Thoughts on Ethical Capitalism

October 22, 2015 | Filed under: business

Heres an unusual post from me. Warning: politics ahead…

I am starting to worry about just how mad some of the wealthy elite in society have become. Maybe as a geek, I am slightly more attracted to rationality than most, and I certainly agonize insanely over every decision I make regarding spending my own money. Maybe I take it too seriously, or have too much time to think about implications, and over-analyze peoples purchasing decisions… But here comes a bit of a rant.

Some, and I have to stress with enormous underlining and boldness here to say SOME of the super-rich are acting like dicks on an unprecedented level. I think we can sum it up with stuff like this:

dumb_handbag

That’s a Chanel “Diamond Forever” Handbag and it can be yours for just $261,000. A bargain! This, to me is partly the sign of the end of times. Now generally speaking, I am one to say that if you work hard, take risks, have talents and abilities, and you leverage all that to make a lot of money, then good luck to you. Thats awesome. (I am *much less* of a fan of people who are simply handed a bucket of cash by their parents…but thats another rant…). People who know me well, would not describe as a socialist, or a supporter of Jeremy Corbyn. I am not someone who supports what is sometimes called the politics of envy, and I am not someone who feels that my life is worse because me neighbor earns more than me. I have even read a few chapters of an Ayn Rand book. (in my defense, I’ve also read the communist manifesto, I try to keep my mind as open as possible). I say all of this not to make the internet hate me, but to give the rest of this blog post some context…

If you have a spare $261,000, and the ONLY use for it you can imagine is to buy a handbag that frankly, looks like its $19.95 from some high-street store, then you have lost all sense of perspective. You have lost all touch with reality, and you need to come back down to earth as soon as possible. You clearly have NO IDEA what that amount of money means to people who are worse off than you, and you need to think about what the hell you are doing.

I think earning money is great, but money is not just a magic ticket that lets you buy cool stuff, I think its much more important than that. How you spend you money makes a difference. When you are on average income, there is little ‘discretionary spending’ and thus you have little influence in the marketplace, but as your income rises your ‘consumer & economic power’ rises along with it. To quote a common phrase ‘with great power comes great responsibility’. or a more interesting quote, from an Iain M Banks book: “Money is power, Money is influence, Money is effect”.

I’ve been reading a book by Henry Ford, and he seemed to believe this too, and saw the purpose of business was to maximize the efficiency of production so that the benefits of technological progress could be brought to the common man. In his world, earning profit from a business was not the objective, this was merely the system by which the business was able to re-invest and further drive down the price of its products for the benefit of all. A worthy attitude, in my opinion, and one that has been lost.

henry-ford-18

Another businessman I’ve read books by is Warren Buffet, who always asserts that if a business has no idea what to do with its surplus cash, it should give it back to its investors by means of dividends. In other words, companies hoarding cash and just sitting on it are being dicks. And the same is true with people.

Apple currently has cash reserves of $203 billion. They don’t know what to invest it in (otherwise they would be spending it), and they weirdly refuse to pay it out as dividends, and even more annoyingly, they want to keep it in tax havens to avoid paying tax. This infuriates me not only as a taxpayer and citizen, but as a ‘fellow corporate citizen’. To be exceedingly British about it, this strikes me as ‘impolite’.

Too many big businesses seem to be managed these days by people who act like extremely immature individuals. Regardless of age, they seem to be competing for the sake of it, wanting to ‘win’ by having the biggest profits and biggest market share or market capitalization. They may even compete on who has the biggest yacht, or salary. Frankly, I don’t care, its fine, if thats what drives people who are ultra-successful to keep working, then so be it, but they have forgotten the responsibilities of controlling such vast wealth, and on a tens-of-billions of dollars level, they are behaving as madly as the people buying $261,000 handbags.

Now maybe I am a huge hypocrite, as I recently ordered a geeky sports-car (lets not pretend it isn’t one) that cost a relatively big pile of cash. Maybe that hunger for new cool glitzy stuff just never goes away, and I’ll read this in ten years time in my gold plated office and laugh at my innocence. I sincerely hope not.

tesla

The thing is, I’m not suggesting that the rich should be taxed more (I don’t think they should, personally, although I understand the arguments in favor), nor do I think companies should be taxed more. Obviously I think tax avoidance should be made harder, but much more importantly than this (and in fact, I suspect HUGELY more effectively), we need to move as a society to a situation where people are more lauded for their accomplishments that their possessions or bank balance. Steve Jobs is massively lauded for creating a rich, powerful company, but we hear less about what Bill Gates did with his money (some incredibly good things, as it turns out). Politicians need to praise and support companies that act like decent corporate citizens, and we need more people starting businesses who have a heart and a soul as well as a desperate tiger-like desire to kill the opposition.

It also strikes me as just ‘bad business’. We all know a few things about apple: They make very cool phones and tablets, and they invented the ipod, and they are very hip, and a big company that makes lots of money. They are famous also for avoiding taxes, and making all their actual products in china in factories plagued by horror stories and suicides.

fox

How much would it cost to fix the last sentence there? A billion dollars? I doubt it. Lets go crazy and say ten billion dollars. Or roughly 5% of the current available cash… It would be different in the company was barely making a profit, but come on…

I could never run a business that way. It just feels the wrong way to do it. How the hell did we get to this point? (and lets forget, its not just apple, such practices are commonplace).

 

 

17 Responses to “Thoughts on Ethical Capitalism”

  1. Oli Norwell says:

    The thing is, so some moron spends $261,000 on that excuse for a handbag, then what happens? Well, Chanel presumably make a profit on that item of around $260,000 which goes into their corporate bank account. They can then choose what to do with that money, perhaps they will pay it out in the form of salaries to their designers, or they will invest in a new handbag making plant, or they will update their factory in China or wherever.

    My point is simply that the money itself doesn’t “disappear”, it’s not like that buying power instantly disappears to mankind forever.

    The fool who swaps their $261,000 for the handbag gets the said handbag, and Chanel gets the cash. If Chanel makes a profit then some of that original $261k goes to the government in corporation tax, some might go on a new office to develop a new kind of handbag, which itself might fail in 5 years time, but will have given employment to various other people.

    So, yes, you and I can both agree that $261,000 in the bank is a lot better than a silly handbag sat in a closet gathering dust, but that decision to swap the cash for the product isn’t ours to make. Chanel believe there is a market for the ‘swapping’ of $261k for a fancy handbag, and they thus create the product and offer it for sale.

    If someone buys it, then society benefits in the form of VAT that will go to the government, plus like I said potentially corporation tax, plus the fact Chanel will have made a tidy profit on the item, will mean they are in a stronger position in the future, and thus can potentially offer jobs to handbag designers recently out of university and looking for work.

    Spending $261,000 on a handbag is a silly purchasing decision on a personal level, but it doesn’t harm society. In fact, from afar, you and I benefit more from the purchase going ahead, than the money sitting in some bank account somewhere, as VAT and potentially sales tax will have been paid. Plus Chanel can afford to expand and create more jobs, potentially lowering the welfare bill for the relevant country.

    Wow, this turned into quite a ramble. My key point being that morons buying silly handbags doesn’t harm us, it helps us. At least for us it’s better than the money sitting in a bank account somewhere.

    • Cliffski says:

      Indeed, I take the point, but even taking that into account, the use of all of those chanel employees coming together is the production of a pointlessly expensive handbag. This has dubious benefit beyond the purchaser.
      If on the other hand, that money was invested in a business where the end product was a school, or hospital, or a business which employs people in an ongoing capacity, then I would argue that the total benefit is higher.

      To take a more extreme example, if you spent a billion dollars building a huge statue of yourself, then yup, all the statue builders get paid and spend the money and pay tax etc, but a lot of time and resources have been spent building something useless, rather than something useful.

    • nha says:

      Actually, the money in corporate bank accounts really does just disappear…

  2. Tim Bolin says:

    dunno how to break it to you but… most people in general are dicks. so it stands to reason that at the very least, if you looked at the pool of super-rich people, youd find that by roughly the same proportion, most of them are dicks as well.

    except its worse than that, because ‘most people are dicks’ is a gross oversimplification… id go so far as to say, ‘most people are dicks, and of the remaining people who arent dicks, most would BE dicks if they had the resources to be a dick and could do so with little or no consequences’…. which means that out of the pool of super-rich, youre going to find even MORE dicks proportionally than you would out of the population at large.

    but wait, its even WORSE than that! i would go so far as to say that super-richness and super-dickness are connected causally… that being a super-dick makes it easier to become super-rich (which isnt to say you cant become super-rich by being super-nice… only that its dramatically harder to do so), that many of the super-rich are super-rich precisely because theyre super-dicks. which further pushes the relative dick population higher as richness goes up.

    put it all together, and you wind up with dicks making up nearly 100% of the outlying end of the richness bell curve.

    its just kind of the way it is, and quite likely the way it always will be…

  3. cinameng says:

    agree with most of what you have said although I perhaps take a slightly different view in that I don’t think corporate responsibility is ready yet to be bound my morals alone as I don’t think it should acceptable for a company to act and behave differently simply because they make a huge profit, this would have to be enforced by law to be effective, something that will never happen under the current UK government.

    It’s a shame that this is so and it could be said that it has forced people towards socialism more without them even really realising, myself included yet we are at least starting to see a new breed of corporate emerge, one who cares more about whether their company is judged on how they treat people rather than simply how much money they make.

    The company I work for is run by two chaps, both of whom I would consider to be my friends, one who clearly wants to be respected in the world of business for his financial success and another who just wants to genuinely please his customer and for his staff to enjoy where they work and would happily forgo profit to achieve these.

  4. kanamit says:

    Henry Ford had union organizers beaten and nearly dissolved the entire company rather than recognize the UAW (he only backed down because his wife threatened to leave him over it). Control was more important to Ford than money (you could say the same about Gates, who exercises an absurd amount of control over US education policy), I’m not really sure how that’s better.

    • cliffski says:

      Yeah, Ford definitely had his negative side, he was also massively anti-Semitic, he wasn’t an especially ncie man. I’m only really referencing the specific view he had regarding business re-investing profits to drive down prices for the common good. I’m not suggesting he is a role model in any other way.

  5. Steven says:

    A luxury goods tax can take away that desire a little bit to get that diamond studded crap bag. I mean seriously you could probably use that thing as a good toilet. In America, there’s probably a little extra opposition to using taxes like that. So instead we can ban the ownership of a second home if these people want a useless $300,000 tote bag.

    I’ve been thinking also about an older blog post that you did about labor and what will happen to people if technology and automation takes the low skilled jobs away. The key here is education but I know that when societies around the world decide to march toward full automation of their economies it isn’t going to be pretty anyway. It’s just something that we’re all going to have to deal with together. Providing strong educational opportunities is something that $300,000 can definitely help a society work toward instead of a diamond studded trash bag.

    • cliffski says:

      well said. I wonder if people would be more accepting of a small luxury tax if that tax revenue was ring-fenced to provide education?

      • Scott Fadick says:

        Look to the California (and probably other) lottery for your answer to that; the lottery was sold as ‘our schools win too’ with guaranteed school funding from lottery ticket sales. Which did happen; but the regular school budget was cut at the same time so that there was/is no net gain for the schools. Once bitten, you know.

  6. jb says:

    i don’t get the difference between buying a $200k bag and a $150k car ;). Seriously, you can buy the same services for way less, but you do. Because you can, you buy an expensive bag because you don’t care about cars or because the bag fits with the $300k dress or with the car. You spend to help the research department in expensive bags or cars and maybe that research will spread to space cloths tech, self driving car or not. You could have spend way less and give money to help solve famine in the world or cure some disease, but no, you could stop making videogames and do a more useful job working for research or health industry, but no and it’s ok. because people needs more than the basic needs, they also need music, beers and for some, expensive bags.

    The sad part is for the people who don’t have the luxury of choice and are forced to work as slaves in china factory to build electronics parts for expensive cars and cannot work with a decent salary for luxury brand that sell expensive bags. And when you count the cost of manpower in the total cost to build an iphone or a car, then you are very sad. That’s why you buy an expensive bag.

  7. ShadowsSun says:

    Cliff, did you deliberately pick a handbag that costs about 10x the amount of money as your school project?

    Bag= £170,432
    School=£18,000

  8. ac says:

    Hey Cliff. Do somekind of critique blog about this project which I’ve been following for maybe 6 years.

    https://www.kickstarter.com/projects/309114309/infinity-battlescape/comments

    – Are asking too little given the scope (some people from US might look at – wait you have 6+ dudes and asking that little…)

    – Should they have got some known name to raise awareness and money? I read they tried to sell the company couple times but I suspect it failed as at that point they were just 2 programmers – probably still in process of learning the business/finance etc stuff

    -Should the have avoided the conservative “underpromise” approach they seem to take – eg. seamless planetary landing is cool but a bunch of other recent games have talked same game and I’m not sure if they have a good USP

    -Are they making a mistake by not sharing the long term visions beyond what the current “smallscale” project promises? Back in the forums where people originally followed this there were all sort of visions thrown around because the project had a huge vacuum of what it was really going to be gameplay-wise.

    Both the founder and the CEO are *engine programmers* and I’ve now seen a LOT of examples that the best engine programmers “different breed” than the best game designers! But given what I’ve seen so far is still promising but now with E:D and Star Citizen etc around, is it a bit too little too late? Many have been asking that.

    – ok yeah the covert agenda here was really about getting people to raise awareness to get the kickstarter funded as these guys are just engine programmers that already promised to license the engine out (probably free for hobbyists) so who cares if they don’t know anything about good games! Just get me the engine lol!

  9. Andy Brice says:

    >we need to move as a society to a situation where people are more lauded for their accomplishments that their possessions or bank balance

    I agree. If we society looked on people buying ridiculous baubles as narcissistic, needy and selfish then I don’t think they would buy them. Personally I am more impressed by your funding a school than buying a Tesla.

    There is a another take on it here:
    http://www.thebookoflife.org/200mph-ferrari-california-launched-buyers-not-greedy-show-offs-just-vulnerable-fragile-big-infants-in-need-of-affection/

  10. Andy Brice says:

    BTW I have recently ordered a new car and it has more BHP than is really necessary. ;0)

  11. Thomas says:

    The reason is that you need to limit how much wealth someone can accumulate because their wealth isn’t ‘earned’ its from population size, consider in a society of 10,000 people, you cap out if you get all 10,000 customers, but in a society of BILLIONS of people, you can see how that economy of scale suddenly allows them to exploit society immensely because there’s no upper limit to how that money can be used to restructure the economy and buy the governments of the world.

    We need to get away from this idea of “earning” and look at how money scales as a system when you add more players to the game, aka there is what might be called an “optimum flow of money” through an economy or organization.

    We need to think more along the lines of society being an organism, and not about everyone being an individual fighting against one another, esp considering our big brains.

    It’s about the fact that human beings don’t scale well and their primate brain would rage at rational ideas…

    See the science, we are bad at reasoning and reality:

    https://www.youtube.com/watch?v=PYmi0DLzBdQ

  12. Short comment: The problem with unethical capitalism comes from the way we allow the liberalist capitalism to operate: it allows sinkholes of piles of cash, sucked out of the value-generation system.

    There are theories, more precisely adjustments about riches distribution. One of those is as follow:

    The main problem of liberal capitalism is that the ultimate riches repartition role is privately hold, and at the *discretion* of the business owner.
    That is, making profit is one thing, the use of that profit is another: no constraint means no assumption: some will redistribute it the most (like the mindstate of Henry Ford and alikes), some will (as you rightfully qualified it ‘childlishly’) keep it the most to have ‘the biggest ‘.

    However, where I would like to get your full awareness, is when talking about taxes: taxes are *by design* unfair, justifying what they appear to fight.
    Put it that way: taxes are proporitional. To get loads of money from taxes, you mechanically needs loads of private money to tax from. Even if you try to set higher rates on biggest revenues, you will need their existence at the very core of the system, thus encouraging those big revenues… that is huge money chosen not to be reinvested but rather steadily kept in infinite pockets.
    You cannot have big revenues if at some point people are not removing loads of it from the money-generation system. You cannot have it both ways.

    The same can be said about dividends: they are paid from a stockpile of cash, following the (lack of) will of the company. What is there is no dividend? Apple case: the stockpile remains and that is ‘lost’ money people worked hard to generate.
    Dividend are by design useless: thanking investors? Well the will get their money back when they leave… but they are not there for cash, there are participating to the company’s success by providing capital in exchange for ownership titles and voting rights, aren’t they? :oD
    This thing about generating pure free undue money by having *investing* money, meaning, by definition, that you will get it back anyway, is totally appalling. What is the justification behind getting an extra revenue from you investment other than this investment’s own fruits? Being rewarded to be rich enough to have money to spare?

    As you say rightfully, this behavior would be erased. In the old times, that was still new, rich people did not seem to need to be that cynical about it and were maybe more open about questions around ‘what is the best thing to do’, morale and values. Times have changed has ‘getting rich’ became a goal in itself.

    The only way companies (or more generally ‘money-generating systems’) and their owners are ensured to make the right choice (ie thinking about others, humanity, and not its own pockets) is though constraint. That is sad, pessimistic, I admit, but that is to counter the result of a bad trend we, as a collective, let run and let get worse and worse.

    Doing what? Taxes and dividends, as said above, justify those big earnings.
    What about contributions?
    Owners already have a way to make money: salaries. They just need to have real work backing it. There you split owners who do not work and owners who do.
    The first ones are unfair: what are they being paid for?
    The second ones are OK, and if they want an extended salary because they estimate they are worthier, why not… until a certain limit over which it makes no sense to earn that much money (otherwise the infinitely deep pockets would be owner’s instead of company’s, but the problem would remain the same).
    The difference there is that you could forbid companies profits which are not reinvested:
    1) Wants personal money? Get it from a salary
    2) Wants company money? Reinvest it

    The difference between a salary and a dividend is that there is no social contribution: that is dead, empty money.
    Getting all your wealth through salaries means everyone contributes to social services finances, the ones provided to the whole community like public services, healthcare (even the liberalists-capitalists USA recently recognized the benefit of having healthy workers… Paradox? not at all if you read all the theories of the early magnates about their workers’ condition).

    Once you ensure you forbid ‘lost’ money, compensations like taxes become useless, or at least less necessary.
    People hate taxes because they are not tied to any social outcome, and if they are it is by accident, not by design. Their mere existence justify big riches and offer the wealthiest people an excuse for continuing to suck more money from other people’s work, which is even worse. They may even complain about paying too much taxes and get them reduced (escape from it) for a reason or another! Because yo uallowed them to have the means to do so in the first place…

    On the contrary social contributions are fair by design: it is money collected for the common good. Political decisions and legislation should then ensure its right use and repartition, which is another matter.
    Things would be cleaner at the start (no sinkhole, lost money), people would be more serene about riches repartition, and disrupting behavior would be discouraged if not suppressed earlier and/or more easily.