This strikes me as a latter-day “gotcha” type argument–even more so since you’ve explicitly disclaimed any policy position based on it.
But it is of course plainly absurd. Using the OP’s terms, the reason the owner gets all the reward is they took all the risk. That justification doesn’t abate once the investor has received their initial capital back plus a reasonable return–they are still taking all the risk. The business could thereafter incur a liability sufficient to wipe out the original capital investment and all past return thereon.
I never once said that the other players shouldn’t be compensated for their involvement. But that was the first and most consistent accusation. In fact, I mention that the chef may have a profit sharing system, which is generally based on bragging rights and reputation. And the waitress is hired on commissions which is actually a revenue sharing system, she’ll get paid even if the restaurant doesn’t.
Lastly, the dishwasher gets paid, please, read that again, the dishwasher gets paid. He shows up, he works, he gets paid. And he is paid regardless of the revenue. If it’s a slow night he gets paid, if it’s hoppin he gets paid. If the restaurant runs at a loss for the year he still gets paid. If the restaurant is the hottest thing in the city, he still gets paid.
The dishwasher gets paid in proportion to the level of risk he takes. He doesn’t have to take a “risky” job at a startup.
The winner in this system is free to do what ever the winner wants. You’ll notice that winners frequently tips the dealer, but does the dealer ever chip in when the guy loses? Does the dealer ever say, “oh, I should have told you I had blackjack, here have half your money back?”
You’ll also notice that the dealer will happily take the tip, ignoring that the guy didn’t actually win any more money, mearly did well on one hand.
The person investing their money/time/reputation are the ones that stand to gain or lose. No one else is entitled to those winnings, because no one else bares responsibility for the loss.
What the owner chooses to do with their profits is up to them. If the restaurant turns out to be a windfall, they could take their winnings, close shop and retire. It is not their responsibilty to provide jobs and health care. I’m not saying that to be a dick, it’s simply the reality of the crapy situation we find ourselves. And note if you scan through my threads you’ll see I’m a rather strong proponent of universal health care and social safetynets. But those two subjects have no relation here at all.
What you’ll see is that after success, most investors choose to reinvest their winnings. They’ll reward key staff, offer profit sharing, and sink money back into the business. But remember that the point of investing their capital (putting their money at risk of loss) was to win–to make more money or be successful/popular/desired.
When talking about risk, consider a firefighter. Why is it they are willing to run into a burning building for very little money? I wanted to be a firefighter when I was younger, got trained as an EMT, worked with the coast guard. But it was hell to get in, there were no vacancies. So I went outside my municipality looking for volunteer positions, again, no vacancies. They were all filled with kids like me trying to get in. They were all taking a huge risk first that they might not get hired, but also that once hired they’d be running into burning buildings.
You’re missing the point.
What gives you the authority to define “risk” in the narrow fashion that you are? Or is this someone else’s definition? You really need to clarify this point, especially as what you say is contradicted by the dictionary.
Second, what is the purpose of this thread? Why is it titled “Understanding Risk”, and not something like “Why I Think Wage Employees Are Adequately Compensated For Their Labour”?
Third, if you could clarify this, mentioned earlier by septimus:
Is this your position? If Bill Gates invests $1000 in a startup, and Joe Nocash invests his life savings of $1000 in the same business, are they both taking on the same amount of risk? Because if you think they are, and if the millionaire risks more in septimus’ example, then I don’t think you’re in a position to educate anyone about risk.
Well, I think society would be better with more successful companies, and that companies would be more successful with more employees invested in them being profitable (since the money comes to them as well as the bosses and investors.) Silicon Valley is an excellent example of how well this policy works.
Most profit sharing systems I’m familiar with are based on money.
Bragging rights and reputation don’t pay the rent or buy gas. A chef employed by someone who tells him this is soon going to monetize his new reputation by heading out the door to someplace who is willing to share profits, or at least give him a big raise. And the greedy owner lost the person who probably made the restaurant a success. If he is lucky enough to find another good chef, the same thing will happen and it will continue to happen until he wises up.
Pretty much every manager with half a brain knows that star performers have to be treated well. Fame may be part of the equation for some, but fortune is a lot more reliable.
Sure, and Founders Shares are allocated first.
Angel rounds give more of the company, for a little bit of money.
Series A shares come out next, and cost more.
each round is worth less, in a sense, as the risk of the investment goes down.
For employees, options are granted because they are cheaper than salary. They also help convince employees to work longer hours. They are NOT a risk element - they are a compensation element.
Risk, in the context of this discussion, is investment/business risk.
But not all companies are tech startups. Some types of businesses may benefit from employee profit-sharing while others don’t. Take your basic widget manufacturer with a ton of assembly line employees–I could understand if the owners of that company didn’t think that an employee would do their job better if they reaped some of the profits (because one out of a billion widget line workers can’t really do a whole lot on their own to increase the bottom line).
And that’s the point–the owner of a company gets to decide whether they think profit-sharing with employees will make that particular company more successful or not.
I started this thread specifically because in the labour/power thread someone also posted this definition, let’s look closer:
And before I do, my main gripe here is the insistence that profits should be capped, or some how fairly distributed to all players. Profit goes to the one that risked capital. Glory goes to the one that risked their life. Fame goes to the one that risked reputation.
*risk:
n.
The possibility of suffering harm or loss; danger.
A factor, thing, element, or course involving uncertain danger; a hazard: “the usual risks of the desert: rattlesnakes, the heat, and lack of water” (Frank Clancy).*
If the job is physically dangerous (like mining or firefighting) that is a choice the employee needs to make. How much are they willing to risk? I’m personally not willing to risk my life in a mine, but I was willing to risk my life in the Canadian Coast Guard, and would have if I could have been a firefighter. To me, salary was not the only reward, in most cases I did it for free because I enjoyed it.
So let’s say someone invests their capital to buy a mine, they then hire a guy to pull coal out of the ground. I’d say that is an insanely risky venture for two reasons, one there is a chance their might not be coal, and two there is a chance someone might die.
People love to crap on oil companies for their profits, but they put up huge amounts of capital looking for oil. Most of those explorations fail to pay off. Ditto for pharmaceuticals, most of their research goes no where. So when they finally strike gold, they want a return on their investment.
The person they hire to get it out of the ground also wants to be compensated for the risk they take. But that is in no way proportional to the profit made. Again that is the point of this thread. The miner didn’t go looking for coal, he was told here it was he just has to go get it. Much the way if I hired you to place a bet for me, or buy a common stock. Labour has their own level of risk to deal with, but NONE of that involves the potential profits involved.
a. The danger or probability of loss to an insurer.
b. The amount that an insurance company stands to lose.*
Not relevant here.
4a. The variability of returns from an investment.
Did everyone that cut and paste this read 1 and 2 then skip to the end? Return on investment involves risk. This definition, as provided here and in the other thread, is the point of this OP. You’ll notice that I mention investing in a restaurant.
So, tell me, did the dishwasher make an investment? If so, what was his investment, and what should his return be?
b. The chance of nonpayment of a debt.
We did cover this as a potential and not inconsequential concern. My point in the OP is that even while the restaurant fails to earn profit, they will continue to pay the dishwasher.
5. One considered with respect to the possibility of loss: a poor risk.
Not sure what that has to do with anything.
No, the dictionary specifically mentions investments as a form of risk.
What everyone else is doing is assuming that definitions 1 and 2 apply to 4. That if the dishwasher risks his life to drive to work he’s entitled to the profits.
Again, you are 100% incorrect and falsely applying outside risk to the investment. Choosing to become a dishwasher has it’s level of risk. Just as their is risk to becoming a doctor or a chef. There is a risk to being a single mom, or drinking and driving.
NONE of that has any relation to the profits derived from the initial investment. And the point I’ve been making since the beginning that the dishwasher will earn an income regardless of the success of the restaurant. He shows up, he gets paid. None of the risk you apply to him applies to the profits. If he considers taking the job risky that is HIS assessment that HE risks. His reward will be the salary he negotiates, that again has nothing to do with the profits/losses of the initial investment.
And with that said, the dishwasher could (in many circumstances) seek profit sharing. If he wants he could forgo his salary for the year, thus helping the restaurant succeed. He could put in extra time, he could buy equipment, he could research methods of increasing productivity.
Instead, he shows up, does his job, and gets paid. He is adequately rewarded for the level of risk he takes.
ETA What you’ll also notice is that most if not all employees do NOT want to incur risk. They aren’t interested in profit sharing, because they need that paycheck.
Most assembly line works want to be paid hourly and not based on a future prospect. Cash in hand. Look at the negotiations when the airline industry tanked. None of the workers were willing to forgo salary for a year with the promise of future earnings. Cash in hand is how most employees want to be treated.
Between you and me, they’ll never understand this. They just won’t. They think that the owner should just give the employees a cut of the profits out of the kindness of their heart. They don’t realize that they essentially want to force employees to buy a cut of the profits with reduced wages/salary.
Yes, for the love of og I’ve been saying that since the beginning. What the owner does with his profits is up to him. If he wants more profit he’ll work to retain his key staff. But notice that if his profits are capped he isn’t given the choice.
There are lots of greedy owners that fail, that’s on them.
Adventurous bulls make money, timid bears make money, greedy pigs get slaughtered.
I’m not advocating anything after the profit is made, except to suggest that it goes to the person(s) that made the investment. Everyone else is compensated in their own way, but profit goes to the investor, as do the losses.
Look, Rand, you titled the thread “Understanding Risk” and it was about a problem you perceived in the thread about "what should replace capitalism. You seemed to feel that the post-capitalist theorists who posted in that thread should be using the exact definition of risk that you set forth in your OP. I just pointed out that many people define risk very differently from that very limited definition. And I have a problem with the definition from the viewpoint of post-capitalist theory in that your definition is by its very nature capitalist. If you want to have a thread about the nature of risk in traditional capitalist theory, have at, but let’s not pretend that such a thread is at all relevant to the thread your OP was a response to. Frankly, I don’t see the point of a thread in that instance … a simple definition will do.
Well my definition of “risk” is a bit more meta than yours Rand. I see all members of a society are a risk. I would like to look at ways to manage risk for all of us. It’s why I advocate universal health insurance and a strong social safety net. I also think that capitalist economy functions best which embraces the interests of the middle class, not the upper classes, but that’s not a social-justice or risk avoidance matter, it’s a matter of efficiency.
I’m confused. Are you saying it is good for everyone for the chef to split?
I think one person was misinterpreted as saying there should be a cap on profits. That hasn’t been the point.
Look, when the chef walks into the owner’s office after the profits have rolled in, he is going to rightfully claim that a large part of those profits came as a result of his skill. It is true that they wouldn’t exist without the initial investment, but they also would not exist without a good chef. Now, in your view should (not must) the owner say that he agrees, and will give a slice of the profits to the chef in the future, or should the owner say that the chef’s salary and increased fame are more than adequate compensation?
I didn’t start this thread, bub. Just thought I would help fight the ignorance.
Your criticisms of the “risk” concept is why I jumped in to re-conceptualize the OP.
Also, this post gets at one of my main criticisms of your mode of thought–you look at it as policies favoring one group or another. You want policies that favor your pet groups, so you think that people who disagree with your policies favor groups you don’t favor. But that is simply not the case. Neither I nor emacknight (who actually started this thread, by the way) nor other fiscal conservative/small government/libertarian types have any special affection toward rich people. We just like freedom and choice, and we have the balls to let the chips fall where they may.
Also, I’m perfectly OK with a social safety net–if someone’s born blind with no arms and no legs, then I am happy to keep him in a house and food etc. forever. But I’m not OK with 99-week unemployment benefits and universal health care for every swingin’ dick (etc.).
Form a Limited Liability Corporation (easy to do and not all that expensive). Whatever debts the business incurs does not flow over into what you have already made. The business may go kaput as a result but the money you already extracted is yours to keep.
As such, as an owner, your risk once you have made your return on investment is minimal to non-existent. What risk remains are potential future earnings.
My previous company did something similar (sold copiers at cost or even less and made all the money on service contracts and other value add things).
That is not the same as this.
There is a product available for $15/dose. A company manages to convince the government that they should have exclusive rights to sell it so the people once making it for $15/dose no longer can. They set the price at $1500/dose because they are now the only game in town.
For what I gather originally doctors supported the move figuring a company like this could provide a stable supply as well as guarantee quality better than the precious method.
No one thought they would gouge like this though and doctors/hospitals/insurers/congresscritters are fit to be tied.
That the company is otherwise a colossal fuck-up (IIRC their CEO is under indictment or has been convicted or something) does not make it “ok” to do this. Smart move on their part but shady as well.
Please don’t presume that my knowledge of these matters is equivalent to yours . . .
Also, you ignored what I said. The owner still takes all the risk from the success of your business. It is of course axiomatic that there are several forms of business organization that reduce the risk to the individual, but that doesn’t change the point–the owner is the only one whose return depends totally on the success of the business.
Please show me where anyone has said the owners must evenly distribute the profits of the company to all employees.
Everyone makes choices and there is value in collecting a paycheck and not risking your life’s savings on a startup venture. I do not think anyone begrudges someone who starts a business from getting rich. I sure don’t and I love seeing such success stories.
That said the definition in the OP is too broad. What is “risk”? Goldman Sachs was founded in 1869. I think it is safe to say they have made their investment back many times over and then some.
So who is taking the risk?
The CEO? I cited above that he was sued by stockholders for doing a bad job. Was he fired? No. Was his salary/bonuses docked? No.
Maybe it is the investors. Oh wait…their company made bad decisions, almost went under and the government (i.e. you and me) bailed them out. Were they stung? Did they incur the downside of the risk you say is part of all this? Nope. There is no risk when there is no downside.
Further, employees generally ARE the company. Some companies make widgets. Goldman Sachs sells the expertise of their traders. Those people are the machines of their industry.
Saying that, in theory, any employee can negotiate whatever salary they want is incredibly naive. History is replete with examples of employers flat out fucking over their employees.
Why do you think unions came into existence?
Why would you think companies would not do exactly the same today given the chance? In fact they are whittling away at labor gains. Wages are stagnant and have been for a decade. Union busting is all the rage (and unions already were severely diminished from their heyday).
Companies will milk every last drop they can from their workers in order to maximize profits for their owners. If they could get people to do it for free they would and sleep well at night by claiming it is their fiduciary responsibility. Again, history is replete with examples of this and it exists in the world today.
Workers ARE the company. You can dream of Ayn Randian strikes of rich people all you want. The rich people could not be rich without those workers (except in rare cases maybe like an artist who gets famous). As such it is not improper to expect the owners to see that their labor benefits from the success of the company.
This is NOT to say the owners need to be egalitarian. This is NOT to say the owners can’t reap the lion’s share of the rewards.
This IS to say it is not ok for the owners to decide making $11 million is better than $10 million/year if they cut benefits and reduce wages because, ya know, fuck the workers. THEY took the risk, the workers are leeches taking money the owners deserve.