Why corporate greed will eventually backfire

United States
August 1, 2011 7:19am CST
For years the economy has been slowly getting worse. Even 15 years ago there was talk about the disappearing middle class. Now if you look at the numbers what makes middle class isn't the bulk of the population, it's more like 30-40%. People couldn't afford cars at the cost of making them in Detroit, so they moved the jobs to Mexico. Now cars are somewhat affordable and the company makes a profit. But the Mexicans can't afford the cars. Of course all those people no longer employed can't afford them and the continually rising poor can't afford new cars either, at the same time Mexicans aren't making enough to afford them and soon the entire market will collapse because no will have the money to buy a new car. Of course this is staved off with loans and government subsidies paid for with loans as well as decreased costs. But it won't last, soon auto makers and every other similarly run company will collapse. The only 2 end solutions will both cut massively into corporate profits. They can either: 1 sell their products for marginal profit making them more affordable increasing the demand. 2 pay workers more so that they can again afford to buy more products increasing the demand. When all other methods like outsourcing supply side labor costs have been exhausted, the day will come when they will eventually have to lie in the bed they made.
3 responses
@sierras236 (2740)
• United States
1 Aug 11
Henry Ford started the decline when he decided to invent the assembly line. Going that route, you can blame the computer micro chip for the decrease in assembly jobs. You can blame the invention of robotics for getting rid of even more dangerous jobs. But you forgot something, all of that technology did create some jobs. They were just different types of jobs. Corporate Greed is a necessary evil. Without corporations or businesses, there are no jobs. Not even in Mexico. Every single business started out really small. By fulfilling a need of the public, they grew. You get rid of this growth, you lose jobs. It really doesn't matter what country you are in. That's just the reality. In order for a corporation to grow, it has to make more money than it is spending. But corporations, like everyone else, have to obey the law of supply and demand. No demand, no profits, no corporation, no jobs. Corporations don't have to raise wages of workers so that workers buy more products. You see, you are assuming that every worker will continually buy products produced by their company. That simply isn't the case. By raising a worker's wages, the company will actually lose more than it gains. (The exception to this is if the company feels that the experience of the worker is worth the extra dollars.) Unless you expect that worker to sink every single penny they have back into the products of the company. But it doesn't work that way. A system like that is unsustainable. You can have a cheap product but no demand for it. Still doesn't make a worker or anyone else want to buy that product even out of a sense of loyalty to the company. No profit, no company. Actually, the opposite is true. Without Corporate Greed, you will have no jobs. Because companies that can't produce profits can't sustain themselves.
1 person likes this
• United States
4 Aug 11
You assume that paying a higher wage means the company can't make profit. I'm not talking about going to the extreme like with the UAW where a job that would have easily been filled for around $30,000 was being done for twice that. I'm talking about a lot of lower end jobs. I actually looked at companies like Walmart. Their profit margin is so large, that assuming they paid minimum wage to 90% of their US workers and they doubled that wage, they would still make billions in profits. There is actually a lot to be said for better treatment of employees which is usually seen in terms of benefits and better wages. Employee retention is worth a lot, every time you lose an employee you lose a lot of productivity. Look at a company like Walmart. Every time they have to hire a new employee, someone has to go through applications, interview potential candidates, then they have to pay all their new employees to go sit through a meeting, go through training, pay someone to train them, reissue uniforms, new name tags, more paperwork etc. Let's just say that if walmart lost $300/month per worker in productivity replacing employees, and they could instead invest that money by paying $300/month more and retaining employees longer they would about break even there, ($300/mo is a good amount at to a min wage employee). They might lose a small margin, but in return they'd have long term employees who would produce better work. But instead of decent pay they'll try and squeeze out a 1% increase cycling through the labor pool. Hiring employees for low wages is like buying cheap tools, where we might buy a wrench for $4 a mechanic might pay $30, he could do the job with the cheap one, he makes some more money in the short term because he didn't spend $1000 on a set of wrenches, but in the long run he loses a lot more because he's always going to the store to buy new wrenches, and customers don't come back their cars aren't ready on time. How much do you think walmart loses because people see long lines and walk out or products aren't on the shelves because they're employees aren't showing up or aren't good at their jobs? Not to mention that every customer is paying taxes to give their employees welfare. As for each employee having to reinvest their wages by buying from their company, there's more than one company, there are hundreds of large companies that pay low wages. What someone at one company might not buy back from their employer someone at another company probably will assuming that other company paid a better wage. The lower income 50% of Americans save very little if any of their income, and even at increased wages they'd still spend all or most of it, so increasing lower wages without inflating prices, in the long term would increase GDP with a minimal loss of profits. The problem is that corporation are taking such huge cuts that it takes the money doesn't "trickle down" nearly as fast as it get skimmed to the top until some great damage to the economy forces the money back into circulation.
• United States
4 Aug 11
I am not sure if you understand how business works. But businesses aren't looking after the welfare of other companies. In fact, many companies would be very happy to see their competition go out of business. It a survival of the fittest. Wal-mart, McDonald's, grocery stores, etc. are known as transitional jobs. While this economy might change that, it simply means that they are in the practice of hiring people that will eventually move on. Their attrition rate is very high because they hire teenagers, college kids, and other people who will eventually move on to other jobs. The working conditions or wages really have nothing to do with retaining these type of transitional personal. Let's see if I can put this another way. Every time the minimum wage raises, businesses get hurt. The problem is the higher wages are, the less people that businesses can and will hire. Competition is also very fierce with companies like Wal-mart who depend on keeping their expense sheet low. You also forget that some of those profits do get reinvested into the company and that the company has to answer its stockholders (the people who invested in the company). I guess what is confusing me is that you seem to be against a company paying a CEO a big salary to retain them and yet you want them to raise wages on the minimum wage employees to retain them even though those are the most likely employees to leave within six to twelve months (for different reasons other than working conditions). I would say about 99% of the companies in the US are in what people call "survival mode." Which means they are hoarding all of their assets, not taking out loans, streamlining operations, and doing whatever they can to cut costs. It circles back to the uncertainty of the current business environment. Businesses are afraid (for lack of a better word) to spend money simply because they don't know what the future taxes/medical expenses/etc. are going to be. Wal-mart really isn't any different. But you are also forgetting another critical factor. It is an employer's market. Which means that they can hire workers at lower wages. Think of it like housing as a buyer's market.
• United States
4 Aug 11
There was one more important point I want to make. Do you know who else depends on a company like Wal-mart to make profits besides the company itself? Retirees, 401k holders, and pretty much anyone who buys stock in the company and depends on it for their future retirement income. So in a way reducing profits from the company also reduces the profit made on those stocks.
@francesca5 (1344)
1 Aug 11
I think thats right. by chosing to pay low wages these corporations are destroying the consumber demand on which they rely to make a profit. there was a report recently by the IMF, (i'm sorry i know this, i'm very boring), that said that increasing income inequality is a cause of economic recessions. which is obvious really, you don't need to be a researcher to be able to see that, as when people have no money they can't buy anything. i don't know where this is all going to end, but at least, theoretically, we all have the vote now, and we can pressurise our politicians to put our interests above those of the corporate sector, who are in the process of destroying themselves, anyway. its going to be a hard job but it can be done!
1 person likes this
• United States
1 Aug 11
My problem is I don't think I may ever live to see the end of it at this point. It's circling the drain but we keep clogging it so it won't go down. I'm at the point now I think it'd just be quicker to pull the plug and let all these huge corporations collapse and redistribute income that way rather than sit here and suffer any more bank bailouts and corporate tax breaks. Just let them hang themselves, the sooner the better imo. Better that banks and industries collapse than our dollar fall to the value of the peso.
• United States
3 Aug 11
the US is simply inferior at making cars, that's what's caused the lack of demand. there's no evidence at all to suggest that outsourcing creates a lack of demand, not in any industry. in the automotive industry there happens to be a correlation, but that's far from establishing cause. apple, micrososft, intel, hp, and plenty of other tech companies are outsourcing and its working well for them because they're cutting costs. ford and GM failed to provide products that the public wanted, at least in comparison to toyota and other foreign car manufacturers, its as simple as that. people substitute away from their products. outsourcing is an important step to globalization and bringing prosperity and jobs to those areas in the nation that dont have the same luxury of free trade as we do. corporations are simply people, when you punish them you punish stockholders, its common sense. and as for that IMF report, why dont you cite it i think that's interesting. i dont think inequality has much to do with recessions, they're a natural part of the business cycle and inevitable. we've had over 150 recessions since the founding of the country. income inequality is necessary in a capitalist society, to provide incentives to get better and earn more. if everything was equal all the time, you'd see a deterioration of those incentives and the economy would falter
• Philippines
1 Aug 11
Admittedly, Henry Ford had many controversial ideas. But at least he had a vision which included modernization and modernity, inexpensive and high quality goods, high wages for workers, and consumerism. It was his passion to also make his workers capable of buying the car that they were making, so he gave them high wages. What vision do our present corporate leaders have? None at all. Profit is their only concern. Because of this, they are bringing down the roof on our collective heads.