You know what's worse than a few people losing their jobs? Everyone losing their jobs because a competitor is more efficient and drives you out of business.
For example, Carrier was already very profitable when they decided to outsource to Mexico.
http://www.salon.com/2016/03/22/snapshot_of_a_broken_system_...
"A look at United Technologies’ annual report reveals even more good news: Commercial and industrial products, Carrier’s category, make up over half of UTC’s $56 billion in net sales. Climate, Controls & Security had 3 percent growth in 2015, the highest in the company; it was the only division to increase its profit margin year-over-year. “Organic sales growth at UTC Climate, Controls & Security was driven by the U.S. commercial and residential heating, ventilation and air conditioning (HVAC) and transport refrigeration businesses,” according to page 14 of the report. In other words, air conditioners – what the workers are making in Indianapolis – drove the growth of the best-performing facet of United Technologies’ business."
If keeping someone's employed is making the company less profitable than it could be if it fired him - why would the company keep paying this person money?
That's an emotional argument without any factual or rational merit to support it. It's meant to arrange the 'working class' as the rulers of the means of production. Standard labor vs capital debate.
I don't understand, why is adding zeroes to already fat bank account is morally different from pulling the account from negative to positive?
When a business is losing money, paying employees is a charity. When the business is making a great profit and decides that it could make even more by hurting/laying off some employees, that is a choice with moral implications.
When there is plenty of ice cream bars for everyone but the first guy who arrives at the cafeteria grabs all of them out of the freezer and proceed to sell them to everyone who comes later, the first guy didn't earn them. He didn't actually increase the amount of ice cream. He only captured the value.
It is possible to not grab every single ice cream bar especially when you have more than you can ever eat. People and companies do this all the time. As a businessman, I don't find it necessary to screw every other party in a transaction in order to feel successful.
If they hadn't done so, 95% of Americans would still be doing brutal farm labor.
On firms like Berkshire partner 3G Capital, which takes big companies and streamlines them:
I’m sensitive to the issue of cutting costs, which usually means a lot of people losing jobs. Rich people end up getting richer and a lot of people get fired. But ultimately, I think we don’t do the world a favor by employing more people than we need for companies to run efficiently. On the whole we advance civilization when companies run better.
I understand that's a tenet of capitalism and is almost a religious belief beyond question. But, empirically, how do we know that this is actually true?
Basically, when companies do that, they're engaging in a form of welfare, but it's neither fair (because of differences in implementation) nor efficient (because it involves wasted labor). It's fairly obvious that it would be better to have the same people who wouldn't be employed if not for inefficiencies, employed to work on something else efficiently - even if it's public projects, for example - and pay them by taxing the increased (due to higher efficiency) output of the original company.
Either way, there is a sneaking assumption hiding inside the "we advance civilization" quote that can't be proven no matter what, and that is what does it mean to be a more advanced civilization? This is not something that can be proven because it depends on your value system. I am compltely in the camp that this is true and that civilization today is better (e.g. less people dying, more material wealth, more stuff we'd like to do being available, more art, etc). But you can also disagree with that and thus disagree that efficiency is so great.
Take a listen to this NPR Planet Money podcast (and article) called "The History of Light" [1]. It describes how much it cost to light a room, in terms of a typical day's wages, at various points in history until today:
> The history of light is the history of economic growth — of things getting faster, cheaper, and more efficient. In Babylonian times, 4,000 years ago, a day's labor would buy very little light. You could buy enough light to illuminate a room but not for very long. Maybe 10 minutes. It was really expensive.
Today, a day's worth of wages can afford to light a room for thousands of hours. This affordability has radically changed our society, mostly for the positive. It's now possible to study and be productive in the evening. Many of the improvements to the efficiency of lighting also enabled cheap heating as well.
Another related interesting article is "The $3500 Shirt - A History Lesson in Economics" [2]. This one traces the cost of clothing from the middle ages to today. Consider: why did people used to wear clothing until it became rags? Because clothing was extraordinarily labor-intensive and thus expensive. A single shirt back then might cost $3500 in today's money. Now clothing is a negligible cost for most people in the USA, including the poor.
Companies (and individuals) and their desire for efficient production have brought these costs down, and the costs of so many other goods. I've heard it said that today the average person in America has a quality of living substantially better than that of a medieval king. I believe it: with our lighting, heating, and potable water delivered to our homes; sanitary food & restrooms; medical and dental care, etc. -- all available to (mostly) everyone due to low prices. Not to mention the luxuries available to us in our homes like television, music, radio, video games, etc. Cheap spices from everywhere in the world. Food from most everywhere is available at low prices and high quality in local supermarkets. Travel is cheap, and many people can afford to travel virtually anywhere urban in the world within 24 to 48 hours by aircraft - amazing by any historical standard. And it's so reliable we take it for granted.
All changes that originate from economic growth.
During the industrial revolution, a lot of automation replaced human labor in clothing production. This did have the negative effect of putting the spinsters and weavers and so on out of business, but had the positive effect of making clothing vastly cheaper for everyone. People found new jobs and society continued, and was better off overall. Similarly, the development of the automobile largely put the industry supporting the horse-and-buggy out of business. But everyone was better off overall having fast and cheap transportation.
So how do we know that it's true? I suppose we don't have any way of saying in a particular case, but we can look to history to see how innovations that made products and services cheaper have benefited society overall.
Perhaps 1000 years in the future, they will trace how much computing a day's wages could buy, and how that went on to transform society too.
[1] http://www.npr.org/2014/05/02/309040279/in-4-000-years-one-t...
[2] http://www.sleuthsayers.org/2013/06/the-3500-shirt-history-l... - also discussed on HN [3]
However, this:
Because efficient companies produce goods and services for lower prices than inefficient companies
That may be an nit to pick, but it's an important one.
More efficiency increases purchasing power (or reduces working hours or resource usage, at least) even if there is no competition. Competition just gives an incentive to become more efficient.
The compelling impact of growth pointed out earlier (over centuries) was largely driven by the breaking of monopolies and increase in market access, as well as social change allowing more efficient allocation of resources.
Produce goods and services for lower prices, not necessarily sell them for lower prices.
Walmart is more efficient than its competitors. It's always had lower prices that directly benefited the poor and middle class.
The modern PC exists because IBM basically spread the knowledge around in their manuals, allowing many compatible devices to be made. In terms of capitalism, this was a dramatic mistake - IBM didn't make profit off of these knockoffs. But had they not, it may well have been similar to Unix (next entry), where many incompatible devices (hardware, in this case, not software) gave a fractured market that just didn't move very far.
Unix and related variants - AT&T lost the copyright to BSD because they had failed to enforce it (because that predated the Bourne convention). During the lawsuit, when the future of OpenBSD/NetBSD/FreeBSD was slightly in question, many devs worked on some little toy project known as Linux. Today, we have a healthy market of these open source solutions, but had BSD source not been freely available, would the BSDs have gotten any success? Would Linux exist in its modern form had the BSDs not served to create both a market and supporting software? GNU Herd seems to imply "no".
And of course, the Internet - Had some marketing exec been in a position do something about it, the modern Web would never have been created, and the internet itself as something that average people can connect to would be behind a series of paywalls and incompatible standards. Microsoft crushed Netscape, and announced that IE6 would be the "last version" of IE. When Firefox hit a point where it was better, competition was renewed and we eventually moved towards common standards, but that was only possible because Netscape opened their code (and reputation). Other competing browsers had been, but they went nowhere in terms of market share.
A few other non-tech examples:
Car door handles and mirrors (and etc). If you need to buy a replacement car part, it's ridiculously priced compared to what it is. Why? Because there's very little competition in that market. Even within their own brands most cars have very specific parts outside of the engine. Ideally I'd buy a car that was reliable and had standardized parts - but no such car is available, because the manufacturers not only lack an incentive, they have an incentive to keep it incompatible so they and their partners can enjoy a nice markup on replacement parts.
Coke and Pepsi - Between them, they control the vast majority of the soft drink market. But of course, their products are different. Mr. Pibb is not Dr. Pepper, Coke is not Pepsi..People will prefer one or the other, and their preferences won't line up with the corporate owner/controller, and if you have multiple people you are practically guaranteed to have preferences from both brands. Not a problem...unless you want to eat out. Virtually every restaurant (and some universities, conference centers, etc) has an exclusive deal with one or the other. Theoretically we could vote with our wallets and frequent those places that DON'T have an exclusive deal. If you can find any. And if that is more important than, you know, things like food and service and prices.
And if you run a restaurant, do you really want two soft drink delivery services coming in while your staff is doing food prep? Do you want to make space for two fountain machines, double sets of replacement canisters and twice as many possible customer problems with bad mix settings, running out of syrup, etc?
Interestingly, you will find Dr Pepper in most quick service restaurants despite their exclusive contracts. Those contracts are not with a particular brand, but with a particular distributor. Dr Pepper has cross-distribution contracts with a bunch of major distributors so they get to ride along.
something about this sentence reeks. I'm struggling to say what it is in less than 20000 words though.
to me it seems like nothing less than an elite member of a specific social class congratulating himself, and by proxy those he represents, for being a cog in the big machine. Charlie's cog is a very big one indeed so he can make comments like that with no irony or self-awareness.
I highly recommend reading some of his writings [0] then, because having "a lack of self-awareness" is the last trait I'd use to describe that man.
[0] https://www.amazon.com/Poor-Charlies-Almanack-Charles-Expand...
http://www.investopedia.com/terms/i/inefficientmarket.asp
It's not that they started producing more units, it's that some folks (the ones using the drugs) were taking advantage of a market inefficiency (the insufficiently low price) which when corrected, meant greater returns for Shkreli et al.
Just as when a "retail" day trader hits on a system that enables them to make a large amount of money, they're taking advantage of an inefficiency, and, in a way, helping to correct it.
It's not pretty, but being ugly doesn't make it inaccurate.
I think it is unethical to take away the livelihood of someone if the only reason you are doing it is to add even more zeros to your already fat bank account.
Also, you are assuming the only one being rewarded by layoffs are executives. As someone dutifully putting away money for retirement in a 401k, I am the primary beneficiary of such layoffs in their stock prices(assuming the company is publicly traded). Should I feel guilty that my greed has caused layoffs?
Even if one would agree to judge things within your frame, i.e. employee's share vs. employer's, you still have a moral dilemma with allocating resources wisely. Judging from their past income spending practice, employees will most likely consume, whereas employers will most likely invest. I hardly see any reason against supporting the later kind of players.
When someone asks about the ethics of Coke (generally, any sugar/carbonated beverage), and Buffett responds that he still drinks it, or that he eats fast food, that's begging the question. Without the regular/addicted consumers of those products, the companies wouldn't be good investments, and everyone knows regular consumption of soft drinks or fast food is bad for you, statistically speaking. Outliers (like Buffett himself, if he really eats as poorly as he says he does—like avoiding most vegetables) are irrelevant.
Your believe in the power of the state, if it can only be unshackled by human liberties, to magically make all things good is frightening.
Motorcycles, while less safe for the rider, are more safe for everyone else, and they pollute less, so in general I suppose the ethical situation is less obviously bad for motorcycle companies than for fast food companies.
Fast food and soft drinks are specifically engineered to be as enticing as possible, playing on biological cravings that are unhelpful since the advent of mass food production, and offer no other benefits other than satisfying those cravings. It's difficult to be a large-scale for-profit food business of any kind, and still be able to fully justify your company's actions, ethically speaking. However, fast food companies, junk food companies, [carbonated] sugar water companies, and to a moderate extent many prepackaged food brands, drag down the ethics of the whole industry. They're harming public health, it's obvious, and the only defense is a naive (ignoring marketing and network effects, and habitual irrational human tendencies) retort that capitalism, individual choice, etc should always win.
You can blame the consumers—the companies are just making what the people "want"—except that's not how capitalism has worked for most of the last century. The marketing/advertising/promotion juggernaut has a life of its own and significantly boosts demand for things that are bad for consumers, bad for the environment, or both.
Even if it were pure consumer-driven demand, should free-market capitalism be a suicide pact? Are consumers only hurting themselves with unhealthy food? They're driving up healthcare costs and disability costs, which raises everyone's health insurance costs and taxes. You can argue correctly that it's inefficiency on the part of health insurance companies, but that inefficiency isn't going away until it's cost-effective and accepted to monitor everyone's diets. For the moment, they have to assume that every person they cover is eating or drinking more junk than they should. The cost of Warren Buffett laughing off health ethics concerns and emphasizing that he drinks coke or eats burgers becomes an externality, not so different from pollution.
Furthermore, forget the products they make, and forget their marketing. Companies of this sort actively seek to subvert science, funding contrarian studies: that sugar isn't actually bad for you, that more carbs are good (not just for marathon runners, but for the average office worker too), that high-fat dairy and meat are the true causes of health problems, and many others.
And what do consumers gain? A little bit of transient happiness—at least, they think the junk food is making them happy, but more likely they're just at a local maximum and they could find healthier food that would still taste good, leading to more overall happiness taking into account the realization that the healthier food isn't killing them (as fast).
Buffett's response is an admission that he can't fully justify those companies' products and tactics, so he doesn't even try. It's sad. In one sense, someone's going to hold the stock, so why not him? Does holding stock of a company like that obligate you to campaign for better food standards that will probably harm your investment, in the short term at least? Of course not, and it's difficult to see how such a constraint could be added to securities law, but shouldn't some constraint like that be added if it were possible? This is where capitalism fails. Problems develop when you legally require companies to make money for shareholders and fail to ethically hold shareholders responsible for the consequences of a company's actions. It means consequences for a company's actions are going to lag far behind (decades, at least) scientific realization that the company is making money by externalizing costs.
I'm not that down on Buffett or BH for their investments, but this is a systemic problem highlighted by Buffett's public lack of concern for these issues. These are problems that need to be solved at a higher level (government) until low-level solutions are found (profitable food that tastes like fast food but that's also good for you). So far, government has been unable to do much because the people, who are hooked on these products due to habit and all the marketing, use the levers of democracy to prevent government from acting. I'm not optimistic that anything will change soon, but I don't see how that removes the ethical liability from those businesses.
How does that absolve you from ethical responsibility? Shareholders driven by money (as almost all are) will turn a blind eye toward harm the companies are doing as long as they can get away with it, and the courts and laws lag decades behind scientific consensus, sometimes longer when the companies themselves engage in muddying the waters about the underlying science claims made about their products or the externalities of their business.
If you want to stay out of prison, you do what Buffett does. You make light of ethical concerns because taking them seriously makes people take notice, and maybe stop drinking so much coke or eating so much fast food, and then you've indirectly hurt your stock holdings, and that would be a disservice to your shareholders.
I guess what you do, if you want to be ethical, is don't buy Coke or whatever ethically dubious company it is, and hope a group of forward-thinking philanthropic billionaires buys it instead, and that they'll move mountains to reform or pivot the company to a more ethical business model.
I don't see how ethics can mean anything at all if it's not ethically bad to hold shares in a company (BH owns what, 10% of Coke?), if you're holding it for the financial returns generated by its current business model, rather than to reform the company's unethical behavior through your stock ownership. You can say it's inevitable that someone will hold the stock and someone will get those potential dividends. However, if everyone takes a moral stand, nobody will buy the stock, the stock craters, and then someone can pick up the company for a song, then do something better like using all the r&d and marketing power for developing good food and convincing people it's trendy and tastes great, which seems to affect customer perception of taste more than actual taste.
Nobody wants to pay current market cap (or 51% of it, at least) for one of those giant unethical companies just to try to use that ownership to reform the company into something more ethical. Those companies have boxed themselves into a corner through marketing. They've convinced so many people to consume unhealthy products or products whose manufacture harms the environment, and they make such a good profit out of it, that the market cap is too high and it's too expensive for reformers to buy a majority stake and do something better.
Just because I don't see any solution doesn't mean I'm going to throw up my hands and call it ethical to hold Coca Cola stock. It seems to be all the rage to redefine words though, so if you redefine ethical to mean direct ethical implications, an investment in Coke is no longer unethical. Problem solved, I guess?
Their philosophy is about use numbers. They use metrics for everything. From the water used in bathrooms to the necessity of pay for first class travel for the executives. And if a job can be done using just one person, use 3 people is almost a crime for them.
[1]Buffet: most managers cannot control their lust for hyper-activity, preferring instead to go out and buy something, they are constantly comparing themselves to companies inside and outside of their own industry, making changes to reflect the "new ways of thinking", which are in fact only the old ways with new fads inserted and most managers tend to have an exaggerated sense of their own abilities.
That is why he have a partnership with 3g Capital. They like to make things simple, not complex. They never spend money just because they have money. They like to cut and spend less even if everything is alright.[2] Sicupira: “Costs are like fingernails: they always have to be cut.”.
BTW They start investing in technology companies using InnovaCapital and invested in SnapChat, Apple and others. [3]
[0]http://www.3g-capital.com/about.html https://www.forbes.com/profile/jorge-paulo-lemann/ https://www.bloomberg.com/news/articles/2013-08-29/jorge-lem... https://www.linkedin.com/pulse/case-2-breaking-dna-code-3g-c...
[1] http://www.travismorien.com/FAQ/shares/wbinstitutionalimpera...
[2] https://www.ft.com/content/268f73e6-31a3-11e7-9555-23ef563ec...
[3]http://www.tradeforce.com/articles/jorge-paulo-lemann.html https://www.crunchbase.com/organization/innova-capital-brazi...