Paul Krugman Tells Hedge Fund Manager Eddie Lampert How A Business Is Supposed To Work

REUTERS/Brendan McDermidRather than having his various divisions work together for the mutual benefit of the company, Sears CEO Eddie Lampert turned the company into a series of warring fiefdoms fighting for money and attention, inspired in part by his fondness for libertarian icon Ayn Rand.

In a blog post, Paul Krugman points out the major issue with the strategy:

"If the different divisions of Sears have no common interests, if the best model is competition red in tooth and claw, why should Sears exist at all? Why not just break it up into units that have no reason not to compete?"

By making his divisions compete against each other, Lampert is basically eliminating the advantages of having a big, diversified company in the first place, Krugman argues.

There's a contradiction between having a large firm like Sears and free market ideology in its purest forms. Large firms that provide services at a certain volume require a degree of central planning and command and control. The market has confirmed that by virtue of the fact that large firms continue to be viable, and even thrive.

If you concede that, Krugman argues, you're getting close to agreeing that markets aren't the best way to provide certain shared services for millions of people. The solution might even (perish the thought) be the government.

Lampert is at least staking his company on his ideals, trying to create the Ayn Rand version of the large firm. It just isn't going very well.