Google wants a management structure more like Berkshire Hathaway’s. Berkshire Hathaway wants growth more like Google’s. Monsanto and Terex want to be more like Apple and other companies that minimize their tax burdens. And China wants to be more like the U.S., or at least its central bank wants to follow the Yellen brick road of devaluation to prosperity. All are seeking the 2 percent solution.
There is a growing consensus that the new normal is an annual growth rate of around 2 percent. Some Republican candidates say they have plans to double that, but until they answer the key question – “how?” – doubters will outnumber believers by a substantial margin. Yes, the auto, housing and office market sectors are providing a significant uplift to the nevertheless modest recovery. But the coming increase in interest rates will create a new headwind for those industries, there is talk of an office market bubble, and analysts are increasingly worried about the quality of the IOUs consumers are using to pay for their top-of-the-line vehicles. Also, the strengthening dollar and the entry of China into the currency-devaluation race, which will stifle American exports; the massive overhang of billions in student loan debt; Hillary Clinton’s call for higher taxes on “the rich”; the Obama administration’s assault on the coal, oil and gas industries – over 2,600 pages of new regulations that he hopes will put him in the unaccustomed position of leading from the front when 200 countries meet in Paris in December to combat climate change – combine to lend support to those economists who see 2 percent growth in America’s long-term future. Or enough support to have many companies hunting for ways to continue growing in a 2 percent economy in which in the second quarter Standard & Poor’s 500 companies saw what Reuters calls the “worst sales fall in nearly six years” and a first year-on-year quarterly profit decline (-1 percent) since 2012, after first quarter profits for all US companies fell by almost 9%compared with the fourth quarter of 2014.
So what’s a corporation to do? Take steps to beat that growth rate. For Google it means trying to step up the growth of what are now peripheral businesses by following Warren Buffett’s lead and making them independently operated entities, each controlled by its own CEO who will have complete operating authority to manage his own company. Chief executive Larry Page and co-founder Sergey Brin will head a new holding company, for some reason named Alphabet, with Google and the so-called moonshot companies – self-driving car, robots, live-forever-or-almost heath care, balloon-connectivity to the Internet -- separate subsidiaries. “Fundamentally, we believe this allows us more management scale, as we can run things independently that aren’t very related,” says Mr. Page. Page and Brin, or Larry and Sergey as they now refer to each other in shareholder communications that mimic the Berkshire style of Warren and Charlie (Munger), will concentrate on allocating capital to what they see as the most attractive businesses.
The organizational structure may copy that of Berkshire Hathaway, but the vision of the future couldn’t be more different. No moonshots for Buffett. He has dipped into his $67 billion cash hoard for $37 billion to finance the largest acquisition in the fifty years since he took Berkshire Hathaway from a small textile company to the world’s largest conglomerate. Precision Castparts is no shoot-for-the-moon operation: it is a manufacturer of equipment used by the aerospace, power and other industries about which Page and Brin know little and care less. For Buffett, Precision is what he calls “an elephant”, a company of sufficient size to increase Berkshire’s earnings, assuming Precision can reverse its own recent sales declines. Add that to a railroad, GEICO, ketchup and mustard, Dairy Queen and other stalwarts, and you have a company with an idea of how to achieve growth in a slowing economy that is very different from Alphabet’s, but is run on the same principal of independence for the operating entities, combined with centralized capital allocation.
They are men, mostly. They are young, mostly. They are visionaries on a mission -- to systematize and make all the world’s knowledge accessible (Google); to connect all the world’s people with each other (Facebook); to change the way books are read and the sound of music is heard (Apple, Amazon); to reorganize urban transportation in 55 countries (Uber); to make brevity mandatory (Twitter); to create a more literate world and, not to be ignored, elevate free delivery to a right (Amazon).
The European Parliament has called for the dismemberment of Google, the French want “les Gafa,” as they call Google, Apple, Facebook, and Amazon, reined in, EU regulators are under pressure to get tough with the Americans. And the leaders of Silicon Valley’s non-tax-paying, privacy-invading, dominant tech firms, to use EU descriptives, are surprised. They shouldn’t be.
It's an article of faith among bien pensant liberals that all institutions in society must achieve perfect gender parity. Consider, for example, the left’s outrage at the dearth of women employed at Google and other tech firms (despite the fact that far fewer women study computer science than men) or its efforts to lower physical standards so that more women become firefighters (despite the fact that most people in burning buildings would rather their lives be saved than politically correct mandates be met).
For those of us who believe in the market system, there is something unsettling about the thought of the billionaire bosses of Google, Apple, Adobe, Intel, two Disney subsidiaries, and Intuit sitting around a table and agreeing not to compete for staff. Facebook declined an invitation to join the conspiracy. These are the self-styled “disrupters”, believers in the virtues of a market system that allows them to compete for customers even if, especially if, that competition destroys existing enterprises.
Some three hundred years ago Sir Walter Scott asked, “Breathes there a man with soul so dead who never to himself hath said, This is my own, my native land.” Well, in America corporations are legally deemed “persons,” so the answer to Scott’s question is “Yes,” at least when it comes to tax payments. In this globalized world corporations are “multi-national,” run by executives who may never have set foot in the lands they declare to be “home” for tax purposes. Nothing illegal about it all: These firms play by the rules written for them by the governments in which they do most of their business. And their executives do have a fiduciary obligation to the owners of the business, their shareholders, to minimize their tax payments to the greatest extent possible within the law. Moreover, to some extent their continued search for benign tax regimes puts something of a limit on the ambitions of national tax collectors, witness the unhappiness of France with the low taxes on offer in Ireland, which is coming out of the recession in which over-taxed France remains mired.
President Obama will partner with Google for the "first-ever Presidential Hangout Road Trip," Google announced today.
"Next Tuesday, at 9pm EST, President Obama will deliver his annual State of the Union address to Congress. Later that week, you'll have the chance to connect with the President and speak about his administration’s plan in the first-ever Presidential Hangout Road Trip," claims Google in a blog post.
In an NBC interview, Google's Eric Schmidt reminded America that "It's important to remember these 5 billion people are just like us. They're just trapped in bad poverty and bad governance and so forth." The CEO of Google was referring to those in the world who don't have smartphones: