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Al Checchi Headshot

We Have Met the Enemy and He Is Us

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We hear a lot these days about those evil corporations and their pernicious effect on America. Should we hunt down these malefactors of malice? Perhaps, but on examination, they would be us. Off with our heads?

Every one of us who is not employed by the government but engages in some commercial endeavor, be it giving manicures or building bridges, conducts these activities either as a sole proprietorship, partnership, or corporation. The differences: unlike proprietorships and partnerships, corporations are taxed twice, once at the corporate level and again at the individual stockholder level, but their owners (shareholders) are insulated from personal liability. For example if I own a restaurant as an individual proprietor, I can be sued personally by an accident victim. A corporation like McDonald's may be sued for the same accident but its individual shareholders cannot. Without the protections of limited liability, very few individuals would be willing to invest in any enterprise and subject themselves to defending against potentially unlimited liability. Our very first corporate charters were granted by the states to induce private individuals to join together to build large infrastructure projects like bridges and turnpikes.

What do American corporations do today? They do the same thing that any proprietor does, e.g. make and deliver goods and services. They succeed or fail based on the difference in the value that consumers put on their products and the cost of producing them - that ugly thing called "profits". The formula for running a successful business is quite simple: combine human and material resources as efficiently as possible to create the greatest amount of value for the consumer.

Most corporations like Apple, Microsoft, Federal Express, Marriott, and Proctor and Gamble obey the rules and strive and succeed at developing and producing popular products and services that create value (what some call corporate greed). Others like Enron and WorldCom break the rules. Corporations are only as good or bad as the people who run them. Just as most people are honest and do not break the law, most people through their actions as (proprietors, partners, and corporate employees) are honest and conduct themselves within its bounds. Some obviously don't and they should be removed and punished. Most behave ethically; too many don't. That is human nature. And as in any endeavor, half the people running business enterprises are below average. Only a minority are exceptional.

Corporations are our principal providers of employment but that is decidedly not their objective. Their objective is to maximize profits (more corporate greed). They seek ways to make investments and increase value (provide more goods and services at a profit). To do this generally requires that they employ more people. Employment is the byproduct of investment.

Governments have a role in this process too. While they don't create employment directly, they are a major influence on the ability and willingness to make investments that increase employment. Case in point: As recently reported in the Wall Street Journal, California based CKE which operates 3000 restaurants nationwide is no longer opening restaurants in California but is opening 300 in Texas. One of the reasons: In California the regulatory process can take two years versus only 6 weeks in Texas and as a result, the cost of opening a restaurant in California is $200,000 greater.

Similarly, America will import approximately $350 billion of oil this year. While we have many proponents of "green energy", until we develop viable alternatives to fossil fuel, we must continue to consume oil. We have ample untapped oil reserves of our own to replace all imports. If not restricted by government, we would invest in extracting them. This would create jobs in the oil industry. The $350 billion increase in domestic income and spending would produce more jobs. And the increase in supply and resulting decrease in the cost of oil would allow consumers to spend their savings on other things and increase jobs even more.

The lesson, if you want to create jobs, shape public policy to attract private investment. America and indeed the world have no shortage of individuals or enterprises that want to make a buck. Off with their heads?