Capitalism is eating itself

I’m a bit of a lefty, albeit one with a traditional education. I used to think that the flaw in capitalism was that its natural outgrowth was monopoly, but it’s not. Companies have a great way of screwing up. Sometimes this is due to the effect of disruptive technologies (Eastman Kodak); other times due to corruption and hubris (Enron, Arthur Andersen). Companies may aspire to monopoly power, but there are many hazards lurking in the way.

Now, I think that the natural outcome of capitalism is death through cannibalism. They system is hollowing itself out in its relentless search for maximum short-run shareholder value. ESPN let legendary writer Howie Schwab go, not due to Schwab’s performance issues or due to company performance issues, but because it could. There are cheaper writers out there, and now that ESPN has been established as one of the world’s top media brands, why spend money to maintain the quality of content? Why reward the loyalty of the people who helped build the brand?

And we see this all over. Companies use independent contractors to get out of payroll taxes. They cut hours rather than pay benefits. They whine about the cost of giving employees health insurance.

They claim to be capitalists but don’t want to pay the taxes that support the system – education, transportation, security, rule of law.

Shareholder value cannot be sustained if there are no loyal employees, if there is no institutional knowledge, if there is no commitment to investing in the business. Yes, the Affordable Care Act may add $0.14 to the cost of a pizza, but how much will it cost the company if an employee comes to work despite having a hepatitis A infection?

The role of the firm is to maximize shareholder value. I believe that. I’m not advocating Communism. But I believe that the greatest value is long-run, sustainable value. That comes from a commitment to employees, customers, and communities. Right now, too many companies are eroding the sources of long-run value in their quest for earnings per share – and executive bonuses – today.

It is not sustainable. It will bring down the system. And that’s not good.