Company size: Big is back
economist.com
economist.com
My impression was that there was a stretch when some combination of the public mood and the government's emphasis conspired to encourage small startups. The 1980s and 1990s were clearly good in this respect.
The mood of the last decade has been increasingly punitive. An increasingly harsh attitude toward flexibility in the law has been evident elsewhere for some time, but in the last 10 years that attitude has increasingly been expressed in the field of business. The Sarbanes-Oxley Act is the most evident expression of the new trend - what once would have been treated as a civil matter is now treated as a criminal matter.
At some point during the next 30 years I expect breakthroughs in biology to allow for a new wave of startups, if the government and the public allow those startups to exist. In matters relating to health, it is worrisome to consider what a punitive legal attitude means - a medical treatment that fails to perform leads to jailtime, rather than a lawsuit.
I think it is urgent that everyone who cares about entreprenurial culture in America to make the argument, to their friends and to strangers, that innovation in business depends in part on tolerance, and that, in practical terms, this means most matters of conflict should be treated as civil rather than criminal cases.
Once upon a time, before the mid 1800s, most Western countries treated bankruptcy as a criminal matter, rather than a civil one. The liberalization of bankruptcy law was one of the factors that allowed our modern economies to gain the dynamic nature they now enjoy. I would guess that most of us know someone who has tried to do a startup, failed on their first attempt, and then later met with greater success on successive tries. Tolerance of failure is the first pre-requisite of a dynamic economy.
Since the public seems at risk of forgetting this fact, we all need to make that case, to whoever is willing to listen.
Other fields also threaten people's lives. If you build a new kind of jet engine, which gets through testing but which then is responsible for a spectacular crash, then your product has killed a few hundred people. And yet, unless there was fraud in the documentation of the tests, there have not been criminal cases in the past. I worry that in the future there will be criminal cases. Again, the trend that I worry about is that what used to have been treated as a civil matter will, in the future, be treated as a criminal matter. We do not need to focus on the medical field. Many other fields can cause people to die - industrial automation, the transport and disposal of toxic chemicals, the construction of buildings (which could then fail and kill people). All industries are in need of innovation all of the time, yet innovation brings with it risk, including the risk of death. How much innovation will we get if we make these matters criminal?
I should emphasize, just in case people forget, that fraud has always been criminal. It has been criminal for centuries. So the move to criminalize more aspects of business is not a move to make fraud criminal. If you think that the Sarbanes-Oxley Act made fraud criminal, then you are mistaken. Fraud has always been criminal.
Sarbanes-Oxley is representative of the new trend. The overall goal was to encourage greater accuracy in the reporting of a company's financial health. This goal could have been reached through a variety of methods, including both the carrot (rewards) and the stick (punishments). Rewards could have included tax breaks for meeting some additional level of compliance. Punishments could have included fines levied against companies that failed to meet a higher level of compliance. These approaches would not have raised the risk of jail time for CEO's. Instead, Sarbanes-Oxley decided to go with the heaviest kind of punishment of all - to treat infractions as criminal offenses, potentially meriting jail time.
This punitive attitude is going to have a chilling effect on the amount of innovation we can expect in any field.
Politicans care far more about abortion and other popular issue because it give them the vote. It doesn't even matter if their policy isn't good, they will parrot it in lieu of popular opinions.
Clearly, the republic do not have any if much features that keep bad policies away and tending toward good policies. Unfortunately, it is also very painful to remove a republic or any monopolistic governemnt and start a new type of governing system. It could even have disasterous consequences if the new governing system is seriously flawed.
The market for governing is only 200ish suppliers versus 6 billions human beings. Clearly, we also going to need a better system that generate these "governing entities" so that we can speed up innovation in social paradigms that regulate human socities.
If an engineer comes to you (as a manager) and tells you the your product will fail in certain circumstances and cost lives. Then you say, "I'll take that 'under advisement'," and completely ignore it because to take that into account would cause the project to run over deadlines and you want to look good to your bosses. Then the product is deployed in the field it fails under those same circumstances. Lives are lost. Lawsuits are filed. The 'company' loses and/or settles with the grieving families and pays out some money. But the real cause of those deaths is your willful neglect just to please some corporate masters in the hope of a promotion. I personally think that you should be held legally responsible in such a case. But the prevalence of 'not me syndrome'... aka Diffusion of Responsibility (http://en.wikipedia.org/wiki/Diffusion_of_responsibility).
Once a sufficiently large group of people start to function as an entity, that entity can do things that no normal person would be allowed to do... and no one is held responsible.
That, and your competitors will hawk their wares and point out that their product never killed anybody, in addition to big suspicions from consumer magazines.
And, of course, along with a punitive attitude that will likely effect smaller firms most, there are the enormous bailouts being given to the largest firms. As the article says:
"Governments have been rescuing companies they consider too big to fail, such as Citigroup and General Motors. Recession is squeezing out smaller and less well-connected firms. But there are other reasons too, which are giving big companies a self-confidence they have not displayed for decades."
I suspect that at some level these attitudes are linked. The flip side of "too big to fail" is possibly "we don't give a damn about the rest of you."
And, I'll repeat, outright fraud is not under discussion here, as fraud has always been illegal.
I think your reasoning could be reversed - medical treatments are special because they save people's lives, therefore the entrepreneurs in this field should be given special consideration. Are we, as a society, willing to tolerate the failures so as to get the big breakthroughs?
I offer this hypothetical as a thought experiment:
1.) Many lives might be saved by a reliable treatment for cancer.
2.) The threat of jail time will slow innovation in the medical field.
3.) Therefore the threat of jail time is causing people to die.
1.) Gun manufacturers make guns
2.) Guns kill people
3.) Therefore gun manufacturers are causing people to die.
1.) Managers impose deadlines and put pressure on employees to meet them
2.) Employees do sub-standard work to meet deadlines
3.) Sub-standard components cause deaths
4.) Therefore managers cause deaths
There are many dangerous implement in the kitchen, for example.
I would argue that people kill people, rather than guns.
1.) Managers impose deadlines and put pressure on employees to meet them
2.) Employees do sub-standard work to meet deadlines
3.) Sub-standard components cause deaths
4.) Therefore employees doing sub-standard work kill people
That would be an argument to jail all the workers at companies whose products do harm.
Or you could write:
1.) Companies exist to make profits
2.) The profit motive encourages some companies to cut corners
3.) Cutting corners sometimes leads to death
4.) Therefore, the profit motive causes deaths
That would be an argument to get rid of the profit motive, but it wouldn't be an argument to increase punishments over whatever base line of punishments already exist.
Or how about:
1.) The law holds corporate executives responsible for the financial performance of their companies.
2.) The profit motive encourages some companies to cut corners.
3.) Cutting corners leads to situations where people die.
4.) Therefore the law is causing people's deaths.
That would be an argument for punishing those who create the laws, rather than those who obey them.
Or what if we take this logic to its extreme?
1.) The people of a democracy elect representatives to create laws.
2.) The law holds corporate executives responsible for the financial performance of their companies.
3.) The profit motive encourages some companies to cut corners.
4.) Cutting corners leads to situations where people die.
5.) Therefore the people who elected the representatives who created the laws are causing people's deaths.
In this last scenario, all of the people in the nation deserve to be punished.
Hard to believe they compare those two in the same sentence. Netscape made a great contribution to the early days of the consumer internet where as Enron was a complete scam through and through.
Or so I heard.
Good question.
The irony is them looking down on gangsters as 'criminals' while viewing their own criminal actions -- which were not much different, only at a higher level -- as acceptable.