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Wall Street and the Rest of Us
Tony Soprano is right about the stock market: "You have to be high up in the corporate structure to make that sh-t work for you." Or, as economist Ilene Grabel of the University of Denver told me, "Stock markets prove profitable for a small proportion of the U.S. and global economy, but the relationship between the stock market and the underlying economy has never been established."
Have you ever wondered how the world might be a different—and better—place if Wall Street didn't demand ever-widening profit margins? The income gap would likely shrink, making 90 to 99.9 percent of Americans happier. And a broader view of corporate success might lead corporations to show some respect for the environment and their workers.
The New Yorker brings a little good news on this front (caveat: It's the magazine's job to make New Yorkers feel good about themselves). James Surowiecki calls bullshit on the "7 percent rule," a handy rule of thumb that sprung up during the dotcom boom, suggesting that any company announcing layoffs would see a 7 percent rise in its stock value.
Surowiecki argues that layoffs only make long-term financial sense when demand changes significantly—not, as they have become of late, as "a default business strategy, part of an inexorable drive to cut costs." Stock prices may feel as cold and hard as a surgical knife, but Surowiecki claims they generally reflect what you know is true if you've ever worked through a round of layoffs: "Downsizing may make companies temporarily more productive, but the gains quickly erode, in part because of the predictably negative effect on morale."
Stock prices consider my feelings? That feels a bit too cheerleader-y, so let's get back to the bad news. The flies in the ointment are, you guessed it, C.E.O.s and analysts. (What would the world look like without them?) Many analysts push companies to downsize, and companies have to act like they're listening even though the analysts aren't always right. And C.E.O.s are all about quick and dirty: "The average C.E.O.'s tenure today is just six years, long enough to see the benefits of downsizing (like a lower payroll) but not long enough to suffer costs that may appear in the long term."
Assuming no one will take my suggestion to abolish the stock market seriously, here's a few quick partial fixes that are good for the rest of us. Can you say labor unions, where wages are higher and layoffs more difficult? We could also stop paying C.E.O.s so much, at least in stock options. And less golf for bigwigs.
Comments
Unions (at least in any form that resembles the UAW) are no way the answer. The problem is simply productivity. UAW members are lazy and very unproductive. YES – LAZY AND UNPRODUCTIVE!!! I will say that here and to the face of any union member. My experiences back it up.
I have been at a Ford plant where I have seen operators who are monitoring automated lines asleep. This was a very dangerous and potentially costly situation for the company.
I have been at Harley Davidson where an operator refuses to work because of an insignificant error on a machine which he could easily reset. Again, just ridiculous. All he had to do is hit “reset” and the machine would run. Instead, he just sat on his (very sizable) butt and waited for a union maintenance person to come (who took hours to show up – all the while, no production).
I have had grievances filed against me because I made simple quick fixes to a machine that IMPROVED reliability, safety and productivity. I basically told the union steward to call my boss.
No, unions in their present form are putting a huge hurt to American manufacturing.
As for golf – come on. That is like taking a wiz in the ocean and calling it pollution.
Not even MOJO has anything to say about Dennis Kucinich publishing the ARTICLES OF IMPEACHMENT???
Posted by: arnold on 04/24/07 at 5:24 PM Respond
I'm going to have to agree with kirkbrew here, even though I can't speak from personal experience. Labor unions have all but destroyed the American auto industry. Somehow I don't think expanding their presence will be a good thing for the economy overall. It may seem good for the workers in the short term, but if your company collapses, you're just as SOL as the people who were laid off. In fact, more so, because when you go out hunting for that replacement job, the companies looking at your resume see you as a former member of a union that destroyed a previously strong industry, and they are likely brand you as lazy (fairly or unfairly) and not hire you.
As for paying CEOs less and distributing the money over entry-level employees broadly, I suppose it depends on how far that money goes. If it only works out to an extra $10/person/year, that isn't much of an inducement to make better products, work harder, etc. In that case, the money is better spent bringing in the most talented corporate leadership available.
In the article you link to, it states that the Wal-Mart CEO got $12.6 million in cash last year. Wal-Mart has 1.2 million employees in the US alone. If you took the entire CEO salary and distributed it to the employees, they would get a whopping $10.50 each. Not much of an inducement to work harder. Wal-Mart is probably wise to spend that money on their CEO instead. Not surprisingly, Wal-Mart has a better idea how to keep their business solvent and successful than a pundit with no business experience who believes that unions are the cure for what ails...what again? The Dow, which just topped 13,000? The S&P 500 and the NASDAQ which are at 6 year highs? What are we fixing by unionizing the nation's workforce again?
Posted by: * on 04/25/07 at 4:32 PM Respond
One more thing: Tony Soprano notwithstanding, lot's of normal, ordinary Americans who are not "high up in the corporate structure" make money on the stock market. I've done excellently, and I have never been high up in any corporate structure. If you spent a few hours reading up on sound investment strategies instead of whatever defeatist, class-war nonsense tells you that nobody but corporate insiders can make money on the market, you might find that you too can make money investing in stock.
Posted by: * on 04/25/07 at 4:40 PM Respond
Actually, the problem isn't the demand for profit. It's the demand for short term and short sighted profit. Company productivity drops not just from the morale drop after a layoff, but from the very real lack of people to do the work. IME, layoffs sometimes reduce dead wood, in the first round. But, then they realize how much more the profits go up without the expense of employees and cut productive and necessary staff as well. This is short sighted and stupid.
Further, companies that are ranked in employee surveys as the best places to work are also the most profitable companies time and again. Unions are sometimes necessary to fight for fair treatment of employees because companies don't see that they should just keep their employees just above the level of minimally content. I'm not talking about putting in a spa. I'm talking about decent and respectful treatment of the staff, decent pay and benefits, professional respect for a job well done, etc.
Companies should do these things not out of a sense of morals, which would be wonderful, but unlikely in this country. Companies should treat their employees decently because it makes good long term economic sense.
Posted by: Misanthropic Scott on 04/25/07 at 6:12 PM Respond
Anyone who thinks they are making money in stocks in the US better check their gains against Inflation and the eroding value of the greenback.
GM and FORD are dying because they make crappy cars and refuse to change there business model to include more efficient vehicles. This should have been done years ago, it is now way too late. No doubt entitlements are a problem but they must do SOMETHING besides pray for lower gas prices, or miracle breakthroughs in hydrogen research:-)
Posted by: john boy on 04/25/07 at 6:15 PM Respond
"Actually, the problem isn't the demand for profit. It's the demand for short term and short sighted profit. Company productivity drops not just from the morale drop after a layoff, but from the very real lack of people to do the work. IME, layoffs sometimes reduce dead wood, in the first round. But, then they realize how much more the profits go up without the expense of employees and cut productive and necessary staff as well. This is short sighted and stupid."
I agree. In fact, I think this is a much better analysis of the story that prompted the original post, than the OP itself.
"Further, companies that are ranked in employee surveys as the best places to work are also the most profitable companies time and again."
Well, that is sometimes true and sometimes not true. Google and Whole Foods are examples of that sort of business model, and they are both very profitable, very strong companies. On the other hand, there's the ever profitable, always unpopular Wal-Mart. And then there is the somewhere-in-between example of Apple, which sounds like not the funnest company to work for, but is always profitable and seemingly has no shortage of good employees because those employees seem to really believe in the product. Clearly, there's more than one way to skin a cat.
"Unions are sometimes necessary to fight for fair treatment of employees because companies don't see that they should just keep their employees just above the level of minimally content. I'm not talking about putting in a spa. I'm talking about decent and respectful treatment of the staff, decent pay and benefits, professional respect for a job well done, etc."
Unions can negotiate only one of those things: pay and benefits. Good employees can either negotiate those things for themselves, or if their company is stupid and doesn't recognize their worth, they can take their skills to another company. Yoking yourself to the "dead wood" as you put it is bad for the good employees and bad for the company. It may be temporarily good for the bad employees, but in the long run, not so much. As for the decent and respectful treatment of staff and professional respect, you've still got to earn those on your own. No union can get them for you.
"Companies should do these things not out of a sense of morals, which would be wonderful, but unlikely in this country. Companies should treat their employees decently because it makes good long term economic sense."
I tend to agree with this, especially after seeing the examples of Google and Whole Foods flourishing. I would like to see more companies with their philosophy (and invest in them too).
Posted by: * on 04/25/07 at 8:02 PM Respond
Goldman Sachs is another such example. I seem to remember them always being listed as one of the best places to work. I'm not willing to put in their 12 hour days personally. But, they are well run, well respected, and attract excellent talent by recognizing them as such and by paying enormous boni.
Posted by: Misanthropic Scott on 04/26/07 at 8:37 AM Respond
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Posted by: kirkbrew on 04/24/07 at 5:07 PM Respond