That type of disagreement, otherwise known as "competition," is the beating heart of capitalism. Different enterprises compete with each other by pursuing different strategies. These strategies encompass everything an enterprise does—including how it manages and pays its employees.
At bottom, all the practices of an enterprise are tacit predictions about which procedures will bring the most reward and which ones will avoid excessive risk. Accurate predictions bring profits and survival; mistaken predictions bring losses and bankruptcy. But nobody can know in advance which predictions are right. By allowing different capitalists' fallible predictions to compete, capitalism spreads a society's bets among a variety of different ideas. That, not the pursuit of self-interest, is the secret of capitalism's achievements.
To be sure, capitalists' different ideas are all, in the end, about how to gain profit. That's why incentives matter. But what matters even more are diverse predictions about where profits—and losses—are likely to be found. For this reason, herd behavior is a danger to capitalism, if the herd bets wrong. But herd behavior is imposed on capitalists every time a regulation is enacted—and regulators, being as human as bankers, can be wrong.
Regulations homogenize. The Basel rules imposed on the whole banking system a single idea about what makes for prudent banking. Even when regulations take the form of inducements rather than prohibitions, they skew the risk/reward calculations of all capitalists subject to them. The whole point of regulation is to make those being regulated do what the regulators predict will be beneficial. If the regulators are mistaken, the whole system is at risk.
That was what happened with the G-20's own Basel rules. Now the G-20 has decided to blame the crisis on bank compensation systems, which it proposes to homogenize just as it had previously homogenized bank capital allocation. What has not been explained is why we should trust that the G-20's regulations won't be mistaken once again. Jeffery Friedman, Wall Street Journal.
I don't have much to add to that - gov't is just as culpable for this crisis as business, more so probably - banks took on too much risk based on dubious calculations and questionable motives, but much of this behaviour was incentivized by gov't policy and regulation - but the storyline that has been allowed to emerge, encouraged to emerge is that capitalism is in essence bad and consequently the crisis is all the fault of Wall Street greed which now only gov't - and Michael Moore, apparently - can save us from. It's a case I think where the response to the crisis may prove more baleful than the crisis itself.
