About This Blog

Ludwig von Mises (1881-1973) was the greatest economist of my time. His greatest works can be accessed here at no charge.

Mises believed that property, freedom and peace are and should be the hallmarks of a satisfying and prosperous society. I agree. Mises proved beyond a shadow of a doubt that the prospect for general and individual prosperity is maximized, indeed, is only possible, if the principle of private property reigns supreme. What's yours is yours. What's mine is mine. When the line between yours and mine is smudged, the door to conflict opens. Without freedom (individual liberty of action) the principle of private property is neutered and the free market, which is the child of property and freedom and the mother of prosperity and satisfaction, cannot exist. Peace is the goal of a prosperous and satisfying society of free individuals, not peace which is purchased by submission to the enemies of property and freedom, but peace which results from the unyielding defense of these principles against all who challenge them.

In this blog I measure American society against the metrics of property, freedom and peace.

Saturday, January 14, 2012

Bain Capital And Business Ethics

Let’s talk about ethics. Like it or not, business ethics are not absolute, they change from age to age. For example, 300 years ago children worked in factories in conditions we now consider deplorable. It was ethical to employ children then, given the extreme hardship and poverty of the times. Today, children do not have to work to survive. It would be unethical to hire them to work as they did 300 years ago. That said, I am certainly not contending that, within the context of the times, every action of the so-called Robber Barons was ethical.

Were the actions of Bain Capital unethical? All I can say with certainty is that cutting wages and dismissing employees in and of itself is not evidence of unethical conduct.

With regard to the “human factor” in business, any successful businessman knows there is a human factor in employee relations, especially within the context of a free labor market. The days of running a ship like Captain Bligh are long gone. A business which respects and listens to its employees is at a tremendous competitive advantage in the marketplace. In such an environment it’s easy to acquire and retain high quality employees.

The respect must be mutual, however. There is a limit to what any business can provide to employees in the way of salary, working conditions and benefits. There is a point where an investment in capital equipment is more profitable than an investment in employees. This is not heartless or inhuman, it is merely reality and simple economics. I invite all my employees to do what is in their best interests. If an employee of mine finds a better job, I encourage him to take it. My employees have no compunctions about “firing” me. Their first loyalty is to themselves and their families. Mine is to me, my family and my business. My employees treat me as a means to their ends; I do the same with respect to them.

The primary responsibility of successful business owners is to make a profit. There is simply no other rational way to operate. This is not to say that making the highest possible profit is most ethical. It is simply to acknowledge that without profits, the company is no good to anyone. Everyone concerned with the business is better off when the company is profitable, and everyone in the company should know this. As it happens, in my business I tend to hire people when profits are greatest and dismiss people when it is unavoidable and when losses so dictate. My employees understand why this must be so.

Any business owner who doesn’t realize that his employees are his most valuable asset is a fool and, probably, a failure. This is why it is foolish to believe that businesses become extremely profitable by disabusing their most valuable asset. Still, any business owner will tell you that managing that asset is the trickiest part of staying profitable.

Just as some business owners are fools and disabuse their employees, so some employees are fools and disabuse their employers. They may be the proverbial bad apple or a group of employees who band together to demand more than the employer can profitably provide.

The bottom line is the free market is just that: free. Both employers and employees are free to voluntarily strike deals with each other that are mutually advantageous. However, this is not so true in our not-so-free market of today. Oftentimes well-meant government laws and regulations tie the hands of employers and eliminate choices available to employees.

The market today is a complex mix of many, many different individuals, both employers and employees alike, all motivated by different goals and ethical standards, all controlled by a plethora of government rules and regs. Particular situations are not black and white. It’s impossible to generalize that all employers or employees in a particular industry are of a particular ethical persuasion.

Did Bain Capital act unethically? Did Romney? Who can say? Can you? On the basis of what facts and information? If you know salient particulars of that unique situation, I’ll be listen and consider.

Government intervention in the marketplace creates a huge dilemma for American business. If the government offers a farmer a subsidy for growing corn, is it unethical for the farmer to grow corn?

Is it unethical for a taxpayer to accept a deduction for raising a dependent?

Many libertarians believe laws which protect Intellectual Property are immoral, yet they copyright their written work.

If you are an American businessman, how do you combat government intervention and coercion without becoming a self-sacrificial lamb?


LD Jackson said...

I think it is worth pointing out that many of the companies Bain acquired were already on their last legs. Some of them came looking for a company such as Bain, as a last minute attempt to survive. Some of them did and some of them didn't.

Sherman Broder said...

Good point.

I haven't researched Bain in depth, but I have looked into two cases that have been criticized. In both cases, the companies' situations were as you say. In both cases the deals struck with Bain were free and voluntary.

This is the kind of "politics" that makes me disgusted with the entire process AND the particular candidates who'll do and say anything merely to scratch for power.

Romney's work at Bain is a legitimate issue, but let's all have the integrity to look into it honestly and let the chips fall as they may.

As an aside, one important difference between Ron Paul and the other candidates is that Paul is seeking the Presidency to use the power of the office to shrink the federal government's power and influence.

In my judgement the other candidates are seeking the power of the office to further their agendas, which is to bend the federal government's power and influence in the direction they favor, not necessarily to return power to individuals.

This is the trouble with typical conservatives." It's why Reagan and both Bushes could not actually cut federal spending. They're comfortable with big government so long as it serves their purpose and not the Democrats'.

This is most certainly true about Santorum. It seems to be the case with Romney (based on his past experience). I'd like to believe Newt would cut for cutting's sake, but I sure don't see how his multi-faceted "solutions" to every national issue could be effected without big government.

Thanks for the comment, Larry.