OWS has been protesting against corporate greed for over 40 days now. However, it is not greed that is the problem with the global financial system. The problem is the mentality of investment derived from a particular logic and language. Both of these aspects operate in a market system that perceives consumption as limitless.
The nature of economics demands positive growth – growth on top of growth. This means that businesses are expected to not just make a profit, but to make a larger profit every period. If a company makes less profit than before, it is perceived as a loss.
It is this mentality of investment that gives modern economics this nature of having an insatiable thirst for growth. The first aspect of investment is the logic held by investors. For most people, it is fair to say that they want to do the least amount of work for the maximum amount of return. Capital cannot only yield more leisure time but can also increase the variety of choices one can make (ex. donating, lobbying for particular interests, funding research, buying naming rights, buying a private jet, etc). While capital is not a prerequisite for freedom, having capital can certainly help facilitate more freedom. What OWS sees as greed is rather just a human impulse to increase one’s possibilities.
Apply this logic to investment. Given that it is so simple to move capital in and out of the market, it is very logical for investors to flock to investment options that will yield the highest return. If the capital is going to be in the market anyways, why not have it in a more profitable venture? Ergo, companies will strive to make themselves as profitable as possible in order to attract and maintain investors. If a company becomes less profitable, investors are likely to engage in “capital flight” and move to a more profitable venture. Keep this in mind as we examine the second aspect.
Language is the second aspect of investment. Consider the Canadian Company Research in Motion, producer of the popular Blackberry phones. In the last quarter, the net profit for this company was $329 million, as opposed to $797 million in the previous year. Despite the fact that shareholders profited on the investment, it is still considered to be “at a loss.”
All investment is calculated on a future return. This means that if you buy x stock/bonds/shares, you expect a certain future return. Let’s say the quarterly growth rate is 10%. If you invest $10, you are expecting to make $11, or $1 more in three months. If you make $10.50, you have suffered a “loss” because you have made less than what your expected return was. Instead of the language being something akin to “having made a smaller profit,” it is “having lost money” – money you never actually had.
Coupled with logic, these two aspects create the adverse conditions OWS is protesting. Growth eventually slows down, often because production cannot be consumed or consumers cannot afford the product. This results in executives having to employ “creative” methods to remain profitable – because if they do not maintain investor profits, the investors will leave and the company fails. Common strategies are lay-offs, salary reductions, shrinking benefits, or moving production to a more profitable environment. This trend can be seen in the shrinking of the middle class in America.
To turn this around, investors must come to understand that the mathematical models used to calculate their expected returns do not take into account the limited nature of resources – including human resources. At some point their gains will be smaller. And it is important to say “smaller” instead of “at a loss,” because it psychologically reinforces the fact that the investor is in fact still making a profit. Finally, the logic of investment has to be repressed as executives can only fire so many employees and outsource so much production to maintain profits.
If investors want to maintain modest but long-term profits, they need to allow companies to produce growth that is sustainable for the society underneath. This means keeping jobs and salaries at a level where the citizenry can live with modest comfort.
It is difficult to find people below the poverty line that can consume $600 iPads and $150 Nikes.
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