Tuesday, May 08, 2020

Should business priorities dictate so much else?

Pressure from the “money men” is often blamed for increasing stress on managers and, through them, on the organization as a whole. Why should this be?
Wall Street, like all stock markets, began as a way to raise money from people who wanted to take a share in the profits of the businesses that they invested in. Now it seems to drive everything else. At least when sharing in the profits is your goal, your interest is in a steady flow of good dividends. That’s a medium-term objective—maybe sometimes a long-term one too. So how did the modern craze for instant gratification arise?

Nowadays, most of the people on Wall Street are traders. They make their money by buying and selling shares, or gambling on share movements via so-called “financial derivatives.” Dividends are of little interest. Many businesses no longer pay any. Long-term success is also a minor concern, since few traders hold shares for the longer term. They want profits, and they want them now, so they can use them to trade some more.

The result is rampant short-termism. Buying and selling (trading) is essentially a short-term business. Besides, the traders have little or no interest in what they are trading, just as long as they can sell for more than they paid—hopefully in the shortest possible time—and move on. Hence the emphasis on quarterly figures as almost the sole criterion of success.

We also live in a time when it has become fashionable to believe that the ideas and practices of capitalist business apply to many other walks of life. Government departments, health care facilities, charitable organizations, even the arts all try to organize themselves based on the business world.

Capitalism may well be the best way that people have yet found for dealing with business and creating wealth, but it’s arguable whether its priorities should be the ones that determine so much of our lives. As a purely financial outlook, it has difficulty in dealing with “soft” human issues like compassion, altruism, and care. It cannot easily recognize value that can’t be counted or measured.

It would make more sense for us to accept that capitalism is the best we’ve done so far in one aspect of life, but keep it in its place. For the rest of our choices, other approaches need to be found. And even in the business world, I can see no reason why modern capitalist consumerism should be taken to be the last word. It may be as good as it gets at present, but that doesn’t mean we shouldn’t be using our creativity and brainpower to find even better, more civilized, ways of organizing wealth creation in the future.

What do you think?

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Steve said...

Hi Coyote,

With this post I believe you are at last cutting to the chase. It seems reasonable to assume
that it is the increased competitive pressure that the majority of companies are under which is resulting in “Hamburger Management” Companies which are profitable tend to have more
humane leaders. However I would argue that the profits come first the humane leaders are a result of that.
I like your explanation of Wall Street´s and presumably other stock exchanges short sightedness. I assume it has always been so but that the technology breakthrough of the 80s
accelerated and increased the phenomena. I would like to hear your reasoning as to why it has become so.
I too have a background from the UK but now live in Sweden and have done so for many years. Here we have a degree of state intervention which I think my American friends would think is bordering on Communism. However I think it is fair to say that the system works and I don’t feel my life is lacking in freedom. That is not to say that it is perfect merely that the quality and value of goods and services does not appear to depend on private or public but more on individual leaders and there ability to manage an organisation.
As regards the present economic system it is always very sensitive to argue alternatives.
Economics seems to be equated with religion these days. I think Wall Street was never designed to be a short term trading centre but it is not beyond our powers to reform it to be
a useful source of capital again if we have the understanding that it is necessary.
The BBC radio had a program about the price of cotton. A T shirt in New York costs a dollar fifty but sells for ten dollars. That means growing, transporting to China, manufacturing and then transport to the US of the T shirt are all covered by a dollar fifty. Selling it costs eight dollars fifty. This in my opinion is a massive distortion of the market. I would like to hear a defender of the status quo justify this amount of profit. Again when we realise the necessity for change it is achievable. Regrettably a lot of business is dependent upon a total lack of transparency.
Really enjoy your blog. Keep up the good work.

10:00 AM  
Carmine Coyote said...

Thanks for a great comment, Steve.

I agree with you that humane leaders and well-run organizations produce profit and the humanity comes first, not the other way around. That's like people who say they'll take some time for themselves only after they've achieved their next goal. It never happens. There's always another reason to put it off.

Yes, many Americans automatically see anything other than "The American Way" in a negative light. But we all do it to some extent — let our assumptions trap us into negative judgments without any real reason other than whatever it is is different than what we're used to. I like Sweden very much and have always believed it to be an unusually civilized place. Not perfect, as you say, but still an interesting experiment in trying to blend social concern with a basically capitalist system.

Profit is a contentious topic. Is more better? Personally, I don't think so. Profit is needed, but there is surely a point where the benefit of the many must outweigh the financial aggrandizement of the few. Exactly where that point is ought to be the subject of much more open discussion.

Thanks again for a thought-provoking comment. Keep reading, my friend.

11:03 AM  

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