Submitted 2 weeks ago by gigachad@piefed.social to nostupidquestions@lemmy.world
Under capitalism, it seems companies always need to grow bigger. Why can’t they just say, okay, we have 100 employees and produce a nice product for a specific market and that’s fine?
Or is this only a US megacorp thing where they need to grow to satisfy their shareholders?
Let’s ignore that most of the times the small companies get bought by the large ones.
In the strictest definition, they don’t.
Capitalism is minimally fulfilled when a business sells something for a profit and reinvests the profit (now capital) in the business. Hence the term. It doesn’t have to grow the business, make new products, or do anything beyond maintenance of its processes, be that fixing or updating machinery or training employees. A single person selling tomatoes in a market in Madagascar that fixes of their tomato table with profits is perfectly capitalist.
Expecting constant growth is not a requirement of anything.
A farmer selling their produce is not necessarily a capitalist. A farmer toiling on their own field sells the fruit of their own labor, so to speak. One step up are what Marx calls “Little Masters”: They own and work their means of production, but sometimes have employees such as farmhands or apprentices (Think companies where the owner still works in the workshop). Actual capitalists are detached from the production process: They no longer work, but simply own the so-called means of production and exploit others by buying their labor force for less than their produced result is worth.
If we are going by the original definition of the word, it is. The farmer here is growing produce to sell it in exchange for money; they are not sharing it with their community, bartering with it, growing it to eat themselves, or giving it to their liege lord.
People frequently conflate capitalism with enterprise, not seeing the distinctions.
An economic model that includes capitalism explains a lot of the world including having some close process analogs in nature.
A capitalist sounds like a label you’re trying to apply in an attempt to label someone as being maximally for profits. A lot of companies admittedly work that way and it’s important to include that concept.
By my reading you’re taking the use of the first term and then saying they are using the second term. I think this is called equivocation.
If you want to nitpick, I never said farmer. Also, farmers have inputs, so your comparison is wholly removed from reality.
I would argue that this is not really true under capitalism. The logic of capitalism is one of capital accumulation, which requires growth. Under other systems you still have markets and money and profits but there are other goals than the accumulation of capital and therefore achieving “homeostasis” is a successful strategy-a business run with consistent inputs and outputs which includes a sustainable profit.
You don’t need to argue anything, because there is no universal definition of capitalism. Were not trying to define it.
But the term itself requires capital to be involved, and for a business to exist, that capital needs to be reinvested in the business. That doesn’t require growth. The absolute minimal state simply requires pricing a good sold at a net profit. That’s all. Growth isn’t a requirement.
While this is true it’s certainly the case that publicly traded companies have strong incentives to grow.
Private companies mostly have the ownership, or the desire to go public to blame.
And publicly traded companies are the also the minority of the total number of companies in the US. So this is a niche issue with outsized effects, meaning a policy solution is out there that
This mostly only happens to companies with outside investors, and it’s in order to make the investors happy.
Companies owned privately by one or a handful of people who all just want the company to keep going, make a decent profit, and be sustainable, don’t always exhibit the “need for growth” behavior.
It’s usually because the investors don’t really give a shit about the company or its mission, they just want money.
This includes all publically traded companies
Bingo.
There are also stable companies with a solid revenue stream that don’t have much growth potential, so pay out the profits as dividends. These are more in demand for retirement funds or individuals who get to point in life they need to start living from their investments. Yield is always a calculation of dividend + growth.
Tech companies that don’t pay a dividend and reinvest everything into growth is a relatively new concept
Well, partially maybe. In the past, investors were happy with dividends instead of growth. There are extra factors making growth be preferable over dividends.
It’s not “companies”, it’spublicly traded companies.
And the answer is quite simple really: the moment you become publicly traded your stock becomes your product, and everything else becomes a means to deliver better stock prices to your investors.
Not all companies are publicly traded, I patronise privately held companies wherever possible because as a client I’m still at the core of their business strategy, and I’m wary of the alternative.
At the end of the day, bad strategies result in bad products and services. Vote with your wallet, it’s very possible.
I work for a privately owned company and we’re absolutely expected to grow. Being privately owned doesn’t change that.
Right but you don’t have a basically legal obligation to if you’re private
Growth and *endless" growth are not the same.
Obviously growing a business is positive in some circumstances, the point is that growth for growth’s sake becomes the name of the game once you go public, whereas when privately held the company can decide whether it makes sense to grow in that moment or focus on other goals in the short term to benefit a long term strategy.
That is a myth. The law is actually far more complicated, at least in the U.S., and presumably elsewhere too.
Please elaborate because everything written above is correct. Companies must maximize value.
The leading statement of the law’s view on corporate social responsibility goes back to Dodge v. Ford Motor Co, a 1919 decision that held that “a business corporation is organized and carried on primarily for the profit of the stockholders.” That case — in which Henry Ford was challenged by shareholders when he tried to reduce car prices at their expense — also established that “it is not within the lawful powers of a board of directors to shape and conduct the affairs of a corporation for the merely incidental benefit of shareholders and for the primary purpose of benefiting others.”
Because they run out of “create” and they’re slaves to the quarterly report.
A new company that makes/sells a widget that is desirable will grow naturally from the demand for the product. It has to get bigger to manage the demand. They go public to get more money to grow more quickly. Those public investors expect a return on their stock investment purchase.
Now competitors show up. Competition is bad for our big startup (despite being a supposed tenant of the free market that allowed our company to grow quickly in the first place) that is now a major power in the widget industry. You can only make the widget so many ways, can’t really improve it, and the market is becoming saturated. So what happens next? WidgetCo’s stock is flat! Investors are mad! The CEO is in trouble! Now we do acquisitions and enshittification. Buy the competitors and adjacent product makers. Now there’s “growth” again even though nothing new is made, in fact the product gets worse and nobody gets hired as they want attrition to get rid of redundant employees. The hope is that the widget is so engrained in society that it can’t be done without. Now do unbundling. Subscriptions. Sunsetting. Modify the product so that new versions must be bought due to batteries or servers no longer supporting previous versions. If you can’t make new things, make the customer buy new versions of the same old things.
Gotta keep pushing that quarterly report line up to keep the investors happy and the CEO bonuses coming.
They don’t.
See local businesses that remain a single location for generations.
It is a want not a need.
…and local businesses constantly close in favour of big companies, as countries develop the amount of self-employed people goes down:
Local businesses simply cannot outcompete ever-growing big businesses, and because big businesses are in a need to ever-grow to satisfy the raising stock value imperative, they inevitably intrude the market share of local businesses. This is well-known since the mid-1800s.
Hm, I would expect that to be true, as in “where a McDonalds opens up, there’s less demand for local family owned restaurants”, but I would not take the rate of self employment as proof.
In developed countries exist more laws against pretended self-employment and more small businesses incorporate, thus lowering those numbers.
I hate it. It even bleeds over into performance reviews. Like you'll never get a perfect score no matter how hard you work because you always have to be improving on something. It's supposed to be the sure fire sign of "success" but all it does is create impossible goals and bring everyone down.
I think the focus on growth is not the problem. The problem is leadership thinking that the individual has a significant role in how much they can create growth. The environment is much more significant.
Probably same reason cancer always needs to grow. It’s a fundamentally broken part of the system.
if you look closer you’ll note that it’s very much related to whether a company is publicly trader or not, as soon as people are trading stocks you end up with a bunch of people who don’t actually care about the company and those involved in it, they only care about making money.
a company that isn’t having stocks traded around is able to focus on things other than growth, such as making sustainable revenue or being a public good (or a personal good, like a small café that barely makes any profit and just exists because the owners want to run a café).
Because they take investment.
Privately held companies can sit around earning the exact same amount of profit forever.
But if you are publicly traded on the stock market, people are walking up and injecting money into your business. They expect a return for that investment. And that means that the part of your business they’ve bought has to be worth more in the future in order for them to sell it for more than they bought it.
Therefore: growth. Owning 1% of a $100k business isn’t with as much as owning 1% of a $200k business. So if you own 1%, you want it to go from $100k to $200k.
If you aren’t taking outside money, none of this is a problem. Unless the owners just want a raise, which most people generally do over time. If nothing else, inflation is constantly eroding the value of money so you need to grow a little just to stand still. Most people don’t want to make do with less and less over time.
Re: inflation, growth in pure gross/intake has to increase to match the currency devaluation, and that can mostly be done by adjusting your prices in line with inflation. Employee count, market shares etc. can all hold steady, all else being equal.
This is also the issue with private investment companies.
When the EA deal was announced, people said more or less “this is proof that private isn’t any better than public”. Well that’s sort of true - there’s no guarantee that private is any better, but it CAN be, depends on who owns it. In the case of EA games, it was bought as an investment by a bunch of greedy investors, of course it’s going to be as bad as, if not worse than, a public corp.
It’s literally sad that the only hope for EA to become less scummy as a privately held company, than it was as a publicly traded company, is for the Saudi Arabian regime to proactively use them to win over gamers through the digital equivalent of ‘sports-washing’.
It’s depressing to think that we are at a point where EA could be considered the lesser evil in comparison.
I didn’t see a single top level comment be the devil’s advocate so I will give it a try.
Humanity moves forward. Standards are always shifting. New technologies and needs are created everyday and people want to raise their standard of living to accommodate for new things. Also, global population has been growing since we stabilized food production in the 1800’s.
If companies don’t grow at least with population, that means tomorrow we will have less than today. If companies don’t also grow with raising standards of living, that means someone stays poor. If companies don’t also grow to match the complexities of producing new technology, that means we stopped in time technologically.
In a competitive system such as capitalism, you don’t wait for more competitors to show up and fill this new ever-growing demand; you take that demand for yourself. So everyone seeks growth.
When a society does not grow (i.e. japan) for too long, capitalism doesn’t break down immediately, but you clearly see it stagnates. Japan’s population is not stable and their economy is facing major problems.
Whether growth is organic or fabricated is a related, but different, topic
I work in a mid size company that is a leader in the niche market that we do. However we need to innovate and acquire other small companies and expand because we do have competitors. So the world around us is telling us to innovate or lose the market.
One aspect I haven’t read about: competitive pressure and economics of scale.
So, imagine two carpenters: they both produce one chair a day. They sell it and can sustain their families with that. Now the one carpenter works a little overtime and uses sharper tools: he’s able to produce two chairs a day. He still needs only to sustain his family, so he could sell the chairs at 50% discount. But he goes for 75% of its original price. Still cheaper, he has more.
Everybody wants to buy those chairs now: they’re the same, but one is way cheaper. The other carpenter loses business, he can’t sustain his family anymore, because he needs to sell one chair a day at least. To keep up, his business needs to grow now.
They don’t. It is a fallacy.
They do because shareholders will sue if profit doesn’t rise.
You’re thinking of publicly traded companies. That is not “companies”. That is a small sunset of companies.
Idiots began to demand perpetual growth and other idiots began trying to make it happen. And then it became institutionalized. And then the idiots forgot they were idiots.
Nonprofit companies don’t have this problem. It’s an issue with capitalism.
Mozilla?
Because greed
Shareholder demands are part of it, but also consider the pressures from competition, inflation, and debt.
If a firm isn’t growing, competition will outgrow them and then gobble up their market share. If you have 100 employees and produce a nice product, you’ll lose out to the firm that has 1000 employees and produces a nicer product. The competition is always growing, so your firm has to grow too. This leads to inflation, so that means a firm needs to bring in more money every year just to stay afloat. And lastly, companies start out in debt and have to pay it off, and then accumulate more debt in order to outgrow the competition and outgrow inflation, which then in turn heats up competition even more and also causes more inflation.
Competition, inflation, and debt are part of a feedback loop that eventually results in overproduction and market collapse, the surviving firms buy each other out, and the process starts all over again. This is why markets go through boom and bust cycles.
It’s a very irrational system that produces a lot of waste.
Shareholder demand? Greed? Probably a lot of both.
Valuation of companies is partially dependent on growth. A company that is projected to grow is worth more than a similarly sized company because it is expected that future growth will make the company earn more in the future, which makes the company worth more now.
The reason cited even in privately held companies is pretty much because everyone else is doing it.
Their COGS (Cost of Goods Sold) rises every year. The markup on licenses, the physical hardware, the shrinkflation from the manufacturer, and COLA (Cost of Living Adjustments) for staff all cut into the operating expenses (or profit) of the company.
Under capitalism there are hardly any checks to this, so even companies that are not seeking to grow must raise rates else they will take a loss every year.
I think your are confusing company growth and prices growing, mixing them together.
Ah that may be, guess I shoulda read the question better.
Charles Eisenstin’s book “Sacred Economics” (which you can read here) has a nice, simple parable in chapter 6 about that.
Once upon a time, in a small village in the Outback, people used barter for all their transactions. On every market day, people walked around with chickens, eggs, hams, and breads, and engaged in prolonged negotiations among themselves to exchange what they needed. At key periods of the year, like harvests or whenever someone’s barn needed big repairs after a storm, people recalled the tradition of helping each other out that they had brought from the old country. They knew that if they had a problem someday, others would aid them in return. One market day, a stranger with shiny black shoes and an elegant white hat came by and observed the whole process with a sardonic smile. When he saw one farmer running around to corral the six chickens he wanted to exchange for a big ham, he could not refrain from laughing. “Poor people,” he said, “so primitive.” The farmer’s wife overheard him and challenged the stranger, “Do you think you can do a better job handling chickens?” “Chickens, no,” responded the stranger, “But there is a much better way to eliminate all that hassle.” “Oh yes, how so?” asked the woman. “See that tree there?” the stranger replied. “Well, I will go wait there for one of you to bring me one large cowhide. Then have every family visit me. I’ll explain the better way.” And so it happened. He took the cowhide, and cut perfect leather rounds in it, and put an elaborate and graceful little stamp on each round. Then he gave to each family 10 rounds, and explained that each represented the value of one chicken. “Now you can trade and bargain with the rounds instead of the unwieldy chickens,” he explained. It made sense. Everybody was impressed with the man with the shiny shoes and inspiring hat. “Oh, by the way,” he added after every family had received their 10 rounds, “in a year’s time, I will come back and sit under that same tree. I want you to each bring me back 11 rounds. That 11th round is a token of appreciation for the technological improvement I just made possible in your lives.” “But where will the 11th round come from?” asked the farmer with the six chickens. “You’ll see,” said the man with a reassuring smile. Assuming that the population and its annual production remain exactly the same during that next year, what do you think had to happen? Remember, that 11th round was never created. Therefore, bottom line, one of each 11 families will have to lose all its rounds, even if everybody managed their affairs well, in order to provide the 11th round to 10 others. So when a storm threatened the crop of one of the families, people became less generous with their time to help bring it in before disaster struck. While it was much more convenient to exchange the rounds instead of the chickens on market days, the new game also had the unintended side effect of actively discouraging the spontaneous cooperation that was traditional in the village. Instead, the new money game was generating a systemic undertow of competition among all the participants.
The development of currency results in loans. The practice of loaning starts the practice of charging interest. Interest requires constant growth.
Individual companies have to grow to keep up with the necessary constant growth of the economy as a whole. Any company that doesn’t keep up dies.
Only that this swap economy, where people had to bring cows and tables to the market and trade those for 200 breads is a myth. That never existed. Modern anthropology says that trade was always measured in debt. Trade outside of your local community was handled via valuable ores, or other small valuable stuff.
I don’t know in what context this parable is used in the book, but this does not explain the need for growth in reality. It does not even show why you would need growth in the parable. No matter how many chickens or how much wheat the village produces, there still wouldn’t be more tokens.
Fiduciary responsibility. If you own a company that has shareholders they can sue you for refusing money or ‘leaving money on the table’, iirc this was a major reason why they sold twitter to musk
And why United Healthcare shareholders sued over losing a tiny bit of money while dealing with the murder of their CEO. People are just people; money is the only driving force in our economy.
Yes Lefty’s should read up more on actual business because there’s a lot of areas they could be making Phenomenal points but instead we just get “eat the rich” over and over again.
That is a common misconception, very often spread all over the place on Reddit. There is no such requirement.
And corporate case law describes directors as fiduciaries who owe duties not only to shareholders but also to the corporate entity itself, and instructs directors to use their powers in “the best interests of the company.”
Serving shareholders’ “best interests” is not the same thing as either maximizing profits, or maximizing shareholder value. “Shareholder value,” for one thing, is a vague objective: No single “shareholder value” can exist, because different shareholders have different values. Some are long-term investors planning to hold stock for years or decades; others are short-term speculators.
nytimes.com/…/corporations-dont-have-to-maximize-…
caselaw.findlaw.com/court/…/13-354.html
reddit.com/…/eli5_what_people_mean_by_saying_a_co…
You run into a subtext problem here though.
Serving shareholders’ “best interests” is not the same thing as either maximizing profits
Making this argument to shareholders means you’re telling them “I wish to shrink your profits”, no matter what else comes after that comma that’s a non-starter for a CEO. 99% of shareholders don’t give one Kentucky fried fuck about the company, they just want free money. You get between them and their free money and you’re gone, replaced by the next failing-upward ghoul in line on LinkedIn.
The idea of having a well established, respected and non-abusive company is no longer a reality in America. The stock market is a vehicle for gambling on shareholder feelings. It’s no longer about the company at all, just about how much you can hype up the company to then pass the bag along to someone else.
Wal-Mart shareholders don’t care if Wal-Mart craters into Hell tomorrow, so long as they get paid dividends and are able to offload their shares at a profit before it dies.
Public companies are also in competition with their peers to attract folks (read enormous investment forms) to buy their stock. So they want their “shareholder value” to be competitive. Shareholder value is at a high level the appreciation of the stock price plus dividends. So public company management is given the goal of increasing shareholder value. Which is the number that must go up. Otherwise those enormous investment firms will buy their competitor’s stock instead.
There are many answers to this.
First, this is not a general capitalism thing. It is more the specific flavor we have.
The original idea of capital investment is that when you need investment for your company (e.g. to buy better machines, expand production, etc.) you let people invest (by buying shares) and then give them a portion of the profits gained from that investment (in the form of dividends).
However, most companies have figured out that if they don’t pay dividends but re-invest the money, shareholders are still happy because their shares get more valuable as the company grows and they get to grow the company, which is good for CEO paychecks.
There are also things like economies of scale (if you produce million units of something per year, it is almost always cheaper per unit than if you produce ten per year). So if you don’t grow, your competitor that does grow could sell cheaper than you and put you out of business.
I don’t think you can avoid it in a capitalist system, though. The capitalists are greedy, that being the whole point of their position, so they will always want more.
I want a lot of things that I can’t have. They can want it, but the system doesn’t have to allow it or can discourage it.
Products get worse all the time to grow profits. You don’t need to improve the product to remain competitive, you can buy innovative startups and get credits for their inventions or worse to simply killing them
Shareholders want their shares to increase in value. That means the company needs to earn more profit (more precisely, profit per share). To do that you typically grow, but you can also do it by buying back stock (that increases profit per share), or by “increasing efficiency” which is usually a dead end.
Extremely oversimplified:
-for Public Companies: CEO and executives are obliged to pursue maximum profit (either short-term or long-term) for the shareholders, thus the company must grow. - - For shareholders its Cost of capital (basically shareholders want bigger returns than the investment they made) and Opportunity Cost (lose money because you don’t move your investment to a company that is more profitable or gonna be more profitable)
-for private companies: Competition (grow or die from your competitor), efficiency (reducing cost), exit (sell it big and retire), psychological reasons (better safe than sorry), etc…
There are many family business or small companies that function as you describe, but they get replaced and driven out of business in a matter of years or decades (with exceptions). But being stable in an growing economy is very hard and risky. And Capitalism by definition must grow or it gets in crisis.
I highly recommend reading this en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co.
This and credit scores is where it all started to go wrong
What I was taught literally in fifth grade was this: “A company is successful when its profit is zero.” Meaning, everyone has been paid and the company has lost nothing.
I see a great deal of economic rationale being thrown around and usually I love a good discussion on economics, but I believe we are overthinking the question. I would argue any group of people getting together with some shared narrative is going to want to procure more resources for themselves. This can be a family, a tribe, a friend group, a company, a nation, etc. It’s just how we are.
jaggedrobotpubes@lemmy.world 2 weeks ago
Yeah that’s the entire problem.
“Always bigger” is delusional or cancerous.
Darkcoffee@sh.itjust.works 2 weeks ago
Change the “or” to a “and”, and you got it.