The Problem with Shareholders.
A couple of weeks ago General Motors announced the closing or idling of 5 plants including 4 in the United States, this came just a few months after General Motors announced that it would build the new Blazer at a plant in Mexico. In an interview Michigan State University economics professor Charles Ballard stated, “investors seemed to look at the moves as good ones.” This is just further evidence of the way in which Wall Street has embraced the idea that companies exist solely to serve their shareholders. Under this way of thinking, managers of companies should focus their attention on driving short-term value for those who own stock, and should pay almost no regard to other stakeholders, such as employees, customers, or members of the community. This way of thinking is especially appalling coming from a company who just a few years ago needed the support of the American taxpayers just to survive. Now upwards of 14,000 of these taxpayers will be out of their jobs, and communities will be devastated by indirect job losses within the communities as a result of these facilities closing. While at the same time the company will further invest in facilities outside our borders. And the stockholders, apparently, loved it.
In the summer of 2017, the Harvard Business Review published an article arguing that the idea that profits are all that should matter has only been around for a few decades. They trace it to writings by the free-market economist Milton Friedman, where Friedman outlined what he called the “Friedman business doctrine,” which holds that ideas of corporate social responsibility, which had become popular in the business world, were undermining the American way of life. That’s right, the doctrine stated that showing concern to the community, your employees, or anyone but Wall Street was undermining America. It seems strange to me because, aren’t communities and working people what makes up America? Part of the issue is that stock owners have no public accountability for what the company does, and no responsibility, to place the company’s interests above their own. In the past most stock was owned by individuals who were looking for long term dividends and on-going value from their investments. But now institutional investors and hedge funds are looking for short term profits and a quick jump in stock prices. So, the fact that, as Professor Ballard pointed out, “investors seemed to look at the moves as good ones,” is not exactly an accurate predictor of whether the moves were good ones or not.
The problem comes down to the difference between wealth, which is defined as an abundance of valuable material possessions, and prosperity which is the condition of being successful or thriving, especially economic well-being. What stockholders want is wealth, personal wealth, which does virtually nothing for the country or society. Somewhere along the line is seems that we as a culture have lost sight of the importance of plain old prosperity, where families can prosper, maybe not be rich, but prosper and find their way through the world with enough money to raise their kids and have a good life. With GM’s actions a lot more families in places like Warren, Hamtramck, Lordstown, and Baltimore have had the prospect of prosperity ripped away. But hey, at least Wall Street liked it.