A Thanksgiving Thought: Corporate Governance and the Future

During the debate on the access proposal, opponents spent a considerable amount of energy accusing proponents of wanting to destroy the American system of business. Lynn Stout seems to think this way; so does the Business Roundable, as well as some others.  They engage in what amounts to impassioned pleas for the status quo.

This argument will be trotted out every time meaningful change in the governance area is suggested.  Nonetheless, let us use this Thanksgiving to provide a warning.  With international competition growing, particularly from China, slavish support for the status quo will be a train wreck, ultimately interfering with a degree of introspection and openness to change that will be necessary if the US wants to maintain its competitive position.

In the post war period, the US did extraordinarily well economically.  There are many reasons, but one was that we operated under our own unique system of capitalism.  It stressed the individual far more than did our main competitors, Germany and Japan.  As a result, we had something approaching a monopoly on this type of capitalism.  The monopoly allowed us to do things better than any other economy and perhaps explained why the biotech and dot.com industries began and flourished here.  Some of this development is discussed in my article here. 

Those days are coming to an end.  Travel to China and see a country full of entrepreneurial people competing much the way that we do, but with a larger market and lower costs (both from lower wages and less regulation).  Despite these benefits, the US is still a preferred location for investment.  China suffers from a shortage of skilled workers, desperate poverty, and horrible corruption.  The system is not transparent.  But over time, this will change.  As it does, the US will have a harder time attracting capital and competing.

What needs to be done?   We will, in the future, explore some ideas.  But for now, one thing is certain.  The status quo will not be good enough.