It’s Business Execs—Not Obama—Who Don’t Get the Rules of Capitalism

Businesses like Hostess need to understand that their failure is because of their executive bonus system, not because of unions.

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The problem with much of American business executives is not that President Obama is advancing some sort of socialist agenda that threatens their success. The problem is that some of these same executives don't really want to be capitalists.

Sure, they like the private profit part. They like the part about being able to make massive amounts of money through business success. What they seem to have a hard time with is accepting that when they screw up—either with the product itself or with the marketing of it—they're supposed to lose money.

[See a collection of political cartoons on the economy.]

We saw this with the arrogant Wall Street financiers who brought the national economy to the brink of collapse because they played a little too carelessly with their investments. What made it worse is that the cash in question was other people's money—not just big investors, but people with 401Ks and smaller investments. Letting the banking industry and the financial sector fall apart would have been hard on those industries, but devastating for people who had nothing to do with the bad decisions that got the sectors in such trouble to begin with. A bailout was not enough—these executives were then demanding the right to give bonuses, on the theory that the only people who knew how to fix the financial machinery were the ones who caused it. It's much like the murderer avoiding the death penalty by leading police to the body so the family can have closure.

The folks who make the nutritionally suspect Hostess Twinkies are now doing the same thing. The company has been in trouble for awhile, and blamed their demise on the unionized workers. This is not only insulting but absurd; the company vastly increased executive compensation during the downfall at the same time it was getting huge givebacks from unionized workers. The idea that maybe, just maybe, you don't deserve to be paid as much—never mind more—when your company is flailing seems not to have occurred to them. They want to privatize the profit, of course. But they want to socialize the risk, making workers who had nothing to do with the downfall of the business be accountable for its losses.

[See a collection of political cartoons on the fiscal cliff.]

Now, the executives are asking a bankruptcy judge to allow them to give as much as $1.75 million in bonuses during the liquidation phase. The theory is that the executives would have no incentive to preside over the liquidation unless they were offered huge amounts of cash. These are the same people who failed at making Twinkies and Ding Dongs profitable. Under the rules of capitalism, why are they making money at all, let alone given added compensation?

Market economies can be brutal to those who fail as entrepreneurs. But if you can't hack the rules, don't get in the game. Obama isn't socializing any part of the economy. But it appears a lot of executives actually want it that way.

  • Read Mary Kate Cary: On Fiscal Cliff, Obama Should Learn From Bush’s 1990 Tax Hike
  • Read Peter Roff: What the Polls Don’t Tell Us About Raising Taxes
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