Category Archives: Politics

What other disaster awaits due to regulatory failure?

One of the many causes of the the BP oil disaster is the failure of the oil industry regulators who failed to enforce existing regulations.

The President said in his recent speech on the BP crisis:

One place we have already begun to take action is at the agency in charge of regulating drilling and issuing permits, known as the Minerals Management Service. Over the last decade, this agency has become emblematic of a failed philosophy that views all regulation with hostility – a philosophy that says corporations should be allowed to play by their own rules and police themselves. At this agency, industry insiders were put in charge of industry oversight. Oil companies showered regulators with gifts and favors, and were essentially allowed to conduct their own safety inspections and write their own regulations.

Notice the words ” Over the last decade”.  Part political speech to point the finger at the old regime of course, but also honest about reality.  My concern is what other agencies or bureaus are also lax; what other industry is controlling its own regulation? Are we to see dams breaking, more food poisoning, toxic designer drugs, and so forth.  We already see problems with Americas crumbling infrastructure like bridges starting to fall apart and local resources failing or mismanaging repairs.  We also see bad accounting, like millions of dollars of equipment disappearing in the middle east.

The President also said:

When Ken Salazar became my Secretary of the Interior, one of his very first acts was to clean up the worst of the corruption at this agency. But it’s now clear that the problems there ran much deeper, and the pace of reform was just too slow. And so Secretary Salazar and I are bringing in new leadership at the agency – Michael Bromwich, who was a tough federal prosecutor and Inspector General. His charge over the next few months is to build an organization that acts as the oil industry’s watchdog – not its partner.

But why is it “.. now clear that the problems there ran much deeper….”?  So we need a disaster to make things clear?  Maybe this instead should be a wakeup call that Government and private regulation efforts need to be quality controlled, maybe we need an uber regulator, an Inspector General with real power, and we need transparency.  Most importantly we need that seldom used word back into business: ethical.  We need sustainable but ethical capitalism.

I’m hoping in the near term we don’t have another intensification of the current recession due to credit card meltdown and we don’t have a environmental disaster due to genetically modified food and agricultural products.  Both of these are also “regulated”.

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YouTube – An Open Discussion Across the Aisle

Watching YouTube – An Open Discussion Across the Aisle.     Pretty amazing.  Its good to see the President directly speaking with his most vocal and intelligent critics (the opposing party).   I don’t think he was using a teleprompter in any way.   If so, he was simply grand.   We need more glimpse like this into the political process.

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Tech Made in America?

An article had an intriguing subject, what if we only bought American Technology.  Yet, as the comments on that page made clear, the article was superficial and did not distinguish between companies who really make stuff and those that just repackage them.  Further, as one commenter, Codesmith, made clear:

“There are very few products that can be truly said to be made in any single country. The raw materials and component parts are likely to be sourced from dozens of countries.
You could do a % break down on where the money goes. What country gets what % of taxes, % of profits, % of wages.
I really don’t think Made in X has much meaning anymore in today’s global economy.”

I have a slight different concern that has nothing to do with protectionism.  What if our OEM suppliers become our enemy one day?    Where will we get our parts then?  Lets say we get all our motherboards from China and one day we go to war with them or very close to war wherein we halt trade (yeah, I know they own most of America anyway)?  Where will our businesses get their equipment for IT concerns.  And, what about our technical support infrastructure even within our military?  That fancy Network Analyzer probably has about twenty five percent of its components built overseas.  How much of our military capital has a “Made in China” label?  Of course, this, perhaps cynical, line of thought leads to even questioning overseas service providers.  Imagine if India gets pissed at us.   Will we get a busy signal when we call and ask how to remove that annoying horizontal line in MS Word?  Will the outsourced software development halt?  Will Microsoft’s Steve Ballmer stop threatening to move Microsoft jobs overseas?

I don’t know.  My gut feel is that we should be self-sufficient yet still be fully committed to  the global economy.  We see how dependency on foreign energy is detrimental,  allegedly a cause of our military campaigns.  Is dependency on resources and services the next leverage that will make America jump through hoops?

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Executive Pay As Maximum of Proportion

When the controversy over executive pay erupted and some talking heads considering this one of the instigating factors in the financial disaster, I pondered on it a few days.   Suddenly a simple solution came to me.  Just allow the executive compensation level be related to other compensations in the same company.   The easiest formula is to allow executive pay to be a maximum multiple of the lowest earning pay level in the company.  Thus, C = bL, where C is maximum compensation, L is lowest level, and b is a scale factor.  This applies to bonuses, stock options, and free saunas in the company jet.  This factor can be fixed, per industry, or legislated.

How would this work compared to the current ratios?  The table below shows a best case scenario (from the standpoint of the CEO).  I got the pay values from this article, “Top Five Highest-Paid, Worst-Performing CEOs” that has data for 2008.  I used $15K as the lowest pay rate.  See how the multiplier is now in the thousands!  But, in the fifth column I put in what the other employees should have made at a more sane multiplier of 40.

Company Employee CEO Multiplier If multiplier were 40
Oracle $15,000 $557M 37133 $600,000
Blackstone Group $15,000 $702M 46800 $600,000

If we were using a multiplier of 40x, then each employee should have minimally made $14 million so that the CEO was justified in his salary. Obviously each wage or salaried employee cannot each make 14 million; what if there are thousands of them, as in multinational companies.  Thus, starting the other way, using the lowest wage, the CEO would be capped at $600,000, as shown in column 5.

That is a big problem with such simplistic approaches as mine.   What happens to the other levels of compensation, the middle managers?  Seems that to re-balance the low/high compensation proportion all pay “grades” must be adjusted.  How?  Also, if CEO have an effective cap, does that reduce CEO effort? On the other hand, just thinking of the problems on how to balance such a high executive pay is itself an indication of how unreal corporate capitalism has become and the size of companies has become behemoths.

Any advantages to this alternative?

  • No cap on pay.  Want to earn more, pay the ones who do the real work more.
  • Not based on financial voodoo such as stock ownership timing and recalls.
  • Would even satisfy some pinko leftist extremists.
  • Sounds moral.  Even Jesus would run his conglomerate this way.
  • If the robber baron at the top makes a killing so do the people stoking the steam furnaces in the basement.
  • Etc.

Of course, what the heck do I know.   If I was CEO of a company I would want big bucks too.  So, I was reluctant to post this on my blog.  Then this morning while listening to the radio on this topic, somebody in Canada, Michael, called in to give just this very idea.  He sounded like he knew a thing or two.  He said that thirty years ago, the multiple was like 40 times minimum wage.  The radio show was:  On Point with Tom Ashbrook.

In a free capitalist economy should government have a say in big pay?  Well, we have laws against child labor, have a minimum wage, and plenty of laws to safeguard employees.  If you don’t think there should be limits, just read “The Jungle” by Upton Sinclair or many of Charles Dickins’ books,  or visit a  sweatshop in any big city.   We may not have many inhumane deplorable work conditions, but normal people are not living large; some may see the income extremes as another form of exploitation.

Some links I found easily.  I notice most references talk of income caps.  That’s not what I advocated above.

Disclaimer:  None of the above represents the views of current or future employers of mine or my attitudes about employers.  It won’t represent my view either in a few days.  Live and learn.

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