A case study in common repeated board room stupidity... HJ Heinz quarterly results.

[Jhhnn]

How would they act collectively?

The only means we have for collective action is the government.

He means they're all doing the same thing, kinda like all of Wall St adopted Li's gaussian cupola method of risk assessment...

 

[Double Trouble]

How would they act collectively?

The only means we have for collective action is the government.

The whole notion of "acting collectively" is ridiculous. Remember, companies are competing with each other in the marketplace. Every company will do what is in their own best interest. If you don't lay off people and reduce cost, and your competitor does, guess what, you go out of business.

It's foolish to think that all the people running companies are making these decisions without thinking things through and examining all the angles. That includes impact to local community by the way (at least for some companies -- I know for certain we consider impact to our community in our decisions where I work).

This isn't a simple "think long term" or "don't focus exclusively on the bottom line" issue. If they all act collectively, companies could make a difference, but since they can't (and in some cases that would even be illegal), it's not an issue any one company or group of companies can fix.

The regulatory/fiscal/tax/business/legal/economic environment and incentives are set up such that it is advantageous for companies to take the actions they take. Those factors have to change for anything to change, you can't expect companies to act against their own self interest in the hopes that everyone else will follow suit.

 

[Jhhnn]

The whole notion of "acting collectively" is ridiculous. Remember, companies are competing with each other in the marketplace. Every company will do what is in their own best interest. If you don't lay off people and reduce cost, and your competitor does, guess what, you go out of business.

It's foolish to think that all the people running companies are making these decisions without thinking things through and examining all the angles. That includes impact to local community by the way (at least for some companies -- I know for certain we consider impact to our community in our decisions where I work).

This isn't a simple "think long term" or "don't focus exclusively on the bottom line" issue. If they all act collectively, companies could make a difference, but since they can't (and in some cases that would even be illegal), it's not an issue any one company or group of companies can fix.

The regulatory/fiscal/tax/business/legal/economic environment and incentives are set up such that it is advantageous for companies to take the actions they take. Those factors have to change for anything to change, you can't expect companies to act against their own self interest in the hopes that everyone else will follow suit.

You just made a great argument for govt to step in to create jobs, because the private sector will only reinforce the existing downward trend out of not so enlightened self interest.

If you think that the American executives of multi-national corporations give a damn about the impact of their decisions on anybody other than themselves and stockholder perception of their leadership, you're sadly mistaken. They're often the creme de la creme of highly functional psychopaths who've fought their way to the top of a very dog eat dog system, and didn't get there by actually caring about anything other than their own success.

 

[MagnusTheBrewer]

The whole notion of "acting collectively" is ridiculous. Remember, companies are competing with each other in the marketplace. Every company will do what is in their own best interest. If you don't lay off people and reduce cost, and your competitor does, guess what, you go out of business.
This is just flat out FUD. What will happen is that the company who0 doesn't act like a robber baron will earn less profit not, go out of business.
It's foolish to think that all the people running companies are making these decisions without thinking things through and examining all the angles. That includes impact to local community by the way (at least for some companies -- I know for certain we consider impact to our community in our decisions where I work).
They're very much aware that earning less for the company will get them replaced regardless of the long term goal. Why do I believe "impact to the local community" means avoiding bad press.

This isn't a simple "think long term" or "don't focus exclusively on the bottom line" issue. If they all act collectively, companies could make a difference, but since they can't (and in some cases that would even be illegal), it's not an issue any one company or group of companies can fix.
No one has said anything about operating illegally. How would you know companies can't work collectively? Has your company ever tried?
The regulatory/fiscal/tax/business/legal/economic environment and incentives are set up such that it is advantageous for companies to take the actions they take. Those factors have to change for anything to change, you can't expect companies to act against their own self interest in the hopes that everyone else will follow suit.

So, don't blame the gamers blame the game? Why does that sound a lot like "I was only following orders?"

 

[Engineer]

The general theory of what you're saying is right, but your scaling is off. Heinz fires maybe 1000 people. The economy is bad and consumer confidence is down because millions of people are unemployed. Their 1000 people is a drop in the bucket. 999000 unemployed instead of 1000000 unemployed is basically the same; consumer confidence would still be down.

You're assuming that only ONE company is doing this. They ALL are and collectively, it's millions that are effected. Keep tearing the foundation out from the bottom and eventually, the building will fall. Just a matter of time at this point.

 

[shira]

It's easy to demonstrate that the OP's point is just silly. Take the case of the stock market:

Suppose I have money invested in the market and the outlook for the market for the next six months is negative - I believe that my stock will go down. If I have confidence in my analysis, a prudent course would be to sell some or all of my stock and put the proceeds in an investment with less short-term downside.

But if I sell my stock, that will put a small amount of downward pressure on the price of my stocks in particular and on the the prices of all stocks in general. According to the OP, I therefore shouldn't sell any stock at all. Yet if I follow that advice, it's likely that a couple of months from now I'll have a portfolio with a lower value than its current value.

The flaw in OP's reasoning is that he overlooks the fact that the marginal effect on the economy of the actions of a single participant are very small compared with the effect of the actions of all participants. Thus, the marginal benefit to a participant of "doing the right thing" will be much smaller than the losses caused by the actions of all other participants acting in their own short-term self interest.

Or consider the example of driving in traffic: If all drivers behaved altruistically and cooperatively, there would be fewer and less serious traffic jams. But drivers typically drive so as to minimize their own commute time, which means cutting in at the last moment and failing to yield space to other drivers. That behavior makes traffic worse overall, but the fact is that non-altruistic drivers get where they're going faster than "nice" drivers do.

 

[Gonad the Barbarian]

You are 100%, unequivacably and totally WRONG.

One needs to only look at the automotive companies to see what happens when companies end up being altruistic (whether they wanted to or not isn't the question) and paying significantly above what they can afford to pay.

They go bankrupt.

You are placing the blame on the symptom, and not the cause. The CAUSE is that the supply of money in this country is dropping as we pay other countries to manufacture (i.e. add value) to products and then purchase them.

Money doesn't grow on trees, and we've been sending it overseas for 40 years.

Blaming a tight money supply. Wow. You're exactly why things keep getting worse.

 

[Pulsar]

Blaming a tight money supply. Wow. You're exactly why things keep getting worse.

Actually, I blamed the fact that we no longer create value through manufacturing in this country. But that's clearly something you don't understand. The motion of money away from the US is yet another symptom, which, yet again, you've confused as a root cause.

 

[Mr.IncrediblyBored]

snip
The flaw in OP's reasoning is that he overlooks the fact that the marginal effect on the economy of the actions of a single participant are very small compared with the effect of the actions of all participants. Thus, the marginal benefit to a participant of "doing the right thing" will be much smaller than the losses caused by the actions of all other participants acting in their own short-term self interest.

Or consider the example of driving in traffic: If all drivers behaved altruistically and cooperatively, there would be fewer and less serious traffic jams. But drivers typically drive so as to minimize their own commute time, which means cutting in at the last moment and failing to yield space to other drivers. That behavior makes traffic worse overall, but the fact is that non-altruistic drivers get where they're going faster than "nice" drivers do.

Isn't that the OP's point? That all companies are doing the same thing? Cutting costs by closing plants and laying off people? Or, according to your analogy "selling their stock". At the point the stock price spirals out of control.

 

[sandorski]

Fact: Economic Growth occurs by pumping Money into the system. This can occur either through Private Investment/Consumption or through Public(Government) Stimulus or a combination of both. If both do the opposite at the same time, you will have Recession.

The OP is completely correct and those arguing against it either completely don't understand his point or are clueless with how the Economy works.

 

[Double Trouble]

Lack of production efficiency might tank a business but lack of a customer base will tank entire industries. And the unemployed, underemployed, and debt ridden typically don't make good customers. We have a big picture problem and only people with small picture solutions.

That may all be true, but no one company can have a significant impact on those things. Small picture solutions vs big picture solutions is easy to say, but each company faces it's own "small picture" constraints and market realities.

To illustrate the problem, lets set up a hypothetical scenario. Lets put you in the shoes of ruler of megacorp X. You have sole rule, the board has given you complete control and the shareholders bow to your every whim (sounds like Jobs' position at Apple, but lets keep it hypothetical). The economy has caused demand for your widgets to drop. They cost you $90 to make, and you're selling them for $100, you sell 100000 per year, resulting in $1 million in profits, out of which you have to pay taxes, mortgage, depreciation and other fixed costs of $900,000, leaving you $100k in net profits. You employ 10,000 to do so. Your main competitor, megacorp Y also makes widgets, and also sells them for $100. However, you've just learned that megacorp Y slashed it's workforce, cut benefits and off-shored a bunch of their workers, and it now costs them $80 to make each widget.

Megacorp Y has decided to lower the price on their widgets to $90, and market research shows that customers are going to buy their widget for $90 instead of yours at $100, that demand for your widget is going to drop to 70k per year. That means you're going to be losing $200k this year if you take no action.

You stick to your guns, and take a hit. Now you learn megacorp Z has also slashed its workforce, and makes a cheaper widget in China. Yeah, the quality sucks and it's lead lined, but customers don't care, they love paying $70 for it. Your demand has now been cut to 60,000 widgets, leaving you with a $300k loss for the year, $500k over the past two years. That means you've already burned through 5 years worth of profits, and the picture is only looking bleaker as the economy continues to sour, and competitors continue to slash their prices.

What do you do?? Yes, you can work on figuring out some new way to make your widget better, and yes, you spend on marketing and R&D and all that jazz, but at some point you're going to have to face the reality that your cost structure is putting you at a competitive disadvantage.... so you start looking at cost cutting measures......

It's easy to say to think "big picture" and all that, but you have to understand the reality of the world as well, there isn't a nice clear-cut answer.

 

[Double Trouble]

Fact: Economic Growth occurs by pumping Money into the system. This can occur either through Private Investment/Consumption or through Public(Government) Stimulus or a combination of both. If both do the opposite at the same time, you will have Recession.

Yep, correct.

The OP is completely correct and those arguing against it either completely don't understand his point or are clueless with how the Economy works.

Sorry, that's not correct. OP is saying individual companies are making stupid decisions. That's fundamentally flawed thinking, assuming companies can act in unison toward a shared goal. That's generally not the case. Companies are making the correct decision given their options and the environment, even if it hurts us as a collective society. In order to change things, the environment has to change so it makes sense for companies to make other decisions.

 

[Gonad the Barbarian]

It's easy to say to think "big picture" and all that, but you have to understand the reality of the world as well, there isn't a nice clear-cut answer.

I realize this, and I don't mean to suggest there is one. But until people start addressing the big picture problem things are not going to improve (short an innovation boom a la .com).

 

[the DRIZZLE]

Fact: Economic Growth occurs by pumping Money into the system. This can occur either through Private Investment/Consumption or through Public(Government) Stimulus or a combination of both. If both do the opposite at the same time, you will have Recession.

The OP is completely correct and those arguing against it either completely don't understand his point or are clueless with how the Economy works.

Fact: The only REAL economic growth occurs by increasing total factor productivity. The long term is here.

 

[Gonad the Barbarian]

We do need more than just pumping more money into the same system. It might create a sort term bump but we'll run into the same problem again. And you simply can't have continual economic growth from productivity increases with most of that increased productivity based on increased efficiency. Increased efficiency = less need for resources = less demand for labor = lower wages/fewer jobs = less end consumer consumption = less need for production = less need for resources = less demand for labor = lower wages/fewer jobs = less end consumer consumption = less need for production = less need for resources = less demand for labor = lower wages/fewer jobs = less end consumer consumption = less need for production = less need for resources = and on and on and on.

 

[Macamus Prime]

Capitalism's modern goals of profit maximization is not sustainable.

You should not focus on target profits. Companies are making money, but not the money that they want. Not the money that was promised to the shareholders by their $50million a year Chiefs of Whatever.

No one is telling you to lose money on a business venture. But, do you honestly NOT see the shortfalls of gutting your operations for the sake of profit? But, how well does profit perservation work, when your income/sales is dependant on the very masses you laid off?

What is worse, the price of product X, that brings in income - is rising. So, the model of reducing costs is executed - but you are still charging the same (if not, more).

They are literally pulling the rug out from under their own feet.

 

[dphantom]

This is perhaps the funniest post I've ever read, and clearly highlights a total lack of economic understanding.

A business makes money by selling product. They need a certain amount of infrastructure to make that product. However, because of economy of scale, you need to sell a certain amount of that product to make a profit with a certain amount of infrastructure.

So when the market depresses itself, the first thing that a company does it start looking at projections. Where will we be in 3 years? 5 years? After all, a product lifespan can be up to 10 years, so we need to plan in advance. How much money do we need to launch new product and still be profitable?

So based on projections, they need to right-size their infrastructure (fixed costs) so that the volume they expect in the future will make enough profit to cover those fixed costs.

HINT: HJ Heinz is not cutting costs to become profitable. They are MAKING a profit. They are cutting costs because their projections show that the economy is going to REMAIN depressed, and they have too much infrastructure for the volumes they think they'll sell for the next 5-10 years.

OP is a fail, and so are the people agreeing with him who don't understand basic business economics and planning.

IF businesses were worried more about their workers jobs than they are about profits, well, we'd call them "government", and they'd be so deep in debt that they'd have gone out of business a long long time ago.

Could not have said it any better. The lack of basic economic theory in this thread is simply astounding.

 

[Gonad the Barbarian]

Could not have said it any better. The lack of basic economic theory in this thread is simply astounding.

The inability for so many to go beyond mere basic economic theory is why we're here.

Edit: I'll go ahead and give the game away. We're in one huge prisoner's dilemma where everyone is pursuing rational self interest to their marginal detriment instead of cooperating for the most optimal outcome for the whole. That's what the OP and some of us are hitting on, and that's what the rest of you are completely missing.

 

[JeffreyLebowski]

this is exactly why laissez-faire capitalism fails.

It is? Care to explain how since this type of system has been in place, life expectancy has risen dramitically? How the poor of today have cars, air conditioning, TV, Xbox/playstations, food, clothes. They may live check to check or work crappy jobs, but the "poor" people of today for the most part have much better lives than the poor and even not poor but not rich of 100 years ago.

The fallacy is the media leads you to think of poverty and poor as people living in the streets, where as the official statistics cover people with cell phones, cable or satellite TV. High speed internet access, a computer, ect. They just don't have any savings to speak of.

What has made peoples lives so much better? It's not government, it's capitalism. The drive to earn profits, also by trying to be able to charge the most makes companies create better and better products.
Don't post on the internet using a computer built by a business that works in the capitalistic economy, sitting in a chair from a company building it in a capitalistic economy. Everything around you is there because of capitalism. If you want to live in a "officially" non capitalist society, move to North Korea (where most items people need are sold on the black market, which works via capitalism) Or former U.S.S.R.

 

[PokerGuy]

We're in one huge prisoner's dilemma where everyone is pursuing rational self interest to their marginal detriment instead of cooperating for the most optimal outcome for the whole.

Companies CAN NOT work as a collective for a multitude of reasons. Is this so hard to comprehend?

 

[JeffreyLebowski]

Fact: Economic Growth occurs by pumping Money into the system. This can occur either through Private Investment/Consumption or through Public(Government) Stimulus or a combination of both. If both do the opposite at the same time, you will have Recession.

The OP is completely correct and those arguing against it either completely don't understand his point or are clueless with how the Economy works.

The Government pumping more money into the "system" doesn't cause economic growth. It causes inflation. What the Fed is doing now will cause hyper-inflation. Look at Zimbabwe for the effects of the government pumping money into an economy.
Economic growth occurs when already existing money is put into the "system". Not money that is made out of nothing, which is what the fed does.

 

[Hugo Drax]

This should be required reading for all MBA programs.

http://en.wikipedia.org/wiki/The_Goose_That_Laid_the_Golden_Eggs

A farmer, bent on doubling the profits from his land,
Proceeded to set his soil a two-harvest demand.
Too intent thus on profit, harm himself he must needs:
Instead of corn, he now reaps corn-cockle and weeds.

 

[1prophet]

My thoughts exactly. This thread contains some very curious posts showing a thorough lack of understanding of economics and how companies work. I'm an exec in finance for a fortune 100 company, I think have a pretty decent understanding of how these things work since I live it every day.

OP is suggesting that layoffs and offshoring are shortsighted ways to contain costs, that will end up hurting the company in the long run. Companies don't exist in a vacuum, and they have to take into account what is going on around them when making decisions.

Companies face competition. If they don't drive efficiency and cost control, they'll get crushed by their competition because the competition will offer similar products at a better price point. It's nice to say "keep your staff, don't lay off, don't offshore" and all that, but it runs headlong into reality in the marketplace.

And who taught(brainwashed) the consumer to care only about themselves, cheapest price only matters, keep up with the Jones's, don't worry if you can't afford or need it we will finance it for you,etc. etc.

And then the companies turn around and say see we are just doing what's in the best interest of the shareholders/consumers because that is what they want, we told them so.

Paul Mazer, a Wall Street banker working for Lehman Brothers in the 1930s, is cited as declaring "We must shift America from a needs- to a desires-culture. People must be trained to desire, to want new things, even before the old have been entirely consumed. [...] Man's desires must overshadow his needs."

Century of Self
http://www.youtube.com/watch?v=TjP2gHoBLvA


but that corporate Koolaid tastes so good:$

 

[sandorski]

Yep, correct.



Sorry, that's not correct. OP is saying individual companies are making stupid decisions. That's fundamentally flawed thinking, assuming companies can act in unison toward a shared goal. That's generally not the case. Companies are making the correct decision given their options and the environment, even if it hurts us as a collective society. In order to change things, the environment has to change so it makes sense for companies to make other decisions.

Negative. As stated by others, when everyone is making this same decision, it is no longer Correct. It is merely a stampede towards the edge of a cliff at this point.

The solution to this situation can only come from one place, Government. So in that sense I'll agree with you, in that it's near impossible for all these Corps to change this behavior in a coordinated way.

 

[sandorski]

The Government pumping more money into the "system" doesn't cause economic growth. It causes inflation. What the Fed is doing now will cause hyper-inflation. Look at Zimbabwe for the effects of the government pumping money into an economy.
Economic growth occurs when already existing money is put into the "system". Not money that is made out of nothing, which is what the fed does.

Hyper-Inflation is not going to happen, sorry.