Good Example of Why American-Style Capitalism is Bad

Politics International Politics
1

The guy in this article came up with a better battery that will go into hybrid/electric cars, giving them up to 100 mpg apparently. When he went to start a factory to produce them purposely in the US, to purposely build up the US manufacturing base and give Americans jobs, Wall Street turned him down because he would make more profit if the factory were overseas, like China.

Not because the company wouldn’t turn a profit, but because it wouldn’t turn as much profit as it could by producing overseas. At the same time, the major reasons for it being so much cheaper in China include little to no environmental laws and enforcement, very low labor costs with lower labor standards, and a much lower standard of living than an American in a similar job.

So the guy opened a facility in China just to get the business going. Meanwhile, the US government, trying to build a manufacturing base and get American jobs back, funds him for 250mil to build the factory in Detroit. So the US government, providing loans because “not enough profit” from private business, does the right thing.

Now the Wall Street companies that turned him down were following the capitalist mandate to maximize profits. So technically, they did their job. But why should the government have to step in? Private industry, especially in sectors like finance, pharmaceuticals, insurance, and oil (that I can think of), has become monstrous, and anathema to the things that make a country great and keep its people safe and happy. Maximizing profit at the expense of American jobs, at the expense of dumping entire industries overseas, at the expense of the environment (even if the direct effects are “over there”) - this need to be regulated, because the companies are not going to regulate themselves. Profits need to be regulated, or at least the quest to maximize them.

This is one reason why the way the stock market currently works is sometimes not good for the country, and why people shouldn’t always be so happy when “the stock market’s up today! woohooo”.

http://articles.latimes.com/2010/may/08/business/la-fi-green-manufacturing-20100509

Of course, I could be wrong

2

I agree with many of the points. Why did this happen. Because many multinationals can ride the globalisation wave, cutting costs here, expanding markets there.
They don’t care about one single market as they can make the difference somewhere else, or thought they could. They should be careful not to cook the golden goose that is the American consumer by cutting too much of his salary and pay. This is not going to be replaced anytime soon by the Chinese.
Another reason is that Wall Street financiers make money from stock plays and short-term trading. They are not so much into holiding and building companies for the long-term. Some private equity gets involved for medium term but again they usually want to split businesses up, hive off profitable parts, utilise the brand equity or sell them on again when the cycle favours them.

To me the single biggest problem is short-termism, the more that companies get influenced by major hedge funds the worse it will get for them. These hedge fund managers get bonuses on an annual basis. They just want to see the stock go up every year no matter what. They don’t make anything investing now to get a payback five years later. Then you’ve got short-term CEOs, most of whom come in, pick up their big salaries and bonuses for a few years and leave again.

So the way the whole system, along with the constant supply of easy credit into the system for decades (and continuing even now), is structured creates these crazy dips and booms…

As somebody who works in a small version of one of these organisations, I have seen these practices, they are truly counterproductive but the way companies are structured doesn’t give enough say to middle management, if the CEO wants to do it there is nothing anybody can do…companies might be better of being run by boards of middle managers who have worked for the company long-term,who vote on major decisions, not by ‘superstar CEOS’ who are temporary workers.

3

I see a need to limit income here. Limiting income will limit the amount of profit an individual would care to make, since any additional income would go “back into the pot”. By limiting individual income, you have a direct effect of limiting salaries. Ad this means you likely have more money to pay the rest of your employees better, or to hire more employees, or to keep existing employees around during down times. You also in effect limit the maximum acquirable profit of stocks in general (since no one can make more than x per year no matter how good the stock does).

And then, once you’ve limited the maximum profitability of stocks, you are on a course to removing maximizing profits as a primary goal of big business, and get them back on course to making money while performing a service. I guess you could also limit the overall profit of a given company. Not sure how to do that though, since there’s an issue of scale, in what is being produced and how many people are working there, and how many shareholders there are.

But since we are never gonna actually limit income and start the dominoes, the closest we can come is to put in a huge top bracket income tax, like the 70-90% that we had in the US from 1930-1970’s. I think I just argued this in another thread. But yeah, limiting income has a whole bundle of good domino/side effects, and if you think about it, what the hell does anyone do worth more than say 200 times more than anyone else who is busting their ass? Why should anyone be so rich that their grandchildren’s grandchildren never have to work?

4

I think the CEOs pay should be linked to middle managers pay should be linked to general operatives pay in a certain ratio. There is no way CEOs are worth 100 times general ops pay…no way in hell.
What does the ratio effect do, it links operativeand middle manager pay to CEO pay. The CEO wants more pay he has to raise operative pay. He cuts pay he has to cut his own pay. The CEO pay should only be 2-3 times middle management pay in my opinion, but he may get a more generous profit share.

In fact there is probably no need for a CEO at all, just a general maanger for day to day and co-directors who vote on major decisions once a week. Another option is to make it a fixed duration. Then management level get to vote every two years. To be a leader of a large business should be a respectable position, not only about personal profit and reputation.

This whole insert a superstar CEO culture has been promoted by the MBAism and business school culture of US. The same with consultants, they get paid even if their
advice doesn’t work out.

If I setup a company I would never run it like a public company. I would always backdate bonuses for CEOs and directors 3-5 years.

5

[quote=“headhonchoII”]I think the CEOs pay should be linked to middle managers pay should be linked to general operatives pay in a certain ratio. There is no way CEOs are worth 100 times general ops pay…no way in hell.
What does the ratio effect do, it links operativeand middle manager pay to CEO pay. The CEO wants more pay he has to raise operative pay. He cuts pay he has to cut his own pay. The CEO pay should only be 2-3 times middle management pay in my opinion, but he may get a more generous profit share.

In fact there is probably no need for a CEO at all, just a general manger for day to day and co-directors who vote on major decisions once a week. Another option is to make it a fixed duration. Then management level get to vote every two years. To be a leader of a large business should be a respectable position, not only about personal profit and reputation.

This whole insert a superstar CEO culture has been promoted by the MBAism and business school culture of US. The same with consultants, they get paid even if their
advice doesn’t work out.

If I setup a company I would never run it like a public company. I would always backdate bonuses for CEOs and directors 3-5 years.[/quote]

:bravo: I absolutely agree. I was just arguing with some friends about this the other day actually.

6

Interesting but vapid because they don’t detail the real problems of opening and running a factory in the US.
-Environmental impact, try opening a lithium anything in the US, watch as environmental groups you’ve never even heard of come out of nowhere and make sure you don;t open anything. Lithium is some nasty shit.
-Time, 18 years is a long time to wait. Look at the HSR in Taiwan, it would be doing a lot better if it hadn’t had to take an extra year lying around waiting to be built. All that time is just time for the interest on your loans to eat away at your capital causing you to go under due to under-capitalization
-Unions, Just wait till he has his first strike.
-Tax credits and state provided low interest loans, Michigan basically bought the jobs. Was this the wisest use of state money?

Manufacturing didn’t leave the US, the US left manufacturing. No one in their right mind would locate a factory in Michigan. You have antiquated unions, raising power costs and environmental protections that can be exploited. You also have a fierce trial lawyer system that can easily bankrupt you. Companies that bought companies that used to make asbestos went bankrupt. Those jobs didn’t disappear, they just moved elsewhere. I’d consider a person insane for opening up a factory in a closed-shop state.

I’d could give a fuck less about CEO pay versus govt bureaucrat pay that goes towards people who make nothing and can never be fired. A CEO fucks up and he’s out. A govt bureaucrat that takes your land, seizes you assets or takes away your children under mistaken circumstances not only gets to keep his job, but also gets a higher pay than in the private sector most likely with benefits so generous that private companies had to stop providing them.

7

It’s just common sense as applied to business. But it’s also about a sense of fair play to the company, shareholders and workers. Businesses operate as part of society and should also respect where they were founded and grew. I have seen some bad effects of UK businesses being taken over by American multinational companies, while they invest in some parts they don’t care about the ethos or the contribution of the previous workers to the building of a strong company with a good reputation. Further when companies are chopped up or parts moved to low cost countries for short-term gain they actually risk losing the brand equity and customer trust that they built up over decades. Just for a few more dollars on the present years balance sheet. Not only that when key technologies are moved out of the company and into places like China it’s just creating new competitors for yourself. Of course the current CEO will probably not be around in 3-5 years when these competitor companies that you created come back and bite you. The stock investors don’t have a long-term plan…then cause problems for the companies they invest in just like in the article about batteries above.

The easiest thing for a newly hired CEO of a company to improve balance sheet and satisfy their ‘mandate’ is cost-cutting and off-shoring, the ill effects may not show up for a couple of years. The blind following of annual and quaterly reports is really dumb.

I am somebody who has benefited a little from globalisation in career opportunities and yet I can’t help but be angry at some of the practices and treatment of workers when these small but strong companies are absorbed into conglomerates.

Okami, there is truth in what you say but it shouldn’t all be about the bottom dollar and avoiding pollution regulations, especially for something that’s supposed to be a green product. Legislation should be be put in place to balance out this. China gerrymanders the system with a underpriced currency and lack of care for its own environment and own workers. China also fixes the system in favour of local businesses for local market, only a dumb schmuck can’t see that. In addition, CEOs fuck up all the time but they have already made their millions so it doesn’t matter!

8

As for use of state money, yes, it is probably a very wise use of state money. Compared to bank bailouts, government workers, social welfare, insurance payouts…it sure seems wise to me. Opening a factory these days is surely very different than decades ago. The Japanese have many productive factories in the American south.
As for manufacturing batteries in the US, a tariff should be placed on batteries produced in areas that don’t follow US environmental law…this is a fair and rational solution.

It is EXACTLY what local governments do all over China to attract industry clusters…and they have done this very successfully. China has a program to encourage local companies to grow to world class, they do this with loans that don’t get paid back, rent-free property, laws that mandate government purchases of products/services innovated and created in China and many more ways to favour local companies.
economictimes.indiatimes.com/art … 753102.cms
mercurynews.com/business/ci_ … ck_check=1
flipthemedia.com/index.php/2009/ … out-china/ (The author doesn’t seem to even be aware that facebook is BLOCKED in China, it cannot even be accessed!)

It is not a fair and equal global playing field but was sold as such to justify quick profits from cost-cutting measures involving out-shoring.

Perhaps you think Facebook is blocked in China because of political reasons. Then why are other local Chinese social network sites allowed? It is economic. Whereas American companies work against local workers and government interest in their efforts to push globalisation and expand markets and reduce costs (in many but not all cases) , the opposite has occurred with Chinese companies working with the government in an economic-political concerted strategy to benefit China, Chinese and the Chinese government. The same can be seen in Korea and Japan to some extent. An old-fashioned real patriotism…

9

Actual title of article is…

Fighting for ‘made in the USA’

As to this bit of comment…

Consultants are hired to provide advice, experience and ideas. Their is no part of the contract that says any or all of the service provided must be or will be complied with and followed by the party hiring the consultant.
It can be a one-shot deal or an on-going package. But the actual implementation and follow-through of ideas, suggestions or advice presented is still left up to the organization.

“Success has many Fathers…Failure is an orphan.”…or something like that. Ever try to get money-owed from a client who did not follow your advice and then had a business failure?
Its a hell of a lot harder than getting paid by a successful client.

10

There may be a place for consultants, yes, in certain areas, projects and technologies of course… But just as advice, not as a decision maker.

Also the title is a bit misleading, since the subject company has already established three factories in China, they are not exactly ‘fighting for the USA’ are they?

11

[quote=“headhonchoII”]I think the CEOs pay should be linked to middle managers pay should be linked to general operatives pay in a certain ratio. There is no way CEOs are worth 100 times general ops pay…no way in hell.
What does the ratio effect do, it links operativeand middle manager pay to CEO pay. The CEO wants more pay he has to raise operative pay. He cuts pay he has to cut his own pay. The CEO pay should only be 2-3 times middle management pay in my opinion, but he may get a more generous profit share. [/quote]

Do you have the same opinion of professional athletes? They aren’t exactly making peanuts. How about Hollywood? Should Oprah have her income capped because she makes more than an arbitrary figure you come up with? The highest 100 paid CEO’s made 2.4 Billion USD last year. The 25 highest celebrities made 2.1 Billion USD.

[quote=“headhonchoII”]As for use of state money, yes, it is probably a very wise use of state money. Compared to bank bailouts, government workers, social welfare, insurance payouts…it sure seems wise to me. Opening a factory these days is surely very different than decades ago. The Japanese have many productive factories in the American south.
As for manufacturing batteries in the US, a tariff should be placed on batteries produced in areas that don’t follow US environmental law…this is a fair and rational solution. [/quote]

The Japanese have productive factories in the American South because those states lured the factories in with very nice packages. Low cost land, no taxes for x number of years, no unions, relaxed environmental standards, the local government zones the factory as a Free Trade Zone, etc. Michigan and other rust belt states can try to lure manufactoring in, but the memory for American manufactorers is high local taxes, union labor costs and expensive benefit packages. That usually prices those areas out of the running when considering where to source in the US. High skilled manufactoring work that adds value still employs a lot of Americans but offshoring the low skill and hazardous stuff makes financial sense.

The tariff idea will never fly with the WTO or other countries. They’ll initiate their own tariffs on our goods and it will end up costing consumers even more money.

12

America make MONEY, EVERYONE ELSE DIE, UGGMMM FIRE BAD. FIRE BAD. Nice, why does it have to be American style, I didn’t know that capitalism had a style.

13

As far as I see it, Capitalism doesn’t work because of the extreme lack of morality on the part of those in charge. There’s just too much greed. I don’t really understand these overpaid CEOs and the like’s need for so much money. What’s the point? Those on the side of Capitalism-above-all in the US always moan and groan about government involvement, but the fact is, there really isn’t government involvement per se. There is only business-owned government involvement. If governments weren’t corrupted and consequently owned by big business, we wouldn’t really have the problems we have now. If those in charge of these multi-billion dollar organizations can’t figure out how to be moral on their own, then I have no issue with the government stepping in and forcing them to do better things (assuming of course that the government in no longer owned by these same businesses). Just look at this BP oil spill. Absolutely disgusting, and might have been prevented had the business gave a sh*t about people and the environment. When something like this happens, I believe that the government should step in and say: Well, you tried oil, but you’ve made a mess of things, so now you can only work with green energy so that you can make up for the disaster you’ve created out of greed. But no, there will be no real punishment, and things will continue on in the same way. But I digress…
My main point is that Capitalism doesn’t work the way it is now; there has to be governing bodies that look out for the people, without being distracted by profits.

14

Lbksig-

Your examples of sports star and actors and comparing them to CEOs pay is exactly the problem I have. Because I have worked in business for many years, I can tell you that it takes huge efforts among many experienced and talented people and a large dose of luck to make it success. It certainly does not depend on anyone individuals talents, especially not the CEOs.
In fact if more weighting is given to somebody it will be the designer who invented the UI for the iphone or the guy who came up with the insight on drug interaction. Even then that person depended on the infrastructure and quality commitment of the people around him to reach that point.

Oprah is a brand, sports athletes are brands, they are exceptional people born with inate talent for talking or hitting a ball or whatever. That is not the way a business operates, businesses are much more complex than that and depend on interaction of teams and putting in large amounts of grunt work.

You are arguing against my good examples of Japanese companies operating in the American south, why? What is the reactionary posture for? An American company can easily get grants and the same conditions these days, no problem, in fact they can probably get better conditions now!

To the last poster, this is not a criticism of America, rather some attributes of American capitalism, of course not all companies are run in the same manner. I think capitalism is just a word for trading, therefore it’s part of human nature. It can be modified to have more holistic considerations.

The final argument regarding tariff trade is wrong. Why? Because it’s like playing a fixed poker game. Sure you all have the same cards, on the surface you are dealing equally but if you look closely one side has a camera. You are playing a rigged game with undervalued Yuan and no environmental or labour regulations. You lost jobs and tax income in your own country. The savings to consumers only works when consumers still have jobs and a good standard of living, if the swing goes to far the other way the net benefit is lost. You dropped your standard of living so the other guys gained, good for you, you are now operating a charity! Everthing in life is about balance. You should try and rebalance with a low level of tariffs instead of seeing things in black and white. Tariffs bad, no-tariffs good is not a proper argument, it is childish in its simplicity! The Chinese will take your jobs and then make better and bigger companeis and take your internal market too. Read the story about Huawei and India…the Indians aren’t so naive, neither are the Chinese, why should Americans play their cards so badly.

15

[quote=“Tiare”]As far as I see it, Capitalism doesn’t work because of the extreme lack of morality on the part of those in charge. There’s just too much greed. I don’t really understand these overpaid CEOs and the like’s need for so much money. What’s the point? Those on the side of Capitalism-above-all in the US always moan and groan about government involvement, but the fact is, there really isn’t government involvement per se. There is only business-owned government involvement. If governments weren’t corrupted and consequently owned by big business, we wouldn’t really have the problems we have now. If those in charge of these multi-billion dollar organizations can’t figure out how to be moral on their own, then I have no issue with the government stepping in and forcing them to do better things (assuming of course that the government in no longer owned by these same businesses). Just look at this BP oil spill. Absolutely disgusting, and might have been prevented had the business gave a sh*t about people and the environment. When something like this happens, I believe that the government should step in and say: Well, you tried oil, but you’ve made a mess of things, so now you can only work with green energy so that you can make up for the disaster you’ve created out of greed. But no, there will be no real punishment, and things will continue on in the same way. But I digress…
My main point is that Capitalism doesn’t work the way it is now; there has to be governing bodies that look out for the people, without being distracted by profits.[/quote]

Boy the world would be all roses and sunshine with Tiare in charge. Maybe you can get a theme song just like Charles in Charge.

youtube.com/watch?v=km22zWPz4uY

16

Sorry for the delay, hadn’t checked My Posts in a while.

Yeah of course, it goes for everyone, why shouldn’t it? Celebrities make ridiculous amounts for what they do too. And I wouldn’t use the “an arbitrary figure I came up with” as an arguing point, that’s entirely straw-man: I was giving an example of what the number might be, of course I’m not the one who will or could set the number, that’s a government decision for economists to sort out. Just so long as it’s on the order of 50-100 times the minimum salary allowed.

But why should states be allowed to compete against one another to steal jobs from one another? That’s a form of economic warfare against the people of each state, and it promotes a race to the bottom of salaries, environmental laws, etc. It’s just patently an absurd idea that the pro-business politicians (republicans, but also those blue-dog democrat types like Clinton) have managed to get into mainstream politics and actually get executed.

And anyway, why would any libertarian or republican agree to letting the state subsidize a corporation or the salaries of it’s employees? That’s exactly what the state is doing when they provide all of these “incentives” - they’re bribing the company by breaking or bending their own taxation and fee laws in order to get jobs into their state. That is totally anathema to the platform of these parties - “smaller government”, “lower taxes”, “laissez faire capitalism”, and so on.

Because it’s only in American capitalism (in the western first world) that the average big time CEOs make 400+ times the average salary of their workers - Europe and first-world Asia it’s something like 10 to 20 to 30 tops. Because it’s only in the US that the top tax rate is what, 35%? 38%? while elsewhere it’s 50-60% or more. Because it’s only in US entertainment that celebrities make the millions and millions they do (take a look at incomes of European stars not working in big US movies and let me know if I’m wrong if you like).

Somewhere along the line, people accepted the proposal that it’s OK for an individual to profit/income at the potentially exponential rates of production and supply/demand, and that it’s OK for people to game he stock and commodities markets by speculating and making very short term moves. These may seem like natural consequences of fairly unfettered capitalism, but they are not natural at all in building a society based on merit, hard work, level playing fields, etc.

17

exporting pollution
I read an article in the economist many moons ago, about 1-2 years BC (before the crash) about how the EU was contemplating legislation that would effectively be read as an “environment tax”, yes this is protectionist in some readings, but also a valid control in others.

this “certification scheme” would basically account for the environmental damage caused during production with products that don’t comply with production standards having a higher certificate charge and this charge being reduced to effective zero if all EU environmental laws are complied with. it would not effect US/JP imports since their environmental codes are sufficient, but would stop companies relocating from europe to china/asia/… with the sole intent of circumventing environmental laws.

they could have got it past WTO rules due to it not being on import per se, but based on certification of distribution. In one swoop this would have removed the desire of relocation based on pollution and forced china/india to implement and enforce environmental codes

labour issues
I heard these are closing fast as far as I understand, especially as china is experiencing labour shortages on the west coast (although this was caused in part by the massive white elephant contruction projects post crash)

unions and CEOs
look at how thacher and willy russel (BA CEO now) have delt with the first… problem is that unions don’t represent what is best for workers, but are just a self serving political wing on labourers (and professionals)

CEOs, totally agree with the ideas proposed by HHII, especially that a sucess is grounded in a synergetic contribution by all

this is why i am more in favour of cooperative style companies such as “John Lewis” and “Waitrose” and so anti the return of “social entrepreneurs”, they remind me of military in burma who screw the population and then buy a pagoda or stacks of gold leaf to buy their forgiveness.

18

[quote=“djkonstable”]

Boy the world would be all roses and sunshine with Tiare in charge. Maybe you can get a theme song just like Charles in Charge. [/quote]

Hmmm, sounds good to me. I’ve always wanted a theme song. :laughing: And I do love sunshine and roses… How about this one? youtube.com/watch?v=QqJtEyxHhkA

19

CEO pay doesn’t bother me if it’s tied to success of the company. I’d loosen insider trading laws to basically allow anything that wouldn’t create a conflict of interest. Do that and hopefully BoD’s would feel less need to pay CEOs absurd salaries, but if they didn’t, I’d rather see higher taxes than outright caps.

Also, I’d do more to encourage a more arms-length relationship between employers and employees. By that I mean rather than having it where all the incentives are to get more benefits through your employer, I’d change the tax code so that the incentives are towards getting those individually. That would leave employees less reliant on their employers, and leave them with a little more bargaining power.

Obviously the healthcare plan is some step in that direction, but not exactly the first one I’d have taken.

20

The whole share market system is seriously flawed.

Most shareholders don’t give a shit if you’re green, moral, or made in USA or whatever. They want to see $$$

This forces managers to meet those stupid quarterly deadlines with inflated numbers.

This also results in everyone not expecting to work at the same company for more than two years because of all the easy firing going on. So there’s little concern and involvement from the employees.

Companies lose their “soul” by going public