I work in one of the last remaining large industrial manufacturing labs in the US. Some of my colleagues worked at Bell before that was shuttered.
My sense from talking to the previous generation is that financialization of the US has started (finally) failing the American people.
The previous generation cashed in on major profits by off shoring (Kodak), but we overdid it.
In a round about way our company is run by pension funds, and I work on projects that would get 8-9 figure investments if we were doing this in APEC, but we would rather have stock buybacks, so we end up getting 6 figures and puttering along.
Meanwhile the higher ups wonder ‘what happened to R&D?!’
Yeah, "financialization" is absolutely the answer and the articles' claim of lack institutional integration (or whatever) seems wrong.
You can look at how Boeing gutted it's highly skilled Pacific North West operations to move lower skilled, lower paid areas elsewhere and generalize this to a multitude of similar industries.
I think that’s only half right… the financialization is driven via a priority of short term profits that are incentivized by the market to executives. They play the BS game to just get rich and then dip, company be damned in the long run.
The economy has essentially been ruined by looting. People finding ways to strip out assets from companies.
Variations on this include private equity racking up debt and bankrupting companies. Executives doing stock buybacks to boost their options while hollowing out the company's resources. Hedge fund management fees. It's everywhere.
Everyone incentivized by percentage of money changing hands ends up looting whatever asset they have access to, esp if the resource they are burning isn't on the books somewhere.
PMs loot products by throwing in needless features to game some metric, or cutting features that users want but are "too expensive".
Engineers loot by burning resilience and multi-dimensional reliability to eek out 5% more straight line speed.
Sales folks loot by offering huge discounts to get huge deals signed, etc.
They look like heros, then they move on, leaving the place worse than they found it.
It's way worse than that: there's also deliberate cellar boxing (bankrupting) of companies on a large scale.
Hedge funds working with consultant buddies (BCG) to take over the board/leadership of a victim company.
The consultants then deliberately destroy the company from the inside while their hedge-fund buddies (naked) short it into literal bankruptcy.
It's a very easy game, it's tax-free (because the short position is technically never closed? or something) and it only very very rarely fails and backfires (GME).
Is the looting behavior just a response to US industrial policy? US policy has made US manufacturing tenuous for decades. Meanwhile US policy has also provided the means and mechanisms to ship manufacturing abroad.
Given the above, isn’t the optimal strategy to maximize profit extraction in order to invest in new industries?
It's a response to a planetary economy incentivised to reward resource extraction, rent seeking, and individual greed over collective intelligence and creative strategy.
The US corporate right evangelised this culture as "freedom", and now it's being eaten from the inside out by it.
Its likely that if many things were made in the US, they would be too expensive for most people to afford, a smartphone might cost $5000. The US could re-industrialize but it takes a lot of robotics due to high labor costs in the US.
My understanding is that robotics were being heavily developed in the US in the 80s/90s to improve costs. Then outsourcing took the wind out of the sails for robotics.
Maybe the tech was to far out, or maybe we would have had vastly more advanced industrial robots.
Private equity really makes life miserable for regular investors and the general economy. I think stronger provisions against buyouts of public companies preventing a single investor from buying more than say 10% of a company and preventing public companies from therefore being gobbled up by private companies would go a long way to solving these problems. Its also vitally important that rules for fiduciary responsibility to a companies shareholders have teeth and also the INDEX act to prevent companies from being subverted .
Can you imagine the magnitude of the humanitarian and environmental crisis China would be if they had not industrialized and joined the global market?
A country that size full of uneducated farmers and first generation coal power plants would be a nightmare for everyone, not just China.
Well, the planet would be better off without Chinese middle class and elite flying around and buying stuff. Countries that are full of poor "uneducated farmers" tend to have much lower carbon footprint than richer ones, even with the higher birth rates. Despite its admirable investments in reneweable tech, China still keeps building new coal plants as well.
Carbon isn’t the only pressing environmental damage though. For example, Madagascar is an island full of poor “uneducated farmers”, and it is precisely their farming that has been deforesting the island through slash-and-burn agriculture, a practice that has accelerated over the centuries due to the high birthrates.
Was Welch a raider? I thought he worked his way up internally.
My understanding, possibly biased by my Britishness, is that Jim Goldsmith was one of the earliest raiders who took over companies and asset-stripped them.
> People finding ways to strip out assets from companies.
If those people don't own the company, what is the owner doing by allowing this to happen?
If those people _are_ the owners, then there shouldn't be a problem, since it's their own company, and they ought to be allowed to do anything they wish. Including short term reward for long term loss (if it is worth it in their eyes).
So i dont think it's "looting" (implying it's being stolen without knowledge of the owner).
Just because a behavior may end up profitable for its owners doesn’t mean we should be just accepting it as a society.
Also viewing a company as just a collection of assets owned by capital can be somewhat limiting. Companies are generally made up of human employees, and many schools of thought treat employees as one of several stakeholders in a company and assign various rights to them and various responsibilities to the company for them.
Looking at it this way, the “owner” of a company can easily be described as looting the company if they are destroying a lot of value in the company for marginal benefit for themselves.
This problem is solved using the court system, and then legislation system. Things which _should_ be unacceptable needs to be made illegal. And over time, this has indeed been the case. Things like environmental regulations etc are the examples.
> various responsibilities to the company for them
i think the employees are reading too much into this responsibility, because the only responsibility the company has for the employees are the legals ones: such as OSHA, timely payment of wages, safety from harassment etc.
Longevity of the job, social responsibilities (such as improving the community etc), are all secondary to the financial success for the shareholders.
> Longevity of the job, social responsibilities (such as improving the community etc), are all secondary to the financial success for the shareholders.
I think you're describing the way things are, while dwalling is talking about how things ought to be. There's no law of nature saying that companies can't or shouldn't behave socially responsibly.
Edit: I'm not advocating for socialism, not at all. There's a wide spectrum between pure laissez-faire capitalism and nationalization of all private property.
companies behaving badly is bad for society as a whole, so allowing the "owners" ie shareholders to make a quick short term buck at the cost of employees or a local factory that supports the town because "it doesn't make ENOUGH" money chips away at society and drags down the country all so a couple people can make a quick buck destroying 1000s or 10,000s of lives and/or entire towns.
putting financial success for the shareholders above all is the reason for so many things wrong right now,
Just because a behavior may end up profitable for its owners doesn’t mean we should be just accepting it as a society
I 100% agree with you, but isn’t this how capitalism works?
I do notice similar sentiments to use more frequently on HN lately. Feels like people are actually aware there are problems now but unsure what’s to be done?
Random thought, but perhaps trying to enshrine "customer or consumer rights" and "employee rights" as seriously as "shareholder rights" would be a good step.
What we have now is quite literally economic apartheid. Poor people are not allowed into the same spaces, not given the same legal and ethical privileges, denied adequate education and healthcare, increasingly barred from owning property (because "markets")... among many other challenges.
The model is that you can buy your way out of this slavery if you're talented (ruthless) and well-connected enough.
Otherwise you die, and no one - at least no one who matters - cares.
Sorry, was a 1/2 hearted attempt at a joke about his pamphlet titled "What is to be done?", similar to the wording used in parents comment. No need to alert the inquisition here just yet.
Capitalism! So successful at delivering productive happy societies that they need to stage coups worldwide to keep people from attempting to try alternatives and fund death squads to secure profits. Great idea.
I think you have a sort of 1920s view of companies that there are 'owners' instead of investors who don't exercise nearly as much control as the people who are brought in and do the looting.
anyway in this case the term "looting" is meant to do things that will be of benefit to the people to the company that will in the short term maybe benefit the company but in the long term destroy it. The short term benefit often aligns with what benefits the looter, but this alignment is not hard and fast.
Trying to introspect the "That's Wrong" feeling... I think it happens when people feel that employees/founders have some kind of vested interest in the company's persistence that is being violated... But that thingamajig is something our legal and financial systems do not adequately capture and model, or else it could be but people aren't aware/proactive about it.
only agents acting on behalf of the owners have fiduciary duty. Of course, if you are a majority owner, but there exists minority owners, you cannot screw the minority owners to profit yourself - i guess this is a form of fiduciary duty.
But if you own it outright 100%, then you don't have such a fiduciary duty to yourself.
It is not an injury to an employee to sell the company's operations overseas and close shop in the US. Forseeable injury is applicable to negligence suits, and it is not negligent to change the business model resulting in the employee being out of work.
A company has no legal responsibility to maintain the livelihood of their employees at the cost of the business' profit margins.
Livelihood of employees is also a false start, unionization and the accompanying high wages are also a significant factor in the disparity between Western industry and China.
The big issue on that comes down to minority vs majority rights. If the majority puts in a board that destroys the value of the company because the majority also owns another company that wants to buy it at a bargain price, it destroys the investment of the minority. Some people suspect that could be happening with Disney.
Not quite. As GGP mentioned, the necessity of keeping stock prices (and property values, and anything else securitized) high so as to not impoverish pension funds, 401Ks, IRAs, etc., is real. That is, if you care about Silent, Boomer, and Gen X retirees - who invested, but didn't save - being able to cover their myriad outlays. Millennials and younger need not apply, of course; we're just never going to be able to retire (Or afford a house. Or...). You are right about one thing: "get rich and then dip" is the mantra. Not just for executives, but for the elder half-ish of Americans in general.
>As GGP mentioned, the necessity of keeping stock prices (and property values, and anything else securitized) high so as to not impoverish pension funds, 401Ks, IRAs, etc., is real.
I'm confused about how your model of the economy works. It sounds like you believe CEOs are selfish and greedy when it comes to workers, but when it comes to pension funds, they keep stock prices high out of the goodness of their hearts?
If liquidpele's thesis is true, and executives are looking to "get rich and dip", "company be damned in the long run", then we would expect this to be reflected in the company's stock price in the long run. The stock price is essentially the fair market value of the company. And the American stock market has been performing very well for a good long while.
This entire comment thread strikes me as populist pitchfork-waving with little grounding in economic reality. Here's a question: If you're truly pessimistic about American companies, do you hold any short positions or put options? At the very least, are you overweighting non-American countries in your portfolio? And if so, which ones?
CEOs are employed by the board, the board is made of major stockholders, those are pensions funds and other investors mainly interested in stock prices. No need for conspiracy theories or pitchfork waving, it's just all working exactly how it's openly designed to.
You guys keep saying pension funds. Where are the sources that financialisation sucking us dry is because pension funds need to get seeded? We’re living in a time of record profits and ceo to worker pay ratio through the roof and you guys are implying pension funds, the little to last thing workers have, as the issue?
Gee I’m wondering what we should all be thinking and doing about those pension funds and who that would actually serve.
Y’all get that most of us don’t have pension funds, right? They’ve been gutted long time ago. Defined benefit to defined contribution ring any bells?
But yes, let’s fight against the other plebs that have things we don’t, let’s blame pension funds and not the plethora of other issues.
I tell ya, we’re funding pensions alright but it ain’t the teachers kind.
You aren't wrong, but it's not reasonable to hold such a strong opinion without experience. I spent 15 years working in high-tech manufacturing, at Sanmina, which - like many peers - also offshored the majority of capacity. What remains in the US is mostly manufacturing for regulated industry (military, medical).
Take a look at this, re institutional ownership: https://money.cnn.com/quote/shareholders/shareholders.html?s.... 95% of outstanding stock is owned institutionally, which is pretty normal in manufacturing. For decades, this has been a core investment sector for pensions and other institutional funds, and remains so, even if it's just to balance investments in tech, biotech/pharma, retail/CPG, financial services, the military industrial complex and transportation. Moreover, if you attend quarterly results calls, you typically end up with a few analysts from banks and at least one from some pension fund, who ask questions. We young people may not care about pensions as almost none of us will have one, but they still exist and still influence large pieces of our economy.
But look at any big corporation, take the CEO's total compensation and divide it by the number of employees. The CEO of IBM earns an obscene $16.5 million per year - but divide that by IBM's 288,300 employees and it's $60 per employee per year. Wal-mart's CEO makes $25.31 million, but it's only $12 per employee per year.
Even if we redistributed the CEO's entire salary to workers, $60/year isn't going to do much to close the gap between rich and poor.
>wouldn't the company perform better if we did other things with that excess money?
Of course. That's not what CEO pay/employee does, though; it trivializes the massive (over)compensation by putting it in seemingly-small terms. What we need to be analyzing CEO pay in terms of is 1) How much a person needs in order to live decently and with dignity in one's particular area, and 2) How much better than the "average" CEO any give one performs (to determine incentive pay). Certain entities, institutions, and groups have cartel-ized executive positions as a class and bid up their compensation, decoupled from real value.
Another view: $60/employee doesn't seem like a lot, but if you remove the employees making over the median, or $100k, or some other resaonable cut-off, something tells me that the lowest-paid employees would see a meaningful increase in their take-home. GGP is purposely being reductive in a way that makes rethinking the issue more silly than it actually is.
Pension funds is shorthand for pension funds and other bulk investments for other people vehicles like BlackRock and Vanguard. A common complaint from people is that there's under ten entities that owns almost all of the major public firms. Matt Levine has very funny and informed takes on this sort of thing, ZeroHedge et al have conspiratorial ones, but it's a real thing.
If I am a faceless pension fund that is going to earn short term on this much better, and be free to walk away and do the same thing to another company?
Sure.
This is exactly the same playbook as with private equity - the point is to make the shareholders richer as fast as possible, and long-term strategies do not pay out as fast while possibly introducing longer term risks.
For short term profit that I can walk away with? That is very different from building long term value. Both are profit. One profits from creation and has long term recurring benefits, the other profits from extraction, which only happens once.
Both building a fire and building a house profit from a supply of wood. But they are pretty different in terms of long term pay off.
While there is a spike at buy-out it is still more or less true. Try to buy a company for far less than the stock market price and tell me how that works out for you.
you think the stock market works well? look up the fail to deliver rate, infinite liquidity of market makers, and how the SEC said themselves that 95% of retail trades are happening off lit markets in dark pool. Price discovery has been broken for a long time and without, there is no legitimate market.
Investments come with risks. The trade-off of cash losing its value over time is that it’s relatively less risky. You split your assets into cash and investments to achieve an overall combined risk profile. In that sense, cash is just another investment with a certain risk-return ratio (even when the return is negative).
Your cash over time is guaranteed to lose almost all its value. While, if you invest in something, it could be even gold or silver, could be a house, could be a global market cap index fund, it holds more of its value than a fiat currency does. So no, fiat currencies lose everything and even with risks involved with other investments, the risks are still less than cash. Cash over time is one of the worst investments.
It depends on your time horizon. Over a period of say ten years, cash is unlikely to lose almost all of its value, whereas for stocks the likelihood can be higher. The stock market may crash (like it has in the past) at an inconvenient moment where you’ll then be happy to have some cash on hand.
It's precisely those investments which cause those losses. Those investments are nothing but roundabout ways to provide loans to people and businesses. Loans inject massive amounts of money into the economy. Massive money injections directly cause inflation by increasing the amount of money in circulation, inflating the money supply and devaluing the currency of anyone who didn't participate in the scam by saving money instead of investing it.
>American financial markets favor a capital-light production model, or one of no production at all. Jack Welch was well aware of this in his transformation of GE from an engineering company—one cofounded by Thomas Edison—to a financial engineering company. In 1985, during his early years as CEO, he canceled the company’s “factory of the future” initiative consisting of automation systems, robotics, and advanced machine tools, which would have allowed GE to catch up with Siemens and Japanese competitors in its offerings. Instead, that same year he acquired RCA, parent company of the television broadcaster NBC. Eventually, 60 percent of company profits came from GE capital. Welch’s strategy worked, at least for a while: in 1993, GE became the world’s most valuable company, before the stock price collapsed during the great financial crisis and GE was broken up.
>The assessment of author David Gelles, in his critical biography of Welch, The Man Who Broke Capitalism, is that “instead of trying to fix American manufacturing, he effectively abandoned it, and would soon start shuttering factories around the country and shipping jobs overseas.” Welch once stated, “Ideally, you’d have every plant you own on a barge to move with currencies and changes in the economy.”
Arguably, the article discusses financialization as a cause.
You should see GE factory floors now. Totally left behind by the rest of the world. When I left they were getting into LEAN and the big suggestion was organizing tools on a cart for better efficiency. Jack Welch nuked GE.
Yes, I think the correlation between MBA popularity as a degree and failing of US industry is fairly causal.
It's the same in universities, where more and more time and money is spent on "management" (extracting value) and less and less is spent on actually teaching stuff (creating value).
Unsurprisingly, when a (somewhat large) portion of the population in a high productivity society realizes they can just skim off the top without doing any actually useful work, bad things happen.
An important point is that the recent wave of globalization has been very good for poor people in developing countries outside of the US. From the perspective of US workers, outsourcing looks greedy. From the perspective of foreign workers, outsourcing looks altruistic.
Even with recent globalization, Americans are still far richer than most people in other countries. I believe those people matter just as much as Americans do.
The motivation was greed and the means were treacherous. If someone was helped along the way, great, but don’t be naive enough to think that there is any altruism. Saying that all people matter just as much as any other is an absurd platitude. In some abstract sense, maybe, but your obligations to your family, friends and community obviously supersede any obligations to some hypothetical person with whom you share no relation. Moreover every society of earth maintains this preemption and considers this attitude to be immoral.
that being said, there are ways this could be beneficial both ways instead of one way.
I’d also argue that it’s perfectly fine for the US and any other nation to think in terms of putting their domestic economy first, regardless of anything else
As I stated elsewhere, America's median income, adjusted for cost of living, is one of the world's highest. Americans benefit from cheap goods from other countries.
It might be socially acceptable to put the domestic economy first, but that doesn't mean it is right. Ultimately, it's basically the same as the "looking out for #1" philosophy that rich people allegedly have, which is being condemned in this thread -- but at the rich country level rather than the rich individual level.
It is beneficial. I generally believe in free trade as long as both sides have agreements in place that follows laws and policies mutual to both parties
However not every situation is like this. For instance, offshoring was used to artificially suppress wages of IT workers. That’s not mutually beneficial in the slightest. It’s abusing one cost advantage over another without a clear benefit to both sides, it only served to enrich shareholders
To top this all off, our ability to "put the domestic economy first" through policy is non-existent. Any attempt to fix this "problem", that you accurately described as a problem only because it's socially unacceptable, would end up harming us in some way. There is a mountain of evidence over the last century to back this up, we just refuse to listen.
The other point that’s often forgotten is that labor costs have risen, and shipping has gotten cheaper. This is just how economics plays out. Protectionism can be great for national security and employment, but people would have to stop expecting things to be cheap.
I work on projects that would get 8-9 figure investments if we were doing this in APEC
Are the apac equivalents of those projects generating returns commensurate with the extra investment? Or is it a strategic choice that they typically focus more on advanced manufacturing while the US focuses more on software? I'm just wondering what the right way to think about this is.
Both. They get high returns and there is high social benefit.
Because the US thinks of industry as ‘dirty’ we’ve lost touch with how valuable these jobs can be. In the US the returns would have longer duration and would not be viewed as ‘important’ bc the business isn’t suitable for a FANG exit.
Correct. The problem with "America's manufacturating problem" is it's oligarchic class rise. The rich control the US through favorable laws and protection. You need to remove the scabs at the top to have a healthy economic comeback.
This is an anecdote. R&D as a percent of US GDP has never been higher than it has been in the 2020s. Even more than back in the 60s. The source of the R&D has changed (less federal government) but it’s not financialization. https://ncses.nsf.gov/pubs/nsf23339#:~:text=The%20ratio%20of....
The production of physical goods - physical capitalism - no longer had anywhere to go really when most people employed started having a decent standard of living, so we looked for ways to continue infinite GDP growth and we found it in financialisation. It worked but only by destroying/rotting away everything else.
This explanation doesn't quite convince me, because if this really were the primary issue, USA could have globalized its consumer base not just for low quality products and pop culture, but high quality development.
I think the root problem is political: recognizing that USA's extraordinarily successful mid-century economic model was the result of a compromise by the ruling capitalists to avoid facing a European-style revolution (e.g. Bolshevism) at home.
As the Cold War reached its heights in the early 60s, that delicate equilibrium was destroyed, and the capitalists had a new mandate. State regulation, labor unions went from "necessary evil to avoid revolution" to "evil", and the robber barons could return to their early 20th century form. Thus we got the 70s and endless financialization.
As of ~2019, the US had the world's 4th highest median income, even adjusted for cost of living -- easily the highest median income of any large country.
And the median income in the United States has been growing rapidly. Sort the table by "Absolute Change" and you'll see that in absolute terms, the US median income grew the 5th most over the period from 2009-2019. Again, the US is comfortably ahead of other large countries when measured according to this statistic. (For example, US workers saw over 2x as much wage growth as Canadian workers did over the same time period.)
Speaking as an American here, it frustrates me when Americans fail to realize how good they have it compared with people from developing countries. Americans are some of the world's richest people, yet they still insist on hoarding as many good jobs for themselves as possible. When Americans talk of "reducing inequality" it often seems hypocritical.
I genuinely don't understand why it is that the people who are best off also complain the loudest.
The stats I linked are adjusted for cost of living. As stated on the "Chart" tab: "This data is adjusted for inflation and for differences in the cost of living between countries."
People who earn the median income are hardly elite.
If you toggle the year to 2021, you'll see that US data on that page ends in 2019. No cherry-picking, I just chose 10 most recent years which had US data easily available.
House prices in the US are high, but not remarkably so. (E.g. Canada's house prices are higher.) I'd argue that expensive US houses have more to do with NIMBYism than the overall health of the US economy.
Focusing on housing in particular is itself a form of cherry-picking a single statistic. The median income data I linked is adjusted for cost of living, which includes housing and other stuff.
It's like saying the US economy is doing great in 2010 by using data that ends in 2006.
The last 3-4 years have been awful for the median American. The "prosperity" of 201X-2019 was funded by loose financial conditions: it's basically just debt. Purely debt-driven "growth" should not be mistaken for a healthy economy. And we are feeling the consequences of that debt-driven growth now, with high inflation, recession conditions, and a global sidle away from the dollar.
When their current car dies they won't own one of those either. Shit storm is brewing for the poors in America. Hardly anyone is taking advantage of our very inexpensive training programs that train in the trades (easily transitionable to engineering). Half the people who do show up are having it paid by their employer and barely put in any effort. Apartment complexes are looking good as an investment.
> I think the root problem is political: recognizing that USA's extraordinarily successful mid-century economic model was the result of a compromise by the ruling capitalists to avoid facing a European-style revolution (e.g. Bolshevism) at home.
Yes. Communism was a competitor which kept capitalism from acting like a monopoly.
Once communism was no longer taken seriously, capitalism was unrestrained.
When the USSR finally ran down, there was no stopping the push to plutocracy.
It's not that communism was a better system. It was that the existence of an alternative kept capitalism from getting out of control.
I think that’s also fairly accurate. I always had a weird feeling on how the Scandinavian countries were in close contact with the Soviet Union and that might have influenced them to follow a more hybrid societal model than other Western countries. I haven’t done enough research to explain it either way.
I do think physical capitalism exhausted itself, but it was more in the 90s and 00s that we see more psychological capitalism arriving with the first internet products that have no physicality associated with them - social media and networks. Then we have a real (or apparent) exhaustion of physical capitalism.
It is fairly typical for poor, undeveloped countries to use a more centrally planned economy. The sheer lack of capital, as well as business and industrial know-how dictates that. Socialism and Communist parties were relevant in the 70s and 80s in Western Europe but later on were rejected as they were no longer relevant to their developed economies.
It makes me recall one of my favorite cars that was never built, the Norwegian Troll. The government decided not to expend their limited capital to the company as they could trade fish for Ladas to get cars.
Yes. Economics being at least partially directed by the state is actually a fairly sustainable route to parity with other rich countries (maybe the only one, according to the book How Asia Works).
My sense from talking to the previous generation is that financialization of the US has started (finally) failing the American people.
The previous generation cashed in on major profits by off shoring (Kodak), but we overdid it.
In a round about way our company is run by pension funds, and I work on projects that would get 8-9 figure investments if we were doing this in APEC, but we would rather have stock buybacks, so we end up getting 6 figures and puttering along.
Meanwhile the higher ups wonder ‘what happened to R&D?!’