Saheli*: Musings and Observations
Friday, July 22, 2005
 
Economic Flights of Fancy

This is the kind of thing that infuriates Americans about our own economic system. HP is laying off 14,500 workers (10% of its labor force) after "firing" Carly Fiorina with a $28 Million severance package. (I'm excluding the pension packages b/c that's presumably not cash the company had in hand.) Note that that works out to less than $2000 per laid off worker. Nevertheless many readers have a gut reaction of how unfair it seems: Fiorina is undoubtedly more responsible for HP's crashing descent than most of those workers. The glaring alternative, however, of using government to regulate things like CEO salaries is both unwieldy and somewhat repulsive.

But it should be possible to build into the structure of a corporation a more nuanced way of dealing with these things. At the time of a incorporation, a company can have all kinds of riders saying things like, "we're just not going to have huge CEO salaries," or "we're just not going to charge people for this service," or whatever. Investors in that company would essentially enter into a contract to agree to its prearranged philosophy; they can exert pressure for the sake of profit, but not if it contradicts whatever this philosophy is. Managers aggreeing to work for the company are also voluntarily entering into this set of self-imposed regulations. After that, it's sink or swim in the market--if the company's philosophy makes it less competitive then the players lose their bet, but if it makes it more, they win the bet. What they can worry less about, however, is being tied by either investment or employment to an entity whose philosophy diverges from the prearranged set-up. Clearly written contract law should hold them to it. It's kind of like a constitution.

I think it must be entirely impossible to refashion a corporate entity to fit such a constitution after it's already huge and traded. But it's basically how we run cooperatives and many kinds of nonprofits and other institutions of civil society--how, in fact, citizens manage to control many aspects of their life, and how ordinary people, without large amounts of capital, make things happen. When you look at the local histories of this nation, they're filled with barely-somebodies enthusiastic enough to write up a charter and recruit some friends. We apply that kind of democratic-economics to our lives constantly, just not in massive endeavors like building computers or running banks or laying electrical lines or making cars. There's nothing un-American about it. In no way does it violate principles of enterprise and private property. Everyone who enters into such contracts enters voluntarily, and they can even reap the results in some predetermined portion--their salary, a bonus, a dividend, whatever. In legal essence it's no different from any other firm. The difference is one of culture and emphasis--the ownership is more about who starts the thing and less about who provides the capital.

So I'm basically wondering if the tools of technology will encourage more people to become the enthusiastic nut waving a charter and recruiting some friends? Are we going to see more cooperatives and more non-profits?
 


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Saheli Datta started this when she was a journalism student at Columbia in New York. Now she lives in the Bay Area. *Old people call me R. New people, call me Saheli. Thanks! My homepage. Specifically, my links. Email me: Saheli [AT] Gmail [dot] Com

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Yglesias:Tpmcafe
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