I was reading this article from CBC news about how the big discount store Target is trying to demand an extra 2% discount from its suppliers. This is not terribly unexpected. It’s simply the nature of capitalism and economies of scale. Those with more resources can demand more for them from those with less. But it struck me that “must” does not necessarily follow “can.” That is, simply having the ability to squeeze your suppliers for every ounce of profit until they finally have to leave you isn’t required.
Until I thought about it more.
People are blaming Target for being greedy, but the management of Target hardly has any choice in the matter. After all, if they do not improve their performance, year over year, the market will judge them harshly. And with it given that most management these days receive a substantial portion of their pay the form of stock options, which therefore require that the price of the stock increase if they are to realize a profit, what choice do they have but to squeeze every ounce of growth from wherever they can?
Yet why is this? Why is it necessary that a company be growing? The answer for that brings us back to the stock market. There was a time when those involved in the market were primarily investors. They put money into a company with their primary expectation being to receive dividends if the company was profitable. But today people don’t speak so much of investing, they speak of trading. And with that comes an entirely new set of expectations. Dividends are secondary to the valuation of the stock itself. After all, a trader does not expect to be holding the stock long enough to receive a dividend. They buy the stock, typically from some other trader, wait for it to increase in value, and then sell the stock to another trader, as if the company, not what it produces, was the commodity. With this in mind, the company can never sit still. A company that is hugely profitable and giving out large annual dividends but not expanding is not interesting to the traders that make up the bulk of the market volume. Yet, from a societal point of view, the profit a company makes is not important. What is important is if it fulfills a need that the people have. Our trading system rewards the former without regard to the latter, under the assumption that if what the company produces is useful, it will profit, and the more useful it is, the more profit it will make.
But as the Target example shows us, economies of scale can create other means to profit as well, means which do not enrich society, but merely concentrate the wealth that is there.
I’m not sure what the answer to this is, but fortunately, The Voice Magazine will try to enrich you through this week’s set of articles, including Barb Lehtineimi’s examination of why getting involved is something you need to do. Primal Numbers takes us into the world of technologic telepathy, and why our parents may be better at it than we will be. The Writer’s Toolbox completes her look at how to properly show time in your writing, and we have the addition this week of The Study Dude, who points out that while we may be distance students, that doesn’t mean we can’t learn from one another.