Want to know what went wrong with American capitalism? The "portfolio model".

[HamdenRice]

They say that in the 50s, American corporations were run by engineers. In the 60s, with the rise of television and the fantastic gains in sales, revenue and ultimately profits, that could be made through commercials, corporations were run by marketing. In the 70s, when state and federal governments actively enforced a whole new range of new regulations -- on safety, employee compensation and pensions, how corporations issued stock, and competition -- corporations came to be run by lawyers.

Then the finance people took over. Their theory was that every single division of a corporation would be treated like nothing more than a stock investment in an investment portfolio, and had to be, not just profitable, but as profitable in terms of short term earnings and dividends, as every other division.

By that measure, there was no way that a division of AT&T like Bell Labs -- which produced cutting edge, Nobel Prize worthy science, and the innovations that we take for granted now like the mouse, graphical user interfaces, electronic switching of telecommunications, fiber optics -- could be maintained. When did Bell Labs have an operating profit?

General Electric, which used to make all kinds of machines from home washing machines to giant electric generators for power companies, realized that it's finance division (which made loans to companies to buy GE equipment) was it's most profitable division and abandoned and sold most of its science and engineering and manufacturing to become mostly a finance company.

Having accepted this stupid way of managing, it wasn't long before the investment bankers beat the corporate finance managers at their own game -- after all, the CEOs had allowed finance to frame the whole raison d'etre of the corporation. That was the era of the hostile takeover.

And there you have it. That's what we have now. Companies that don't make anything but pretend to be profitable from quarter to quarter.

[Turbineguy]

1. Thorstein Veblen

Talks about a point where the economic system will be so screwed up it will take engineers to remake it.

You just can't go against the laws of physics for very long. Maybe the christian right is just the one side of the same coin that has the finance people on the other.

[HamdenRice]

3. We'll also need the system to be run by engineers if we're going to make stuff

They know how to make machines that make stuff. I think every profession needs to have a place at the table -- even lawyers, if the corporations are not going to be lawless (in the 70s, lawyers were called "Dr. No's because they were always telling CEOs what they legally could NOT do), but for the last 20 years, it's been ONLY finance.

[nadinbrzezinski]

7. And the Moore movie proves the point

one of the people he interviews... he is working on derivatives. His degree is in.... Engineering.

[HamdenRice]

8. A DU review prompted me to write this

I haven't seen the movie but read here on DU that Moore actually is nostalgic for the capitalism of the 50s.

[nadinbrzezinski]

9. He is, but he does not realize that it wasn't capitalism either

just like today's fascism is not capitalism.

It was a mixed economy. A very efficient one, that was called by a misnomer.

Of course going back to that in theory is easy. Lets start by raising taxes on the top 1% to at least 70% and ENFORCING the Sherman Anti Trust, start with Wally Mart. That is very capitalist, with small c...

Oh and unions need to grow, EFCA.

That will not happen. Not without a revolution I fear.

[HamdenRice]

10. John Kenneth Galbraith was famous for his analysis of the 60s economy

I think he called it the "New Industrial State" and was based on a balance of "Big Business," "Big Labor" and "Big Government" -- all balancing each other. Now it's Big Business, Big Government that takes Big Business's side and almost no Labor unions.

[nadinbrzezinski]

11. why I refuse to call it capitalism and prefer the more apropo term

FASCISM... or if you rather use the less explosive term, Corporatism.

This country is on the brink of something ugly happening.

When 1% own 95% of the wealth ugly things happen... and we are there.

[nashville_brook]

21. hence, The Love Story part. Capitalism must have been grand in the 50s.

[HamdenRice]

23. Haven't seen the movie yet, but that's why I wrote the post

Someone else here reviewing the movie said it was actually nostalgic for the capitalism of the era when Moore's Dad worked in the auto industry.

[anonymous171]

5. The christian right is their PR arm.

They are tasked with making greed and godless materialism seem moral.

[Odin2005]

27. Veblen was a genius.

He and other sociologically-motivated institutional economists of his day knew what they were talking about. It was back when science and engineering was respected and thought to serve human ends and Progress. You can't have an economy based on McJobs and consumption.

[autorank]

2. k*r Excellent insight

Back later to comment at more length. Thanks for this.

That's a concise overview of our evolution, or DE-evolution to be more precise.

Your example of GE is quite apt. They have not stopped building useful products but the
emergence of GE finance and it's use to prop up the rest of the company was a form of
decadence that worked against Jack Welch's vaunted competition to be the best in each
endeavor.

Here's a summary from a piece that describes how GE worked the system to meet financial goals while
ruining the company, workers, and communities.

That tells you everything you need to know about how certain big corporations work the system to their advantage, and about the executives who act as if they are the entrepreneur owners of the company while plundering the company for their personal profit. In the meantime, the workers see their pay and benefits squeezed year after year, whole towns if not cities are decimated as plants are shut down, states which offered generous tax relief to entice the company there in the first place find they were played for fools, and investors wake up one day to see the stock has dropped 15% because of "accounting irregularities". This is what has happened to the American dream.
Numerian, The Agonist, Aug 5, 2009

This is an excellent overview and points to changes that must be made unless we want to keep
the big slide going for a long time.

[sam sarrha]

4. EXCELENT..!! even my Prozac'd out wife read it and was totally impressed with it's insight.. THANKS

great insight on the rough road to hell we've been on..

[laughingliberal]

6. Great insight!

I even saw this at work in nursing, of all places. The downsizing of staff and 'just in time' model of patient care. It's criminal.

[Kaleko]

12. Before the term Disaster Capitalism was coined,

the Germans had a word for this: Heuschreckenkapitalismus = locust capitalism. It devours everything others have built, gorges itself on the profits and then moves on to the next viable site, be it a corporation or a country with resources to exploit.

We need a national discourse on what constitutes success in business.

[AntiFascist]

13. Excellent point! n/t

[ljm2002]

14. Interesting way of looking at it...

...it ties in with an analogy I've been thinking about this morning, namely King Midas. He got his wish that his touch would turn everything into gold, only to find that was not such a great idea: he would starve since his food turned to gold when he touched it. Not to mention that thing about accidentally turning his daughter into a golden statue.

Cut to the present day. Our corporate overlords have mastered the art of turning everything into money (not even gold). So as you point out, we see large manufacturing companies sell off research and/or manufacturing capability to become primarily financial companies. Only thing is, you can't eat the money. You lose self sufficiency if you stop making your own goods. Right now, our manufacturing sector is being starved -- they can't eat the money, either.

In turning these great companies into paper tigers, their nature was changed. They no longer perform the same function they used to. They no longer provide sustenance for the middle class in the form of good jobs and tangible products.

FWIW, just musing on a Saturday...

[lame54]

19. you might like this...

http://www.invest.gold.org/news/2008/05/21/story/9360/gold_hamburger_goes_on_sale_in_new_york

[Kaleko]

20. Your analogy is spot on. Very visual, so it packs an emotional punch

for those who haven't grasped the situation we have co-created yet.

[Quantess]

15. Great OP!

[Bonhomme Richard]

16. It used to be that the guy that ran the company that made widgets....

knew everything about widgets and his company. The CEO's of corporations now don't have a clue as to what the company actually makes and they don't care. It is irrelevant. Not only is it only about profits but worse, it's about short term profits. No one in management gives a damn about 3, 4 or 10 years out. They all hope to be retired or move on to another big paycheck job. We are doomed unless the bean counters are replaced with shirt sleave types.

[Odin2005]

28. Lee Iaccoca is the archetypal example.

He knew cars, and he knew what people wanted in a car. If you don't understand the industry you shouldn't be running a company in the industry!

[HughMoran]

17. So true

I used to work at Bell Labs and I can verify that the concept of an "engineering driven company" is a thing of the past. :( On a positive note, many of these "profit driven" companies have shipped everything to Asia and now have very little say in the way their own products are made. Many are going under as the products often go to crap when the quality is "designed out" in order to save a dime. Since labor has such low value in Asia, it's most often the product specs that take a hit for cost reduction.

[lame54]

18. way before that...

when the supreme court ruled that the corporations were people

it turns out those "people" are sociopaths with one purpose and those who get in the way be damned

[rucky]

22. I think you nailed it.

I'm wondering what half the leaders on the big board actually produce or provide that is of value to an actual consumer.

[Kaleko]

24. Kick for an insightful post.

[AllentownJake]

25. "Pretend to be profitable quarter to quarter"

How true that is. Right now we are living in an era of propaganda that would make the Nazi's and Soviets jealous.

[Odin2005]

26. We need to go back to the engineers running things. The finance people fucked things up.

Companies are supposed to exist to provide goods and services, and profit is supposed to be just an incentive to keep investment coming in, not an end unto itself.

Another problem is the cult of the one-size-fits-all management with MBA's. As if it didn't matter if you were making cars, making computer software, or making soft drinks.

I have great respect for engineers (I plan on being one myself, a genetic engineer), they make and design actual stuff, the infrastructure upon which our civilization is based. the Finance fuckwits are a bunch of parasites that need to be put back into their role as accountants.