Since 2008 we have witnessed a series of spectacular business collapses. Capitalism is not a perfect system, it requires regulation, but was it really responsible for mess we find ourselves in? The crisis within the banking sector was inevitable, partly because the structure of all large organisations is inherently flawed, but moreover because banks are not really capitalist bodies at all.
Risk and return is fundamental capitalist principle, yet it has been absent in the finance sector for many years. Yes, there were incentives to succeed, but there were no incentives not to fail. Risk taking was rewarded regardless of the outcome. The prize for ruining a big company in the twenty-first century is a multi-million pound pay off. Senior executives announcing record losses look forward to gilt-edged severance agreements, golden goodbyes and enormous wealth.
Corporations in the public and private sectors are set up like dinosaurs: tiny brain, huge body, creating a working environment where accountability and responsibility are in short supply. They are places where failure is accepted as the norm and in which the mediocre can, not just survive, but flourish and thrive. The result is 75% percent of workers in large organizations think their colleagues aren’t pulling their weight. And they are dead right.
Rationalizing the struggling financial institutions into a smaller number of state-owned mega-corporations is a palliative measure that will compound problems in the long term.
Competition doesn’t give you choice: it gives you winners. The downturn offers us the opportunity to learn from the mistakes of the past, and the lesson is clear: small flexible organizations are the most transparent, efficient and ethical. We should be breaking up, not consolidating. But as Neil Sedaka said, that is very hard to do.