CORPORATE CRIME REPORTER
Taleb Says No to Big Corporations and No to Big Government
25 Corporate Crime Reporter 1, January 3, 2011
The right likes big corporations but not big government.
The left likes big government but not big corporations.
Nassim Taleb hates both.
Taleb is the author of the best selling mega hit – The Black Swan (Random House, 2007).
And most recently of The Bed of Procrustus – Philosophical and Practical Aphorisms (Random House, 2010.)
Aphorisms as in:
“It is much easier to scam people for billions than for just millions.”
“The difference between banks and the Mafia – banks have better legal-regulatory expertise, but the Mafia understands public opinion.”
“In poor countries, officials receive explicit bribes. In DC, they get the sophisticated implicit, unspoken promise to work for large corporations.”
“In politics, we face the choice between warmongering, nation-state loving, big business agents on the one hand, and risk-blind, top-down, epistemic, arrogant big servants of large employers on the other. But we have a choice.”
“English does not distinguish between arrogant-up (irreverence toward the temporarily powerful) and arrogant-down (directed at the small guy).”
If he had to choose the lesser of the two evils – big government or big corporations – which would it be?
“Both are the enemies of progress,” Taleb says.
“Big corporations – their job is to suck up resources for themselves. I came to that conclusion after reading Marx. I’m not a Marxist, but I realized that large corporations are just in cahoots with big government.”
“When I was debating the chairperson of Pepsico, her sole argument was – I employ 600,000 people. 600,000 people will be unemployed if I don’t sell people diabetes causing drinks.”
“The second problem is – you are going to be fragile when you employ 600,000. And the society will pay the price of your fragility.”
“The chairperson of Pepsico will have a free option. They know they can’t go bust. They know that society will prevent them from going bust.”
If Taleb doesn’t like big corporations or big government, then what does he like?
Like the old market in Lebanon – where he was born.
“I shock people when I say the most stable system is an artisan style system,” Taleb says. “That’s the only one that doesn’t blow up. The world now has become too complex.”
“It’s the Levantine system of trade and commerce. No debt. And small size. That is the most robust. These people survive much longer.”
He says big corporations should never be bailed out.
Taleb says that Ronald Reagan started it.
“This is why I get along with Ralph Nader,” Taleb says. “Nader was the first to say that the difference between Republicans and Democrats is cosmetic.”
“It is Ronald Reagan who bailed out the banks in 1983 and started this whole process.”
Reagan of the Milton Friedman free market philosophy?
“Exactly,” Taleb said. “There is something about governments that will be susceptible to the pressure of lobbyists to bailout the big corporations.”
“Had Reagan not bailed out Citibank in 1983, we would not be here.”
Where would we be?
“If the government didn’t bail out Detroit and the banks, we would have a better Detroit and better banks. Smaller and more competitive companies.”
“People forget that much of the growth of companies came from debt building.”
“Small companies are the energetic ones. The energy and innovation comes from small companies in California. And these companies neither go into debt nor do they get bailed out.”
Okay, so government shouldn’t be bailing out the big banks.
But what about cracking down on corporate crime?
“If two adults want to speculate, they should be free to do so, conditional on society not bailing them out,” Taleb says.
“The government should be there to enforce the rule of no socialization of losses. You want to make sure the banks are never big enough to take these risks at the expense of society.”
“The rule is as follows – if you want a bailout, you are under our regulation. And we want you small. And we don’t want you to take speculative risks. In other words, you are a utility. And you obey our rules.”
“If you are not to be bailed out, then you can do what you want, providing that you don’t harm the public.”
But Nader’s argument is that you need a strong central government to counteract big corporate power. And that of course is what corporate crime enforcement is about. You need to try and control the abuses of large corporations – to keep them in line.
“I don’t mind the idea,” Taleb says. “But I prefer to let the system destroy the corporation before it becomes so big.”
“It’s good to think about it this way – once a corporation becomes so big, it’s going to bully the public. So, you need a big public to stand against it. But a robust world is one composed of very robust cities – not city states necessarily – but strong cities and municipalities – and very strong small companies.”
Taleb says – do not give children dynamite sticks, even if they come with a warning label.
And he makes a policy recommendation in this regard – ban complex financial instruments because nobody understands them.
“I don’t understand them,” Taleb says. “And I wrote a text book in 1987 about them. The motivation behind these instruments is regulation. Shocking but true. Regulation had the effect of having people skirt the regulation, hire an expensive lawyer, and design a complex product to get around the regulation.”
But Taleb would impose a regulation to ban them?
“I said that a product that has been traded for a long time should be traded. But a product that requires mathematical methods should not be. So, vanilla options have been traded on exchanges for hundreds of years – since Amsterdam in the 17th century – they can be traded.”
“Stocks can be traded.”
“But these complex products have no reason to exist other than to skirt regulations. They don’t need to be there. People don’t understand them. And they are designed to take advantage of people’s mental biases and misunderstandings of some classes of risk.”
But doesn’t it require big government to ban complex financial instruments?
“The government has been doing everything but what they are supposed to do. Financial regulation did nothing but help Goldman Sachs.”
But that’s because that’s how they set it up. It didn’t have to be that way.
“It was a 5,000 page law,” Taleb says. “We could write a one page law – captain goes down with the ship. Bridge engineer sleeps under the bridge. Personal liability.”
[For a complete transcript of the Interview with Nassim Taleb, see 25 Corporate Crime Reporter 1(12), January 3, 2011, print edition only.]
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