Remoralization

I don’t think the word “remoralization” is a real word yet but I admire David Brooks for inventing it for the purposes of his weekly article on capitalism. This post is going to be about our capitalist system and the stock market. Let’s start off with Mr. Brooks words:

There’s been a striking shift in how corporations see themselves. In normal times, corporations serve a lot of stakeholders — customers, employees, the towns in which they are located. But these days corporations see themselves as serving one purpose and one stakeholder — maximizing shareholder value. Activist investors demand that every company ruthlessly cut the cost of its employees and ruthlessly screw its hometown if it will raise the short-term stock price.

source: New York Times – David Brooks

My three-legged stool analogy about how corporations used to be balanced between customers, employees, and shareholders applies here. When equal attention is placed on the three legs the corporation is healthy. When the legs become unbalanced turmoil results and we are, as David point out, in deep turmoil in the US in the last decades. When did corporations become immoral so they need remoralization?

“Stakeholder” which primarily mean the one-percent of the US population, who control more wealth than the bottom 90%, now demand that they get a lion’s share of the attention of the companies they control. This imbalance is one of the primary causes of the populist movement, even if the loudest voices in it don’t realize it. When a very small percentage of people control the economic assets severe unbalance is bound to happen.

How did we get to the point that the three-legged-stool is so completely out of kilter? How did we let that happen? I think a big part of that is that too many of us have blindly accepted the contrived propaganda on the subject.

We have been fed the line and seem to thoroughly believe that the only index needed to measure the prosperity in America are stock market indexes.

Since the stock market in the last two years went from 19,700 to 24,000 which would be about a 21% increase it sounds like, if we are to take that as the measure of our prosperity, we are living in the age of lavish prosperity. But when you look at almost any other measure the 21% just doesn’t begin to happen. If you want to look beyond the top 2% of the wealth holders there are so many other factors involved. More on that soon…

5 thoughts on “Remoralization

  • RJ I would like to take a stab at a few of the problems associated with corporations. I think a lot of it started with stock options and stock buybacks. One of the primary functions of stock options is to conceal from the investors the true cost of management. If a company thinks it’s CEO is worth $100 million in a year try paying that out of cash on hand and then explaining it to shareholders. It would never fly. Do it with stock options and never a word is said. Stock options also give management a short term attitude. Anything to boost quarterly profits and hence their option value. This includes but is not limited to layoffs, offshoring production, financial engineering and short term results at the expense of long term stability.
    Stock buybacks used to be illegal. Now they are used to prop up the stock price while management unloads all of their options on the public. It amazing to see how many CEO’s and high level managers hold on to very little of the stock they have received in options. They justify it as diversification of their assets. If they were held responsible for all the short term engineering they do that blows up long term many of these options would be reclaimed by the shareholders.
    Many CEO’s now make 400 or more times their average worker. Used to be closer to 50X. The new CEO’s are not that much better than the old CEO’s. What they are better at is milking the financial system and leaving us holding the bag.

    The last point I would like to touch on is our return to the Gilded age of the late 1800’s and early 1900’s. We are quickly letting most of the financial assets accumulate in the hands of a very few. Just like before. It is time to bust up these monopolies before the government comes apart at the seams. If left to fester the end result could be a turn to a fascist leader or complete socialism. This exact thing has happened before in other parts of the world. It is time to take care of the average worker before it is too late. Corporations have far more obligations than just to the shareholder.

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  • Thanks for the thoughts Fred. I agree with almost everything you said. But the question is, how do we get corporations to go back to the three-legged stool approach. I think most Republicans today would be shocked to learn that a Republican, Teddy Roosevelt, did it last time. I don’t see one coming from the GOP and just don’t see anyone besides Elizabeth Warren that could do it now. Is the country ready for her kind of politics? That is the question for the decade that will soon be answered. She would definitely be the regulator-in-chief if elected.

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  • While I agree with all that is being said… please consider that investing and ROI and dividends, etc. matter to a lot more than the 1%.

    I think we need to consider that anybody with an investment account (retirement accounts, 401K’s, pensions that might be invested, etc.) also “own stocks” and care about these companies and how they are doing. It’s not just the 1% who benefit from all this. I’d guess that at least 30% of the households in this country effectively own stocks via their investment accounts and need the returns from these accounts to save for or live in their retirement.

    I’m not trying to justify anything I’m only pointing out that many more benefit from all this than the 1%.

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    • I understand your point Bob, as I am one of them. But realize that 90% of American households own only 16% of the total stocks issued by corporations. With the three-legged stool approach everyone benefits, not just the top 10%.

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  • Bob brings up a point that shows just how difficult it will be to change the entrenched status quo. When I speak out against the actions of corporations I know I am going against my own self interests in order to look for a more equitable future. The same thing applies when I complain about the need to completely revamp the healthcare system. I am better off if both are left just as they are. I suspect I could skate through the rest of my life just fine before the curtain falls. Society will not long survive if massive changes are not made. it does matter what is left to future generations even though I will not be here to see it.

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