In my Economics course I always go over the circular flow of the market. Firms go to the factors of production market and hire individuals from households. These firms then pay these individuals for their service. In turn these individuals from the households go to the product market and buy the products supplied by the firm. Therefore, the people in the households earn money and then spend that money at the firm. Everything works well until something within the system creates inequity. To ensure the minimum amount of inequity, the government takes on the role of arbiter, thus acting as a referee, if you will, concerning the process.
The problem with government doing this; at times it will overstep its bounds. In Switzerland last week the government attempted to overstep its bounds by legislating a maximum wage for CEOs. Initiative 1:12 stated that CEOs should not make more in a month than what employees make all year. I think the thought is nice, but there is nothing that would be more of an initiative killer than legislation similar to this. It appears the Swiss agreed. They voted the initiative down by a two-to-one margin.
I am a firm believer in a mutually beneficial, although distant, relationship between government and business. When this relationship gets to close, it will result in cronyism. However, if it becomes too distant, where government is hurting business, the outcomes may even be more devastating. My fear is that is what we have now.
Last week the WSJ had its annual CEO council meeting. Many of the nation’s leaders were present discussing the current relationship between government and business. It appears that there is a huge chasm between how well the government thinks it is doing, and what the CEOs think.
We are at a critical juncture in this relationship. Business is growing again, employment is slowly climbing, but the stalemate in government is hindering the pace of growth. “Democrats and Republicans at the conference again decried a failure of leadership – by the other guy.” President Obama did express a willingness to change the process for dealing with immigration reform, but the fissure between business and government on health care issues is miles wide. “We’re just at the start of the problems with the rollout. They aren’t business people. They don’t understand the bad effects down the line of what they started,” said one worried CEO of finance.
Five main issues needing action were identified by the CEO’s last week. The first issue involves immigration reform. There is a huge need to attract and retain talented foreign workers. Second, “the US needs to invest in education to train employable workers, starting at the K-12 level, with a focus on and respect for multiple pathways.” This would include colleges and universities, trade schools, and apprenticeships. Three, tax reform! The current tax system hurts American business’ ability to compete. Fourth, business and government should build better bridges of communication. Lastly, there needs to be a concerted effort to create better health care outcomes. The level of waste in this system is measured at $765 billion annually.
It will be interesting to see what will happen. My prediction is the due to the dysfunction in Washington nothing will change, at least until the next Presidential election. Until our pseudo leaders decide it is time to become the servant leaders they are supposed to be, nothing will change. Democrats and Republicans need to see each other in the same way business leaders want to partner with government. The CEOs crafted this comment for the government. “Business and government should build better bridges to each other – rather than viewing each other as adversaries – to advocate for free enterprise and share prosperity.” Amen!
And that is my thought for the day!