Why capitalists destroy themselves

I just now wrote a comment on Riverdaughter's site that is rather juicier than anything I've written for my own in the past few days. So let's haul those words over here.

RD wrote a piece about Merck's recent massive round of new layoffs. Her post includes these words:

Well, if pharma is any indication of what is really going on, globalization is a fad. That’s what the business people do. They chase fads and trends. They rarely follow up on their initial enthusiasm to see if the fads actually add to their bottom lines. It’s the initial savings that they care about because that’s immediate, it’s quarterly and they think better in 3 month increments.

My words of response:

This is it. You have put your finger on the problem — on the reason why you are out of work.

Speaking as a lefty, I don’t hate corporations — I hate corporations that think like THIS.

It was only in the 1980s that the mania for maximizing shareholder value gripped American industry. This mania led to a lot of ruinous short-run thinking. Why? Because shareholders don’t care about the long run. They can buy and sell stock on a moment’s notice; they really don’t have much stake in a company’s long-term future. Yes, they can choose to stay with a single company for the long haul -- but they can also switch their affections at whim.

Jack Welch, the CEO of GE, was the one who ruthlessly pushed the idea of focusing only on shareholder value to the detriment of all other considerations. He started that crusade in 1981.

More recently, Welch said that his mania for shareholder value was “the dumbest idea in the world.”

Focusing only on the bottom line for a single quarter can lead a company to do a lot of things that will destroy its own long-term viability. Over time, that sort of there-is-no-future thinking can injure the viability of the nation itself — perhaps even of capitalism itself.

You might increase your short-term profits if you institute ruthless outsourcing or layoffs or plant closings or whatever. But for a company to grow, it needs to invest massively in things that the shareholders, who can’t see beyond the immediate horizon, may not like.

You want to grow a company, to create a new Toyota, a new Merck? You have to encourage long-term thinking. Alas, our present system does not do that.

This is why I think the left MUST differentiate between finance capital and industrial capital. They are two separate animals.

In other countries, companies depend on investment from banks owned by the state. (Often, the ownership is hidden behind a veil or two, but it is there.) That sort of funding can encourage a corporation to think beyond the quarter.

Do I favor socialism? Not for industrial capitalism. But for finance capitalism — yeah, we need much more government involvement. Industry pumps blood into the system; the financiers are vampires.