryly opines, is that “we could end up with a generation of Americans who want to work at the Department of Motor Vehicles”. The larger issue, in my opinion (and interestingly NOT mentioned by Mr. Moore) is that this growth in government jobs and reduction in actually making things, means our economy will become more and more reliant on fewer and fewer sources of revenue (remember kids – taxes have to come from somewhere!). But, as with ole Bob Hebert, Stephen Moore leaves us without any proposed way to fix it. Well, your humble public servant is here to remedy these errors.
One of the reasons government has expanded is that we offer a far broader range of social services than we ever have before. And that’s great for the underserved, but can be an issue for an economy (I’m sure you’re closely watching the various budget debates around the country and in DC). The bigger economic issue with government funded social services is the basic economic principle of frictional cost, which tells you that every time a dollar changes hands, it loses some of its value. When my tax dollar has to go from me to the IRS to HHS to the Maryland State Department of Health and Mental Hygiene to the Baltimore City Health Department to a non-profit homeless shelter, you can see that by the time we put a roof over someone’s head; my one dollar in taxes is worth, well, a lot less.
And while the mega-conglomecorp may be contributing to the problem, there is a (somewhat) valid reason for their behavior as well. You see, thanks to some thirsty attorneys, there is legal precedent that a corporation can be exposed to shareholder lawsuits if it does not do everything in its power to maximize return on investment. So, the behavior of Imelt and the like is, well, almost rational.
Now, about that way forward. You may have heard about something called a B-Corp. The legal structure of a B-Corp includes a provision in its charter that the purpose of the corporation is to benefit (hence the B) society as well as earning an income. If you use this tool, you can say so long to the loophole of shareholder lawsuits. And guess where the B-Corp is becoming popular? Why, in Social Enterprise of course!
Wait, isn’t that the model where you use business to fund a social mission? And isn’t the idea that the funding activities and the mission activities work hand in hand so that the social benefit is actually part of the business model? Wait, wouldn’t that then eliminate frictional cost and reduce the need for government funded social programs?
I’ll have to get back to you – Bob Herbert just called and Stephen Moore texted me with a question. Cheers!
