[TriLUG] OT: PT One tech issue from tonight's debate

[Joseph Mack NA3T]

On Fri, 19 Oct 2012, Chris Merrill wrote:

> And why shouldn't they do that? That is their job, after 
> all (delivering value to their stockholders).

It's not true at now and never has been. The only 
obligations a company has to its shareholders occur at 
bankruptcy.

Until the '50's, shareholders got their value through 
dividends rather than in increases in share prices. The 
american economy was based in manufacturing businesses with 
long horizons. Somewhere in there people realised that you 
could make money out of owning shares in businesses that 
grew. This was fine as long as you could pick the ones that 
grew, before they grew. This wasn't hard with the right 
amount of inside information. Over the next couple of 
decades, money poured into businesses that grew and provided 
unstable employment and out of stable businesses with stable 
employment. Steel left the country.

Companies can't grow forever; the successful ones become 
stable, are denigrated as "old" industries, ie failures and 
have to leave the country; the real failures crash and burn. 
You sold your shares before either of these happened and 
looked for the next new exiting growth industry. The stock 
market became a game based around growth industries. Those 
who played the game correctly, made many more times the 
money of those working in the companies whose shares they 
owned. Just before the 2007-8 crash a large fraction (25%?) 
of the economy, was just shifting money around. Nothing was 
being produced, but lots of money was made doing it. Now the 
money was being made in the stockmarket and not by people 
working hard and sometimes being rewarded for it. The 
business of the real business whose shares you owned became 
only a secondary interest. The real action was in the 
stockmarket. How much of the market cap of Apple does Apple 
control? I expect not much. The tail is wagging the dog.

Management played the game too. If they could hit short term 
targets, possibly by creative bookkeeping, and the shares 
went up, they would get all sorts of positive press in the 
business pages and the right shareholders would make out 
like bandits. Management would be congratulated for their 
wisdom and prescience and would have no choice but to give 
themselves a raise. There was no need to wait 5 or 10yrs to 
see the long term consequences of their decisions, the stock 
market had proven them right. Management wasn't doing this 
to line their pockets; they were doing it to "provide 
shareholder value".

That's why the american economy is based on short term goals 
and growth industries with unstable employment. It's 
delivering value to stockholders.

Joe


-- 
Joseph Mack NA3T EME(B,D), FM05lw North Carolina
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