Economics

Economic Growth

Economists and businessmen promote global economic growth as if growth were not subject the scarcity of resources. We know that the world is limited both in size (there is only so much land available) and in the amount of non-renewable resources it has.

Advertising

The advertising industry thrives on blurring the difference between necessities and wants. Advertising companies try to convince us that we need what we only want, and sometimes even don’t want.

Advertising and Prosperity

What is the relationship between the economic and the psychological condition of people consumer societies? Economic growth depends on spending that in part results from advertising. Advertising works by making us feel inadequate and even depressed, because we do not possess certain goods or services to satisfy various real or imaginary “needs.” When we arrive at this point, we are ready for treatment – shopping. In the process, businesses as well as the advertising industry, make bigger profits. We spend buy anti-depressant medication, the products and services that make us feel better. Then we feel better, at least for a while. Then the whole process starts all over again. In a few cases, we become shopaholics. How does one break out of the vicious cycle of advertising, feelings of deprivation, and temporary relief?

Reducing Unemployment

The number of jobs being made redundant by new technologies is greater than the number of jobs being created by new technologies.[i] In agriculture alone it takes far less labour now to produce a given quantity of food than was the case in the past. This has increased the levels of unemployment in the industrialized countries. The people that have employment work hard. At the same time, there is a large pool of the unemployed and underemployed persons. Would it not make sense to reduce the weekly hours of work so that additional people could work? Implementing a minimum amount of mandatory holidays per year might be another way to practice work sharing.

When more people get to share the available work, unemployment will decline. Appropriate legislation limiting the number of working hours per week and mandating a minimum number of holidays, is required.

People could spend the extra time obtained as a result of a shorter workweek in personally and socially useful ways. For example, they could spend more quality time with their children.

What are Corporations?

Corporations are organizations whose purpose is to make profit for their shareholders. Big business exerts much influence upon people’s lives. It advertises extensively in order to convince us that it has best interests of people at heart.

The corporation is like the medieval fiefdom. Despite all the talk about the de-layering, businesses retain the hierarchical structure of tribes. The chairman is the warlord. The chief executive officer is the chairman’s second in command. The board are the elders. The warlord plots strategy and the executives and workers implement it. The aim is to increase market share and enlarge the assets of the warlord and the shareholders.

Corporations and States

There are similarities but also significant differences between how companies and states function. Among the similarities is the structure of each. The political equivalent of the chairman is the Prime Minister or President. The political equivalent of the Board of Directors is the Cabinet. The company directors in turn find their counterparts in Cabinet ministers, while the different divisions of the company correspond to the different ministries of the government. The Annual General Meeting (AGM) is analogous to the general election.

One of the differences between a state and a corporation is that in representative system each person of voting age has one vote, that is a share of political power. However, in a corporation the principle ‘one person equals one share’ does not apply. In a corporation a person may possess the majority or all of the shares, and in that way exercise undiluted authority in the business.

Corporate Accountability

The degree of private accountability decreases as the public character of a business increases. Personal responsibility is reduced by dispersing possession of businesses among a large group of shareholders. Among many proprietors, personal responsibility is lesser than in proprietorships and partnerships. As if this was not enough, a person suggested re-inventing the business itself as a “person.” It is this person” that would be responsible for any misdemeanors and even crimes perpetrated by the company. The liability of the shareholders is limited to their investments.

Personal proprietorships and partnerships are fully liable for their actions. The owners of corporations do not risk personal assets to pay for any potential liabilities of the company in excess of the amount that they have invested in the corporation. What is the rationale for limiting the liability of corporations to the amount invested by shareholders?

As the vast majority of the shareholders do not play an active role in the day to day management of the corporation, it would be difficult to justify expecting them to take full responsibility for the actions of the corporation.

The day-to-day management of the corporation is entrusted to the executives of the company. But executives of corporations frequently possess a part of the corporation.

As owners of shares, their liability is limited to the amount they invested in the shares of the company. The executives and directors of companies are different from other shareholders in that they not only own a part of the company but also control it.

Should they be expected to be liable in excess of the amount they have invested in the company on the grounds that they control the company? Or should their liability be also limited, like that of the ordinary shareholders, only to the amount they have invested in the company?

Since decisions are made by those who control the company, and liabilities arise out of decisions, it would be very hard to maintain that control should not constitute grounds for liability. The real question is, therefore, how much extra liability rests on those who control the company because they control it, in addition to the liability they already have as a result of ownership.

The underlying problem is what exactly constitutes grounds for liability. This problem does not arise in the case of proprietorships and partnerships. It is clear that control is grounds for liability.

Matters are complicated by the fact that in the eyes of the law the corporation has the status of a ‘person.’ Only persons can be considered to be liable for actions or consequences that result from decisions made by persons.

The corporation as a person appears to have an existence independent of the persons who control or own the corporation. If the corporation is a ‘person,’ then the corporation should take full responsibility for all its actions.

The notion that a corporation is a person constitutes an incentive for the executives of a corporation to act in less than responsible ways. It is a way of allowing directors to escape full responsibility for their decisions and actions.

This may contribute to acts on the part of the corporations as would not have been undertaken if people were more directly responsible. Business history is replete with examples where directors and shareholders of companies escaped personal responsibility for the acts of the businesses they owned or controlled.

Audits

An auditing firm is a business like any other business in the sense that it is expected to maximize profits for its shareholders. An auditing firm is different from other kinds of businesses in the sense that it performs to a significant degree what could be called a public interest function. As a firm that examines the accounts of publicly owned companies, the auditing firm is expected to act in the public interest by providing an accurate and impartial assessment of a firm’s financial position and performance. It is a legal requirement that such information be made available to the public on a periodic basis.

The management of the company that hires an auditing firm naturally wants a favorable report, in order to look good in front of the shareholders. What will an auditing firm do if it has to be critical of the performance of the management of the company being audited? Will firms that want favorable audits hire auditing firms that might produce anything less than a splendid report?

The management might respond to a negative report by terminating the services of the auditing firm before the end of its appointed term. It might also respond by hiring another, less rigorous auditor the next time around. So the auditing firms with the higher standards may also be the firms less likely to get or keep the job.

The auditing services industry constitutes an example of an industry in which market forces alone cannot guarantee that quality services will be provided. Thus, legislation requires auditing firms to maintain minimum standards in the exercise of their profession.

Rich and Poor

Much has been said about the (growing) gap between the rich and the poor. The interesting question is not so much why a gap developed in the first place, but why it gets bigger. Those who are already well established can use their wealth to establish themselves even more firmly.

Being Fired

When a company fires an employee, it is saying to him or her that “you do not really fit into our company.” This is expressed in the popular saying that so and so was not a “team player.” It may well be the case that an employee does not fit into a particular company. But we should not jump to the conclusion that it was therefore the employee that was bad for the business rather than the company that was bad for the employee. The fired employee should be open to the possibility that his or her “dismissal” may have been a case of “this company does not fit me,” or “this company does not suit me.”

Paradox of Monopoly

Monopolies find themselves in a paradox. They are both more and less efficient than firms that have to compete. They are more efficient in that they can produce things at a lower unit cost, due to their ability to utilize economies of scale.

However, monopolies are less efficient in that, since they face no competition, they charge higher prices for their products than they would have to under competitive conditions.