Corporate pursuit of profit and its increasing social costs

I would really like to engage in discourse about putting some restraints on the pursuit of profits; particularly, where it intersects with the public good, other peoples’ livelihoods, their ability to pay, and their survival itsel

It all started last night when I was making chili mac for my family for dinner. I noticed that the two boxes of mac & cheese and two cans of chili was no longer enough to go around, because there was less macaroni in the boxes.

I am told that corporations are legally obligated to maximize profits for their shareholders. They must take any actions that will increase profits because otherwise they can be sued for mismanagement. I am wondering, what is the end game here? They can reduce the amount of macaroni in a box more and more until people simply refuse to buy it. Will we eventually be paying full price for a box with only two or three noodles? At what point does the legal obligation to pursue maximum profit become an intolerable transgression against the well-being of the general public?

What about short-term versus long-term profits? What if an increase in pay to their workers will result in greater productivity? Would increasing wages still be considered a betrayal of their shareholders? What about harm to the community or the environment? Are corporations legally obligated to continue policies & practices that pollute or that put a strain on public funds, because otherwise the shareholders will be mad? Personally, I think that a giant corporation like Wal-Mart, that insists on paying workers so little that they must also apply for food stamps merely to survive (and are instructed how to do so by Wal-Mart itself) ought to have mandatorily unionized workers.

What if the founder of a company made his or her fortune on a good product with quality ingredients. They could make a lot more money switching to cheaper ingredients and selling that shitty product at the same price. Once that company has their IPO, are they legally obligated to make the shitty product instead? What if the founder doesn’t want to? Could he or she then be sued?

It seems to me that there ought to be some restraints on this kind of thinking. Obviously, we need laws to prevent corporate mismanagement of other peoples’ money; but I don’t think it should be an unbridled imperative.

I’m obviously not an economist, but capitalism (when managed properly) can be a great thing that increases people’s standards of living and quality of life. Life now is far far better than it was 300 years ago, in part due to capitalism. And once communist nations like China abandoned communist economics, their GDP growth rates skyrocketed. South Korea’s economy grew far more than North Koreas. Taiwans grew far more than Chinas. West Germany’s grew far more than east Germanys.

However there is no long range planning or concern for societal effects in true capitalism. Also true capitalism doesn’t care about the wants/needs of those without money. There are major failings of the system, which is why you need the public sector to guide and regulate the market to deal with these inefficiencies.

Long range planning is usually done by the public sector because the private sector isn’t good at it. Investments in infrastructure, education, health care, basic science, security, etc. all increase productivity and are good for long term profits, but they aren’t really incentivized by the private market.

Basically, every capitalist country has a large amount of public sector intervention to take the harsh edges off capitalism and to correct for its failings. The only real debate is how much of a role should the public sector have, and in what areas.

This isn’t true. First, it’s not enforceable, and second, it’s not clear what this would mean. Third, SCOTUS has explicitly statedwhat has been clearly true for some time:

Your example lacks an understanding of how a capitalist economy works. A company that reduces value in a product and attempts to sell it at the same price will find itself competing with companies who will sell it for less.

The key concept here is fiduciary

But a company owes a fiduciary responsibility to more than just it’s shareholders. It is also responsible to it’s employees, it’s customers, and the community it operates in.

There is an adage in business that a properly run business (ie: one that most efficiently manages it’s responsibilities to all of it’s beneficiaries) will be a successful business and that will lead to increased profits. Many in charge of businesses have perverted that adage (flipped it on its head) to say that whatever increases profits is necessarily making that business better. I believe this perversion is actually taught in business school.

But, the blame for this cannot just be laid at the feet of businesses. Society is to blame as well. There is no downside to a company ignoring it’s fiduciary responsibilities to anyone other than it’s shareholders. When was the last time you heard of an individual, or a city or state or federal govt suing a company for breach of fiduciary?

Wesley Clark is correct; free market capitalism is only half the story. There has to be an accompanying demand from the public that companies fulfill all of their fiduciary obligations. And this starts at home. Know who you do business with, don’t compromise, don’t be a shareholder that demands profits over responsibility. Engage on more than just a business level; demand that your friends and neighbors also act responsibly. Demand it of your teachers and of your children’s teachers. And teach your children that there is more to success than profits.


And, as an example, Amazon has clearly not attempted to maximize profits, but might be said to have increased shareholder value by its investments.

You believe in homo economicus. How quaint.
What might happen is that the company will reduce the price of the product, but not to the extent of the cost reduction, and thus increase the profitability of the product. In a world where every consumer carefully examined the price per ounce this might not work, but in our world the consumer will often buy the cheapest product, even if it is not the best value. Or competitors could jump on the bandwagon and reduce their product size also to match profitability.

and yet there are quality products on the market.

I have to say that’s a pretty bad place to make a stand against capitalism. Just read the box and it’ll tell you what’s inside (including the amount of the product which the box contains). Make your purchasing choices appropriately.

Now if there were no laws requiring companies to put accurate information on the labels of their products, that would be different. Companies could put anything inside and customers would just have to guess what’s being sold.

I fully support laws which require companies to provide accurate information to customers. I generally don’t support laws where the government is making decisions for the companies and the customers.

On a separate note, what the OP seems to be asking for is a guild economic system. This was an old economic system that predated capitalism.

The idea was that guilds controlled production. In order to produce a product, you had to belong to the appropriate guild. Let’s say the candlemakers. Only members of the candlemakers guild had the legal right to manufacture and sell candles.

And the guild didn’t just monopolize production it also defined it. The guild would set a standard for how a candle should be made, what the final product would be like, and what the price would be. And each member of the candlemakers guild was required to comply with the guild regulations. You weren’t supposed to skimp on the quality of the candles you made. But you also weren’t supposed to invent a new way to make candles cheaper or better. You weren’t supposed to raise or lower your prices. You weren’t supposed to claim that your candles were better than the candles made by other guild members. The idea was that a guild would deliver a consistent amount of a consistent product to a consistent market.

Little Nemo, you were here long before I was; and I value & respect your input. So let me try and explain this in a way you can relate to.

I doubt you’re much younger than I am, so surely you remember boxes of {name brand} mac & cheese that had full-size elbow macaroni and contained enough to truly be a side-dish for 4 people at dinner. Its cost was an amount that was a certain proportion of your average person’s hourly wage.

Now, that same box of mac & cheese contains far less of a quantity of much smaller, lame-sized noodles, and it costs a significantly higher proportion of your average person’s hourly wage. Inflation alone is nowhere near enough to explain the massive discrepancy. The fact is that the makers of {name brand} macaroni & cheese feel far more entitled to a far greater percentage of our wage for an inferior product.

This is what has changed; and this is what I struggle against.

Sounds like you need to buy different macaroni.

Other have mentioned that this is not entirely true. And anyway, taking “any actions that will increase profits” and “helping customers with quality products” are not mutually exclusive. If so, we would never see a product recall.

Capitalism has no end game. It is not a sentient being and does not make plans.

Yes. Precisely. They will reduce the portions (or make things of cheaper quality) until they hit that breaking point where people stop buying it. If another company can make a better offer, go buy their stuff instead. This is why businesses tend to offer a range of products from the smallest, most minimal items up to large, luxury items.

Laissez-faire capitalism is not a good thing. Capitalism does need controls to make sure it is fair and works properly. Check out the history of America before consumer protection laws. They adulterated foods, sold poisonous wallpaper, and had factory workers ingest radium until their bones disintegrated. Journalists (aka enemies of the people) did a lot to inform people about unethical businesses and spurred laws to reform them. America’s products are mostly pretty safe, but places like China still have huge problems with counterfeited products and adulterated foods.

Ask Blockbuster how that worked out.

There isn’t a direct correlation between cutting costs and making money. A businessman should pursue profit as the goal of the business. They should not - for example - run their business as a nonprofit charity without the consent of the shareholders. That said, only a total imbecile would ignore the importance of compensation. Labor is a “market” like anything else. Employers naturally seek to purchase labor at the lowest possible price, while employees seek to maximize their compensation. If the compensation offered isn’t commensurate to the skills the job requires, the employees will move on to greener pastures. The stingy employer, meanwhile, will be left without employees or will be forced to accept lower-quality candidates.

Yep. This is a huge problem. Places like Wal-Mart and McDonald’s are low-skill jobs, so the labor pool has next to no negotiating power. These companies actively exploit the poorest, least skilled workers who lack the skills to move on to better jobs. Meanwhile, Uncle Sam pays welfare for them to make up for the shortfall in wages. It’s a government subsidy with extra steps. We try to combat this with things like healthcare laws and minimum wages, but that’s only a band-aid fix. If we increased the minimum wage, do you think Wal-Mart’s CEO would take a pay cut? Fuck no. They’d just increase prices.

Things like this are responsible for what some people characterize as the “destruction of the middle class.” The idea is that Americans are increasingly becoming divided into two categories: At one end are Skilled workers who can command decent salaries, buy higher-quality goods, and send their kids to good schools (thereby breeding more skilled workers). At the other end are unskilled workers who take any low-wage job they can get, require government assistance, and have to send their kids to shitty schools. Some experts are worried that there is increasingly little between these two extremes.

No. The law doesn’t dictate what a business owner “must” do. Businesses recognize that customers have different incomes and different needs. They have an interest in reducing costs while maintaining quality. This is where you see stores that sell luxury goods. People with moderate or upper-level incomes will avoid buying things they think are “cheap” or of poor quality. For example, one of the factors that contributed to K-Mart’s death spiral was the public perception that K-Mart was a place for cheap and shoddy goods. The poorer members of society may be forced to buy the cheapest, lowest-quality things. But if everyone did that, higher-quality goods wouldn’t exist.

The last century saw a steady stream of labor and business reforms from start to finish. These included things like labor laws, compensation for injuries, pure food and drug regulations, banking regulations, standards for construction and consumer safety, antitrust laws etc etc. If capitalism was allowed to operate with no restraint whatsoever, it would end in disaster. Heck, it DID end in disaster in the 30’s and required a combination of increased government intervention and total global warfare to get things back on track.

One of the problems we are having is in our ability to fine-tune this system. Some countries place greater emphasis on their worker and consumer protections. For example, some countries limit CEO pay. If the CEO wants to increase his own salary, they must also increase the poorest worker’s salary.

America is kind of weird in this regard because our last 30-ish years have seen a concerted effort against workers and against regulations. Politicians have basically killed unions and convinced Americans that regulations are evil. To an extent, they have a point. Some things are literally impossible to manufacture in the US because they use toxic components that are banned, and so we buy these things from China because they are (a) cheaper and (b) someone else’s employees have to deal with the toxic chemicals. An unions got a bad reputation in America because they were sometimes corrupt or incompetent. There are case studies of unions who drove their businesses into near-bankruptcy because their insistence on labor protections outweighed their actual profitability. (Eg A business becomes uncompetitive because its union prevents the adoption of labor-saving technology)

America is admittedly struggling with this right now. We’ve been raised on a diet of trickle down economics, a hatred of government regulation, and a pseudo-religious belief that the rich deserve to be rich. We allow CEOs to bankrupt their companies and simultaneously collect multimillion dollar bonuses, which I find utterly baffling. There are actual [del]dumbfucks[/del] Americans who think businesses won’t pollute environment because it’s not in their own best interest to do so. There are people who will eat from contaminated rivers because they don’t want “the government” to tell them which poisonous fish they aren’t supposed to eat. And then they keep going to work for the employers who kill them thanks to a combination of misplaced loyalty, desperation, cognitive dissonance, and plain old stupidity. It’s utterly baffling.

And, to be fair, if these businesses were held to a higher standard it would increase operating costs, and Americans would just bitch about higher prices until the business inevitably moves to Mexico or China, and then
we have no jobs all. I don’t pretend to know what the right answer is. All we can say is that American capitalism seems to work great for some people while actively fucking others, but so far it seems to work “good enough” for most people.

With rare exceptions (lawyers, accountants, financial advisors) companies do not owe a fiduciary duty to their customers. Even insurance companies have only a “quasi-fiduciary “ relationship with their customers.

I understand all this. I’ll admit I got annoyed at the way ice cream containers got getting thinner while the height and width stayed the same. And I remember when yogurt used to be sold in eight ounce containers.

But this isn’t deception. I can still look at containers of ice cream or yogurt or macaroni and cheese and see how much they contain. If I don’t think the containers has enough, I can buy a different one. Stores even post little signs so you can compare the prices per ounce.

The overall trend is that the cost of food has been steady for the last twenty years (figured as a percentage of income). It hasn’t become more expensive to feed a family.

This is not a problem of the capitalism per se.

It is a problem by all the data signs available of the technology shift that is destructive to the middle skilled work but yielding so far ever more returns to the high skilled labor and the capital. As it seems to be occuring across various models, but mitigated sometimes by different structures, it is not something of a problem of Capitalism or State Socialism, but the economic structuring of computer enhanced production models.

It is worth for such conversations to point out that the confusion of Business with Corporation and particularly the Shareholding Corporation causes substantial lack of understanding.

Most companies are not the shareholder corporations, and this is extremely the case in the USA by the data, most companies are the partnership style companies, LLCs or similar.

When posters start their complaints about the Corporations and shareholders, it is mistaking the mediatized portion of the economy and the business sector for the reality of the business sector. It is a distortion that probably leads to the substantial miscomprehensions.

First of all, JB99, that was a beautiful, reasoned, expansive answer for which I am grateful. Thank you for taking the time for this great response.

Second, Little Nemo, alas! – no one seems to be competing with Kraft with a better mac & cheese. EXCEPT Cracker Barrel! The amount isn’t much better, but the cheese goo is phenomenal.

Right. There are quality products, and also products with low quality marketed as quality products.
I personally heard the quality director of a division of a major company say that he could get away with charging more for bad product due to our reputation for quality.
Haven’t you ever seen larger packages cost more per unit than smaller ones? I have. Odd, but perhaps they overproduced the smaller ones, or perhaps they figured that since people just assume larger packages are cheaper by unit they could get away with it.
Are you aware that restaurants put a high price item on the menu, not to sell it, but because people tend to pick the second highest price item, and so if they make that more profitable they can move a lot of them.
There are lots of examples.

If you are addressing me, I’m not taking a stand against capitalism. What I describe is definitely legal. It’s probably even ethical. But there are tons of ways of directing consumer behavior that wouldn’t work if consumers were as rational as traditional economic theory says they are. Thus the Nobel prizes for Kahnemann and Thaler.

No, I was responding to the OP. I feel there are some legitimate problems with capitalism but I didn’t see this issue as one of them.

In my opinion, setting a standard for what the size of a product “should” be rather than letting the free market decide would create more problems than it would solve. Maybe most people prefer five ounce containers of yogurt.

I’m pretty much in agreement with what you wrote.

Just curious - were you aware of the reduction of size of the container in the store, or only when you got the mac and cheese home?