Comment by digikata
12 days ago
Yes climbing the value chain was a necessity for nations like China. But in the US popularized in the 90's, was a business strategy trend that strongly discounted the value of long term capital investments - particularly for this discussion, investment in factories. They do require extra management attention and they do tie companies to strategies in longer time frames at lower margins - but they deliver long term value and long term synergistic growth benefits (in the vein of go slow to go fast). Many US business elected to chase short term growth, and short term and higher margins and minimize long term investments.
See a list of leading US companies that are off of being king of the hill - Boeing, GE, Intel, ... leading industrial US companies continually divested from manufacturing, or shorted long term investment, not because it wasn't profitable, but because it wasn't profitable enough in the moment. It took decades, and many dividends and stock growth was taken in the middle, but the shortfall manifests in time.
Intel never outsourced its production, and it turned out to be the wrong call for it. They just made losing tech bets, while they kept investing in manufacturing.
You make that sound like it was emanating from the business community - the US has had a pretty significant period in there of 0% interest rates determined by a central committee. Return on capital doesn't really matter in a low interest rate environment, the important thing is access to the lending markets. Investors making sensible investments would have been eaten alive by those focusing on companies that were living off credit in ill-advised ways.
Uber still hasn't managed to make a net profit over its lifetime as a company, by the way.
Uber had EBITDA of $6.5B for full year 2024: https://www.sec.gov/Archives/edgar/data/1543151/000154315125...
I agree with the rest of your comment, though. The US public markets reward creative accounting and mortgaging the future for quarterly gains. GE and Jack Welch are a great historical example.
If Uber had been founded in 2024 that would be really impressive. The problem is that its lifetime is somewhat longer than that.
Maybe, but 0% interest should have make it easy to invest in capital intensive endeavors that would have turned into great protective moats when the interest rates inevitably bumped up. Did that happen with factories and manufacturing?
I also think a significant influence on the Fed was a financialized business community demanding 0% interest.
> Maybe, but 0% interest should have make it easy to invest in capital intensive endeavors that would have turned into great protective moats when the interest rates inevitably bumped up.
It doesn't - if you look at the situation in real terms, the amount of resources available to invest is about the same (probably shrinking because some are diverted to people who aren't creditworthy and consume them). So the major effect of artificially low interest rates is to add a whole heap of artificially supported highly wasteful companies to the mix.
All that changes is the market started rewarding people with access to credit instead of people who were responsible and effective. The credit people aren't particularly capable and it'd be better if they had been forced out.
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> I also think a significant influence on the Fed was a financialized business community demanding 0% interest.
This is the one upside of chaos monkey crashing the economy. They aren't going to be able to drive rates back to zero in the next four years.
Agreed. Well articulated.
>Many US business elected to chase short term growth, and short term and higher margins and minimize long term investments.
I would like to add that this was due to the influence of Milton Friedman. He put the emphasis on shareholder returns being the most important, without considering the survival of the company itself.
More generally, the financialization of the US economy (and of the Western economy more generally speaking) has a big part of the blame in this.
Yes, more evolved financial markets provided easier access capital, but, as it so happens in those types of situations, access to capital and enjoyment of said (liquid/financial) capital became a target in itself, the rest of society didn't matter. In fact, the whole (Western) society was moulded around (liquid/financial) capital, it became its raison d'être.
If the company doesn't survive, shareholders aren't likely to be that happy.