The economy

With the Republican candidate for president of the United States of America, Mitt Romney, and his running mate, Paul Ryan, the candidate for vice president officially announced in late August, and the elections coming closer—6 November 2012—the possible consequences of a Republican takeover of the government appear to be more and more detrimental, even dangerous for life and prosperity. One reason for this dire outlook is the general misunderstanding of the free-market economy that the Romney–Ryan team displays.

This misunderstanding is on a level with the Republican mantra of reducing taxes for corporations, and also for the rich, in order to create jobs and to stimulate the economy. It has been widely shown that this doesn't work anymore when taxes are already low compared with other industrial countries. There is another angle to this: the extremely high salaries and bonuses chief executives of companies are paid, increasing the gap between common employees and executives ever more. 

There are several examples why CEOs are not doing their jobs here despite the extraordinary remunerations they receive. One is the comparison of effort by the work force to generate a country's GDP. In the US, employees work longer hours, have fewer holidays each year, and much less vacation days for comparable seniority than, for instance, in  Europe.  France has a 35-hour work week,  Germany about twenty holidays per year. Vacation is 5 weeks per year, at full pay; this is a legally required minimum, not set by individual companies. Yet the economic efficiency in Europe is higher than in the US. Obviously, those highly paid managers here are not doing their job in optimizing the work force efficiency even though the pay gap between management and work force is about a factor of 20 in Europe while in the US it is about a factor of 350.  

The high pay scale prevalent in in the U.S. appears to be a consequence of an escalating effort by companies to retain their top executives, as was discussed by Gretchen Morgensohn in an article that appeared in The New York Times on 23 September 2012 in the Sunday Business section on page 1.

One can well imagine that the exorbitant amount of money a top executive takes home every month provides a small incentive to make long-term decisions that are beneficial for the company, or consider any far reaching projects at all, since their need to maintain a steady income after a few years of work is essentially nil and their personal retirement package usually in excellent shape. Therefore, the drive for innovations to improve efficiency of open new markets with attractive products is low and the executive mentality is complacent.

My conclusion is that American top managers are just incapable of organizing the manufacturing and service industries in the US in an effective way so that the gross domestic product is generated efficiently. One contributing factor which is widely ignored is the level of benefits the work force enjoys; good mental and physical health combined with an attractive work–life balance would by itself improve morale substantially and increase output.

In Morgenson's article another factor is discussed that is seen as a cause behind the inflated salaries of top manageres: Peer-group benchmarking of executives' compensation.  This applies to hiring managers away from companies with attractive financial offers in the assumption that those managers can improve the performance of a company in their new jobs. However, studies cited by Morgenson have shown that this "theory of transferability of talent" in the peer group is false. (See the work published by Charles M. Elson and Craig K. Ferrere.) It was found that "CEO skills are very firm-specific. CEOs don't mover often, but when they do, they're flops."

In any case, the economic health, jobs and unemployment along with GDP, appears to be bad not because the President doesn't create jobs (is this really part of the job description, as Republican candidates for this job claim ... despite their insistence that government interference in public and economic endeavors needs to be reduced?) but because management is ineffective, and even incapable, unsuitable for the task. Along with the dire state into which our educational system has manoeuvered itself—so that in the long run there is no supply of a capable and well–trained work force—all this spells doom for the economy of the USA.  We will sink to the level of a third–world country during this century.