http://www.calendarlive.com/books/reviews/cl-et-book19jan19,0,7457278.story?coll=cl-books-reviews
BOOK REVIEW
Adam Smith -- yuks included
On the Wealth of Nations Books That Changed the World P.J. O'Rourke Atlantic Monthly Press: 256 pp., $21.95
By Lee Drutman
Special to The Times
January 19, 2007
ADAM SMITH is an Enlightenment-era moral philosopher best known for writing "The Wealth of Nations," a founding text of modern economics that checks in at more than 900 dense pages — enough to discourage many a would-be reader.
P.J. O'Rourke is an impudent political satirist with a penchant for quippy one-liners, best known for such books as "Parliament of Whores" and "Give War a Chance." He is also the choice of the editors at Atlantic Monthly Press to be Smith's explicator for a mass audience as part of the publisher's "Books That Changed the World" series. (The jacket headline: "P.J. O'Rourke reads Adam Smith so you don't have to.")
It's not the best of matches. For one, O'Rourke is overly fond of Smith ("Even when he was wrong he was smarter than other people."), which makes him a satirist with nothing really to satirize. Hence there are fewer snappy one-liners than usual, and his jokes often feel forced: "Then there is the matter of those goods and services — Adam Smith's gross domestic product. I am as grossly domestic as anyone. Where's the product?" Hah, hah, hah.
The bigger problem is that O'Rourke is at best an amateur economist — a point he is surprisingly happy to make several times (ah, self-deprecating wit). But he is a Mencken research fellow at the über-libertarian Cato Institute, where he appears to have imbibed a very particular, morality-play view (markets = good; politicians = bad) of Smith's much more complicated and nuanced magnum opus. "Free markets lead to thinking," O'Rourke writes, "that eternal enemy of politicians."
Unfortunately for those hoping to acquire a reasonable understanding of Smith, O'Rourke is either unwilling or unable to probe "The Wealth of Nations" for anything more than a series of Cato-approved talking points to the effect that unfettered commerce rules, governments drool.
Nowhere, for example, does O'Rourke really probe the workings of crucial Smith concepts such as comparative advantage, the division of labor or the nature of competition. Nor does he explore Smith's controversial characterization of human nature as innately predisposed to "truck, barter, and exchange." And though he touches on Smith's conclusions about man being much disposed to sympathy for his fellow man, he does not explore how Smith's praise of self-interest is fundamentally circumscribed by this assumption — that the market is perfectly self-regulating only if you believe that people won't cheat each other if they have the chance. Also missing: Smith's disregard for joint-stock corporations, which he criticized for their greed, irresponsibility and generally anti-competitive nature.
Instead, O'Rourke's approach is to plod through the five books of "The Wealth of Nations" in order, telling us that Smith said this, Smith said that, furnishing direct quote after direct quote, cherry-picking his way to a series of pro-market policy prescriptions that today's leaders ignore at their own peril. "[M]aybe they'll all buy my book and give it to [World Bank President] Paul Wolfowitz for Christmas," he writes hopefully.
O'Rourke misses no opportunity to lob predictable barbs at politicians (who, by some remarkable stroke of chance, all happen to be bumptious and venal, while all private commerce-loving citizens are honest and virtuous). For example, in his very limited discussion of the division of labor, O'Rourke quips that "the specialization of politics at least keeps politicians from running businesses where their stupidity and ignorance could do even greater harm to economic growth."
But something strange happens when O'Rourke gets to Book 5, where Smith wrestles with the proper functions of government and recommends the kind of mildly progressive state that makes free-market devotees like O'Rourke break out in hives. O'Rourke decides that in applying his "lofty intellect to mundane political issues, [Smith] yielded to the temptation to slide down Olympus." Here, the "truly sagacious" Smith of Book 2 is suddenly spouting "mixed-up pronouncements."
And when the Scottish political economist suggests that landowners should be taxed on the rent they collect, O'Rourke can only conclude, "Smith must have been completely out of his head." Then again, "thinking about taxes leads to bad thinking," O'Rourke explains. Except, of course, when Smith opposes inheritance taxes and value-added taxes, as he also does in Book 5, which makes him OK.
If O'Rourke weren't a Cato Institute fellow, a reader might wonder whether the satirist had in fact produced a brilliant satire of the righteous black-and-white sermonizing to which free-market devotees are often prone. At some points, he is so over-the-top, so unwilling to engage in anything resembling nuance, it feels like it must be a parody. At one point, he even writes: "[N]o people are as rapacious and grabby as those who work for the public good. They don't want mere millions or billions of dollars to satisfy personal avarice," he explains. "They seek trillions of dollars necessary to make life on earth better for everyone." Imagine the horror! True evil revealed at last! Parody or not, anyone who wants to understand what Adam Smith was up to would be well-advised to decline O'Rourke's offer and instead read the darn books for themselves (preferably in annotated and abridged form).
Lee Drutman is the co-author of "The People's Business: Controlling Corporations and Restoring Democracy."
If you want other stories on this topic, search the Archives at latimes.com/archives.
Article licensing and reprint options
Copyright 2007 Los Angeles Times
Friday, January 19, 2007
Thursday, January 11, 2007
CEOs gone wild, cont'd
Lee Drutman: CEOs gone wild, cont’d
Providence Journal
07:23 AM EST on Thursday, January 11, 2007
BERKELEY, Calif.
And so the saga continues. For the latest installment of “greedy CEOs gone wild,” we bring you outgoing Home Depot Chief Executive Officer Robert Nardelli, who managed to somehow finagle a $210 million severance package after a troubled six-year period during which the company’s stock fell 7.9 percent and competitor Lowe’s gained significant market share.
Then again, constructing opulent compensation packages on sand is nothing new to the good folks at Home Depot. Not only was company co-founder Kenneth Langone on the New York Stock Exchange board of directors that awarded Richard Grasso $188 million, but Langone was also Grasso’s staunchest defender. “Dick’s pay is fair and reasonable,” Langone was quoted as saying once Grasso’s fortune became public. Grasso had served as a member of Home Depot’s board of directors.
Though Nardelli still falls short of former Exxon CEO Lee Raymond, who got a record $357 million retirement package in 2005, this latest round of outrage comes at an opportune time for reform. The Democrats are now in control of Congress, and Massachusetts Democrat Barney Frank, a long-time critic of extreme executive compensation, is now chairman of the House Financial Services Committee and seems to be spoiling for a fight.
Last November, he introduced the Protection Against Executive Compensation Abuse Act, to give shareholders the right to review and approve CEO pay plans. He continues to talk tough.
The Nardelli debacle also comes close on the heels of a puzzling pay disclosure about-face at the Securities and Exchange Commission that is further fueling outrage.
Just three days before Christmas, the SEC bowed to corporate pressure and reversed course by allowing companies to delay disclosing stock-option grants, so they can report smaller executive-compensation totals. SEC Chairman Christopher Cox called it “a relative technicality,” but investor advocates knew better. They were up in arms. And Frank seized on the moment, issuing a statement making the case for legislation: “Backtracking by the SEC on this important matter of stock options reinforces my determination that Congress must act to deal with the problem of executive compensation that is now unconstrained by anything except the self-restraint of top executives.”
Of course, to call it self-restraint is a euphemism if there ever was one. Between 1993 and 2003, the percentage of company profits going to the top five executives more than doubled, growing from 4.8 percent to 10.3 percent. In 2004, the median Fortune 500 CEO received compensation worth $15 million. At last count, the average CEO was earning more than 400 times the average of worker pay, and more than 800 times the minimum wage.
One wonders: How much longer can this go on? CEOs taking 10 percent off the top off all corporate profits, making 400 times more than the average worker (a truly remarkable figure, when you consider the fact that in all other advanced industrial countries, the ratio is about 20 to 1).
Congressman Frank’s approach — give the mass of shareholders, the actual owners of the company, some say — makes perfect sense and would probably do a good amount to curb extravagant pay packages. It should hardly be controversial. If a common-sense reform like this, tackling an issue so universally agreed to be a problem, cannot gain traction in a Democratic Congress, then this is more than a case of just CEOs gone wild. It’s a case of narrow corporate interests gone wild in our political system.
http://www.projo.com/opinion/columnists/content/CT_drut11_01-11-07_053NPM1.1f57712.html#
Providence Journal
07:23 AM EST on Thursday, January 11, 2007
BERKELEY, Calif.
And so the saga continues. For the latest installment of “greedy CEOs gone wild,” we bring you outgoing Home Depot Chief Executive Officer Robert Nardelli, who managed to somehow finagle a $210 million severance package after a troubled six-year period during which the company’s stock fell 7.9 percent and competitor Lowe’s gained significant market share.
Then again, constructing opulent compensation packages on sand is nothing new to the good folks at Home Depot. Not only was company co-founder Kenneth Langone on the New York Stock Exchange board of directors that awarded Richard Grasso $188 million, but Langone was also Grasso’s staunchest defender. “Dick’s pay is fair and reasonable,” Langone was quoted as saying once Grasso’s fortune became public. Grasso had served as a member of Home Depot’s board of directors.
Though Nardelli still falls short of former Exxon CEO Lee Raymond, who got a record $357 million retirement package in 2005, this latest round of outrage comes at an opportune time for reform. The Democrats are now in control of Congress, and Massachusetts Democrat Barney Frank, a long-time critic of extreme executive compensation, is now chairman of the House Financial Services Committee and seems to be spoiling for a fight.
Last November, he introduced the Protection Against Executive Compensation Abuse Act, to give shareholders the right to review and approve CEO pay plans. He continues to talk tough.
The Nardelli debacle also comes close on the heels of a puzzling pay disclosure about-face at the Securities and Exchange Commission that is further fueling outrage.
Just three days before Christmas, the SEC bowed to corporate pressure and reversed course by allowing companies to delay disclosing stock-option grants, so they can report smaller executive-compensation totals. SEC Chairman Christopher Cox called it “a relative technicality,” but investor advocates knew better. They were up in arms. And Frank seized on the moment, issuing a statement making the case for legislation: “Backtracking by the SEC on this important matter of stock options reinforces my determination that Congress must act to deal with the problem of executive compensation that is now unconstrained by anything except the self-restraint of top executives.”
Of course, to call it self-restraint is a euphemism if there ever was one. Between 1993 and 2003, the percentage of company profits going to the top five executives more than doubled, growing from 4.8 percent to 10.3 percent. In 2004, the median Fortune 500 CEO received compensation worth $15 million. At last count, the average CEO was earning more than 400 times the average of worker pay, and more than 800 times the minimum wage.
One wonders: How much longer can this go on? CEOs taking 10 percent off the top off all corporate profits, making 400 times more than the average worker (a truly remarkable figure, when you consider the fact that in all other advanced industrial countries, the ratio is about 20 to 1).
Congressman Frank’s approach — give the mass of shareholders, the actual owners of the company, some say — makes perfect sense and would probably do a good amount to curb extravagant pay packages. It should hardly be controversial. If a common-sense reform like this, tackling an issue so universally agreed to be a problem, cannot gain traction in a Democratic Congress, then this is more than a case of just CEOs gone wild. It’s a case of narrow corporate interests gone wild in our political system.
http://www.projo.com/opinion/columnists/content/CT_drut11_01-11-07_053NPM1.1f57712.html#
Friday, January 05, 2007
Reinventing Capitalism - Los Angeles Times
http://www.calendarlive.com/books/reviews/cl-et-book5jan05,0,4914102.story?coll=cl-books-reviews
BOOK REVIEW
Reinventing capitalism
Capitalism 3.0 A Guide to Reclaiming the Commons Peter Barnes Berrett-Koehler: 198 pp., $22.95
By Lee Drutman
Special to The Times
January 5, 2007
PETER BARNES is a businessman in a quandary. He's a firm believer in free markets, but he's also convinced that our current version of resource-depleting, pollution-spewing capitalism is pushing nature ever closer to collapse — and generating a gaping divide between rich and poor that increasingly defies all conceptions of fairness.
Yet Barnes is no fan of government either. It's too susceptible to corporate pressure to be effective, he argues, and besides, do we really want politicians setting prices?
The co-founder and former president of Working Assets Long Distance, a telephone service that donates to nonprofit organizations, thinks he has a better idea: Establish an independent "common wealth" sector to protect shared assets like air and water, and maybe even cultures and communities. Secure these assets in a trust that belongs to everyone, he writes in "Capitalism 3.0," and profit-making corporations couldn't wantonly gobble them up. Plus, everybody would benefit equally from their use. If it sounds farfetched, maybe that's the point: "We ignore common wealth because it lacks price tags and property rights," warns Barnes, who already has incorporated a nonprofit organization called the Sky Trust to protect the atmosphere.
Barnes' tale of capitalism gone mad begins with the Industrial Revolution, when the primary social problem was a scarcity of goods and the primary economic problem was coordinating limited investment capital. Land and natural resources, by contrast, appeared endless. Hence, what he calls Capitalism 1.0 developed with rules and practices that privileged capital above all else, particularly the joint-stock corporation.
By 1950, scarcity was no longer a problem. But the great engines of capitalism, already programmed to maximize production and profitability, were incapable of slowing down. Instead, they entered a new phase Barnes calls Capitalism 2.0. Instead of filling human and social needs, he writes, they began creating what Dr. Seuss' villain in "The Lorax" calls "thneeds," things we didn't know we needed. Worse, corporations continue to impose their "illth," British critic and author John Ruskin's word for goods produced by an economy that don't contribute to human welfare, on a natural environment whose capacity for absorbing is far less boundless that previously thought.
Barnes is at his best in diagnosing the structural maladies in today's iteration of capitalism, which has created a "world is awash with capital, most of it devoted to speculation" but "healthy ecosystems are increasingly scarce." The main problem, as he sees it, has to do with the three algorithms that drive market behavior: Maximize return to capital; distribute property income on a per-share basis, and the value, or price, put on nature is zero. And, he notes, 5% of the world's people control half the property shares.
The obvious moral of "The Lorax" parable, in which the evil Once-ler cuts down all the truffula trees to make thneeds, Barnes says, is that "trees need property rights too." If the trees belonged to everyone, held in trust, their price would not be zero — the Once-ler would have to pay (and the trust would be responsible for protecting the trees from extinction). Such a set-up, the author argues, would not only protect nature, but also allow everyone (not just the wealthy) to benefit equally from its occasional use. If such a plan were implemented properly, this would be what Barnes calls "Capitalism 3.0," in which "[w]e'll have more things we truly need — healthier ecosystems, communities, culture — and fewer thneeds."
Barnes' new and improved capitalism is more an exploration than a detailed plan. Even if the details prove unworkable (and they may very well), he deserves plaudits for offering a way past the stale debates of statism versus privatization. Instead of chiding greedy capitalists and venal politicians, perhaps we ought to look more closely at the rules and incentives to which they are duly bound to respond. And perhaps in doing so we will discover something new right under our noses.
Lee Drutman is co-author of "The People's Business: Controlling Corporations and Restoring Democracy."
BOOK REVIEW
Reinventing capitalism
Capitalism 3.0 A Guide to Reclaiming the Commons Peter Barnes Berrett-Koehler: 198 pp., $22.95
By Lee Drutman
Special to The Times
January 5, 2007
PETER BARNES is a businessman in a quandary. He's a firm believer in free markets, but he's also convinced that our current version of resource-depleting, pollution-spewing capitalism is pushing nature ever closer to collapse — and generating a gaping divide between rich and poor that increasingly defies all conceptions of fairness.
Yet Barnes is no fan of government either. It's too susceptible to corporate pressure to be effective, he argues, and besides, do we really want politicians setting prices?
The co-founder and former president of Working Assets Long Distance, a telephone service that donates to nonprofit organizations, thinks he has a better idea: Establish an independent "common wealth" sector to protect shared assets like air and water, and maybe even cultures and communities. Secure these assets in a trust that belongs to everyone, he writes in "Capitalism 3.0," and profit-making corporations couldn't wantonly gobble them up. Plus, everybody would benefit equally from their use. If it sounds farfetched, maybe that's the point: "We ignore common wealth because it lacks price tags and property rights," warns Barnes, who already has incorporated a nonprofit organization called the Sky Trust to protect the atmosphere.
Barnes' tale of capitalism gone mad begins with the Industrial Revolution, when the primary social problem was a scarcity of goods and the primary economic problem was coordinating limited investment capital. Land and natural resources, by contrast, appeared endless. Hence, what he calls Capitalism 1.0 developed with rules and practices that privileged capital above all else, particularly the joint-stock corporation.
By 1950, scarcity was no longer a problem. But the great engines of capitalism, already programmed to maximize production and profitability, were incapable of slowing down. Instead, they entered a new phase Barnes calls Capitalism 2.0. Instead of filling human and social needs, he writes, they began creating what Dr. Seuss' villain in "The Lorax" calls "thneeds," things we didn't know we needed. Worse, corporations continue to impose their "illth," British critic and author John Ruskin's word for goods produced by an economy that don't contribute to human welfare, on a natural environment whose capacity for absorbing is far less boundless that previously thought.
Barnes is at his best in diagnosing the structural maladies in today's iteration of capitalism, which has created a "world is awash with capital, most of it devoted to speculation" but "healthy ecosystems are increasingly scarce." The main problem, as he sees it, has to do with the three algorithms that drive market behavior: Maximize return to capital; distribute property income on a per-share basis, and the value, or price, put on nature is zero. And, he notes, 5% of the world's people control half the property shares.
The obvious moral of "The Lorax" parable, in which the evil Once-ler cuts down all the truffula trees to make thneeds, Barnes says, is that "trees need property rights too." If the trees belonged to everyone, held in trust, their price would not be zero — the Once-ler would have to pay (and the trust would be responsible for protecting the trees from extinction). Such a set-up, the author argues, would not only protect nature, but also allow everyone (not just the wealthy) to benefit equally from its occasional use. If such a plan were implemented properly, this would be what Barnes calls "Capitalism 3.0," in which "[w]e'll have more things we truly need — healthier ecosystems, communities, culture — and fewer thneeds."
Barnes' new and improved capitalism is more an exploration than a detailed plan. Even if the details prove unworkable (and they may very well), he deserves plaudits for offering a way past the stale debates of statism versus privatization. Instead of chiding greedy capitalists and venal politicians, perhaps we ought to look more closely at the rules and incentives to which they are duly bound to respond. And perhaps in doing so we will discover something new right under our noses.
Lee Drutman is co-author of "The People's Business: Controlling Corporations and Restoring Democracy."
Subscribe to:
Posts (Atom)