Submitted 5 months 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.
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.
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.
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.
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.
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
This includes all publically traded companies
Well, partially maybe. In the past, investors were happy with dividends instead of growth. There are extra factors making growth be preferable over dividends.
Bingo.
Profits about all. The size of the company itself, eh. But, profits must grow infinitely apparently.
Eight, but why? Why not create a company that generates, say a $100M a year, building some
Well, companies like Valve are kinda like that.
They can. But that would make you ‘lose’ capitalism.
Why settle for one yatch, when you could have several mega yatchs?
I’d highly recommend watching this video, it goes through the history of capitalism and why it is the way it is now
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).
Depends, but to meet demand seems reasonable?
Imagine you invent something splendid and life-changing. You have your company with a 100 employees but you can’t satisfy the market so you expand.
Like with the safety match.
Companies grow and shrink from a combination of market and internal forces. Companies sometimes need to shrink or grow. The economy and culture are constantly changing. That is why it is very hard to predict where things will go.
Your example of having a company with a set amount of employees that produce a set product happens pretty frequently. A lot of employee owned or family businesses are this way.
I think most of you post can be summed up with why do investors want more and more money. The answer is because they can. If your company owes money to investors then they will beholden to them in one form or another.
There is another worthy discussion here and it is about boards. Boards that do not contain equal representation for the employees and the public can be very destructive.
Most of the corporate abuses we have suffered come from having perverse leadership non-representative of these two most important influences.
As a co-owner to a business, we grow because sometimes the funds from what we're already selling slow so we branch out in other directions to cover it. An answer for small businesses at least.
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.
Ape brain usually goes “big = good” and therefore “bigger = better”. And since a bunch of other peoples ape brains have thought this before you, then now if you have a tiny business, it’s very likely that your only options are to either get trampled by giants or try and become one of them.
If the owners primarily want to make money by taking out a portion of revinue as dividends or distributions, like a family business typically does, then stable revenue is more important in some ways than reinvesting in growth.
If the ownership wants to make money by eventually selling their stake (shares or equity) in the company then growth is fundamental to the strategy.
Disclaimer that I’m not an economist
I believe I have heard a discussion about this before… that the “always grow bigger” model is not only not a necessity under capitalism, it wasn’t even the predominant economic model in the US for a while. Post war, FDR’s New Deal followed the Keynesian model, which from my understanding led to the type of regulated capitalism with a much heavier emphasis on shareholder/employee satisfaction… and also when the extremely high progressive income tax brackets happened. The always need to grow bigger idea may or may not have come from Milton Friedman of the UChicago school: one of the core assumptions of the Neoclassical model is that companies maximize profits.
Also this is definitely not just a US megacorp thing. Other countries have megacorps too. Case in point South Korea…
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.
Shareholders are always going to demand more profits. There is no mechanism in a capitalist economy that reinforces the concept of having “enough.”
My understanding is that this isn't quite how it is. Shareholders don't demand profits as much as they demand that their share value go up.
I read some time back that this is because of an unfortunate choice in tax law. Dividends are taxed as if they were income, but growth in share value is capital gains and so isn't taxed nearly as much. It does unfortunately make some sense, if share value repeatedly goes up and down I wouldn't want each "up" to be taxed as if you'd accumulated that much additional money. You'd have to be constantly selling shares to pay your taxes on them. But as a result, it means that when a company winds up making a profit and having a big pile of cash they need to decide what to do with, shareholders will usually prefer that the company invest that cash into making the company bigger and more valuable rather than simply giving it back to them as a dividend. So you get companies always trying to grow, because the shareholders demand it for reasons that make perfect sense to each one individually.
I'm not sure what a good solution to this is. Economics is one of those fields that seems simple on the surface but has a ton of gotchas hidden at every variable. It's a special case of game theory.
Under capitalism, companies do what their owners want them to do. The owners can choose to try to grow, to shrink, to sell, or to close.
Publicly owned companies have shareholders, and the shareholders usually want the company to grow so their investment grows. Shareholders can have other values, but anyone can become a shareholder.
Under non-capitalist systems, the government might own some or all companies. Then the companies do whatever the party in power wants. The party in power probably doesn't have time to run all the companies, so they give some level of independence. They can reign that back whenever they like.
The most common motivation in non-capitalist systems is probably greed and growing personal wealth of party leaders via corruption under that system. Luckily, the people can vote in a different party and/or protest against party corruption except in all real-world cases, where that is banned or suppressed.
Because they took the money. If you take the money, the path is inevitable
When you take on investors, you just invited in someone who looks at your company like a farmer does to their crops. They want you to grow as much as possible, but they don’t actually care if you live or die - you’re one of many using up resources
If your growth slows, they’re going to demand more. They might demand you make cuts, they might push you to take loans and expand, they might try to sell to someone else. If your value isn’t increasing faster than other possible investments, they lose imaginary money to opportunity cost
And by virtue of being an investor, they have plenty of money and want to gamble with it. A total loss probably wouldn’t impact their lifestyle, they want invest in Apple at the ground floor and become a billionaire
You can start a company through loans, risk your house and build up slowly, and walk away clear. And people do.
But then they want to retire… And there’s this neat trick you can do if you want to own a small business… You can make it buy itself. You can take out a loan to pay out the previous owner, say 5 years of profit, and make the business take on the loan. But now, just to break even, you’ve got to beat what you paid for it plus interest over the term. And both business and individuals can do this
So in short? The reason is debt. A small business can make you upper middle class, a large one could make your entire family insanely wealthy for centuries.
But once you take the money, the business has to grow, or it’ll be harvested
Growth=good is also a sentiment for whole markets.
In a market where new customers start buying the products every day (growth market), e.g. the smartphone market 20 years ago, you can generally just come up with new products and someone will buy them, if they’re good.
On the other hand, in a market where customers only replace their old devices as needed (market saturation), e.g. basically the smartphone market of today, things are much more tight for companies. They have to primarily be more cost-efficient than their competitors in order to survive.
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.
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.
Year over year is what EVERY company looks at.
Making the same amount of money as you did last year is considered a failure in business.
Note that even if by all practical terms a business isn’t growing, then it’s still growing.
Part of the whole deal is that there’s an intent for the money supply to change for a roughly 2% inflation. In an oversimplified sense, the idea self be that everything gets 2% more expensive, everyone gets 2% raises, and investments at least generate 2% returns.
We’ve basically decided that we need to trick ourselves into feeling progress by making “standing still” look like growth. So if someone had flat income year over year, they actually lost in real terms.
There are plenty of small companies that don’t grow. Think mom and pop shops and self employed tradesmen.
I’ve you get a bit bigger and you’ve already got the hassle of employing lots of people in multiple places you can’t really balance it to be neutral, you will grow or shrink and it’s a lot more pleasant to grow than shrink.
csverdad@midwest.social 5 months ago
It’s all based around fractional reserve lending and interest. Banks take in deposits and lend several times the deposit amount at interest against that reserve. To pay back the bank the business sector has to grow in order to pay interest on the principal. Make sense?
DreamlandLividity@lemmy.world 5 months ago
no. You can pay interest out of your profits. And many businesses don’t have significant loans.