Not My Job: The Economic Consequences of Advocacy

"Never underestimate the power of a few committed people to change the world. Indeed, it is the only thing that ever has."
Margaret Meade

Today's NY Times' article "Big Business Leaves Deficit to Politicians" affords me this opportunity to comment on something I have been wanting to touch on for some time: the economic consequences of advocacy.

In regards to the main topic of the Times article - the US federal deficit, the article references that big business is "part of the problem", that big business "...consistently lobbies for a higher deficit. The roundtable defends corporate tax loopholes and even argues for new ones." This is true. But the article fails to go to the reason behind the actions taken by business - it's not their job.

Business (big and small) do not act for the collective good because it is not their job. A company may be headquartered in a country and even do most of their business in that country. Moreover, the senior management of the company may be lifelong citizens of that country, served in the military of the country, and be as patriotic as the next guy. However, when it comes to business, where one's heart is not where one's pocketbook is.

Their job, specifically senior management, is to advocate for their business. They are compensated according to how well their business does regardless of the consequences in a larger context. And this means pursuing any and all means necessary (and, one assumes legal and even moral) to achieve their financially driven goals: earnings and growing at a rate of return in excess of their cost of capital.

This advocacy approach is rooted in two areas:

1 - The big shareholders rule. A CEO will not keep his/her job very long if they are not advocating for their enterprise as aggressively as possible. Activist shareholders see to it that the CEO feet is kept firmly to this fire.

2 - The ideology of acting in one's best interest results in the collective being best served. According to this thinking, this is the way the world works and works best. All other approaches are fraught with conflicting efforts and outcomes (think laissez-faire versus socialism).

Acting in one's best interest also includes advocating in all related corporate realms - which includes the political and regulatory environments.

In sum, it is unfair to criticize senior management for doing their job, as there is no motivation for senior management to do anything other than act in their own (business and personal) selfish best interest. To do otherwise is, at a minimum, career suicide*.

As for the consequences to the larger economic environment that such an approach might have, the answer is not clear cut one way or the other and is, frankly, an area where the economics profession would be well served to provide some opinions and guidance. What does seem clear, however, is that without counterbalancing forces at work (representing other socioeconomic interests), the focused power of the advocacy of one constituency in a position of competitive advantage acting in their own selfish interests can easily distort and possibly ruin the greater good.

*And, in the minds of some, business and economic suicide.