It's not all comics and football around here - sometimes I turn my incoherent ramblings on economics. And the thing I've been wondering about lately is profit.
I know that the business of business is profit. According to Milton Friedman, that's all a business should be thinking about - any other social benefits of profits generated are out of the business's sphere of responsibility, and shareholders can use the profit for whatever social purposes they want. This then leads to the idea that a publicly held business's fiduciary responsibility is to maximize those profits, and if its management fails to do so, then the shareholders have the right to exchange the board for one that will bring the most profits possible.
The problem I have with this is, a business has to have something in mind beyond just making profit, if it isn't actually in finance. Strictly speaking, Pfizer (a stock that I own) isn't necessarily delivering the greatest profit to shareholders, because it continues to develop drugs rather than fire all its scientists, hire investment bankers, and compete with Goldman Sachs.
That may seem like a stupid analogy, but it isn't - drug discovery is extremely expensive, even if you discount Pharma companies' own claim that it takes a billion dollars to bring a drug to market. There are a lot of dead ends, where a molecule that seemed promising at the start turns out to make people's skin fall off or just drop dead; a Pfizer or a Merck or whoever can outsource the discovery process by buying promising companies, but that's expensive too. It'd be easier if they just turned into a bank, wouldn't it?
Same with, say, Ford. You don't have to reinvent cars every year or so, but you do have to keep building them, adding features that either customers want or that will keep them alive (funnily enough, these aren't always the same thing), and you have to pay people to build the cars for you. Those people have their own demands for profit, and the longer they stay, the more they cost you.
Perhaps I'm being willfully naive - I understand that Ford and Pfizer and every other publicly held corporation can't just pivot to finance, because then we'd have the ultimate externality, in which food, clothing, medicine and basically everything else isn't being produced. But profit doesn't really seem to serve any societal function of its own - whatever industry you're in, profit may be the ultimate goal but it doesn't get shared with the people who build it. Employee pay is an expense, which is why companies sometimes make layoffs in the midst of record profits: the market is stupid and it thinks that the company is making its operations leaner.
Michael Moore has a joke in Downsize This, where Wall Street goes through the roof because one day, every company decides to lay off every employee. I read that almost 30 years ago, but it's stuck with me ever since, as did an Economist article I read about 15 years ago or so that suggested that American companies were too profitable.
Now, it's one thing when Michael Moore criticizes corporations, but when the Economist thinks that corporations are sitting on too much cash, that bears paying attention to. Their argument was that this profit wasn't filtering out into the rest of the economy, it was just going to shareholders; indeed, a piece in Forbes this past year notes that nearly half of before-tax profits of non-financial corporations went to dividends, and that capital expenditures are at their lowest level in years. Companies aren't investing in R&D or strengthening their processes, because they're trying to funnel all that cash back to investors.
Now, this might seem odd for me, as a person who owns stocks in individual companies (as well as retirement vehicles like a 401k, an HSA and a Roth IRA) to suggest that there's too much focus on profits. I might have a different idea if my holdings were a few orders of magnitude larger.
I guess I see it through the lens of enshittification, the term Cory Doctorow coined to describe when online platforms decline in quality once they've captured their audience. He sees it in terms of Google destroying the market for online search by being better than all the other search engines, and then, when network effects and habit mean that people refuse to use Bing or whatever, Google fills its results with a tidal wave of shit, like sponsored links, adds, and now AI-generated garbage.
But it's applicable in the analog world too, as we've seen with Boeing's ongoing quality-related struggles. When a business focuses on maximizing profit over everything else, then improving the physical products it sells is contrary to the desires of the shareholders. Performing quality control takes money and slows down launch of new products, so you get a lot of products rushed out before they're ready or you get a lot of incremental improvements being touted as new products, with a price premium to match.
This is where people normally protest that no, of course they're not advocating for socialism, they're totally in favor of capitalism, yada yada yada. It's true that I'm not arguing for a command economy, because I do believe that some amount of capitalism is needed for markets to efficiently find the best solution to a problem - after all, Google may be crap now, but before it destroyed all the competition, it simply did provide a better service. But I think that, as in all things, the incentives are misaligned.
At the very least, there needs to be some way for shareholders to reward profitability over a long period, rather than every three months. And maybe the shareholders should include the employees as a matter of course, since they're the ones who've made the profit possible? Tim Cook may be great at logistics and at understanding the big picture of getting his phones to my avaricious grasp, but he's not the one assembling the damn things, putting them in boxes to the store, or taking my order when I pop into the Apple Store to pay the Cupertino Idiot Tax.
If nothing else, sharing the profits more widely with those who actually do the work might help reduce income inequality, no?
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