Back when I used to work for a certain then-multi-billion-dollar corporation, there was a scandal and a lawsuit stemming from how they mishandled certain accounts. The company lost this suit because, well, they were fucking wrong and got caught red-handed. What was interesting to me, if a bit enraging, was the company's reaction. When I'd started working for them, their stock price was hovering at about $22, but had tripled by the time all this transpired. The executives were not happy about the company having to spend close to $500 million on fines, settlements, and fees, and they were definitely not happy about what that was going to do to the value of their shares, but the fundamentals of the company were strong; it was still a multi-billion-dollar corporation, after all.
So it was a bit disconcerting to me when they started doing something I called "managing to the stock price" back then. They began trimming not just the fat but big parts of the meat, as well, in an effort to reduce their operating costs by, say, around half a billion dollars. Bonuses for profitability were a thing of the past. Some of the most ill-advised things I've ever had the misfortune to experience occurred in this post-scandal period, and by the time I'd had all I could stand of the place, one of the executives sent out a letter that ended with, "We will make the tough decisions on behalf of the shareholder and the customer." In that order, and there were certainly to be no tough decisions in favor of the employee. But I digress.
I've watched similar phenomena unfold in other businesses in the decade since then, and I came to realize something. While we weren't looking, corporate America replaced the profit motive with something else. The thing they replaced it with is something I call the profit growth motive. It's a whole hell of a lot worse. It's also what'll probably bring American capitalism down, and that's not a ride you want to take, as it ends in a spectacularly horrible, carnage-filled crash.
WHAT IS THE PROFIT GROWTH MOTIVE?
In 21st Century American Capitalism, it is not merely enough for a business to be profitable. Let's say you reached $1 billion in profits last year for the first time. Wow! You're amazing!! You know what you are if you earn $1 billion, or Heaven forbid, $999 million, in profits the next year? A fucking loser. YOU DIDN'T GROW! It's all about the growth, baby!
(Needless to say, if your business isn't profitable, then you're just an embarrassment to us all and you should probably commit seppuku in your backyard at dusk, you sad, pitiful fool.)
...WHY?
Do you know who Peter Lynch is without Googling him first? Probably not. He ran Fidelity Investments' Magellan Fund, which he presided over from '77 to '90, growing it from $18 million to over $14 billion in that time. He wrote a book, which I no longer have, called One Up On Wall Street. It's a damn good book and will teach you a thing or two you don't realize you already know about investing. There's a sentence in that book that has stuck with me years later: "When The Limited had positioned itself in 670 of the 700 most popular malls in the country, then The Limited finally was." In other words, you weren't going to make a whole lot of money in a short period of time by investing with them at that point.
Back in the nineties, when I was entertaining the idea of becoming an investment titan-- ahh, youth-- I saw the same bit of pseudo-biology floating around the business world. (I say "pseudo-biology" because while I might be wrong, I haven't seen and can't find any biologists saying this.) You may have seen it too, and you can certainly see it today if you feel inclined to look it up. It goes a little something like this: When an organism stops growing, it starts dying. In other words, if your $1 billion business continues to make only a mere $1 billion-- or, Heaven forbid, $999 million-- the next year, you need to panic and by God DO SOMETHING ABOUT IT, or your company will just have to be taken out back and shot. You'll probably be reduced to running for public office after that.
Never mind that $1 billion-- or, Heaven forbid, $999 million-- in profits is still a lot of goddamned money and ought to suffice. That's the kind of thinking that belongs in a sane world, not this one.
WHERE DID THIS INSANITY COME FROM?
You may have heard of something called "the investor class." You may actually believe that you're a part of it because you have a 401(K). If that's what you believe, I have some bad news for you: You aren't part of the investor class.
What am I talking about? Take the following quiz:
Do your investments (or dividends on them) provide at least 40% of your income?
Do you invest for a living?
Do you have a boss, but only because you feel like you need to do something with your excess spare time, and working is just a hoot, but not essential to your survival?
Do you own at least 5,000 shares in anything that you purchased deliberately?
Have you ever attended a shareholders' meeting or cast a vote by mail or proxy at one because you were unable to attend?
Are you so rich that you just pay somebody to look after your investments because you can't be bothered with all that mumbo-jumbo?
If you answered "No" to more than one of these questions, then no, you are not part of the investor class. You may have a surfeit of terrific qualities that distinguish you from me, but this is sadly not one of them.
The investor class consists of people who produce absolutely nothing, but by virtue of their huge bank accounts get to determine, essentially, what companies do and who gets to do them. They do this shaping, of course, to their own benefit. Your benefit doesn't enter into the equation at all. Your benefit is an afterthought; a problem to be worked around satisfying them after their demands are met. Oh, and get this: If the price of a share of stock in a company falls too low, they can sue. (Technically, all the shareholders can-- but you? You aren't going to initiate a suit against a corporation whose net worth exceeds $500 million just because you happened to have some of their stock in your 401(K).) These people are not quite legally entitled to a return on their investment-- shit, after all, does happen-- but it's damn close.
Quite simply, the investor class consists of people so rich they can afford to stop working altogether and put their money to work making more money. Saying that they have undue influence over the way business in this country works is a gross understatement. They are dragging American capitalism along by the short hairs.
WHAT DOES THIS MEAN OUT IN THE REAL WORLD?
Once you understand that it isn't profit, but higher profits year after year that drives 21st Century American Capitalism, you can make sense of things that can't be explained solely by simple greed. Things like Enron can be explained by simple greed-- the people running it were running a scam, knew it, and didn't give a fuck, because they were making money hand over fist. Let's look at some more complex but innocuous behavior. Let's look at a bag of M&M's.
Ahh, but which bag of M&M's? For decades upon decades, it was just plain and peanut in their respective dark brown and yellow bags. This was just fine. Then, somebody decided it wasn't.
The market share for M&M's up to that point, I'd imagine, was pretty damn stable. You either like them, or you don't, and frankly, most of us like them. Odds are you don't have to have them, though. If you're running the company, well, that's no good. Under those conditions, M&M Mars might look successful, but it is about ready to keel over, according to the current paradigm. So. . . what can they do to get you to buy more M&M's? Stick things like almonds, dark chocolate, peanut butter, coconut, and-- most recently-- pretzels in them. You might try them just to see if you like them. If you do, great! You'll buy them until you're just as sick of them as you are of all the other M&Ms, by which point they will have decided to stick a bunch more things in them. If not, you still made a purchase you wouldn't have otherwise made had there merely been plain and peanut to choose from. And you weren't the only one who tried out the new ones for that reason, and they know it. (For the record? Peanut butter M&M's were an interesting novelty until I noticed that they really suck; almond M&M's are my favorite; dark chocolate M&M's are good but not enough for me to crave them; I refuse to try coconut and pretzels on principle.) In other words, it explains why there seem to be seventy gazillion variations on any one particular product: Profits must be higher, year after year.
It also explains more nefarious actions-- such as why a profitable company will lay off employees, and/or ship their jobs overseas: Profits must be higher, year after year.
Your salary is an expense. Expenses MUST BE CUT. So if you didn't get that raise? Don't take having to work harder for stagnant wages personally. Why? Because it's not even about you. Profits must be higher, year after year.
The ridiculously obscene prices of gas, movie tickets, and concessions at the cinema-- these things may have more immediate causes, but behind those causes lies a simpler one: Profits must be higher, year after year.
In a sane world, the same huge profits year after year would suffice. Unfortunately, we're stuck with this one.
WHAT'S THE INHERENT FLAW IN THE PROFIT GROWTH MOTIVE?
The profit growth motive is inherently flawed because it is based on at least two fatally flawed premises. They are:
- A corporation is exactly the same as an organism, and don't you know, when those stop growing, they start dying.
- Infinite growth is possible.
The first flawed premise means that, as a CEO, you have to start panicking if you merely continue to make the same old billion dollars of profit year after year. Your company is DEAD, DEAD, DEAD, even if it stubbornly refuses to lie down and putrefy. The second flawed premise means that, as a CEO, you have to pretend not to notice something as basic as the nature of the universe itself-- namely, that you cannot grow infinitely without infinite markets to sell your product.
At some point, however? Due to the nature of the universe and your laughable inability to access nonexistent infinite markets, you're going to reach the upper limits of what is sustainable, and desirable for the company. You can slash costs only so far. You can use crappy components and ingredients only for so long before some of your customers get tired of your crappy products and decide they can do better going into business competing against you. After all, they've got a ready-made market-- your other former customers. If they're halfway competent, then they've got nowhere to go but up. Even in this new paradigm they can still eat your lunch.
Remember Domino's Pizza? If you're my age, you can remember when they were so damn good. And you can remember that they became less and less good over time, until they became the Pizza Place Of Last Resort, and then, not even that. Now they're all over TV talking about how, okay, they screwed up and were making crappy pizza with cheap, crappy ingredients that nobody wanted to eat, sure, but now things are different. (I'm still not personally convinced, myself, but that's only because they left a bad taste in my mouth when they kept leaving a bad taste in my mouth. Somebody else is gonna have to go first. But I digress.)
Domino's almost certainly lost a lot of revenue by consistently putting out a spectacularly bad product. But they can now increase their profits by doing what, were this a sane world, they should have been doing all along: making pizzas that people would want to eat. And as sure as the sun rises, they will return to using crappy ingredients once their profits have maximized. By that time it'll be a whole new generation of pizza buyers they'll be pissing off.
HOW MIGHT THE PROFIT GROWTH MOTIVE DESTROY AMERICAN CAPITALISM?
Any number of ways. The easiest and quickest way will be once the financial services sector is no longer able to shuffle paper around and hide massive debt in excess of the entire worth of the United States, and banks, which loan out money that doesn't technically exist, won't be able to hide the fact that they are operating a giant scam. That's one way the crash will happen.
Another way is the death by a thousand cuts currently underway. When a business lays employees off, those employees are no longer able to buy goods and services at the same rate they used to be. That means less money is available for revenues (and by extension, profits) of other companies. That's not too big a problem for them-- they'll just fire a bunch of people. And on and on and on. The big, obvious, glaring problem with this is that there is no such thing as a consumer economy if you fire all the consumers. The investor class, on the other hand, has got theirs, and as a group they are excellent about not giving a shit about the rest of us.
WHY DOES THIS MEAN AMERICA IS DOOMED?
The current economic system is unsustainable. However, we have passed the point at which anything but a violent leftist revolution will solve anything. That's not going to happen in America, period. Americans as a whole are shockingly ignorant about what is actually left-wing and what is simply humane.
When the level of unemployment and poverty in this country reaches critical mass-- and I don't know nearly enough to assign percentages to that-- then the shit is going to hit the fan, period. Before it does, however, the investor class can afford to leave. The smartest and wealthiest of them will. Of course, if enough of them decide to liquidate their investments and transfer all their dollars into the currency of wherever they're going to move, well, the shit is guaranteed to hit the fan regardless of what Washington does.
The absolute best-case scenario for avoiding catastrophe involves elected Republicans having a sudden epiphanies about the con game they're playing and realizing it threatens to take them under, too. That means emergency revocation of the Bush/Obama tax cuts on the wealthy and various assorted tax loopholes, us getting the fuck out of the Middle East-- "winning" the quagmires be damned-- and Obama using what executive powers he has to initiate a 50-state public works program to do something about the massive unemployment that threatens America, funding them all with the "new" tax revenue.
The likelihood of any single one of these things happening is 0%. Tax cuts for the rich and offshoring transformed us into a nation that was going to pay off its national debt into the current mess we have. Obama not standing up to the Republicans and telling them to go fuck themselves once they changed the game on him means we've lost more than just the House of Representatives and several governorships. It also means we've lost any opportunity to do anything meaningful about the economic straits we're in until at least 2013, assuming a Democrat still controls the White House then.
We need a sane philosophy with regard to corporate profits. As things stand now, killing off a bunch of CEOs will solve exactly nothing about the way business operates in this country. Killing off the investor class will just ensure that their investments get handed down to their entitled asshole descendants. Even with both sets of malefactors gone, the system that brought about and rewards their behavior would still be in place, and it'd soon be time to meet the new boss, so to speak.
A sane philosophy would recognize that enough is enough and that we are not simply a bunch of individuals trying to trample all over each other, but a society whose members are interconnected. Sounds like happy hippie bullshit, sure, until you remember that we are living in the exact opposite of that. That's why we have bankers granting extraordinarily shitty mortgage loans to people who have families so that they can eventually throw them, kids and all, on the street. That's why we have bankers granting decent mortgage loans, but having no choice but to throw everyone out on the street because the primary breadwinner's job got sent overseas and there are no comparable jobs to be found. Or-- get this-- attempting to foreclose on people who've already paid their mortgages off. That's why we have Wall Street playing shell games with imaginary money and threatening to bring down not just the house of cards they've built, but the entire economy of the world. That's why we're the only industrialized nation that doesn't have universal health care but we do have insurance companies making billions by not even delivering what their customers pay for-- with acceptably (to them) fatal results for their customers. All those things sound like miserable Randian bullshit to me, and a logical consequence of not really viewing people as worth anything beyond what money you can get out of them or make off their labor.
Don't even get me started on what we do overseas.
So. Should we keep the miserable Randian bullshit in place and hope it all sorts itself out? I say it's time for some happy hippie bullshit. What do you say?
(Reposted with author's permission. Original here.)