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Comment by estearum

17 hours ago

Nah, this is a really dangerous narrative. Shareholder primacy is a pretty recent concept (a fundamentally anti-American one) that has recently gone metastatic and is now completely self-referential.

We've Goodharted the entire premise of the profit-seeking corporation and now openly say that Goodharting it is actually the point. Maybe it should be called Meta-goodharting or something.

Edit: Since large numbers of 1) historically illiterate and 2) "ideas don't matter" type people tend to congregate on HN, it's worth saying explicitly that the takeover of shareholder primacy is empirically visible in all sorts of corporate behaviors.

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estearum

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ThrowawayR2  17 hours ago

John D. Rockefeller, Andrew Carnegie, J. P. Morgan, Cornelius Vanderbilt, and the other robber barons of the Gilded Age have a hearty chuckle and say hi.

  • estearum  14 hours ago

    If you think Rockefeller (especially) is an example of unalloyed greed, you unfortunately land in category (1) mentioned above.

    The problem is not wealth. The problem is not producing massive value and capturing a portion of it.

    The problem is thinking that the system-level goal of capitalism is to extract wealth rather than to produce it and distribute it. Of the men you listed, only Vanderbilt supports your argument.

    • pksebben  13 hours ago

      I would be fascinated to hear what value you think JP Morgan created rather than moved around. His company continues to do so long after his death.

      4 replies →

    • mcmcmc  14 hours ago

      Rockefeller, the “competition is sin” guy, sure that has nothing to do with greed. His philanthropy had a positive impact but he was still an unethical business person hellbent on stopping anyone else from making money on his turf

    • 59percentmore  13 hours ago

      Shareholder primacy certainly is relatively new, but it's also true that "the system-level goal of capitalism is to extract wealth". After that, hopefully we use that capital to produce and distribute goods "fairly".

      But Capitalism isn't synonymous with the free market, or any other market configuration, and it's totally possible for the people who control the means of production and distribution to... not produce or distribute. In fact, that may be advantageous in their efforts to secure more capital.

      Ultimately, "they" really always have been greedy villains. Shareholder supremacy just made it worse.

teiferer  17 hours ago

Could you elaborate? Goodharting what metric exactly and how was that different earlier?

Isn't the distribution of shares among the population instead of just a few private investors a good thing? Democratizing in a sense, everybody can participate? (If only wealth was distributed more evenly. But that's a different problem it seems.)

  • estearum  14 hours ago

    There are several business philosophies a person (or a culture) can pick from. The dominant philosophy in the US today is "shareholder primacy" where business leaders believe their only dictum is to maximize shareholder value. This is so pervasive that many Americans (businesspeople and non-) think that it's baked into what it means to be a profit-seeking business, but it is not.

    Shareholder primacy took off after Milton Friedman advocated for it 1962. The philosophy that it supplanted (in the US) was "stakeholder capitalism" where businesses explicitly sought to be positive contributors to a much more comprehensive set of stakeholders: their shareholders, their managers, their employees, their customers, their suppliers, and their communities (non-exhaustive).

    The central conceit of capitalism is that you can co-opt the individual's greed and, properly constrained by laws and guided by markets, you can reward them for doing things of value for their community.

    The question then is what philosophy do you build around that central greed-of-the-individual. Do you temper it with expectations of taking care of people other than oneself? Or do you fan it and unbridle it by saying, "actually, greed isn't the evil that we must co-opt to pro-social ends, greed is actually the pro-social end itself?"

    It turns out that if you do the latter, business managers, shareholders, and regulators can collude to create extremely positive outcomes for each other at the expense of other stakeholders. You can save money by dumping your waste product into rivers, you can arbitrage labor away to infinitely far away lands, you can buy politicians, etc. etc.

    How might regulators behave differently in a world where people believe a corporation ought to take care of its entire community, versus a world where the literal only purpose of a corporation is to enrich its shareholders? Quite different, probably!

    Then all of this stacks on top of the natural "capital flows to capital" dynamic in capitalism which I'd argue is insufficiently mitigated, and you just get this ridiculous feedback loop that piles more resources and positive outcomes into a narrower set of people, while offloading more negative outcomes onto everyone else.

    Obviously opting into a different business philosophy doesn't preclude negative outcomes, but I think that more budding business leaders could, should, and would essentially have their careers strangled earlier on if they exhibited antisocial traits if we had a business culture that didn't pretend like this was literally an asset.

    Re your second question:

    Assuming that shareholder primacy is the only philosophy we could pick from, then yes a market with many public shareholders is better than the alternative. But 1) not everyone is invested in public markets, 2) not all companies are available to purchase in public markets, 3) public markets are demonstrably not good at solving certain types of problems – especially problems that occur over extended time horizons or are easy to externalize off the balance sheet, and most importantly 4) costs-benefits are not zero-sum. You can't generally undo the harms of Company A by investing in its competitor Company B. It would be best if both companies' management felt they had an obligation not to harm their communities even if it could further enrich their shareholders to do so. It would be even better if investors in general felt both companies should have an obligation to take care of their communities or employees, and so companies lived in fear of divestment if they chose to violate their communities.

    But in a culture that has opted into shareholder primacy, all feedback signals in this direction are removed. Regulators, investors, shareholders, employees, and the general public all pretty much believe that maximally externalizing harms and maximally capturing benefits is actually literally the way it's supposed to be.