Wednesday, September 17, 2008

The Economic Meltdown

Business has gone insane.

We've seen corporate scandals, accounting irregularities, criminal convictions, bankruptcies and bailouts. And that’s just in the last six days.

Why? What's going on? Why are all these corporate giants folding? Why is corporate scandal and failure so rampant? What is business doing wrong that causes these instabilities? Where the hell is Adam Smith's invisible hand during these catastrophes?

While the mortgage crisis is the cause of the financial failures, there's a larger problem that isn't getting any attention. Something is deeply wrong with how we do business in America. There is a problem at the root of our business model that leads to decay and failure.

You can choose to blame the government, greed, corruption or the economy. You can argue for more regulation, more oversight, more transparency, more taxes but nothing will solve the problem that corrupts modern business practices.

The deep-rooted failure of modern business is a failure to think in the long term.

In part, this failure comes from John Maynard Keynes and his famous statement "In the long term, we're all dead."

This has become the battle cry of modern business. Short-term thinking predominates amongst the C-suite who measures success in fiscal quarters. We have condensed the entirety of business existence into three month time slices that determine the rise and fall of highly paid executives.

If business is to survive, we must adjust our point of view. Executives must adopt a long term view in order to establish true long-term growth and create real value for shareholders. The failure of these companies is directly attributable to short-term thinking and the inability to see further ahead than the next quarterly report.

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