Myth of Corporate Greed

Corporate Greed ... I'm sure that you've all heard the term. It seems to get thrown around a lot, particularly when economic troubles are in the air ... it is used as the explanation of what is wrong with everything in our economy. Companies laying off workers? Corporate Greed. Companies raising prices or fees? Corporate Greed. Companies going bankrupt? Yup, Corporate Greed.

There's a problem though ... the people using the term can't define it. Basically ... someone else is making more than they are and they don't like it, because if you ask them and press the issue they will likely tell you that the problem is 'greedy' CEOs.

Here's the thing though ... CEOs are employees. Hired ultimately by the shareholders of the corporation. Their pay (and bonuses) are defined by a contract negotiated, often by the board of directors, but ultimately approved by the shareholders of the corporation. Their job (for which they earns the pay and bonuses defined in the contract) is to make as much profit for the shareholders as he possibly can.

You see ... a corporation is basically an elaborate legal structure which exists for one single purpose ... to make a profit. It does not exist to employ people, it does not exist to produce a product, it exists to make money. Employees and Products (or services) are a means to that end.

When the cost of employment starts lowering profit the CEO has a problem ... his job is at stake. He has to make some choices. An over simplified version of the choices available to him are to 1) Pass the cost on to the end user of the product (raise the cost of his product/service to compensate for the additional labor costs) ... probably not a good idea in a down economy as it may result in drastically reduced sales. 2) find ways of lowering costs in other areas (advertising less, etc.) .. these can also have consequences on sales or other aspects of the company itself). 3)Go to the source of the problem and cut employment or compensation packages ... generally the most effective direct result though for a large company it can be a PR nightmare and the effect on production/services does need to be considered heavily.

Most often, of course, it is some combination of all available options that is going to be taken. No matter what the CEO does many of his decisions may be unpopular and very few of them are going to be easy. But that is why they makes the money that they do ... because their experience and business sense has taught them how to make those decisions and what the best road is likely to be for the short and long term health of the company; and more specifically for the shareholders of the company.

It's funny that often if a CEO is given a raise (by the board of directors, or the shareholders) it is because he's greedy, it can't possibly be because ... oh ... I don't know ... that he did a good freaking job. If the employees (or employee union), however, demand a raise ... it's not because they're greedy ... no ... they are the victims of the greedy corporation, enslaved to their pitiful paycheck and benefits.

You see ... the fact of the matter is that in many areas US workers have priced themselves out of the market. A company hiring US employees typically has to pay a lot more in benefits and wages than they would pay someone with the same level of skills in other countries. (Or in some cases even in other States within the US.) .... This effect can usually be traced back to 2 factors - Government Regulation (interference) and Labor Unions. Doing this isn't 'greedy' it's good business sense ... the CEO has a responsibility to the shareholders of the company, not the employees ... the employees exist to assist the company in making a profit, the company does not exist in order to provide them a job and means of income.

Let's take a moment and take a step back .... let's look at who the shareholders are in many of the 'big' companies. The largest holder of many of the large corporations in the US are ... retirement funds ... so, Teachers, Police, Fire, Employee Unions ... in other words 'every day workers'. (It's actually kind of ironic that Unions are often working against the best interests of the retirement funds of the very people that they are supposed to be representing ... but then again the Unions have generally had more of a 'now' outlook so they probably would prefer the 100 now instead of the 1000 later....)

These people have a vested interest in the corporation making as much profit and making it for as many years as possible ... to do this they have a vested interest to hire the best CEO and officers that they can find ... like any market there is a limited supply of people that can reasonably perform that role, as such, experience, track record, all of that is going to come with a price tag.

Are there CEOs (and/or other corporate officers) that are making more than they should be, perhaps, but then again if they were offered the contract, or if the terms that they offered to the corporation were accepted then the shareholders agreed to it and it's up to them to correct the situation for their own good.

Now, of course, many CEOs are also shareholders themselves ... but that doesn't make them greedy either. Yes, it means that they are, in part, making the decisions for their own profit, but that just means that they too have a vested interest in making the best choices possible for the health and profit of the company .... and face it ... would you, as a shareholder, trust a CEO that had no such interest?

People need to realize that there is not a single company on this planet that exists for any purpose than to make a profit for someone; be it the company owner, the partners, or the shareholders. Calling them 'greedy' for looking after their own best interests ... while praising employees for looking after their own is what one typically calls 'hypocrisy'.

Capitalism

As most of you know I play computer games as a hobby (some might say as an addiction). Frequently I play those often maligned games known as MMORPGs or MMOGs (Massively Multiplayer Online (RolePlaying) Games). One of the more interesting aspects of MMOGs in general is the aspect of anonymity ... which is to say that since there is little to no real world repercussions to any given action people will tend to speak or act more freely.

Aside from the fact that it often gives you an unfiltered view of true human nature it also means that people are more apt to speak their minds in regard to politics and economics ... whether or not they have any understanding of the subject. One common such subject is Capitalism.

Specifically the fact that capitalism is to 'blame' for high market prices because it inevitably leads to inflation, profiteering and price gouging. Yup the only reason people put a high price on an item is greedy capitalism (yes I've seen that spelled out in no uncertain terms)

I'm sorry ... but capitalism itself is not to blame for inflation, inflation is a function of devalued currency for a number of reasons ... in an MMO this is most often caused by a higher supply of money into economic system than there is a drain of money out of the system. As the amount of game currency that you can make in a period of time increases so do the prices of items that can be gained in a similar period of time because people will 'price' an item at what they feel is a reasonable compensation for their time invested in obtaining it. Likewise buyers are more likely to spend in higher amounts as they have more money; buying tomorrow for 25 coins what they would only have been willing to pay 20 for yesterday.

Profiteering and Price gouging don't exist, it's an emotional attack on someone making a profit or charging more than a some party (often external to the sale completely) feels that the item is worth. I think I've been through this here before ... if they buyer BOUGHT the item, then, on some level, the buyer felt that it was worth the price asked.

In all transactions it is ultimately the buyer that sets the price; he does this by buying. If he buys at the current price he is telling the seller that it is worth that price to him to have the item now rather than spending the time to find it at a lower price or wait for the seller to offer a lower price.

The seller asks for what he feels that the item is worth ... the buyer can say yes, no, or counter with an offer of their own. If the buyer makes an offer then the seller has the same options. This continues until either the buyer buys the item or one of them decides that the deal is no longer worth the effort and says 'no'.

'But you just admited that the seller can reject an offer, so the buyer doesn't set the price.'

Yes ... the seller CAN refuse to sell at a lower price, at which point the buyer is left with two options: buy or don't buy ... the final choice is always the buyer's.

Capitalism is not responsible for impatient buyers, nor is it capitalism's fault if a buyer is uninformed (buyer beware).

That is not to say that I condone blatantly or purposefully taking advantage of a buyer ... that is fraud and is immoral, but it is a separate issue from the economic model of capitalism. There are ways of dealing with that among the player base, but that is really a discussion for my other blog.

The fact of the matter is ... that the greatest failing in modern capitalist systems is the ignorance of the buyers ... if buyers realized their strength in the system and exorcised it more rather than just accepting the idea of the 'monopoly' of the seller ... that is what creates and drives competition which creates lower and more stable prices. No matter how the buyer feels they always OWN half of the "supply/demand" equation.

Departing on a new Path

... but not leaving this one either. I just recently (as of a few minutes ago) decided to get off my duff and do something that I've been meaning to do for a while now ... start a blog in order to talk about things less related to this world and more related to the virtual worlds of computer games.

Not going to say much here other than to let you know that I'm adding a link in the link section to it and I'll post one here as well it is Klik's Game Corner.

I'll have more news stuff to rant about here soon though.... there's certainly enough idiocy in DC lately....