Profit Before People

Two men are stood beside a car. The younger man is nodding in acceptance, having just agreed to sell for less than the advertised price. He turns and leads the way into a house. It’s a simple house on the outside. Perhaps simpler on the inside with bare floorboards on show in the hallway.

“I’ve caught you in the middle of decorating,” says the older man.

“Kind of,” exhales the younger man, “we were, but then we found she was pregnant. Now we need to prepare for the baby and a carpet no longer seems so important.”

Accepting the seat offered, the older man places his cheque book on the table. He writes a cheque, signs it and passes it to the younger man.

He looks at it briefly and then tries to pass it back.

“I agreed to cut the price by £200, but you’ve written your cheque for the full amount.”

“Yes, you need to buy a carpet.”

I heard that story told at a funeral. The older man’s generosity perhaps explaining why loudspeakers had to be placed outside so that those who arrived after the space inside had filled could still hear and any passing strangers could gatecrash briefly.

Wouldn’t it be a better world if we all shared that sense of love for our neighbours? That’s not the real world though.

The wealthy seem to care about one thing. Getting wealthier.

It doesn’t matter how wealthy we get, it’s only ever relative and we will always want more, at least so it seems when we look at how the wealthiest in our societies behave.

I like to think that one of the great privileges of wealth is having the power to help others and make a real difference. The common story of the world seems quite different to that, with the desire for money taking priority over other people.

Money For Nothin’

We live in a world where value is assigned in all sorts of crazy and random ways.

Let’s say you and I start a business selling 3D-printed fidget spinners and we start doing really well. So well that we can’t keep up with orders. We could buy more printers so we can print more fidget spinners, but then we’d need more space to house the printers. The cost of printers and the extra space will cost more than we can afford.

If we want to expand our business, we need more money right now. We could talk to a bank and try to borrow money, but another option would be to sell a share of our business to someone else. We would get the money we need immediately and as long as our business continues to be profitable, the person who bought a share in our business would earn back the money they gave us through their share of the profits. Of course, if something went wrong, such as everyone realising that fidget spinners are just as pointless now as they were the first time around, our new partner might never get their money back and will just own a share of a failed business.

This mechanism for businesses to share their costs in return for a share of the profits can probably be traced back almost as far ago as when commerce between humans first started.

It’s a common-sense way for businesses that have demonstrated they have a viable plan to generate profit from a proven market. Such a common-sense way, in fact, that stock markets formed around the world to make it easier for business owners to find people with money who want to buy shares in businesses.

In that form, stock markets serve a valuable role in societies, helping healthy businesses to grow, creating employment and bringing useful products and services to their respective societies. For those with money to spare, the opportunity was there for them to make money by doing nothing and letting the work and labour of others create wealth for them.

Of course, for those who bought shares in businesses that didn’t achieve the hoped-for success, rather than making money, they’d lose money instead. That element of risk may make buying shares look like any other form of gambling, but that diminishes the importance of the process to society.

However, over time stock markets have developed and they’re arguably rather closer to high-stakes casinos. Rather than their purpose being purely to make it easy to buy and sell shares, with the potential to generate wealth by buying shares in the right companies at the right time, the markets themselves have become a way for “players” to generate wealth.

Traders can make money by betting on when the value of a business will drop, an approach called short selling. In effect, they can make money as the result of a business losing money. It generates no real value to society. It’s no different to betting on horses or dogs or cockerels. Where’s the utility in that?

On the contrary, it can actually be damaging to businesses, the larger economy and even the real owners of the shares.¹ It’s emblematic of the relentless drive by the wealthiest in society to grab even more wealth for themselves, regardless of the cost to the rest of society.

The greed at the top of society appears to have driven large numbers of people mad. At the end of 2011, Twitter was reportedly valued at $8.4 billion. For that kind of valuation, you’d imagine Twitter was a strong and profitable business. However, in that and the previous year, Twitter had lost some $231 million.² Apparently, Twitter didn’t make any profit until 2018 and then again in 2019, but despite those years, the company still lost about $1.6 billion over the course of 11 years.

Does that sound to you like a good business to invest in? Isn’t 11 years plenty of time for a business to demonstrate that it’s not just an exciting idea on paper, but that it’s actually a viable idea that can generate money in the real world?

In fairness, there’s a little more to this. At the end of 2021, Twitter owned assets of about $14 billion. That may make the $44 billion Musk-led takeover of Twitter seem a little less mental, assuming those assets really can be converted into $14 billion of cash, though only marginally in my eyes. Particularly when about $1.3 billion of those assets were goodwill.³ My understanding of goodwill may be off, but here’s my explanation based on several I’ve read.

Let’s say you buy a jacket for 100 spondoolix and you love your new jacket. You wear it out that night and bump into a friend wearing the same jacket and find they paid just 80 spondoolix. You could think you’ve paid 20 spondoolix too much, but no, you’re overlooking the fact that you’ve paid 20 spondoolix for goodwill.

It seems that when businesses pay more for other businesses than they’re worth, they pretend they bought something called goodwill and then they put this non-existent thing on their balance sheet and declare that it’s worth something. What creative minds the wealthy have. Okay, if you’re an accountant or economist or business owner with goodwill on your balance sheet, I guess you’re foaming at the mouth right now. I accept that isn’t necessarily an entirely fair representation of the concept of goodwill, but my balls, my rules.

And it’s not just Twitter. You know Snapchat? While holding assets of nearly $8 billion at the end of 2023⁴, across that and the previous eight years, the business lost more than $10.5 billion.⁵ Shouldn’t nine years be enough time to prove your idea works and can actually generate profit?

Another social media firm, Truth Social, through its parent company, recently went public with an early market value of $6.8 billion. An interesting valuation for a company that generated just $4.1 million in revenue during 2023 and lost more than $58 million during that same period.⁶

It’s not just social media companies that assume creative valuations that don’t appear to reflect the real world.

At the start of 2019, WeWork was valued at $47 billion. By the autumn of the same year, its valuation had dropped to $10 billion and in November 2023, the business filed for bankruptcy.⁷

In 2014, the blood analysis company Theranos was valued at $10 billion based on the claims of the CEO, Elizabeth Holmes, that they had the technology to run extensive tests with just a single drop of blood.⁸ Except they didn’t have such technology, though that didn’t stop various investors from sacrificing some $700 million.

The wealthiest in society seem to live on another planet. Many appear to have no understanding of value. Perhaps it’s this inability to understand value that makes it impossible to understand the difficulties faced by the poorest in society. If your quality of life continues regardless of the stupid and absurd things you do, it must be easy to assume that the situation is the same for everybody. And if it isn’t, well it’s just their own stupid fault for doing something wrong.

Oh dear.

I’m about to go off on a rant against Donald Trump. Actually, it’s more of a rant against the heffalumps in general, but Trump has presented an excellent illustration of the issue.

The problem is that we live in such a polarised world, one type of reader won’t bother reading what I say because they know I’m just biased and anti-Trump and will condemn him and lie about him, while another type of reader won’t bother reading what I say because they know that Trump is bad and whatever I say will either prove that further or show me to be an idiot Trump apologist.

There is one other type of reader who, even if they hold strong views either way, is smart enough to put them aside and take in what I’m going to say and consider it on the merits.

That’s you, isn’t it?

But just for the benefit of balance for the others, why don’t I go off on a rant against Joe Biden first? That way both sides can demand my immediate cancellation for hating on their heffalump/heffalump-loving hero.

In the last few days, as I write this, Joe Biden’s administration has announced it’s forgiving $7.4 billion dollars of student loans.⁹ In addition to earlier measures, that makes for a total of $153 billion of students loans that have been cancelled. That’s great for those who have loans partially or completely cancelled, but why do these people specifically deserve such help? As I understand it, the aim is to help those who have relatively lower incomes, but how about helping everyone on relatively lower incomes? Not just those who took out loans for their education.

Taking out loans to pay for education is a gamble that everyone should be aware of before they take the decision. People decide to take the loans because they hope that they can gain good educational qualifications that will lead to them gaining higher paid jobs over the course of their working life. There’s no guarantee that will happen.

So why give this money to those people who gambled and had it not work out, and not give any money to those who chose not to gamble on further education? It’s patently unfair to only give money to those who have already enjoyed the benefits of a greater level of education.

Should the US federal government also open offices at race tracks so they can hand out many to gamblers who pick the wrong horse?

There’s rant one over.

I’ve read a few of Donald Trump’s books and I generally find them a mix of stuff that has me nodding my head in agreement and shaking it in disbelief. I always know though that beyond that he’s going to give me some moments of high entertainment. Rather like Boris Johnson in the UK who hosted several episodes of Have I Got News For You, Trump’s a showman, which is why many people are drawn to him.

In his 2011 book, Time To Get Tough: Making America #1 Again, which was later republished with a slightly different title, Trump devotes a chapter to argue the case against Obamacare. Obamacare is the slang name for the Affordable Care Act, an act designed to increase the number of Americans with access to healthcare. That doesn’t sound like a bad thing does it?

Trump’s issue with it was the concern that it would be costly for many great businesses and big employers. He specifically named Boeing, Caterpillar and Deere & Company, stating they would have to pay at least $150 million, $100 million and $150 million respectively to comply with the new law.

Specifically, he wrote the question “Where does Obama think these sums will come from?“

That’s a typical heffalump response. The answer to that question is both simple and obvious. So simple and obvious that I can only imagine someone could write that question if they were stupid or believed their readers to be stupid. With regard to Trump, I’ll let you decide.

Anyway, clearly those sums will come from the huge profits those companies produce.

In 2011, the year Trump was confused about how these huge businesses could possibly find the money to pay for healthcare for their workers, Boeing generated more than $4 billion in profit¹⁰, Caterpillar made almost $5 billion in profit¹¹ and Deere & Company made $2.8 billion profit¹².

So it would have required the companies to use just 3.73%, 2.04% and 5.36% of their profits respectively to fund Obamacare for their workers.

Who generates the wealth that Boeing, Caterpillar and Deere & Company produce?

Yes, of course, the workers do. Without the workers, those businesses would generate zero income and zero profit.

Who gets the profits those companies generate?

Yes, again. The shareholders get the profits paid to them through dividends. And as we can see from the figures above, even if the businesses did invest a little of their profits back into the welfare of their workers, the overwhelming majority still goes to the shareholders.

Trump’s attitude is typical of a heffalump because he believes it’s wrong for companies to waste money on ensuring they provide their workers with basic protections at the expense of the shareholders. Even though the workers are the ones generating the huge profits.

This view of the people is the same one autocrats like Putin have, that they are merely assets that can be used for whatever purpose desired. For Putin it’s having them lose their lives fighting their neighbours, while for the heffalumps it’s having them create wealth for them as they do nothing productive themselves.

Deviating slightly, do you think it’s possible this fixation on maximising value for shareholders could be part of the reason why Boeing’s commercial aviation division has suffered so badly in recent years? Mistakes made in trying to extend the lifespan of an airframe first designed in the 1960s, saw the 737 Max range grounded for 20 months after 346 deaths. One model had a further three-month grounding in 2024 following a failure of a door plug in one aircraft in flight.

Could these problems have been avoided if a greater focus had been placed on the workforce and products, rather than profits for shareholders?

Not All Big Businesses Are Alike

I’m fond of repeating that people are people, that most of us are pretty much the same, with there generally being relatively few outliers who are really bad or really good.

I think that we could probably say something similar in that big businesses are big businesses. Most of them behave in very similar ways, doing all that they can to maximise profits at any cost. As with people, there are also outliers.

We saw how Budweiser was suffered in the fallout from their decision to partner with the influencer Dylan Mulvaney to promote their Bud Light product. The reaction of many of their customers was nasty and ugly in how they reacted to one person just trying to find their own happiness and live a life true to themselves. However, it turns out their reaction couldn’t have happened to a more suitable company.

It was a kind of recursive karma where the backlash seemed fitting for the way that they reacted to that backlash.

That reaction being to offer wishy-washy statements to try and placate their upset customers while offering no support to Mulvaney as she also faced personal attacks online in response to their previous partnership.¹³ Certainly that is Mulvaney’s take on the situation and considering the lack of support from Budweiser in their public statements, it doesn’t look unfair, does it?¹⁴

I imagine that Budweiser saw using Mulvaney as a way to make the business look like a modern and progressive business that embraces all people without ever considering how that might come across to a large part their existing customer base. Once they realised the response of many of their customers, it seems to me that they were keen to backtrack as quickly as possible. They appeared not to care about the person they partnered with, only about the lost sales.

Compare the actions of Budweiser with another company that also faced a nasty and ugly backlash from some of their customers.

The situation with Nike and Colin Kaepernick is a bit different in that they partnered with the football player because he was a successful quarterback. Kaepernick then went on to do something that offended some people, whereas Budweiser picked Mulvaney because she was transgender and that was what offended some people. So on that basis, we might argue Nike would have had grounds to cut ties with Kaepernick when his actions caused some offence.

Now, I’m sure you remember that the actions that caused offence was Kaepernick’s decision to protest against racial inequality and police brutality by kneeling during the US national anthem as it was played before NFL games.

There was a significant backlash to his actions from some and it would be easy to understand why Nike might have felt unhappy about the situation given that these actions started after he and the company had signed their partnership deal.

Nike saw the situation differently to how Budweiser saw the Mulvaney situation. Rather than seeing the prospect of losing customers and profits, they appeared to see it as an opportunity to clean up their customer base. They stood firmly with Kaepernick and were quite clear in their support for his actions, seemingly happy to disassociate themselves from any customers who wanted to boycott them as a result.

They put a person first. Unlike Budweiser who seemed to see Mulvaney as an easy token to access a specific market segment, Nike’s actions suggest they saw Kaepernick as an expression of all that they stood for as a company. For clarity, I’m not suggesting that Nike are the perfect example of a big business, but in this situation they showed that people are important and that seems unfortunately rare in our societies now.

There’s one more positive lesson from this too. Kaepernick’s initial plan was to sit during the anthem, which he did several times. One of those upset by his apparent disrespect for his country was the army veteran and occasional football player Nate Boyer. Despite feeling anger, Boyer actively made himself listen to the reasoning behind the action before writing a considered open letter. That letter led to Kaepernick reaching out to Boyer and when they met and talked, it was Boyer who made the suggestion of kneeling. An action that he saw as still showing respect the flag and the country while simultaneously allowing Kaepernick to protest against the treatment that some of that country’s citizens suffer.

Mrs Forclift will tell you I’m the sentimental one in this house. It’s always me suffering a bit of grit in the eye as we reach the end of a rom-com and against all odds they end up together. So she’d not be surprised that I find the image of Boyer stood beside the kneeling Kaepernick so moving.¹⁵

That photo shouldn’t be so affecting, but in a world where we all seem so passionate about division and hating on others, seeing two people with opposing views formed from very different life experiences respecting eachother’s views seems such a rare and precious sight.

If we all had that strength of character, I can’t help but feel we’d live in very different societies.

Anyway, that’s a slight deviation from our focus on the wealthy putting their desire to generate even more wealth before the needs of the people, so let’s get back on track.

Isn’t The House Rental Market Just Profiteering?

During the COVID 19 pandemic, the concept of profiteering was thrust into our consciousness as a result of some people taking advantage of shortages to turn a quick profit. During Spain’s initial total lockdown when we couldn’t even go out into the country to pick wild asparagus, I ended up paying about €50 for a mop and bucket. In fairness, it was one of those whizzy spinning ones and I started using it instead of the floor cleaner because it turned out to be quicker, but it still seemed a lot for a mop set.

Anyway, I got and still do get confused by the concept of profiteering. I’ve just searched for a definition and found this, “make or seek to make an excessive or unfair profit.” Who says what is fair and unfair?

My basic understanding of capitalism states that sale prices are set by the balance of supply and demand. When there is greater supply than demand, prices will drop and when demand is greater than supply, prices rise. So if more people want mops, mops become more expensive.

So what do you think? At what point can we accuse mop sellers of profiteering? I ask because I don’t know the answer.

Maybe no-one does and that’s why capitalist societies often have rules to prevent monopolies from forming in different business sectors to ensure there is always open competition. As long as there’s competition, no-one seller can push the price too high because competitors will undercut them.

On that basis, we could say profiteering happens when someone holds an exclusive supply of something.

In the case of mops, if one person had bought all the mops, then we have grounds to accuse them of profiteering because the free market isn’t working. Similarly, if someone were to gain exclusive control of a vital drug and increase its price by more than 4,000%.¹⁶

What if one person bought up all of a society’s housing stock so they could rent it out for their own profit, reducing the number of houses for sale and in turn making them more expensive? That would be profiteering too, wouldn’t it? But houses are expensive and the possibility of one person buying enough houses to have such an effect seems very small.

Do you recall back in A Tale Of Two Tax Systems I said how despite the UK and US having a shortage of houses for sale, on a relative basis there is no shortage of houses? The issue is too many people using their wealth to buy houses that they can then rent, turning the income of their renters into new wealth for the house owners.

It’s not one person cornering the market in housing and profiteering from it. However, if we reframe how we look at it, it is one group of people monopolising the purchase of houses and then profiteering from it. While it’s not a formal cartel of house owners pushing the price of houses up to a level where most working people can no longer afford them, the effect is the same.

If this one group of house owners had to sell their properties, the supply of houses would grow significantly and with this group no longer buying, demand would simultaneously drop, along with prices.

They don’t need those houses that they’ve bought. They bought them solely to make money unfairly from others who would prefer to buy their homes. So that they can take income from the poor and turn it into wealth for themselves.

It’s just the strong bullying the weak, only in this case their strength comes from having more money and being able to push the weaker and poorer out of the market to buy houses and into the market to rent them.

How is that not profiteering? And if we’re agreed that it is, how come governments aren’t clamping down on it?

Money For Nothin’

No, We Can’t Have a Share

Not All Big Businesses Are Alike

Isn’t The House Rental Market Just Profiteering?