OpEd:
The Re-Privatization of the American Economy
October 22, 2009 by Kyle BradyTags: America, Business, Companies, Corporations, Economy, Politics, Stocks
As required by the FTC, a Full Disclosure is available - this piece adheres to the Code of Ethics
The modern American economy is a tangled web of corporations, various other company structures, and government financed institutions that weave among themselves and allow the public to interact with them on varying levels of inclusion – the benefit to being a corporation, after all, is being publicly traded on the stock exchange. For an increasingly worrisome number of companies, the goal is to incorporate and become public in order to reap ever greater rewards, choosing to focus on goals that will please investors en masse rather than their core products or internal structure.
For a financially safer and more secure future, this must change.
Private companies, including corporations, have legal obligations to their shareholders to perform well, just as public corporations do, but a key difference is in both who, and how many, the shareholders are. Public corporations have to cater to the whims of a very large and fickle market that’s manipulated by financial institutions for their own gains, while private corporations, or other structures like limited liability companies and partnerships, have a substantially smaller set of shareholders or investors that are often the result of personal relationships. Most importantly, private companies need only perform well enough to continue to exist and satisfy their investors, rather than continually attempting to post record profits every quarter – this can result in considerable investor leniency, market tolerance, and flexibility.
Whether these private companies are family owned or run by a group of business partners is irrelevant – it is not necessary to become a publicly traded company to be a financially successful enterprise, which a long list of examples supports. For when a company becomes focused on increased earnings rather than product quality, employee happiness/compensation, or ethical behavior, volatile behaviors begin to appear: the replacement of executives due to a single slow quarter, short term market focus, and mass layoffs.
This is not to say, however, that public corporations are inherently evil, although they often me be. There exist public corporations, theoretically, that treat their employees well, have a long term focus, and do not dwell on the daily gains or losses of their stock value, but this is far too rare of an occurrence. The current economic strife was largely caused by a lack of vision and ethics in an interest to perform extraordinarily well over short periods, without regard for the future – these behaviors are despicable, and yet they linger in the halls of most of the well-known American corporate structures. As if proof was necessary for such a claim, investment banks are seeing record profits and wishing to pay out, once again, exorbitant bonuses for short term performance, less than a year after being rescued by taxpayer money.
The solution should be quite obvious: de-emphasizing the public corporation in favor of private companies with varying incorporation structures. Neither President Obama nor Congress could likely affect such a change through legislation or decree, so it will have to come from within the private sector by those who care about the nation’s economic future. There is no true correlation between corporate success and being publicly traded, even on a global scale, so it seems entirely absurd to assume this practice is necessary - the process of an Initial Public Offering (IPO) is akin to enslaving the company itself at the hands of millions of money-hungry individuals who do not honestly care for the company’s success or integrity, but only for their own financial gain.
If such a change is to come, it will be slow and quiet, unti America will one day realize that their economy has been re-privatized, taken far away from the woes of the stock exchange, and the country is substantially more stable than in decades before. It is incumbent upon the young and future business leaders to think carefully and fully about their company’s status and structure, not to mention long-term future, rather than searching for the fastest way to become wealthy.
Because that’s exactly what landed the world in such dire straits.
Kyle can be found on Twitter and MySpace, or reached via email.
