Chapter 1: The Myth of Free Market Efficiency

In the realm of economics, one principle stands out: individuals are presumed to act rationally. Who embodies this rationality better than a CEO? Yet, when it comes to irrational actions driven by greed or corruption, even the most powerful can wreak havoc on businesses, industries, and even entire nations.

Take Alan Greenspan, former Chairman of the Federal Reserve, who was a key figure in the lead-up to the 2008 financial crisis. His opposition to stricter regulations contributed significantly to the housing bubble. In his testimony before Congress, Greenspan expressed disbelief at the failure of his ideological model:

> "The whole intellectual edifice of modern risk management collapsed. Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity, myself especially, are in a state of shocked disbelief." — Alan Greenspan

Despite his attempts to navigate tough questions from lawmakers, he admitted, "I found a flaw" in his understanding of market behavior. His belief that rational individual actions would naturally lead to self-regulating markets turned out to be incorrect.

[SPOILER ALERT!]

The most effective economic framework is a mixed economy where regulations prevent unscrupulous players from engaging in harmful practices or neglecting public safety in their quest for profit.

This reflection on basic economic principles brings to mind a number of notorious corporate leaders. For instance, many are familiar with Sam Bankman-Fried, the founder of FTX, who was sentenced to 25 years in prison for a fraud scheme that cost customers billions. Then there's Martin Shkreli, who raised the price of a vital medication without facing criminal charges for his unethical actions, instead landing in prison for defrauding investors.

Kenneth Lay of Enron is another name that resonates, having overseen one of the largest bankruptcies in U.S. history, resulting in thousands losing their jobs and savings. However, the real question remains: what happens to the average, self-serving CEO? Numerous instances exist of these individuals causing widespread harm yet escaping serious repercussions. Often, they leave with lucrative severance packages.

This leads us to the case study of Steven Burd, former CEO of Safeway, a prime example of corporate irresponsibility. Having lived through California's supermarket strike in 2003-2004, I became acquainted with the key players, with Burd epitomizing the Peter Principle—where individuals rise to their level of incompetence.

Burd, celebrated as a "turnaround ace" by Forbes, was appointed by Kohlberg, Kravis, Roberts & Co. (KKR) to oversee Safeway's operations. Under his leadership, the company's profits surged, primarily through aggressive cost-cutting and promoting higher-margin products. However, this came at the expense of employee morale and customer satisfaction.

In 1998, Burd acquired Dominick's, a Chicago-based grocery chain, for $1.2 billion. Instead of honoring Dominick's commitment to quality, he replaced high-quality items with Safeway's generic products, leading to a rapid decline in sales. Rather than accepting responsibility, Burd chose to offset his losses by slashing employee benefits, culminating in a workers' strike.

Burd's unethical decisions extended to conspiring with other supermarket chains to lock out employees during the strike, leading to significant financial losses across the board. Despite this, he faced minimal consequences for his actions, reflecting a troubling trend of white-collar crime often going unpunished.

In 2013, Burd sold the remaining stores at a substantial loss, yet his exit was framed as a tax benefit by the media. His final downfall came when he partnered with Theranos, investing heavily in a fraudulent venture that ultimately failed.

Despite his track record of failure, Burd left the industry with accolades, while thousands of employees suffered the consequences of his misguided leadership.

The video titled "A Wonderful Foreign, Magical Realism TV Series: Arabela" delves into how corporate leaders often escape accountability, similar to the themes explored in Burd's story.

It's crucial to hold these leaders accountable for their actions. While I may have reluctantly shopped at Safeway a few times, I prefer to support companies like Trader Joe's and Costco, which prioritize employee welfare. If consumers collectively chose to shop with their values in mind, it could create significant pressure on corporate leaders to act responsibly.

In an ideal world, corrupt CEOs would face the consequences of their actions in a manner that reflects the gravity of their decisions. For now, however, we can only hope for change as we navigate the complexities of corporate leadership and accountability.