Executive Interviews: Interview with Alan R Beckenstein on Government and Business
December 2009 - By Dr. Nagendra V Chowdary

Alan R Beckenstein
Prof. of Business Administration Darden Graduate Business School, University of Virginia

• American taxpayers have become shareholders in AIG, GM, and so forth. What’s the exit strategy?
  There isn’t one right now. It was an emergency move for macro reasons. I could see a trust being created – like Hong Kong did – to be sure that the exit is efficient and constructive.

• Regulatory reform will mean higher capital requirements for financial institutions. Won’t that limit GDP growth?
  As an interim measure during the increase in capital, it probably will cause GDP growth to slow by slowing lending. In the long-run, it ought not to be a constraint. Frankly, more sound institutions might limit the development of unsound asset bubbles and that would be a good outcome.

• The aim of economic regulation should be the same in all sectors: to facilitate fair competition among players or, where natural monopolies exist, to ensure fair pricing and service levels. Greater competition means stronger productivity growth, which in turn means a faster growing economy and more wealth to share. Yet, governments everywhere struggle to get regulation right. Unfortunately, regulation often has a negative effect. What can governments do to get it right?
  It would take a book to answer those questions. The premises in the beginning are a bit biased in one direction. Regulation exists when markets fail. It should be applied differently in different markets as the nature of market failure dictates in each market. What is important is that regulation can only improve results where there is a very deep understanding of what drives the market and where there is a targeted remedy that will improve the performance of the market.
  A populist drive to regulate – without very careful analysis of each and every affected market – could be disastrous to an economy.

• What are the major global trends that businesses should be thinking about? Do you envision new approaches to management and new ways of interacting?
  This question is too broad to answer in a meaningful way. Let me say that broader thinking by both managements and boards about the “what if” questions for variables that might cause harm to strategic positions and financial results is clearly required. Boards failed to understand that bubbles are not sustainable and that the risks of them bursting require strategies that cope with such risk. Broader thinkers ought to be interjected into the regular discourse.

• ? What specific three measures do you suggest to ensure that such crises do not recur? To what extent should the government intervene in business to check immoral behavior of executives and / or entrepreneurs?
  This is a loaded question (the second one). I am not ready to claim that these problems were immoral. Moreover, I don’t believe government regulators are any more moral than executives in private enterprises. Therefore, I have to pass on the question. I don’t have a magic three measures. Most importantly, greatly increased transparency is needed in financial markets. That banks and hedge funds and other effected parties did not recognize the true extent of their risks is a huge failure. Information is the key. Sunshine must shine on markets and financial reporting.