this failure mode of self-destructive financialization seems incredibly common among american firms. what's at the root of this contradiction? what kind of change could incentivize different behavior?
Isn't that by design? Ideally, business people will capture the market (usually though innovation and disruption) and then optimize the profits by removing costs as much as they can. In a "perfect world", Boeing wouldn't have any engineers, workers and facilities and they will just sell planes without delivering any.
They will be like licensers, middlemen or even better they build just one very powerful plane and whoever owns it has huge advantage over the rest so Boeing will sell "making sure your enemy doesn't have it" rights and extract the profits using a raspberry pi plugged on the wall at a Starbucks, running a code written by the lowest bidder on Fiverr and keeps selling planes and transferring the money into the shareholders bank accounts at the lowest transfer costs possible through the most tax-optimized scheme.
That's the ideal world Peter Thiel describes and he is right. Of course he shows concern for other stuff but that's because of ideological/personal/religious reasons.
The suggested ideal[0] was:
Boeing wouldn't have any engineers, workers and facilities and they will just
sell planes without delivering any.
One could capture even more profit by selling a product to someone, take their money and then murder them and take the product back (or just take the product back with violence, whether or not death occurs), that maximizes profits even more.
Why don't we do that instead? Because It's wrong? I'd say my example is different from GP's only by degree, but is the same in that they're both criminal offenses (felonies, in fact). Then again, if it "maximizes profit," what's bad with that?
In fact, what's with this whole "criminal law" thing anyway? All this stuff should be handled via arbitration paid for by the seller. What could go wrong?
You get problems though when they leave and a professional manager is hired (the agent) to represent the shareholders (the principle). They'd like them to run the company sensible but there are incentives for the manger to say slash r&d and safety to raise apparent profits in the short term and make their options go up and then move on if it falls apart.
It's an old problem - see https://en.wikipedia.org/wiki/Principal%E2%80%93agent_proble...
I had this concept myself as I've always thought c-suit executives are mostly interested in there own interest and that it's exacerbated by them not staying long term. I don't know the stats, but CEO's used to be there for 10-30 years but now many are there for a very short time like 5 or less. Again, those numbers are pulled out of "you know where" but I have read that its much less than it used to be. Feel free to correct me if I'm wrong. Of course, most of us know that politicians don't really represent the populous anymore. There was a Princeton study on that that gets quoted allot and I've found a copy of it, but it's no longer easy to find. I would be interested in why it's so hard to find. Also, I would be interested if there are more studies like that.
Jack Welch ironically got it right (eventually):
> On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy...your main constituencies are your employees, your customers and your products.
* https://en.wikipedia.org/wiki/Jack_Welch#Politics
Of course many of the top post-MD-merger executives were from MD and were Welch acolytes.
capitalism.
> what kind of change could incentivize different behavior?
worker ownership.
Sorry if that seems terse but really this is the root of the problem. Shareholder value is the end goal and shareholders are generally seeking immediate short term profits (as there's little cost to liquidating a share position and moving to a more profitable company/asset instead). If you want to eliminate this problem, you need the shareholders to be the workers. They need to control the company in a meaningful way because while shareholders generally only care about profits, your workers are going to care about continued employment and the stable maximization of wages and benefits (which as a long term target is only pursuable via real long term growth).