Tyler Cowen on Big Business

Tyler Cowen on Big Business

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David Wright: My guest today is Tyler Cowen, professor of economics at George Mason University, blogger at MarginalRevolution.com host of the conversations with Tyler podcast and author of numerous books, the most recent of which is *Big Business, a love letter to an American antihero*, which we'll be covering today. Tyler, welcome back to the show. Tyler Cowen: My pleasure. David Wright: So the subtitle of your book kind of gives you away as fighting in big business' corner. But you also use an intellectual alter ego that in a lot of your work named Tyrone, and I think of Tyrone as a clear thinking North Central jersey working class intellectual insurgent. Tyler Cowen: I that's what Tyler is.

David Wright: Well, you're obviously pretty similar people. I love Tyrone. I love the Tyrone perspective. But I'm wondering if there's as much Tyrone in this book as you normally put in, and maybe there's not really a clear distinction. Are you thinking about that explicitly? What does Tyrone think about big, big, big business? Tyler Cowen: I think big business is my most straightforward and didactic book. I set out to write it to make it almost deliberately unoriginal, but by the time I finished, I found no one else was saying what I was saying.

And to me, it sounded kind of fresh. So it's a look at the facts about big business and simply asking which of the criticisms are correct and which are incorrect? Many are correct. But overall, I think people are far too down on big business relative to the reality. Now, how does Tyrone fit into the picture? It turns out, there's an individual I'm funding through another program of mine called emergent ventures. And he has a project where he will be recording people and putting them on YouTube saying the opposite of what they really believe. Interesting. It's a kind of test to see can you

articulate the opposing point of view, David Wright: of course, that hit Brian Caplan's intellectual Turing test. Tyler Cowen: That's right, or the logical Turing test, he came into this very room where we are. And he recorded me giving the best possible critiques of big business, big tech in particular, who, but I've promised him exclusive rights on that story, or rather, Tyrone has, okay. But I would just say this, if you think there's something weird about American life and American political life today, you ought to be worried about everything. And big business is such a significant

part of society, that Tyrone would say, it's hard to believe you can let big business off the hook entirely, right? So if the world feels ugly, and divided, and stupid, or maybe big business has to share part of that blame, that was part of what I said to this fellow Kyle Ashton. And I hope that video is up on YouTube soon. David Wright: Yeah. And then we'll put a link up to that. As

I was kind of thinking about how you might answer that question, I was thinking to myself, it of who my equivalent time Tyrone would be, I grew up in a small town, manufacturing and farming kind of part of the world and Ontario and Canada. And big business is a very distant thing. In that kind of, you know, you have the businesses, you the employee, the people in the town, and there's this kind of other world where, let's say, the smart kid down the street goes to some fancy college and he gets a job working at some company you've never heard of, which is, you know, McKinsey or something, right? Imagine that. And so you kind of have, the feeling that I would have in those shoes would be maybe one of like kind of a mild resentment of the status differential, perhaps, of this person who thinks they're better than the rest of us and rejecting our community in our town and going off and doing this other thing, but the same time, a little jealousy. Right? Yes. And so there's a mixed feeling there of divorcing that

as well, from the consumer experience, which is, which is also a certain kinds of ways kind of ethically or morally benign, you're just buying things that you want. And if you don't want you don't buy them, but for the most part, I feel like for a lot of people in the world business might be because they don't have a huge presence in some towns, a repudiation of what goes on in those towns, because the big business isn't there and kind of a way that you can observe and feel and see other than through the goods. Tyler Cowen: Do you think that's real Alice Monroe territory? David Wright: Okay, yeah Tyler Cowen: where you're from David Wright: Yes. Tyler Cowen: But it's striking to me, the way you relate the story, the resentment is toward the individual who is from the town and not toward the shareholders of the company.

David Wright: That's right. Tyler Cowen: They're distant and really very hard to imagine they're not visible, David Wright: you might even realize don't realize they don't exist, right to literally, Tyler Cowen: they could just be state pension funds, right? They probably are state pension funds. So I usually believe that most envy is local. It's the people you're connected to you went to high school with your brother in law, your colleague down the office, did they get a bigger raise than you did? And I think with the internet, we're now switching or confusing what is local and what is global. So distant figures now feel local to the intelligentsia who are on Twitter, and they're more resentful. There are lower levels of trust. you interact

with them all the time, if interact is the correct word. So you see some left wing or right wing economist on Twitter and you feel they're intellectually or morally bankrupt, because you don't agree with him. You see their evasions their partisanship, and I think we're losing trust in elites. This is related to Martin Gary's hypothesis, for this reason that the world was in a kind of equilibrium, you would resent the local and the distant, you ended up ignoring. And now for a lot of American society or Canadian, the distant feels like the local, and we're more full of resentment as a result.

David Wright: Another thought that was, I was kind of thinking about was where where business fits in, in kind of like what let's call social primitives, like what are the different relationships a person has. So you have, you know, your kids, that's one that's distinct from everything else, you have this sort of, you know, nuclear family, which when you're an adult, it's much more of like a continuum, I think, from parents to siblings, to serve other people in your tribe, extended family, there's, there's less of a distinction there. And then if there's a community kind of feeling, and then you have other people from outside the town, people from far away that you don't know and don't talk to and don't don't relate to maybe don't even know that they might not exist, right, right. And business doesn't really fit into one of those categories. It's, there's something else. And I was, and I was struck by a quote

that that I don't think you just made reference to a quote, which I looked up later. But Montesquieu, saying that their commercial culture really changes how we view that other category. Tyler Cowen: That's right. David Wright: So what do you think about my little categorization of social primitives and his idea that business is kind of weird warping of the other, Tyler Cowen: that makes good sense to me, business itself is trying to trick us. So if you go into a target and you buy something, the cashier is told to smile and be nice to you. I'm not saying they always manage that. But in theory, that's how

things work at the retail level. And that's triggering our emotions for the people were friendly with, you come away with a positive feeling about the company about the store, about your purchase. There's something illusory about that maybe the purchase was entirely fine, but you feel good about things. So business on one hand is hijacking that intuition. But

it's also mobilizing the sense in you that this business is a kind of person to be judged, like as a friend, yeah. And then it's always gonna fall short. Because they don't care about you the way a friend cares about you. They have a pecuniary motive for caring about you. They may, in fact, be fine,

upstanding people who want to keep a good reputation. But still, you will judge them in a more personal way that actually is rational. And I feel this is a big reason why we're so often disappointed in business. It lets us down all of the time. David Wright: That reminded that reading this section of the book, it reminded me actually of famous people. And it seems to me that famous people also live in this kind of weird category of this sort of relationship, but sort of not, you know quite a lot about them. Yes. And you tend to ascribe some qualities

onto them which don't exist or do exist. And they play that up. They like that. And that helps their fame in the tabloids. You wrote an entire book about fame? What price fame, which I have right here. Oh, great. Yeah. And I read, and I read at one of the things you don't do in that book is explicitly talk about what we get from famous people. What do you think about this connection between what what a famous person is and how we represent to us? And what businesses do is is that something that's useful? Tyler Cowen: I think it's quite similar. And many famous people

are themselves businesses. So just last night, I was at a big concert, the group playing was Queen, cool. They're very famous with Adam Lambert. And Brian Mae was there talking to me, like,

I'm his buddy, as if he and I've been together for years. Now in reality, I've been listening to Brian May and Queen since 1976. So it's not a completely crazy idea. It was a very good show. But Had it been a mediocre show, I would have felt let down by a friend. But we use say musical groups, especially in the 1970s, a musical group would help you identify who you were, or kids who are like golf or alternative or deadhead. It was a kind of

space where you would map your own desires and aspirations. So we use the famous for our own purposes, in the same way that the famous use us for fame and money. There's something mutually parasitic about that. But at the end of the day, you know, you make a choice to go see queen or not, it's not cheap. Let me tell you. And, you know, there are trade offs. And do I feel right now that our society has too much celebrity fame? I don't actually maybe in the 1980s, there was too much mass, stupid celebrity fame. But I think we've moved to this new

world of internet fame, which has its own problems, which I think is lack of trust, as we discussed a moment ago, but not too much celebrity culture. David Wright: Another, another parallel between the your book on fame and the book on business, is this idea of people wandering or worrying about moral degradation. And yes, you know, I think you make the reference in both books we definitely do in the book on fame, which Plato worried a lot about the moral degradation of seeking status of fame and of people. I don't remember exactly how it's put but but not seeking truth seeking something else. And Plato also hated commerce.

Of course, right? And so at least the enemies, his enemies, Tyler Cowen: and he hated literary fame coming from was coming from Homer, or really recited fame. If you think about the 1980s, which I view is the era of the mega celebrity. David Wright: Yeah, Tyler Cowen: you have Madonna, Eddie Murphy, David Wright: Michael Jackson, Tyler Cowen: the earlier understanding of Michael Jackson, which was still quite weird. become that. And you have

conservative critics such as Allan bloom seeing this and just feeling like the world has collapsed. Yeah, that this is somehow replaced a world of great books and serious movies. Now, the past was never as wonderful as it's made out to be. But I do think mega level celebrity was excessively stupid at that time. And there was something to that criticism. David Wright: And another really important point I think you make in the book is the historical context of fame. Now we have musicians and and authors and, and entertainers. Politicians. I

suppose that's a carryover but fame in the in the, in the old days, much more militaristic, militaristic? That's right, darker. Yeah, actually more violent. Tyler Cowen: And that's the relevant alternative. So would I rather have Eddie Murphy and Sylvester Stallone, who does kill people in movies? Of course, as opposed to Andrew Jackson, who killed a lot of Native Americans in real life? Well, I would. So in my view, there is a kind of violent impulse in people. Commercial society, partly through its own

stupidity helps tame that somewhat. And things like violent movies and part they just keep us busy. So there was one study, it looked at when people go see violent movies, are they more or less likely to commit crimes? It turned out they're less likely. But the main effect was simply it took up a lot of their time, not completely, that it tamed them and made them pussycats. But nonetheless, there is something to a bread and circuses idea. And this is voluntary, it's not censorship, or forced on people. But it is giving people

something else to do. And that's become a bit underrated. And now what we do with something else, is a lot of time on our smartphones, we'll see how that works out. Right. But that's quite a novel development, I think it will turn out to be one of the bigger developments of the last few centuries. In the last 10 years. You watch people walking around, almost everything they do is intermediated through the internet. Not everyone but there's Google Maps, you read about the restaurant on Yelp, you text someone, whatever.

That's a stunning innovation in human history. And it's very new, right? Let's basically 10 years old. And if the iPhone now is, what, 11 years old? Wow, there's a curve of enough people having smartphones. But we're there now. David Wright: Yeah. What are the ethics of business? So the the, I was thinking about the evolution of having, let's say, business replace, when we're talking about fame actually replacing the time we spend. But you also make some points in the book about and I'm wondering about, again, this parallel perhaps between the evolution of our morality, and our spending more time, thinking about famous people interacting with famous, their famous products, and actually, about whether or not business has an influence on on the on the morality as well is their equivalent of some sort, and how we and whether it's changing how we think about what we get what we value.

Tyler Cowen: If we focus on contemporary America, today, I see two main ethics of business. One is you build a big successful company, you care a great deal about your reputation, you may not be a better person than anyone else, but the market constrains you, you're very careful not to have negative publicity. You want to sell to as many customers as possible. So you encourage a notion of tolerance and

diversity, you want to hire as much talent as possible. So you encourage a notion of inclusiveness. And this is mostly a very positive social force, and you make things maybe you innovate, you give people jobs, that's a great deal. Then there's another kind of business where in essence, people get together and they learn how to cooperate to screw over others. I don't think this is as common as is sometimes alleged. But

there are many, many examples, herbal supplements, penis enlargers, you can decide how much of legitimate commerce might fall under this rubric. And there the ability of modernity to build so much cooperation becomes a negative because it's cooperation to screw other people over. It seems to me in contemporary America, the first kind of good cooperative business is far more significant than the second, but we need to recognize both exist, then maybe there's a third type, which is sort of a basically, on his business, but always you have parts of it at the margin looking to break various laws or at the margin, not help a consumer or grab something they shouldn't. There's plenty of that too. I think often the owners are trying to constrain that and it's the employees who are the fraudulent ones. There was a recent story trying to

estimate when you have people deliver food to you like Uber Eats and other food delivery services. How often does the driver take some of the food and just eat it? Yeah. people disagree as to the number, but the candidate estimate seemed pretty high to me.

David Wright: Really? Yeah. Interesting. I couldn't imagine doing that myself. But I mean, far, far away from a food delivery person.

Tyler Cowen: Some of it is that people may be hungry, and they feel they can take a bite, and no one will notice. Yeah, but some of it is a weird kind of exertion of power. Yeah. Or saying it kind of ftu to the system. Yeah, or just some wish to feel alive by doing something outside of the rules. And that's also part of human nature. It's not the same as dishonesty. If

something like in some way you need to recognize and if not quite validate, come up with a way of tolerating a limited amount of it. David Wright: I wonder on that idea how much of that is is a slippery slope? Because once you kind of get a bit of a rush breaking rules, yeah, seems to me that you might just break bigger and bigger ones, and Tyler Cowen: you need to break bigger and bigger ones. David Wright: Yeah, I suppose. Yeah, to get the same high. That's right. If for the most part, though, I think that is the point you make in the book that organizations actually, it could be argued, impose or encourage moral progress, ethical progress, make the point in the book about gay rights, for example, in organizations, and actually it can they can be, it can lead a lot of the rest of society and things that ultimately the rest of society does catch up with Tyler Cowen: it made it feel normal to people. So when the

Supreme Court ruled in favor of gay marriage, people are like, oh, come big business had recognized this years ago. You know, maybe we should just get on with things and see this as a beneficial development, which is what happened David Wright: is that a necessary component of business I'm thinking to, as I was reading that late 19th century, there was a lot of things, at least as legend has, I haven't studied that period myself all that closely. But a lot of bad things were going on in businesses and exploitation of workers and that kind of thing led to the progressive movement. Was it different than or, or? Or is there an even earlier period that was even worse, and actually, the kind of the ethical progress of business has always been up into the right.

Tyler Cowen: I don't think tolerance is a necessary condition of business business, I think you have, ethnically or racially or religiously torn societies, were in some cases business, or some businesses decide to take one side rather than another. So like in Northern Ireland, you would have still have, I believe, Protestant and Catholic funeral parlors. And this makes those divisions in turn more focal. That is a possible equilibrium. You see it in a number of

historical cases, a lot of Jim Crow in the south was due to government laws, but a lot of it was due to business also. So in Los Angeles, government, Jim Crow laws were not nearly as strong as in the south, but there was still a fair amount of business enforced segregation. If you're asking me about America, 2019. I think those cases are relatively rare. And the positive cases are much more frequent. But again, my book is not an apology for business. in all matters, it's saying, let's look at the facts. The facts show there are plenty of cases

where businesses are racially divisive, Northern Ireland, you know, one example there. But even there, it's a mixed set of effects because Northern Ireland becoming wealthy or the Republic of Ireland becoming wealthier has led to a diminution of tension, and violence. So it's not that in those cases, the business are purely negative. It's just you see both effects. David Wright: Yeah. Is that is that just out of general

curiosity? Is that something you see as Is it very important, or maybe this ties into your last book as well, the the improvement in economic well being and wealth necessarily diminishes tensions and just makes people happier. And that's just gonna happen gonna make places better like that. Tyler Cowen: I don't want to say necessarily, so I know, you know, the histories of England and the Dutch Republic and so on. But on the other hand, you need to recognize it in the early 19th century, the German city states and principalities are not so wealthy. They're not wonderfully tolerant places, but

they're better than what they ended up being, say, in 1939. And along the way, Germany becomes a nation state, it's a lot more wealthier. It has the resources to do some terrible things. And that was driven by the Nazi Party, not by business.

But nonetheless, you needed a commercialized society to carry out that particular kind of slaughter and intolerance. So, again, I think you always need to see both sides. And look at the ledger. And consider like, when and where are you talking

about David Wright: one other I think, area where ethics is between an underappreciated point and I was so happy to see that you made it in the book, no doubt related to your work with a lot of tech startup firms and interacting with those people is that ethics interacts with business by inspiring its people and, and I've noticed this myself in hiring, retaining talent and trying to build businesses, where you only get the best people if they're inspired to join your firm and inspiration often takes On a moral or ethical component to it, Tyler Cowen: and we're speaking here at the mercatus Center, where we have a lot of talent, we have a sense of being on a mission to improve discourse about economic topics that motivates people. It helps us attract talent. To the extent we become worse at that it's harder to attract talent. Yeah. And that's often overlooked in discussions of business ethics. David Wright: Yeah, it feels to me maybe that that is changing a bit. I don't I don't know why I think that maybe I'm just

getting becoming more aware of it as I get older. But I wonder how much business was mission driven in the past? Any any sense of that? Tyler Cowen: Well, it always has been maybe Lex less explicitly. But the Midwestern. Let me just clear my throat here. Yeah,

sure. I have a bottle of water. That'd be great. Yeah, but I hope that's okay. That I took some David Wright: totally fine. Okay, so

Tyler Cowen: did a podcast yesterday podcast the day before? I think that's my problem, or you're talking to Samantha Power was yesterday. Oh, cool. But anyway, go back to the question. David Wright: Yeah. So the question is whether over time, this this. Right now we're observing that, at least, with tech companies, and other firms that there was an ethical mission more, it's not always ethical or moral, but they tend to have undertones of that, in order to inspire people. And I'm wondering if that's new, Tyler Cowen: there was a phenomenally strong sense of ethical mission. And American businesses, especially in the

Midwest, throughout the 20th century, it was very modest. It wasn't always trumpeted there, of course, was not an internet. But it was deeply internalized and very strongly felt. And it

propelled this country to many great achievements. But I think this renewed sense of mission for employees, it stems from income inequality, oddly enough. So income inequality, for labor is a sign that talent is quite scarce, for whatever reason, right? And when talent is scarce, for one thing, talents, already earning a lot of money, and they want something other than money. And it's hard to attract people. So you build admission into the enterprise. think there's a lot of cases where businesses may start approaching mission somewhat even cynically, like, Oh, we just want, you know, to make more money. Yeah. But over time they do it they start believing it becomes sincere. Sure. It's a kind of artificially

manufactured true sincerity. Yeah. And the final equilibrium? David Wright: Well, if the weighted average of the sentiment of all the employees in a certain direction, the firm will move in that direction. Tyler Cowen: And over time, you'll attract bosses who are in accord with that, possibly even shareholders. Yeah. And this, to me is really a striking development. But the link to income inequality, I think, is not typically recognized. David Wright: That's interesting. And our CEO is

different than because if you have, if you need to have this mission for the firm to so let's put to one side, the cynical CEO or leader? Do you have a different kind of CEO than you had in the past who can generate a mission or inspire people to follow a mission? Tyler Cowen: John Mackey at Whole Foods who would be a good example of that. So many vegetarians and vegans are loyal to Whole Foods, because it goes out of its way to give you those offerings. Yep. Even though the net effect of whole foods may be well, people buy and consume more meat, right? Right. It's a very attractive supermarket, they have dry aged beef. My Local Safeway does not have dry aged beef. I think there's a big difference between consumer facing firms and business to business firms. And the consumer facing firms have a whole series

of public relations issues that business to business firms usually do not right. And I think with the internet, you have in a sense, more business to customer facing activity than you're used to. And reputations online and social media scandals or praise, that's made a big difference. David Wright: It's easier. I wonder, I think that's probably

the case that it's easier actually to get access to the customers at scale. Now, with the smartphone revolution, as you're pointing out, you can publish an app you can instantly connect with, you know, millions and millions of people it was before, it was pretty hard to do that. Or even if you're just a third party seller on Amazon, you have 17 use books in your closet, and each one is worth 70 bucks, and you put them out on Amazon. And that's your job number four, Tyler Cowen: you may not be reaching a whole lot of people. But that was not at all possible until recently. David Wright: Yeah, yeah. You speak in the book about the

changes in CEO compensation. And so the question that you ask in the book and answer is whether CEOs overpaid and part of the answer includes a description of kind of how CEO ship has changed. So maybe talk a bit about your thoughts on whether CEOs overpaid? Tyler Cowen: Well, the main way CEOs are paid at the top level is with equity and options. Yep. Right. And that's to incentivize

people, that makes perfect sense. But that means if the stock market does well, CEOs are paid more, and that's exactly what we see in the data. The stock market and ceo pay, rise more or less than luck. Step, I'm not in the book, trying to argue that's necessarily moral, right. But it's not mysterious. It's not based on ripping anyone off. It's a pretty natural plus that process of supply demand and incentives. It's the main

argument I make. I also point out, being a good CEO is a lot harder than it used to be. You now need to do much more with government relations, you need to know much more about the law and lawsuits, the chance that you in some way manager oversee a global supply chain is much higher than it used to be. The

knowledge you need there the expertise, the ability to ask probing questions, very hard to come by public relations, being on TV, interacting with social media. All of those are relatively new frontiers in American business, that were not a concern as much say in 1955. I just knowing tech, almost every business interacts with tech. So yeah, but most businesses are not themselves tech. So say you're running an oil company,

and you need to make tech decisions, all of a sudden, I'm not saying you're choosing the technology. But again, you need to ask the right questions of the right people and understand the reports being given back to you. So there's been a significant upgrade in the skills required. And I think that's another reason why the pay has gone up. David Wright: Now, I think managing technology is a distinct skill. Yes, it really is. And it's I published an episode, I don't know when it's going to be published relative to this one. But and I'm in from the insurance industry, and, and

the insurance industry has a very, very difficult relationship with technology. It's a necessary component. Yeah, but a lot of firms really struggle with it. And, and I like to joke that the systems Business Insurance Policy Management Systems business, the customer satisfaction rate is zero. And, and I think that that is primarily because because we haven't come to terms with how to actually manage a software project, in any kind of, and I think that that's not an unusual thing. The unusual thing about the insurance business is that there are a lot of other barriers to entry that insulate the insurance industry from the attack of the software companies to displace them. And so the companies that are turns gonna persist, and that's probably a lot of pockets, the economy, they're gonna be like that. We're a software, you know, Marc

Andreessen, guest on your podcast a couple times, talks about it eating the world, and I think some of these parts of the of the economy are pretty gonna be pretty hard to crack. And the result of that actually is quite a lot of pain for the people in the industries themselves, because they don't have the right kind of organization to succeed. The same Tyler Cowen: is true of universities, which tend to be fairly bureaucratic, right, but they need more and better tech all the time. They don't have the cultural dynamic to necessarily be good at it. And think tanks, research centers,

many nonprofits, very similar issues. They're not at the point where they're choosing CEOs on the basis of how well do those people grasp tech. But you wonder if someday, at some point, more of them might get there.

David Wright: Well, in something is true to the extent that companies that don't pursue it fail, yes. Somebody else gonna show up for the new company and emission and better as software and boot them out. That's right, right. What you make reference is quite a lot. And I really thought this was interesting to some literature on on managerial quality. Now, in this case, in

talking about the difference is how much management quality matters to firms. And software isn't part of this, maybe not yet to the survey that I could tell. Let me talk a bit about blooms work. And, and and what you think of that. Tyler Cowen: Nicholas bloom, john green, and some other researchers have gone out. Excuse me, Nicholas Blum, john van reenen. And some other researchers have gone out and

tried to discover what are the determinants of why some firms are more productive than others. Even within a country, within a sector, it's pretty common for the higher productivity firms to be two or three times more productive than the lower productivity firms. There's a big difference, right? And that's what the same, typically physical technology, yeah, and Totally, yeah, yeah. And they find that trust and ability to delegate in a decentralized fashion, and have a board subordinates having the ability to make decisions. Without always getting permission is a common feature of high productivity firms. And you find it much less so in low trust environments, and also low trust countries where things are more rigid and stratified. And if you want something done, it just

doesn't happen. Because there are all these bottlenecks and permission is granted. And the people who are the bottlenecks, they don't really know much about the individual cases, and everything gets frozen up, everyone becomes frustrated, the level of trust falls all the more Yep. And to build in that culture into a company at so many different decision nodes, that you have trust, a reasonable degree of decentralization, but still actual controls against fraud and the like. It's just very, very hard to do. And it's one of the things about the contemporary world of big business. We as Americans often take for granted, but it's really Quite miraculous, and what good companies do you know, Walmart, Amazon, what they have achieved? To me it's just phenomenal and underappreciated.

David Wright: Is that something that you've had an experience with yourself? If you are you mean organizational structure of your worlds a little bit different than it is for most, but is that something that happens in academia? Does management macker matter in academia, Tyler Cowen: management matters a great deal that affects Who are the people you hire? Right. And again, we're at mercatus. It's a research center, we have more than 150 employees. That's far from enormous. But I actually think 50 employees is a

kind of breakthrough point. When you pass 50, you enter some new world that is strange and mysterious, where not everything is right before your eyes. Yeah. And maybe 150 is more like 100,000 than it is like 20. Yeah. And one faces that all the time that things happen in a decentralized fashion, and you need to have a good culture and good incentives built in, and those complementing each other in your choice of personnel fitting into the same culture and incentives. Again, it's never easy. David Wright: It amazes me how actually, and in my career as a manager of people, which I am, how, how hard it is to create continuous cohesion, social cohesion, yes, among people. And

one of the parts about your book that I was so happy to see it, I was looking for it. I was, I was hope i was i would have asked you all about on the podcast, we didn't say but how much actually more cohesive corporate life business life is then home life? Tyler Cowen: Yes. David Wright: I mean, I mean, it's hard to maintain good relationships with people it is, you know, and if you're thrust into, let's say, a family with somebody you don't like, it's not going to go well. Tyler Cowen: Or even if it's someone you do, like or love David Wright: yeah Tyler Cowen: that in some ways, raises the stakes. And it makes

certain kinds of cooperation harder, because there's so much on the line. And one thing business does for us, it gives us another sphere of life, that is somewhat of a respite, and an escape even, and just a balancing and a diversification. And that too, is often neglected.

David Wright: And coming back to Montesquieu quote, where it makes the observation that commercial life promotes social cohesion. Now, I believe his observation was about day to day life outside of business. And I wonder whether I don't what do you what do you think do you think he was talking about is it so two poles is gonna work? One, because we trade with each other and we interact with a shopkeeper, we don't know. And we can buy things. And that goes pretty well, that's going to

change how we think about people generally. Or I go to work every day. And I work with these people, and it goes very well. And that's kind of more intimate reactor interactions, that also is pretty benign, that kind of adjusts my default mode of interaction with people generally, I don't think he was going for the second one. But I think that's pretty important,

too. Tyler Cowen: When it comes to Montesquieu, in particular, I think he was highly influenced by the French religious wars of the 16th century. And conflicts which came even after that running up through his own time. And I think he was in essence, saying, we can simply have civil peace, through commerce, you know, we're not going to kill each other, we will be a nation, and you will wake up in the morning, and not be afraid that someone will come to kill you, because of your belief in God, or maybe lack thereof. And we now take that for granted. But again, throughout much of human history, that has been up for grabs, and it does seem Commerce has had a role in that. That again, businesses simply wanting a stable environment, and the ability to make profit. We let them origin want religious

tolerance, in most cases, under most configurations, of you know, a reasonable equilibrium. Rather than taking you know, one side and the religious wars. David Wright: Did you feel like the life inside of a well functioning company will influence your life outside of it? Tyler Cowen: It ought to. So you learn more about cooperating you interact with other smart people, just the notion of making sure everyone is on the same page, you have to learn that again, again and again, every day. Even if you're very

successful, or you're a CEO, you never have to stop learning that That to me is one of the most striking features about any business, how much you're never done learning the need to keep everyone on the same page. And surely that's valuable experience for home life. It's hard to prove. Yeah, but it would be shocking to me if it weren't. I also like to think people take some of their home life successes into the workplace, like how to listen, how to compromise. When to just admit you're wrong. Maybe you're right. And just even if you

don't admit you're wrong, don't insist that you're right all the time. Yeah. Useful lesson in both spheres of life. In my view, David Wright: I think all the time about actually how difficult it is to to effectively manage conflict individuals. And what I ICA I don't know what the right way to put it is it's almost an unfortunate necessity that, that you have to have empathy in those situations because, you know, you see literature sometimes or see enemies, just dumb ideas posted around out there that CEOs are psychopaths, right? Yes.

Tyler Cowen: That paper was retracted by the way, right? No one knows it. David Wright: That's right. I get part of that sentiment. And man, it would be easier if he had to deal with to deal with complaints. And this person said this, and you know, I want more money and to just actually not care about somebody's feelings would certainly lessen the burden on the manager in question across the table from that person. But the problem is, though, that would be easier on the manager, it would be much harder on the people. Sure. And the people need something much more than than simply an answer, although, you know, you can see how the hardened kind of old school they call it managers, just a, you know, a bit of an asshole could emerge. Because

why engaging emotionally with people is real hard work, like really hard work. And being able to do that, while at the same time delivering difficult messages and Tyler Cowen: setting expectations. David Wright: Yeah, resetting them, Tyler Cowen: companies need to develop methods where not every interaction is emotionally exhausting. But counter intuitively, the way they often do that, is to have some particular interactions, which are emotionally exhausting. Yeah, you know, the difficult meeting where you tell someone what they need to do better or where they stand? Or do someone comes to you with a problem. And emotional energy is scarce, and it's scarce in the corporation as well.

David Wright: So I'm going to come down to my first straussian reading of this book, good. I've got a few of these to get through. Hopefully, we get to them all. So one of them is that actually, business is, is a, it's not just an important part of our life, but it's an essential component of real social cohesion. And I wonder how much of you know, keeping up a few different comments and points in the book. I mean, there's Montesquieu, quote, talking about commercial culture, there's this idea that businesses are more highly functional in terms of in a relational, and our families often fall apart. I mean, my experience with families is they're all messed up, like every single family member I've ever seen or heard or come across, I always have people who, you know, don't get along. And they're they're, they're,

they are far below that any threshold of functionality that would work in a business. And so business, though, ends up being a necessary part to actually functional society. From a social standpoint. Yes. What do you think about that reading? Tyler Cowen: Is that even a Straussian reading? David Wright: You know, what we don't say in the book is you don't say, if we didn't have business, everything would fall apart. And so it's more of a description of kind of what's

going on, as opposed to a prognosis of, of what the social implications would be of of a deteriorating business environment. Outside of business? Tyler Cowen: Yes, I would say this about my book, it's not really a comparative analysis of say, business versus socialism, or business versus communism. And they're, of course, I'm neither a socialist nor communist. It's more like a field guide to birds. It's a series of facts, right? So you can look up a topic and just see like, what are the facts on this topic, and some of them actually reflect poorly on business. But

again, I think relative to what people believe about love birds, America's big companies, the reality is more positive, but I'm not trying to compare it to some other way we might do things. And I think a number of the readers have misunderstood that side of the book. Right? It's a birds manual. David Wright: Yeah. But they're, I mean, I saw the straussian part, then is that there's an implicit threat. You know, you

might be saying all birds are, you know, I'm not sure. But we're at the right. map the metaphor, so I'm not even bother trying. But if we, if we got rid of this thing that I'm

describing here, it's, it's, it's a big deal. And it maybe that's not all that deep of a reading, but I think that there's an a backlash of business. you're describing a lot of components of why businesses is good, but I think there's a there's a social influence the business has, which is bigger than any one of the component parts, I guess, is what I'm getting at. Tyler Cowen: That's right. I think that's true. And I think

there's the broader question, should we give big business in America? Higher or lower status? Okay. Yeah. I just recently I saw the Tucker Carlson was giving a talk to a conservative group, and the title of the talk was, big business is the enemy of your family. Now, I didn't hear the talk. But I have a sense of what he might have argued. I hear Bernie Sanders,

Elizabeth Warren, again, making anti business comments. Donald Trump is more complex. But he's very willing to go after CEOs or businesses that do not support him, he can be quite negative about. It's the personalization of what businesses, which may be is more dangerous than people who attack it on a more abstract level. So it seems to me we have become too cynical, and untrusting of business in a way that will backfire. And the goal

of my book is to give big business higher status in American society, as distinct from some policy change. So like, I actually think we might have got the corporate income tax rate too low to 21%. You know, maybe I would have cut it to 24% instead. So you can read my book and agree with everything in there. And still think in some ways, maybe we

should treat business more harshly. You could say, oh, Tyler wrote this great book about business business strong and productive and wonderful. You know, it can stand a bit more regulations, or climate change may or may not be true, but it would not be an illogical inference from my arguments.

David Wright: One thing to do that is important about business and comes out in the book is how different it is here. United States, that's right elsewhere, and you're talking about political bashing a business. I imagine that happens a lot more elsewhere. But it can actually tie back in the findings from from the Blum paper, or papers, perhaps, is that it really is better here. Yes. And are should we be worried about turning into a different country of some sort? Tyler Cowen: You know, a Pakistani friend of mine had a very perceptive comment. He said, Tyler, I love your book. But I'm worried about how they will read it in China, they will read it as a defense of the large state owned enterprises, which is what they should be moving away from, he added. And

that's true. That may be in fact they're reading in China. And that would be a mistake. But I'm struck, if you look at, say, French top businesses, that all of them started before the late 1970s. There are no new businesses on that French list. Are there countries, the record may be more positive in Europe, Asia, obviously, they're either very new, or they renew rebirth of something very old. But in essence, they're like a new

business. And that's not the case in the United States. Why not? Some of it is our facility and tech, we have less labor regulation, we have a much larger home market, stronger work ethic, very different sense of what people should aspire to. Maybe that would be the reason number one David Wright: is they're just it seems to me a healthier by healthier in some ways I actually a bit more indifferent relationship between large firms and government, where a lot of it seems to have a lot more protectionism in smaller countries. Correct. And one of the things I was wondering about is whether this relationship between business friendly and larger, and business. I mean, it's that's a distinction, I suppose between market friendly and business friendly, right? When the markets good because the market is what generates these these businesses. But being business friendly, could mean coddling the business protecting the business that's not actually good for the market or for consumers.

Tyler Cowen: The idea of national champions is harmful. Yes. And I think in so many smaller countries, you've had the political leaders in the business leaders, they all went to the same high school, they know each other. There's something incestuous there. You look at the United States, it's so large. So Mark Zuckerberg, his upbringing, and the

upbringing of the major politicians in Washington, they're really almost completely unconnected. Now, I think, Zuckerberg and Krishna, they both went to Harvard, not in the same year, but like, sort of around the same time, and not that there's no connections. But even within the elite, for the most part, people did not grow up knowing each other. And you

compare that to, you know, say Austria, or most other European countries, France is highly centered in Paris, a very different story. You have more centers of independent thought creativity, there's less of a sense of we're just going to sit down at a table and work out some arrangement here, because we already know and trust each other David Wright: what what percent of the so actually asked the question first, is there a gap on I call it a per capita incidence of big business between America and the rest and other countries in the world? America and China now stand out Tyler Cowen: for having very large companies globally successful Chinese are starting to become globally successful, that will continue, and everyone else is far far behind. I suspect in due time, India will join that club and it will be three. Yep. The most successful German companies are a great

danger from Chinese competition. They are if anything in defensive mode. And I don't see any European nation remotely in the same league. The notion that the number one contender is United Kingdom maybe soon to be great britain maybe soon to be England, doing Brexit. Good for them. But the fact that they're

next in line for global fame is highly worrying for the rest of the world. David Wright: How about Asia, Japan, South Korea, Singapore, Tyler Cowen: again, they have it differs country by country. Japan has a serious shortage of creative new firms. Yeah, comparable to Toyota, or the old Sony which is now actually mainly an insurance company. I believe. South Korea has strong recent performers but they are far too concentrated. And

they're leading you know tribal conglomerates. So they are vulnerable but have a great recent track record. And Samsung is a phenomenal exporter. My car is a Hyundai and so on. Singapore is doing it by importing multinationals that's worked well for them. And they're very small, it's probably their optimal strategy. So I would just say, country by

country. But Japan's champions are stagnant and South Korea's are only a few. And it's I think 50 million people in South Korea, their ability to diversify is probably going to be somewhat limited for a while to come. Their population may even be shrinking. They have I believe, the lowest birth rate in the world right now are close to it. Yeah, it's like not half of replacement.

David Wright: Yeah. It that kind of I mean, you're sort of bringing it up pretty, pretty succinctly there. But that was my second reading of the book, which is this is a very American book. Tyler Cowen: Absolutely. David Wright: And it's, that's kind of depressing, where it seems to me if you're anywhere else in the world, and we could talk about China in a second. You're thinking to yourself, well, that's great that big business is good. But what is

that going to be for me, like, what does that mean for me in Switzerland, or Poland or Ghana, or something, right? It's not it's kind of it's depressing. Tyler Cowen: It's a very patriotic book. That's one of the straussian readings. Maybe it's even thumbing its nose a bit at foreigners. But I think an implied message is, be

friendlier to your multinational enterprises, they can do a great deal for your nation, as they have done in many countries around the world, most obviously, Singapore, but much of East Asia, including parts of China, and not embrace this, India is the country that probably needs that lesson more than any other. They're one of the most hostile to outside business, including American big business. David Wright: Is it simply policy? Or is there something else about being large that allows the growth of big business? Tyler Cowen: I think the policy and the other features of being large are the same fact described in two different ways. So India has a long standing history of in some ways, allowing in foreign quote unquote, invaders, but then turning them into something Indian. But because of that history, because of the history of colonialism, they are very prickly, about open signs of foreign business, like say, Walmart simply having retail stores with a Walmart sign on the store big and obvious, the way that in Mexico, no one really worries about. So everything is cumbersome in

India, and they have so many religion, states, languages, different customs, castes, that it's a society of multiplicity and diversity. In any case, an American business is not really built for that particular kind of diversity. It's built for large markets that you can move into very rapidly. Whereas you take Mexico, well, there are multiple languages. But Spanish

is a kind of ruling language for commerce and different parts of Mexico. I mean, the state governments differ a great deal in terms of rules of law and how they treat their drug gangs, and so on. But there is a kind of Mexican business model, you can just put into Mexico and let it rip. And Walmart has done that. And then India will never be like that. David Wright: It doesn't have a cohesive domestic market, it seems to me that that's an important part. If you can rely on your domestic market, the no barriers to trade Tyler Cowen: correct David Wright: that allows you to get big, and the export driven model was maybe a bit of repudiation of that 20 years ago, but since then, has been seen not very good for big business anyway, new businesses have turned up.

Tyler Cowen: It's stunning to me how quickly China has built a coherent internal market 15 years ago, there was a saying that it's easier for Shanghai to sell to Africa than to Beijing. It's clearly not true right now, although they're doing great in Africa to be clear, about the extent to which Chinese big business has made China a single internal market, again, Tibet, and the Northwest aside, has been one of the most impressive things about Chinese economic growth, in addition to just rising wages, GDP and all that movement into the cities. Everyone knows that story. But the internal market becoming a single thing has just been astonishing and positive.

David Wright: So how about an analysis of China compared to America and maybe other places, the idea of crony capitalism, which is discussed in the book, and and obviously rejected in the book, we're gonna come to that as well. But I'm curious about whether crony capitalism exists anywhere. And in the form that people are worried about business controls to government, it seems to me that the reverse is actually what tends to happen. Is there such a thing as actual criminal crony capitalism as it exists in the minds of, of the COVID of it's, I don't know, I guess its proponents are not proposed. But you know,

worriers? Tyler Cowen: Well, there's a lot of different countries in the world, and I'm reluctant to make any claims about all of them. If you look at China, it seems to me the state owned enterprises more and more over time, are becoming a truly dominant interest group behind the Communist Party itself, which of course, is in charge, and they are somewhat close to the classic model of crony capitalism. If you look say at Russia, I don't feel I understand their politik. Coal economy very well. But it's sometimes remarked Russia has a whole bunch of billionaires and no millionaires. And that's

unhealthy. And the oligarchs and Putin interact in some mysterious fashion, or I think they're more worried about him than he is about them. But in some way they constrain what he does, and what happens there. A lot of Western Europe is more

crony capitalist, I think, than the United States. We have a tradition of populism. And also federalism. being stronger in the US means often, it's the most negative state about big business that gets its way for the whole nation. So I would just say there's a lot of diversity, you need to look at every single case. But especially for the United States, the pure model of crony capitalism, I think is far overrated businesses really not running the show. And maybe, you know, the healthcare sector, would be our worst case, that.

So if you look at hospitals, and what people call Big Pharma, on a wide range of issues, they have too much influence. And that makes many things much too expensive for American healthcare consumers. And that's somewhat the model of crony capitalism. Not true for most other American sectors. But

again, I always say, look for the cross sectional variation. David Wright: Yeah, it's that and healthcare at least is mediated through a populist sentiment, which is we want more healthcare. Tyler Cowen: We want more we don't have we don't want to pay for yeah, we don't want to wait for it. And then you have the suppliers who are happy to take the money, and that toxic interaction. And then Americans in general, they just spend more on consumption. Yeah, than anywhere else in the world I know of certainly more than Western Europe. And our

healthcare expenditures being higher are roughly in proportion to our consumption expenditures, being higher on a lot of things, even like snowmobiles. David Wright: How about finance, Wall Street? Also another section in the book, the criticism of finance that I've found most compelling, though I don't, I don't completely buy it. But it is little, you do make the observation that the revolving door between Wall Street and government, does finance have a different kind of crony capitalism.

Tyler Cowen: I think finance is again, quite different. To me, what's special about finance is first we have deposit insurance. Second, we probably should have deposit insurance. But that means there's a bailout waiting at the end of the story, no matter what you may not like it, but it's a fact. For now. That means Exxon de if you do a bailout, again, you may not like that, either. But you're choosing to bail out early or late is not an option of no bailout. And people haven't

faced that reality. So you can criticize the Exxon de bailouts for being unfair. Of course, they weren't fair. Should mortgage holders have received debt relief, you could make that argument. But at the end of the day, the zante bailout saves you a lot of money on the ex post bailout. And by the way, 1929 didn't go that well, either. So the outcomes, there will never

be fair, they'll always be a kind of crony capitalist outcome, but actually mediated through the populist demand to keep your checking account intact. Yeah. And I view that more as the citizenry getting its way people want deposit insurance, that's, that's fine. But you end up as a hostage. And the financial sector is its own hostage. And they are remarkably good at using their position as a hostage to say, look, if you don't help us, this will be terrible for you. Yeah. And I think again, the criticisms there are largely correct, the broader context is not understood, and the broader benefits of our financial system are rarely articulated. So they're not wrecking our world. American Finance is pretty good,

actually, at reallocating capital to new and growing sectors, probably the best financial sector in the world. for that particular activity. It's no

2022-01-07 08:38

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