The First Problem
The First Problem
The economy in the world today is not all beer and skittles, unless you're at the very top. Numerous sources cite the astronomical gaps, like the top 1% owning as much as the bottom 50%. Even with the numbers improving and low unemployment, it doesn’t feel better to most folks.
The economy can be good and bad at the same time. Productivity and stock values can go up, but, if wages don’t rise by as much or more than inflation and cost of living still outpaces them, then the prosperity is being hoarded, and the economy is not all well.
Screwing with the basic premises got us here. Let’s look at them.
The trend towards cutting expenses in favor of boosting profits has been going on for a long time. And, of course, this is a valid and understandable strategy for a company operating at a loss. No one would begrudge a store-owner laying off employees if business is down. Revenue declines usually signal one of two things- either the product(s) sold lost their demand, or the market has less income to purchase those products.
This is an understandable and predictable part of any free market economy. A money-losing reduction in demand often requires a reduction of overhead to stem the losses. This is generally accepted as a fact of operating 'in the red'.
Except, that's not always the case anymore. Yes, many companies still follow this paradigm, but they are predominately small businesses such as independently owned stores or local service industries, or manufacturers and distributors of discretionary spending items.
This is a result of the contracting economy, anybody will tell you. When businesses lose money, they have to cut costs- it's a no-brainer.
Except that it's a partial truth that provides a large smokescreen for two great big lies.
Theoretically, a business that is turning a profit, or operating in the black, does not need to cut its overhead. If everyone's been paid and the product has been produced and sold for a profit, mission accomplished, right?
Um, no.
For the last forty years, Wall Street, finance and their corporate peers have fostered the 'right to higher profit' as justification to actively and constantly continue to cut costs, raise prices and increase margin, far above and beyond being merely profitable.
This is an indisputable fact of life- the Dow average and corporates profits are at, historically, the highest levels ever, and 90% of the population is experiencing contraction of worth from inflation and rising costs. The bottom 50% is experiencing record levels of poverty and the number of people qualifying for government assistance is multiplying constantly. Walmart alone is renown for having a major part of it's full-time workforce qualifying for and receiving food stamps despite being employed by a major, highly profitable corporation whose principle shareholders have a combined wealth over $100 billion.
To support this imbalance against obvious logic, two incredibly bogus ideas have been implanted into the public's consciousness during these last three decades.
First, there is now an implicit understanding that the right to profit is inviolate, stated in the Declaration of Independence and protected by the Constitution.
The divine right to 'pursue happiness' is guaranteed, not the right to catch it. The Founder's knew that no one is guaranteed success just because, but they resolved that every person has the right to freely follow their heart and desires at their own favor or peril. The right to try to be happy. Succinctly put, the Declaration says that we are born with the right to be alive, without subjugation, and as happy as we can muster.
There is no such thing as a divine right to profit. This absolutely includes the right to make more money because your profit is not big enough for you. Yes, that's nice, and yes, you have the right to try, but you are not owed it out of divine right.
Shareholders have a right to invest, but profit is not guaranteed. When there are profits to shareholders, it does not in any way mean that they now have the divine right to increase them. Profit is never guaranteed, especially by the law. The right to try is all that's a given, no more. Once you're doing it at a profit, it's assumed that you've achieved that pursuit of happiness. You are now happy.
“Yes, but I want to be happier. Much happier. I want to be the happiest person on the planet. There are no bounds to the limits of happiness I'm guaranteed the right to pursue. I may have and pursue as much happiness as I possibly can and get it any way I can.”
Sounds pretty stupid when you spell it out that way, but it's basically the only defense that billionaires like the Walmart family can cite to explain their poverty-level wages when they're the largest retail employer in the country. Their constant discount demands from manufacturers cause outsourcing of jobs to China en masse to compete. It's quite clear that it's not necessary for them to do this just to be profitable, as Costco does exactly the opposite, paying good middle class wages with full benefits and the result is a profitable, well-regarded and stable company with low workforce turnover and great employee efficiency.
The blurring of the line between the right to pursue happiness and the right to make ever-larger profit has kept support high for the corporate business world adopting this mantra, now accepted as fact.
This absurdity of divinely bestowed greed is amplified and supported by the other great big, whopping lie.
That corporations exist for the sake of profit and are required by law to do so.
Oh, gee- look at the time!
Well the small part of that is easy enough to dismiss- there is, in fact, no law whatsoever that says corporations are required to maximize profit. None. Bupkis. Zip. Nada. Less than zero.
There are some civil precedents that have a bearing on similar civil cases involving proper compensation of shareholders, the most famous of which is Ebay vs Facebook. Ebay won the right to transparency of revenue pursuant to their contract with Facebook, which resulted in maximization of their profits. This is not a law. It's a legal precedent for similar situations, and nothing more. These misconceptions led to the idea that maximizing profit is a law. It's not.
But, to the larger issue, that corporations exist to make profit, period. This implies that they were invented for that reason alone.
Well, they just weren't, period.
Originally, a corporation was just a name for a group for business purposes. Various clubs, fraternities, unions, civic groups, local municipalities- anyone who had reason to conduct a business transaction on behalf of a group of members or participants at once could be 'chartered' and recognized by the ruling authorities.
Ostensibly, the reason to do this was primarily to achieve larger projects. To do, as a group, what could not be done as individuals. To combine assets and skills. The latin ‘corpus’, or ‘body of people' was the popular definition for many centuries. It could be a business, say some contractors and a quarries joining together to build larger projects by pooling all their resources, but it could also have been a church group that needs to buy all the prayer books for the members at once, in the name of the group rather than each particular individual. This was further legally codified in the late 18th century, by Stewart Kyd, the author of the first English treatise;
“…a collection of many individuals united into one body, under a special denomination, having perpetual succession under an artificial form, and vested, by policy of the law, with the capacity of acting, in several respects, as an individual, particularly of taking and granting property, of contracting obligations, and of suing and being sued, of enjoying privileges and immunities in common, and of exercising a variety of political rights, more or less extensive, according to the design of its institution, or the powers conferred upon it, either at the time of its creation, or at any subsequent period of its existence.”
—A Treatise on the Law of Corporations, Stewart Kyd (1793-1794)
So, not a word about profit, unless you take 'enjoying privileges' that way. And, it's of note that the word 'business' also does not appear. It describes transactions and activities, but not one is mutually exclusive to any kind of business entity. It could be a VFW, or a bingo club.
The convoluted and immensely complicated way we've written our corporate codes in America has changed the way corporations are chartered, and thus led to much confusion. Because of the legal and financial requirements and costs, it's not feasible for just any group to be a corporation, so, we have 'dba', or 'doing business as', that you sign up for locally and get the benefits of Kyd's definition.
The East India Trading Company, one of the oldest known trade corporations, was chartered by Queen Elizabeth for a most obvious reason- her military certainly wasn't going to buy, package and bring back all the spices and goods they were conquering throughout Asia and India. Tea alone required a larger entity to ship and market.
How much profit you can make has nothing whatsoever to do with whether you're a corporation, a business, or an individual. It just doesn't. Lot's of corporations die because they didn't profit, lot's of individuals thrive without being corporations. Lots of businesses thrive without being either. (Partnerships).
You have the right to try and make a go of your direction in life. Nobody is required to give it to you, and incorporating yourself will not magically grant you this right. You have to do the work.
Our problem, as many are aware, is really the massive disparity within the economy that's continuing, largely because of the acceptance of these errant assumptions by significantly corporate-empowered political entities.
We've seen companies making hundreds of millions in profit close down plants and move to China or points elsewhere in Asia, sometimes bankrupting entire communities of employees, for a small increase in profit percentage. One American company, making an estimated $250 million in the previous quarter, moved a US factory- one of their eight global factories- and all their own proprietary machinery and everything, to China to save on their $8 million stateside skilled workforce. Worse yet, with this huge margin and only 200 employees, they still decided that moving to China was a 'go'.
So, the original reason to do business, the actual task or product, is subjugated to the right of the largest entity to make the largest profit. Well, that's how we let it play out. Not that we have much choice.
Because the largest and most needed industries are now margin-based, regardless of market health, we've seen a major, full blown Recession and then, after a pandemic, unprecedented inflation, only now being corralled back towards normal.
Needs have always driven every economy. When needs are exploited, the discretionary market fails. When that happens, there is less income in the market, therefore less revenue overall. Since 1980, we've seen our accepted percentage of income as rent and utilities go from one third to two thirds, or, for some, even higher.
This is partly because too many, too large, too invasive corporations are playing the margin-first game. Sadly though, some of the ones that would most alleviate the pressure on the market and make it grow unilaterally are being prevented by those obsessed with extending their own profit exclusivity.
This is, of course, very bad for a free market economy, as it amounts to pirating by the necessary commodities. It weakens the entire structure for the sake of a few at the top. Who cares how much profit you think you deserve- screwing the whole market is not a good idea, even for your own sake, however selfish.
Some businesses are ephemeral. Face it and learn what's next.
Or, if you have enough money, you can just destroy the competing idea, right?
Well, that's how we do it now.
We didn't always.
Buggy whips aren't anywhere near as popular as they once were, because, obviously, horse drawn carriages have been replaced by cars in everyday use. Sure, there are still horse-drawn carriages to be found around the country- wedding procession services, city and park tours, for example, so a small amount of buggy whips is still being made, but it's no longer a profitable common product, relegated to being a specialty part of the saddle and bridle industries, or, more accurately, the single combined industry of equestrian equipment.
The horse and buggy is the stereotypical advancement of technology icon. Of course the car replaced it. And we owe that change largely to Rockefeller and Ford. Their two powerhouse ideas combined to form a revolutionary change in transportation. Combined with Edison's (Tesla's) electricity, and natural gas, a side benefit of oil drilling, and Bell's telephone, this established the basic transportation and utilities set that we live by today.
All individual ideas that became large tasks performed by corporations. So far, the only arguable foul is the environmental concern, of which they had no perception. (Not letting oil off the hook there, but it's true.)
Suppose, for a moment, that we never 'grokked' oil. No Rockefeller, no Standard oil. No petroleum behemoth that dominates the world economy.
Cars were not mutually exclusive to petroleum gasoline. Nor was Ford the inventor of the automobile. A wide range of fuels were tried before oil. Ethanol and hemp fuel were the most prominent. Ford originally designed his engine around hemp fuel, so he might have still one day released his landmark 'Model T'.
But, what if, say, the Buggy Whips for America Coalition had combined to prevent the auto industry through politics and lawsuits to maintain their market size and margin. Suppose the whole buggy and carriage consortium joined together to keep cars off the map as a mainstream product that would replace horses, which they made a pile of dough by whipping. Ford and his cars were evil, against God, and would destroy America.
Of course, it's silly to say such things, I mean- buggy whips- come on.
Yes, it is. Silly. How could there ever be such a thing as a business actively destroying or squelching a competitive practice or product to maintain their dominance and profit margin?
It's a ‘coincidence’, entirely, that criminalizing hemp happened right when textile petroleum byproducts had just been patented by the oil and chemical companies. (??)
The daily rants on talk radio about how green technology is communist have nothing to do with the fact that they would ultimately displace petroleum and natural gas in our commodities sector. Rush Limbaugh said so.
Who would lose money if solar was developed to its full extent, safely made and widely employed? The fossil-fueled power company it replaces. Could they do it themselves and pass the savings on to us at a still-healthy profit?
Yes.
Will they?
No.
The margin is the margin, and that's how we base our margin, not to marginalize it.
Shareholders say margin can't go down to implement an upgrade unless there is a profitable tax break or something that makes it beneficial. But, reinvesting some of the profit back into the company is the only way that many small businesses can grow and stabilize enough to make it. Their margin at the top has to rise and fall as the market fluctuates.
It's actually a smaller, tax deductible expenditure for oil companies to spend political money discrediting solar technology and alternate fuels than to jump in the game and keep their core product as their revenue in the more general sense.
Those who do embrace the technology are not likely to discount for it, but rather to reap the increased margin.
Unfortunately, they gauge these daily commodities' expected profit margins- what the market will tolerate, by how much we pay before we default. As long as enough of us pay our monthly bills, they will keep raising rates. Wall Street and the financial sector will never look at what's happening with the rest of the market and make appropriate reductions or re-investments. If they do charge too much and too many people default, they will not reduce their rates, but rather stop service and possibly close or sell the company.
The only way this mindset can be changed is through an extreme, communally binding experience. This was what the country experienced in World War II. This was the reason for the greatest financial prosperity in our history. This was happening, despite corporate tax rates as high as 90% under Eisenhower, because big business had the market first, smaller-take-of-larger-pie mentality.
Had they maintained that while still receiving Reagan's and the Bush's tax cuts, as in, not cutting jobs, wages, benefits, etc while still raising prices (take the increased profit from the lower taxes and be glad and feel thanked for helping America), we would still have a larger, thriving middle class, and a much lower poverty rate, and still billions and billions in profits for likely the same bigwigs that are pushing the envelope for that profit alone now.
It's not impossible, illegal, anti-capitalist, socialist or any 'ism' to do it. Corporations are not bound legally or traditionally to exist for-profit alone or to maximize profits. That's why we have so many, and such a thing as, 'non-profit' organizations.
It's good business to put some investment back into the market when the market has been good to you. Mucking up the conversation with politics and blaming liberals or the president or unions or whatever commie conspiracy theory you can articulate doesn't change the fact that there is more than enough revenue and capital in the market for there to be no such thing as a poverty class, which would reduce public assistance in all forms dramatically.
The top end of the private sector has forced this contraction, indeed, aggressively executing it since the Reagan years, in full cognitive dissonance of basic free market rules.
The private sector has to fix it by embracing that 'larger-pie' ideal. If they remember how.
They can ask any of the other, discretionary businesses that they imperil, who have no choice but to do this and obey the market.
C.2024 Cousin B
