What is the purpose of the business: big men, shareholders or the interests of the whole society?

More and more people think that the answer lies in big businesses. Call on them to fix socio-economic problems. However that: Across West...


More and more people think that the answer lies in big businesses. Call on them to fix socio-economic problems. However that:

Across Western countries, capitalism is in a state of no longer as smooth as it used to be. Jobs are not lacking, but growth is sluggish, the gap between rich and poor is too high and the environment is devastating. You can expect that governments will roll out reforms to deal with these issues. But in many places politics is stuck or too unstable. So, who will be in charge?

More and more people believe that the answer lies in big businesses, call them to fix social and economic problems. Even American business owners who are famous for running after money are showing their agreement. In mid-August, more than 180 US business owners, including Walmart and JpMorgan Chase, broke the unwritten rules that have been maintained for more than three decades. The purpose to make a commitment that the purpose of the business is no longer to serve the owners as before. But also to serve consumers, their employees, their suppliers and the whole community.

To be honest, behind these claims are the ingenious attempts of the CEOs. They intend to be able to prevent attacks that the left wing Democrats can target large businesses.

However, this shift is also part of the wave of attitude changes for business circles that are emerging on both sides of the Atlantic. The younger generation today wants to work for companies that stand up to find answers to ethical and political questions. Politicians of any party want businesses to bring jobs and capital flows back to their home countries.

But according to the Economist, the new wave could bring more harm than benefits. This wave threatens to disrupt the group of irresponsible and perhaps unwilling CEOs. At the same time, it threatens prosperity in the long run. That is a prerequisite for successful capitalism.

Since the 19th century, British and French businesses were defined as limited liability. So there has been a lot of debate about what society can expect of businesses. In the 1950s and 1960s, the United States and Europe experimented with a capitalist-oriented paradigm. That means big companies will work with governments and trade unions, playing a role in ensuring jobs and well-being for workers. However, after a period of economic stagnation in the 1970s, shareholder value came to the throne. It makes the company the top goal of maximizing shareholder assets and synonymous with maximizing operational efficiency. The union's strength waned, and the value provided to shareholders prevailed around the world, from the US to Europe and Japan.

This model is under criticism. There have been many complaints about the degradation of business ethics, from the fact that bank leaders require huge bonuses. But received relief packages when facing crisis due to their mistakes. Until pharmaceutical companies defy profits to sell addictive drugs. However, the biggest complaint is that the story of putting shareholders' interests first will cause bad results. Listed companies become criminals with a lot of mistakes: from being too eager to profit in the short term to exploiting employees, causing environmental pollution while not creating many benefits for society.

Not all of these criticisms are true. According to the ratio of investment to GDP, US businesses are investing strongly, even higher than the golden age of the 1960s. The stock market also rallied thanks to long-term profit prospects, with stocks of visionary businesses like Amazon and Netflix soar.

However, there are also completely accurate criticisms. In fact, the share of employees benefiting in the value created by the company is reduced, consumers are benefiting little and social mobility is reduced.

There is no denying the fact that the movement against shareholder value has been influencing the decision-making process of the business. CEOs place greater emphasis on consumer-friendly trends and their employees. For example, Microsoft financed $ 500 million to create many new homes in Seattle. President Trump is proud of his call for some factories to return to the US.

Some politicians expect more than that. Democratic Senator Elizabeth Warren wants businesses to have their licenses revoked if they are found to abuse the interests of employees, consumers or the community. All this is a premise for a system. In which large businesses will set and pursue broader social goals rather than following narrow perspectives serving their own interests.

This sounds nice, but it does make two important things about capitalism: lack of accountability and lack of motivation. So far, CEOs have yet to realize what society wants from their company. It is highly likely that politicians, advocacy groups and CEOs will make this decision for themselves, not ordinary people.

Moreover, in a clearly motivated system, at least businesses are always looking for benefits for shareholders. Some backward industries need to narrow to reallocate capital and human resources to facilitate the development of new and more advanced industries. Meanwhile, if seriously addressing the issue of climate change, the oil giants will have to cut a large number of jobs. Fans of large businesses during the 1960s often forgot: AT&T used to squeeze consumers and General Motors made old cars that were unsafe. But both were honored as being helpful to society because they were well performing their broader social goals, such as providing lifetime employment or contributing to Detroit's economy.

The way to make capitalism work for everyone is to reinforce both. This requires the purpose of the business to be determined by its owners. Not directors who are hired to manage or campaigners. Some may overemphasize short-term goals and quarterly business results. However, most will choose to maximize their long-term values.

One way for companies to be more responsible is to expand the number of owners. Currently the percentage of US households participating in the stock market (directly or through funds) is only 50%. The tax system should also encourage people to own more shares.

Another equally important factor is competition. Competition helps lower prices, increase production, make it impossible for companies to maintain unusually high profits for a long time and encourage them to follow the wishes of consumers, employees and businesses. manage. Because fear opponents will rise. But sadly, since the 1990s, the purification process has made 2/3 of the industries in the US more focused. Meanwhile, the digital economy is moving towards monopoly with the dominance of the big guys.

Of course, an economy that wants to be healthy and highly competitive requires an effective government to enforce antitrust laws. The purpose is to eliminate crony capitalism and lobbying and to cope with climate change. This is not a reality, but it is not a wise choice for CEOs to act on their behalf.

Reference from Economist
Composed by Mr. Nerd

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High Tech Brain: What is the purpose of the business: big men, shareholders or the interests of the whole society?
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