Managing Leadership^®

We all know how capitalism works. But even its most ardent believers aren’t likely to want it in its pure form. Do you really want to scrap all regulation and oversight, and just let everyone sort it out in the marketplace?

Some might argue that we do indeed. All we need government for is external defense and internal order; let the markets handle the rest. But much crime, of course, is conducted through the markets. So, they’ll be monitored for that, and there it is: the camel’s nose is already under the tent.

Would you give up contract law and commercial codes? Do you really want to forgo access to the courts to adjudicate disagreements arising from these? If not, you’ve just agreed to a substantial additional amount of government intrusion into the free, unimpeded operation of the markets.

For all that, it should be acknowledged that economies function, and businesses work, because people have developed the ability to trust each other to perform the promises they make in those markets. But the forms and customs those promises conform with have typically been developed, tested, and proven in commercial law and the courts, and are themselves trusted for that very reason. Moreover, even though virtually all of them are executed to all parties’ satisfaction without recourse to those courts, their presence is a safety net without which few would dare such endeavors.

This suggests two things. First, this substantial legal infrastructure is a deep and formidable presence influencing the working of the nominally free markets. On the one hand, it contributes mightily to making the operation of those markets possible. On the other, it can be manipulated in such a way – excessive litigation is the obvious example – as to impede that operation, or worse.

Second, the great reservoirs of trust provide another entry point for crime. This can range from small time con-artist work to some quite imposing frauds expressed on an international scale. In recent years and months, we have seen examples of the latter perpetrated by both institutions and individuals.

Guess what the solution is to that? Yet more oversight and regulation. And it is widely acknowledged by fervent liberal capitalists that we do indeed need strong, reliable, prudent supervision of the mechanisms of our markets. This enables us to use them with energy and imagination, without being excessively troubled that our efforts will come to naught due to the predations of equally proactive and innovative criminals.

So there’s nothing for it: the camel is all the way in the tent. But the debate still rages about how it got there and why. That discussion tends to center around the nature not of the markets themselves, but of the people who use them, and how they perhaps are being affected by that use. Are the markets a wondrous vehicle for releasing individual energy and generating collective progress, or a sinister device drawing out our worst instincts and constantly threatening to bring us all to ruin?

We will look at that, briefly, tomorrow. See you then!

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This post is a part of a series. You can learn about and link to the other articles here: Conceptualizing capitalism

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Today’s tips: A key function of markets is to act as a clearing house for information. We need to ensure it exists, and that it is trustworthy and actionable. Sometimes, when we discover that that isn’t the case in the external economy, we learn to our dismay that it isn’t the case in the information markets internal to our businesses, either. Please see these posts, here and here, by Steve Roesler on performance reviews, and companies in more trouble than they know.

And speaking of dysfunctional markets and the resulting debate about oversight, please see this WSJ column, by Joann S. Lublin, about boards responding to bad times by dumping CEOs, and this BNET piece by Steve Tobak about boards continuing to reward executive failure.

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If you look at the contents section on the sidebar of the main page of this site, you will see a listing of the article series that have been published here. You can click through to view summaries of the pieces, and then read the full series or selections that are of most interest to you. Enjoy!

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