[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.

[jeffreyq]

Would your comment read any differently if you replaced "Chinese" with "United States", or "France", or any other Western civilized nation?

I'm curious to understand why China is to be blamed, exclusively? Correct me if I am misunderstanding your premise.

[OfSanguineFire]

Carbon isn’t the only pressing environmental damage though. For example, Madagascar is an island full of poor “uneducated farmers”, and it is precisely their farming that has been deforesting the island through slash-and-burn agriculture, a practice that has accelerated over the centuries due to the high birthrates.

[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.

[adwn]

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

I think you're describing the way things are, while dwalling is talking about how things ought to be. There's no law of nature saying that companies can't or shouldn't behave socially responsibly.

Edit: I'm not advocating for socialism, not at all. There's a wide spectrum between pure laissez-faire capitalism and nationalization of all private property.

[katbyte]

companies behaving badly is bad for society as a whole, so allowing the "owners" ie shareholders to make a quick short term buck at the cost of employees or a local factory that supports the town because "it doesn't make ENOUGH" money chips away at society and drags down the country all so a couple people can make a quick buck destroying 1000s or 10,000s of lives and/or entire towns.

putting financial success for the shareholders above all is the reason for so many things wrong right now,

[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?

[polygamous_bat]

Random thought, but perhaps trying to enshrine "customer or consumer rights" and "employee rights" as seriously as "shareholder rights" would be a good step.

[Rooki]

> but unsure what’s to be done?

Can feel Lenin spinning in his tomb from here.

[b800h]

Stronger national cultural and industrial policies.

[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.

[peyton]

You’re missing the concept of foreseeable injury.

[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?

[peyton]

Explain?

[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.

[eitally]

You aren't wrong, but it's not reasonable to hold such a strong opinion without experience. I spent 15 years working in high-tech manufacturing, at Sanmina, which - like many peers - also offshored the majority of capacity. What remains in the US is mostly manufacturing for regulated industry (military, medical).

Take a look at this, re institutional ownership: https://money.cnn.com/quote/shareholders/shareholders.html?s.... 95% of outstanding stock is owned institutionally, which is pretty normal in manufacturing. For decades, this has been a core investment sector for pensions and other institutional funds, and remains so, even if it's just to balance investments in tech, biotech/pharma, retail/CPG, financial services, the military industrial complex and transportation. Moreover, if you attend quarterly results calls, you typically end up with a few analysts from banks and at least one from some pension fund, who ask questions. We young people may not care about pensions as almost none of us will have one, but they still exist and still influence large pieces of our economy.

[michaelt]

CEO pay is certainly way too high, I agree.

But look at any big corporation, take the CEO's total compensation and divide it by the number of employees. The CEO of IBM earns an obscene $16.5 million per year - but divide that by IBM's 288,300 employees and it's $60 per employee per year. Wal-mart's CEO makes $25.31 million, but it's only $12 per employee per year.

Even if we redistributed the CEO's entire salary to workers, $60/year isn't going to do much to close the gap between rich and poor.

[klooney]

Pension funds is shorthand for pension funds and other bulk investments for other people vehicles like BlackRock and Vanguard. A common complaint from people is that there's under ten entities that owns almost all of the major public firms. Matt Levine has very funny and informed takes on this sort of thing, ZeroHedge et al have conspiratorial ones, but it's a real thing.

[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?

[p_l]

If I am a faceless pension fund that is going to earn short term on this much better, and be free to walk away and do the same thing to another company?

Sure.

This is exactly the same playbook as with private equity - the point is to make the shareholders richer as fast as possible, and long-term strategies do not pay out as fast while possibly introducing longer term risks.

[SyzygistSix]

For short term profit that I can walk away with? That is very different from building long term value. Both are profit. One profits from creation and has long term recurring benefits, the other profits from extraction, which only happens once. Both building a fire and building a house profit from a supply of wood. But they are pretty different in terms of long term pay off.

[tharmas]

Please see the story of Jack Welch CEO of GE.

[sudosysgen]

If I am a major shareholder, I would prefer a quick profit because I can then invest it somewhere else and have higher overall profits.

[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.

[layer8]

It depends on your time horizon. Over a period of say ten years, cash is unlikely to lose almost all of its value, whereas for stocks the likelihood can be higher. The stock market may crash (like it has in the past) at an inconvenient moment where you’ll then be happy to have some cash on hand.

[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.