Look at the Dairy industry in the United States. Wal-Mart has vertically integrated the dairy industry into itself, as a result, many smaller regional farmers no longer have a market at all since there is no way to compete with someone who is so well integrated that they can SELL AT A LOSS in dairy, yet compensate by making up for it with social engineering via loss-leading.
https://www.nbcnews.com/news/us-news/best-advice-u-s-dairy-f...
You CANNOT sit idly by and say that investment is ALWAYS a positive societal good when by definition, the "rational invester" (read: paperclip maximizer for ROI) will naturally tend to converge on creating monolithic structures, which, by their nature as "rational corporate actors" act as, again, paperclip maximizers for profits.
Balance sheets do NOT accurately convey the full story of economic processes at work creating tangible effects in the real world, any more than meteorological climate models do.
If you take into account side effects caused by collectively funded (via rational investment methodologies) creating monolithic industry-consuming behemoths, then the idea the rich are "hoarding money" makes perfect sense.
Wal-Mart in this case is doubling down on automation, and keeping what payroll it pays low, so it's not actually acting to distribute wealth back to those who are so strapped they can't even think of investing, because they need to put the next meal on the table.
EVEN if they could statistically speaking, the most wealthy are the most likely to be able to pick up what stock they'd have to sell, because stock doesn"t put food on the table.
This creates a situation where regardless of who's hand the money is actually in, the outcome is the same. Monolithic businesses will be invested in, they'll integrate until they start creating value deserts in their space, and in order to contribute to continuing growth figures, will optimize away liabilities by minimizing workforce or salary. The only one's benefiting being those already on board.
Does it "GENERALLY" work well though? Yes and no. Yes, given the absence of any actors large enough to create value deserts through excessive vertical integration? Yes! It does!
No. I'm the sense that that isn't what the market seems to produce though. Companies will diversify, merge, or employ externalization of negative outcomes EXACTLY to accomplish making themselves the best looking target for investors.
At some point, enough has to be enough. The economy is one of the few process spaces where eternal growth is EXPECTED. No living system constrained by finite resource and time CAN grow indefinitely without causing major systemic upsets.
An equivalent solution to what Wal-Mart is doing could be achieved with networks of smaller less "fiscally efficient" distribution centers doing business with fewer monolithic industrial behemoths. This keeps the barrier to entry lower, leads to more opportunities for job creation, and increases financial mobility overall. This is something that CAN't exist with uncontrolled maximization of ROI by investors, and profits by corporation. At some point enough HAS to be enough.
Maybe I'm not an economist, but I've seen enough complex systems to recognize when blind spots exist in current modeling. This is something I see never get addressed.
I didn't say it was. I was responding to "beneficial for anyone else".
> value deserts
I'm sorry, but this is nonsense.
There are some sound reasons for redistributing money from the wealthy to the poor. Benefiting the economy because the rich are hoarding money or are incompetent investors is not one of them.
Again, look at Wal-Mart and dairy. Alphabet\Google does the same with digital advertising.
I'm not saying people are crap investors either. I'm saying the definition of a "good investor" (maximize fimancial ROI) and a "good company" (maximize financial profit) leads inevitably to market behemoths forming which WILL degenerate the health of the economy as a whole, and drastically increase barriers to entry for smaller players. A company as a collective stands as much as a danger when it becomes too large as it does a benefit.
A "good company" should not grow infinitely. It should grow as much as is needed to do what it needs to. That is providing it's service to it's community. No living system constrained by finite time and resources can support unceasing growth. The economy is just such a system.
-1st degree:Real wage growth doesn't happen, because investor behavior wants the most money back to them from a company.
-2nd degree: A company will try to trim "waste" by cutting immediate liabilities to the lowest they can to maintain requisite Talent.
-3rd Degree: Talent is going to go where the biggest bucks can be made, and that will be the biggest market behemoth which exists currently. The infusion of investor capital exaggerates buying power to acquire and retain Talent which would be necessary for smaller competitors to get a leg up against the behemoth"s entrenched position. This leads to value deserts, which adversely effects industry as a whole.
-4th degree: Smaller competitors die in value deserts. supply goes down, demand stays the same or goes up. Prices go up, profit goes up, return to 1st degree.
Wal-Mart captured a great deal of investor capital. In order to keep itself looking tempting to investor's it has to grow (diversify), cut liabilities (minimize wage growth, decrease employment/payroll via automation, and minimize benefits expenditures through scheduling shenanigans), or do BOTH at the same time by vertically integrating their supply chain and using loss leading's attendant benefits to undercut small producers; this pushes them out of the market, jacks up prices on the commodity when supply goes down, thereby increasing profits, thereby drawing more investment capital. Start the cycle again with the next industry.
It's called a positive feedback loop, and in nature, if they aren't compensated for, bad things happen. It just so happens that this one has a multi-generational period, so no-one has lived long enough or paid enough attention to get upset about it. If they did, I just haven't found their paper, bit I have the feeling people are starting to notice, even if they can't articulate it.
It goes back to wage growth because of the link between 1 and 2. 3 and 4 are what cause the actual societal\market damage. You can't "solve" the problem without fundamental rethink on the axiom that kicks off all of this, which is "the best investment is to dump as much money as possible into the fastest growing company", which has a sub axiom of "growth without bounds is acceptable and to be encouraged".
It ain't straightforward, but nothing about economics seems to be. If there is a glaring flaw, please enlighten me. I REALLY want to improve my understanding.
There's no rational reason to borrow money and make a pile out of it.
Even people who operate cash businesses (like casinos) rush to deposit the cash in a bank ASAP.
> If an investor chooses the strategy that gives themselves the best ROI that doesn't mean the investment is necessarily beneficial for anyone else.
Actually, it does mean just that. An investment is giving someone else money to do something productive with that money. That person will take their cut, and so benefit.