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How is that “evil”? Isn’t that the crystallization of the teleological purpose of a company? The ideal company works to maximize shareholder value. And not jus

by mruts 8y ago

How is that “evil”? Isn’t that the crystallization of the teleological purpose of a company? The ideal company works to maximize shareholder value. And not just short-term value, but the amortized value of the company in perpuitity. This in turn maximizes employee value and customer value. Let’s take a company that has great products and gives away everything for free. In the short-term, this might look like maximizing customer value, but soon, the conpany will go out of business. You could construct a similar example in which employee wages were maximized. The ideal situation is that the company pays employees as little as possible and charges customers as much as possible. In this way, the company is on the efficient frontier. Companies then compete on employee wages and product cost. This creates a Nash equilibrium in which no party can benefit from doing anything differently. This is the highest and most noble calling of the markets and creates the abundent and efficient markets of today (unless of course, the government steps in to fuck everything up). PS: I know I am going to get downvoted, but I would appreciate a comment instead of a downvote.

bunderbunder 8y ago
One criticism, from a philosophical angle, would be that you have foundered on the is-ought problem.
- repsilat 8y ago
  "Ought" came up in two places: > maximizes employee value and customer value and > the abundent and efficient markets of today I suspect the GP believes it a little more strongly than I do, but I think their point is that we should consider outcomes (i.e. "plenty") rather than stated intentions ("maximum profit"), though their examples mostly illustrated the point in the other direction. Criticising Uber for trying to maximise their profits could be construed as criticising them for delivering customer value. Bit of a stretch, though :-).
ximeng 8y ago
The government (or sufficiently powerful corporations, which effectively take on some aspects of public governance) sets up the framework that the market operates in. Corporations operate in a society which may break down if sufficient pressure is applied to people (e.g. employees, customers). Down vote baiting is discouraged by the site guidelines.
dontreact 8y ago
There are many places where we know that a free market doesn’t properly function. Specifically, there are certain types of goods that end up priced wrong: those with externalities (positive or negative). So if all a company cares about is maximizing shareholder value over time they are drawn away from products with positive externalities (like a public park) towards those with negative externalities (like cars that pollute) Note: I use these two examples because they are classic cases of positive and negative externalities but they are so well known that the government has already stepped to make public parks and tax or regulate of the externalities related to the pollution from cars.
- darawk 8y ago
  > There are many places where we know that a free market doesn’t properly function. Specifically, there are certain types of goods that end up priced wrong: those with externalities (positive or negative). So if all a company cares about is maximizing shareholder value over time they are drawn away from products with positive externalities (like a public park) towards those with negative externalities (like cars that pollute) Sure, but that simply suggests that those externalities should be priced. Problem solved.
  - dontreact 8y ago
    The devil is in the details. Often it is very hard to price the negative or positive externalities. And sometimes companies are far and away in the best position to make an estimate of this. For example, if you believe that Facebook played a large role in electing trump and that trump is bad how would you even begin to price such a thing. If those things were both true how could we ever find out. Purely shareholder value is an overly narrow way of looking at the world or making decisions.
  - whatislovecraft 8y ago
    > Problem solved. That would imply that there is no climate change happening, as we would have priced in that externality and resolved the issue by now. Right? As it turns out, that isn't right, because nobody who has incentive to price the externality right is allowed to be part of the process, and the ones who are part of the process are incentivized to cheat and not price externalities at all, or to price them poorly. So we have runaway climate change. And we have structures preventing that from improving because the incentive structures are flipped to the opposite right now. There is no indication that will change, in fact the incentives to pollute and remove the externality of pollution from the cost of goods sold and services provided, so that we are actually accelerating this path towards higher pollution (see Trump's coal-and-oil-championing attitude).
phowon 8y ago
There is no constraint that companies must maximize shareholder value. Companies can be set up for any number of reasons (including non-profit reasons).
digitaltrees 8y ago
The concept of a corporation existing solely to maximize profit is a new development coming out of the Chicago school of economics. For most of our legal history, any company that received limited liability was required to consider a broader set of constituents; including shareholders, debt holders, employees and society. Often they were given an explicit charter from the king or the sovereign and were engaged in highly risky behavior that was believed to be extremely socially valuable but which most investors and managers wouldn’t pursue unless they weren’t personally liable. This is as opposed to a general partnerships, which most businesses were until the 1980s, where the owners were personally responsible for all debts and harm the firm caused. Delaware didn’t even have LLCs until 1991 and corporations were much harder to form. We don’t have to live in a society where a fundamental structure organizing human activity ignores the well being of many of the core constituencies it interacts with; we write the rules. We could decide that corporations and their officers have to balance their effort maximize value for shareholders, employees, debt holders, their local community and the country. The social contract can be negotiated. I say this as a start up founder, entrepreneur, and capitalist. Finally, your argument assumes competition exists to reap the benefits of competition; but monopolies and dualoplies such as Uber/Lyft exist specifically to achieve network effects and the pricing power they allow. That is clearly great for shareholders but inefficient for everyone else. Being a capitalist doesn’t mean being pro business in all its forms. Monopolies are destructive to innovation, wealth distribution, efficiency, and over the long term capital appreciation. Anyway; No down vote from me.
- maxxxxx 8y ago
  "We don’t have to live in a society where a fundamental structure organizing human activity ignores the well being of many of the core constituencies it interacts with; we write the rules. We could decide that corporations and their officers have to balance their effort maximize value for shareholders, employees, debt holders, their local community and the country. The social contract can be negotiated. " That's the thing. Economic rules are not natural laws but they are human created and have always been adjusted and will always be adjusted.
ardy42 8y ago
> How is that “evil”? Isn’t that the crystallization of the teleological purpose of a company? > The ideal company works to maximize shareholder value. And not just short-term value, but the amortized value of the company in perpuitity.... > The ideal situation is that the company pays employees as little as possible and charges customers as much as possible.... It might be for some people, but I wouldn't say that view is universal. In my view the teleological purpose of a company is to strive to act morally and ethically while providing value to society. I think trying to replace that with a mechanism driven by a map-model is pretty dystopian.
AnthonyMouse 8y ago
> And not just short-term value, but the amortized value of the company in perpuitity. But this is what they characteristically fail at, or are given strong incentives not to do. For example, one of the best things a stable, mature company can do is to just keep operating its business, making profits and returning the profits to the shareholders. Then the shareholders can use the money for whatever is most efficient, e.g. investing it in other companies with better growth potential. But the tax laws in the US punish that severely as compared with wasteful empire building or subsidiary shell games that warehouse cash in foreign subsidiaries in lower tax jurisdictions. Returning profits to shareholders gets taxed twice. Hoarding or wastefully/inefficiently spending the money doesn't get taxed at all. So they do the dumb stuff, and Apple holds onto a pile of cash the size of a mountain even though they're not actually doing anything productive with it. You also have all kinds of problems with time frames. There are many things you can do to a company that will increase quarterly profits, like raising prices on customers that require a long lead time to switch to a competitor. Things like that may increase profits for years as the locked-in customers pay the price for as long as it takes them to transition to another vendor. But then the business starts to implode as the customers gradually all leave, and the same long lead time that kept them from quickly switching away (plus the damage you've done to your reputation) keeps them from quickly switching back. You can see this in, for example, Oracle's share of the database market slowly descending down a cliff. And in general there are just information problems. Shareholders make decisions based on public information, but there is so much more involved in a company's operations than is described in those statements that it's easy for bad managers to waste or steal resources or otherwise make short-sighted decisions without ever getting held to account, and many incentives for them to do so, particularly when their current bonuses are tied to current-term numbers and not long-term numbers.
- pdonis 8y ago
  > But the tax laws in the US punish that In other words, as mruts said, the government steps in to mess everything up. > You also have all kinds of problems with time frames. > And in general there are just information problems. Yes, but those problems can't be fixed by making the market less free. They can only be fixed by shareholders having a long time horizon and being willing to be involved in corporate governance. The biggest issue with that nowadays is that most "shareholders" are not individuals but mutual funds, which shortens the effective time horizon for everybody (even though funds are holding the retirement accounts of people who will be working for the next 30 years, they still compete on short-term returns) and means no effective shareholder governance (mutual funds don't care how individual companies compensate their management, they'll just trade to another stock if one company has problems).

by mruts 8y ago

bunderbunder 8y ago

One criticism, from a philosophical angle, would be that you have foundered on the is-ought problem.

repsilat 8y ago
"Ought" came up in two places: > maximizes employee value and customer value and > the abundent and efficient markets of today I suspect the GP believes it a little more strongly than I do, but I think their point is that we should consider outcomes (i.e. "plenty") rather than stated intentions ("maximum profit"), though their examples mostly illustrated the point in the other direction. Criticising Uber for trying to maximise their profits could be construed as criticising them for delivering customer value. Bit of a stretch, though :-).

ximeng 8y ago

The government (or sufficiently powerful corporations, which effectively take on some aspects of public governance) sets up the framework that the market operates in. Corporations operate in a society which may break down if sufficient pressure is applied to people (e.g. employees, customers). Down vote baiting is discouraged by the site guidelines.

dontreact 8y ago

There are many places where we know that a free market doesn’t properly function. Specifically, there are certain types of goods that end up priced wrong: those with externalities (positive or negative). So if all a company cares about is maximizing shareholder value over time they are drawn away from products with positive externalities (like a public park) towards those with negative externalities (like cars that pollute) Note: I use these two examples because they are classic cases of positive and negative externalities but they are so well known that the government has already stepped to make public parks and tax or regulate of the externalities related to the pollution from cars.

darawk 8y ago
> There are many places where we know that a free market doesn’t properly function. Specifically, there are certain types of goods that end up priced wrong: those with externalities (positive or negative). So if all a company cares about is maximizing shareholder value over time they are drawn away from products with positive externalities (like a public park) towards those with negative externalities (like cars that pollute) Sure, but that simply suggests that those externalities should be priced. Problem solved.
- dontreact 8y ago
  The devil is in the details. Often it is very hard to price the negative or positive externalities. And sometimes companies are far and away in the best position to make an estimate of this. For example, if you believe that Facebook played a large role in electing trump and that trump is bad how would you even begin to price such a thing. If those things were both true how could we ever find out. Purely shareholder value is an overly narrow way of looking at the world or making decisions.
- whatislovecraft 8y ago
  > Problem solved. That would imply that there is no climate change happening, as we would have priced in that externality and resolved the issue by now. Right? As it turns out, that isn't right, because nobody who has incentive to price the externality right is allowed to be part of the process, and the ones who are part of the process are incentivized to cheat and not price externalities at all, or to price them poorly. So we have runaway climate change. And we have structures preventing that from improving because the incentive structures are flipped to the opposite right now. There is no indication that will change, in fact the incentives to pollute and remove the externality of pollution from the cost of goods sold and services provided, so that we are actually accelerating this path towards higher pollution (see Trump's coal-and-oil-championing attitude).

phowon 8y ago

There is no constraint that companies must maximize shareholder value. Companies can be set up for any number of reasons (including non-profit reasons).

digitaltrees 8y ago

The concept of a corporation existing solely to maximize profit is a new development coming out of the Chicago school of economics. For most of our legal history, any company that received limited liability was required to consider a broader set of constituents; including shareholders, debt holders, employees and society. Often they were given an explicit charter from the king or the sovereign and were engaged in highly risky behavior that was believed to be extremely socially valuable but which most investors and managers wouldn’t pursue unless they weren’t personally liable. This is as opposed to a general partnerships, which most businesses were until the 1980s, where the owners were personally responsible for all debts and harm the firm caused. Delaware didn’t even have LLCs until 1991 and corporations were much harder to form. We don’t have to live in a society where a fundamental structure organizing human activity ignores the well being of many of the core constituencies it interacts with; we write the rules. We could decide that corporations and their officers have to balance their effort maximize value for shareholders, employees, debt holders, their local community and the country. The social contract can be negotiated. I say this as a start up founder, entrepreneur, and capitalist. Finally, your argument assumes competition exists to reap the benefits of competition; but monopolies and dualoplies such as Uber/Lyft exist specifically to achieve network effects and the pricing power they allow. That is clearly great for shareholders but inefficient for everyone else. Being a capitalist doesn’t mean being pro business in all its forms. Monopolies are destructive to innovation, wealth distribution, efficiency, and over the long term capital appreciation. Anyway; No down vote from me.

maxxxxx 8y ago
"We don’t have to live in a society where a fundamental structure organizing human activity ignores the well being of many of the core constituencies it interacts with; we write the rules. We could decide that corporations and their officers have to balance their effort maximize value for shareholders, employees, debt holders, their local community and the country. The social contract can be negotiated. " That's the thing. Economic rules are not natural laws but they are human created and have always been adjusted and will always be adjusted.

ardy42 8y ago

> How is that “evil”? Isn’t that the crystallization of the teleological purpose of a company? > The ideal company works to maximize shareholder value. And not just short-term value, but the amortized value of the company in perpuitity.... > The ideal situation is that the company pays employees as little as possible and charges customers as much as possible.... It might be for some people, but I wouldn't say that view is universal. In my view the teleological purpose of a company is to strive to act morally and ethically while providing value to society. I think trying to replace that with a mechanism driven by a map-model is pretty dystopian.

AnthonyMouse 8y ago

> And not just short-term value, but the amortized value of the company in perpuitity. But this is what they characteristically fail at, or are given strong incentives not to do. For example, one of the best things a stable, mature company can do is to just keep operating its business, making profits and returning the profits to the shareholders. Then the shareholders can use the money for whatever is most efficient, e.g. investing it in other companies with better growth potential. But the tax laws in the US punish that severely as compared with wasteful empire building or subsidiary shell games that warehouse cash in foreign subsidiaries in lower tax jurisdictions. Returning profits to shareholders gets taxed twice. Hoarding or wastefully/inefficiently spending the money doesn't get taxed at all. So they do the dumb stuff, and Apple holds onto a pile of cash the size of a mountain even though they're not actually doing anything productive with it. You also have all kinds of problems with time frames. There are many things you can do to a company that will increase quarterly profits, like raising prices on customers that require a long lead time to switch to a competitor. Things like that may increase profits for years as the locked-in customers pay the price for as long as it takes them to transition to another vendor. But then the business starts to implode as the customers gradually all leave, and the same long lead time that kept them from quickly switching away (plus the damage you've done to your reputation) keeps them from quickly switching back. You can see this in, for example, Oracle's share of the database market slowly descending down a cliff. And in general there are just information problems. Shareholders make decisions based on public information, but there is so much more involved in a company's operations than is described in those statements that it's easy for bad managers to waste or steal resources or otherwise make short-sighted decisions without ever getting held to account, and many incentives for them to do so, particularly when their current bonuses are tied to current-term numbers and not long-term numbers.

pdonis 8y ago
> But the tax laws in the US punish that In other words, as mruts said, the government steps in to mess everything up. > You also have all kinds of problems with time frames. > And in general there are just information problems. Yes, but those problems can't be fixed by making the market less free. They can only be fixed by shareholders having a long time horizon and being willing to be involved in corporate governance. The biggest issue with that nowadays is that most "shareholders" are not individuals but mutual funds, which shortens the effective time horizon for everybody (even though funds are holding the retirement accounts of people who will be working for the next 30 years, they still compete on short-term returns) and means no effective shareholder governance (mutual funds don't care how individual companies compensate their management, they'll just trade to another stock if one company has problems).