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The Big Problem - Phil's Rambling Rants
April 30th, 2007
12:37 pm

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The Big Problem
I wrote this as a comment on filkertom's journal, where he asked readers to name the biggest problem we face.

I'm sure I could make a list of a hundred Big Problems without working too hard, many of which have already been mentioned above. And they're all interconnected, to some extent causing and being caused by each other, so it's really hard to find root causes. I've given this enough thought that if I had more drive and organization in my life, I would actually write a book about it.

My own take is that the most important strand in the web is the way capitalism has gotten dangerously out of whack. I genuinely believe that free markets are second only to scientific thought as the greatest historical force for the betterment of mankind, but the system we have today certainly seems to refute that proposition -- global corporate capitalism as it now exists is the greatest force for the debasement and destruction of mankind, beating out even coercive religion. Today, most of the important decisions in the world are made by a tiny group of people on the basis of only one criterion: what maximizes their own corporation's stock price in the next reporting period. It's a serious distortion of the idea of free markets and entrepreneurial capitalism. Corporations are far too big, so that the people at the top are too distant from the day to day effects on individual people's lives of their decisions (whether the people are customers, employees, or residents of communities where the corp operates). And corporations are far, far too focused on the very short term; even a company concerned with absolutely nothing but maximizing shareholder value would be much better for the world if they were maximizing that value in the long term. In the long term, keeping your customers, employees, and neighbors happy is good for business; it's just in the very short run, where the immediate monetary benefits of screwing them are in the time horizon and the long term damage is not, that it makes sense to be so evil.

The screwed up corporations are major immediate causes of most of the other big problems. All our environmental problems from global warming on down flow from the fact that being responsible costs money in the short run and only brings benefits in the long term. The debasement of our media is caused in large part by the fact that most of our media have become divisions of megacorporations, required like all the other divisions to show increasing profits, and real journalism is expensive compared to infotainment fluff. The insane alliance between the environment-destroying corporatists and the intellect-destroying religious whackjobs that is today's Republican party works because the corporate side is willing to work with anyone who helps them achieve their short term goals and is willing to say anything to secure their help, because honesty is another thing that costs extra in the short term and only brings rewards in the long term. Our political system is so corrupt because it's become all about money, a situation that those who have the money do everything they can to protect and enhance the influence of money -- and where's the money? In the corporations.

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From:tigertoy
Date:May 1st, 2007 09:18 pm (UTC)
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If the corporations themselves were answerable to the shareholders for their long term performance instead of how they do this week, a lot of the problems would get better. Even though the corporation only cares about what the customers, the workers, or the public thinks of them when it affects their share price, the opinions of those groups matter in the long run. What's broken is that there is no incentive for the investor to hold onto shares. The investor does better when the company does things long-term stupid that pump the stock price in the short term because he's going to sell his shares before the long term damage hits anyway. Another broken is that huge amounts of stock are held by mutual funds where the ordinary people put their retirement money. The people themselves don't usually even know what companies stocks they own, to say nothing of how those companies are run; all they care about is the total at the bottom of the statement. The mutual fund managers are only being paid to make sure that number keeps going up, so that's all they look at. Company management is forced to do things they know are bad on behalf of individual investors who'd hate them if they knew, because Wall Street has sold us on diversified portfolios and professional fund managers who only tell us about today's stock prices.
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From:tigertoy
Date:May 2nd, 2007 03:09 am (UTC)
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The stock market is in fact a major part of the problem. In a sensible system that wanted to promote the welfare of society by encouraging people to come up with good ideas, if you had money and wanted to make more, you'd find a good idea and develop it. If you weren't so clever or lucky as to find your own idea, you'd find someone else who had an idea but no money.

In our system, by contrast, if you have money and want to make more, you go to Wall Street and shuffle around options and futures. If you're reasonably smart, dedicated, and start out with a reasonable amount of money, you can pretty reliably pile up more and more money without ever having to worry about actually developing a business or an idea or doing anything useful to society. In fact, you get a better return relative to risk than you do actually starting a new business.

Wall Street justifies itself in saying that the stock market is a method for lots of people to back a small part of a company. It's a nice theory, but for every new share that is actually sold by a company directly to raise money to expand business, many, many existing shares are just passed around. It's a shocking waste both of the potential of capital and of the brain power of a large chunk of smart people; together the capital and the smart people could really improve things if the incentives in the system could be reset so that it made more sense to actually invest in new ideas and expansion of businesses, rather than chasing after paper gains in the stock market.

I'm not saying that there shouldn't be a stock market. I'm just saying that there should be real incentives to holding onto stocks, once purchased, for a long time, such as more than ten years, and real disincentives to holding them for short periods, such as under a year. And probably the way shareholders vote should be modified so that shares don't fully vest as voting until they've been held for a long time. Something along the lines of you get to vote 10% of a block of shares for each full year you've held them.
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From:tigertoy
Date:May 2nd, 2007 04:19 pm (UTC)
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The difference is that if a corporate plunderer has to hold onto the stock for years to affect the decisions, he can screw up one company and dump it, but he can't just turn the money around and dump another. And to dump the shares, someone has to buy them, and if the new buyers are going to be people who want to hold the stock for a long time, they'll be less inclined to think that bumping the current quarter's profits at the expense of performance five years hence actually makes the stock worth more. Unless the long-term damage is actively concealed from the buyers, in which case it's fraud. They don't have to conceal that shit today because nobody buying and selling shares cares.

I'm not claiming that what I suggest would make everything perfect. There will always be scum who will find ways to game any system so they gain something by hurting everyone. But the fundamental problem we have with corporations today is not that very many individuals are evil; it is that the system itself is out of balance in such a way that it *requires* corporations to be totally short-sighted and as evil as they can possibly get away with. The structural mistakes that have it out of balance are subtle and mostly unintended (by proponents) and unanticipated (by opponents) results of policy changes.
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