Edit: This question attracted way more interest than I hoped for! I will need some time to go through the comments in the next days, thanks for your efforts everyone. One thing I could grasp from the answers already - it seems to be complicated. There is no one fits all answer.
Under capitalism, it seems companies always need to grow bigger. Why can’t they just say, okay, we have 100 employees and produce a nice product for a specific market and that’s fine?
Or is this only a US megacorp thing where they need to grow to satisfy their shareholders?
Let’s ignore that most of the times the small companies get bought by the large ones.
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It’s not “companies”, it’spublicly traded companies.
And the answer is quite simple really: the moment you become publicly traded your stock becomes your product, and everything else becomes a means to deliver better stock prices to your investors.
Not all companies are publicly traded, I patronise privately held companies wherever possible because as a client I’m still at the core of their business strategy, and I’m wary of the alternative.
At the end of the day, bad strategies result in bad products and services. Vote with your wallet, it’s very possible.
I work for a privately owned company and we’re absolutely expected to grow. Being privately owned doesn’t change that.
Right but you don’t have a basically legal obligation to if you’re private
??? Of course you do. Investors don’t just buy their way into hypothetical future profits, they buy control over the company. The specifics depend, whether it’s voting shares or the looming threat of debt collection, but the courts will 100 % enforce investors’ right to demand things from companies.
Furthermore the idea that publicly traded companies have some kind of obligation to make as much money as quickly as possible is a reddit-born myth. Shareholders will bring in a CEO, who will be tasked to do whatever and can be fired from the shareholders at any time. Grievous mismanagement and intentional damage can expose a CEO to legal action, just like intentionally destroying tools can expose a worker to legal action. But a CEO acting in good faith has no other obligation than to fulfill the tasks asked of them by shareholders. The problem is that goes wrong when large shareholders plan to sell their shares and need the numbers to look a little better to sell a little higher. But this phenomenon absolutely happens with PE as well – in fact it’s arguably way worse because publicly traded companies at least have legal obligations of financial transparency. Private shareholders can do whatever the fuck they want, including secretly selling their shares to Evil Inc. for them to strip the company for parts and not a single employee has the right to even know who the majority shareholder even is, nervermind what their plan is.
Furthermore the idea that publicly traded companies have some kind of obligation to make as much money as quickly as possible is a reddit-born myth.
Shareholder primacy wasn’t born on reddit, it was actually Milton Friedman who theorized of it, the Michigan Supreme Court who wrote it into precedence, and now American citizens who have to live under the consequences of publicly traded corporations having a distinct legal obligation (against the belief of some legal academics who argue otherwise, in bad faith nonetheless) to provide a profit for shareholders. This also applies to PE, who take this notion of a, once again, distinct legal obligation to provide profits for shareholders above all else, as what you would call a “Get out of jail free card,” i.e. fraud and thievery is completely fine if you’ve got shareholders to feed.
But a CEO acting in good faith has no other obligation than to fulfill the tasks asked of them by shareholders.
Shareholders: “We demand more profits, please start acting in bad faith so I may purchase another boat this afternoon”
CEO: “ok”Alternatively:
Shareholders: “Profits, please”
CEO: “no”
Michigan Supreme Court: “The death sentence is on the table”This is how this has played out since 1919, Dodge v. Ford Motor Co. Wax poetic about theory, in reality people are starving over the sheer necessity that the shareholders want another buck.
There are many answers to this.
First, this is not a general capitalism thing. It is more the specific flavor we have. Second, it is not an absolute rule, there are companies that don’t focus on growth, but it is rare amongst massive companies.
The original idea of capital investment is that when you need investment for your company (e.g. to buy better machines, expand production, etc.) you let people invest (by buying shares) and then give them a portion of the profits gained from that investment (in the form of dividends).
However, most companies have figured out that if they don’t pay dividends but re-invest the money, shareholders are still happy because their shares get more valuable as the company grows and they get to grow the company, which is good for CEO paychecks and lot of other things.
There are things like economies of scale (if you produce million units of something per year, it is almost always cheaper per unit than if you produce ten per year). So if you don’t grow, your competitor that does grow could sell cheaper than you and put you out of business.
And a lot more.
Extremely oversimplified:
-for Public Companies: CEO and executives are obliged to pursue maximum profit (either short-term or long-term) for the shareholders, thus the company must grow. - - For shareholders its Cost of capital (basically shareholders want bigger returns than the investment they made) and Opportunity Cost (lose money because you don’t move your investment to a company that is more profitable or gonna be more profitable)
-for private companies: Competition (grow or die from your competitor), efficiency (reducing cost), exit (sell it big and retire), psychological reasons (better safe than sorry), etc…
There are many family business or small companies that function as you describe, but they get replaced and driven out of business in a matter of years or decades (with exceptions). But being stable in an growing economy is very hard and risky. And Capitalism by definition must grow or it gets in crisis.
Shareholder demands are part of it, but also consider the pressures from competition, inflation, and debt.
If a firm isn’t growing, competition will outgrow them and then gobble up their market share. If you have 100 employees and produce a nice product, you’ll lose out to the firm that has 1000 employees and produces a nicer product. The competition is always growing, so your firm has to grow too. This leads to inflation - as every firm grows in competition with each other they heat up the economy and create more demand for fiat currency - so that means a firm needs to bring in more money every year just to stay afloat. And lastly, companies start out in debt and have to pay it off, and then accumulate more debt in order to outgrow the competition and outgrow inflation, which then in turn heats up competition even more and also causes more inflation.
Competition, inflation, and debt are part of a feedback loop that eventually results in overproduction and market collapse, the surviving firms buy each other out, and the process starts all over again. This is why markets go through boom and bust cycles.
It’s a very irrational system that produces a lot of waste.
Because they take investment.
Privately held companies can sit around earning the exact same amount of profit forever.
But if you are publicly traded on the stock market, people are walking up and injecting money into your business. They expect a return for that investment. And that means that the part of your business they’ve bought has to be worth more in the future in order for them to sell it for more than they bought it.
Therefore: growth. Owning 1% of a $100k business isn’t with as much as owning 1% of a $200k business. So if you own 1%, you want it to go from $100k to $200k.
If you aren’t taking outside money, none of this is a problem. Unless the owners just want a raise, which most people generally do over time. If nothing else, inflation is constantly eroding the value of money so you need to grow a little just to stand still. Most people don’t want to make do with less and less over time.
This is also the issue with private investment companies.
When the EA deal was announced, people said more or less “this is proof that private isn’t any better than public”. Well that’s sort of true - there’s no guarantee that private is any better, but it CAN be, depends on who owns it. In the case of EA games, it was bought as an investment by a bunch of greedy investors, of course it’s going to be as bad as, if not worse than, a public corp.
Fiduciary responsibility. If you own a company that has shareholders they can sue you for refusing money or ‘leaving money on the table’, iirc this was a major reason why they sold twitter to musk
And why United Healthcare shareholders sued over losing a tiny bit of money while dealing with the murder of their CEO. People are just people; money is the only driving force in our economy.
Yes Lefty’s should read up more on actual business because there’s a lot of areas they could be making Phenomenal points but instead we just get “eat the rich” over and over again.
In the strictest definition, they don’t.
Capitalism is minimally fulfilled when a business sells something for a profit and reinvests the profit (now capital) in the business. Hence the term. It doesn’t have to grow the business, make new products, or do anything beyond maintenance of its processes, be that fixing or updating machinery or training employees. A single person selling tomatoes in a market in Madagascar that fixes of their tomato table with profits is perfectly capitalist.
Expecting constant growth is not a requirement of anything.
A farmer selling their produce is not necessarily a capitalist. A farmer toiling on their own field sells the fruit of their own labor, so to speak. One step up are what Marx calls “Little Masters”: They own and work their means of production, but sometimes have employees such as farmhands or apprentices (Think companies where the owner still works in the workshop). Actual capitalists are detached from the production process: They no longer work, but simply own the so-called means of production and exploit others by buying their labor force for less than their produced result is worth.
If we are going by the original definition of the word, it is. The farmer here is growing produce to sell it in exchange for money; they are not sharing it with their community, bartering with it, growing it to eat themselves, or giving it to their liege lord.
I’m not sure why people always insist if money is involved that it’s capitalism. Money is an abstract form of trade. No one is suggesting that trade will cease to exists in a world without capitalism.
It’s not about money, it’s about private ownership of capital. https://en.wiktionary.org/wiki/capitalism
Well, if you assume the farmer excludes others from using the means of production i.e. the fields, then yes you can argue that they are acting as capitalist. But you have to make the distinction between private and personal ownership: Private ownership of the land and personal ownership of the produce. The former is what communists reject. The latter is fine in their books.
What resources would you recommend to someone wanting to learn about this?
I.e. the TV channel Arte, which is a cooperation of French and German state media has a multipart documentary called Work, Salary, Profit that touches on a lot of fundamentals.
Of course there is always the option just to straight up read the original works by Marx, Smith and so on, but they are not for the feint of heart.
If you want to nitpick, I never said farmer. Also, farmers have inputs, so your comparison is wholly removed from reality.
Edit: also, Marx? JFC, Thoreau is a better example of 19th century philosophy about labor, as he actually did real work in life which is why he manged to influence Tolstoy, who the eurdite Soviets tried to retcon into being a socialist because they were arrogant tools who didn’t understand his work well enough to realize that his critiques were often of people just like them. And just like Marx who also had very little contact with real life.
Marx can suck a fuck at the tomato stand, my friend.
What does a farmer having inputs have to do with my argument being removed from reality?
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Because you’re leaning on Marx for definitions, who was famously out of touch with reality as well,
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because ALL small business owners need inputs, and labor is only one of them, so inventing the vendor as now a farmer to attempt a workaround is disingenuous,
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you also had made the tomato vendor into a farmer in hopes of having a point that fits into a poorly crafted 19th century framework, and don’t know enough about how farms anywhere on earth to realize how blatantly wrong you are,
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your definition of capitalist is factually incorrect,
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read my edited comment above, which I edited while you wrote this,
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a farmer is no different, functionally in a minimalist sense, from a person making jam as a cottage industry, who buys fruit and processes it at home, making a farmer’s field not magic but simply a location where work is done,
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I said tomato seller, which is someone that spends their labor time buying tomatoes from farms as a risk and selling them in the market. They own means of logistics, which for anyone not stuck in 1862, would consider essentially a means of production as well, as it takes an input and renders is viable to trade for a medium of exchange. Does a fisherman owning a boat mean she owns the means of production when it’s fish spawning grounds that make fish? It’s a stupid argument to cling to one you’ve already written your first PoliSci paper about it and get it.
Look, everything is connected, and there is no terminal point of anything from which anarcho-socialist magic can magically arise and flow down to make some post-consumption utopia. It’s a circle with no beginning and no end. You can’t force economic change to change human behavior, and Marx’s ideas have famously failed hard. Over and over. Spectacularly.
You’re taking about a 30 generation cultural change that you won’t ever see.
Bro what?
- Because you’re leaning on Marx for definitions, who was famously out of touch with reality as well,
Are we just supposed to believe what you’re saying? Because I have easy counter-argument. You’re out of touch with what Marx wrote and if say-so if enough proof then this statement is proven and you’re wrong. Now, unless you can actually prove this statement we can argue this point.
- because ALL small business owners need inputs, and labor is only one of them, so inventing the vendor as now a farmer to attempt a workaround is disingenuous,
This literally does not change the original argument. Do you think farmers do not need an input? What disqualifies a farmer from being a small business owner?
- you also had made the tomato vendor into a farmer in hopes of having a point that fits into a poorly crafted 19th century framework, and don’t know enough about how farms anywhere on earth to realize how blatantly wrong you are,
Do you think they didn’t have food vendors in the 19th century? Do you think a tomato vendor is a 20th or 21st century concept that invalidates this supposed 19th century argument?
- your definition of capitalist is factually incorrect,
I guess this is another “we just have to believe you” points. Just because you don’t understand Marx’s definition of capitalism doesn’t mean it’s wrong.
- read my edited comment above, which I edited while you wrote this,
Why is this even a point?
- a farmer is no different, functionally in a minimalist sense, from a person making jam as a cottage industry, who buys fruit and processes it at home, making a farmer’s field not magic but simply a location where work is done,
I’m not 100% sure what you’re even trying to say here but if you’re saying what I think you’re saying, Marx would agree with you here.
- I said tomato seller, which is someone that spends their labor time buying tomatoes from farms as a risk and selling them in the market. They own means of logistics, which for anyone not stuck in 1862, would consider essentially a means of production as well, as it takes an input and renders is viable to trade for a medium of exchange. Does a fisherman owning a boat mean she owns the means of production when it’s fish spawning grounds that make fish? It’s a stupid argument to cling to one you’ve already written your first PoliSci paper about it and get it.
I guess you also don’t believe logistics existed before 1863. Also your logistics argument doesn’t contradict Marx. And a fisherman owning a fishing boat would mean they own the means of production because the boat is A TOOL to catch fish. The fish don’t magically jump into the fishermans hands. They need to be caught, which requires labor and to ease that labor tools are used. Fish existing doesn’t make a fisherman a fisherman, otherwise I’d be a lumberjack simply because there’s a forest near my home.
I suggest you actually try to understand Marx before you start mindlessly criticizing something.
I understand Marx fine. He was an academic who grew up the privileged son of a lawyer, and never spent a day of his life worrying about how he was going to feed his family by working on a farm or in a factory.
His ideas about land alone being enough to be considered “means of production” are informed by 19th century feudalist-cum-post-feudaliast Europe, and the transition point between the Prussian Kingdom and a unified and nascent German state as it industrialized.
His view of industrialization is like that of Upston Sinclair: “Holy shit, WTF? This is terrible.” Trauma and secondary trauma informed by other people. But as an academic his understanding of how the economy works at the level of what was a rapidly changing factory scene. 21st century economics don’t fit 19th century ideals.
And you as a lumberjack is the perfect example. You might own a saw and live near a forest. Cut all the trees you want. Who will buy them without access? So now you need a road. But your 19th century horse cart can’t drag a 400kg log anywhere to sell it, so you now need to buy a truck and loading system. Only now too you have an actual logging setup that gets your product of raw timber to a mill for sale. Marx calls all these things the means of production, which is cute, but he assumes that the social whole is different.
The road needs to be graded and maintained, your saw oiled and sharpened, your truck maintained. Which all also needs labor to happen. As was the cries of trucking unions when the Teamsters formed, you are just part of the machine. Which means that when you get down to it and nitpick, everything and everyone is a part of the means of production of something else. There are no gaps and no bourgeoisie locking up every critical aspect of the social whole, and small businesses as the largest employer in the US mean that Marx’s theory doesn’t stand up to reality anymore. The end user and end consumer provides demand, which is as necessary as the road and truck and mill for you as a faux lumberjack. Demand is a human non-labor aspect of the social whole we all have, which is more important than the means of production. Just ask the bourgeois board of Blockbuster Video, or a small local newspaper.
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This mostly only happens to companies with outside investors, and it’s in order to make the investors happy.
Companies owned privately by one or a handful of people who all just want the company to keep going, make a decent profit, and be sustainable, don’t always exhibit the “need for growth” behavior.
It’s usually because the investors don’t really give a shit about the company or its mission, they just want money. Often this kind of “need for growth” bullshit is just short term growth, since that’s what most investors care about. It stifles the company’s ability to plan for long term growth and make the right decisions to achieve it.
There are also stable companies with a solid revenue stream that don’t have much growth potential, so pay out the profits as dividends. These are more in demand for retirement funds or individuals who get to point in life they need to start living from their investments. Yield is always a calculation of dividend + growth.
Tech companies that don’t pay a dividend and reinvest everything into growth is a relatively new concept
