Like you can’t expect everything to be a success and money isn’t infinite. Infinite growth can’t exist, especially for all shareholders around the world. And yet they expect full return on their investment whereas companies should focus on their clients who buy their products and employees who want to help the company and be rewarded but yet the bosses only seen to focus on making shareholders happy. There seems to have been a shift in this mindset somehow over the decades.
It’s naive on my part and it’s more complicated than what I wrote, but I’m curious and I would like to understand. Thank you for your help!
In: Economics
This is a very, very confused question. Growth and money don’t have to be infinite for me to expect a 10% return on my investment from now until the end of time.
First off, profit does not require growth. The fact that we think of economic growth as “normal” is a product of the fact that we live in a time were growing populations, new technologies, and capital accumulation have led to very, very fast economic growth by historical standards. Obviously, this provides opportunities for profit, and people want to take advantage of them.
But profit doesn’t *require* this. A business that spends $100,000,000 a year and takes in $110,000,000 in revenue is profitable, even if it never grows. A store owner can keep buying goods for $100 and selling them for $200, day in and day out, year after year, without buying a bigger store. A landlord can buy a house and keep charging rent on it as long as people want to live there without the value of the house increasing.
A corporation that makes $10,000,000 in profit this year can use that money to try to expand operations, but sometimes they just mail it out to their shareholders. That’s what *dividends* are.
Second, the overall economy does not need to grow in order for me to expect my personal investments to grow. The reason people invest their money is that, at some point, they want to take their profits and spend them. Very typically, this involves spending 40-50 years working and investing their savings, and then 10-20 years living off of those savings and the profits they earned. At that point, their personal investments will be shrinking, while younger workers will begin saving and will expect their personal investments to grow.
Third, growth does not need to be infinite in order to be sustainable over any particular time period that we actually care about. We have every good reason to think that we can continue to grow over the next 100 years. Technology is still improving and we still have a lot of opportunities to make ourselves more productive by accumulating more capital goods. As long as the world governments can not start WW3, we shouldn’t be anywhere near our peak yet. The fact that economic growth might cap out in 2512 isn’t going to stop people from expecting economic growth in 2024.
Fourth, the idea that companies should “focus on their clients” instead of shareholders is fundamentally confused. Companies make money by providing services that their clients are willing to pay money for. A company that isn’t doing that isn’t going to stay profitable and isn’t going to make its shareholders happy. That doesn’t mean what clients or employees are going to get 100% of what they want 100% of the time, but that’s silly and unreasonable anyway.
When companies stop providing value to customers it isn’t because they’re just too darned concerned about profits and shareholders, it’s because their management has become dysfunctional and their judgment about *how* to provide value to customers has become skewed. Or they don’t really care about customers or shareholders and are just using the company for their own personal ego-stroking. This generally when shareholders either start selling- tanking the stock- or vote out the board and demand change.
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