Capitalist Karma

[jinjuku]

Take another drug as an example: Colchicine

On July 30, 2009 the FDA approved colchicine as a monotherapy for the treatment of three different indications (familial Mediterranean fever, acute gout flares, and for the prophylaxis of gout flares[21]), and gave URL Pharma a three-year marketing exclusivity agreement[22] in exchange for URL Pharma doing 17 new studies and investing $100 million into the product, of which $45 million went to the FDA for the application fee. URL Pharma raised the price from $0.09 per tablet to $4.85, and the FDA removed the older unapproved colchicine from the market in October 2010, both in oral and intravenous forms, but gave pharmacies the opportunity to buy up the older unapproved colchicine.[23] Colchicine in combination with probenecid has been FDA approved prior to 1982.[22]

5300 % price increase.

So $100 million 'investment' which $45 million goes to the FDA 'application fee'. So they can take a drug that's been around for ~100 years and raise the price over five thousand percent.

 

[herbu]

So $100 million 'investment' which $45 million goes to the FDA 'application fee'. So they can take a drug that's been around for ~100 years and raise the price over five thousand percent.

That sounds more like corrupt government than corporate greed.

 

[herbu]

But let's not start giving examples of "corporate greed" or corrupt government. There are plenty of each, and any example doesn't prove the point. I would like to know thoughts on:
1. When does acceptable profit become greed?
2. Is it possible to define a point that applies in all cases?
3. Does that point apply to workers, (unions), as well as management?
4. Who decides?

I hear people complain about an exec that makes $100M/year. But when I look at the company, its profit grew $1B under the guidance of that exec. Is the exec getting paid too much? I don't think so.

 

[Steve81]

1. When does acceptable profit become greed?

Depends. "What the market will bear" doesn't work so well when a company has an effective monopoly on essential goods and services.

2. Is it possible to define a point that applies in all cases?

Not really. If oil companies collude to raise the price of gas to $50 a gallon tomorrow, that's a serious problem. If the price of Doritos goes up to $50 a bag tomorrow, they're just morons.

3. Does that point apply to workers, (unions), as well as management?

Practically everyone is greedy. There is a great deal of stuff in my life I could live without (HT, computers, eating out, etc.). I could subsist on rice and beans, and get my jollies solely by playing in the yard with my kids. Still, I want all that stuff (even if I'd probably be happier and healthier leading the simpler lifestyle ).

4. Who decides?

Ultimately, we all do.

I hear people complain about an exec that makes $100M/year. But when I look at the company, its profit grew $1B under the guidance of that exec. Is the exec getting paid too much? I don't think so.

Doesn't matter what you or I think, it matters what the shareholders think. If they think the exec is worth 100 million, more power to them.

 

[KEW]

1. When does acceptable profit become greed?

There are a continuously variable shades of gray here and defining a precise point would be impossible (be lucky if 2 people agreed!)
However, there are extreme cases such as this one where only a small percentage of people (sociopaths?) who would consider it good business.
I guess it ends up being a question of how much is a company willing to harm other people or whole society in their quest for profit?

 

[Chu Gai]

But let's not start giving examples of "corporate greed" or corrupt government. There are plenty of each, and any example doesn't prove the point. I would like to know thoughts on:
1. When does acceptable profit become greed?
2. Is it possible to define a point that applies in all cases?
3. Does that point apply to workers, (unions), as well as management?
4. Who decides?

I hear people complain about an exec that makes $100M/year. But when I look at the company, its profit grew $1B under the guidance of that exec. Is the exec getting paid too much? I don't think so.

I don't know how to answer the above in any way that makes for a concise answer. I have been toying around an idea regarding the compensation packages to top executives which transcend just salary. I was thinking that something along the lines of how the NFL structures player contracts might be workable.

 

[herbu]

There are a continuously variable shades of gray here and defining a precise point would be impossible (be lucky if 2 people agreed!)

Yep, I agree. That's what makes this a tough issue. People who like Socialism will attempt to re-distribute as much wealth as they can. People who like Capitalism will say to let the people doing the hiring decide how much their employee is worth. It's hard to legislate a point that suits everybody.

 

[KEW]

People who like Socialism will attempt to re-distribute as much wealth as they can. People who like Capitalism will say to let the people doing the hiring decide how much their employee is worth.

You did a poor job of bracketing the extremes here.
I don't know if Capitalism is the proper category for it, but I would see the extreme counter to Socialism as a system where the owners/managers of the business are paying based on the minimum amount they can find a worker to do the job (forget minimum wage). It is established historically that businesses without any restriction are willing to pull from child labor where possible and pay a pittance. Our society has never been purely Capitalist (for good reason). Then there are also the questions of what minimum quality of conditions are required - you can look to coal mining over the past 50 years - safety violations of clear-cut rules designed to prevent people from getting buried alive. But if you assign no value to your employees and consider them a replaceable commodity, strict Capitalism would suggest that the Safety requirements are a waste of money.
I think it was 9th grade where one of the English classes I took was called "Man's Inhumanity to Man". It focused on literature about this common human phenomenon.

Having grown up in the south, I was outraged at auto workers making $50/hr and demanding free dental benefits for doing jobs that I know would pay $15-20/hr here. I feel that is a violation of the intent of unions. However, you can never say that unions are categorically evil. Having worked in manufacturing most of my life, I know that that $15-$20 would have likely been $10 - $15 of there was not the threat of labor organizing. The equalizer is the labor force down here sees the antics of extreme unions (such as UAW) and recognize it as BS and they really don't want to go there.

Historically, our country has seen a rather golden era for the second half of the last century. I believe it was set up by two major events - The Great Depression reduced class disparities and the World Wars unitized the population of the USA. Together, a "we're all in this together" mentality was created among Americans. The GI Bill (which has more Socialist underpinnings than Capitalist, if we want to categorize) did an amazing job of catapulting our country into dominant SuperPower status by making education readily available to many who could not afford it on their own and creating a well educated work force.

Unfortunately, the effects of these events has diminished over time. However, over most of our lifetime, these events have greatly influenced behavior by causing people to treat each other with a certain level of respect and honor.

My point is that we have seen strict (or absolute?) Capitalism and it is not pretty. Our country is not purely Capitalist without any restrictions and that is a good thing.

 

[Rickster71]

There are a continuously variable shades of gray here and defining a precise point would be impossible (be lucky if 2 people agreed!)

I guess it ends up being a question of how much is a company willing to harm other people or whole society in their quest for profit?

Have to agree with it being impossible.

I worked for the company that invented the transistor and photovoltaic.
Still unclear how much they harmed society...

 

[Tao1]

I have read "corporate greed" here a lot, but such a thing technically doesn't exist.

The law actually requires for corporate management to 'maximize profits' in any way they legally can. Selling things at a discounted price out of benevolence is technically illegal, and shareholders can take the board of directors to court 'on behalf of the corporation'. The laws of incorporation are really set up one way, and I doubt such a system would ever be allowed to come into law if it were introduced today. A very bizarre system indeed.

If a wealthy individual in our society can increase that price to $750 a pill, what does that tell you about the power balance in our country?

Remember, it only backfired on him because he was obvious and extreme. The article highlights how Pharmaceutical companies are systematically doing this, but doing it in less blatantly so as to stay under the radar.

I'm not sure what moderated it in decades past, but it has now become "good business" in our capitalist society for companies to capture a market than jack the price up to the maximum that the market will bear.

Is it a matter of anti-trust laws being watered down through lobbying?

Since election campaigning is in action I hope this gets attention on both sides of the fence as something the Government needs to exert influence over. The people with money sure aren't going to fix it!!!

Actually, I do trust that there are people with money* who have a high sense of ethics.

I'll define "with money" as being among the 200 wealthiest families in USA.

The problem lies with 'the rules of the game'. The law states that actions of management must be to 'maximize company profits' in any (legal) way. Deviating from profit maximization is illegal as crazy as it is.

Going further, economic theory has no room for judgement when it comes to price. You charge the 'market clearing price' for profit maximization and that is that. One penny more or less than that price makes you lose revenue. To put it a different way: people get outraged when prices get higher during Christmas time. Well this isn't gouging, since arbitrary price changes are not logically sound according to economic theory. The best 'profit maximizing price' is just that. At Christmas, demand goes up, and in some cases supply goes down due to the season, and thus a higher price is prescribed to 'clear the market'.

Going back to 'the rules of the game' the only way to stop this 'unethical behaviour' is to change the rules. This is easiest by making legislation preventing unwanted behaviour. Unfortunately, the United States frowns upon government intervention, and thus practices like this are allowed to thrive.

The being said, more socialist policy added into a capitalist system usually leads to better results. As a Canadian I can say that it is nice to have prescription drugs subsidized by the government in varying degrees, as well as a law which imposes price ceilings for drugs. Also government owned utilities has safe guarded us from such situations as with Enron in California, as well as keeping prices low.

But let's not start giving examples of "corporate greed" or corrupt government. There are plenty of each, and any example doesn't prove the point. I would like to know thoughts on:
1. When does acceptable profit become greed?
2. Is it possible to define a point that applies in all cases?
3. Does that point apply to workers, (unions), as well as management?
4. Who decides?

I hear people complain about an exec that makes $100M/year. But when I look at the company, its profit grew $1B under the guidance of that exec. Is the exec getting paid too much? I don't think so.

1. There is no such point, except by breaking the law to increase profit (Fraud, etc). There is only a point of NOT maximizing profit.

2. Yes: whether the law is broken for profit or not. Sadly this is the only thing remotely defining a measurement for greed in the current 'rules of the game'.

3. Not sure what you mean: either how a company compensates workers, or how workers demand wages.

Companies will try to pay their workers nothing if they can (Slavery for example, or the need for a minimum wage). Or cut down on safety measures, thus externalizing the cost onto the worker (injuries, maimings, and deaths).

As far as workers and unions demanding higher wages: They are limited by the laws of supply and demand. Shortage of workers = higher wages to clear the market. Shortage of work = lower wages. However there are arguments that the higher the minimum wage, the more prosperous for the economy (without causing reduced demand for labour).

4. ultimately society decides. In Economics 'the invisible hand' guides the market. The quick and dirty explanation of that is everyone acts in their own best interest, and as a collective sum of these actions trends occur in the market. Therefore economics can't decide, since people will only act in their own interests. Government is the mechanism for people to act as a collective. Therefore government legislation is really the only answer to these problems (i.e. changing the rules).

As for company executives getting paid high amounts:

Yes supply and demand govern this. However there is an argument that these people can make more than they spend, and thus large portions of currency sit idle in the system which causes problems (but this is another story).

 

[herbu]

more socialist policy added into a capitalist system usually leads to better results

Wow. How could I have missed that point all these years?

there is an argument that these people can make more than they spend, and thus large portions of currency sit idle in the system

"Sit idle"? You think these people stuff their money under the mattress? It is invested... which drives business and creates jobs.

Your response sounds like something that could be taught in universities today... and I suspect that's where you got it. Accurate facts followed by untenable conclusions. Too bad you're in Canada. Bernie could use your vote.

 

[Steve81]

The law actually requires for corporate management to 'maximize profits' in any way they legally can. Selling things at a discounted price out of benevolence is technically illegal, and shareholders can take the board of directors to court 'on behalf of the corporation'.

Maximizing profits is of course the goal of any business. However, opinions obviously vary as to how to best meet that goal. Acts of benevolence may not help the bottom line in the current quarter, but the positive PR helps when looking at the long term picture. Conversely, in the case from the OP of a guy jacking up the price of a drug from 13.50 to 750 a pop, the extremely negative press coupled with the entry of a competitor make such a large price increase rather asinine.

 

[3db]

"Corporate greed". I'm always a bit skeptical when I see this term.
How much profit is acceptable?
At what point does it become greed?
Who decides?

Examples of corporate greed is when banks and insurance companies are making record profits during an economic recession by

• nickle and diming its clients with bogus service charges
  
• offerring very little interest rate on saving accounts
• off shoring its work to places like India when more people would benefit by keeping the work in house. The money saved by off shoring doesn't get reflected by lower interest rates on loans or higher interest rates on bank accounts. A large part of it does line the pockets of the corp elite however.
  
• offering loans whose interest rates are well above the prime rate.

That is corporate greed and goes well beyond sound business practises. I know banks and insurance companies are here to make money but they offer very little incentive for customer loyality.

 

[herbu]

• nickle and diming its clients with bogus service charges
  
• offerring very little interest rate on saving accounts
• off shoring its work to places like India when more people would benefit by keeping the work in house. The money saved by off shoring doesn't get reflected by lower interest rates on loans or higher interest rates on bank accounts. A large part of it does line the pockets of the corp elite however.
  
• offering loans whose interest rates are well above the prime rate.

Why don't consumers vote with their business? Service charges and interest on savings are things for which the consumer can shop.
Interest rates on loans also vary for a consumer that is a "good risk". The better your credit, the lower rates you can get. If you are a high risk, your chance of default is higher, thus your interest rate is higher.

The fact that a bank "offers" lousy rates is not greed. It is an option offered to bad risks. They can't compel anybody to take their offer.

I remember buying my first house. I had to jump through many hoops to qualify for financing. It was the bank's way of making sure I could pay them back. With that strict qualification process, they kept their risk, (and their rates), low.

Then the govt decided lower income people deserved a house, and forced the banks to loan money to people the banks would never have qualified on their own. When these people couldn't pay back the loan, the banks were vilified for being greedy and making predatory loans.

I submit that left to their own devices, (the govt stays out), consumers will regulate greedy businesses on their own. Every business that becomes greedy will spawn a competitor that undercuts them.

 

[3db]

"Corporate greed".
I see the UAW wants higher pay for workers at Ford and GM because their profits are up. When the guy that sweeps the floor gets $100/hr and wants a raise, is that greed? Same questions as above.

Yup that's union greed. Greed doesn't care what side of the coin you are on.

 

[3db]

Why don't consumers vote with their business? Service charges and interest on savings are things for which the consumer can shop.
Interest rates on loans also vary for a consumer that is a "good risk". The better your credit, the lower rates you can get. If you are a high risk, your chance of default is higher, thus your interest rate is higher.

The fact that a bank "offers" lousy rates is not greed. It is an option offered to bad risks. They can't compel anybody to take their offer.

I remember buying my first house. I had to jump through many hoops to qualify for financing. It was the bank's way of making sure I could pay them back. With that strict qualification process, they kept their risk, (and their rates), low.

Then the govt decided lower income people deserved a house, and forced the banks to loan money to people the banks would never have qualified on their own. When these people couldn't pay back the loan, the banks were vilified for being greedy and making predatory loans.

I submit that left to their own devices, (the govt stays out), consumers will regulate greedy businesses on their own. Every business that becomes greedy will spawn a competitor that undercuts them.

Have you seriously looked at interest rates and loan rates from across all the banks? They're all within a percentage point of one another (short of collusion) and the trumped up service charges also follow suit. Businesses can't vote because there simply isn't any choice. Its all controlled by money and the corporate elite. Don't be so nieve to think that business will correct things when business is owned by the wealthiest families in the country and they intend to stay that way. There is no fair play or market adjustments when business is owned by these families.

In the case of the pharmaceutical example, it is greed and nothing else that drives the cost of the med up by that staggering amount.

 

[KEW]

The law actually requires for corporate management to 'maximize profits' in any way they legally can.

The fact that no one has questioned this statement yet makes me think it may be true! Is this really the case?
I understand it is the job duty/expectation as well as share-holder's expectations for a traded company, but I am astounded that a CEO may be prosecuted for missing an "opportunity" to profit. In my management training, ethics was often given a little discussion time, but this would imply that considering ethics is illegal if it conflicts with legal means to a profit.
Public opinion is always a factor, however, if activities can occur discretely, that is no concern. That is why lobbyists have bought our government to allow SuperPacs - so a company does not have to reveal how much it is spending to manipulate politics.

 

[Chu Gai]

I'd welcome a citation of the law.

 

[Irvrobinson]

The fact that no one has questioned this statement yet makes me think it may be true! Is this really the case?
I understand it is the job duty/expectation as well as share-holder's expectations for a traded company, but I am astounded that a CEO may be prosecuted for missing an "opportunity" to profit. In my management training, ethics was often given a little discussion time, but this would imply that considering ethics is illegal if it conflicts with legal means to a profit.
Public opinion is always a factor, however, if activities can occur discretely, that is no concern. That is why lobbyists have bought our government to allow SuperPacs - so a company does not have to reveal how much it is spending to manipulate politics.

No one has questioned it because it is completely nonsense. I didn't think anyone was taking it seriously. Pricing, which is the basis of profitability, is a judgement call. How much price and demand elasticity is there under specific market conditions is a guess. It can be a very good, educated, well-researched guess, but it is in the end a guess.

Lots of CEOs also pass on investment opportunities, sometimes excellent ones, again, because of judgement calls. It might seem too risky because they don't understand it fully, or they may not have confidence in the people proposing it, or they don't want to take the company in a certain direction, or a million other legitimate reasons. And sometimes CEOs just aren't the best decision-makers. Some are afraid of decisions. I knew one senior executive who I used to joke could not be allowed to go into a men's room stall with more than one roll of toilet paper. If it had two rolls he'd never come out without a staff member making a recommendation.

This thread is sometimes really silly. Everyone is greedy except the posters here? Nonsense. Rich people are greedy? Union members are greedy? Companies are greedy? I hate the word greedy. Any society that decides to reward people economically based on the market value of their contributions, or their ability to get other people to willingly pay, is going to generate disparities. That's not greed in a negative sense, it's because capabilities and ambitions vary widely. Personally, I like it this way, even though I'm often too lazy to take advantage of some opportunities I know I probably should.

True greed is generally a dumb mistake. Ambition, achieving results, and risking-taking should produce rewards limited by what people will willingly pay. Sometimes you have temper things with some regulation to keep silliness out of the system or to prevent hardship, but overall I think market economies work pretty well.

 

[Tao1]

Wow. How could I have missed that point all these years?


"Sit idle"? You think these people stuff their money under the mattress? It is invested... which drives business and creates jobs.

Your response sounds like something that could be taught in universities today... and I suspect that's where you got it. Accurate facts followed by untenable conclusions. Too bad you're in Canada. Bernie could use your vote.

Using more socialist policies is what gives many developed nations a better standard of living than the US.

I said there is an argument for money "sitting idle". Essentially the interest mechanic breaks the system. If you lend me money, I should pay it back with something extra for your troubles no? Interest makes sense in this respect. However this isn't really how it plays out. Interest ends up being a tax on the less wealthy, and a system to funnel money up to the wealthy. If a person has a few extra millions they can't spend, yes they do invest it. However do they even notice it being gone into a loan at all? no not really. The put those millions away, go on with their lives, and come back to see it grown. The new money is from people who otherwise can't afford to do what they want. This lump of money grows larger and larger serving no useful purpose other than to siphon more money out of circulation.

The argument is showcased in the Documentary "inequality for All"