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The government bailout of the auto industry raised the question, whether government should invest in a financially distress firm. An investment by the government raised several questions about the government’s role in a free market. Some were quick to label that we are as a nation turning towards socialism because the government was investing in a publicly held company and becoming part of the management. In the case of the auto industry, the government was not participating in day to day activity of the corporation but as a lender and investor of a company. It is common for investors and lenders to participate in corporate level decisions to make sure the investment will be protected.  The government was using the taxpayer’s money and making sure that the taxpayers’ investment would be protected.

The relevant question is not whether the government is turning toward socialism but whether the government should bail out a bankrupt industry. The answer lies in how you define capitalism; there is no standard definition of capitalism.  Capitalism is an economic process, economic system, or an economic philosophy that suggests that production and investment decisions are made by individuals and businesses to make profits, and if the losses occur, the investors absorb it. In capitalism, there is no restriction on investment by the governments. Both Federal and State Governments invest their billions of dollars in pension funds in the publicly held corporations on a regular basis. The bailout of the auto industry by government was a good decision based on economic conditions at that time, local employment situation, and profit opportunities for taxpayers from investment. The restructuring of the auto industry and the current growth of the industry suggests that taxpayers will benefit when General Motors Company issues IPO later this year. If the bailout was the test for the capitalism, the capitalism is alive and well in America.

bloger@sunlona.com

The oil spill in Gulf of Mexico raises the question why do we take this risk to explore offshore oil? Transportation is the backbone of the economy, and we need oil for transporting goods and services and to keep the economy growing. Oil is a natural resource and a scarce commodity. History shows that whenever there is a scarcity of resources, business seizes the opportunity by taking higher risk to make higher profits from scarce resources. Also, political conflicts occur among the nations to access or control the scarce natural resources. In a high-risk industry such as oil and coal the chances of disaster are always higher than any other industry. The question is whether the government should allow the business to take such risk to generate profits for the shareholders. The answer is businesses have the right to make their own business decisions because we are a free society and believe in free market concept.

In the oil exploration and production industry, the business decision has the significant impact on both the economy and the environment surrounding the oil exploration facility.  The government must require businesses to prepare a disaster management plan before oil exploration, and it should be reviewed and approved by an independent agency. The oil spill of Valdez, and hurricane Katrina suggest that we have not learned the lessons from the past. The problem in all the disasters was the communication, coordination, evaluation, and response. In the Gulf of Mexico’s oil spill, we have experienced the same problems of communication, coordination, evaluation of degree of severity of oil spill, and the response.

Our country is divided on the issue of offshore drilling. The fact is we cannot survive without oil because it is the backbone of our economy. The government and the oil industry need to work together to develop a plan that includes a risk analysis, and disaster management plan. The disaster management plan must include how the communication channels will be established after the disaster, how information will be shared, the coordinating structure of the disaster management parties, how the problem will be evaluated, and who will be involved in formulating and implementing the solution to manage the disaster.

Oil spill disasters are different than a hurricane and earth quakes. In a hurricane, the impact of the hurricane on the areas can be determined and recovery and relief may start right after the hurricane.  In oil spills the disaster continues until the source of disaster is brought under control. In this situation, a dual disaster management approach is required. One team should be focused on the source of the disaster, and another team should be focused on controlling the spreading disaster oil spill. The response to the oil spill in Gulf of Mexico suggests that there was no risk analysis done and no disaster management plan was in place to protect the environment and the economy surrounding the oil exploration and production facility.  As a result of lack of planning, the oil spill has severely impacted both the environment and the economy of Louisiana, Mississippi, Alabama, Florida, and more.

To protect our environment and economic well being of the business surrounding the offshore oil exploration facilities, the government must require oil companies to prepare a disaster management plan before the drilling permit is issued. Oil companies must be required to maintain a disaster reserve in a trustee account, bond, or any other instrument that can be used immediately after the disaster to manage disaster and provide economic relief to the affected areas. This reserve account or bond is similar to a common practice used by local governments that requires businesses to post a bond before they receive license to operate. The goal of the disaster reserve, bond, or any other financial instrument is to protect the environment and the community. Finally, the oil spill disaster cannot be managed by a business; there must a partnership between government and the business to manage oil spill disaster.

bloger@sunlona.com

The word teaching was widely used in the educational community for centuries to identify the process of sharing knowledge. In the 21^st Century, the buzzword is facilitating and the individuals who are facilitating are referred to as facilitators.  The reason for the change in identity from teachers to facilitators might be because there is no monopoly on knowledge any more. In the old days teachers or professors held the key to learning, and they possessed more knowledge than the learners in the field of study.  The environment has changed, we have the ability to collect and store data, information, and knowledge in the electronic form that can be shared with the world 24 hours a day and 365 days year. The web technologies have broken the monopoly on the knowledge in all areas of our life including education. Individuals who are interested in sharing their views can share their view by posting on the Internet, and the information is instantly available to everyone around the world.  The world is turning into a collaborative learning community. An open source environment is becoming the key to the growth and development of the business and community.

In old days if you were sick, the doctor was the only one to explain what was wrong, and explain about the possible treatment, side effects, etc. In this age with the help of Internet resources, you will be able to learn about the sickness, and alternative treatment available for treating the illness before you visit the doctor. Similarly, a learner (student) before attending the class may review information on the topic using the Internet resources and may have the knowledge that would have been gained in the classroom. This raises the question about the role of the facilitator in the 21st Century in a classroom or any other learning environment. The role of the facilitator is to share knowledge with others and create an environment where one can learn and experience growth in learning. To be successful in sharing knowledge, the facilitators need to gather information from the changing environment, process and refine into knowledge, and share with the learners. Facilitating is an art that requires understanding the learners’ needs, and fulfilling their needs based on the goals of the learning. In this age, a facilitator is also a learner.  In a successful facilitation both learner and facilitator experience growth in learning. The success of facilitating is measured by both growth in learning of the learner and the facilitator.

bloger@sunlona.com

Our economy is not an automobile (car) and it cannot be jump started like an automobile. But, there is something we can learn from the way we used to jump-start our car in the past and how we jump-start today. In the old days when the automobile stalled, we would manually push to start the car. It was a labor -intensive process. Today we jump start the car using jumper cables, portable chargers, and designer chargers that meet the specification of the automobile manufacturer. The reason for the change is because the times have changed, most of the cars have automatic transmission, digital technology, and the process has changed from a manual push to a technology based process. If the economy was like a car, we could charge the economy with a stimulus plan and expect the economy to return to normal growth. The economy is more complex than a car and it is not a man made machine. Economists think they can solve the economic problems based on the theories and past economic experiences. The problem with that thinking is the environment is changing and the old theories and approaches are not enough to stimulate the new economy.

We learned a lot from the great depression of 1929 and we realized that the managing economy involves monetary policy, fiscal policy, and managing the financial health of the financial institutions. If we look at our economic policy, the Federal Reserve has maintained the discount rate to zero to loosen the credit and maintain the circulation of funds in our economy. The federal government has bailed out failing financial institutions to maintain confidence and availability of credit to businesses. The Government has also interjected billions in the economy by investing in our infrastructure. The question is why has our unemployment rate jumped to 10.2%.  The answer may depend on the economic school of thought and the assumptions that economists make in explaining the economic situation. The average American is not interested in a debate between the two schools of economic thought. They are interested in finding a well paying job that provides an income to support their family, a house to live without thinking of foreclosure, and credit to buy goods or services so that they enjoy life, and pay as they go.

The current economic policy can be best explained using the jump-start process of the car.  The car with an automatic transmission and digital technology has stalled, and we are trying to start the car by a manual push like we used to do in the past.  We have a new (digital) economy and we are trying the tools we have used in agricultural and industrial economies. First, we need to recognize that we are part of both global and digital economy. Second, the Federal Reserve needs to do whatever is needed to maintain liquidity in our economic system. Maintaining a zero discount rate has not brought the liquidity and access to credit for small businesses. The financial institutions are prospering; large investors and foreign investor have access to credit because of the Federal Reserve’s action. The Federal Reserve needs to understand the changing nature of business of financial institutions and do whatever is needed to make credit available to both small businesses and consumers. Third, the Government has invested in our country’s infrastructure thinking that it will stimulate our economy soon. It was a good investment; the problem is it will not stimulate the economy like old days.  These days the construction is more a technology based process. A construction project that required 1000 employees in old days can be accomplished today by little over 100 people. The raw materials and prefabricated materials are imported from other countries. The heavy equipment used may be leased from a foreign subsidiary. The trickle effect is going global from U.S. investments in infrastructure.  This economic thinking will take years for economic growth. The trickle down economic policy is from the past and will not solve our current problem.

To stimulate economic growth, we need to include behavioral economic, understand the role of digital technology in the economy, and recognize that our economic system has changed to micro-cell economic system. We have borrowed and invested billions of dollars and still were not able to build the consumer confidence. The consumer confidence is low; the number one concern of the public is the economy.

The average American is still thinking of the economy before going to bed and waking up in the morning. In a digital economy the focus of the economic policy should be on millions not on just few. Millions of people make the nation prosperous not few so called essential industries. Our economy is a micro-cell economy. In a micro-cell economy, the growth of the economy depends on the growth in micro economic cells. The growth of micro-cell depends on education, intellectual capital, monetary capital, digital technology, and communication. A trickle up approach is needed to stimulate a micro-cell economy rather than a trickle down approach.

Bloger@sunlona.com

Corporate executive compensation has been a topic of discussion from the last few decades in the academic and research community. Corporations have ignored fair compensation policy for executives and upper level management with the argument that the over compensation is necessary to attract experienced and knowledgeable managers. The problem with this old argument is that it ignores the fact that corporate value is created by a team which includes employees, board of directors, mangers, executives, suppliers, lenders, stockholders, and other stakeholders. For years corporate board and management were able to justify and keep the corporate compensations of executive and upper level management out of the public discussion. The financial crisis of the financial service and the automobile industry, and government bailout of financial institutions and the auto industry with the tax payer’s dollar has brought the corporate compensation policy into the public domain. Government has invested in the company and the question is whether it is right for government to suggest or dictate the corporate compensation policy for its executive. Let’s make one thing clear, the government is similar to the corporation, and its stockholder is the citizens of the country who have invested in the government through tax payments. Now, if corporation A invests in corporation B, the question is whether corporation A has a right to monitor the activities including management compensation of corporation B? The answer is yes, they have the right to do so.  The government bailout has brought the corporate compensation policy into public domain because of the tax payers’ investment. It is the time for SEC to require companies to share information on corporate compensation policies in a simple and clear fashion. A full and clear disclosure of the compensation is needed. No law or accounting or non accounting rule should allow the management to hide the compensation payments from the public.

The corporate compensation is a business decision and decision should be based on the business performance. A corporation is a legal entity and the owners of the company are stockholder. The board of directors are elected by the stockholders and it is their duty to oversee the interest of the stockholders. The problem with the corporate board is most of the board members are rubber stamps of the management. They are not active participants in the corporate governance process. The first step is to streamline the board of director’s selection process with requirements for the board to make sure that they have a business education, are familiar with the business and industry, and are continuing the professional development.  Second, there should be a limit to how many companies’ boards a member can participate at one time. Third, compensation for board of directors should be based on corporate governance. That means small amount of annual compensation plus stock compensation based on the long-term performance of the company. If we address the role of the board of directors, next we will be able to focus on the management compensation. The management compensation should be based on a simple relationship between sales, earnings, and returns to the stockholders. The stockholders are the owners of the company and it is their money that is being used to generate profits. The stockholders have a right to this information in simple and clear fashion. The company needs to publish every quarter and annually how much in salaries, and bonuses were paid to the executives. Also, the company should present the relationship between the corporate compensation of executives, company’s revenues, earnings, capital utilization, and employee compensation.

Bloger@Sunlona.com