Big Business.

Discussion in 'Politics' started by Drifterwood, Jun 17, 2010.

  1. Drifterwood

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    Have you noticed that we now have companies who do not make enough profit to cover the potential damage that they can cause?

    First the Banking Sector, and now the Oil Industry. How do you feel this plays out between our desire for cheap money and cheap energy and the companies involved taking risks to provide the product with the maximum profit they can achieve, without being able to cover the downside?

    After a lot of thoughts in between, I conclude that this is unsustainable.

    Can I also throw into the mix the conflicts between investors in these industries who presumably want the best returns and the wider interests that are damaged when things go wrong.
     
    #1 Drifterwood, Jun 17, 2010
    Last edited: Jun 17, 2010
  2. b.c.

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    What I find interesting about the whole scenario is the relationship between big business and politics, politicians in particular. For instance, I cited a source that indicated that oil companies contribute millions to politicians in the U.S. approximately 75% (3/4ths) of those millions going to Republicans.

    And that was before the conservative majority in the SCOTUS changed the law enabling even larger campaign contributions. Not so surprising then that when the Senate considered raising the 75 million dollar liability cap on oil companies Republicans objected. Nor surprising that conservative elements in the U.S. are the very ones who are so loudly opposed to government regulation of business and industry.

    The BP oil spill and the events that led to the disaster are exactly why such regulation and oversight of industry is necessary. The events at BP, the mishandling of loans in the banking sector that led to their financial collapse, suggest that even tighter controls and regulation are necessary. Not the lack thereof.

    It might be reasonably argued that had BP followed the procedures it should have, the events that followed would have never occurred.
     
  3. b.c.

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    See what I mean?

    Republican apologizes for apologizing to BP - Disaster in the Gulf- msnbc.com

    "WASHINGTON - The first apology that rang out in a congressional hearing about the Gulf of Mexico oil spill Thursday was not from BP CEO Tony Hayward.

    It was from Texas Rep. Joe Barton, a Republican who apologized to Hayward that BP had to agree to a deal with President Barack Obama to set up a $20 billion fund for Gulf damage claims."

    But the ensuing gusher of criticism that flowed forced Barton to later apologize for the apology during the hearing and in a statement.

    But Barton is not alone among Republicans on his initial statement.

    At the hearing Thursday, Rep. Michael Burgess, R-Texas, returned to the propriety of the $20 billion escrow fund: "I have serious questions about the setup of this fund."

    NBC News noted that another member of the GOP leadership, Rep. Tom Price of Georgia, chairman of the Republican Study Committee, a group of conservative House members, used the same language Wednesday in describing the escrow fund.

    In addition, conservative Rep. Michele Bachmann of Minnesota was quoted as telling the Heritage Foundation think tank Tuesday that the escrow account was a "redistribution-of-wealth fund."

    [note typical conservative buzz-words above]...

    Barton is the biggest recipient of oil and gas industry campaign contributions in the House of Representatives, according to the nonpartisan Center for Responsive Politics.

    Its data showed that Barton has collected $1,447,880 from political action committees and individuals connected with the oil and gas industry since 1989."
     
  4. Drifterwood

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    It's not just big business though. The Trade's Union Unite in the UK funds a very large number of Labour MPs.

    Seems that the big players on both sides have a disproportionate influence.

    I wonder if the power exerted by Big is in fact counter productive? Is it the natural order or is it an attempt to alter the natural order with probable ultimate and catastrophic failure?

    The more that I have been thinking about this issue (and only me and BC seem to be interested in it :smile:) the more I feel that Big should be broken down into smaller. Multi Nationals should be a series of nationals and thereby face the power of each government locally where they operate. Drug companies can hold G7 countries to ransom, Banks can get us to pay for their fucking disgraceful greed and failure, and Oil Companie, well the jury is very much out.
     
  5. Joll

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    I agree. It's also shocking that shareholder dividends come before safety, environmental concerns, the company's future, national interest, etc etc.

    Is there anyway that shareholder influence can be reduced so that common sense, fairness and decency can be factored in to business dealings (as well as business acumen, obv) without the threat of shareholder interference?
     
  6. Jason

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    We seem to be talking about stakeholders - all those who have an interest in a business. Shareholders, employees, customers, suppliers, creditors, nation states, international organisations. What we need to develop is a system where the various stakeholders have appropriate control.

    There are of course mechanisms for control already, and not just for shareholders. Employees can leave or strike; customers can go elsewhere; ditto suppliers; nations can regulate; international organisations can advise. If a business has a big defecit the bank manager will sit in on the directors' meetings (and may well veto decisions). And just as shareholders (as the owners) have both rights and responsibilities, so too do all the other stakeholders.

    My take on the BP disaster is that a key stakeholder - the USA - failed to enforce appropriate safety regulations (allowing a company 700+ breaches and yet taking no action to correct the position). This is a negligent stakeholder. BP, like any company, responds to its stakeholders. If a stakeholder doesn't bother then the company doesn't bother. So BP will set wages at the level it needs to attract and keep its workforce - and won't volunteer to pay more for the fun of it. It will pay the dividend it needs to keep its shareholders happy and the company safe from hostile takeover - not more for the fun of it (more goes in investment). And it will keep to the regulatory framework as it is enforced, not do more for the fun of it.

    Similarly with the banks the problem has largely been one of regulation. In the UK we created a regulatory framework which was confused (too many regulators) and lax (it let banks get away with the indefensible) and which was politically skewed - Blair's intervention demanding that the banks should lend more.

    Probably we need to accept a close state overview of our very biggest companies - the companies that are too big to fail. This might well be a state appointed director, and therefore management accounts open to the state.

    We also need to look again at the philosophy behind big business. Is it to maximise profits for its shareholders? Or to maximise happiness for its stakeholders? Presumably it should be the latter. For such we need directors who have a streak of altruism. We need the Carnegie style of business leader who wants to use business success to generate human happiness. And we need a new sort of society to allow such leaders to come through the system.

    We've also got issues around the ratings agencies (both for companies and countries). They are pretty consistently over-rating, so they are not providing proper warning of problems. This in part reflects a wish not to talk down a company or country. The one major example of what looks like an under-rating is Fitch's recent 6 point mark down of BP. Curiously the markets don't seem to believe this is right. It is possible to wonder whether political arm twisting was applied to force Fitch's to make this downgrade.
     
  7. Joll

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    This is interesting, and kind've what I was trying to say, only not as well.

    Mebbe widespread religion encouraged corporate altruism to a certain degree, at least until the war (altho the mines and cotton mills maybe contradict that view) - and there have always been philanthropists, but the balance seems to have skewed in favour of trimming off any fat necessary to protect the bottom line.

    Maybe competition is so fierce now in certain areas - and the pressure to get value for the consumer, that it all comes at the expense of safety, the environment, and sometimes the welfare of the workforce?
     
  8. TomCat84

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    Jason, that's rich- blaming the BP disaster on the US government.
     
  9. dandelion

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    philanthropy goes along with noblesse oblige. Bill gates can be philanthropic because he personally owns a stunning amount of money. Whatsit in charge of BP cannot, because it is not his money. No company boss can give away someone else's money without an alterior motive, eg bribing politicians or generating good public relations. We live in an age where most wealthy entities are managed on behalf of other institutions or masses of individual investors. There is more spread of wealth, but philanthropy is impossible. But as you said, for every 1 philanthropist there were probably 10 (or 100...) who just wanted to make money for themselves at whatever cost to others. Philanthropy was also in part a response to extreme poverty in society. It still is: Bill Gates' money goes to some of the causes which mainstream US isnt interested in.

    Rowntree and Cadbury might have had altruistic ideas about providing good conditions for their workers, but they were exceptional. The natural state of capitalism and market economics is that those running the business exploit anything and anyone they can. that is the theory behind how the system works. If some of that exploitation is unacceptable, this can only be enforced by a higher power, which means government made laws and intervention. Being brutal, owners of capital try to influence governmet to give them more freedom, owners of labour try to influence government to impose rules on the owners of capital. Traditionally no one cared about such things as pollution. Now quite a few other parties are interested in the effects on them of this ongoing tussle. In the BP case, I suppose it is partially a question of capitalist v. worker (if the workers had agreed to give their time freely, then maybe BP would have allowed longer for installing safety measures), but the reality is that a third group, the companies neighbours, are very interested in what the companies operations are doing to their home town. Note that both the owners of the company and also those that work for it have a vested interest in keeping it drilling wells. If the company makes less money, it can not afford to pay so much or employ so many. The third parties have no way to influence the company directyl (unlike the owners who can sack or refuse to invest, or the workers who can withdraw their labour). The only way they can influence the company is via government.


    So who do you blame? The government set the operator's rule book and were responsible for enforcing it. You believe the government should have taken this on trust? ?? ???

    At least in the BP example, the huge size of the company may cover the costs. Such a well might have been run by a very much smaller organisation, such as the 25% stakeholder in the well in question, which under a different system of smaller companies might have taken on a whole well, and really have nothing to reimburse damages. Banking is a unique business because it deals in confidence, not commodities. BP's assets remain just as valuable as 2 months ago. Its shares however are only half as valuable. Bankers deal in unreal assets, which makes their operations vastly more risky.

    Ive already said here and there, usually no company is able to cover its downside. It all relies on the oil coming free out of the ground, the spilled oil being eaten by bacteria, CO2 dissolving in the oceans, poisons seeping into the ground and disappearing forever. The entire system relies upon raw materials being free at source, and rubbish disposal being free at finish. This is not sustainable. The ultimate fallacy is that somehow expanding our population so there are more workers makes matters better rather than worse. The system will not change unless it is forced to, because who willingly gives up a free ride? The troublewith the Bp oil spill is that it is doubtful it is bad enough to make any difference. We wont give up oil until there is none left.

    That is correct.
     
  10. vince

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    The connections between Big and the information media is very interesting and virtually insure that the ordinary citizen is not only left out of power structures, but that they will support policy that is against their own best interests. The Big Media response to events has become so predictable in recent years, I find myself performing a countdown during every crisis, waiting for the shoe to drop.

    The recent manipulations of British public opinion is just one of the most recent and transparent examples. Iran is another. Turkiye and Brazil recently completed negotiations with Iran regarding uranium enrichment that was nearly to the letter of what the Big powers said they want from Iran as a step to reducing tensions with that republic. But the Bigs rejected it and the press has virtually ignored it or ridiculed the "naive" efforts of second rate powers to resolve international issues. Instead we have another round of ineffectual sanctions that do nothing except turn Iran ever more eastward. In who's interest is that? Well we need enemies and Iran is one we made up and has been really reliable for over thirty years. Wouldn't want that to end would we? Israel has what? 3-400 A-bombs?

    The cheerleading by Media, (not only Foxy news) in the run up to the Conquest of Iraq was patently obvious. In who's interest was this war? Not the private citizens of America or Britain or Iraq. They paid for it with their treasure and their blood. Who profited? Weapons manufacturers. Oil companies. Suppliers of the infrastructure of war. I guess war sells papers and air-time too. Wins elections too if properly timed.

    I doubt very much if the Big interests will ever be broken down into smaller local units. The globalization train left the station 50 years ago and it is pretty much a one way trip. Unless something massive happens.
     
  11. B_talltpaguy

    B_talltpaguy New Member

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    While I agree with what you're saying (that government must not trust businesses and vigorously regulate them), GOOD LUCK selling that concept to most of this era's conservatives in America... A handful of the ones who blindly hate the current leadership will agree with you for the sake of political opportunism, but if they were in control themselves, would do everything they can to loosen regulations, full stop. (and this is well documented in our history)

    The American conservative meme over time has been that businesses should be trusted to do as they please, and if the populace doesn't like how a business operates, then they can only object through their buying power as consumers, not with the democratic power of their votes.
     
    #11 B_talltpaguy, Jun 18, 2010
    Last edited: Jun 18, 2010
  12. Jason

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    The rules and the enforcement regime under which BP was operating is of course a legacy of the last administration - as far as I know Obama's regime has made few or no changes (of course with hindsight such changes should have been their priority). The blame attaches to the state that failed to regulate/enforce - it just happens that the disaster has happened on Obama's watch.

    I would go further than saying that just the USA is responsible - I would say we are all individually responsible. If we base our economy on oil then we accept it has to be drilled, transported and burnt. Every few years there is an environmental catastrophe, with global warming a constant problem. Right now I imagine the CEOs of every big oil company are giving thanks that it wasn't their rig that blew up and using the changed climate to increase their safety precautions. Maybe BP was more negligent than the others - but I don't believe any one is a paragon of virtue.

    Part of democratising big business is that people (dare I say "small people" :eek:) have both a sense of ownership and a sense of responsibility. Mass share ownership helps (more developed in the US than the UK). But also important are the channels by which we can all contribute to the decision making process around big business. This may be better developed in the UK - I'm not sure. Were the people of Louisiana asked whether they wanted the oil drilling? There is a trade off between jobs and prosperity and possible environmental damage, and I think people would buy into the drilling (in the UK we've had communities buy into the idea of nuclear power stations). The people should have bought into the drilling - believed that this was right for Louisiana. If they had gone through this process I think there would be a different attitude now. Less that "foreign BP has done this to us" and more "our oil company has done this to us". And yes there would have been a different sort of response.

    The old capitalist model of just one set of stakeholders - the shareholders - holding all the power in a company should now have gone. The USA may be its last stronghold.
     
  13. Bbucko

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    I have resisted contributing to this thread because I wasn't sure if this was the right place to discuss the "too big to fail" meme. But since it's been introduced already and been made part of the dialog, I'll give it a go.

    My feelings about any private enterprise as being "too big to fail" have evolved significantly since the panic and crash of 2008. At that time, I posted a nuanced but balanced discussion (elsewhere, not here) of the urgent need to not let GM fail, despite my own personal feelings of disgust over the cult of the automobile in the US and how it has distorted (where it hasn't destroyed) our urban environments. There were simply too many people whose livelihoods were utterly dependent on keeping GM afloat; the fact that I find GM products rubbishy was completely beside the point.

    But as this "too big to fail" concept really sunk in, I began to find its effects more and more pernicious: evil, even. When the pensions of millions of elderly people are threatened as a result of a private corporation's sloppy handling of an environmental catastrophe (aided and abetted by lax regulations and laisser-faire enforcement of a foreign country), something is horribly, terribly amiss.

    Similarly, when a company that consistently offers inferior products that fewer and fewer people find worth their investment is maintained and allowed to endure, it signals a fundamental flaw in our capitalistic economy: the marketplace no longer dictates the free flow of the most desirable goods and everyone suffers as a result with fewer options.

    This was recognized over 100 years ago with the legislation of anti-trust laws, something which Teddy Roosevelt (no flaming liberal, mind you) saw was valid and necessary. That we need to return to that way of thinking is incredibly apparent to me.

    On a completely personal level, I learned over 20 years ago that I could not stomach working in a corporate environment (nor was I an especially promising candidate for most corporate positions) and began working for entrepreneurs. The benefit of this was that I largely chose my own career path and was empowered to make decisions and act creatively in ways that no corporation would ever allow. The downside was that I earned far less than my corporate counterparts and that my employment was constantly at risk of being lost in an extremely competitive marketplace: of the seven employers I worked for while in that stage of my career (1988-2005), only one is still in operation, and that's largely because the immense personal wealth of the owner insulates him from the realities of the market.
     
  14. Jason

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    My experience of big business has not been good either.

    My first "proper" job as a trainee accountant with a major firm had near its start an audit of a big company, and as the junior's junior I did the petty cash count. It was short (£50). The secretary responsible was sacked on the spot, floods of tears. The follow up (which I did, and which wouldn't usually have been done as it is not usually worth anyone's time) was the check of the records of past petty cash transactions. No one expected anything to turn up, but as it happened it did. A director had put nearly £100,000 through petty cash as payment for a race horse (for his personal use). This is a tax fraud as he had taken money out of the company without paying tax on it. My big-name and very respectable accountancy firm decided to turn a blind eye merely making an enhanced charge for their audit. A few weeks later every auditor in the firm heard on the grapevine about an audit of a Ministry of Defence budget. It was short by £2m, and after extensive investigation the auditors couldn't find where it had gone (ie someone had pinched it). The partners had their emergency meeting, assured themselves that £2m was less than 1% of the total turnover and therefore did not technically need to be noted on the account, and signed off the accounts as true and fair.

    I've seen much worse in UK public sector finances. There is enormous pressure to ensure that nothing is ever made public as this would damage the reputation of the organisation. Curiously people cannot be bribed - basically money transactions leave a trace. But they can be threatened. It is truly vile. I've also seen some pretty dire carry-ons with EU administered budgets, though more with profligate spending than anything that is corrupt.

    Yes I'm pretty jaded in my views of the private sector, the public sector and the EU. We need a completely different ethic in business. A thought is that greater transparency might help somewhat. For example an audit report on a company (both in UK and US) is an incredibly short document - basically the auditor signs off that everything is just wonderful. Maybe we need as a matter of course a much longer document. Financial accountnts are of course filed and become public documents, but management accounts are confidential - maybe big organisations should be releasing these on a monthly basis. Certainly such might have given warning of the banking crisis. In every walk of life more documents need to be made available. If all companies have to provide them they are on a level playing field so "company secrets" ceases to be a problem.

    I know the above is not properly formulated. It comes from a sense that big business, big organisations, big government is wrong. And rather than just grumbling about it I'm going out on a limb to suggest a way forward - provision of much more information.
     
  15. B_crackoff

    B_crackoff New Member

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    ??????????????????????????????????????????????????????????????

    BP does! It's been making $30B+ every year since 2004. Or are you just basing it on a single year's profits, which would be nonsensical.

    You could argue the same thing about any miltary, biochemical, nuclear, automotive, hell even ecological manufacturer.

    The problem with the banks remains that the industry is still regulated by former industry execs, & that the banks still truly own each & every government & its politicians.

    They're creating money out of thin air,risk free & getting paid for it in economies based upon perpetual debt, without a hope of it ever getting paid back.

    Because it can't!
     
  16. Drifterwood

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    Their net profit is considerably less. And are you basing their ability to pay on there being just one disaster, giving no value to fauna and flora damage, the damage to related businesses and potential health costs to people? Because that would be nonsensical in my eyes :wink:

    I would say that a risk management assessment on many businesses (including the ones you mention), would show that they can not cove the potntial downside. How about the French Nuclear Power Stations on the other side of the channel? Guess which ways the wind blows.

    People don't seem to mind when the shit is brushed under someone else's carpet. Well they will still complain about China, but they want the cheap goods, and they forget that the top execs responsible for the recent poisonous baby milk formula were sentenced to death. How do you like the sound of that Mr. BP?
     
  17. dandelion

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    We had the same long drawn out tussle over UK car companies slowly going bust and being more and more subsidised. Thatcher in the end called a halt to it. There are legitimate reasons why it is better for a country to make subsidised goods than not make goods at all. China is doing it right now, and getting on famously. The problem in the Uk, and as I hear in the US, is that the employees (and probably bosses/designers) in those companies get into a mindset where they believe it no longer matters if the company is unprofitable, and that they deserve as much income as anyone else in the country. Given the real value of what they are making, they don't, but if the only feedback mechanism is whether the company loses money and therefore goes out of business, the general sense of complete unreality just keeps growing until the entire thing becomes so ridiculous the plug gets pulled.

    I dont know how the US car industry is doing? Any signs of it coming round to living within its means, or was this just a temporary reprieve in inevitable decline? I have seen reports of the steady collapse of the US car industry for years before the current world crash.

    This is perhaps a different problem, that of the provision of pensions. The reality is that pension funds probably do a reasonable job of diversifying their investments. But where do you put the money? Invest in the financial sector? oops. Government bonds, theyre pretty safe? oops. Manufacturing? ah, duff cars. Raw materials? Cant go wrong there. A pension is an attempt to guarantee a future income. How can you do this? You are trying to get a cut of something which does not exist yet, money being made in 50 years time. If the world is rich in 50 years, you may succeed, but if the world goes into a 50 year economic collapse, how can anyone guarantee their future income?

    Except that there is a real place in economics for protectionism. A pure market often means that goods get cheaper, more plentiful and there are more jobs, but it does not help the US if the newly created wealth is all in China. And then there are the off balance sheet costs: pollution which the companies never have to pay for. If they dont have to pay, the market never takes account of this cost being born by someone. And while on the subject, the oil industry will not pay the costs of cleaning up in the gulf. We will. All costs will eventually be passed on to the consumers of oil, whether the bills go via BPs bank account or not.

    OK lets talk chocolate again. Cadburys recent takeover by Kraft. A total nonsense from the british economic point of view. Cadburys was already taking its manufacturing abroad, but this will now go much faster. I find it impossible to believe there are economies of scale which will make chocolate manufacture significantly cheaper in the new company. Confectionery is not a bulk product, but one where you buy different things on each occasion. This was simply a company getting bigger for the sake of being bigger.
     
  18. B_crackoff

    B_crackoff New Member

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    Well only the BNP supported that! Shame really - we just continue to outsource jobs, & lose all those taxation/employment benefits.
     
  19. B_crackoff

    B_crackoff New Member

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    I couldn't edit my quote last night - so apologies there.

    The BP scenario works on gross not net, as I assume all payouts to be tax deductible. There is no long term damage to fauna & flora (Earth time wise- it'll all grow back as something or other:wink:).

    A similar situation would exist in Bolivia if Evo Morales loses power.

    Old Al Gore & his nutters have set their hearts on Lithium batteries powering everything mechanical- & almost all the obtainable lithium globally is in Bolivia.

    The problem is - when you extract Lithium, it gets into, & pollutes the water supply (rivers, underground aquifers etc). Which means not only is there no drinking water - every plant dies too, & nothing will grow for decades, if not centuries.

    But it's only Bolivians right?
    Al Gore shows us the way to make green from being green - Telegraph

    In search of Lithium: The battle for the 3rd element | Mail Online

    I read that the US took 20 years to even settle the Union Carbide claims - they don't like it up 'em the other way eh?
     
  20. b.c.

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    Speaking of car companies, dealerships in particular, this link provides information on how even they lobby Congress to pass or tailor legislation that allows them to skirt new legislation designed to protect consumers:

    https://secure.consumersunion.org/site/Advocacy?cmd=display&page=UserAction&id=2289

    From the link there is a specific message regarding the Wall Street Reform Bill regarding auto dealers:

    "No special loopholes: Auto dealers are among those trying to be exempted from the bill so the loans they make aren't scrutinized. Dealers steer customers into high interest-rate loans when consumers actually qualify for lower interest rates, costing Americans an estimated $20 billion annually in overcharges. No industry, lender or financial entity should be exempted from the consumer protections in the legislation."

    The (form) letter also addresses additional concerns related to consumer protection, banking, trading, and finance.
     
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