[mensetmanusman]

I work in one of the last remaining large industrial manufacturing labs in the US. Some of my colleagues worked at Bell before that was shuttered.

My sense from talking to the previous generation is that financialization of the US has started (finally) failing the American people.

The previous generation cashed in on major profits by off shoring (Kodak), but we overdid it.

In a round about way our company is run by pension funds, and I work on projects that would get 8-9 figure investments if we were doing this in APEC, but we would rather have stock buybacks, so we end up getting 6 figures and puttering along.

Meanwhile the higher ups wonder ‘what happened to R&D?!’

[joe_the_user]

Yeah, "financialization" is absolutely the answer and the articles' claim of lack institutional integration (or whatever) seems wrong.

You can look at how Boeing gutted it's highly skilled Pacific North West operations to move lower skilled, lower paid areas elsewhere and generalize this to a multitude of similar industries.

[liquidpele]

I think that’s only half right… the financialization is driven via a priority of short term profits that are incentivized by the market to executives. They play the BS game to just get rich and then dip, company be damned in the long run.

[CPLX]

This is the closest thing to an answer.

The economy has essentially been ruined by looting. People finding ways to strip out assets from companies.

Variations on this include private equity racking up debt and bankrupting companies. Executives doing stock buybacks to boost their options while hollowing out the company's resources. Hedge fund management fees. It's everywhere.

[sitkack]

Everyone incentivized by percentage of money changing hands ends up looting whatever asset they have access to, esp if the resource they are burning isn't on the books somewhere.

PMs loot products by throwing in needless features to game some metric, or cutting features that users want but are "too expensive".

Engineers loot by burning resilience and multi-dimensional reliability to eek out 5% more straight line speed.

Sales folks loot by offering huge discounts to get huge deals signed, etc.

They look like heros, then they move on, leaving the place worse than they found it.

[lifeisstillgood]

That's a good insight - the whole article is deep food for though thansk

[bboygravity]

It's way worse than that: there's also deliberate cellar boxing (bankrupting) of companies on a large scale.

Hedge funds working with consultant buddies (BCG) to take over the board/leadership of a victim company.

The consultants then deliberately destroy the company from the inside while their hedge-fund buddies (naked) short it into literal bankruptcy.

It's a very easy game, it's tax-free (because the short position is technically never closed? or something) and it only very very rarely fails and backfires (GME).

[TheOtherHobbes]

https://edition.cnn.com/2018/10/16/investing/retail-sears-pr...

Hard to imagine the delightful people involved leaving money on the table by missing an opportunity to profit from shorting.

[RandomLensman]

Do you have an example (incl. evidence) of such coordinated and deliberate action between consultants and hedge funds?

[anomaly_]

He doesn’t because it’s conspiracy bullshit. There are some valuable points in this thread but the OP above is not one of them.

[lumost]

Is the looting behavior just a response to US industrial policy? US policy has made US manufacturing tenuous for decades. Meanwhile US policy has also provided the means and mechanisms to ship manufacturing abroad.

Given the above, isn’t the optimal strategy to maximize profit extraction in order to invest in new industries?

[TheOtherHobbes]

It's a response to a planetary economy incentivised to reward resource extraction, rent seeking, and individual greed over collective intelligence and creative strategy.

The US corporate right evangelised this culture as "freedom", and now it's being eaten from the inside out by it.

[jdk354]

Its likely that if many things were made in the US, they would be too expensive for most people to afford, a smartphone might cost $5000. The US could re-industrialize but it takes a lot of robotics due to high labor costs in the US.

[lumost]

My understanding is that robotics were being heavily developed in the US in the 80s/90s to improve costs. Then outsourcing took the wind out of the sails for robotics.

Maybe the tech was to far out, or maybe we would have had vastly more advanced industrial robots.

[jdk354]

Private equity really makes life miserable for regular investors and the general economy. I think stronger provisions against buyouts of public companies preventing a single investor from buying more than say 10% of a company and preventing public companies from therefore being gobbled up by private companies would go a long way to solving these problems. Its also vitally important that rules for fiduciary responsibility to a companies shareholders have teeth and also the INDEX act to prevent companies from being subverted .

[wisty]

I think China deciding to dig itself out of poverty is a big factor with both good and bad effects (and absolutely staggeringly big effects).

[SyzygistSix]

Can you imagine the magnitude of the humanitarian and environmental crisis China would be if they had not industrialized and joined the global market? A country that size full of uneducated farmers and first generation coal power plants would be a nightmare for everyone, not just China.

[rorroe53]

Well, the planet would be better off without Chinese middle class and elite flying around and buying stuff. Countries that are full of poor "uneducated farmers" tend to have much lower carbon footprint than richer ones, even with the higher birth rates. Despite its admirable investments in reneweable tech, China still keeps building new coal plants as well.

[katbyte]

started by jack welch at GE, the first corporate raider - https://www.iheart.com/podcast/105-behind-the-bastards-29236...

[walthamstow]

Was Welch a raider? I thought he worked his way up internally.

My understanding, possibly biased by my Britishness, is that Jim Goldsmith was one of the earliest raiders who took over companies and asset-stripped them.

[chii]

> People finding ways to strip out assets from companies.

If those people don't own the company, what is the owner doing by allowing this to happen?

If those people _are_ the owners, then there shouldn't be a problem, since it's their own company, and they ought to be allowed to do anything they wish. Including short term reward for long term loss (if it is worth it in their eyes).

So i dont think it's "looting" (implying it's being stolen without knowledge of the owner).

[dwallin]

Just because a behavior may end up profitable for its owners doesn’t mean we should be just accepting it as a society.

Also viewing a company as just a collection of assets owned by capital can be somewhat limiting. Companies are generally made up of human employees, and many schools of thought treat employees as one of several stakeholders in a company and assign various rights to them and various responsibilities to the company for them.

Looking at it this way, the “owner” of a company can easily be described as looting the company if they are destroying a lot of value in the company for marginal benefit for themselves.

[chii]

> we should be just accepting it as a society.

This problem is solved using the court system, and then legislation system. Things which _should_ be unacceptable needs to be made illegal. And over time, this has indeed been the case. Things like environmental regulations etc are the examples.

> various responsibilities to the company for them

i think the employees are reading too much into this responsibility, because the only responsibility the company has for the employees are the legals ones: such as OSHA, timely payment of wages, safety from harassment etc.

Longevity of the job, social responsibilities (such as improving the community etc), are all secondary to the financial success for the shareholders.

[ChatGTP]

Just because a behavior may end up profitable for its owners doesn’t mean we should be just accepting it as a society

I 100% agree with you, but isn’t this how capitalism works?

I do notice similar sentiments to use more frequently on HN lately. Feels like people are actually aware there are problems now but unsure what’s to be done?

[bryanrasmussen]

I think you have a sort of 1920s view of companies that there are 'owners' instead of investors who don't exercise nearly as much control as the people who are brought in and do the looting.

anyway in this case the term "looting" is meant to do things that will be of benefit to the people to the company that will in the short term maybe benefit the company but in the long term destroy it. The short term benefit often aligns with what benefits the looter, but this alignment is not hard and fast.

[Terr_]

Trying to introspect the "That's Wrong" feeling... I think it happens when people feel that employees/founders have some kind of vested interest in the company's persistence that is being violated... But that thingamajig is something our legal and financial systems do not adequately capture and model, or else it could be but people aren't aware/proactive about it.

[peyton]

I think fiduciary duties get way more nuanced. You can’t always do anything you wish to a company, even if you own it outright.

[chii]

> fiduciary duties

only agents acting on behalf of the owners have fiduciary duty. Of course, if you are a majority owner, but there exists minority owners, you cannot screw the minority owners to profit yourself - i guess this is a form of fiduciary duty.

But if you own it outright 100%, then you don't have such a fiduciary duty to yourself.

[jdk354]

The big issue on that comes down to minority vs majority rights. If the majority puts in a board that destroys the value of the company because the majority also owns another company that wants to buy it at a bargain price, it destroys the investment of the minority. Some people suspect that could be happening with Disney.

[sitkack]

You know this is debunked trope don't you?

[yterdy]

Not quite. As GGP mentioned, the necessity of keeping stock prices (and property values, and anything else securitized) high so as to not impoverish pension funds, 401Ks, IRAs, etc., is real. That is, if you care about Silent, Boomer, and Gen X retirees - who invested, but didn't save - being able to cover their myriad outlays. Millennials and younger need not apply, of course; we're just never going to be able to retire (Or afford a house. Or...). You are right about one thing: "get rich and then dip" is the mantra. Not just for executives, but for the elder half-ish of Americans in general.

[0xDEAFBEAD]

>As GGP mentioned, the necessity of keeping stock prices (and property values, and anything else securitized) high so as to not impoverish pension funds, 401Ks, IRAs, etc., is real.

I'm confused about how your model of the economy works. It sounds like you believe CEOs are selfish and greedy when it comes to workers, but when it comes to pension funds, they keep stock prices high out of the goodness of their hearts?

If liquidpele's thesis is true, and executives are looking to "get rich and dip", "company be damned in the long run", then we would expect this to be reflected in the company's stock price in the long run. The stock price is essentially the fair market value of the company. And the American stock market has been performing very well for a good long while.

This entire comment thread strikes me as populist pitchfork-waving with little grounding in economic reality. Here's a question: If you're truly pessimistic about American companies, do you hold any short positions or put options? At the very least, are you overweighting non-American countries in your portfolio? And if so, which ones?

[p_l]

Institutional shareholders with large portfolios care about stock performance for their market plays, not about the company.

And they happen to have large influence on choice of CEO and who said CEO is going to try to please.

[sudosysgen]

CEOs are employed by the board, the board is made of major stockholders, those are pensions funds and other investors mainly interested in stock prices. No need for conspiracy theories or pitchfork waving, it's just all working exactly how it's openly designed to.

[cced]

You guys keep saying pension funds. Where are the sources that financialisation sucking us dry is because pension funds need to get seeded? We’re living in a time of record profits and ceo to worker pay ratio through the roof and you guys are implying pension funds, the little to last thing workers have, as the issue?

Gee I’m wondering what we should all be thinking and doing about those pension funds and who that would actually serve.

Y’all get that most of us don’t have pension funds, right? They’ve been gutted long time ago. Defined benefit to defined contribution ring any bells?

But yes, let’s fight against the other plebs that have things we don’t, let’s blame pension funds and not the plethora of other issues.

I tell ya, we’re funding pensions alright but it ain’t the teachers kind.

[jnash]

Nope. CEO's tend to be on the board of each others companies, making sure that there is never any argument over CEO compensation.

[0xDEAFBEAD]

If you were a major shareholder in a company, would you favor a CEO who ran it into the ground?

[jnash]

> The stock price is essentially the fair market value of the company

That is something some people choose to believe to be true. The same way some people choose to believe that God (or a number of Gods) exist.

[Nasrudith]

While there is a spike at buy-out it is still more or less true. Try to buy a company for far less than the stock market price and tell me how that works out for you.

[pseudosaid]

you think the stock market works well? look up the fail to deliver rate, infinite liquidity of market makers, and how the SEC said themselves that 95% of retail trades are happening off lit markets in dark pool. Price discovery has been broken for a long time and without, there is no legitimate market.

[tacocataco]

IMO it's top vs bottom, not generation vs generation.

The vast majority of us are working class.

[yterdy]

Intersectionality.

[madengr]

Saving is futile with a 3% loss on your money each year. Unless you invest it you are losing it.

[layer8]

Investments come with risks. The trade-off of cash losing its value over time is that it’s relatively less risky. You split your assets into cash and investments to achieve an overall combined risk profile. In that sense, cash is just another investment with a certain risk-return ratio (even when the return is negative).

[jdk354]

Your cash over time is guaranteed to lose almost all its value. While, if you invest in something, it could be even gold or silver, could be a house, could be a global market cap index fund, it holds more of its value than a fiat currency does. So no, fiat currencies lose everything and even with risks involved with other investments, the risks are still less than cash. Cash over time is one of the worst investments.

[matheusmoreira]

It's precisely those investments which cause those losses. Those investments are nothing but roundabout ways to provide loans to people and businesses. Loans inject massive amounts of money into the economy. Massive money injections directly cause inflation by increasing the amount of money in circulation, inflating the money supply and devaluing the currency of anyone who didn't participate in the scam by saving money instead of investing it.

[radlad]

FYI, your account might be shadow banned. I vouched for this comment, but most of yours are dead.

[sanxiyn]

2001 Boeing paper, Out-Sourced Profits: The Cornerstone of Successful Subcontracting, is a required reading. This article gives a good introduction.

https://berthub.eu/articles/posts/how-tech-loses-out/

[segfaultex]

Yep. This started when “elite” schools started validating guys like Jack Welch.

Prioritizing next quarter’s growth at all costs really did a number on our long-term stability

[i_am_proteus]

>American financial markets favor a capital-light production model, or one of no production at all. Jack Welch was well aware of this in his transformation of GE from an engineering company—one cofounded by Thomas Edison—to a financial engineering company. In 1985, during his early years as CEO, he canceled the company’s “factory of the future” initiative consisting of automation systems, robotics, and ad­vanced machine tools, which would have allowed GE to catch up with Siemens and Japanese competitors in its offerings. Instead, that same year he acquired RCA, parent company of the television broadcaster NBC. Eventually, 60 percent of company profits came from GE capital. Welch’s strategy worked, at least for a while: in 1993, GE became the world’s most valuable company, before the stock price collapsed during the great financial crisis and GE was broken up.

>The assessment of author David Gelles, in his critical biography of Welch, The Man Who Broke Capitalism, is that “instead of trying to fix American manufacturing, he effectively abandoned it, and would soon start shuttering factories around the country and shipping jobs overseas.” Welch once stated, “Ideally, you’d have every plant you own on a barge to move with currencies and changes in the economy.”

Arguably, the article discusses financialization as a cause.

[datavirtue]

You should see GE factory floors now. Totally left behind by the rest of the world. When I left they were getting into LEAN and the big suggestion was organizing tools on a cart for better efficiency. Jack Welch nuked GE.

[fastball]

Yes, I think the correlation between MBA popularity as a degree and failing of US industry is fairly causal.

It's the same in universities, where more and more time and money is spent on "management" (extracting value) and less and less is spent on actually teaching stuff (creating value).

Unsurprisingly, when a (somewhat large) portion of the population in a high productivity society realizes they can just skim off the top without doing any actually useful work, bad things happen.

[0xDEAFBEAD]

An important point is that the recent wave of globalization has been very good for poor people in developing countries outside of the US. From the perspective of US workers, outsourcing looks greedy. From the perspective of foreign workers, outsourcing looks altruistic.

https://ourworldindata.org/extreme-poverty-in-brief

Even with recent globalization, Americans are still far richer than most people in other countries. I believe those people matter just as much as Americans do.

[blululu]

The motivation was greed and the means were treacherous. If someone was helped along the way, great, but don’t be naive enough to think that there is any altruism. Saying that all people matter just as much as any other is an absurd platitude. In some abstract sense, maybe, but your obligations to your family, friends and community obviously supersede any obligations to some hypothetical person with whom you share no relation. Moreover every society of earth maintains this preemption and considers this attitude to be immoral.

[whatshisface]

Something tells me factory workers in Taiwan do not see their employer as altruistic. :-) That is perhaps a over-extension of the word.

[no_wizard]

that being said, there are ways this could be beneficial both ways instead of one way.

I’d also argue that it’s perfectly fine for the US and any other nation to think in terms of putting their domestic economy first, regardless of anything else

[0xDEAFBEAD]

As I stated elsewhere, America's median income, adjusted for cost of living, is one of the world's highest. Americans benefit from cheap goods from other countries.

It might be socially acceptable to put the domestic economy first, but that doesn't mean it is right. Ultimately, it's basically the same as the "looking out for #1" philosophy that rich people allegedly have, which is being condemned in this thread -- but at the rich country level rather than the rich individual level.

Try this calculator: https://howrichami.givingwhatwecan.org/how-rich-am-i

[no_wizard]

It is beneficial. I generally believe in free trade as long as both sides have agreements in place that follows laws and policies mutual to both parties

However not every situation is like this. For instance, offshoring was used to artificially suppress wages of IT workers. That’s not mutually beneficial in the slightest. It’s abusing one cost advantage over another without a clear benefit to both sides, it only served to enrich shareholders

[bhb916]

To top this all off, our ability to "put the domestic economy first" through policy is non-existent. Any attempt to fix this "problem", that you accurately described as a problem only because it's socially unacceptable, would end up harming us in some way. There is a mountain of evidence over the last century to back this up, we just refuse to listen.

[ajmurmann]

It's also important to not that China has lost more jobs to automation than the US has lost to China.

[rizwank]

An incredibly important point that gets missed very often

[h0l0cube]

The other point that’s often forgotten is that labor costs have risen, and shipping has gotten cheaper. This is just how economics plays out. Protectionism can be great for national security and employment, but people would have to stop expecting things to be cheap.

[barry-cotter]

That people don’t care about those in developing countries does not mean they missed it.

[version_five]

   I work on projects that would get 8-9 figure investments if we were doing this in APEC

Are the apac equivalents of those projects generating returns commensurate with the extra investment? Or is it a strategic choice that they typically focus more on advanced manufacturing while the US focuses more on software? I'm just wondering what the right way to think about this is.

[flybrand]

Both. They get high returns and there is high social benefit.

Because the US thinks of industry as ‘dirty’ we’ve lost touch with how valuable these jobs can be. In the US the returns would have longer duration and would not be viewed as ‘important’ bc the business isn’t suitable for a FANG exit.

[aa_is_op]

Correct. The problem with "America's manufacturating problem" is it's oligarchic class rise. The rich control the US through favorable laws and protection. You need to remove the scabs at the top to have a healthy economic comeback.

[supportengineer]

The answer is always greed from the top. The concentration of wealth.

[gWPVhyxPHqvk]

This is an anecdote. R&D as a percent of US GDP has never been higher than it has been in the 2020s. Even more than back in the 60s. The source of the R&D has changed (less federal government) but it’s not financialization. https://ncses.nsf.gov/pubs/nsf23339#:~:text=The%20ratio%20of....

[mensetmanusman]

https://blog.redpathcpas.com/research-and-development-tax-cr...

It would be interesting if there was a breakdown by technology sector. Ie manufacturing R&D vs. software development R&D.

[di4na]

All I will add is...

You are close to realising the problem. Financialization is a consequence not a cause.

The cause is demographic. Why and how did pension funds grew so much need to own everything and get money?

Spoiler: this happened in steps with Boomers investing in their retirement. Because they were so numerous it flooded everything.

Second Spoiler: they also had (and still have) the political power by sheer number, which warped the regulatory environment.

[kranke155]

The production of physical goods - physical capitalism - no longer had anywhere to go really when most people employed started having a decent standard of living, so we looked for ways to continue infinite GDP growth and we found it in financialisation. It worked but only by destroying/rotting away everything else.

[pphysch]

This explanation doesn't quite convince me, because if this really were the primary issue, USA could have globalized its consumer base not just for low quality products and pop culture, but high quality development.

I think the root problem is political: recognizing that USA's extraordinarily successful mid-century economic model was the result of a compromise by the ruling capitalists to avoid facing a European-style revolution (e.g. Bolshevism) at home.

As the Cold War reached its heights in the early 60s, that delicate equilibrium was destroyed, and the capitalists had a new mandate. State regulation, labor unions went from "necessary evil to avoid revolution" to "evil", and the robber barons could return to their early 20th century form. Thus we got the 70s and endless financialization.

[0xDEAFBEAD]

The US economic model has been quite successful recently as well.

https://ourworldindata.org/grapher/daily-median-income?tab=t...

As of ~2019, the US had the world's 4th highest median income, even adjusted for cost of living -- easily the highest median income of any large country.

And the median income in the United States has been growing rapidly. Sort the table by "Absolute Change" and you'll see that in absolute terms, the US median income grew the 5th most over the period from 2009-2019. Again, the US is comfortably ahead of other large countries when measured according to this statistic. (For example, US workers saw over 2x as much wage growth as Canadian workers did over the same time period.)

Speaking as an American here, it frustrates me when Americans fail to realize how good they have it compared with people from developing countries. Americans are some of the world's richest people, yet they still insist on hoarding as many good jobs for themselves as possible. When Americans talk of "reducing inequality" it often seems hypocritical.

I genuinely don't understand why it is that the people who are best off also complain the loudest.

[pphysch]

Americans have among the highest incomes, yes, but we also have ridiculous cost of living amid a highly predatory financial system.

Housing, healthcare, education and other living expenses are astronomical. We can't just look at the high incomes.

Successful for the elite, yes. Not for the median American.

[0xDEAFBEAD]

The stats I linked are adjusted for cost of living. As stated on the "Chart" tab: "This data is adjusted for inflation and for differences in the cost of living between countries."

People who earn the median income are hardly elite.

[pphysch]

The data you linked only goes to 2019. That's cherry-picking, if anything. Bad economics.

Median income earners will never own a home in current conditions. That's a significant downgrade from past generations. We are not better off.

[CapstanRoller]

>Americans are some of the world's richest people

Taking national wealth or GDP and implying it's shared equally amongst its citizens would be an absurdly disingenuous argument.

You're not doing that, are you?

[Animats]

This is correct, well-documented, and not talked about much.

There really was a vast right-wing conspiracy. It started with this memo.[1]

Here's the background: [2]

Understand that, before this, businesses rarely had lobbyists or engaged in political action. That totally changed in the 1970s.

[1] https://www.greenpeace.org/usa/wp-content/uploads/2021/08/Po...

[2] https://billmoyers.com/content/the-powell-memo-a-call-to-arm...

[Animats]

> I think the root problem is political: recognizing that USA's extraordinarily successful mid-century economic model was the result of a compromise by the ruling capitalists to avoid facing a European-style revolution (e.g. Bolshevism) at home.

Yes. Communism was a competitor which kept capitalism from acting like a monopoly. Once communism was no longer taken seriously, capitalism was unrestrained. When the USSR finally ran down, there was no stopping the push to plutocracy.

It's not that communism was a better system. It was that the existence of an alternative kept capitalism from getting out of control.

[kranke155]

I think that’s also fairly accurate. I always had a weird feeling on how the Scandinavian countries were in close contact with the Soviet Union and that might have influenced them to follow a more hybrid societal model than other Western countries. I haven’t done enough research to explain it either way.

I do think physical capitalism exhausted itself, but it was more in the 90s and 00s that we see more psychological capitalism arriving with the first internet products that have no physicality associated with them - social media and networks. Then we have a real (or apparent) exhaustion of physical capitalism.

[SyzygistSix]

It is fairly typical for poor, undeveloped countries to use a more centrally planned economy. The sheer lack of capital, as well as business and industrial know-how dictates that. Socialism and Communist parties were relevant in the 70s and 80s in Western Europe but later on were rejected as they were no longer relevant to their developed economies.

It makes me recall one of my favorite cars that was never built, the Norwegian Troll. The government decided not to expend their limited capital to the company as they could trade fish for Ladas to get cars.

[kranke155]

Yes. Economics being at least partially directed by the state is actually a fairly sustainable route to parity with other rich countries (maybe the only one, according to the book How Asia Works).