It's accepted wisdom that government and business are like oil and water; the two don't mix—never have, never will.
Accordingly, the wisdom says, any steps the government takes to intervene in business can only be a bad thing, taking control away from executives who know their field, with decisions often taken to pander to a fickle electorate.
Just look at what happened to Bank of America when the government stepped in. According to Ken Lewis's testimony yesterday, Henry Paulson and Ben Bernanke—both of whom were desperate to avoid another major Wall Street firm going under—quashed his growing uneasiness about the acquisition of Merrill Lynch.
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Therein lays the essence of the conflict between government and private business. Lewis clearly wanted to do what was best for the firm he is paid to represent, while Bernanke and Paulson (not to mention Tim Geithner), are charged with looking at the bigger picture. So while they probably recognized that the Merrill deal wasn't the best thing for BoA, the alternative—further economic meltdown and panic in the markets—would have been much worse for the masses.
The tobacco bill passed in the Senate yesterday is further evidence of an activist government being prepared to step in and interfere in private business—this time through regulation. Among many conditions supported by the bill—shortly to be signed into law by President Obama—tobacco companies may be obliged to offer full disclosure on all of the ingredients within a cigarette (or, more to the point, the filter), and will be subject to regulation by the F.D.A.
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Putting aside the audacity of a government wanting people to be fully informed about the contents of what they're buying, the question in this case isn't why government thinks it has a right to intervene, but why that right hasn't been exercised more fully in the past.
In fact, the tobacco industry is the poster child for why governments should intervene in business. Executives selling a product that's harmful to the health of consumers is one thing, provided full disclosure is given. An entire industry dedicated to obfuscating the truth about that product for the sake of driving up profits without regard to the health of customers is another thing entirely.
The GM and Chrysler cases are perhaps the thorniest issues for anyone wondering whether capitalism still has a chance at survival in the modern climate. Like the Merrill Lynch case, the companies were both deemed "too big to fail," and were temporarily propped up by successive governments. What both firms really needed, however, was radical restructuring—something that they'd failed to do on their own terms, but was essential for ending their dependence on government assistance, and on which the government eventually insisted.
The need for restructuring is more than a simple prescription or knee-jerk reaction to the times we're living in. Indeed, Mick McLoughlin—the global head of KPMG's restructuring unit—has suggested that the recent glut of financing led to businesses simply throwing money at problems where better management or restructuring work was required.
According to this article, he believes that has led to a marketplace where everyone is lacking confidence—a result of not knowing which companies have done enough to ensure their future survival. Solving that problem—which McLaughlin estimates will take at least two years—is the key to restoring confidence and emerging from the recession.
In that light, the government's finally forcing GM and Chrysler to take action begins to look like a good decision—again, not necessarily for the companies and their investors, but at least as far as the bigger picture is concerned.
While most business leaders are unlikely to ever be in the position where they're leading a company that's too big to fail, anyone seeking to get ahead in the current environment should bear those examples in mind. Under this administration, doing right by your firm or industry is less important than doing right by your customers and the wider world you live in.
For some, that will mean making less profit, but doing less harm. For others, it will mean finally making the tough decisions that have been delayed, and running leaner, more efficient organizations. And, it seems, it will definitely mean a more watchful government eye. Whether or not you think that's a good thing, it's time to start living with it.
Phil Stott is a staff writer at Vault.com in New York. Originally from Scotland, he has also lived and worked in Japan, South Korea and Eastern Europe. He holds an MA in English Literature and Modern History, and a Masters in Research in Civil Engineering, both from the University of Dundee.
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