The following newspaper article was published on NZZ Online just this morning. I could not refrain from adding my two cents as soon as the comment tool got available again. Please have a look at this article and my comment even if you just know a bit of German. Now, is this a pivotal turning point in modern economics? Has the financial crisis not only shattered the neo-liberal paradigm but has shaked the very foundation of economic liberalism itself? Are we heading towards socialism or at least that bastard called social liberalism again? Or was this all bound to happen and is just a further accentuation of much longer development? Well, considering that my university professors and teaching books have defended the efficiency of neo-liberal market systems and the separation of management and ownership until last year, this all comes rather surprising to me, I must reckon.
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Deutsche Manager sollen für Misserfolg haften
Koalition einigt sich auf weitere Auflagen für Unternehmensführer
Mit mindestens einem Jahresgehalt sollen Manager künftig haften, wenn mit ihrem Unternehmen etwas schiefgeht. Darauf hat sich die grosse Koalition in Berlin geeinigt. Die Wirtschaftsverbände sind entsetzt.
(sda/Reuters) Die grosse Koalition hat sich trotz scharfer Kritik aus der Wirtschaft auf weitere Auflagen für Manager verständigt. Unternehmensführer sollen künftig für Schäden in Höhe von mindestens einem Jahresgehalt mithaften. Darauf einigten sich am Donnerstag Vertreter von Union und SPD in Berlin.
Erfolgsprämien erst zum Schluss
Ebenso soll die Auszahlung von Erfolgsprämien erst am Ende der Vertragsdauer erfolgen. Ein Unternehmensvorstand soll künftig erst nach zwei Jahren in den Aufsichtsrat wechseln können, ausgenommen von dieser Regelung sind Familienbetriebe.
Vor einigen Wochen hatte sich die Koalition bereits auf erste Auflagen wie die Kürzung von Gehältern bei wirtschaftlichem Misserfolg verständigt. Das gesamte Paket soll noch vor der Sommerpause den Bundestag passieren.
«Hilfloser Populismus»
Union und SPD wiesen die Kritik des Bundesverbandes der Deutschen Industrie (BDI) zurück. BDI-Chef Hans-Peter Keitel hatte Union und SPD «hilflosen Populismus» vorgeworfen.
«Ich habe den Eindruck, Herr Keitel hat das Problem nicht erkannt und zeigt sich wenig sensibel», sagte SPD-Vize Joachim Poss: «Offenbar musste er sich gegenüber seiner Klientel als Hardlinder profilieren.»
CDU/CSU-Fraktionsvize Wolfgang Bosbach verteidigte die Pläne als «politisch absolut notwendig». Für Sachargumente sei man zudem immer offen. «Eine solche Politikerbeschimpfung des BDI allerdings ist nicht zu akzeptieren», sagte Bosbach.
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Plötzlich gilt kein Lehrbuch mehr!
Unglaublich, was sich in diesen Tagen abspielt: Nach dem Neoliberalismus wanken jetzt sogar die Grundfesten des Wirtschaftsliberalismus selbst! Management und Aktionariat - die Trennung von Führung und finanziellem Risiko - einfach mal so über den Haufen geworfen. Wer dies zu beurteilen, die Folgen abzuschätzen weiss, hat wohl angesichts des Umfangs und der Tragweite dieses Entschlusses den nächsten Wirtschaftsnobelpreis auf sicher. Wer sich hier zu werten anmasst, tritt auf jeden Fall ins Fettnäpfchen - wie auch der Wirtschaftsverband selbst: Das ist kein Populismus, sondern radikaler Vertrauensverlust ins System. Vor 100 Jahren waren es die Bourgeois, heute sind es die Manager selbst. Dass diese aber ihre Positionen nicht vererben können und mehr oder minder meritokratisch ihren Einfluss gewannen, macht den Vertrauensverlust umso frappanter. Ich rieche japanische Dilemmas.
Showing posts with label neo-liberalism. Show all posts
Showing posts with label neo-liberalism. Show all posts
Thursday, 7 May 2009
Tuesday, 27 January 2009
The perversion of the bonus system
Currently in Switzerland, there's a heated debate going about bonus payments in the destitute bank UBS. Basically, people argue whether good performing business segments and bankers should get their bonus granted even though the bank has sustained heavy financial loss in four terms in succession. On the one hand, many people who are positioned rather outside of the bank argue that bankers shouldn't get their bonuses paid with tax-funded provisions by the state - if there's no money, you cannot pay any premium. On the other hand, there are many people rather connected to the sector who point out that indeed, many business segments and bankers performed well in the last terms. However, their good results have been overshadowed by the incredible losses of others. They should be judged and promoted according to their own efforts and success.
Interestingly, a further voice has joined into this debate and is about to weaken the second position if though it's coming straight from within the banks: Especially on the vast non-executive levels, bonuses are decided and paid rather deliberately. The distribution of wage premiums is said to be intransparent and subjective. (see NZZ Online - "Völlig intransparent")
Within this whole debate, many people don't seem to realize the basic problem: That they've got different ideas about the concept of a bonus and that therefore, they are talking at cross-purposes. The first opinion is based on the idea that a bonus is a share of the company's profit. In this sense, beyond the basic compensation contract, a bonus system participates employees to the company's success. In fact, as this concept turns employees partially into shareholders, it's a further consequent step in the concepts of neo-liberalism and the new institutional economics. The second opinion is based on the assumption that a bonus is a reward for especially good work. In this sense, not the company itself but rather each employee's efforts and success are what the focus lies on. The company's success is understood as the sum of every employee's effort. And that's exactly where the fatal mistake of the second concept lies in and the third voice comes in.
A company is a black box. It's a boat where every employee sits in. As Coase had managed to explain in his ingenious essay of 1932, the very reason and origin of a company is the fulfillment of tasks which can barely rated and therefore traded in markets. There are companies because the evaluation and rating of labour on the market costs too much and causes too complex difficult which doesn't pay off in the end. In short, the transaction costs are too high. Isn't that exactly what the criticism about intransparency and deliberateness actually points out? It's not like the human resource management intends to rip off certain employees - of course not, as that would give completely wrong incentives and would rather harm the company's success in the long term. It's simply that they cannot do better.
If people want to secure themselves against the risks of the market, they join a company just like business segments are consolidated in one concern. But if they want to reap the profits and carry the losses of their own efforts, they go independent. There's a reason why there are independent brokers, dealers and fund managers in the financial landscape. Of course, there might be other reasons that force workers in a company - as economy of scales, lack of reputation, etc. However, with today's communication technologies and flexible working conditions, the aspect of risk management has become the biggest incentive to be employed. But if they want their risks covered, they also risk that they must cover up others in their team! That's the idea of teamwork. Sometimes, you're the winner, sometimes the loser. But always, you're sharing it with your teammates. So at that point, the idea of individual rewards and a consolidated business is simply a perversion of everything both the ingenious ideas of modern corporate governance and the understanding of traditional HRM concepts like clan culture has made us understand. Either, employees are the safest group of creditors on the balance sheet of a bank and get their constant interests covered first - as costs - or they are (at least) partially shareholders and profit from their team's success. Isn't one idea of the bonus system to increase shareholder value in the end? What do you think happens if some employees start shirking or gaining bonuses on costs of others? There are thousands of scenarios of moral hazard, adverse selection and transaction costs increases connected to the idea of individual reward.
So what's the conclusion? If a company faces losses, there won't be any money for bonuses. If some employees feel like they've got the short end of the stick, they must split off - maybe that would be a good reason to not abandon the idea of the separate banking system.
Interestingly, a further voice has joined into this debate and is about to weaken the second position if though it's coming straight from within the banks: Especially on the vast non-executive levels, bonuses are decided and paid rather deliberately. The distribution of wage premiums is said to be intransparent and subjective. (see NZZ Online - "Völlig intransparent")
Within this whole debate, many people don't seem to realize the basic problem: That they've got different ideas about the concept of a bonus and that therefore, they are talking at cross-purposes. The first opinion is based on the idea that a bonus is a share of the company's profit. In this sense, beyond the basic compensation contract, a bonus system participates employees to the company's success. In fact, as this concept turns employees partially into shareholders, it's a further consequent step in the concepts of neo-liberalism and the new institutional economics. The second opinion is based on the assumption that a bonus is a reward for especially good work. In this sense, not the company itself but rather each employee's efforts and success are what the focus lies on. The company's success is understood as the sum of every employee's effort. And that's exactly where the fatal mistake of the second concept lies in and the third voice comes in.
A company is a black box. It's a boat where every employee sits in. As Coase had managed to explain in his ingenious essay of 1932, the very reason and origin of a company is the fulfillment of tasks which can barely rated and therefore traded in markets. There are companies because the evaluation and rating of labour on the market costs too much and causes too complex difficult which doesn't pay off in the end. In short, the transaction costs are too high. Isn't that exactly what the criticism about intransparency and deliberateness actually points out? It's not like the human resource management intends to rip off certain employees - of course not, as that would give completely wrong incentives and would rather harm the company's success in the long term. It's simply that they cannot do better.
If people want to secure themselves against the risks of the market, they join a company just like business segments are consolidated in one concern. But if they want to reap the profits and carry the losses of their own efforts, they go independent. There's a reason why there are independent brokers, dealers and fund managers in the financial landscape. Of course, there might be other reasons that force workers in a company - as economy of scales, lack of reputation, etc. However, with today's communication technologies and flexible working conditions, the aspect of risk management has become the biggest incentive to be employed. But if they want their risks covered, they also risk that they must cover up others in their team! That's the idea of teamwork. Sometimes, you're the winner, sometimes the loser. But always, you're sharing it with your teammates. So at that point, the idea of individual rewards and a consolidated business is simply a perversion of everything both the ingenious ideas of modern corporate governance and the understanding of traditional HRM concepts like clan culture has made us understand. Either, employees are the safest group of creditors on the balance sheet of a bank and get their constant interests covered first - as costs - or they are (at least) partially shareholders and profit from their team's success. Isn't one idea of the bonus system to increase shareholder value in the end? What do you think happens if some employees start shirking or gaining bonuses on costs of others? There are thousands of scenarios of moral hazard, adverse selection and transaction costs increases connected to the idea of individual reward.
So what's the conclusion? If a company faces losses, there won't be any money for bonuses. If some employees feel like they've got the short end of the stick, they must split off - maybe that would be a good reason to not abandon the idea of the separate banking system.
Wednesday, 5 November 2008
Obama's election - Yay! or Yay!? My two cents why it’s an important step but why people overseas better calm down and take a moment to think themsel
God, I LOVE democracy!
So they made it – after all. And I’m both happy for the people of America, sneering at other – especially Asian – countries and concerned about Switzerland itself. Why’s that all?
Well, first, Obama’s victory in the U.S. doesn’t only mean a clear sign in overcoming racism and focusing in people’s talents. However, Obama hasn’t shown much more than rhetorics yet. It’s much more his person and what he stands for than his character and intentions which caught people’s attention and answered their hopes and wishes. Anyway, this doesn’t reduce the pondering weight of the argument – if it doesn’t even strengthen it: People actually put their hopes in a black person!
However, there are many more implications I personally take much more important. First, Obama isn’t a war hero! The days in which a democratic candidate gets chosen for his war efforts (Kerry anyone?) finally seem over. Second, Obama’s career and support doesn’t origin in the political cliques of Washington. This means that it was the very people that promoted him in the first place and that lobbies played a rather unimportant role. Indirectly, Obama’s success implies a rather severe defeat for the economic lobbies in Washington. This leads to the third and crucial aspect in my eyes: a shift in paradigm not only in politics but policy, maybe even polity! What can we expect of Obama changing for real? With Bush’s legacy, he’s actually bound to do better. Will he go as far as to introduce new old political principles? Maybe even a shift in economic paradigm? Might the era of neo-liberalism Reagan/ Thatcher introduced around 30 years ago (finally) come to an end? Will tolls and general taxation rise again? Will I stop buying my clothes in San Francisco of independent designers which actually get their designs produced in China? As convenient the delivery within a week is – it doesn’t really seem sustainable, now does it?
Next, it doesn’t come as a surprise to me that Asian countries haven’t answered to the historical election in the U.S. yet. I don’t want to go as far as to allege disgruntlement to them, but definitely surprise. There definitely has remained much more racism towards Africa in Asia than in the West: China is an obvious case and in Japan, black people generally get flattered more than being depicted as a sex symbol. Asian countries may also be rather concerned about the economic effects of the probable change in policies. It primarily was China that profited of the neo-liberal policy in the U.S. which led the big companies to outsource their productions into countries with low labour costs, Singapore that changed into a tax haven for rich Americans and India that’s slowly turning into a huge IT-department of Western companies. Obama promised to take measures to save and protect labour in the United States. That can’t be anything else than a disadvantage of those countries that have profited of the rich business-elite of America the most.
And this is exactly where my concerns about my own country set in: The neo-liberal policy of the last 30 years made American politicians and managers exploit their own country – for the benefit of others – like Switzerland. Just think of how many billions of savings have flood into the big banks of Switzerland, how many companies moved their corporate headquarters here. If the Americans start caring more about their own people again – there will be less for us. Of course, this thesis clearly implies political realism that the pie is given and doesn’t grow with common wealth. But the last decade of globalization has shown us that people don’t profit to the same extent around the world. In fact, that only the rich do while the poor get poorer – even in the mother countries of this globalization – which is strongly powered by neo-liberal ideas.
So they made it – after all. And I’m both happy for the people of America, sneering at other – especially Asian – countries and concerned about Switzerland itself. Why’s that all?
Well, first, Obama’s victory in the U.S. doesn’t only mean a clear sign in overcoming racism and focusing in people’s talents. However, Obama hasn’t shown much more than rhetorics yet. It’s much more his person and what he stands for than his character and intentions which caught people’s attention and answered their hopes and wishes. Anyway, this doesn’t reduce the pondering weight of the argument – if it doesn’t even strengthen it: People actually put their hopes in a black person!
However, there are many more implications I personally take much more important. First, Obama isn’t a war hero! The days in which a democratic candidate gets chosen for his war efforts (Kerry anyone?) finally seem over. Second, Obama’s career and support doesn’t origin in the political cliques of Washington. This means that it was the very people that promoted him in the first place and that lobbies played a rather unimportant role. Indirectly, Obama’s success implies a rather severe defeat for the economic lobbies in Washington. This leads to the third and crucial aspect in my eyes: a shift in paradigm not only in politics but policy, maybe even polity! What can we expect of Obama changing for real? With Bush’s legacy, he’s actually bound to do better. Will he go as far as to introduce new old political principles? Maybe even a shift in economic paradigm? Might the era of neo-liberalism Reagan/ Thatcher introduced around 30 years ago (finally) come to an end? Will tolls and general taxation rise again? Will I stop buying my clothes in San Francisco of independent designers which actually get their designs produced in China? As convenient the delivery within a week is – it doesn’t really seem sustainable, now does it?
Next, it doesn’t come as a surprise to me that Asian countries haven’t answered to the historical election in the U.S. yet. I don’t want to go as far as to allege disgruntlement to them, but definitely surprise. There definitely has remained much more racism towards Africa in Asia than in the West: China is an obvious case and in Japan, black people generally get flattered more than being depicted as a sex symbol. Asian countries may also be rather concerned about the economic effects of the probable change in policies. It primarily was China that profited of the neo-liberal policy in the U.S. which led the big companies to outsource their productions into countries with low labour costs, Singapore that changed into a tax haven for rich Americans and India that’s slowly turning into a huge IT-department of Western companies. Obama promised to take measures to save and protect labour in the United States. That can’t be anything else than a disadvantage of those countries that have profited of the rich business-elite of America the most.
And this is exactly where my concerns about my own country set in: The neo-liberal policy of the last 30 years made American politicians and managers exploit their own country – for the benefit of others – like Switzerland. Just think of how many billions of savings have flood into the big banks of Switzerland, how many companies moved their corporate headquarters here. If the Americans start caring more about their own people again – there will be less for us. Of course, this thesis clearly implies political realism that the pie is given and doesn’t grow with common wealth. But the last decade of globalization has shown us that people don’t profit to the same extent around the world. In fact, that only the rich do while the poor get poorer – even in the mother countries of this globalization – which is strongly powered by neo-liberal ideas.
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