I read in this morning’s Dallas Morning News about how Greyhound Bus Lines (which is headquartered in a nearby suburb) is going to shut their downtown Dallas bus terminal when its lease expires, and the author of the article was basically implying that this action by the company leaves low-income travelers in the lurch, with a fairly heavy implication that somehow Greyhound owes the community this service. I’ve also read a lot of articles about food deserts in south Dallas, and they’ve always got the same implication.
None of them really acknowledge the facts that these companies are for-profit enterprises, and if they could make money serving those communities, they would. Apparently there’s some reason they don’t- in the case of grocery stores, I’ve read that sales are low because of the low income in those areas, and that there’s rampant theft that pushes stores past the edge of profitability. So they pull out after a relatively short period.
What I got to wondering is what obligation do for-profit companies have to serve communities for basics like food, travel, etc.? Is there an obligation at all? If not, what should replace it? If there is, are they expected to just take a loss in those areas and make it up elsewhere? Does the local government subsidize up to the point of profitability?
I couldn’t come up with good answers on my own, so I’m tossing it to the collective Doper wisdom.
According to Milton Friedman, the only obligation of a corporation is to maximize the money made for its shareholders. Although this is not a rule of law, it is commonly accepted as the guiding principle for most companies. Their leaders can choose to do otherwise but only at their own risk.
And that’s why the government has whole piles of laws that - mostly belatedly and inadequately - are applied to actions which are too good at making money.
That seems to be a modern-day assumption, but that sort of thinking hasn’t always been the case. I’d argue that whether or not that’s true at all, and if so, to what degree, is at the root of a lot of political differences in the modern world. Both at the “is it necessary at all” and the “to what degree” points of discussion.
I think there’s a bigger picture. In order for private companies to exist and make profits they have to have a functioning society which maintains a legal system, a financial system, an infrastructure system, and a livable environment. Because private companies need these systems they should all pay a share of the cost of supporting these systems.
A problem our current society has is a lot of people who are collecting the profits from private companies don’t feel this obligation. They feel that they can and should avoid paying the costs for the system they need.
They do pay taxes, after all. Property, income, etc… Is that not how they foot their bill?
I think the bigger picture is that some areas aren’t profitable, and the question is whether or not the people who live there are entitled to that service or not. And if so, who provides it?
Most company owners see taxes as a problem to be avoided not as a necessary cost of doing business. And many companies are successful in avoiding paying taxes.
If you suggested to a business executive that he could reduce his company’s expenses by not doing any maintenance on the company’s equipment, he’d say you were nuts. The short term savings of not doing the maintenance would not be worth the long term expenses of having equipment break down.
But that same executive doesn’t see that paying taxes is the same principle. He will happily avoid paying any taxes if he can (and work on creating laws that will make it possible). While doing so, he will turn a blind eye to the consequences. He might even espouse a political ideology that argues taxes not being paid is a positive good for society (calling it “starving the best” or some other nonsense).
I feel this is an application of the same principle. If society feels that it’s a good idea to provide transportation to poorer areas, it should do so either directly as a government service or by providing subsidies to private companies to do so. The costs of this would be paid by taxation.
Remember that we’re not smart like those captains of industry. They know that government will pioneer necessary but initially unprofitable ventures(rural electrification, the internet, etc.) and once it’s a going concern buy it for a song and milk it for all it’s worth, lest it devolve into a government bureaucracy rat-hole.
Traditionally that is done by regulated monopolies. The company provides service nationally to all destinations (profitable and not) and the government sets a rate that allows the overall business to yield a fixed profit margin.
Yup, the deregulation fanatics who claim to be pro-market are in fact idiots who don’t understand markets. A free market certainly benefits society, but to be free it must be fair, and fair competition requires careful regulation.
I essentially agree with Friedman, although I’d express it slightly differently. Being a corporate executive and caring about something other than short term shareholder value are not mutually exclusive. But I don’t want a deregulated environment where anything depends on the ethical discretion of a corporate executive. In that environment, there will be a race to the bottom, economic natural selection will tend to kill off corporations that have priorities other than shareholder value.
We should have laws and regulatory bodies and taxation that fully reflect the interests of society, and all we should require of private corporations is that they follow the law and participate in a fair and thus free market.
I’ve read numerous stories about businesses who put off doing maintenance or replacement to equipment until they were safety hazards, just because doing so would interfere with the bottom line. Most of these stories do come from small businesses rather than global corporations, because any interruption to cash flow is more meaningful and no other sources can make up for that. However, it’s also true that large corporations will choose to continue large pollution rather than spend small money.
Friedman made his comment in 1972, IIRC. The period from 1945 to 1972 was unusual in that corporations made peace with unions, paid CEO only a small multiple of the average worker, upgraded machinery, and didn’t fight environmental actions as fiercely. The Clear Air Act and the first Earth Day were in 1970.
A.F. - After Friedman - greed, for lack of a better word, [was] good. The DOW was exactly the same in Jan. 1982 (2543) as it had been in Jan 1916 (2544). Then it began its almost uninterrupted incredible rise to 38,150 in Jan. 2024. I smell a correlation.
I can only speak to the manufacturing sector I was in, but the reason wages stayed flat between the Great Recession and Covid wasn’t directly due to shareholder prioritization, but because the profits were directed to upgraded equipment, especially automation. From what I saw in surrounding industries, that has been religion for the last two decades or more. And of course it goes down on the books as capital, not operating expenditure.
However, that was just manufacturing, which is not comparable to the vast service sector and its methods.
That’s kind of where I was thinking as well, except that most of those regulated monopolies are things like the old Bell system, or various sorts of utilities (water, electricity, gas, etc.), where having a monopoly makes sense to begin with- only one set of gas lines to run and deal with, for example.
But in other industries like say… groceries, that would be kind of impossible as there’s already fiercely competing companies in that space, just not necessarily in specific parts of town.
I guess subsidies are the way to go, but I don’t know if that’s going to be a good sell to propose the state or local government subsidize a bus station to the tune of hundreds of thousands a year, if not millions, just so a small number of people can have cheap travel. That strikes me as one of those things you’re not guaranteed by the government, just like having a wide variety of groceries at cheap prices isn’t something you’re guaranteed either. And people aren’t going to be wild about paying more taxes to do that.
What I might see working is if a municipality were to cut a deal with a grocery chain and say in effect that they’d give them something attractive in the more desirable (from a grocery selling standpoint) part of town, if they’ll guarantee a store in the less desirable part of town for some period of time. This could be tax breaks, expedited city bureaucracy or other freebies (better road access, etc…) or something else. That way, the consumers of the more desirable stores would effectively subsidize the consumers of the less desirable areas, without seeing higher prices, etc… And if done right, it might not even affect the city coffers negatively, assuming the incentives let the grocer sell enough volume to compensate.
Yes, but the deregulation period of adjustment was a nightmare. Every couple of days I would get slammed by a long distance outfit and my rate would go from 7 cents a minute to 70 cents a minute. Toll calls using a credit card were an outrage. It cost me $7.50 to make a quick call across town. I was so pissed I took their pay phone apart and through the pieces out in the desert. Foolish act of defiance but I never felt any guilt.
And, regulated airlines were great. They had to compete on service. Storage space up front, more leg room and courteous treatment. Now air travel is what Greyhound used to be. Expensive fast food joints, cramped seating, pay for everything (are pay toilets on the horizon).
Regulation’s got its positives and negatives; prices can be cheaper, but things are less stable. In general, customers like deregulated industries- prices are often cheaper, and service is often better than under the regulation regime.
Fundamentally people like cheap, and will put up with all the cramped seating, etc… for a cheaper fare, especially when we’re talking several hundreds to thousands of dollars for a flight.
Nothing in the Constitution mentions private businesses making a profit. But a lot of people seem to think making profits is a constitutional right. And then they feel entitled to a government that helps them do that.