Saturday, June 16, 2007

What is wrong with the current Corporate America business model: A layman’s perspective.

I am not an economist. I have never studied economics past my Econ 101, required for my engineering degree. I am not privy to the vast array of different models and theories out there. However, from a purely laymen’s perspective, there is so much that is wrong with how large American corporations are running this business of this country, I cannot believe that knowledgeable people in the field can’t see it. It’s rather like Dave Johnson at Seeing The Forest implies in the title of his blog. People are just too damn close to the problems to actually acknowledge that they exist.

First and foremost is the issue of, who is the profit of mega-corporations supposed to benefit, anyway? Right now, current practice is that they reward their CEO and top officials, and then their stockholders, who are usually very well off in the first place. You have to be, in order to buy a substantial amount of their stock. Therefore, the rewards are going to people who really don’t need that much more compensation. Oh yes, there are the small investors who invest in a company or a mutual fund, and yes, they do benefit. And those people are earning more on their investments than if their money were sitting in a bank’s savings account. But much of the wealth earned by a corporation is flowing upward on the economic tree, not downward as the Reagan “trickle-down” theory would have you believe. The lower rungs on the economic ladder are not being lifted up. Many studies I have seen have shown this.

Another large issue is the concept of “as much money as absolutely possible, as fast as possible, without any other regard”. There is so much that is wrong with this short-sided approach. It has led to huge reductions in the investments required in the infrastructure required to keep the business churning away. You don’t drive your car at 70 mph every single day for eight years without some preventative maintenance. If you do, you are going to suffer in the long run. The only questions are when and how bad the crack-up is going to be.

Investments in Research and Development are also very much lagging in this current business climate. If you don’t invest in ways of improving your business or product, you will ultimately be overtaken by the competition. That has happened in so many different industries, I cannot even begin to count them. American automobiles and the steel industry in this country are two oft-cited examples. Our automobile industry is still attempting to plug along, but both Ford and General Motors are in very sore shape, and Daimler-Benz just opted out of Chrysler. Toyota has overtaken GM as the largest car producer for autos sold in this country. Other examples are semi-conductors, all sorts of assembled electronic products including computers, cameras, shoes, clothes…. The list is seemingly without end. We are coming very close to not having an indigenous manufacturing base in this country.

Because this quarter’s profit margin is of the utmost importance, large companies look upon their work force as something to be manipulated to the company’s advantage. Huge layoffs occur on a regular basis, affordable healthcare is going away for the common worker. Job security is just a wistful thought in the minds of many. Real wages for the workers of this country, blue and white collar alike, have not taken a real rise since the 70’s. Jobs are being exported outside this country, as the quest for ever cheaper labor never ends. Now, the traditionally “safe” jobs that require extensive technical training, such as engineering, computer science and customer support are being exported to India and elsewhere.

What the companies seem to be oblivious to is that their customer base is really taking a hit. Multi-millionaires can only buy so many huge houses, boats and take just so many expensive vacations. The huge corporations are taking away the discretionary spending ability of the general population of this country. And with prices of “must have” items like gasoline, food and especially housing are going through the roof, that discretionary spending power becomes that much less.

In other words, I cannot figure out who these businesses think are going to buy their products? Companies like Wal-Mart have a piece of this figured out, by offering very large savings on ordinary items. However, they are also contributing to the overall problem by treating their workers as they would any other commodity, such as floor mops and toilet paper. How can they get the cheapest product available?

I do not understand how Corporate America believes that this is, in any way, a sustainable business model. The plight of the American laborer is not as dreadful as it was during the original Gilded Age. However, it is definitely trending in that direction. Sooner or later, there will be a correction. And it might not be very pretty. Given all the other problems that this country and the rest of the world are facing at this time, such as global climate change, the coming dearth of cheap and plentiful energy and the overall fear and uncertainty facing us in the Middle East, this is not a time to be grinding the heel of American business into the backs of the general population. But that is what is going on.

I am not ready to announce my candidacy in the League of Socialists, as I think having government in control of everything is just as big a recipe for disaster as leaving Big Business to go whatever direction they want to, totally unchecked by any sort of regulation. Depending on Big Business to do “the right thing” is like depending on lions to stop eating all those migrating zebras, as it is “not nice”. It isn’t going to happen. There must be a third way, somewhere, which is a rational combination of free trade with government regulation. But it certainly isn’t going to happen anytime soon. As with all mankind’s endeavors, it seems that the Big Ship must crash into the Iceberg for anyone to recognize that there is really an emergency here that calls for direct action that might not be in the best short-term interest of companies, their CEO’s and their stockholders.

Like I said, it isn’t going to happen any time soon.

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