Social effects of corporate governance, split from the election in Ireland

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JQH
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Re: Ireland election

Post by JQH » Mon Feb 10, 2020 4:18 pm

Herainestold wrote:
Mon Feb 10, 2020 3:34 pm


Democracy has failed to deliver the goods, as the rich get richer and the middle class withers away. People are frustrated and looking for answers increasingly vote for more extreme alternatives, either on the right or the left.
It is the UK-US style capitalism, which emphasises shareholder value rather than social good, that has failed to deliver and is causing the ever widening wealth gap. But you are right to say this results in many voters turning to the extremists.
And remember that if you botch the exit, the carnival of reaction may be coming to a town near you.

Fintan O'Toole

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Re: Ireland election

Post by plodder » Mon Feb 10, 2020 7:38 pm

JQH wrote:
Mon Feb 10, 2020 4:18 pm
It is the UK-US style capitalism, which emphasises shareholder value rather than social good, that has failed to deliver and is causing the ever widening wealth gap.
I'm not sure what this means tbh.

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Re: Ireland election

Post by Herainestold » Mon Feb 10, 2020 9:26 pm

JQH wrote:
Mon Feb 10, 2020 4:18 pm


It is the UK-US style capitalism, which emphasises shareholder value rather than social good, that has failed to deliver and is causing the ever widening wealth gap. But you are right to say this results in many voters turning to the extremists.
It is capitalism. Period.

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Re: Ireland election

Post by plodder » Mon Feb 10, 2020 10:47 pm

I don’t understand what this means, either.

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Re: Ireland election

Post by nefibach » Mon Feb 10, 2020 11:01 pm

plodder wrote:
Mon Feb 10, 2020 7:38 pm
JQH wrote:
Mon Feb 10, 2020 4:18 pm
It is the UK-US style capitalism, which emphasises shareholder value rather than social good, that has failed to deliver and is causing the ever widening wealth gap.
I'm not sure what this means tbh.
Funnily enough, I read this over the weekend, and it does a pretty good job of explaining the history of the 'maximising shareholder value' school of business thought, and shows why it's a problem:

https://www.tandfonline.com/doi/abs/10. ... 1400360541

Some of the stats on job losses are shocking:
Between 1979 and 1983, the number of people employed in the economy as a whole increased by 377,000 or 0.4 per cent, while employment in durable goods manufacturing – which supplied most of the well-paid and stable blue-collar jobs – declined by 2,023,000, or 15.9 per cent (U.S. Congress 1992: 344).

Indeed, the ‘boom’ years of the mid-1980s saw hundreds of major plant closures. Between 1983 and 1987, 4.6 million workers lost their jobs, of which 40 per cent were from the manufacturing sector (Herz 1990: 23; more generally, see Staudohar and Brown 1987; Patch 1995).
This paper was written in 2000, so it doesn't take into account the nightmare of the global financial crisis. If you need some insight into why people might be angry, you only have to look at the changes in the job market and the changes in the pay gap between top and bottom staff in a company.
On average, the pay pack- ages of CEOs of US corporations were forty-four times those of factory workers in 1965, but 419 times in 1998 (Business Week 20 April 1998, 19 April 1999)
My husband says this is an even stronger take, but I've not had a chance to read it yet:

https://pubsonline.informs.org/doi/abs/ ... .1040.0066

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Re: Ireland election

Post by plodder » Tue Feb 11, 2020 9:58 am

nefibach wrote:
Mon Feb 10, 2020 11:01 pm
plodder wrote:
Mon Feb 10, 2020 7:38 pm
JQH wrote:
Mon Feb 10, 2020 4:18 pm
It is the UK-US style capitalism, which emphasises shareholder value rather than social good, that has failed to deliver and is causing the ever widening wealth gap.
I'm not sure what this means tbh.
Funnily enough, I read this over the weekend, and it does a pretty good job of explaining the history of the 'maximising shareholder value' school of business thought, and shows why it's a problem:

https://www.tandfonline.com/doi/abs/10. ... 1400360541

Some of the stats on job losses are shocking:
Between 1979 and 1983, the number of people employed in the economy as a whole increased by 377,000 or 0.4 per cent, while employment in durable goods manufacturing – which supplied most of the well-paid and stable blue-collar jobs – declined by 2,023,000, or 15.9 per cent (U.S. Congress 1992: 344).

Indeed, the ‘boom’ years of the mid-1980s saw hundreds of major plant closures. Between 1983 and 1987, 4.6 million workers lost their jobs, of which 40 per cent were from the manufacturing sector (Herz 1990: 23; more generally, see Staudohar and Brown 1987; Patch 1995).
This paper was written in 2000, so it doesn't take into account the nightmare of the global financial crisis. If you need some insight into why people might be angry, you only have to look at the changes in the job market and the changes in the pay gap between top and bottom staff in a company.
On average, the pay pack- ages of CEOs of US corporations were forty-four times those of factory workers in 1965, but 419 times in 1998 (Business Week 20 April 1998, 19 April 1999)
My husband says this is an even stronger take, but I've not had a chance to read it yet:

https://pubsonline.informs.org/doi/abs/ ... .1040.0066
Thanks Nefi. Don't have academic access, but reading the abstracts it seems to me that manufacturing job losses in the USA have been replaced (and then some!) by huge increases in manufacturing abroad, especially in China.

That's got nothing to do with corporate governance in the USA maximising shareholder value, unless what you mean is "we'll go bust if we try and compete with the Chinese on factory wages, so we can either get out, go bust or spend a fortune modernising - fortunes we might not have".

This isn't driven by corporate board rooms so much as consumer behaviour.

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Re: Ireland election

Post by nefibach » Tue Feb 11, 2020 4:10 pm

plodder wrote:
Tue Feb 11, 2020 9:58 am
nefibach wrote:
Mon Feb 10, 2020 11:01 pm
plodder wrote:
Mon Feb 10, 2020 7:38 pm


I'm not sure what this means tbh.
Funnily enough, I read this over the weekend, and it does a pretty good job of explaining the history of the 'maximising shareholder value' school of business thought, and shows why it's a problem:

https://www.tandfonline.com/doi/abs/10. ... 1400360541

Some of the stats on job losses are shocking:
Between 1979 and 1983, the number of people employed in the economy as a whole increased by 377,000 or 0.4 per cent, while employment in durable goods manufacturing – which supplied most of the well-paid and stable blue-collar jobs – declined by 2,023,000, or 15.9 per cent (U.S. Congress 1992: 344).

Indeed, the ‘boom’ years of the mid-1980s saw hundreds of major plant closures. Between 1983 and 1987, 4.6 million workers lost their jobs, of which 40 per cent were from the manufacturing sector (Herz 1990: 23; more generally, see Staudohar and Brown 1987; Patch 1995).
This paper was written in 2000, so it doesn't take into account the nightmare of the global financial crisis. If you need some insight into why people might be angry, you only have to look at the changes in the job market and the changes in the pay gap between top and bottom staff in a company.
On average, the pay pack- ages of CEOs of US corporations were forty-four times those of factory workers in 1965, but 419 times in 1998 (Business Week 20 April 1998, 19 April 1999)
My husband says this is an even stronger take, but I've not had a chance to read it yet:

https://pubsonline.informs.org/doi/abs/ ... .1040.0066
Thanks Nefi. Don't have academic access, but reading the abstracts it seems to me that manufacturing job losses in the USA have been replaced (and then some!) by huge increases in manufacturing abroad, especially in China.

That's got nothing to do with corporate governance in the USA maximising shareholder value, unless what you mean is "we'll go bust if we try and compete with the Chinese on factory wages, so we can either get out, go bust or spend a fortune modernising - fortunes we might not have".

This isn't driven by corporate board rooms so much as consumer behaviour.
I obviously would never advise anyone to use Sci-Hub, but however, were one to use Sci-Hub to access the papers, one could read them and find out why corporate governance is indeed at the root of manufacturing job losses.

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Social effects of corporate governance, split from the election in Ireland

Post by plodder » Tue Feb 11, 2020 5:43 pm

nefibach wrote:
Tue Feb 11, 2020 4:10 pm
I obviously would never advise anyone to use Sci-Hub, but however, were one to use Sci-Hub to access the papers, one could read them and find out why corporate governance is indeed at the root of manufacturing job losses.
Superb, thanks Nefi.

Apologies if I missed anything important here, I've not had a huge amount of time:

The first paper suggests that a focus on shareholder value became popular after the inefficiencies and cronyism of the period running up to the 1970s were exposed, especially with the wide roll-out of private pensions e.g.
Agency theorists argued that, because corporate managers were undisciplined by the market mechanism, they would opportunistically use their control over the allocation of corporate resources and returns to line their own pockets, or at least to pursue objectives that were contrary to the interests of shareholders. Given the entrenchment of incumbent corporate managers and the relatively poor performance of their companies in the 1970s, agency theorists argued that there was a need for a takeover market that, functioning as a market for corporate control, could discipline managers whose companies performed poorly. The rate of return on corporate stock was their measure of superior performance, and
the maximization of shareholder value became their creed
We can only assume what would have happened to employment figures had that approach been allowed to continue.

It's far more complicated (as the first paper makes clear) than simply saying manufacturing job losses are due to corporate governance. What the paper argues is that, rather than retain wealth in a corporation that can't find a way to invest it to boost the share value, it's better to return that money to investors, who will then find a better way to invest that money (p.18), e.g.
According to the logic of shareholder value theory, if corporate managers cannot allocate resources and returns to maintain the value of the shareholders’ assets, then the ‘free cash  ow’ should be distributed to shareholders who can then allocate these resources to their most efficient alternative uses. Since in the modern corporation, with its publicly listed stock, these shareholders have a market relation with the corporation, the economic argument for making distributions to shareholders is an argument concerning the efficiency of the replace- ment of corporate control over the allocation of resources and returns with market control. Shareholder value advocates, moreover, point to the stock-market boom
throughout the 1990s and the prosperity of the US economy in the late 1990s as proof positive of the economic benefits that the pursuit of shareholder value has delivered. Theory, they argue, has been borne out by practice. (examples follow)


So again, to make a fair comparison, we need to look at what employment rates would look like if this liquidity had been prevented. The USA is the richest country on earth for a reason, and innovations in capitalism are undoubtedly big factors.

On to income inequality. Certainly the increased flexibility demanded by companies has been a factor in eroding employment rights etc. p.20 starts the focus on training and skills, and points out that investment dropped right off from the 1970s (before shareholder value was a 'thing'). It also notes the importance of highly skilled workers in competing globally, and attributes this focus to the subsequent boom in silicon valley in the 1990s. There's then a bit of a sleight of hand as they try and claim that this is a cause of income inequality, although funnily enough the authors neglect to mention the huge rise in cheap overseas "blue collar labour" as being of any importance, which is a major omission from my perspective, but perhaps it's just something that doesn't chime with their hypothesis.

Then there's a bit about how everyone's pensions depend on long-term shareholder value strategies, and a gloomy postulation that Microsoft probably wouldn't survive a stock market crash, and if you pay employees partly in shares they'd probably be f.cked. Lol.

So, again, I'm still not sure why our corporate governance has led to income inequality, although now I'm a bit more confident that people are voting for Trump, Brexit and Sinn Fein nutters because of Chinese ascendance.

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Re: Social effects of corporate governance, split from the election in Ireland

Post by Woodchopper » Tue Feb 11, 2020 8:41 pm

New thread, split from the Ireland election discussion.

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Re: Social effects of corporate governance, split from the election in Ireland

Post by nefibach » Wed Feb 12, 2020 1:40 am

plodder wrote:
Tue Feb 11, 2020 5:43 pm
Apologies if I missed anything important here, I've not had a huge amount of time:

The first paper suggests that a focus on shareholder value became popular after the inefficiencies and cronyism of the period running up to the 1970s were exposed, especially with the wide roll-out of private pensions e.g.
Agency theorists argued that, because corporate managers were undisciplined by the market mechanism, they would opportunistically use their control over the allocation of corporate resources and returns to line their own pockets, or at least to pursue objectives that were contrary to the interests of shareholders. Given the entrenchment of incumbent corporate managers and the relatively poor performance of their companies in the 1970s, agency theorists argued that there was a need for a takeover market that, functioning as a market for corporate control, could discipline managers whose companies performed poorly. The rate of return on corporate stock was their measure of superior performance, and
the maximization of shareholder value became their creed
We can only assume what would have happened to employment figures had that approach been allowed to continue.
What you've done is taken the description of the agency theorists' ideological position and presented it as a description of what happened, which it is not.
plodder wrote:
Tue Feb 11, 2020 5:43 pm
It's far more complicated (as the first paper makes clear) than simply saying manufacturing job losses are due to corporate governance. What the paper argues is that, rather than retain wealth in a corporation that can't find a way to invest it to boost the share value, it's better to return that money to investors, who will then find a better way to invest that money (p.18), e.g.
According to the logic of shareholder value theory, if corporate managers cannot allocate resources and returns to maintain the value of the shareholders’ assets, then the ‘free cash  ow’ should be distributed to shareholders who can then allocate these resources to their most efficient alternative uses. Since in the modern corporation, with its publicly listed stock, these shareholders have a market relation with the corporation, the economic argument for making distributions to shareholders is an argument concerning the efficiency of the replace- ment of corporate control over the allocation of resources and returns with market control. Shareholder value advocates, moreover, point to the stock-market boom
throughout the 1990s and the prosperity of the US economy in the late 1990s as proof positive of the economic benefits that the pursuit of shareholder value has delivered. Theory, they argue, has been borne out by practice. (examples follow)


So again, to make a fair comparison, we need to look at what employment rates would look like if this liquidity had been prevented. The USA is the richest country on earth for a reason, and innovations in capitalism are undoubtedly big factors.
Again, you've taken a description of an ideology, shareholder value theory, and misinterpreted it as a description of events, which again, it is not.
plodder wrote:
Tue Feb 11, 2020 5:43 pm
On to income inequality. Certainly the increased flexibility demanded by companies has been a factor in eroding employment rights etc. p.20 starts the focus on training and skills, and points out that investment dropped right off from the 1970s (before shareholder value was a 'thing'). It also notes the importance of highly skilled workers in competing globally, and attributes this focus to the subsequent boom in silicon valley in the 1990s. There's then a bit of a sleight of hand as they try and claim that this is a cause of income inequality, although funnily enough the authors neglect to mention the huge rise in cheap overseas "blue collar labour" as being of any importance, which is a major omission from my perspective, but perhaps it's just something that doesn't chime with their hypothesis.

Then there's a bit about how everyone's pensions depend on long-term shareholder value strategies, and a gloomy postulation that Microsoft probably wouldn't survive a stock market crash, and if you pay employees partly in shares they'd probably be f.cked. Lol.

So, again, I'm still not sure why our corporate governance has led to income inequality, although now I'm a bit more confident that people are voting for Trump, Brexit and Sinn Fein nutters because of Chinese ascendance.
What the paper says is that US businesses used to take a 'retain and reinvest' approach:
These corporations tended to retain both the money that they earned and the people whom they employed, and they reinvested in physical capital and complementary human resources. Retentions in the forms of earnings and capital consumption allowances provided the financial foundations for corporate growth, while the building of managerial organizations to develop and utilize productive resources enabled investments in plant, equipment and personnel to succeed
But that started to fall over as corporations got too big to manage...
Through internal growth and through merger and acquisition, corporations grew too big with too many divisions in too many different types of businesses. The central offices of these corporations were too far from the actual processes that developed and utilized productive resources to make informed investment decisions about how corporate resources and returns should be allocated to enable strategies based on ‘retain and reinvest’ to succeed.
....and as they faced stiffer competition from Japan.
Japanese competition was, of course, particularly formidable in the mass- production industries of automobiles, consumer electronics and in the machinery and electronic sectors that supplied capital goods to these consumer durable industries.Yet these had been industries and sectors in which US companies had previously been the world leaders and that had been central to the prosperity of the US economy since the 1920s.
The US also started to suffer because they weren't producing a well-educated working force, and were indeed disempowering their workforce as much as they could (in part because of a belief in the agency theory which boils down to 'you can't trust anyone'):
US companies tended to use their managerial organizations to develop and utilize technologies that would enable them to dispense with shop-floor skills so that ‘hourly’ production workers could not exercise control over the conditions of work and pay.
During the 70s you see a transition to shareholder value, along with financial deregulation that
permitted pension funds and insurance companies to invest substantial proportions of their port- folios in corporate equities and other risky securities such as ‘junk bonds’ and venture funds rather than just in high-grade corporate and government securities.
This and the ability to issue junk bonds leads to the hostile take-over boom of the 80s, wherein a takeover could be orchestrated:
by gaining commitments from institutional investors and S&Ls to sell their shareholdings in the target company to the corporate raider, when the target company was taken over, to buy newly issued junk bonds that enabled the company to buy the raider’s shares.
These takeovers resulted in the business acquiring a lot of debt, which meant that:
These takeovers also placed managers in control of these corporations who were predisposed towards shedding labour and selling off physical assets if that was what was needed to meet the corporation’s new financial obligations and, indeed, to push up the market value of the company’s stock. For those engaged in the market for corporate control, the sole measure of corporate performance became the enhanced market capitalization of the company after the takeover.
So
In the name of ‘creating shareholder value’, the past two decades have witnessed a marked shift in the strategic orientation of top corporate managers in the allocation of corporate resources and returns away from ‘retain and reinvest’ and towards ‘downsize and distribute’. Under the new regime, top managers downsize the corporations they control, with a particular emphasis on cutting the size of the labour forces they employ, in an attempt to increase the return on equity.

Since 1980, most major US corporations have been engaged in a process of restructuring their labour forces in ways that have eroded the quantity of jobs that offer stable employment and good pay in the US economy. Hundreds of thousands of previously stable and well-paid blue-collar jobs that were lost in the recession of 1980–2 were never subsequently restored.
And then,
While US corporate managers became focused on downsizing their labour-forces in the 1980s and 1990s, they also became focused on distributing corporate revenues in ways that supported the price of their companies’ stocks.
Now then,
Prior to the 1980s, during a stock-market boom, companies would often sell shares on the market at inflated prices to pay off debt or to bolster the corporate treasury.
But when business was booming, companies bought back the stock to help inflate their stock price, rather than reinvest that money into training, staff, equipment, etc. Indeed:
In 1998, for example, the widespread use of stock options to attract and reward employees meant that Intel spent more than twice as much on stock repurchases than on R&D (Intel 10K 1999). During the same year, Microsoft’s stock repurchases were almost equal to its in-house spending on R&D (Microsoft 10K 1999).
Add to this the trend of giving top management stock options, and you have an incentive structure that privileged stock price over everything else.

As you say, it is more complicated though, and they talk about a lot of other factors, but I'm running out of time this evening, so I'll just give the authors the last word, (my bold):
The experience of the United States suggests that the pursuit of shareholder value may be an appropriate strategy for running down a company – and an economy. The pursuit of some other kind of value is needed to build up a company and an economy.

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Re: Social effects of corporate governance, split from the election in Ireland

Post by secret squirrel » Wed Feb 12, 2020 1:45 am

Ha-Joon Chang discusses this in some of his books. Here are some relevant extracts from '23 things they don't tell you about capitalism'.
And then, in the 1980s, the holy grail was found. It was called
the principle of shareholder value maximization. It was
argued that professional managers should be rewarded
according to the amount they can give to shareholders. In
order to achieve this, it was argued, first profits need to be
maximized by ruthlessly cutting costs – wage bills,
investments, inventories, middle-level managers, and so on.
Second, the highest possible share of these profits needs to
be distributed to the shareholders – through dividends and
share buybacks. In order to encourage managers to behave
in this way, the proportion of their compensation packages
that stock options account for needs to be increased, so that
they identify more with the interests of the shareholders.

In the beginning, it seemed to work really
well for both the managers and the shareholders. The share
of profits in national income, which had shown a downward
trend since the 1960s, sharply rose in the mid 1980s and
has shown an upward trend since then. And the
shareholders got a higher share of that profit as dividends,
while seeing the value of their shares rise. Distributed profits
as a share of total US corporate profit stood at 35–45 per
cent between the 1950s and the 1970s, but it has been on
an upward trend since the late 70s and now stands at
around 60 per cent. The managers saw their compensation
rising through the roof…

Now, this unholy alliance between the professional
managers and the shareholders was all financed by
squeezing the other stakeholders in the company (which is
why it has spread much more slowly to other rich countries
where the other stakeholders have greater relative strength).
Jobs were ruthlessly cut, many workers were fired and rehired
as non-unionized labour with lower wages and fewer
benefits, and wage increases were suppressed (often by
relocating to or outsourcing from low-wage countries, such
as China and India – or the threat to do so). The suppliers,
and their workers, were also squeezed by continued cuts in
procurement prices, while the government was pressured
into lowering corporate tax rates and/or providing more
subsidies, with the help of the threat of relocating to
countries with lower corporate tax rates and/or higher
business subsidies. As a result, income inequality soared
and in a seemingly endless corporate boom
(ending, of course, in 2008), the vast majority of the
American and the British populations could share in the
(apparent) prosperity only through borrowing at
unprecedented rates.
The immediate income redistribution into profits was bad
enough, but the ever-increasing share of profit in national
income since the 1980s has not been translated into higher
investments either. Investment as a share of
US national output has actually fallen, rather than risen, from
20.5 per cent in the 1980s to 18.7 per cent since then
(1990–2009).

This is not all. The worst thing about shareholder value
maximization is that it does not even do the company itself
much good. The easiest way for a company to maximize
profit is to reduce expenditure, as increasing revenues is
more difficult – by cutting the wage bill through job cuts and
by reducing capital expenditure by minimizing investment.
Generating higher profit, however, is only the beginning of
shareholder value maximization. The maximum proportion of
the profit thus generated needs to be given to the
shareholders in the form of higher dividends. Or the
company uses part of the profits to buy back its own shares,
thereby keeping the share prices up and thus indirectly
redistributing even more profits to the shareholders (who
can realize higher capital gains should they decide to sell
some of their shares). Share buybacks used to be less than
5 per cent of US corporate profits for decades until the early
1980s, but have kept rising since then and reached an epic
proportion of 90 per cent in 2007 and an absurd 280 per
cent in 2008. William Lazonick, the American business
economist, estimates that, had GM not spent the $20.4
billion that it did in share buybacks between 1986 and 2002
and put it in the bank (with a 2.5 per cent after-tax annual
return), it would have had no problem finding the $35 billion
that it needed to stave off bankruptcy in 2009. And in all this
binge of profits, the professional managers benefit
enormously too, as they own a lot of shares themselves
through stock options.

Unfortunately, despite being the legal owners of the
company, shareholders are the ones who are least
committed among the various stakeholders to the long-term
viability of the company. This is because they are the ones
who can exit the company most easily – they just need to sell
their shares, if necessary at a slight loss, as long as they are
smart enough not to stick to a lost cause for too long. In
contrast, it is more difficult for other stakeholders, such as
workers and suppliers, to exit the company and find another
engagement, because they are likely to have accumulated
skills and capital equipment (in the case of the suppliers)
that are specific to the companies they do business with.
Therefore, they have a greater stake in the long-run viability
of the company than most shareholders. This is why
maximizing shareholder value is bad for the company, as
well as the rest of the economy.
There are some other interesting facts too, such as that the average length of time people hold onto shares has significantly decreased since the mid twentieth century, reflecting the change in the way companies are viewed by Capital.

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Re: Social effects of corporate governance, split from the election in Ireland

Post by nefibach » Wed Feb 12, 2020 1:59 am

secret squirrel wrote:
Wed Feb 12, 2020 1:45 am
Ha-Joon Chang discusses this in some of his books. Here are some relevant extracts from '23 things they don't tell you about capitalism'.
Ooh, thanks for that!

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Re: Social effects of corporate governance, split from the election in Ireland

Post by discovolante » Wed Feb 12, 2020 8:13 am

On a book-y note, I see that Thomas Piketty has a new one out next month. It doesn't look like it has such a focus on capitalism alone but looks like it could be interesting.
don't get any big ideas, they're not gonna happen

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Re: Social effects of corporate governance, split from the election in Ireland

Post by Woodchopper » Wed Feb 12, 2020 8:38 am

One brief point. Shifting production abroad has been mentioned as being a cause of manufacturing job losses in the US. But as we've seen with the Brexit debate there is a limit to how much production in China etc can be part of integrated supply chains used in just in time manufacturing, and for products, the US still has tariff barriers to protect its domestic industries. Also most 'foreign' cars in US or UK markets are made there (eg the Nissan plants in Sunderland and in Tennessee).

Another significant reason for manufacturing job losses in the US and in Western Europe has been automation. It takes far fewer workers to build the same number of cars than it did in 1980, and the same applies to every other manufactured product.

This may have been due to ruthless cost cutting. But its a complex and difficult question as to whether replacing human production line workers by machines is a good or bad thing.

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Re: Social effects of corporate governance, split from the election in Ireland

Post by plodder » Wed Feb 12, 2020 9:39 am

Lots of good detailed responses there - and give me a little time and I'll see if I've a sensible response.

But what appears to have been missed is that this ruthless cost-cutting both increases liquidity, allowing investments to flow where they can do the most good - a key concept - and that the cost-cutting lowers costs (surprise, surprise) and therefore prices - and therefore makes the businesses deliver more bang for their buck.

So (for me) the question isn't why don't businesses retain as many staff as possible on as favourable terms as possible, because the answer to that is obvious - their competitors will eat them for breakfast.

For me the question is why new companies don't start up in the gaps from all this downsizing, and why this doesn't create new jobs etc, more than filling the gaps. And I think the answer is because incumbent mega-corporations often act like monopolies, stifling competition.

You want to start a new internet browser, or a bank, or an insurance company, or a social media firm, or an online shopping platform? Good luck with that! You want to start a property development firm? Good luck securing land that isn't already banked away. Etc.

The solution (at least in part, to me) is to break the big players up.

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Re: Social effects of corporate governance, split from the election in Ireland

Post by Woodchopper » Wed Feb 12, 2020 9:52 am

Apologies in advance for brevity.

A problem with your 'break them up' argument is that often the biggest way that megacorps stifle competition from startups is through economies of scale. Some people object to McDonalds, Greggs and Starbucks on every high street and would prefer lots of independent places selling burgers, pasties and coffee. But the huge chains are very much more efficient - eg one chain with 1 000 burger restaurants has lower costs than the aggregated costs of 1 000 independent restaurants.

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Re: Social effects of corporate governance, split from the election in Ireland

Post by plodder » Wed Feb 12, 2020 10:06 am

Agreed, setting the threshold for "monopoly" is difficult. I think they currently use more than a certain percentage of market share to say "actually, what you're doing now is harmful".

Where I think this is a real problem is where large firms are multi-faceted, so they control multiple markets at once. Amazon's a great example - huge innovation, incredible service, changed retail for ever. However they're also undercutting their competitors on tax, and there's a strong sense that their dominance is becoming increasingly toxic.

Similarly google / facebook - these guys can influence elections. That's too big.

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Re: Social effects of corporate governance, split from the election in Ireland

Post by dyqik » Wed Feb 12, 2020 11:18 am

Woodchopper wrote:
Wed Feb 12, 2020 9:52 am
Apologies in advance for brevity.

A problem with your 'break them up' argument is that often the biggest way that megacorps stifle competition from startups is through economies of scale. Some people object to McDonalds, Greggs and Starbucks on every high street and would prefer lots of independent places selling burgers, pasties and coffee. But the huge chains are very much more efficient - eg one chain with 1 000 burger restaurants has lower costs than the aggregated costs of 1 000 independent restaurants.
McDonalds, at least, is a franchise operation. The risks of starting up a new outlet are borne largely by the operator of the franchise, while the efficiencies of scale in distribution and in uniformity of what's supplied to the individual outlet still apply. So while the "one chain" bit above applies, there's also an effect of distribution of risk to capital - the "company" takes less of the risk in expanding than a true single owner company chain would.

That also means that defining McDonalds as a monopoly would be really difficult.

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Re: Social effects of corporate governance, split from the election in Ireland

Post by Bird on a Fire » Wed Feb 12, 2020 11:39 am

dyqik wrote:
Wed Feb 12, 2020 11:18 am
Woodchopper wrote:
Wed Feb 12, 2020 9:52 am
Apologies in advance for brevity.

A problem with your 'break them up' argument is that often the biggest way that megacorps stifle competition from startups is through economies of scale. Some people object to McDonalds, Greggs and Starbucks on every high street and would prefer lots of independent places selling burgers, pasties and coffee. But the huge chains are very much more efficient - eg one chain with 1 000 burger restaurants has lower costs than the aggregated costs of 1 000 independent restaurants.
McDonalds, at least, is a franchise operation. The risks of starting up a new outlet are borne largely by the operator of the franchise, while the efficiencies of scale in distribution and in uniformity of what's supplied to the individual outlet still apply. So while the "one chain" bit above applies, there's also an effect of distribution of risk to capital - the "company" takes less of the risk in expanding than a true single owner company chain would.

That also means that defining McDonalds as a monopoly would be really difficult.
Two potentially stupid questions for your delectation:

1. What would be the problem with considering the number of outlets the franchisor gets fees from? We can easily count how many McDonalds there are, they are all selling the same stuff, etc.

2. Is the law surrounding 'franchising' in need of a bit of reform? It seems to be used to make things murky for the benefit of wealthy capitalists, such as facilitating tax avoidance and covering up monopolies.
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Re: Social effects of corporate governance, split from the election in Ireland

Post by plodder » Wed Feb 12, 2020 11:42 am

not sure I quite understand your 1st question - I think most franchises are probably 1 store or 2, max.

your second question - I don't know what the law around franchising is now!

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Re: Social effects of corporate governance, split from the election in Ireland

Post by dyqik » Wed Feb 12, 2020 12:05 pm

Really difficult doesn't mean impossible. From what little I understand of monopolies law, you could use (the principles of, if not the actual letter of those sections in various laws) the cartel parts against groups of franchisees that are effectively operating as a single enterprise from the consumer's point of view.

But be prepared for political statements like "driving thousands of small family owned businesses out of operation", etc.

I was really making a wider point though - one of the big developments has been in how corporations are structured, and how that separates front line employees and consumers from corporate ownership and strategy, and the interaction of corporate structure with shareholder risk and return.

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Re: Social effects of corporate governance, split from the election in Ireland

Post by Bird on a Fire » Wed Feb 12, 2020 12:15 pm

dyqik wrote:
Wed Feb 12, 2020 12:05 pm
Really difficult doesn't mean impossible. From what little I understand of monopolies law, you could use (the principles of, if not the actual letter of those sections in various laws) the cartel parts against groups of franchisees that are effectively operating as a single enterprise from the consumer's point of view.

But be prepared for political statements like "driving thousands of small family owned businesses out of operation", etc.

I was really making a wider point though - one of the big developments has been in how corporations are structured, and how that separates front line employees and consumers from corporate ownership and strategy, and the interaction of corporate structure with shareholder risk and return.
Fair enough.

I wonder if improving 'vertical integration' - the imbalance in power, income and wealth from entry-level workers up to shareholders and directors - would have more benefit than increasing 'horizontal fragmentation', e.g. stopping a taxi app from also running a city's buses, or whatever. Often it seems like the risk gets pushed down the chain of command while the rewards get filtered upwards.
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Re: Social effects of corporate governance, split from the election in Ireland

Post by Woodchopper » Wed Feb 12, 2020 12:31 pm

dyqik wrote:
Wed Feb 12, 2020 12:05 pm
Really difficult doesn't mean impossible. From what little I understand of monopolies law, you could use (the principles of, if not the actual letter of those sections in various laws) the cartel parts against groups of franchisees that are effectively operating as a single enterprise from the consumer's point of view.

But be prepared for political statements like "driving thousands of small family owned businesses out of operation", etc.

I was really making a wider point though - one of the big developments has been in how corporations are structured, and how that separates front line employees and consumers from corporate ownership and strategy, and the interaction of corporate structure with shareholder risk and return.
As far as I'm aware you are correct. Laws aren't designed just to prevent monopolies per se, but to prevent anti-competitive practices which would end up harming the consumer (and most monopolies would do that anyway). So if in a city the only fast food burgers were from McDonalds, it would still be a problem if they were all owned by different franchisees. There is enough to link the franchisees together - eg the massive corporate marketing budget or central purchasing of ingredients.

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