The Dumbest Idea in the Universe

There is a article from Forbes doing the rounds recently called “The Dumbest Idea In The World: Maximizing Shareholder Value” which argues that since the 1970s, companies have been run not for any kind of long-term growth, or for the benefits of customers or workers, but for the short-term benefit of shareholders.

In today’s paradoxical world of maximizing shareholder value, which Jack Welch himself has called “the dumbest idea in the world”, the situation is the reverse. CEOs and their top managers have massive incentives to focus most of their attentions on the expectations market, rather than the real job of running the company producing real products and services.

It’s an idea which has also been suggested by Ha-Joon Chang in his “23 Things They Don’t Tell You About Capitalism” when he argued that “Companies should not but run in the interest of their owners”.

The idea was that shareholders bear the risk involved in running a company so it incentivizes them to maximize company performance and thus would make companies as efficient as possible, when in fact the opposite has occurred. Shareholder value has increased but at the expense of corporate performance. Goods and services suffer in order to deliver short-term gains to shareholders.

The problem, as Ha-Joon Chang described it was:

Shareholders may be the owners of corporations but, as the most mobile of the ‘stakeholders’, they often care the least about the long-term future of the company. Consequently shareholders […] prefer corporate strategies that maximize short-term profits, usually at the cost of long-term investments, and maximize the dividend from those profits, which even further weakens the long-term prospects of the company by reducing the amount of retained profit that can be used for re-investment. Running the company for the shareholders often reduces its long-term growth potential.

It occurred to me while reading the Forbes piece that you can look at the same problem on a bigger scale – the global economy. At the moment many nations in Europe are undertaking programs of ‘austerity’, facing devastating cuts in public spending to appease the markets. In order to make themselves attractive enough to private speculators they are slashing and burning public spending programs, and offering no opportunities for investment and growth. In short they are doing what companies do – maximizing investment return at the expense of growth and real productivity. Replace ‘shareholders’ with ‘bondholders’ and ‘companies’ with ‘countries’ and you have the same problem but on a larger, and much more destructive scale. In Ireland we dare not ‘burn the bondholders’ because we need their filthy lucre, so we destroy our public services and infrastructure instead and develop no means for long-term growth.

So, health, education, the poor, the elderly, etc. all get thrown under the bus to maximize shareholder value. In addition to this, democratically elected representatives are forced out and replaced with market-pleasing technocrats. Democracy itself is sacrificed at the alter of the market.

As the Forbes article suggests, we need to move back towards companies that operate for the benefit of customers and employees. They give some examples of companies who do things right, including Apple, who famously don’t pander to shareholders, preferring to invest back into product development and maximizing customer experience. (This is not, however, to suggest they are morally virtuous corporate heroes – they charge a premium price and horde a lot of the surplus capital).

If we need to change the corporate culture away from rewarding the temporary owners towards benefiting the customer and the employees, this is even more true at a national and international level. Pandering to bondholders at the expense of the people is a disastrous extension of the same mindset that has destroyed many companies in the West, and will(is) destroying nations.

Footnote:

This argument takes place in a world where we accept that companies should be run for profit, but that this profit should be used in better ways. People like Ha-Joon Chang consider themselves capitalists, but are avowedly anti-free-market. This though is not to suggest that a kind of cleaned-up capitalism is the only answer. But it does suggest that how things are currently done is certainly not working – and that institutions – whether they be private firms or nation states need to consider who they serve. Serving temporary speculators helps no one but them.

Matter out of place

Anthropologist Mary Douglas has a nice definition for dirt, saying it is “matter out of place.” A fried egg on the plate is fine, but a fried egg all over my hands is dirty. Hyde continues to say that dirt is always a byproduct of creating order: to create a place for things means that there will be situations where things will be out of place.

From this good piece on Louis C.K.

(Speaking of Louis CK, he made and sold a very funny comedy special, and he gave away most of the money it earned him. Read about it here, its inspiring stuff. And it’s a great show)

Kim City

Recently departed North Korean leader Kim Jong-il was, amongst many things, a self-proclaimed ‘internet expert’.

According to Fox News:

The reclusive leader made the remark after South Korean President Roh Moo-hyun asked that South Korean companies operating at an industrial park in the North Korean city of Kaesong be allowed to use the Internet, Yonhap news agency reported, without citing any source.

and in discussing the issue, seemed to suggest the influence of classic city-building game Sim City in making his decisions

“I’m an Internet expert too. It’s all right to wire the industrial zone only, but there are many problems if other regions of the North are wired,” Kim told Roh, according to Yonhap.

Which might explain a lot about the impoverished nation – everyone knows you put the industrial zones as far away from the residential zones as possible. Sadly, he probably also learned he could bulldoze protests out of existence too.

Namu Amida Butsu

A few months ago I got a text from a friend asking “What does ‘Namu Amida Butsu’ mean?”. I wondered why he was asking this. Then, out of no where, it occurred to me that it was the day of the one-year anniversary of his wedding. Then it made sense. I most likely wrote it in that little book people pass around at weddings and he was reading over it. So, I explained what it meant, and why I wrote it, and he replied “Thanks for that!”.

And what does it mean? Well, you can ask Wikipedia, but I suggest first, you listen to the wise words of the late, great Robert Anton Wilson

The Commentariat

The level of hostility, snideness and general nastiness that is seen in internet comment sections is nothing new, but its only really seemed to bother me lately. It has seemed increasingly like the overall majority of comments on general news and opinion sites are of the sneering variety. Posts about religion,for instance, are invariably treated to immediate reactionary shots deriding anyone who might follow one, or a story about the Occupy movement typically is subject to comments about smelly hippies “getting a job”. I’ve taken to not bothering to read comments sections any more – as there is rarely anything of worth in there. This is not to say that I want to see a chorus of people agreeing with the post (that wouldn’t be of much use) – comments sections offer a forum for constructive debate or further illumination on the points raise or counter-points – but I don’t need to see the ubiquitous quips and one-liners that have become the norm for such places. It has got me down to some degree. I look at these comments and I dispair – Is this what the public thinks? Is this the majority viewpoint?

However, today I read a piece by John Nicholson on Football365 that made me think. In discussing the trend for minority opinions to be read or treated as the thoughts of the masses he wrote:

Look at the Guardian’s website. Massively popular, with articles read by hundreds of thousands, possibly millions of people, yet look at the number of comments they attract. Regularly under a 100 made by a recurring cast of people. Even the global warming nutter vs nutter debates only attract 1500 or so. So almost no-one who reads the articles comments on them.

I realised this is true. Most web sites which would attract moderate or large readerships don’t really have huge amounts of comments relative to readership. The majority of people simply don’t comment. I thought about this a bit more; why is it that the comments sections seem to be overwhelmingly reactionary or abusive? Probably because the type of people who are reactionary or abusive simply have to have their say. The rest of us simply agree or disagree and don’t feel the need to wade in. The sneery, snide types must have their opinion heard. Others? Less so.

Of course, there is a lot to be said about how the medium itself makes it easier for people to broadcast more abusive messages – by placing the discourse behind digital screens it dehumanizes it, but this piece made me think about the numbers. That for every person who read an article only a minority chose to comment, and their motivation for commenting is possibly in alignment with their attitude.

That cheers me up. A bit.

Beauty

See my elegance, dining on the periodic table called developments
The universe designs my intelligence
Drop science down a bottomless pit
Run swift through a handstand on pyramid tips

Beauty – from Edan’s “Beauty and the Beat”