"Wherefore We must interrupt a silence which it would be criminal to prolong, that We may point out...as they really are, men who are badly disguised." Pope St. Pius X, September 8, 1907, Pascendi Dominici Gregis

Tuesday, February 15, 2011

Why I Quit My Last Job

I’m currently unemployed. Not involuntarily, but because I chose to be. Why did I choose to quit my last job? Because most American industries are oligopolistically controlled by a few regime favored firms, which are allowed to function relatively unfettered while the up and coming competition is held at bay via huge costs to market entry instituted through massive regulation. I’m not making this up. By way of example, right now, I’d love to start a hedge fund or an investment holding corporation. I could set up a corporation that trades on a major exchange in order to sell shares to the public at large, but this would require the use of at a minimum a lawyer, an accountant, compliance with GAAP and Sarbanes-Oxley, which I cannot afford and still have significant funds left over to invest, and a whole host of regulations I don’t even know about but some bureaucrat who would love to trounce a newly created firm does, which would be strictly enforced with hefty fines the minute I made any headway or got public recognition. I could start a hedge fund, but I would need a few millionaire friends. I could start a LLC, and as long as I kept the number of investors to a minimum, there’d be little regulation. But those whose partnership I’d seek first, my friends, would be able to contribute very little individually and certainly not enough to allow me to make a living and reward them sufficiently off our gains.  

That’s just an example of how I’m kept out of the current industry I’d like to enter. So what’s the problem with oligopoly? When oligopoly is artificial, that is, created by a grant of government privilege, it disincentivizes hard, honest work and customer service. Firms who sell products we cannot do without that are not subject to the normal incentives of the marketplace do not care about their customers. They are more interested in pleasing the bureaucracy that gave them the privileges in the first place, and living off the rents that result. Many economists will argue that the corporate managerial system that has come to dominate American “capitalism” results from our regulatory regime where banks cannot be large percentage stockholders in corporations and thus, not only do we have the classic Berle-Means situation where the owners are not the operators of the firm, but ownership of US firms is so widely dispersed that the leverage that owners use to force managers to act according to owner interest is decreased. However, American capitalism, ever adaptive, has solved even this problem to a significant extent with the hostile takeover. More to the point, I think one reason for the heavy reliance on managers and managers of managers in the American corporate system is as a mechanism by which to divvy up the rent that oligopolistic firms collect. A bureaucratic phenomenon instead of a market one, the result of such higher rents is distributed, perhaps to a certain extent based on performance, but in the cases most insulated from market demands, based on seniority. This is the system we see in public education, both at the lower and higher levels, as in the federal government, so why would not this same logic extend to corporations to the extent that they are insulated from market constraints? Indeed, if we take into further consideration that the sustenance of a government privilege based system is shady connections and relationships, instead of honest, hard work and wit, it would make sense to promote relatively incompetent managers over time into higher and higher rent-funded salaried positions, in order to maintain their relationships with governing agencies, which is the real “expertise” for which they are compensated.

In such situations then, which almost perfectly describe the largest banks in the banking industry in which I worked, there is little concern with the needs to the customers, and a lot of rule-following behavior that often leads to a waste of time. For example, despite being perhaps one of the most competent employees at my previous firm, I would first need to seek the permission of untold numbers of other uninterested, slothful managers in order complete a basic transaction per regulations. The slow response to the customer, then, was often pinned by the customer on me because I really didn’t have the time, in my desperate effort to help them, to explain to them the nature of the situation. Besides, why should I tell them this, and why would they accept that as a valid answer? My job is to get the job done, not explain why I can’t do it. Of course, as understanding as I am, I can forgive the customer their ignorance or inconsideration of my plight. What I could not forgive, however, and felt it absolutely critical to hold accountable, were the actions of my superiors, who would pretend to be running a professional operation while in fact standing in the way of the very such operation. Their incentive to do so is explained previously. So, I quit.

If you can suggest any countries in which this problem is less pronounced, please do so. I am aware that certain industries are more regulated than others in the US. The problem is my expertise and enjoyment are found in the financial field. What I would give to be a computer programmer!

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