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> My takeaway is that working hard to build quality products is more likely to be profitable than working hard to make money. Except that it isn't. "Manufactu

by bsder 5y ago

> My takeaway is that working hard to build quality products is more likely to be profitable than working hard to make money. Except that it isn't. "Manufacturing" has known limits. You need this many people to make this many things and your things sell for this much. There is growth, but the values are limited. And, if the company is dying, it is a very slow process and can still generate a remarkable amount of cash while doing so. "Financialization" has no such limits. The sky is the limit and can do so really quickly. So, it looks great. Your gains can be close to infinite. Unfortunately, quick and infinite can also describe your losses from "financialization". This killed Westinghouse. It also crippled GE quite heavily. There are many other examples.

danuker 5y ago
> You need this many people to make this many things and your things sell for this much. Speaking with no manufacturing experience, but having read some books (Diamandis' Abundance). You can reduce long-term costs by automating. If each week you buy a robot replacing a human, your operational costs go down permanently. That is because robots are fundamentally cheaper than human time. Of course, you have to foresee the demand that would make it possible to recoup the costs.
- deleted 5y ago
  [deleted]
doctor_eval 5y ago
I’m not sure I follow your argument because you appear to disagree, but then support, the premise :) So I’m probably misreading. But ISTM that the thing with constrained environments like manufacturing is that the constraints are physical, so everyone is constrained, which means that in a highly competitive environment, all viable players should be optimising and striving to work on the edge of what’s possible, in order to maximise competitiveness and profitability. So in such an environment, it’s absolutely necessary to “work hard to build quality products”, just to remain in the game. If you instead direct your resources to something else (like financialisation) at the expense of building great products then you will fall behind the leading edge and become uncompetitive or, perhaps worse, a commodity player. This certainly seems to be what happened at Intel, and also Boeing, both of whom appear to have fallen well back from the edge of what’s possible. I think the main reason financialisation is easier to do than engineering, is because money is a universal language, and Verilog is most certainly not. Shareholders seem to invest in order to make money from transactions, rather than dividends, and this seems to be a structural flaw in the financial system.
- bsder 5y ago
  My point is that the question is how you define "profitable". The current definition of a "profitable company" is all about the stock price increase. The problem is that manufacturing has a hard, fixed, upper limit on how much you can manipulate your company. Your Thneed(tm) sells for $X--you can't dramatically increase the price per unit (barring monopoly status). You probably can't increase demand dramatically either. You can only reduce labor and R&D to zero. So, the maximum amount of cash you can earn is completely constrained and straightforward to compute. Your stock price has some relation to this and thus also has a limit. However, if you switch to "financialization", there's no limits. You have margins. You have multiplers. Things are easy to hide and difficult to compute. The stock price goes gangbusters for a while and you have a great "profitable company". Then something goes wrong and suddenly the business needs cash rather than "financial instruments". Then the "financialization" unwinds and kills the core of the company. The problem is that the "stock market" has become "lottery tickets" instead of "corporate ownership". People demand stock price increases even if the business is quite profitable--this means that "financialization" will always triumph.
  - doctor_eval 5y ago
    Not to argue over a technicality but "profit" means the difference between income and expenditure. I think what you mean is, profit for the shareholder rather than profit for the company. I agree with all your other points though. The goal has changed from "running a good business" to "shareholder benefit at any cost". I don't think that's in the spirit of capitalism, somehow.

by bsder 5y ago

danuker 5y ago

> You need this many people to make this many things and your things sell for this much. Speaking with no manufacturing experience, but having read some books (Diamandis' Abundance). You can reduce long-term costs by automating. If each week you buy a robot replacing a human, your operational costs go down permanently. That is because robots are fundamentally cheaper than human time. Of course, you have to foresee the demand that would make it possible to recoup the costs.

deleted 5y ago
[deleted]

doctor_eval 5y ago

I’m not sure I follow your argument because you appear to disagree, but then support, the premise :) So I’m probably misreading. But ISTM that the thing with constrained environments like manufacturing is that the constraints are physical, so everyone is constrained, which means that in a highly competitive environment, all viable players should be optimising and striving to work on the edge of what’s possible, in order to maximise competitiveness and profitability. So in such an environment, it’s absolutely necessary to “work hard to build quality products”, just to remain in the game. If you instead direct your resources to something else (like financialisation) at the expense of building great products then you will fall behind the leading edge and become uncompetitive or, perhaps worse, a commodity player. This certainly seems to be what happened at Intel, and also Boeing, both of whom appear to have fallen well back from the edge of what’s possible. I think the main reason financialisation is easier to do than engineering, is because money is a universal language, and Verilog is most certainly not. Shareholders seem to invest in order to make money from transactions, rather than dividends, and this seems to be a structural flaw in the financial system.

bsder 5y ago
My point is that the question is how you define "profitable". The current definition of a "profitable company" is all about the stock price increase. The problem is that manufacturing has a hard, fixed, upper limit on how much you can manipulate your company. Your Thneed(tm) sells for $X--you can't dramatically increase the price per unit (barring monopoly status). You probably can't increase demand dramatically either. You can only reduce labor and R&D to zero. So, the maximum amount of cash you can earn is completely constrained and straightforward to compute. Your stock price has some relation to this and thus also has a limit. However, if you switch to "financialization", there's no limits. You have margins. You have multiplers. Things are easy to hide and difficult to compute. The stock price goes gangbusters for a while and you have a great "profitable company". Then something goes wrong and suddenly the business needs cash rather than "financial instruments". Then the "financialization" unwinds and kills the core of the company. The problem is that the "stock market" has become "lottery tickets" instead of "corporate ownership". People demand stock price increases even if the business is quite profitable--this means that "financialization" will always triumph.
- doctor_eval 5y ago
  Not to argue over a technicality but "profit" means the difference between income and expenditure. I think what you mean is, profit for the shareholder rather than profit for the company. I agree with all your other points though. The goal has changed from "running a good business" to "shareholder benefit at any cost". I don't think that's in the spirit of capitalism, somehow.