I couldn’t have described it better than this:
Mediocrity breeds corruption. The business world is crawling with affable, industrious, intelligent people with nothing to distinguish them from ten thousand other affable, industrious and intelligent people, but who very much would like to be rich. Except by winning the equivalent of a lottery or marrying up, their chances of becoming rich are quite poor. They join a fraternity at college to make contacts, and went to business school to network. They have no friends, only contacts, as their entire social life from freshman year onward has been a struggle to get to know people who might help them. They live in silent terror that they will fall off the corporate gravy train and never have the chance to clamber back on.
These are the people most inclined to cheat, for they know that they have nothing unique to offer the world, and their ascent depends either on luck or unfair advantage. They cheat in every way possible, whenever they have a chance. One way they cheat is to steal from the stockholders by front-loading profits and back-loading risks. That is what destroyed the banking system. At the top of the market in 2006-2007 when risk compensation was stupidly low, bank managers made their return-on-equity numbers by adding leverage on top of leverage. Every one of them knew that it was a dumb and dishonest thing to do, but they all hoped that they would be promoted by the time the problem blew up in someone else’s lap…
That is the diagnoses of the disease – here is the cure:
…There is only one truly effective way to control corporate corruption, and that is through creative destruction. Let the wild men, the warped geniuses, the chip-on-the-shoulder mad entrepreneurs loose on the established corporate world. Let big corporations go bankrupt right and left. Drive out mediocrity with the scourge of innovation. Let new companies emerge, and then go bankrupt when something better comes along. Real genius, as Heinrich Heine once rhymed, pays cash at the bar. The oddball entrepreneurial types don’t cheat. They see life as a game and want to play it by their own rules. They are out to prove that they are smarter than their peers, and to cheat would be to miss the point of the game.
For the average business school graduate, an entrepreneurial economy is a hell, presided over by a devil like Goethe’s Mephistopheles, whose job is to subvert complacency. This sort of economy has its own bubbles and crises, like the dot-com catastrophe of 2000. But that was a minor blip compared to the present mess, because it wasn’t done with leverage.
Large government bureaucracies, large unions and large corporations all have one thing in common – a determination that no one come along and dislodge them from their position of power and privilege. The people who man these entities want to climb to the top, and thus don’t want to make waves; the people at the top don’t want to have to work to stay there. The reason the tax and regulatory structure of the American economy is so byzantine is because its written precisely by these groups and for these groups…they like overly complex, hard to understand and difficult to avoid systems which only work as long as no one makes waves.
Unless we change things – unless, that is, we force through an economy based on farming, manufacturing and mining, and curb the power of government bureaucracies, as well as corrupt unions – this will all just happen again…because they don’t know, and don’t care. They want their fancy toys and their exclusive clubs and their ability to think of themselves as superior to the poor, little rednecks and hicks who are doing the work of America…they view us as suckers; fools who actually work for a living when we could manage for a much better living. Force them out, put ourselves in – that is what we must do.
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