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The American Business Plan:

Flaws, consequences, and a potential redemption path

One of the most insightful comments that I can recall coming from Joe Biden was this: “In my law school days we had a simple understanding of our futures—The A students become judges and professors; while the B students go to work for the C students.” He made it during the Senate confirmation hearings for a Supreme Court Justice. Translation: The brightest students channel into the most prestigious positions but at relatively lower pay; while the typical B students must go out and find employment at law firms where the C students (the sons and daughters of the partners) are also arriving to take the best positions for quick ascendancy to the top positions in the firms.

It’s the “inverted pyramid” rule that is true about law and true about most American business life. Mediocre additions to the executive workforce rise to the top by virtue of their parents’ positions and wealth; genuinely bright people get shunted off to academia and to lower level corporate positions; all others must struggle and accept working for those who can barely understand what they are doing. It’s a variation on the Peter Principle that states: Managers rise up in organizations until they find their level of incompetency. And that is where they stay.” Meaning: A manager gets promoted for good work. When he reaches a position where he can no longer perform good work, he has found the level at which he is incompetent. He or she no longer excels, and the business suffers. Let this axiom play itself out and the organization is soon being run at all levels by those who cannot do their jobs well.

In my personal experiences I have also found there is an unspoken conspiracy at all levels that blocks internal change. Few workers or managers are willing to share information that might help others and the company succeed. They see information sharing as making themselves weaker and more vulnerable to being laid off when the inevitable downsizing time comes. The company soon becomes riddled with information bottlenecks and blockages. Production falls along with profits, while both hasten the day when lay offs become necessary to cut costs.

There is also a corollary for those who reach the top positions in large companies or organizations. Promoting from within where excellence is rewarded is often the boast, but it is almost never the case. CEOs are selected by committees designed by assertion to “find the best qualified person for the position where ever he or she may reside.” This assertion is total bunk. A better description of the committee’s task is this: “Find someone who is like the person he or she will replace; someone who has an academic background from an approved list of schools; with a family pedigree similar to ours; personal and family connections similar to ours; wealth similar to ours; who is not an innovator; not a thinker; and who definitely knows he will take orders from the board of directors. We want someone from our ‘old boy network,’ When you find him, we will compensate him so insanely well that he will not have to do much of anything at all except obey our orders.”

Expertise at all the various levels downward in the organization becomes difficult to identify because all the bright managers and engineers haven’t yet found the position where they can reach mediocrity. But they still understand what is expected from them. And that is to report on what they are doing in language understandable to a 3rd grader, and presented weekly in a single page. If they want to keep their jobs, they only report the best news while covering up the problems knowing that nobody “up the chain” understands anything at all about what they are telling them in the first place.

Within this mix of mediocrity rising, incompetency settling, and grand internal cover ups, we have the Great American enterprise being surpassed on a daily basis by competitors from around the world. As our businesses fail, buy outs along with mergers and acquisitions expand, business unit consolidations increase, layoffs increase without regard to competencies, and balance sheets and profits get a temporary boost. Stock buy backs cause stock values to rise. Share holders and top executives become excessively compensated as they sell their stock options. But all is not well.

Across the 63.000 American corporations profits are being sucked up into salaries, bonuses, perquisites, stock options, and retirement packages at a breath taking pace. New money created by the Fed gets shunted by the 7,000 corporate banks away from small business expansions and into the labyrinth of corporate channels where it ends up in rising stock prices and personal executive fortunes. On average nearly $50 million per year flows to each of those 63,000 CEOs and their direct supporting staffs of executive VPs. That amount totals about $8 trillion per year in wealth that is being sucked out of the economy. The inventors and innovators, the workers and technicians, and all the supporting millions who created that new wealth receive only their salaries. The incompetent CEOs selected by search committees get the lions’ share of all the new wealth.

Meanwhile cracks in the great American enterprise are forming. Little is being done to change our energy sources; R&D suffers; outsourcing benefits offshore companies and workers while it penalizes American workers; our infrastructure is crumbling and is becoming increasingly unable to support our distribution system; newer enterprises are forming and thriving elsewhere while our negative trade posture is widening. And as legislators continue to pass new legislation to deregulate and give executives more room to cheat and take excessive risks, legislators must also take more and more from the poor and the disadvantaged to offset revenue shortfalls. Social safety nets across a variety of programs become weaker and ineffective.

In other articles I have offered an outline for the next 30 years that could redirect resources and create a road to recovery. The changes would reduce the public debt; reduce our foreign debt; pay for new and improved infrastructure (highways, bridges, railroads, airports); restore the long range solvency of Social Security and Medicare; provide for four years of education (academic or technical) beyond high school for any resident who desires it; provide for health insurance for all in a single payer system; raise incomes above the poverty level for those at the low end of the income curve via tax credits; support research and development for new and renewable energies; and maintain a viable and fair economic system with the primary objectives of securing full employment, price stability, and to further the objectives of life, liberty, and prosperity for all residents. It would all be financed by redirecting about one-sixth of the wealth flows currently going to the top one percent, or about $1 trillion per year over each of the next 30 years. Concurrent with these changes we would need to revamp how organizations are managed internally.

Alternatively, the cost of doing nothing would lead us in the direction of economic catastrophe in the next 30 to 50 years as private wealth doubles in value every 10 years. As with most excesses in life, there always comes a day of reckoning. Before that day arrives, we nearly always stand at a cross roads—a time when we can still act wisely and prudently and make the adjustments before the big collapse. We are at that cross roads now.