Sunday, October 13, 2013

Capitalism failure

From a system perspective, not a human perspective, compensation for work in capitalism is the system's way of communicating to people that the system needs more or fewer people in a job. Not enough bricklayers means rising salaries and too many means lower salaries. The trend continues until the number of people doing the work roughly matches what is needed at the market clearing price and the people are generally satisfied with the compensation.

So what does that tell us about the US distribution of population in the labor market? The distribution of compensation is highly skewed and madly demanding more people get into the job of running companies. It's highly lucrative work that on balance tends to create labor demand. Our lack of labor demand and the resulting salary stagnation are not a harmless consequence.

But people aren't rushing into the CEO business anywhere near the numbers necessary to drive compensation down. It's not like the current crop of CEOs is uniformly magnificent and we simply cannot do better. The wrecked companies littering the corporate landscape around the country are a testament to that. And failure at being a CEO would seem not to carry the same penalties as a spectacularly public malpractice for a doctor or lawyer.

So why has CEO production not drawn attention of the same people addressing the "IT shortage"? Why doesn't the CEO grooming process create more candidates that drive costs down? Why is shareholder value being squandered in so many cases in highly compensating a stream of short lived, not very good chief executives, who drive the company into disaster time and again?

There's something wrong with our CEO system.

Cross posted Chicago Boyz