After reading Jonathan Tepper’s “American Corporations Are Winning Their War on Capitalism”, I couldn’t help to connect his claims with the observations I’ve done recently. In his article, Tepper mentioned about the myth of decreasing amount of investment in those corporate giants. As he pointed out, the greed of the shareholders decides the capital allocation of a big corporate. Indeed, greed and capitalism always go hand in hand. One might argue that it’s the drive to maximize profit, create enormous wealth and enhance productivity for the company and the country. However, the sole emphasis on profitability could elicit adverse consequences. For instance, Valeant Pharmaceutical was one notorious pharmaceutical company which went on a merging and buying binge under the leadership of its former CEO. It acquired 118 companies within a few years. However, after eliminating its competitors in the pharmaceutical industry, Valeant cut down its R&D budget to nearly zero and drastically raised drug price (e.g. one drug jumped by 800%). Valeant’s case shows us the dark side of capitalism which could hinder innovation and subvert the normal order the society if it goes unregulated. Shareholders seek for immediate gratification from financial growth of the corporate; hence, the executives must look for ways to increase profitability. Building up a new territory requires time and efforts in R&D, so the fastest route to wealth is buying existing businesses. By doing so, big corporates stifle smaller start-ups while they were young and take over whatever innovations that have been produced. However, with too much greed but little aspiration, where are these mega companies headed? Prosperity or doom? I think only time can tell. Maybe the fate of another large corporate can give us some clues of that outlook: As of today, the market value of Kraft Heinz which backed by Warrant Buffet drops by 27%. When Kraft and Heinz merged 4 years ago, the whole Wall Street were energized by the mega merger of the two giants. However, ignoring the eating habits of the new generation and the market need for healthier food, cutting cost alone can not stop Kraft Heinz from falling. Today may not be the doomsday of Kraft Heinz, but I hope its major setback can sound an alarm to other capitalist enterprises.
If anyone interested in more details of the two companies I mentioned in this article, please click on the following links: