A review copy of Creative Capitalism
just landed on my desk, and it includes some thoughts from Larry Summers. First, he is skeptical of the basic idea of the book which is that big corporations "should integrate doing good into their way of doing business." Summers writes:Inherent in the mutliple objectives for creative capitalists is a loss of accountability with respect to performance.
just landed on my desk, and it includes some thoughts from Larry Summers. First, he is skeptical of the basic idea of the book which is that big corporations "should integrate doing good into their way of doing business." Summers writes:Inherent in the mutliple objectives for creative capitalists is a loss of accountability with respect to performance. The sense that the mission is virtuous is always a great club for beating down skeptics. When institutions have special responsibilities, it is necessary that they be supported in competition to the detriment of market efficiency. It is hard in this world to do well. It is hard to do good. When I hear a claim that an institution is going to do both, I reach for my wallet. You should too.
I largely agree with that, and would recommend Aaron Chatterji and Siona Listokin's essay bashing corporate social responsibility to folks interested in more on the subject. Meanwhile, this, also from Summers, gave me more pause:
As for [Milton] Friedman -- I'm not so sure he looks bad. What is most screwed up today? GSEs, Citibank, regional banks. What is most regulated? Same list. What is least screwed up? Hedge funds and the like. What is least regulated? If regulation means the jihad against short selling that the Securities and Exchange Commission is engaged in, then god help us all.Larry Summers is, of course, quite a bit smarter than me, but it certainly seems like part of the problem is that the banks weren't regulated in the relevant ways. Another way of saying this is that derivatives weren't regulated. because Larry Summers didn't want to regulate them. Meanwhile, are hedge funds really doing that well? George Soros said last month that "[the] hedge funds will be decimated. I would guess that the amount of money they manage will shrink between 50 and 75 per cent." And this Reuters article certainly doesn't make it sound like they're in good shape. Nor does this Wall Street Journal article. It makes it sound like many of them are going to disappear. This article suggests they're doing better relative to investment banks, but none of the commentary is exactly sanguine, and it hasn't quite been explained to me how their relative regulatory freedom has aided their position. That's not to say it's not a factor, just that I haven't heard it explained. Meanwhile, heavily regulated local banks are doing very well, thank you, so if we're just going to play around with correlations...
