Mr. Joseph P Garske is a retired private investor. He is an invited contributing writer to the www.BusinessThinker.com
He holds a bachelor degree in history from Harvard.

There is a great deal of discussion today about the condition of American politics. The obvious ineptitude, the low level of debate, the pandering rhetoric, the excessiveness of campaigns–all of these have resulted not only in a paralysis of function, but almost a kind of moral failure as well.

There are, of course, numerous sources of blame for these maladies: A rapacious journalistic media, the influence of special interest groups, a growing sector reliant on handouts, the quality of candidates who seek public office.

However, the purpose here is to address this situation from an obverse point of view. It is not to assert that these problems do not exist, because they do and are obvious for all to see, but rather that in an unfortunate way they may not be important to the extent we imagine.

The basis for such an assertion is a somewhat different perspective on the workings of our national system. Especially, that it is incorrect to equate the two elective branches with the whole of American government. Indeed, the political dimension is an integral part, but it is only a strictly delimited part and in critical ways the least important part, of the national government.

Dr. Periklis Gogas is a frequent contributor to The Business Thinker magazine. He is an Assistant Professor of Economic Analysis and international Economics, Department of International Economics and Development, Democritus University of Thrace, Greece

Ms Efthimia Chrysanthidou is a PhD candidate in economics at the Democritus University of Thrace, Greece.

Traditional Banking

In the international financial system banking institutions played a core role in raising capital. Their central position was safe and unchallenged for many decades. This happened because banks can take advantage of both the economies of scale they create and their in-house expertise in risk assessment. These can reduce significantly both the financing cost and the adverse effects of asymmetric information as compared to direct financing. Moreover, the direct and one-to-one relation between the bank and the borrower provides the flexibility to adapt the financing and repayment schedule to the specific needs of the borrower. Therefore there is a state of complete transparency between the two parties.

Disintermediation

Over the last three decades and as a result of the process of the deregulation in the financial system and the technological progress, the disintermediation was made possible: borrowers could more easily in terms of risk, cost and transparency raise the necessary capital directly from the lenders (individuals or corporations) in the capital market. The rating agencies played the role of the assessing the credit risk and thus the intermediation of a bank was not necessary. The advantage of the disintermediation is the reduction of the borrowing cost as the banking intermediary is absent. For large corporations with high creditworthiness the risk for the lender is minimized. As a result we observed a qualitative change in the borrower lender relationship: from the one-to-one direct transaction and negotiation to a relationship where the lender is now an anonymous crowd dispersed, heterogeneous and practically unknown to the borrower. There is now no flexibility on the financing terms and the lenders assume all the credit risk.

Dr. John Psarouthakis, Executive Editor of www.BusinessThinker.com, Distinguished Visiting Fellow at the Institute of Advanced Studies in the Humanities, University of Edinburgh, Scotland, publisher of www.GavdosPress.com. Founder and former CEO, JPIndusries, Inc., a Fortune 500 industrial corporation

The linkages listed in this segment and following segments on this topic to be posted in separate categories are based on my experience as senior executive as well as an entrepreneur on managing growth businesses. Because statistical techniques test for probabilities but not certainties, the wordings are stated in terms of likelihoods. Discussions of these linkages are to be presented in future articles. Other executives and entrepreneurs could come to different conclusions compared to those listed in the segments posted. Therefore, those that read my views should take them as the experience of one person and use their judgment as to whether these linkages are to be taken as stated in their case.

LINKAGES FOR MARKET STRATEGY

Linkage -1: More effective work assignments and work coordination links to growth rates, steadier growth, and a more effective direction-setting strategy.

Linkage -2: Neither relative- or absolute-sales size links to work flow effectiveness.

Linkage -3: The firm’s ability to obtain managers and capital links to greater sales.

Linkage -4: The better a firm is able to obtain supplies, the smaller sales are likely to be.

Linkage -6: The better able a firm is to recruit and to obtain capital, the faster the rate of growth and the more effective the direction-setting strategy are likely to be.

Linkage -6: Steadier sales growth and a common sense of mission link to effective value-sharing strategy.

Linkage -7: Faster growth is linked to a more effective value-sharing strategy.

Dr. John Psarouthakis, Executive Editor of www.BusinessThinker.com, Distinguished Visiting Fellow at the Institute of Advanced Studies in the Humanities, University of Edinburgh, Scotland, publisher of www.GavdosPress.com. Founder and former CEO, JPIndusries, Inc., a Fortune 500 industrial corporation

The linkages listed in this segment and following segments to be posted in separate categories on this topic are based on my experience as senior executive as well as an entrepreneur on managing growth businesses. Because statistical techniques test for probabilities but not certainties, the wordings are stated in terms of likelihoods. Discussions of these linkages are to be presented in future articles. Other executives and entrepreneurs could come to different conclusions compared to those listed in the segments posted. Therefore, those that read my views should take them as the experience of one person and use their judgment as to whether these linkages are to be taken as stated in their case.

LINKAGES FOR FINANCIAL VIABILITY

Linkage-1: The greater the firm size (relative to others in the same industry), the higher profits are likely to be.

Linkage-2: The steadier the sales growth, the higher profits and the better cash flow are likely to be (the latter lags in time).

Linkage-3: The more rapid the sales growth, the higher profits are likely to be.

Linkage-4: The more effective direction-setting strategy is, the higher profits and the better cash flow are likely to be.

Linkage-5: A more effective work division strategy is, the higher profits are likely to be.

Linkage-6: The more effective the coordination strategy, the higher the profits and the better cash flow are likely to be.

Linkage-7: The greater the firm’s ability to obtain needed capital, the higher profits are likely to be (causal direction may be in reverse).