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Apple and Google embody two alternative models of capitalism (theatlantic.com)
158 points by nthuser on July 11, 2017 | hide | past | favorite | 117 comments



There is so much wrong with this article I hardly know where to begin.

First, it presumes a 19th-century separation of "capital" and "labor" where "capital" is a bunch of greedy pigs trying their damndest to exploit labor, with little crossover between the two groups. The modern reality is way more complicated. Almost every member of "labor" has some form of pension, 401(k), IRA, or personal stock holding, and even if they don't, their governments do. Huge pension funds like CalPERS are heavily invested in the stock market, which matters because (a) many state employees rely on them for income, and even if you don't work for the state, (b) your taxes are directly tied to the investment performance of these funds. Bottom line, it's complete folly to suggest the stock market is a "rich person's problem" even if you're poor. Anyone invested in the S&P 500 is going to have a large position (relatively) in Apple.

Second, this article makes no mention of Google's hiring of Ruth Porat or the recent moves to put better capital allocation processes in place. I, for one, wish Google would behave more like Apple. I think it shows admirable restraint that Apple can pay so much cash out without wasting it on dumb things.

Third, it's just a sloppy article in general. They make no mention of whether the "performance" of the two includes the cash thrown off by dividends, which in Apple's case, is significant. They also didn't mention the complex back-story of why the Irish subsidiary is used [1], nor any of the academic finance research suggesting that "Short-term" decision making actually benefits investors long-term.

[1] https://stratechery.com/2016/apples-eu-tax-problem-how-apple...


This is a really weird comment.

I re-read the article and it only mentions labour vs capital once, in passing. Mostly it talks in terms of owners vs managers, and the principal-agent problem. You refer to "greedy pigs" and exploitation making it sound as though the author is anti-capitalist, but that does not seem to be the case).

(I was curious enough to look him up. He's a finance professor at HBS. That probably explains the different slant compared to other Atlantic articles).


It think it was more that the author is a supporter of real capitalism where you actually have to possess a conscience. But I think the population has a whole has abandoned this notion either out of ignorance or apathy. This is my lament for the current and future state of capitalism.


> Almost every member of "labor" has some form of pension, 401(k), IRA, or personal stock holding

Objectively speaking, it does not seem like that is the case for even half of workers. https://www.ebri.org/publications/benfaq/index.cfm?fa=retfaq...


That data is almost 20 years old now. I don't know how much it has changed since then, though. It also only deals with 'private sector' labor, whereas the OP specifically mentioned state employees in the pool of 'labor'.

EDIT: Wait... The chart title says 1979-2013, which is what the chart says... but the source citation says it came from 1979-1998... which is why I thought it was 20 years old... not sure where they got the rest of the data from.


It also doesn't factor in the unemployed, which seems just as relevant a factor in the opposite direction, if you're going to claim everybody's interests are one in the same with business owners'.


The data from 1999 onward is estimated from a few sources, as explained at the bottom of the page here: https://www.ebri.org/publications/benfaq/index.cfm?fa=retfaq...


You seem to be asserting that anyone who owns any stock is completely aligned with the interests of the respective corporation, regardless of proportionality.

To wit, If I own (say) $5k of Amazon stock as the result of being invested in a mutual fund, that is not sufficient cause for me to take time out of my day to call my representatives and actively lobby for Amazon.


Never mind that owning stock via pension funds etc gives one little say in corporate operations.


80% of the value of stocks are held by the top 10%. The fact that 401ks which were initially retirement plans for executives have permeated labor is an indictment of the system. Capital owners have removed defined benefit plans forcing labor to jump into the same boat. But make no mistake about who really benefits from that convergence and who forced it in the first place.


For my money I would much, much rather own shares of stock in my retirement plan than have a state- or corporate-backed pension.

Have you seen the movie Casino? That actually happened, the Teamsters pension fund came under control of the mob.

What about Illinois, which is facing a $120 billion pension shortfall due to decades of accounting gimmicks?

What about the UAW guys, who were counting on pensions from the big 3?

All I'm saying is, look at how it _actually_ works, in practice, vs. how it _could_ work, in theory. The reality is, DB plans are getting phased out because they're too expensive to service, and too risky for employees.

You can make the argument that people aren't getting compensated enough, and maybe that's true, but that's not an argument about DB vs. DC.

The point is, there are no certainties in this world, and if someone tells you there are, they're lying.


And I vastly prefer the reverse. Pensions avoid the classic hopping you die before you run out of money.

Further, money enough to cover the basics is vastly more important than 'extra'.


Pensions aren't portable - in the modern labor market where people are expected to have multiple emplyers and possibly even career arcs, that's a pretty limiting. Personally, I feel that too many pensions plans (private and state) are at financial risk and have seen too many companies go under (wiping out pensions), or severely cut back (changing their payouts and coverage). Really, I'd prefer something more portable than even a 401k. Rolling over to an IRA after you change companies is ok, but I'd really rather have savings separated from employers to a greater degree even when it's accumulating.


That's why pensions should be provided by the government, as one of the things paid for by all those taxes you paid over the years.

Which is why I get really mad when the current Australian government tries to spin it that retirees are 'bludgers' and are a drain on the system when they draw their (paltry) pensions. No, these people paid 40 years' worth of taxes to the government, and being supported by the government after they retired was part of that deal.

You can't offer to pay me tomorrow for a hamburger today, and then when I ask for my money tomorrow, call me a beggar.


How about lowering taxes and let people be adults and plan for their own retirement? With those 40 years of taxes invested in an index mutual fund, I’d be a millionaire many times over rather than hoping for a paltry check each month.

Any retirement plan dependent on government means that you will get less value out than you put in. Think about “management fees” on an index fund – a fraction of a percent generally. Think about the de facto management fee taken by government – orders of magnitude more. Not to mention your return on “investment” is rather low and you can’t pass on a government pension to your children. So if you die at 50, the government keeps all that excess you “paid in.” That isn’t fair. People ought to have the freedom to opt-out.

A compromise might be to require paying in to a system, but you get to direct where that money is invested. Somewhat like a mandatory IRA. In the US, you are forced to pay into social security – why not “force” people to have an IRA instead? However I think the real reason that doesn’t work is that it would make people less dependent on particular political parties – because the government no longer has as much power over your survival. “Vote for us or else <the other party> will cut your benefits and make you starve.

Unfortunately, with all the talk of freedom, it’s mostly just talk. Actual freedom means being able to make your own decisions as well as living with the good or bad consequences of those decisions.


Sure, if you're starting on that basis. But it's a different thing entirely if you start out with an explicit deal saying "you pay 30% of your income to the government, and you get a pension when you retire" and then after you fulfill your part of the bargain, the government says "oh uh, that money you paid, we spent it."

We now have mandatory superannuation contributions which work pretty much how you're suggesting, and the government is pushing towards getting rid of pensions in future.


There's multiple issues there:

1) there's spartan explicit connection between the taxes paid then and the pensions paid now: most governments did not put that money in an explicit infrastructure or investment fund, the revenue from which explicitly pays for pensions. Additionally, we generally do not (in Australia) connect how much you paid in with how much your taking out, so we have no way to even ethically or materially judge whether someone really is our isn't "taking out more than they put in"

2) in the real economy, pensions are not paid for by your past taxes, but from future income derived from the level of capital investment and infrastructure and the labor force at the time of your retirement. The Australian pension system contracts a population of post boomer children to pay a debt they were never party to agreeing to pay: and chicken the general demographic numbers, aren't liable to be able to pay it given the relative size of the two populations.

3) from a normative point if view, the Australian system is quite generous (not as generous as some of the European ones). It is, dare I say it, unsustainable. Not only do you have to adjust for the pensioner discounts and additional payments offered to get it's true value, but it is much greater in volume compared to all other dole payments. With no means testing for your primary property, it's both a subsidy to the rich, encourages over investment in property, and has basically set us up to escalate inter generational war fare.

My advice to everyone is to assume it won't be there for anyone not already collecting it.

Don't get me wrong, I have some sympathy for the boomers who thought it would be available. But, they got to effectively overconsume by not putting sufficient away to invest for it, and in a competition between economic reality vs "what I'm supposed to get on my defined benefit pension", reality will win every time. Government isn't god.


Your first two points relate to what the government actually did with those payments, and not with the social contract between taxpayer and government.

I'm not sure I follow your third point. The pension system is far from generous - it's ~72% of after-tax minimum wage. Pensioners generally live in the same house they've lived in for decades, if they haven't downsized, and it's only the primary property that's not means tested so it's not like they're hoarding investment properties.

And they didn't get to 'overconsume by not putting sufficient away' - they did put that amount away, as part of their tax payments. What the government did with the enforced payments is a different matter.


Late response: I assume you've done the calculations right regarding the minimum wage, and that you've taken into account the additional payments not included under the label of pension.

To get an accurate view of the value of the pension though, you have to take the dollar face value and apply both pensioner discounts (practically everywhere in Aus, you will get discounts on your rates and utilities at the very least, in practice substantially more such as transport and consumables). In addition most also get to consume their imputed rent.

Don't get me wrong, I'm not saying all pensioners are "living it large". It is miserable to be a pensioner that doesn't own their home. But their true consumption possibilities are several multiples in practice of all our other social security payments, say for the unemployed or people on minimum wage for example, who don't own their own homes.

Given the demographic boom of the boomers, we are effectively paying living wages to the group that statistically hold the most wealth of any age group, and that we don't means test against the primary store of that wealth, I predict this system cannot last.

The government can enter into a defined pension scheme that proclaims it will be summer forever, and people can complain that they were promised that it would be summer forever, but a wise man knows that winter is coming...


  > Pensions aren't portable - in the modern labor market   
  > where people are expected to have multiple emplyers and 
  > possibly even career arcs, that's a pretty limiting.
Which is the cause and which is the effect? Do workers want to have multiple employers and career arcs?


Portability is nice. I’ve seen so many people in government just trying to ride it out until they qualify for the pension. They don’t really care about the job and are just trying to avoid having to do anything until it’s time to retire. Long-standing structural problems just get covered up and ignored for the next chump to deal with.

It also represents a huge tax on people who want to be able to change jobs. I would prefer a world where people feel more free to leave jobs that suck or aren’t good fits for them. Locking them down with pensions, options plans, or 401k matching programs that vest over time are all mechanisms for employers to recapture what would have been paid out as wages from employees who leave early (who often tend to be younger).

A UBI that puts you somewhere above the poverty line supplemented with a forced savings program seems like the best move. It gives you portability, simplifies the system and administrative burden, and offers a hedge against the vagaries of the market.


I don't think they necessarily want to, but I think it's often needed for reasons mostly tangential from pensions. But if you accept that multiple jobs/careers are a reality, then pensions plans, as traditionally constructed, don't do much for workers.


I think it's often needed for reasons mostly tangential from pensions

Such as?


Companies used to provide pensions as an incentive to stay at the company long term and not change employers, but really most of them don't care to plan for employees to stay and be developed long term.. so accordingly no pension plan is offered either.

Even ones that still offer pensions, if the support isn't there then it's in conflict with how a pension matures it's benefits. Many companies treat workers as interchangable cogs and don't provide/encourage for any exceptional wage or career growth or training. So to move upward one has to change companies - dropping (or at best pausing) the pension.

Not all companies are like this, but many (most) are. I thought this all was pretty widely understood?


So...it's not that people have to change jobs because pensions don't really exist anymore, it's that there aren't really pensions because companies don't give a shit about employees anymore?

I guess that's a reason other than pensions, technically.


Moving companies is the only way to get a promotion or a substantial raise in the current business climate. Had I stayed at the same company I'd be the highest paid developer but making 40-50% less than what a competitor has paid for my skillset.


To be clear, you're talking about direct cash, right?


Yes - this doesn't apply to big4, who realize this and tend to do a better job of stringing you along with big stock grants.


Actually, you mean "pensions are defined in the US" aren't portable.

Employer and pension are not tied together in a great deal of countries - for example: state-controlled. So even if you switch jobs, the plan remains the same. (Also relevant is that most countries have a single state, so state-controlled means you can actually move anywhere inside the country and keep the same plan).


Fractional pensions are a thing, the minimum can be a low as 3 years.


You can buy an immediate annuity that has guaranteed income until you die with different options:

A) guaranteed life

B) guaranteed life of you or your spouse

C) guaranteed life with a return of the unused amount

D) guaranteed life with a guaranteed x year certain

Of course the different options you choose affect your monthly payout.


And effectively all guarantees (be they government or private) are probably better understood as guarantees conditional on institutional survival risk.


Annuities do exist and you can buy them with IRA/401k savings.


While true, they generally don't have government backing and can thus fail fairly easily.


Sure but if you look at how 401ks and IRAs _actually_ work you'll see people being broke in retirement as well and the idea that DB is more risky than DC for employees is just totally backward. The fix here is more transparent DB, not shoving people into DC plans which were never meant for them.


"The fact that 401ks which were initially retirement plans for executives have permeated labor is an indictment of the system."

Reference please. The Revenue Act of 1978 created a provision, section 401(k), for employees to defer income as future compensation.


Uh-uh. This is an excellent article because it accomplishes 100% of what it set out to do:

Put the words "Apple" "vs." and "Google" in the headline to generate some pretty good clicks.

The rest of the words are just to fill the rectangle the headline sits over. They just need to be formed in a way that doesn't distract from the main purpose.


Pretty cynical, but The Atlantic has indeed taken a turn that supports your analysis, at least since Jeffrey Goldberg was made EIC.


>First, it presumes a 19th-century separation of "capital" and "labor" where "capital" is a bunch of greedy pigs trying their damndest to exploit labor, with little crossover between the two groups.

If you're talking about Marxism, you're misunderstanding the division between bourgeoisie and proletarians; stocks, pensions, 401k, whatever, does not count as means of production; the division is between the proletarians, who almost always have nothing to sell but their labour-power and the bourgeoisie, i.e a class of people who own the means of production.

Further, you're using "exploit" as a prejorative, which it isn't necessarily; Marx's idea of exploitation is removed from what we think of as exploitation (in a negative sense); it's exploitation just as you'd exploit a car or something like that - you make use of it, use it up. Machines are also exploited in the same way. Nevertheless, the goal of the Marxists and indeed Communists in general is to abolish this exploitation.

Your simplification does not make the anti-capitalist plight any weaker, and in fact it just goes to show how much the ideas of the Communists are miscommunicated and misinterpreted. It could be said, with the shrinking of the number of people who are self-employed (actually, things like freelance programming forming an exception) that the model of proletarians and bourgeoisie is just as relevant if not moreso today than it was in the 19th century.

I advise you to read modern Marxist works, such as Spectres of Marx, The Society of the Spectacle by Guy Debord, and particularly almost all of Zizek's work (in particular The Sublime Object of Ideology), which I must recommend. Of particular note is The Culture Industry by Adorno, commonly associated with the Frankfurt School.


Thank you for this comment. I'm sorry it got downvoted and I disagree with much of what's written, but I appreciate the thoughtfulness and general tone.

I have actually read and thought about the Communist Manifesto quite a lot, but not the later works you cited. I'll add them to my reading list.

The biggest problem I have with classical Marxism is that it presupposes a sort of material capital that can be accumulated. While there are certain sectors in which "assets" in the traditional sense, whether physical ones like timber, rental real estate, etc. or the softer "intellectual property" play a dominant role, this doesn't seem to be what's driving the world forward today.

I think "reputationism", or maybe "Hollywood capitalism", is a better descriptor for how Hollywood or SV work today. Witness the sky-high compensation of CEOs, athletes, actors, real estate developers, financiers, and others whose reputations give them access to opportunities most traditional "labor" can only dream of. In fact, if you read Piketty, he makes the point that capital's share of income relative to labor has actually decreased in the past decades, even as very highly compensated labor's share has skyrocketed.

The real enemy, IMO, is "empty suits" with no skin in the game (borrowing from Taleb) - people like analysts, non-founding CEOs, private equity/VC managers who commit only 5% of the capital of their funds, and others in positions of "heads I win, tails you lose". I really admire people who stick to their beliefs and bet with their own money/credibility (like this http://longbets.org/362/) - I have much less respect for the guys blabbing on CNBC every day who just talk, talk, talk.


> If you're talking about Marxism, you're misunderstanding the division between bourgeoisie and proletarians; stocks, pensions, 401k, whatever, does not count as means of production; the division is between the proletarians, who almost always have nothing to sell but their labour-power and the bourgeoisie, i.e a class of people who own the means of production.

Can you explain what you mean by this? If you own stocks, pensions, 401k, whatever, you pretty definitionally have more to sell than just your labour-power right? I guess I don't understand how it's not gradated ownership over the means of production.


> Almost every member of "labor" has some form of pension, 401(k), IRA, or personal stock holding

Citation needed. I believe "almost every" is pure hyperbole.

A quick search found a poll indicating 52% of Americans own stock.

http://www.gallup.com/poll/190883/half-americans-own-stocks-...

If you have better information, I'd like to see it, please.


Without a citation, that seems right, in the narrowest sense of "owning single shares in a company".

Keep in mind that "owning stock" isn't well-defined though, that could mean (a) own individual shares (narrowest), (b) owns shares or ETFs (broader), (c) owns mutual funds.

But that still doesn't address my point. It's a lot bigger when both private sector, and public, pensions are included.

This issue is near and dear to my heart because I grew up in Illinois (now living in California) and am watching the budget battle unfold there. They have a huge pension funding gap, and the returns of the stock market are going to have a very direct, real effect on how much tax the state has to collect to fund the pensions.


Born, raised, and living in Illinois and I'm seriously looking at leaving the land of Lincoln. Chicago is ruining this state.


I was born and raised in Illinois too, but live in California now. Mind explaining how the third-largest metro economy in the country is ruining our state?


How about having a massive murder rate? Having a great train system is great, but it's not exactly something to brag about and definitely something someone is going to overlook the murder rate for.


How is the murder rate in chicago ruining the state?


and if you look at half the workforce at these companies,Labor- the ones not making 6 figures- like couriers, personal shoppers, cafeteria workers, content reviewers, helpdesk, customer support, admins, security- they are contractors that don't get 401k, IRA and live hand-to-mouth and always precariously poised to be fired anyday. They can't afford, can't buy and never benefit from stock price increases.


What percent of Americans have zero dollars in stocks and bonds?

What percent of asset markets are owned by the 1%?


Pensions have largely gone away, replaced with 401k's which for the average person will not have the yield a pension would and just makes business' look like they care without actually making any real investment in a person's future. The stock market is largely a rich man's game as you have to have the money to invest so their are only the ones' on top who really have the money to put into a system and can afford others to manage it to ensure financial gain. The 401k is worthless if you don't know how to manage it and the employer is only to eager to outsource that to lowest bidder who taxes people with fees for doing nothing and promising even less.


Given the state of the IPO market its not obvious to me that you are right about public markets. MSFT is trading at 30000% IPO price. Facebook, having delayed its IPO to the last possible minute so private equity & VCs can maximize their returns, is trading at 500% IPO, so will need to grow 60x for the common man to see similar returns as MSFT, is that possible in any amount of time? I'm no economist and my analysis is surely bunk but am i in the ballpark? Income inequality is a tricky issue and parent analysis doesn't even come close to a compelling argument in either direction.


Why should the poor give a damn about the stock market, though?

Every time a bubble pops, they're the one's left holding the tab.

How many of those 401ks and IRAs were wiped out and the "owner" left with nothing after Madoff, housing bubble, etc.

IMO, it's a fools errand as a figurative little person on the totem pole to babysit the wealth of the rich who leave them dangling in front of the fan that just had shit splatter all over it.


>How many of those 401ks and IRAs were wiped out and the "owner" left with nothing after Madoff, housing bubble, etc.

I assume almost none of them.

People with most of their wealth in a 401k probably didn't have a lot of money in Madoff's hedge fund and the housing bubble also likely didn't wipe out retirement funds for the people that just left their retirement alone.


why would the people who have no money to give be the ones held to account? if your political views can't pass a simple sniff test like that, what hope do you have of enacting them?


It's worth mentioning on a post like this that there is no legal (or historical) basis for the idea that maximizing shareholder value is the primary concern of a corporation. See these two sources:

https://hbr.org/2010/04/the-myth-of-shareholder-capitalism

[pdf] http://scholarship.law.cornell.edu/cgi/viewcontent.cgi?artic...


So what if there isn't? I see this trope thrown around a lot. I find it suspiciously vacuous: it seems like an attempt to dress up political opinions as "research."

It's as trite as saying "there is no historical basis for the idea that getting a higher salary is the primary concern of an employee." What would that add to a discussion about wages?

If you think corporations should do something differently, why not just say so, and say what?


Depending on context, it can be important. Too often, corporate behavior is explained by saying that the “only responsibility” of a corporation is to “maximize shareholder value”. The words “only responsibility” are not descriptive, but prescriptive, meant to end debate about the morality of an action. In those contexts, it's useful to know that this is a fiction and a debating trick, not a description of law, natural or human.


If I say the responsibility of a corporation is to replant the rainforest, or to expand human wisdom, or to entertain the public with a compelling narrative of underdogs beating titans, then I'm clearly just expressing my opinion.

The question of what a company "ought to do" is obviously a question of values, not fact.

It's just tiresome to rebut opinions with "you can't prove that!" or "does the law say so?" Of course there's no natural or human law that proves blue is my favorite color. So what?


>It's just tiresome to rebut opinions with "you can't prove that!" or "does the law say so?"

My original comment is a rebutting of popular opinion with law, is it not?


I don't think so; you're rebutting a popular opinion with the absence of law as your argument.

Like arguing that "there's no law that says the main character in a movie should be relatable."

Technically, of course, you're right. Yet I suspect stressing that fact is a straw man argument.

Who really believes companies are legally obligated to maximize shareholder value?


At the same time, it's also incredibly tiring to hear shitty behavior by companies excused by saying "shareholder value!" as if that excuses all of it. The people running those companies are still adults, who are still fully responsible for their actions. They should not be excused by something that doesn't actually exist.


I mention it because the following sentence is just thrown casually in this article.

Having investors dominate, as Apple does, is a good way of handling one principal-agent problem: getting managers to do right by their owners.

See:

>Consider first Friedman’s erroneous belief that shareholders “own” corporations. Although laymen sometimes have difficulty understanding the point, corporations are legal entities that own themselves, just as human entities own themselves. What shareholders own are shares, a type of contract between the shareholder and the legal entity that gives shareholders limited legal rights. In this regard, shareholders stand on equal footing with the corporation’s bondholders, suppliers, and employees, all of whom also enter contracts with the firm that give them limited legal rights.14

From the previous pdf. Basically these false ideas about the relationship between shareholders and corporation have almost totally permeated modern business discussions. Correcting that misunderstanding may lead to a political discussion (you bring me there later in this comment) but it isn't political in itself.

>It's as trite as saying "there is no historical basis for the idea that getting a higher salary is the primary concern of an employee." What would that add to a discussion about wages?

I think it would if you also linked some interesting articles about labor movements and how we became disconnected from this history. I understand if you don't find the information interesting [ :'( ] but I did and thought it might add some context to the debate between the two management styles in the article.

>If you think corporations should do something differently, why not just say so, and say what?

I wasn't sure if my opinion was relevant and was truly just trying to correct an extremely pervasive false belief. However if you want to know, I'd like to see management compensation become more seperated from share value. In my mind a CEO compensation package would involve a base salary and then components that reward the CEO when share prices increase relative to an industry benchmark, when median wage in the firm increases or when employees report more satisfaction or maybe the firms labor retention rate increases? Something that incorporates workers although I'd have to think harder about exactly what metric. And also maybe a component that incorporates some sort of consumer rating. Corporations have responsibilities to their workers, their customers and their shareholders, the idea that the individuals in a company get rewarded for helping only one of those groups in a big problem with our system today (imo).


I came here to mention this, but thank you for doing so already - and providing sources!

One thing I would suggest you may want to add for clarification: certain agents of corporations have fiduciary responsibilities to act in the best interest of the shareholder, which generally means to not lose money. So while "maximizing" shareholder value has no legal basis, increasing shareholder value year over year is a legal responsibility, although this is definitely a gray area.


This is a good point and I think it explains a sea change in US business. In the late 80s, business went from being pretty clubby and centrally planned (think big 4 auto companies, lots of union control, with big cross-industry labor bargains) to being a lot more competitive, with shareholders getting a lot more power.

Offhand I think it's a combination of globalization (requiring businesses to be "tougher") of both capital and customers, the increasing financialization of the US economy, and the birth of modern PE firms and other activists capable of putting more pressure on admittedly pretty lazy and nest-feathering managers. (Have you watched Mad Men? Two martini lunches? I wouldn't want employees at my company doing that!)


I don't believe in shareholder primacy, but your first link has no substance at all. Not the best source. And this argument is rather disingenuous, it is codified in law that directors have a duty to act in good faith. This all seems somewhat pedantic.


> there is no legal (or historical) basis for the idea that maximizing shareholder value is the primary concern of a corporation

Please folks, stop posting comments if you don't have the slightest concept of how businesses work.

OK, let me demonstrate how flawed this is by using a hypothetical scenario.

A friend of yours has an idea for a business. She goes to you and two other friends. She needs $300K to launch the business. All three of you are really bold and give her $100K each. In your case you sell your your home to come up with the money. You end-up bunking with one of the other investor/friends because, while you have some money left over, you don't have a place to live.

You are a shareholder.

Ten years later the business has gone nowhere. You don't have your money back and your investor friend just got married and you have to figure out where you are going to leave because he wants you out of the house.

And then you read a comment on HN about there being no basis for a corporation maximizing shareholder value.


There's a pretty wide range of corporate behavior that lie in between "maximize shareholder value" taking priority over all other considerations, and shareholders getting ripped off by the company they invested in.

There are more than two mutually exclusive options for how a company should prioritize its resources.


A company isn't a charity. It's a business. It's there to make money. It does this by delivering a product that solves a problem for someone (or another business) and, by means of the value it offers, it can generate revenue and a profit. If a company has investors, those investors are there because they want to make money with the business activity they funded. Plain and simple.

So, a business is there to solve a problem for it's customers while making money for shareholders. All ends of that equation derive the desired benefits. A company MUST focus on shareholder value. And the way to do that is to solve real problems and do so as well as possible and as efficiently as possible.

These things are interrelated. Based on the down-votes it is obvious some have missed the point of my prior comment's hypothetical about the three friends funding a business.

These three shareholders are jumping on the deal because they want to make money. Even our beloved YC jumps on deals to make money. That's what business is about. It isn't a bad word. And, yes, there's nothing wrong with shareholder value being a priority because the ONLY real and sustainable way to increase shareholder value is to ALSO increase CUSTOMER VALUE. One feeds the other.

Have a crappy product and there is no long terms sustainable way to increase shareholder value. Have an excellent product that solves a real problem as well as excellent customer support, marketing, pricing, etc. and shareholder value WILL increase.

You actually WANT a company you invest in to maximize shareholder value.


In the abstract I agree, where it gets awkward is in what that actually means. In one sense, "maximize shareholder value" can be interpreted to mean simply, "run this company as well as possible". That's fine, that's basically nothing more than a statement that everyone involved will do the best job they can to support the business.

But in practice, "maximize shareholder value" means, whatever metrics are presented as part of quarterly or annual reports must always be larger than the metrics presented as part of the previous quarterly or annual report. That's where it turns into an antipattern, where it gets reduced to "the metrics from this report must have larger numbers than the metrics from the last report". That sort of reductivism is what I was referring to.


Absolutely. There are plenty of companies out there that fit the profile you described. I guess my point is that this isn't representative of the majority at all. It isn't even representative of the top 500, 1,000 or maybe even 10,000 corporations in the word.

There reason, I propose, is the deviant behavior you describe isn't sustainable. If you do not produce real value for customers in the long run you are not going to produce value for shareholders. You can "cook the books" for a little while. Maybe. But not in the long term.

The title of the this thread names Apple and Google. Both of those companies have produced a huge amount of value for users and customers as well as shareholders.

Maybe I'm being repetitive. If someone invests their money in my business I am going to make it an absolute priority to do well by them. And the only way to do this is to do well by customers. One forces the other. And, BTW, I don't think this is a conscious decision. In other words, I don't think anyone says "Dammit, we need to make shareholder returns a priority...let's focus on customer value". A good company is aware of shareholder value being important yet their focus and driving force is and should be a passion to deliver best in class products and services (understanding that the one will take care of the other).

Are there companies out there who behave badly? Of course. Thankfully they are the exception rather than the rule.


I'm disappointed that two other large pieces of the economic puzzle are left out: workers and government. Corporations have more cash than they know what to do with? That means that 1) wages are too low, and 2) taxes are too low.

More specific to Apple's case, the hoarding of cash overseas to avoid paying US taxes on it is one of many poisonous symptoms of our international capitalism. The amount of tax Apple would pay if those profits did come to the US would make a not-inconsequential dent in the federal deficit. The whole take-on-debt-to-pay-dividends strategy is so skeevy that while I don't doubt it's legal, it's very questionably ethical.

All that said, I think US tax policy contributes to the problem. During the Bush administration, an effort was made to argue that taxes on dividends amounted to double taxation because the corporation had already paid taxes on that money, so why should the investors also pay tax on it. And while dividend income was not made tax free, it is now (or at least was for a while, I haven't kept up) taxed at a significantly lower rate than "earned" income. But the fix that makes the most sense to me, and which would solve Apple's problem, is to exempt corporations from paying taxes on the money they then pay out as dividends, and tax the individuals earning the dividends their normal marginal tax rate. This would encourage corporations to pay more dividends, end the "double" taxation, solve some percentage of off-shore hoarding, increase US government revenue, and put more money into the economy and not in corporate bank accounts.


> That means that 1) wages are too low, and 2) taxes are too low.

No, it does not. There is no correlation there at all.

Not one person I know who has ever run a business would make that connection. Why? Because they understand business reality vs. the fantasies floating around out there.

I'll give you just one easy-to-assimilate example:

Economic collapse Q4 of 2008. I was able to keep about 20 people employed because we were profitable enough prior to this event to, as many like to say, hoard cash. I hoarded cash like there was no tomorrow. Why? Because I had played that game and learned a few valuable lessons.

Without this war chest I would have been forced to lay off all twenty of them and probably even a few more people. Instead I made the decision to keep everyone employed and, yes, lose money for over a year (2009 and 2010 were horrible). We used that money to pay people's salaries and even more hoarded money to actually make the decisions to devote that time to develop new products. In fact, it got so bad that I actually paid a few salaries with credit card money for a few weeks. It was awful, but I was committed to keeping everyone working.

We came out of the recession drained of cash but with new products and a team that was as loyal to the company and the mission as I was to them.

Higher taxes or ridiculous wages (like $15/hr minimum wage) would have certainly put a bunch of people on the street despite my best intentions.

My standard recommendation to anyone who thinks they understand the economy is to write down their ideas/ideology today. Then mortgage the house, take out a loan or do whatever you need to do to self-fund a business (no playing with other people's money here). Work your ass off to grow it to a non-trivial business. Check what you wrote every year for ten years. Somewhere between five and ten years you are almost guaranteed to ask "What the fuck was I thinking?". And that's when you'll understand.

"A man holding a cat by the tail learns something he can learn in no other way" --Mark Twain


Would you care to share your ideas/ideology as informed by your experiences?


These are long and complex topics hard to discuss on a platform like HN.

In general terms though, this view that business is bad, evil and greedy and that it (as an amorphous mass) conspires to abuse workers, drive down wages and hoard cash is a fantasy of unknown sources. Not reality.

Being in business is hard. Very hard. Nobody enjoys unlimited cash until you've achieved great success. Even then, one could argue there's never enough cash.

Most businesses operate at the ragged edge of failure for N years (variable based on the nature of the business and the industry). I don't know many businesses that could survive a 6 month to 1 year negative event. We were fortunate because we had a number of really good years and, yes, hoarded cash because I've always been of the idea that preparing for that moment was important.

Ask almost any business owner if they could survive if business fell by 50% to 75% overnight and most are likely to say "no".

And so, a business HAS TO seek lowest costs and maximize revenue in order to remain healthy, grow, develop new products and survive glitches (be they due to the economy or business issues).

Forcing randomly high minimum wage on businesses is locally destructive. A business, if it has the option and is forced to do so, will always find ways to control it's costs. In the case of skills and function that can be off-shored, well, a "we pulled it out of our collective asses" high minimum wage having no relationship whatsoever to local economic reality will result in those jobs being exported to the extent possible.

So I'll say, based on my experience, artificially manipulating minimum wage isn't in the best interest of the local economy. You force businesses to act against the interest of the local population as they could very well be facing a choice between remaining a viable concern and exporting jobs in order to stay alive. Bad idea.

Taxation is another interesting topic. We should all be for the absolute lowest taxes possible. Somehow we've migrated into this thinking that ever-higher taxes is a good thing. It isn't. And it isn't because of a number of reasons, both local and global.

At the global level it is easy to see that an environment where, to exaggerate, a government charges businesses 0% taxes will be far more competitive in the short and long term than a location where government, let's say, punishes businesses with 100% taxation. In other words, we take all of your profits at the end of the year. It should be enough for you to survive and make zero profits. The asymmetry of these two scenarios should be obvious. Identifying where destruction will occur in the long run is easy.

At the local level it should be equally easy to understand that we should pay just enough taxes to pay for what we need out of our society in order to have it function as desired. This has many convoluted facets. Health care is one of those. Can't get into all the details here.

At a fundamental level taxation is a necessary part of a society. We need to pay for stuff. We need people to administer and run various things. And we all need to pay for that. At the same time, we need to also demand that the people and organizations we effectively fund and hire to perform those functions do so efficiently and without waste. We don't do that. We are all too busy to force optimization of this very important metric. And so, somewhere between 25% to 50% of our money is wasted.

It's like giving your kids $1,000 a month for college and he proceeds to burn 80% of it. And, of course, the solution is to give them more money. No. Not at all. The solution is to use the available funds as efficiently as possible. More money makes the situation worst.

Taxing corporations is a weird thing to me. A company with 1,000 employees has a thousand people paying taxes. Now we take their work product and tax it one more time. The people we hire to run the town, city, state are taking a dip into this economic activity twice. And then our money is taxed again at the gas pump, the supermarket, the grocery store, our property is taxed, utilities are taxed, our investment income is taxed.

We have somehow created a system where nearly every single activity is taxed in some form. If this money were used effectively it'd be one thing. Yet, it isn't. Where I live (Los Angeles area) roads are in dire need of maintenance despite the fact that we've been pouring tax money into the very agencies that are supposed to be done this work. It's a mess.

And so, focusing on punishing companies through higher taxation levels seems completely counter intuitive, it will make things worst, not better. Our focus ought to be in forcing a change where it matters most: The effective utilization of tax revenues. We ought to demand that they do more with less taxes. The surplus we would have by paying less taxes for the same services would then go into the economy and have positive effects.

Got to stop there. Real work to be done.


I guess this may be not popular opinion here, but I don't see anything wrong with legally avoiding taxes. It might be wrong that the whole system is convoluted enough that this would be very hard for your average honest citizen, but easy enough for resourceful corporation, if anything. But avoiding taxes seems only logical, if you think you can manage and allocate resources better than your government. And rest assured: somebody always does.

So the reward inequality of the people who make wealth seems a larger concern here. But then, if everybody makes lots of money in capitalistic system -- nobody really does.

So, no, I'm pretty sure that system is corrupt in its essence, but is working just as intended too.


> if you think you can manage and allocate resources better than your government.

This phrase gets used from time to time to give some moral or net efficiency argument for avoiding taxes. I don't think it's useful. A corporation and government have completely different responsibilities and constituencies. Of course Apple can allocate resources better for Apple than the government would choose to, because Apple has no duty to care about most of the issues the government is tasked with.

> And rest assured: somebody always does.

We only have to consider the bizarrely inefficient US healthcare system compared to the rest of the developed world to see that 'always' is not true.


The other side of the coin is that regardless of who is holding the money the government not being able to spend it could be considered a better allocation just because they are so damn wasteful. Just because the government SHOULD be correct doesn't mean it actually is, and just because a law says money shall be allocated for X doesn't mean any real value is coming out of X, and the work the money is doing by being kept away from the government should also be considered as a loss when paying for X (so more than just the cost of X is spent).


Again, that claim is easily refuted by considering the state of medical spending in the US.

Unless by 'government' you mean only the US government. Many other governments are daily demonstrating their ability to deliver more affordable and cost-effective healthcare than the US.


> Again, that claim is easily refuted by considering the state of medical spending in the US

One could argue that the medical system the us has right now is inefficient BECAUSE of the current legislation. It is a very regulated industry, it hasnt gotten to this point because of its unregulated capitalism.


How much medical/pharma R&D spending happens in the U.K.? How much happens in the US?

It’s an apples and oranges comparison because The US effectively subsidizes the advances enjoyed by other countries.


Taxes are intended to raise revenue. I don't see how making the tax code nearly incomprehensible enough people assign moralistic qualities to exploiting it fully is a working system.


See Milton Friedman’s lecture on the subject of convoluted tax codes. Spoiler: it gives government power because they can play favorites.


The one I saw is pretty funny, and he mentioned mostly how the left and right have different goals and fight each other. The left wants higher rates on the rich and the right wants to reduce it so it creates exemptions whenever it can.

"The problem with a simple tax code is that the left and the right dont trust each other, and they are both right".


Forget "wrong". It is a dysfunctional way for the system to be set up.


> I guess this may be not popular opinion here, but I don't see anything wrong with legally avoiding taxes

The problem is that you can legally avoid taxes. Are we so used to this concept that we don't see its own hypocrisy?


"Legally avoiding taxes" simply means you are using the law, as written and passed via our Constitutionally mandated legislative process, to minimize your tax burden. The simple fix to this is for the tax code to change to prohibit whatever is currently being done. It's not hypocritical to follow the tax code as written.


Why should Apple pay any taxes to the US government for things it sells overseas? They already paid (or in this case, avoided) EU taxes on the sales in EU countries. If we're arguing about 'fairness', the EU should be getting approximately all of the taxes the Irish subsidiary allows Apple to avoid.

Double-taxing exports (1x from the US government, 1x from the country they are sold in) is a really bizarre policy, especially in this era of global trade.


Bizarre? Sure. Likely to change in the near future? No.


If you save money, that means that taxes are too low or you aren’t paying high enough prices.

This idea that companies should have essentially zero cash is absurd. If that isn’t the argument you are making, then how much is enough? And, who gives you the right to decide that amount? The company isn’t yours. Nobody should tell you how much money you should keep in the bank, so what gives you the right to decide how much money someone else keeps in the bank?

You want Apple to repatriate foreign earnings? Lower corporate taxes.


The flaw in your thinking is you are looking at the 0.001% of corporations and think this is why certain rules need to apply to 100% of companies. The 0.001% of companies should always be making more than is fair, even under perfect rules. Do you see why?


> they embody two alternative models of capitalism, and the one that wins out will shape the future of the economy.

Even in such a vague form, this is a touch sensationalist. The impact of 'the one that wins' may be negligible. There also may be no winner.


I originally thought that too, until I read through the entire article. Technically, the "one" that wins is not the company, but the style of how they treat shareholders.

Effectively, these two companies embody fairly different points on the spectrum of shareholder control: Google being effectively a public closely-held company; Apple being a public widely-held company. True, Google has millions of shareholders, but the _control_ is closely held, hence why I am using that term.

The control that shareholders (and activists and raiders) can have on Apple is significantly different than on Google. And that is what the article is about.

Over time, the market could adjust from the Apple model (which is the status quo in public companies) to the Google model. The implications are tremendous, as the idea of a public company that is closely-held over the long term hasn't really been done before.


Except, given that both models ended up #1, and #2 respectively, doesn't it imply that both models can work and other factors are more important in success? Following that, doesn't it imply that shareholders should/will care more about those other factors?


But Google is also 22 years younger? Google passed $100b market cap at age 7 and Apple at 29. Google other as in non ad revenues in 2016 at age 18 is greater than all of Apple revenues when they were the same age. Plus Google grew income by 29% last quarter and Apple earnings have declined over the last two years.


Agreed. The article assumes that business/investment/etc. is a zero-sum game.


Not exactly. It says that "which strategy for growth is best?" has only one answer. Which is true.


> More importantly, though, how do these strategies impact the lives of everyday people? A capitalist system aims for the efficient allocation of capital, and indeed, workers have a better shot at seeing median wages increase when money is being put to its most productive use. So to an extent, how they fare under each system has to do with who is deciding where and how profits get invested. When managers reallocate profits, that reallocation benefits from the capabilities and knowledge that companies have built over decades, but suffers from the possibly poor incentives of managers. When investors are the ones reallocating profits, however, the scope of the reallocation can be broader, theoretically leading to more innovation; at the same time, those investors don’t have preexisting organisational capabilities and they may suffer from their own short-term time horizons.

In the end the economist unwillingly reveals that the actual ramifications are highly theoretical (bordering on non-sense) and and leaves the reader only to conclude that this won't as stated "decide the future of capitalism". In discussing the future economy I would be much more inclined to ask: "How do we create a model where wealth and power is distributed broadly across society?", "What constitute infrastructure in a modern economy?", "How do know we aren't underperforming?" and so on.


Apple got to this point by notoriously never paying out dividends. Paying out dividends obviously takes away money usable for growth. I don't see any competition between these two models. You issue stock to get capital to compete with other behemoths. If not for having contributed cash to the endeavor, the investors function more like parasites that want to extract the maximum they can from the host. Such massive payouts will probably stop Apple from becoming a major conglomerate with varied tech/science/engineering interests in the distant future and limit them to high end consumer electronics. They got to this point by acting more like Google, and they will likely degrade like HP or IBM now.

A very silly article comparing two companies with similar money-management history and acting like some competition exists between the models because investors recently got an upper hand with Apple. They wouldn't have gotten their market position doing this. It strikes me like comparing two athletes when one recently acquired a disability and suggesting that the disability contributed to their historical success and suggests some new model for the sport going forward.


When I read the title I thought about the difference that Apple is selling to users and Google to advertisers. These are two different ways of capitalisms, too.


Well, they really are two different business models, not really two different models of capitalism.

The title is a bit pompous, but the article does actually relate the policies of the two companies with a basic concept of capitalism (allocation of capital).


Well you are right... But at least the business model of users being goods is a new take on capitalism.


The issue with yielding to investors is that investors are primarily interested in making money for themselves, rather than growing the companies they are investing in. An investor will always vote to have large companies take loans in order to purchase the hundreds of millions of dollars worth shares they just purchased back a 25% increase over their current market value, or get a lump sum in the form of the newly issued dividends as it was in Apple's case. And then they take the money they made, reinvest in another large company they can leverage and do it again.

There's absolutely no reason to seek growth based returns which carry risk while this approach is available. Dividends and stock-buybacks represent a no-value-created system of incentives for the richest people in the world, directly extracting the surplus value of laborers at the expense of workers and long-term investors. Only when a company starts to topple does there seem to be any interest in moving into new markets or improving their existing lines of business.


I don't respect any article about the future of economy that does not take into consideration climate change, sustainability and the anthropocene. Capitalism will have to change dramatically soon, our world is collapsing. But sure. let's talk about apple vs google. I am not a fan of capitalism, but I'm not even criticizing capitalism per se, only that all big companies nowadays are existing in a world and way of producing that will for sure destroy itself in at max 100 years. So that is the future. Not Apple way of managing. I feel like saying wake up sheepele, because that's how it feels reading an article like that. I have no idea what will happen and hope for the best, but let's start accepting that we know major changes are needed and are going to happen whether we plan them or not. Climate change/mass extinction/deforestation/etc is not just about polar bears, is about our energy and ways of consumption and production of goods.


Capitalism won't change. It has no reason to; those changes don't affect the underlying processes of the economy, they just change the circumstances and incentives.


Google broke $100B market cap at seven years old. Apple mail did it at 29 years old. Google never has declined for a single quarter YoY since day 1. Not a single time.

Apple had $2.33 EPS for Q2 2015 and for Q2 2017 reported $1.90 EPS. So declined over the last 2 years.

Google other revenues (non ad) were over $10B for 2016 and growing at 50%. Apple total revenues in 2004 when it was 28 years old were less than just Google other. Just sayin.

Btw, Google holds the record of getting to $100B cap faster than any other. Even accounting for inflation.


tldr: Google founders have more voting rights than Apple executives. In case you didn't know, this impacts corporate behavior, especially dividends.

I thought this would be about the way each interacted with customers, which is far more interesting.


Which Wall Streat and the City don't like on UK media company that has this dual share class structure got kicked out of the FTSE index for this.


There is a third way of capitalism: the Musk way. Whatever money he made, he invested it in a way that benefits society:

- by building a payment service that's way cheaper and easier than e.g. Western Union or banks

- by using literally every last cent in his pockets to make SpaceX work (which benefits the whole world in terms of cheap, reliable, environmentally-friendly, russian-free § launches as well as the planned Mars colony)

- by launching the maybe most successful pure electric car, which soon goes into mass-market price range

This is what I as a socialist see as the one example of capitalism that actually WORKS.

§ not meant to be racist at all, but political - given the obvious tensions between Russia and the Western world, e.g. by Russian meddling in US elections, financing at least the German and French neonazi parties and invading Ukraine, it's simply unacceptable to depend on Russia honoring their rocket engine delivery contracts.


I was expecting this to be about open source vs closed source. After reading this, I really wish it had been.


"As companies continue to generate more profits than they need to fund their own growth, the question becomes: Who will decide what to do with all those profits—managers or investors?"

That's not the question that comes to my mind at all. Why limit it to just managers and investors? What about employees? Citizens of the countries that enabled these companies to make all that money in the first place?

That agglomeration of wealth is just absurd and frankly immoral.


"Google is, like Apple, making loads of money. From 2013 to March 2017, it generated $114 billion in operating cash flow. How much has the company distributed to shareholders? In contrast to Apple’s 72 percent payout rate, Google has only distributed 6 percent of that money to shareholders."

Apple is way older than Google, maybe this has an influence in both diff. approaches...


How can anybody look at how much Apple executives are currently taking home and think that lush perks are being limited by large shareholders?


Neither pay their taxes


If they are violating the law, they will be sued by the government and forced to pay what they owe just as any tax payer who violates the law. As it stands, they are paying what taxes they owe as allowed by our existing tax code. Out of curiosity, what, in your estimation, is the legal amount they have failed to remit?


3.6 billion dollar - https://www.bloomberg.com/news/articles/2016-12-21/google-lo...

but sure - it's somewhat legal or not illegal but don't pretend it's not sketchy.


They absolutely pay their taxes. They have a duty to their shareholders to not only pay said taxes, but the exact amount in taxes.

Do you seriously expect them to pay more in taxes beyond what is legally required of them? Please avoid these "low effort" comments here on Hacker News, they do not work here.


I wonder if it influences Apple's common nasty behavior.




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