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The politics of corporate America can be politely described as bracing. Certainly, there’s a clear aversion to activist government – not to the extent of turning down subsidies and bail-outs, needless to say – but they’re definitely not so keen on the whole tax and regulation bit.

But, according to Chrystia Freeland in Democracy, it wasn’t always this way. In the post-war period America’s corporate elite were keen to align their interests with those of an expanding state:

  • “That age of suburban conformity and institutionalized sexism and racism was also a time when big business believed in government and worried about the common good, and was willing to pay for both.”

This wasn’t entirely out of the goodness of their hearts:

  • “In order to maintain the system from which their privileges derived, they believed it would be necessary to attend to the welfare of the broader population. This meant supporting a high level of employment, the alleviation of poverty, the amelioration of racial disadvantage, and the provision of sufficient purchasing power in the population to consume the goods that American business was so proficient at producing.”

Obviously, between then and now things have changed. Indeed, what took place in the final decades of the 20th century was a fundamental transformation in the culture of corporate America (and, for that matter, corporate Britain too). Freeland identifies the “rise of more active shareholders” as the main agent of change:

  • “In the immediate postwar era, corporate managers held a tight grip over their firms and their own careers. Then, in the 1970s and ’80s, the capital markets began to assert themselves. Investors mounted, and won, hostile takeover bids against managers who were underperforming. Even CEOs who avoided that fate faced more assertive shareholders. Chief executives who were once kings now had bosses who could fire them. In 1982, the average CEO tenure was 9.7 years; by 2002, it had dropped to 6.8 years.”

Before we feel too sorry for the bosses, it should remembered that they were “amply compensated for their loss of autonomy”:

  • “…between 1978 and 2011, CEO compensation increased more than 725 percent. To understand how extraordinary that leap was, consider the fact that worker compensation grew by just 5.7 percent over those same three decades.”

One also has to ask whether this narrower corporate focus has been a good thing. Over the last thirty years or so, we’ve seen economic growth rates fall, wage growth has stagnated and public finances have deteriorated.  One can argue about the extent to which big business shares in the blame for what went wrong, but business leaders should have shown a lot more interest while things were going wrong: 

  • “…when it comes to his day job, every American CEO is laser-focused on his own paycheck, on his company’s share price, and on whatever financial measure his investors care about. He may worry about the deficit or the state of public education over cocktails at dusk, but by day he is working hard to minimize his company’s tax bill…”

In the last five years we’ve seen a few chickens come home to roost – most spectacularly in the case of the banks. Other companies may also come to regret the fixation with short-term profit maximisation. For instance, outsourcing jobs to China may well reduce immediate overheads, but when in comes to maintaining that all-important innovative edge, the benefits of an integrated workforce may not be apparent until it is too late. Similarly, squeezing wages may do wonders for your bottom-line, but when the supply of consumer credit runs out who’s going to buy your products?

Successful management of complex systems requires an unobstructed view of the bigger picture and leaders with the freedom to act accordingly. It is for this reason that simplistic, restrictive, short-term targets do so much damage in the public sector.

We shouldn’t be surprised if they’re just as damaging in the private sector.

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