The Dark side of Capitalism

Source: http://www.uabsknowledge.ac.nz/en/research-and-comment/in-the-media/the-dark-side-of-the-shareholder-capitalism-.html

           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:

https://www.cnn.com/2018/01/25/entertainment/dirty-money-review/index.html

https://www.cnbc.com/2019/02/22/consumer-trends-are-compounding-kraft-heinzs-troubles-retail-analyst.html

4 Comments

  1. This is very interesting. I like how you talked about greed without any aspiration. Is it that greed is only in an effort to make ourselves happy and succeed, or is it just a natural, human thing for us to want more and thus capitalize on that.

    I like the use of the two companies you mentioned as it gave some very useful examples which helped my understanding of this.

    Liked by 1 person

  2. Hello Fiona, thank you for sharing this with us. It was a very interesting read.
    I liked how you mentioned that nowadays companies often desire power and wealth, and prioritize those over things such as creativity and aspiration. It makes me think that many of those who run big companies only care about profit and the growth of the company rather than the actual content itself. It’s sort of as if they are extrinsically motivated, rather than intrinsically.
    I also liked how you mentioned that many executives look for the shortest route with the most gain. I feel like a lot of individuals do prioritize past, tried-and-true methods perhaps because they’re known from experience to be the safest and most reliable. I’m also very interested in the psychology behind why individuals (such as businessmen) tend to make these choices.
    Thanks again for sharing this!

    Liked by 1 person

  3. Thanks for your comment, Mason. Whether Greed is a learned experience or part of human nature, empiricists and nativists would give us different answers. Personally, I am more inclined to the empiricists’ view. When we were infants, all we want is just a bottle of milk, nothing else. And we did not intend to break our sibling’s milk bottle in order to achieve our goal. But if damaging others’ milk is a requirement for our own survival, then we might go ahead and do it. So this hypothetical example shows us that that greed is more likely derived from our experience.

    Like

  4. Thanks for your comment, cc1218503. Cutting corners is a very tempting choice for most of us especially when we are at a competitive disadvantage. However, there are something higher than that–morality and principles.

    Like

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