Hacker News Reader

Even better, why not get the company to borrow against those 10 years of income, and pay you your profit now?

Even better, since you now don't actually even need to keep the company alive for 10 years since you've already got your profit, you can sell the company's assets now and increase your profit!

Except there's not a company in the world that this logic doesn't apply to (at some point). Asset-stripping has killed off a few old companies that were ready for it, sure. But it's also destroyed lives and communities that didn't deserve that.

There is more to life than money, and one of the things that this article is talking about is that we need to recognise that.

The key difference here is that the “communities” are not recognized with any particular ownership interest.

Does the owner of the company have a right to take risks with the business? It is a serious impairment of ownership if not, and will likely lead to more-stagnant societies. The entire engine of America’s superior prosperity (even at the individual level) has been based on risk taking, while stagnant systems have their own problems (Greece, Italy come to mind with pre-covid crises) and can be a vector of corruption as the principal-agent problem remains unsolved and those entrusted with the well being of the community often work to enrich and empower themselves instead.

This is not to say that we cannot say the community ought to have more of a say, this is merely to point out that there is a tradeoff that affects society in general. If we are to succeed in making this tradeoff it will be in part by better aligning the interests of business owners and the community, and we should be aware of how hard a problem that is when we go to attack it.

The option to take risks with the business is not a right, but a privilege. It brings prosperity only if exercised carefully. It is done less and less so, with more and more arrogant excuses, and sadly, it will be USA's undoing.

> The entire engine of America’s superior prosperity (even at the individual level) has been based on risk taking

This is a story that America tells itself. It's not necessarily true.

And currently the USA in in enormous debt, partly because of the vast cost of bailing out its financial institutions and large corporations. "Risk-taking" is increasingly only being done by private individuals. Large American businesses are certainly not being exposed to the results of their risks - they're being bailed out, socialising the risk but privatising the reward.

In this case, if the community is shouldering the responsibility of bailing out companies that are in danger of collapsing, shouldn't there be some "impairment of ownership" as you put it? Aren't those communities entitled to ask that the company is run for their benefit too?

Although I lean towards seeing killing the company as short-sighted, suppose you then invest that money back into a new venture. You have far more capital than you would have had you let the business remain healthy. This may give you even better value in the long-run (say 200 years) if you let this new venture live. But if you kill this venture too and invest its earnings into yet a third venture...

Right - and I think that's generally what you'd see people doing.

I'm not even sure it's necessarily an intrinsically bad pattern - there can be short-term opportunities and circumstances that make a strategy worthwhile for a number of years but not further. I think the issue broadly is twofold. First is the collateral damage - companies forming and dissolving is fine for the investors but murder for the employees, who's livelihoods and health insurance become precarious. Second is that we've applied this to the entire economy in a way that makes us incredibly vulnerable to systemic shocks - see America's toilet paper supply between the months of March and July. Again, on an individual company-wide basis, it might still have been more profitable for Procter & Gamble to do whatever the hell it is they did to make 2-ply an impossible technology to reproduce domestically in 2020, but on an economy-wide basis, the fact that Everyone did it was a goddamn disaster.

> companies forming and dissolving is fine for the investors but murder for the employees, who's livelihoods and health insurance become precarious

That's a problem with the social safety net, not a problem with companies failing.

A lot of companies are going to fail even without someone actively trying to drive them out of business.

Some industries just have collapses in demand and no longer do something that anyone wants. Some companies are just mismanaged.

We need to provide support for the employees who are victims of companies collapsing, not try to prevent any company from ever collapsing.

Completely agree with this.

Yup, but that’s achieved via taxation, currently one of the costs that are being trimmed in the 19M/y example above... It’s a case of having your cake and eating it too

What number of companies still operate in the same form for several decades? A company dying isn't necessarily a negative. The assets don't get set on fire; the people working there don't disappear into a black hole. Investors might get fleeced, but overall the assets and people are used to others end, for which investors in these ends benefit. The worst outcome are those zombie companies that only exist for the sake of existing.

Yes, invest in a mega yacht or juicero or theranos, etc.

Only if you define local interest as purely financially motivated. I am not even talking about the ethics, but even social status is not only dependent on wealth. We are much more than a bank account number, thinking that we are is more or less a pathological disease, because rationally it makes no sense.

> Only if you define local interest as purely financially motivated <...> social status is not only dependent on wealth

For an awful lot of people, it basically is - I mean, practically the entire field of finance and professional management would look at the example I gave and say, "that's exactly the right thing to do." Mitt Romney's entire professional career follows that principle, and it's largely seen as a net positive to his political career (as a Republican).

I agree with you, I think it's an enormously damaging philosophy, both to the bearer and to the rest of us, but again, it may be locally optimal.

Could you help me understand this a little better and define what you mean by local interest?

I'm not using a rigorous definition, but essentially, consider two outcomes, each affecting 100 people:

  1. Every person accrues $10
  2. One person, "Bob", accrues $100, everyone else accrues $1

Generally speaking, outcome 1 has higher overall benefits, but outcome 2 is better for Bob. If Bob is the decision-maker, it's in Bob's interest to pick outcome 2, even if it's globally worse.

This is what I mean by local vs global interest - roughly, "in the interest of a given individual" vs "the best outcome across all individuals."

I don‘t know, I am not a fan of Mitt Romney but his social status seemed to be more dependent on being a successful governor and managing the olympics. Both are net positives for society, his business record actually was his weakness.

With respect to your 200 years figure, $190M also nets $3.8M/yr investing very conservatively. Even $50M once would usually be valued higher than $1M/yr forever, in a time-value-of-money sense.

Behold! Private Equity