You’ll get to the heart of the matter if you linger on a passage that comes near the end:
Over all, United Technologies [Carrier’s parent] earned nearly $7.6 billion last year, and $2.9 billion of that came from the climate, controls and security division that includes Carrier. Those profits aren’t under pressure; in fact, margins in the unit have steadily expanded in recent years.
But that’s not good enough, said Howard Rubel, a senior analyst at Jeffries, who notes that United Technologies has vowed to cut at least a half-billion dollars in costs annually for the next few years. “The stock hasn’t done well,” Mr. Rubel pointed out.So here’s the problem: Carrier is profitable and there are no apparent threats to its continued profitability. But it could be more profitable if it replaced workers in Indiana with workers in Mexico who can be paid about a tenth as much. Investors, of course, demand these higher profits. If the purpose of the company is to satisfy its investors, that’s what it needs to do.
But what should be the purpose of a company? Businesses have many beneficial purposes: they can produce things people want and are willing to pay for, they can provide employment for workers and an economic base for their communities, they can promote education through training programs and linkages with schools and universities, and they can pitch in to promote social objectives like sustainability and racial and gender equality. Through their R&D they can contribute to society’s fund of useful knowledge, and through their management and governance they can help cultivate democratic values of participation, cooperation and respect. Of course, to do all these good things they need to be profitable, not just now and then, but on an ongoing basis, anticipating future threats to profitability and responding with innovation and toughness when necessary.
But putting the interests of investors above all others, and putting profit maximization above any other benefit they can provide, can turn them into instruments of economic, social and political decline. It’s not just about shipping jobs to Mexico; moving jobs around the US to force workers to make concessions or simply because the costs of dislocation don’t matter to them, can be just as harmful. Or maybe the way to make an extra buck is to cut corners on the environment, or to avoid paying taxes or to invest in politicians who can rig the system for you. The ability of clever executives to devise new ways to boost profits at the expense of society will always exceed the capacity of regulators to keep them in line.
To put it in a nutshell, the actions of Carrier and the rest of corporate America reflect a system in which investors come first, and the primary goal of business is to maximize profits. We need a system in which investors are just one of many constituencies, and the financial goal is to maximize the probability of remaining profitable over an extended time horizon. Profit has to become a means, not an end.
The socialist agenda, as I understand it, is about the many reforms that move us closer to such a world. It includes worker participation in corporate governance, but also representation of other community interests. It can include measures to broaden ownership, including a role for public and social ownership vehicles along with private ones. Financial reform also has a large contribution to make, especially if it expands the role of public and cooperative banking. Consideration should also be given to measures that would alter the incentives to issue preferred rather than common stock or otherwise attenuate the connection between ownership and control—in other words, perform a Reverse Jensen. And this is just the beginning: once you start thinking about it, you can see the agenda is enormous, especially because it’s been in mothballs for generations.
I wish there were a socialist running for president right now.