After Rand had finished gloating over the impending demise of the woman in Car No 8, who considered that she had a right to travel on a train merely because she had bought a ticket to do so, there were still plenty of other passengers who were awake and about to meet their well-deserved ends.
The man in Roomette 2, Car No. 9 was a professor of economics who advocated the abolition of private property, explaining that intelligence plays no part in industrial production, that man’s mind is conditioned by material tools, that anybody can run a factory or a railroad and it’s only a matter of seizing the machinery.
It is hard to understand how even a professor of philosophy, not always the most practical of men, could make the quantum leap from the abolition of private property to supposing that ‘anybody can run a factory or a railroad’, but we can charitably suppose that there were some intermediate steps on the way. A different professor might have argued that it was the existence of private property, and in particular the existence of private companies, that fostered that idea, because on death, in all jurisdictions that have such a concept, the private property of the deceased, after payment of often nugatory taxes, becomes the private property of his or her heirs. There is no guarantee that those heirs will be able to run ‘a factory or a railroad’, if such is their inheritance.
The United States that would have come into existence after the end of ‘Atlas Shrugged’ would presumably have been dominated by private companies owned and run by their founders, the ‘men of reason’ from Galt’s Gulch. Geniuses these people may have been, but they were not immortal. People like Hank Rearden may have known their own businesses backwards, but Rand included James Taggart as an object lesson in what can happen to a successful company that is inherited by a knave or a fool. She was happy to see companies such as Taggart Transcontinental collapse if they were inherited by an incompetent, but in the real world, as in Atlas Shrugged, there is a great deal of collateral damage when such things happen, and the members of trade unions are among those who reject the idea that anyone will do most strongly They typically insist that the people they work alongside, and on whom their safety may depend, are either already skilled in their trade, or receive some form of training to ensure that they become so. The wise ones want to see those criteria applied to management also.
The crash scene of an Ethiopian Airlines 737 MAX in 2019. Photo: Mulugeta Ayene/Associated Press, reproduced in the online edition of the Wall Street Journal, 5 December 2024, which records Boeing’s continuing problems.
It might seem that in today’s business world Rand’s ideals have become a reality, with mega corporations such as Tesla and Amazon still run by the people who founded them, There are, however, other routes to ownership, and these are allowing people who know nothing about important aspects of major businesses to end up running them. The Boeing saga is instructive. In the 3 January 2020 edition of QUARTZ there was an article by Natasha Frost with the title ‘The 1997 merger that paved the way for the Boeing 737 Max crisis’. In it she wrote:
In a clash of corporate cultures, where Boeing’s engineers and McDonnell Douglas’s bean-counters went head-to-head, the smaller company won out. The result was a move away from expensive, ground-breaking engineering and toward what some called a more cut-throat culture, devoted to keeping costs down and favoring upgrading older models at the expense of wholesale innovation. Only now, with the 737 indefinitely grounded, are we beginning to see the scale of its effects.
Boeing, according to her, had been a company focused on doing what they existed to do, as well as possible.
Since the start of the jet age, Boeing had been less a business and more, as writer Jerry Useem put it in Fortune in 2000, “an association of engineers devoted to building amazing flying machines.” For a time, this served it well: An engineers’ company made planes to make its engineers proud, whatever the cost. Employees enjoyed watertight contracts, thanks to an assertive, family-like union, and an attitude to aviation that put design and quality above all else. In the process, it produced some of the world’s greatest planes.
This was not, however, enough to save them from the merger mania of the final decade of the 20th century. Following such mergers, the ultimate owners were shareholders interested in short-term profit, not long-term engineering, and the accountant-led approach of McDonnell Douglas was what they wanted. It was a philosophy that could well be described as supposing that ‘anybody can run a factory or a railroad and it’s only a matter of seizing the machinery’, and many of them sold their shares soon after a merger had been completed, leaving those who bought them to face the eventual collapse.
The description of pre-merger Boeing as family-like reminds me of BP back in the 1970s. Viewing that from the outside, as a consultant, that was just how it seemed. It was run by people who had grown up with the company, and whose children were working within it. It was rare to meet a secretary who did not have a parent, or at least a relative, somewhere in the organization, and it was protected to a great extent from the vagaries of the stock market by the fact that its major shareholder was the British government. In those days governments took a longer view, no matter what their political persuasion, and those where also the days when BP could well be described as the most successful explorer in the business. Then came Thatcher, the government stake was sold off, and the ‘hire and fire’ philosophy took over.
Exploration success plummeted.
And what of the business scene today?
A dominant force is the hedge fund, described as follows on the website of the HSBC, who might be supposed to know what they are talking about.
Hedge Funds are sophisticated investment avenues, encompassing a wide array of trading strategies across different asset classes and markets. They utilize advanced techniques, including short selling, to mitigate market risks and aim for positive returns regardless of market trends. Suitable for experienced and well-informed investors, these funds can pose significant risks. ………….
……… Incorporating hedge funds into your portfolio can refine its risk-return dynamics. This is due to hedge funds’ ability to capitalise on both upward and downward market trends, including employing strategies like short selling. Such versatility provides unique return opportunities not typically available through traditional investments. ………….
…………… Hedge funds introduce a broader spectrum of investment strategies to a traditional portfolio, thereby injecting a layer of diversified returns. Especially in scenarios of rising interest rates, the active management approach favoured by hedge funds can be particularly advantageous due to their ability to exploit market volatilities and reduced correlations ………….
……………… Portfolio Managers interest are aligned with their clients as typically a substantial amount of the manager’s own money is invested in the sophisticated strategies.
Nothing there, it will be noted, about actually knowing anything about the nuts and bolts of the businesses of which the fund managers become, effectively, the owners. Knowing those sorts of things was the ‘traditional investment’ approach. These days exploitation of ‘market volatility’ is the way to success.
Rand was right about the disaster inherent in the ‘anyone can run …’ philosophy. She often was right in identifying problems.
It was her solutions, founded in her belief that private industry could be left to itself to produce the best of all possible worlds, that was fatally flawed.