The Fallibility of a Government Driven Economy

You’re the investor looking at the two largest companies in the world:

One has a proven track record of financial viability and productivity. With a great HR department and focus on employee driven production, this company has consistently fermented growth and output from the lowest levels of production. Due to continuous turnover at the top, executive leadership has always driven the strategic direction rather than the production itself. However, in recent years there has been a fundamental shift in leadership style, elements of production, and a ballooning debt burden on the balance sheets. The ever-changing turnover in leadership has led to failed strategies and impossible goals.

The other has consistently maintained a top-down decision driven model. Executive leadership has a heavy hand in the production output. With a clear vision and minimal change at the top, they have been able to effectively and consistently implement their asset-driven strategy. Large profit margins have led to loads of cash on the books, and continue to drive cap-ex and investment within. That said, employees are still waiting for their piece of the prize. HR? What HR? Employees are more concerned with humane resources than human resources. Until recently, this company shunned foreign investment within, and rejected outside opinion. However, they have started to take note of what others are saying, and even responding with demands.

This oversimplified view of the US vs. China highlights an important point – leadership. The political system of the US is centered around change and turnover. This is the pivotal driving force behind the success of democracy. If we (the people electing you) don’t like you, we won’t vote for you. Simple. Problem is, when we (our forefathers) setup the constitution with the idea of democracy, they never intended for the central government to have as much economic influence and power as we have come to see. The foundation of capitalism is to let the market dictate economics, not the government. If I were a shareholder in a company, and knew that there was a new CEO and BOD every 4 years, I’d be damned if I let them decide how to spend money and drive financial viability. Talk about a moral hazard! What opportunity will they have to see through their vision, their decisions? None, and if it flops, oh well, they’re already out of office, they’re gone! The fundamental weakness of a democracy is an economically powerful government. Never has the United States seen such amounts spent by the government. China has also seen an increase in government stimulus in recent months due to the dire economic environment. However, its leadership has and will be on the ship’s deck throughout the storm. They won’t be jumping overboard anytime soon – which bodes well to all the passengers on board.