How Businessmen Think: Politics

In the last post on this topic, I ended with 2 observations: that business people tend to compulsively analyze things, and that they generally have a fairly shrewd understanding of human nature. Now let’s see how this relates to politics.  File:The Thinker, Louisville, KY.jpg

A business person faced with a political proposal or decision will tend to assess it from two angles: how is it supposed to work, and how are people likely to respond to any changes that result. People who don’t think like a business person will more often than not focus more on what the political move is supposed to do – the ends – rather than how it is supposed to get there – the means. While business people are of course interested in what is supposed to be achieved, cruel experience has lead them to focus on what steps and events need to take place to get there.

The world is full of pretty ideas. I once worked through a project with a two Mexican brothers who were pure businessmen. We concocted a scheme to import Mexican honey into the US, complete with cost structures, intended markets, and all that business school stuff. If everything went right, we make a lot of dough. As we reviewed the numbers – the ends – the elder brother made a observation that encapsulates both business thinking and business humor: “Ah! Those are happy numbers!”. If we focused on the ends, rather than all the messy, iffy steps needed to get there, those were indeed happy numbers.

Let’s take an example. Last election cycle here in California, Proposition 39 passed. It promised a billion dollar a year increase in state revenues from increasing taxes (“closing a loophole”) on businesses that do business in more than one state. For a state in eternal budget ‘crisis’, those were indeed happy numbers. But, before even reading the details, a business person will think: There’s no free money. This will motivate business to avoid or leave California. Why? Because a business person knows that, any time a cost goes up, a business person will reevaluate the need, and, if he can, he’ll reduce the expenditure.

Weighed against this is the money to be made in California. So, if employing people or otherwise doing business in California costs more that business is worth, he will cut back or eliminate his California business. California’s flagship industries – software, hardware, entertainment – are very high margin endeavors, meaning that they have a lot of flexibility in absorbing marginal cost increases. In English, this means that for (successful) businesses in these areas, they make a good bit of money every time they sell anything. So, Cisco, say, might make $600 gross profit on a $1,000 router. That’s (very) high margin business. On the other end, Walmart might make $25 on every $1,000 worth of canned green beans they sell – that’s a low margin business.

In the high-tech example, raising their costs 2% ( to pick a number out of thin air) means little – they won’t like it, but they wouldn’t leave the state over it, at least the first time. (But do note that these companies do almost all their manufacturing overseas .) But a retailer with tight margins might – 2% might be more than their entire profit margin. More important, perhaps, is the case where a businessman is thinking of building a new factory or set up new offices. He will look at that 2% and think: Reno is a nice place, it’s got phones and internet and rail and air and roads – and it’s 2% cheaper, with voters who don’t think businesses are mere bottomless piggy banks to tap into to mask the state’s incompetence.

Note that this analysis includes both business analysis and people analysis – what a business will prudently consider, and how people are likely to act. Unlike sociologists and psychologists, business people succeed or fail based on the accuracy of their predictions, and constantly refine them against actual results. If I try to sell something people don’t want to buy, *I* made a mistake, and must correct it. If I’m an anti-Cassandra like Ehrlich, my professional career thrives no matter how many times I’m wrong about how people will act – because the ‘rightness’ of my prognostication has nothing to do with what actually happens. Things like this drive business people crazy.

Another thing business people will automatically see is the target market and messaging.The target markets for Prop 39 were 3: those with anti-business sentiments, people who identify as ‘green’ and the education bureaucracy. The pitch: those sneaky business people are taking advantage of a tax loophole to not pay their fair share. We will close the loophole, take the money and give it education and green projects. Business people will have 2 thoughts immediately: A loophole tends to be in the eye of the beholder, and green and education both are selling the sizzle, not the steak. Both people who identify as green and the education bureaucracy insist on being judged by their intentions, not by the actual outcomes of their programs.  I drive a Prius and oppose nuclear energy not because those things do anything real to help the environment, but because of what they stand for! I support public education not because I adore illiterate drop outs and college grades who can’t think their way out of a wet paper bag – the actual output of the system – but because of its glorious *intent*.

There were lots of other things going on in Prop 39, but the general pattern shook out that business people opposed it, while the crowd to which it pandered – the beneficiaries of the promised ends, which included greens and the education bureaucracy – supported it. This becomes a data point for future business analysis, and a basis for future predictions of how people will act.

So, to take a big one: Obamacare. Business people immediately note that providing care for 35 million or so more people is going to cost a lot of money. They also note that the plan to fund this by reducing overall system profits just means that profit-oriented business people will stop doing those activities unless somehow compelled. (The more attentive ones will also note that total systems profits are an order of magnitude or two less than the costs of adding 35 million new insureds, using current government-supplied per person insurance costs as a baseline) The ultimate compulsion has always been to make those functions government programs. Many will note that lifting the pre-existing condition exclusion will simply motivate people not to buy insurance until they need it – a fact well understood in the insurance industry, with a couple centuries of experience showing it is true.

But most of all, business people will focus on what Obamacare means for their company. Here’s where it gets difficult: the target market was totally end-focused, and the pitch was (outrageously) information-free. Universal health care – the end – was all that was being sold, while the means – the part that business people want to understand – was purposely buried in thousands of pages of purposely obscure and incomplete legislation. So, we STILL don’t know how this is supposed to work in theory, let alone how it is going to work in practice. The best guess is that it won’t, that the point of passing Obamacare was not to actually establish a mechanism to provide universal health care, but rather to enshrine the end into law. In other words, a businessman suspects we just voted ourselves a free lunch, without any idea what’s on the menu, who’s doing the cooking or where the table is located. The bill, which we’ve agreed to pretend doesn’t exist, is to be fought over later..

Note that this analysis has nothing to do with whether or not a business person supports universal health care or not. I don’t know anyone who really thinks that some people (other than the unborn, the elderly and cripples – but that’s another issue, in theory) ought to be left to die. It’s HOW it is to be provided that’s the issue – an issue studiously obscured and dissembled about in the effort to pass Obamacare.

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Author: Joseph Moore

Enough with the smarty-pants Dante quote. Just some opinionated blogger dude.

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