This falsely assumes the interests of the firm are contained in a proper reading of a balance sheet

You have a point. That's why I mentioned economic profits, which include implicit costs, not just what goes on the balance sheet. A statement of net position obviously doesn't tell you everything you need to make business decisions, but it does tell you things you need to know to keep a business from running long term loses and thus having to close.

As for Lehman Brothers, yes stockholders absolutely lost more financially in direct relation to the bankruptcy. Bondholders and other creditors get paid first in a liquidation, which if I recall did not meet all liabilities, so shareholders got wiped out.

In the larger context employees might have lost more because they ended up losing their jobs right has the economy went south for an extended period. But had Lehman gone bankrupt in a bubble, their financial losses would have less, since finding similar work would have been much easier.

This doesn't get into the fact that there are non-financial costs related to losing your job like stress, or social costs if you really liked your job and coworkers. It doesn't get at the larger point that, for a large firm like Lehman Brothers, the major shareholders are all extremely wealthy, and can thus absorb losses better. However, in general owners lose more when a company goes belly up because an asset they have invested in becomes worthless, while workers lose only a stream of income, which might be replaced fairly easily depending on the industry.

But the Lehman example is why I said labor should likely have more of a say in larger firms. It's quite a different situation from an experienced lawyer or plumber starting their own business, having to invest in all the tools and overhead, and hiring half a dozen or so assistants. Mandating the the owners of firms turn over control of their firm as soon as they higher any help would create a powerful incentive for businesses not to expand, which isn't what you want.

You probably have to define profits here. — Count Timothy von Icarus

Net earnings. The “bottom line.”

Payments out to owners, either dividends if stock has been issued, or profit sharing for partnerships. — Count Timothy von Icarus

Or buybacks, which are gargantuan. Together with dividends they account for 90% of where the profits go. Wasn’t always that way, but in the neoliberal era it is. We see the results.

But obviously the rationale for owner control gets less and less compelling as the company gets larger and the owners less involved in operations. At a certain size, labor should have a say in profit use. — Count Timothy von Icarus

I would argue they should have a say at any size. But yes, I’m mostly talking about multinational corporations — S&P 500, etc. Not small businesses.

Beat me to it, but looking at bailouts — especially in 2009 — shows that the wealthy really have no risks— they’re fine no matter what. They’re too big to fail.

it does tell you things you need to know to keep a business from running long term loses and thus having to close. — Count Timothy von Icarus

It does, but what does that matter to the owners? They own a varied portfolio of stock and will often make as much running a company into the ground and fleecing its assets as they would making it super profitable. Very rarely do the owners own only that company so their interests are likely to extend well beyond that particular company's long term profitability.

As for Lehman Brothers, yes stockholders absolutely lost more financially in direct relation to the bankruptcy. Bondholders and other creditors get paid first in a liquidation, which if I recall did not meet all liabilities, so shareholders got wiped out. — Count Timothy von Icarus

Did they though? Can you point to major shareholders who were poverty stricken by the bankruptcy?

Again, owners have broad portfolios. Workers can't have a broad portfolio of jobs. Homeowners can't have a broad portfolio of mortgages. So the latter two lose out from any bankruptcy more than the first. So for a worker, to invest their labour in the success of a company is a far greater risk than for an owner to invest a small portion of their share portfolio. You say...

However, in general owners lose more when a company goes belly up — Count Timothy von Icarus

...but I see no evidence of this. I mean, generally owners are the rich and workers are the poor. So either owners are just better people or something about their position yields a greater net gain than net loss. It's not like 50% of bankers are rich and 50% poor at any one time. They're all rich. So how's that work if they're genuinely taking the bigger risk?

Mandating the the owners of firms turn over control of their firm as soon as they higher any help would create a powerful incentive for businesses not to expand, which isn't what you want. — Count Timothy von Icarus

Why? What's the mechanism you see happening here? If the owner is normally taking such a big risk, then there'd be as much incentive to cautiously share that risk as there would be to recklessly bet the house on it. Worker-owners would spread the risks. And again, presumably for the lawyer, the plumber, the company means more than just a high stakes bet, so it's objectives are more than just return on investment.

Bankruptcy laws protect owners/investors to a far greater extent than unemployment benefit protects workers.

looking at bailouts — especially in 2009 — shows that the wealthy really have no risks— they’re fine no matter what. They’re too big to fail. — Xtrix

Exactly. No matter the mechanism (though it's interesting nonetheless to talk about what that mechanism is) we can see that owners disproportionately get richer relative to workers. If they were taking a genuine risk they would (on average) be about the same, only more heterogeneous.

owners have broad portfolios — Isaac

This is just equating owners with shareholders. It's obviously not the case for small businesses, partnerships and such.

However, in general owners lose more when a company goes belly up
— Count Timothy von Icarus

...but I see no evidence of this. I mean, generally owners are the rich and workers are the poor. — Isaac

I think you can grant the claim that owners may lose more in absolute terms, but less as a portion of their total wealth. Why not just say that? It's a solid point.

If the owner is normally taking such a big risk, then there'd be as much incentive to cautiously share that risk as there would be to recklessly bet the house on it. — Isaac

Also an interesting point. Presumably part of the issue here is access to capital to start the firm. You have to take on risk before hiring anyone. So what risk gets shared? Under the usual scheme, I don't ask you to take on some of the risk I accepted before you came along. If the firm fails, or even if you just quit, you walk away without that burden. While you're employed, I do indeed use your labor to pay off the debt I accrued without your input. If, instead, part of the package of my hiring you is that you accept some small part of the firm's pre-existing obligations, that's quite different, more like a (weighted?) partnership occurring over time. Sounds like a reasonable idea for the owner, as you suggest, but you'll compete for workers with firms just offering burden-free salary. If the rewards are potentially great enough, people may be willing to enter into this more risky sort of employment arrangement.

This is just equating owners with shareholders. It's obviously not the case for small businesses, partnerships and such. — Srap Tasmaner

Yeah, that's true. I think the 'small business' model is a bit different. It still seems that bankruptcy laws protect the small business owner from risk in the same way though. It's not like they're putting their homes up as collateral. The difference is that if the business fails they too probably lose their job. But that still gives them equal risk to their employees, but higher gains. Do bankruptcy laws work differently in the US? There seems to be a lot of presumption about personal financial risk for the small business owner, but that's just not really the case here.

I think you can grant the claim that owners may lose more in absolute terms, but less as a portion of their total wealth. Why not just say that? — Srap Tasmaner

I don't think it's that easy to quantify. If we're talking about shareholders, say the price of a share drops dramatically, have they actually lost money, in absolute terms? They've lost an opportunity to make money, but all that's happened is their investment isn't worth what they thought it was. If they're an actual investor (loan stock or similar) they'll be paid back preferentially by the receivers. I can certainly see some outlier cases where owner/investors might actually lose wealth, but they seem rare. Mostly its a loss in value rather than absolute wealth.

I'm no economist, but we simply don't see any significant number of owner/investors on their uppers. If the risk were genuinely matched to the reward they'd be, on average no better off as a group than they started. Yet the rich get consistently richer. They're not just lucky with the horses. They invest. They own more stuff, including businesses. So ownership must, on average, yield more than the risk.

you'll compete for workers with firms just offering burden-free salary. If the rewards are potentially great enough, people may be willing to enter into this more risky sort of employment arrangement. — Srap Tasmaner

I don't see it in terms of reward, I see it in terms of dignity. Workers deserve a say since their contribution to the enterprise is as vital as any. A corporation is a group of people collaborating to achieve a goal. The default should be that each member of that group gets an equal say in how it's run.

bankruptcy — Isaac

Dunno. But it cannot be the case that starting a business is guaranteed by law to be risk-free, can it? But I really don't know. Maybe in some no-blood-from-stones sense it is, but there's opportunity cost (yay! I get to walk away with nothing after 15 years, might as well have just had a job) and for an individual maybe a risk to their notional creditworthiness.

If the risk were genuinely matched to the reward they'd be, on average no better off as a group yhsn they started. — Isaac

Yeah, you said that before, although I think before it was that we should expect them to be no better off than workers.

Are you sure about this argument?

You're basically claiming that the wealthy class aren't really risking much of anything, and there's clearly some truth to that, but there are counterexamples too, aren't there?

Try walking through the example with gambling, one rich gambler and one poor, and see how it works out.

it cannot be the case that starting a business is guaranteed by law to be risk-free, can it? — Srap Tasmaner

In our current society, yes. But we're the blind leading the blind here. I think the term I should be using is actually 'insolvency' since we're talking about corporations, but a quick glance at UK law doesn't seem to entail any personal risk https://www.gov.uk/government/publications/options-when-a-company-is-insolvent/options-when-a-company-is-insolvent.

Try walking through the example with gambling, one rich gambler and one poor, and see how it works out. — Srap Tasmaner

Isn't gambling notoriously a bad idea, house always wins and all that?

But we're the blind leading the blind here. — Isaac

I've never even met an economist.

gambling — Isaac

As I said before, part of the point here is that the absolute amount risked can be greater, while still being a far smaller portion of the total wealth, when you compare the wagers of the wealthy and the poor. I haven't had time to run through the math, but if you assume that a wealthy and a poor gambler have the same rate of success (win as often) but the wealthy gambler is betting more, then their payoffs are also going to be bigger. When the poor gambler wins, they win less, right? My thought was simply that everything can be scaled up, the risks and rewards, but needn't be scaled up by the ratio of total wealth to total wealth. See how that works? I can bet more and win more, without risking my entire advantage relative to you, and the ratio of my wealth to yours will just keep growing.

My thought was simply that everything can be scaled up, the risks and rewards, but needn't be scaled up by the ratio of total wealth to total wealth. See how that works? I can bet more and win more, without risking my entire advantage relative to you, and the ratio of my wealth to yours will just keep growing. — Srap Tasmaner

I see, yes. So to get at what I was thinking it would be more like...

Split the population of gamblers into two groups {the poor} and {the rich}. If gambling had an equal payoff:risk ratio for each group then the sum gain for each group as a proportion of their investment, would be the same. So each group would, in sum, get x% richer. But that's not what we see, because the gap between the two groups even in relative terms, is getting bigger.

The only way I can see that happening is if the risk:return ratio for the wealthy is actually better than for the poor.

We can see it reflected economically in savings. If I invest £100 in a bank, not only do I get a lower return (because it's only £100), I get a lower rate of return (I'd be lucky to get 1%). If I invest £100,000 I not only get a higher return (because I put more in) I get a higher rate of return, maybe 5%.

So with a simple bank investment, the return on £100,000 isn't just higher by proportion (1% of 100,000 is bigger than 1% of 100), but it's bigger proportionally. Does that make sense?

Yeah, that's true. I think the 'small business' model is a bit different. It still seems that bankruptcy laws protect the small business owner from risk in the same way though. It's not like they're putting their homes up as collateral. The difference is that if the business fails they too probably lose their job. But that still gives them equal risk to their employees, but higher gains. Do bankruptcy laws work differently in the US? There seems to be a lot of presumption about personal financial risk for the small business owner, but that's just not really the case here. — Isaac

The debt of the corporation theoretically will not pass to the owner, but the risk to the owner remains substantially higher than then the employee because the owner had a capital investment in the corporation the employee did not. That the owners risk is limited to his initial investment amount doesn't mean he has minimal risk. Often owners invest their life savings into their businesses.

I said "theoretically" above because gaining access to capital is often going to require you offer a personal guarantee backed by your assets. It's not like a bank is going to loan your 5 day old corporation with no credit history or assets any money, even if federal regulations permitted it.

In your example above, it's not the bankruptcy laws offering the limitations on liabilities, but it's the corporate structure that creates the business as a separate entity and that shields the investors.

There's a merit component not being considered. The same soccer players seem to score all the goals. Analysis shows top scorers get the most play time. In fact, going backwards, we can see they've historically gotten more play time and more goals. This corresponds to greater notoriety, resulting in additional marketing ventures and greater salaries.

If we could arrive at a way to regulate access to game time, we'd cure this disparity.

Of course that access to game time might have to do with player quality and not just random unfairness.

Why would I increase access to money (or play time) for those who can't play the game very well?

If gambling had an equal payoff:risk ratio for each group then the sum gain for each group as a proportion of their investment, would be the same. So each group would, in sum, get x% richer. But that's not what we see, because the gap between the two groups even in relative terms, is getting bigger. — Isaac

Say I'm worth x and you're worth 1000x. I wager x/10 and win earning say 5/4 my wager, so my wealth becomes 9x/8. You wager 10x and win, earning 50x/4, so your wealth is now 1012.5x. The ratio of your wealth is to mine is now 900:1, instead of 1000:1. So my hunch about how this would work is *wrong*. By wagering 10 times as much in absolute terms, but one tenth in relative terms, you allowed me to close the ratio gap. On the other hand, you used to have only 999 more dollars than I; now you have 1011.375 more. I've closed the ratio gap, but am further behind absolutely. Interesting. What happens when we go again? ****

I suspect, as you note, part of it is that there are just better rates of return for high rollers. I also suspect that high rollers needn't limit how much they risk, as I surmised here. My initial post in this thread suggested that the principal use of profits (once they reach individuals, I wasn't thinking about the firm) was to create new debt. When you have great wealth and an impressive stream of income, you don't need to spend much of any of it; people lend you money. So as a wealthy gambler, I'll have the opportunity to bet with Monopoly money, perhaps placing bets that altogether are many times my at-the-moment wealth. Then I can easily outrun the poor gambler, who has no future value to mortgage.

****
Oops, that was weird.

I also neglected to consider that your ratio to my initial wealth is now 1012.5:1, but mine is 1.125:1. Mine has grown faster but much less, and I had to risk a percentage of my wealth ten times greater than you did.

From January 2020, before the pandemic, William Lazonick:

Even as the United States continues to experience its longest economic expansion since World War II, concern is growing that soaring corporate debt will make the economy susceptible to a contraction that could get out of control. The root cause of this concern is the trillions of dollars that major U.S. corporations have spent on open-market repurchases — aka “stock buybacks” — since the financial crisis a decade ago. In 2018 alone, with corporate profits bolstered by the Tax Cuts and Jobs Act of 2017, companies in the S&P 500 Index did a combined $806 billion in buybacks, about $200 billion more than the previous record set in 2007. The $370 billion in repurchases which these companies did in the first half of 2019 is on pace for total annual buybacks that are second only to 2018. When companies do these buybacks, they deprive themselves of the liquidity that might help them cope when sales and profits decline in an economic downturn.

Pretty spot-on. Three months later, COVID lockdowns would start and the debt picture wasn't pretty -- especially among the shadow banks. So another massive bailout was needed...again.

So much for free market capitalist fantasies.

Regarding the OP:

The investment in the knowledge base that makes a company competitive goes far beyond R&D expenditures. In fact, in 2018, only 43% of companies in the S&P 500 Index recorded any R&D expenses, with just 38 companies accounting for 75% of the R&D spending of all 500 companies. Whether or not a firm spends on R&D, all companies have to invest broadly and deeply in the productive capabilities of their employees in order to remain competitive in global markets.

Stock buybacks made as open-market repurchases make no contribution to the productive capabilities of the firm. Indeed, these distributions to shareholders, which generally come on top of dividends, disrupt the growth dynamic that links the productivity and pay of the labor force. The results are increased income inequity, employment instability, and anemic productivity.

Buybacks’ drain on corporate treasuries has been massive. The 465 companies in the S&P 500 Index in January 2019 that were publicly listed between 2009 and 2018 spent, over that decade, $4.3 trillion on buybacks, equal to 52% of net income, and another $3.3 trillion on dividends, an additional 39% of net income. In 2018 alone, even with after-tax profits at record levels because of the Republican tax cuts, buybacks by S&P 500 companies reached an astounding 68% of net income, with dividends absorbing another 41%.

Harvard Business Review

So why is this happening?

Why have U.S. companies done these massive buybacks? With the majority of their compensation coming from stock options and stock awards, senior corporate executives have used open-market repurchases to manipulate their companies’ stock prices to their own benefit and that of others who are in the business of timing the buying and selling of publicly listed shares. Buybacks enrich these opportunistic share sellers — investment bankers and hedge-fund managers as well as senior corporate executives — at the expense of employees, as well as continuing shareholders.

This answers the question of the thread: the profits are being shipped to shareholders at the rate of about 90%.

That's where the profits go. At the expense of everyone else.

In your example above, it's not the bankruptcy laws offering the limitations on liabilities, but it's the corporate structure that creates the business as a separate entity and that shields the investors. — Hanover

Thanks. I thought I'd got that wrong.

the risk to the owner remains substantially higher than then the employee because the owner had a capital investment in the corporation the employee did not. That the owners risk is limited to his initial investment amount doesn't mean he has minimal risk. Often owners invest their life savings into their businesses. — Hanover

So the narrative I'm pushing back against is the idea that owners deserve the profits because the risk they take is higher. To satisfy this narrative the facts need to be a) relatively universal - we can't justify the majority by the circumstances of a minority, and b) proportionate - we're relating profit to risk, not just any reward, but the full profits of the company. I still contest both.

For the former - There's no class of down-and-out former business owner. A survey of homeless with the question "how did you get here" won't reveal a significant category of "I used to own a bank but it failed and I lost my initial investment".

For the latter - The bank's not going to lend with the mortgaged portion of a house as collateral, so whatever the owner's personal stake, it's part of their free capital, not their tied-up capital, so the risk in putting it up is manifestly different to the risk involved in an employee committing their labour to a company (in the hopes that it's successful enough to continue employing them). An employee's labour is an investment that's tied-up, they need the return on that investment to live. An owner's capital investment is capital that's not tied-up (we know this because the bank wouldn't allow it if it was) so their investment is less of a risk. Then there's the fact that the owner can hedge their risk, they can split their free capital between many investments. The worker cannot split their labour between many investments, so again the manifest risk of their investment is higher.

I think too much focus is on what happens when the business fails (employee walks away vs owner goes bankrupt) but that's not a proper assessment of risk, the proper assessment of risk needs to include a measure of likelihood. It's a not a sufficient comparison of the risks of walking the dog vs flying in a plane to say the plane is the higher risk because if it crashes everyone dies. It's not likely to crash, so the harms from walking the dog might be smaller but more likely to happen. Likewise with risk in investment it's not sufficient to say that because the owner potentially looses most if the business fails they take the higher risk.

Firstly, a business has to survive only a few years for the returns to cover the owner's original investment, so they quickly come out even. It has to continually thrive just for the employee to continue to come out even. Their investment of labour is only ever rewarded with an even cover of how much that labour is worth.

Secondly, when a business is failing the first thing that happens is that it lays off staff. That may be enough to turn it around, or for the owner to recover their costs. For the employee, however, their investment in labour has proven to be a loss early on.

Why would I increase access to money (or play time) for those who can't play the game very well? — Hanover

If access to profit were distributed according to talent in investing it then you'd have a good comparison. The several financial crises of the last few decades has made it abundantly clear that this is not the case. Corporations are protected against the fallout from high risk strategies so it inflates the apparent success of taking them (they reap the reward but the risk is taken on by the state). If we were all given £100,000 at birth and told to invest it wisely, I'd happily go along with your meritocracy where the wisest investors got the most returns to re-invest. But that isn't what happens.

Say I'm worth x and you're worth 1000x. I wager x/10 and win earning say 5/4 my wager, so my wealth becomes 9x/8. You wager 10x and win, earning 50x/4, so your wealth is now 1012.5x. The ratio of your wealth is to mine is now 900:1, instead of 1000:1. So my hunch about how this would work is *wrong*. By wagering 10 times as much in absolute terms, but one tenth in relative terms, you allowed me to close the ratio gap. On the other hand, you used to have only 999 more dollars than I; now you have 1011.375 more. I've closed the ratio gap, but am further behind absolutely. Interesting. What happens when we go again? — Srap Tasmaner

This is really interesting. Can we actually manipulate income disparity by fixing rates of return for investments (assuming a rational actor would always invest some fixed portion of any free capital)? I'll defer to your superior maths, but it looks as if the return on investment could potentially determine the direction of disparity?

I also suspect that high rollers needn't limit how much they risk, as I surmised here. — Srap Tasmaner

I think that's another important point. Especially if returns on larger investments are higher (even proportionately) than returns on lower investments. One could see it as a membership criteria fro the higher return games. Only those with a higher stake are going to be allowed in to the higher return games, which means the return doesn't entirely reflect the absolute risk, but partly reflects the market value of the size of the risk (bigger risks are just worth more because they're more sought after).

Of course, then we need to translate all this economics into desert, because the matter at hand was wether the higher returns investments the owner gets we justified by their increased risk...

(2) The product generates profit (price - cost). — Xtrix

What Is Profit?

Profit describes the financial benefit realized when revenue generated from a business activity exceeds the expenses, costs, and taxes involved in sustaining the activity in question.

Any profits earned funnel back to business owners, who choose to either pocket the cash, distribute it to shareholders as dividends, or reinvest it back into the business.

Do you get tired of being embarrassingly silly? — Xtrix

Of course it's easy to call someone else silly when you give self-contradicting definitions to terms. People accept your first definition, and then when you want to prove them silly, you simply change your own definition of the term. That's beyond silly. That's pithy, that's irritating, and shows your lack of spine.

Who looks silly now?You, of course. If you keep to your usual nonsensical habits that degrade your reliability and credibility as a philosopher, such as defining terms wholly differently during the conversation, then of course don't be surprised when you appear to be silly.

So the narrative I'm pushing back against is the idea that owners deserve the profits because the risk they take is higher. To satisfy this narrative the facts need to be a) relatively universal - we can't justify the majority by the circumstances of a minority, and b) proportionate - we're relating profit to risk, not just any reward, but the full profits of the company. I still contest both. — Isaac

I'd push back on any narrative that suggests that implementing fairness is preferable without computing out the consequences of your plan. That is, just because it would be "fair" under a system that prizes equitable distribution of resources does not mean the system would be successful in terms of producing the actual thing you wish to produce. For example, if I want for there to be plenty of eggs for all our citizens, it does not follow that the best way to assure that is to pay the egg collectors the same as the chicken owners just because they both assume the same risk.

You also overlook the ethical value of property ownership, or perhaps you don't, but you just don't think it has any value. I would argue that it does, which means that a large part of the reason I reap larger rewards for the profits gained in my business is precisely because it's mine. That is, they are my eggs because they are my chickens.

I also don't follow why greater risk must (as a matter of ethical imperative) precede reward in order for it to be justified. The fact that I have been able to reduce my risk by being prudent and cautious and by implementing all sorts of hazard controls shouldn't result in my having to share more of my profits with others. To suggest otherwise would incentivize recklessness.

For the former - There's no class of down-and-out former business owner. A survey of homeless with the question "how did you get here" won't reveal a significant category of "I used to own a bank but it failed and I lost my initial investment". — Isaac

The homeless (if we're going to look that far down on the societal ladder) are filled with those suffering from mental illness and drug addiction. The best risk reduction measure anyone can have is an education and a strong work ethic because that will enable you to get a job. Since I would suspect most prior business owners had those qualities to some degree, the reason they are not in the soup line is because they were able to go out and get a job. But that they lost their life savings but were able to find a new job doesn't mean they didn't suffer negative consequences.

For the latter - The bank's not going to lend with the mortgaged portion of a house as collateral, so whatever the owner's personal stake, it's part of their free capital, not their tied-up capital, so the risk in putting it up is manifestly different to the risk involved in an employee committing their labour to a company (in the hopes that it's successful enough to continue employing them). An employee's labour is an investment that's tied-up, they need the return on that investment to live. An owner's capital investment is capital that's not tied-up (we know this because the bank wouldn't allow it if it was) so their investment is less of a risk. Then there's the fact that the owner can hedge their risk, they can split their free capital between many investments. The worker cannot split their labour between many investments, so again the manifest risk of their investment is higher. — Isaac

You are referencing two things here: equity and opportunity cost. Regarding equity: If you apply for a loan, the amount of equity you have is important, as is your current debt, as is your income potential as proved by historical earnings, as is your cash on hand, as is your credit rating, as are other other things depending upon their underwriting standards. If you take someone who has worked the majority of their lives, paid their bills, saved some money, and paid down their mortgage, and then they went to the bank and figured out the maximum amount they could cash out in terms of getting loans, liquidating assets, and whatever they tried to do to get money, and then they lost that in a business venture, that would be financially devastating.

In terms of opportunity cost, sure, taking one job and not another will have a computable price. That does not impose any risk because there's no ongoing obligation. If you don't like your job or find a better one, you quit and take the new one. That's not the same as having the strings attached to a financial obligation, which is what I take risk to be.

Firstly, a business has to survive only a few years for the returns to cover the owner's original investment, so they quickly come out even. It has to continually thrive just for the employee to continue to come out even. Their investment of labour is only ever rewarded with an even cover of how much that labour is worth.

Secondly, when a business is failing the first thing that happens is that it lays off staff. That may be enough to turn it around, or for the owner to recover their costs. For the employee, however, their investment in labour has proven to be a loss early on. — Isaac

This strikes me as a naive view of business, as if most succeed, as if most business owners make more than employees in other business, as if responding to downturns entails simple solutions, as if losing employees doesn't have profound consequences on sustainability, as if employees are not understood by businesses to be their life force, and so much else. I think if you stepped into the typical corner restaurant and saw how they were struggling to keep things afloat, I don't know you'd terribly want to be the owner and might find being a server a better gig.

I'm not trying to evoke sympathy for the business owner, but I do see their investment in the economy a very positive thing, and incentivizing them is what we want to do, which means offering them the opportunity to make larger profits and the possibility of making nothing or even losing money. No employee goes into a job with the understanding they may owe their employer at the end of the shift, yet that is exactly what an employer signs up knowing could well happen and he could be indebted to the employee, among others.

Who looks silly now?You, of course. — god must be atheist

:kiss:

if I want for there to be plenty of eggs for all our citizens, it does not follow that the best way to assure that is to pay the egg collectors the same as the chicken owners just because they both assume the same risk. — Hanover

Understood, but the status quo has no reason to take default position here. If worker-ownersip were to be championed as the norm, I agree it need be judged on more then just equitably, but so must the current arrangements.

You also overlook the ethical value of property ownership, or perhaps you don't, but you just don't think it has any value. I would argue that it does, which means that a large part of the reason I reap larger rewards for the profits gained in my business is precisely because it's mine. That is, they are my eggs because they are my chickens. — Hanover

This, I think, is the key point. There's nothing to own except by the fiat of government. There's no such thing as 'a business' it's a legal fiction. The question we're addressing here is 'ought there be?' I think that question precedes any question about whose property the entity then is, once reified.

As a business owner, what you own is a piece of paper saying the profits are yours. So to make a property argument that one is entitled to those profits is circular.

I also don't follow why greater risk must (as a matter of ethical imperative) precede reward in order for it to be justified. The fact that I have been able to reduce my risk by being prudent and cautious and by implementing all sorts of hazard controls shouldn't result in my having to share more of my profits with others. To suggest otherwise would incentivize recklessness. — Hanover

Possibly, but that's an aside from the argument raised here that owners deserve, or need, the profits because of the risk.

Since I would suspect most prior business owners had those qualities to some degree, the reason they are not in the soup line is because they were able to go out and get a job. But that they lost their life savings but were able to find a new job doesn't mean they didn't suffer negative consequences. — Hanover

No, but the point is, as a class, they're better off than workers. If their risk was the same there would be the full range of businesses owners from the destitute (business has failed), through the poor (business is on the way out) to the rich) business is doing well. There isn't. There's just the rich (in the majority). So either they're all extremely lucky, or something is tipping the scales in their favour.

If you don't like your job or find a better one, you quit and take the new one. That's not the same as having the strings attached to a financial obligation, which is what I take risk to be. — Hanover

This is true, but far from the norm, which is why I made reference to yhd idea that we can't justify the status of the majority on the risk/benefit of a minority.

The overwhelming majority of the work force are desperate for a job and would be devastated if they lost the one they had. Few are lucky enough to be shopping around for jobs.

The overwhelming majority of corporation owners are extremely wealthy and hold their investments as part of well-hedged portfolio with little to no personal collateral tied to it. Yes, you can pick extreme examples to the contrary, but these cannot really be used to justify a status quo that benefits a very different cohort.

I think if you stepped into the typical corner restaurant and saw how they were struggling to keep things afloat, I don't know you'd terribly want to be the owner and might find being a server a better gig. — Hanover

Maybe, but again, in terms of share of the employment pool these are fringe cases, so in terms of just treatment of workers, they're hardly a fair target. Furthermore, as I said to Srap, if there's so much risk and so little gain, then sharing that exposure should be welcomed.

incentivizing them is what we want to do, which means offering them the opportunity to make larger profits and the possibility of making nothing or even losing money. — Hanover

I agree with the first half, but I don't see why high stakes gambling is the only incentive we could offer. What about low risk low reward options?

No employee goes into a job with the understanding they may owe their employer at the end of the shift, yet that is exactly what an employer signs up knowing could well happen and he could be indebted to the employee, among others. — Hanover

How's that a loss to the owner? You're basically saying that when there's a mismatch between work done and pay due, its the worker who walks away with nothing (being owed money doesn't put food on the table). I'm sure the owner will be weeping into their leather upholstery at the shame of owing money, but seeing as it'll be the corporation which owes it, their lobster is not so much at risk that evening.

This, I think, is the key point. There's nothing to own except by the fiat of government. There's no such thing as 'a business' it's a legal fiction. The question we're addressing here is 'ought there be?' I think that question precedes any question about whose property the entity then is, once reified.

As a business owner, what you own is a piece of paper saying the profits are yours. So to make a property argument that one is entitled to those profits is circular. — Isaac

The business isn't an abstraction anymore than any term is a conglomerate of various parts. I get that the business isn't simply desks, computers, people, software and the like, but that it's a bunch of stuff holistically, but it's actually a physical thing as much as a university is, a government is, or even an apple is. You can point to the stem, the peel, the seed, whatever, but where is the apple? It's the whole thing.

You can also have a business without it being a recognized legal entity. A sole proprietorship or a partnership has no special legal status. Whether it has corporate structure doesn't impact the tangibility of the entity.

The overwhelming majority of the work force are desperate for a job and would be devastated if they lost the one they had. Few are lucky enough to be shopping around for jobs. — Isaac

The unemployment rate is 3.7%, which is effectively zero when you discount those who don't want to work and those who are temporarily between jobs. Businesses are closing because of lack of workers. I'm not sure what economy you're looking at.

The overwhelming majority of corporation owners are extremely wealthy and hold their investments as part of well-hedged portfolio with little to no personal collateral tied to it. Yes, you can pick extreme examples to the contrary, but these cannot really be used to justify a status quo that benefits a very different cohort. — Isaac

I can go online right now, go to the Secretary of State website, and create for me a corporation or an LLC in a matter of minutes. That will not suddenly propel me to great wealth. According to one site, the average small business owner earns between $30,000 and $146,000 per year, with a median of $64,650. When someone tells me they're self employed, that doesn't cause me to think they must be wealthy.

Maybe, but again, in terms of share of the employment pool these are fringe cases, so in terms of just treatment of workers, they're hardly a fair target. Furthermore, as I said to Srap, if there's so much risk and so little gain, then sharing that exposure should be welcomed. — Isaac

You want to incentivize business creation so people can find jobs. It's just not the case that everyone wants to start up a business, but most go looking for a job when they need work. The reason I suspect that most mechanics, for example, don't run out and find a shop to rent and secure loans and whatnot is because they fear going broke, and they probably will. It's a safer option to go find a job, much riskier to go at it on your own.

I agree with the first half, but I don't see why high stakes gambling is the only incentive we could offer. What about low risk low reward options? — Isaac

There are plenty of those. You can put all your earnings in a CD and watch the 1.5% compound annually, fully backed by the government. You can start a lawn care business comprised of a lawnmower and rake and walk around cutting grass. Your investment was minimal and you'll make money, but won't get rich. You can also learn a trade and secure yourself a decent income, or choose a profession and make more. There are all sorts of low risk ways to make money.

How's that a loss to the owner? You're basically saying that when there's a mismatch between work done and pay due, its the worker who walks away with nothing (being owed money doesn't put food on the table). I'm sure the owner will be weeping into their leather upholstery at the shame of owing money, but seeing as it'll be the corporation which owes it, their lobster is not so much at risk that evening. — Isaac

This makes very little sense. If the owner works 100 hours in a week and doesn't sell his product, he earns nothing. That's not a theoretical construct. That occurs all the time. The owner get the profits, and profits are defined as what is left over after expenses. An employee is an expense. What this means is that the owner is paid last with the remainder. That remainder may be zero, it may be debt, it may be riches, and it may be anything in between. If he decides just not to pay his workers, he loses his employees, his business goes under, and he gets sued very quickly. He likely even gets hit with a wage and hour violation.

A corporation does not have debt immunity. It has to pay its bills just like you do. But just as I don't have to pay your debts because I am a different person than you, I (personally) don't have to pay the debts of the corporation unless I personally guaranteed it. Just like if I have no money at all, it will do you no good to sue me because I can't pay what I don't have, but if I do have assets, you will be able to collect. What that means is that my million dollar corporation stiffs you, you sue it, and you can garnish its accounts and seize its assets just as if it were a person.

It's not the wealthy corporation that dodges its debts. It's the shell corporations that start up a company, rip you off, close the corporation, open a new one, and so on. That's not a corporate law problem. That's a fraud problem, and it's really not the types of multi-national corporations you've been worrying about.

I think it's valuable to explore the logic of risk and reward, owner and employer, and you've raised some interesting questions, but your analysis is throughout colored by an image of the likes of the board of directors of Exxon Mobil, on the one hand, and the guys and gals working on the oil rig, on the other. Google small business employment statistics and you'll find there are many other stories to tell. Something like half of employed Americans work for a company with more than 500 employees, and something like 45% work for a company with fewer than 20, and the bulk of the latter are self-financed businesses. So I gleaned from a very quick scan, but there are loads of statistics out there. It's really not just fat cats vs. working stiffs.

The business isn't an abstraction anymore than any term is a conglomerate of various parts. I get that the business isn't simply desks, computers, people, software and the like, but that it's a bunch of stuff holistically, but it's actually a physical thing as much as a university is, a government is, or even an apple is. You can point to the stem, the peel, the seed, whatever, but where is the apple? It's the whole thing. — Hanover

But all those parts belong to the corporation, not the owner. You can't have it both ways. Later on you want to distance the 'bricks and mortar' from the owner when you say...

just as I don't have to pay your debts because I am a different person than you, I (personally) don't have to pay the debts of the corporation unless I personally guaranteed it. Just like if I have no money at all, it will do you no good to sue me because I can't pay what I don't have, but if I do have assets, you will be able to collect. What that means is that my million dollar corporation stiffs you, you sue it, and you can garnish its accounts and seize its assets just as if it were a person. — Hanover

... So when it's debt is all "Oh, the corporation is a separate person and the owner's didn't ought to be any more liable than your or I", when it's profits is all "Oh there's definitely a real thing the owners own, it's all the assets, the buildings, the activities..."

Basically, the owners own the profits, but relieve themselves of the debts.

The unemployment rate is 3.7%, which is effectively zero when you discount those who don't want to work and those who are temporarily between jobs. Businesses are closing because of lack of workers. I'm not sure what economy you're looking at. — Hanover

According to the latest YouGov poll, just 17% of British workers are very happy with their job and over half report being unhappy at work. So why aren't they all just picking another one off the shelf?

I can go online right now, go to the Secretary of State website, and create for me a corporation or an LLC in a matter of minutes. That will not suddenly propel me to great wealth. According to one site, the average small business owner earns between $30,000 and $146,000 per year, with a median of $64,650. When someone tells me they're self employed, that doesn't cause me to think they must be wealthy. — Hanover

As I've said repeatedly, the fact that you can point to counterexamples doesn't have any bearing on whether this minority can be used to justify the status of the majority.

If the owner works 100 hours in a week and doesn't sell his product, he earns nothing. That's not a theoretical construct. That occurs all the time. The owner get the profits, and profits are defined as what is left over after expenses. An employee is an expense. What this means is that the owner is paid last with the remainder. That remainder may be zero, it may be debt, it may be riches, and it may be anything in between — Hanover

What it may be is neither here nor there, we're talking about risk. That means the relevant metric is what it's likely to be, not what it may be. My point is that the distribution of wealth between business owners and worker in general indicates that what it's likely to be, is far greater on average, meaning the risk is far lower than the risk the worker takes.

I think it's valuable to explore the logic of risk and reward, owner and employer, and you've raised some interesting questions, but your analysis is throughout colored by an image of the likes of the board of directors of Exxon Mobil, on the one hand, and the guys and gals working on the oil rig, on the other. — Srap Tasmaner

Funny how a left wing ideology is always 'colouring' someone's interpretations, but more centrist views are apparently transparent. Our ideology 'colours' our narratives. Every single one of us. There's no un-coloured version. Yes, I'm far more concerned about the disparity between the Exxon CEO and his workers then the local restaurant owner and his staff. That my bag. It doesn't on it's own make the narrative any less viable.

Google small business employment statistics and you'll find there are many other stories to tell. Something like half of employed Americans work for a company with more than 500 employees, and something like 45% work for a company with fewer than 20, and the bulk of the latter are self-financed businesses. — Srap Tasmaner

Right. So a minority.

As I've said to @Hanover a few times now, the issue here is whether the 'increased risk' narrative can be used tout court as a justification for the fact that owners reap all the profits from a corporation (with very little of the risks). Your statistics seem to confirm the theory that it cannot. Only in a minority of cases are the owners taking a comparable risk to the workers. The majority of cases they're not, so the justification based on the increased burden of risk is not sound.

Yes, I'm far more concerned about the disparity between the Exxon CEO and his workers then the local restaurant owner and his staff. That my bag. It doesn't on it's own make the narrative any less viable. — Isaac

Absolutely.

Only in a minority of cases are the owners taking a comparable risk to the workers. The majority of cases they're not, so the justification based on the increased burden of risk is not sound. — Isaac

It's a large-ish minority, but even that 45% is actually too big, because about 20 million Americans are sole proprietors, self-employed and self-financed.

Anyway, yes, I take your point, and it's absolutely fair. There is, ahem, a narrative about risk that is used to justify the allocation of profit to owners rather than employees, but that risk is, in most cases, highly indirect and mediated; it's nothing like what one side is putting up versus the other side. Most days of the year, risk is a technical matter, numbers on paper, and doesn't *personally* touch the stockholder. (But of course every once in a while it does.)

But this sort of thing goes both ways: just as risk taken on is not quite a universal description of the difference between owners and workers, so profits taken isn't either. It's the rule, but not universal, and while the great bulk of profits — taken en masse — go to dividends and stock buybacks, that's not essential to the relation of owner and employee.

Maybe look at it this way: there's a reason "conservative" politicians justify corporate giveaways in the name of the corner store, because that business structure is not suspect. A small number of employees, razor-thin profits, this is not what's ruining the world. If we focus on that fundamental structure, we're sort of playing on the conservative's turf. I'm suggesting this is not where the trouble is, but in the financialization of business and in other rent-seeking (rather than just profit-taking) behavior. Insofar as those enable scales of employment (for a single firm) unimaginable in the past, there's distortion of that relation. (The corner store is more dependent on each employee than, you know, Exxon Mobil.)

Does that make any sense? I think we absolutely can and should demonize rent-seeking as not only not productive but actively harmful, and dangerous to long-term prosperity. But I also think there's an empirical case that business formation, with institutions to support it, raises the standard of living of a community. Look at the success of micro-lending programs, for example. So I need room to consider the corner store blameless, rather than exploitative just because it includes an owner and a few employees. (Of course if the corner store mainly sells booze and lottery tickets, we have a different problem.)

there's a reason "conservative" politicians justify corporate giveaways in the name of the corner store, because that business structure is not suspect. — Srap Tasmaner

Yes, I see what you're saying. I'm going to sneak in another leftist dig here though and say that this is why the corner shop is used. Its why @Hanover reached straight for the restaurant owner. Because it's a non-suspect, honest, down-to-earth arrangement which can be used to justify the gross immorality of corporate profiteering.

But anyway...

If we focus on that fundamental structure, we're sort of playing on the conservative's turf. I'm suggesting this is not where the trouble is, but in the financialization of business and in other rent-seeking (rather than just profit-taking) behavior. — Srap Tasmaner

Yes. I think you're right. As so often happens when systems grow somewhat chaotically, we get emergent features we wouldn't necessarily have planned if we'd have designed the system from scratch. One of the emergent properties of the corporate model is the ability to leverage complex financial instruments (using the corporation's assets) which yield a truly unholy amount of disproportionate income.

If such instruments (rent-seeking being only one such) could be banned then I think we'd have something like a solution, but what concerns me is the extent to which such behaviour only emerges because of the immunity this legal fiction of the corporation gives its owners. Can we keep the corner shop without also allowing subprime mortgage-backed securities and collateralized debt obligations (like I know what they are!)...? Maybe. I hope so.

I also think there's an empirical case that business formation, with institutions to support it, raises the standard of living of a community. Look at the success of micro-lending programs, for example. So I need room to consider the corner store blameless, rather than exploitative just because it includes an owner and a few employees. — Srap Tasmaner

Yes. That's fair. I think that possibly the rot at the heart of the whole thing is this risk/reward model of business in the first place. If communities really do need the corner store is it a sensible strategy to encourage someone to gamble on one at 20:1 odds with the incentive being a high payout. Maybe we ought to just build the corner store ourselves as a community?

Because it's a non-suspect, honest, down-to-earth arrangement which can be used to justify the gross immorality of corporate profiteering. — Isaac

Exactly my point, and I am more or less granting that such arrangements really are good and bad, respectively.

I think that possibly the rot at the heart of the whole thing is this risk/reward model of business in the first place. If communities really do need the corner store is it a sensible strategy to encourage someone to gamble on one at 20:1 odds with the incentive being a high payout. Maybe we ought to just build the corner store ourselves as a community? — Isaac

No matter what we might wish to be the case, this does not appear to be a live option most of the time. I don't know why. (And my speculations are not so well-informed as to be interesting.)

What does appear to be the case, is that societies describable as "capitalist," in whatever sense, appear to have higher standards of living across the board compared to societies that aren't. I mean that to sound like a minimal reading of the record, not a simplistic one. I'm an adult, so I've heard of colonialism. I also understand how the last few hundred years have been a sort of experiment in turning fossil fuels into civilization — not a great plan, as it turns out. So I'm open to arguments that there is something else underwriting the disparity, but the starting point has to be admitting that there is such a disparity and putting the obvious label on it.

Reading the first half or so of Why Nations Fail (before I got bored) convinced me that the data is not really ambiguous here. My son's conclusion was that we ought to treat capitalism like nuclear power — yeah it works, and maybe nothing else works nearly as well so it's our best option, but it's super dangerous and we should carefully contain it.

Yes, I see what you're saying. I'm going to sneak in another leftist dig here though and say that this is why the corner shop is used. Its why Hanover reached straight for the restaurant owner. Because it's a non-suspect, honest, down-to-earth arrangement which can be used to justify the gross immorality of corporate profiteering. — Isaac

The problem with a significant part of your analysis is that you use the term "corporate" to mean "evil," but there's nothing particularly evil about the corporate entity. It's just a way to allow the business to operate as a separate entity and to spare the individual owners direct liability.

If we eliminated the corporate structure, while it would greatly impact the way business operates, solutions would be devised to accomplish the same goal. Loan documents could be created to allow investors to take a share in your personally owned business and indemnity agreements could be devised either through insurance policies or investors to accept liability if it should arise.

Limiting liability isn't something that is only accomplished by corporate structure and investment opportunities can be created without corporate structure. You can as much invest in my lemonade stand and have an agreed upon return structure as you can buy corporate stocks, and I can protect my personal assets should I sell poison lemonade by buying an insurance policy or paying someone to post a bond.

You can also have completely ruthless non-corporate employers who treat their employees like shit, corporations that provide their employees all sorts of benefits, and you can even have corporations that do much for the common the good, like the Cancer Society or entities like that. It's not like I become a dick manager because my boss is a corporation but I'd be wonderful if I worked for a non-corporate entity.

The point here is that you're complaining about bad business practices, not corporate structures.

... So when it's debt is all "Oh, the corporation is a separate person and the owner's didn't ought to be any more liable than your or I", when it's profits is all "Oh there's definitely a real thing the owners own, it's all the assets, the buildings, the activities..."

Basically, the owners own the profits, but relieve themselves of the debts. — Isaac

Let's say I want to start a lemonade stand, but I don't have any money, so you agree to lend me $1,000 on the condition that I pay you 5% of the profits of the business in perpetuity. The business is not incorporated. I then buy a bunch of supplies on personal credit and stiff my suppliers. They come after you for the debt I accrued under the theory that you own 5% of the business.

Might you tell them that you don't own any percent of the business, that there is no "business" as a separate entity to own, that your profit share agreement is a personal arrangement between you and me, and that they had no expectation that you would be personally liable because the transaction didn't involve you and all credit was extended under the expectation that only I would be liable?

That seems a reasonable response to their nonsense claim against you, right?

The point here is that those who transact with corporations do so freely and voluntarily and if they want liability to attach to another entity (whether another corporation or individual), they can work that into their agreement.

And let's keep in mind that typically you want to deal with the corporation and not an individual because they are often more creditworthy. I would rather sign a contract with the Coca-Cola Corporation than Bob in accounting, solely in his individual capacity,

I'm open to arguments that there is something else underwriting the disparity, but the starting point has to be admitting that there is such a disparity and putting the obvious label on it.

Reading the first half or so of Why Nations Fail (before I got bored) convinced me that the data is not really ambiguous here. My son's conclusion was that we ought to treat capitalism like nuclear power — yeah it works, and maybe nothing else works nearly as well so it's our best option, but it's super dangerous and we should carefully contain it. — Srap Tasmaner

Interesting. I think the balance is about the extent to which those caveat that you admit (colonialism - both old and new), and ecological abuse, are responsible for the rise. It's possible, is it not, that the reason capitalist countries are rich is nothing more than that they stole resources from other counties and didn't pay their ecological 'bills'? If so, then there's no need to be cautious with economic arrangements which create monstrous disparity on the grounds that they might also have a part to play in this prosperity. We've already accounted for the prosperity - we stole it.

If we eliminated the corporate structure, while it would greatly impact the way business operates, solutions would be devised to accomplish the same goal. Loan documents could be created to allow investors to take a share in your personally owned business and indemnity agreements could be devised either through insurance policies or investors to accept liability if it should arise.

Limiting liability isn't something that is only accomplished by corporate structure and investment opportunities can be created without corporate structure. You can as much invest in my lemonade stand and have an agreed upon return structure as you can buy corporate stocks, and I can protect my personal assets should I sell poison lemonade by buying an insurance policy or paying someone to post a bond. — Hanover

This sounds like the "there's no point making it illegal, they'll just find another way round" argument. Trotted out regularly to avoid any legislation limiting corporate excess. The same is true of drugs, abortion, prostitution, and a whole host of other matters which people have no trouble nonetheless making illegal (and continuing to mop up all the 'ways round' people find). If there are other ways to limit liability but offload the risk elsewhere, then they need to be cleared up too.

That seems a reasonable response to their nonsense claim against you, right? — Hanover

No. Not to me. If I'm making 5% return because of the success of a lemonade stand (I knew what I was really investing in at the start, I knew how the interest was really going to be paid off) then I'm profiting from the success of that lemonade stand. It's only fair I should shoulder the share of harms if it fails.

I'm not suggesting that doing away with limited liability is the only option. There are there ways of doing it. We could set corporation tax high enough to cover a decent welfare program and have laws guaranteeing a decent wage and working conditions. Those two measures would be an alternative means of tying the profits back to the risks, you reap the profits, but you pay a tax to cover the social consequences of the risk. Unfortunately we have neither.