[Vision2020] The Good, Bad and Ugly of Capitalism

[Art Deco]

  [image: The New York Times] <http://www.nytimes.com/>



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March 16, 2012
The Good, Bad and Ugly of Capitalism By JOE
NOCERA<http://topics.nytimes.com/top/news/business/columns/josephnocera/?inline=nyt-per>

On Wednesday, Howard Schultz, the chairman and chief executive of
Starbucks<http://topics.nytimes.com/top/news/business/companies/starbucks_corporation/index.html?inline=nyt-org>,
will take the podium at his company’s annual meeting and talk about the
importance of morality in business.

Yes, morality. I don’t know that he’ll use that exact word. But there can
be little doubt that in recent years, especially, Schultz has been
practicing a kind of moral capitalism. Profitability is important, he
believes, but so is treating customers, employees and coffee growers
fairly. Recently, Schultz has defined Starbucks’s mission even more
broadly, creating
programs<http://www.nytimes.com/2011/10/18/opinion/nocera-we-can-all-become-job-creators.html?_r=1>that
have nothing at all to do with selling coffee but are aimed at helping
the country recover from the Great Recession.

In the speech, Schultz plans to make a direct link between Starbucks’s
record profits and this larger societal role the company has embraced. He
will make the case that companies that earn the country’s trust will
ultimately be rewarded with a higher stock price. “The value of your
company is driven by your company’s values,” he plans to say.

I bring up Schultz and Starbucks because this week we saw a different kind
of American capitalism on display — the “rip your eyeballs out” capitalism
of Goldman Sachs<http://topics.nytimes.com/top/news/business/companies/goldman_sachs_group_inc/index.html?inline=nyt-org>.
In the corporate equivalent of the shot heard round the world, Greg Smith,
a former Goldman executive, wrote an Op-Ed article in The
Times<http://www.nytimes.com/2012/03/14/opinion/why-i-am-leaving-goldman-sachs.html>as
he was walking out the door in which he described a corporate culture
that values only one thing: making as much money as possible, by whatever
means necessary. According to Smith, Goldman views clients as pigeons to be
plucked rather than customers to be valued. Goldman traders vie to see how
much profit they can make at the expense of their clients, even if it means
selling them products that are sure to “blow up” eventually. “It makes me
ill how callously people talk about ripping their clients off,” Smith
wrote.

In the wake of Smith’s article, plenty of people raced to Goldman’s
defense. Michael Bloomberg, New York’s billionaire mayor, whose company
sells Goldman expensive computer terminals, went to Goldman Sachs’s
headquarters<http://www.nytimes.com/2012/03/17/nyregion/in-visit-bloomberg-defends-goldman-sachs.html?ref=nyregion>in
a show of support. The editors of his eponymous firm published
an editorial<http://www.bloomberg.com/news/2012-03-14/yes-mr-smith-goldman-sachs-is-all-about-making-money-view.html>that
mercilessly mocked Smith. They and others pointed out that Goldman
clients are big boys who can take care of themselves. Even some clients
agreed. “You better not turn your back on them,” one Goldman customer told
The Financial Times. Yet, he added, “They are also highly competent.”

But there’s a reason Smith’s article has struck such a chord. It is the
same reason that Goldman Sachs, despite having come through the financial
crisis largely unscathed, has become the target of such astonishing venom,
described as a vampire
squid<http://www.rollingstone.com/politics/news/the-great-american-bubble-machine-20100405>and
the like. The reason is that the kind of amoral, eat-what-you-kill
capitalism that Goldman represents is one that most Americans instinctively
find repugnant. It confirms the suspicions many people have that Wall
Street has become a place where sleazy practices are the norm, and where
generating profits in ways that are detrimental to society is the ticket to
a successful career and a multimillion-dollar bonus.

Goldman bundled terrible subprime mortgages that helped bring about the
financial crisis. Smelling trouble, it unloaded its worst mortgage bonds by
cramming them down the throats of its clients. It secretly allowed a
short-seller, John Paulson, to pick some especially toxic mortgage bonds
that were bundled and sold to Goldman clients — with Paulson profiting by
taking the “short” side of the trade. Just recently, Goldman had to admit
that one of its investment bankers had acted as a merger
adviser<http://dealbook.nytimes.com/2012/03/05/advising-deal-goldman-sachs-had-all-angles-for-a-payday/?scp=1&sq=kinder%20morgan%20el%20paso%20andrew%20ross%20&st=cse>to
the El Paso Corporation while holding stock in Kinder Morgan, which
was
trying to acquire El Paso. It would be hard to imagine a more blatant
conflict — yet no one at Goldman bothered to tell El Paso.

These practices may not be illegal, but can you really say they represent
the values that we want to see on Wall Street or in our corporations? I
can’t.

And Goldman shouldn’t either. What has been amazing is that, despite three
years of nonstop criticism — including Congressional hearings and
settlements with the government — Goldman has not changed one iota. That is
another reason Smith’s article resonated. It confirmed that suspicion as
well. Goldman’s response to every controversy these past three years has
been to bury them in a blizzard of public relations. And this has been its
response to the Smith article, releasing, for instance, a companywide
e-mail<http://www.goldmansachs.com/media-relations/comments-and-responses/current/nyt-op-ed-response.html>from
Lloyd Blankfein, its chief executive, insisting that Goldman does,
too, care about clients. Consistently, Goldman’s attitude has been: This,
too, shall pass.

So far, though, it hasn’t. And maybe, just maybe, it won’t. Maybe the time
has come for Blankfein to watch what Howard Schultz is doing at Starbucks.
Sometimes, the best way to do well really is to do good.


-- 
Art Deco (Wayne A. Fox)
art.deco.studios at gmail.com
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