Why do you think lowering the maximum wage is a bad idea?

[The Don]

These companies started out big? Don't think so, that dog doesn't hunt. Moreover, smaller organizations bring success closer to those who actually earn it.

Using pharmaceuticals as an example.....

The costs of bringing a drug to market these days runs into billions. A small company simply cannot afford to do it any more. Small companies who do come up with a new idea for a new drug sell that idea onto the big pharmaceutical companies to take the drug through the trials stages. The failure rate during drugs trials (either because the drug is less effective than existing treatments and/or there are unexpected adverse reactions during the trials) means that even if the smaller companies could afford one drugs trial they will put themselves out of business in the 9 times out of 10 when it fails.

Likewise with aerospace companies.....

There is no such thing as a small producer of commercial airliners because of the billions it costs to develop the technologies and get them certified for use in commercial airliners.

There are industries where the barriers to entry are comparatively small, retail is one, consulting is another and niche manufacturing may be a third but large engineering requires large amounts of capital.

 

[wrs]

Using pharmaceuticals as an example.....

The costs of bringing a drug to market these days runs into billions. A small company simply cannot afford to do it any more. Small companies who do come up with a new idea for a new drug sell that idea onto the big pharmaceutical companies to take the drug through the trials stages. The failure rate during drugs trials (either because the drug is less effective than existing treatments and/or there are unexpected adverse reactions during the trials) means that even if the smaller companies could afford one drugs trial they will put themselves out of business in the 9 times out of 10 when it fails.

Doesn't have to be this way. The regulatory process produces most of the complexity based on the claim that people are too stupid to take care of themselves in the presence of the complexity of the pharmaceuticals. In fact, you must have a doctor tell you what to take. That's utter nonsense. Drug companies produce drugs and have doctors sell them.

Likewise with aerospace companies.....

There is no such thing as a small producer of commercial airliners because of the billions it costs to develop the technologies and get them certified for use in commercial airliners.

There are industries where the barriers to entry are comparatively small, retail is one, consulting is another and niche manufacturing may be a third but large engineering requires large amounts of capital.

Boeing is the only remaining big airliner company left. There are plenty of other planes produced for other markets that are not produced by Boeing. You are just making an excuse for a specific product that has limited relevance on daily life. Cars do not need to be produced by large corporations, Tesla is a good case in point.

Most big corporations could easily be broken down. Exxon Mobil, all of the big oil majors could be shattered. Same for all the big retail chains. Banks too. Most big companies got big by driving the competition out of business and buying up their remains.

 

[The Don]

Doesn't have to be this way. The regulatory process produces most of the complexity based on the claim that people are too stupid to take care of themselves in the presence of the complexity of the pharmaceuticals. In fact, you must have a doctor tell you what to take. That's utter nonsense. Drug companies produce drugs and have doctors sell them.

I don't think you understand the regulatory process or the relationship between patient, doctor and pharmaceutical company. I also think you don't understand how complicated it is to develop a new drug and how complicated and expensive it is to determine whether a drug is safe and effective.

The stupidity or otherwise of the consumer is not the primary reason for the regulatory process and categorising doctors as pushers and shills for the drugs companies is incorrect and insulting (especially in countries like the UK where doctors are encouraged and indeed incentivised not to presribe).

Boeing is the only remaining big airliner company left. There are plenty of other planes produced for other markets that are not produced by Boeing. You are just making an excuse for a specific product that has limited relevance on daily life. Cars do not need to be produced by large corporations, Tesla is a good case in point.

Boeing isn't the only large commercial plane maker left, it's just the only one in the U.S. The reason why it's the only one left is that the other makers couldn't afford the vastly expensive process of getting commercial airliners certified.

Tesla is a poor example, it's a small volume niche player which sells a small number of very expensive vehicles to enthusiasts. To be able to deliver large volumes of cars at affordable prices requires the economies of scale that come with large factories, extensive automation and large purchasing organisations which in turn result from large organisations.

Most big corporations could easily be broken down. Exxon Mobil, all of the big oil majors could be shattered. Same for all the big retail chains. Banks too. Most big companies got big by driving the competition out of business and buying up their remains.

Many large companies could be broken down, that's true and in so doing will result in increased costs and less efficiency. Instead of having one person buying all the widgets for the whole company, you now need one person for each of the companies. Instead of negotiating contracts for ten thousand widgets, you're got contracts for a few thousand so the cost per widget will rise.

When the time comes for the multi-billion dollar investment in a new oil field, while the old company could afford to make that investment, each of the small companies could not without imperiling themselves financially. One of the reasons why there are so few major players in the world oil industry are the huge sums that have to be invested and even then sometimes they have to pool their resources.

 

[Ziggurat]

Cars do not need to be produced by large corporations, Tesla is a good case in point.

It's not nearly as good a case as you presume. First off, it was founded by a billionaire using a fortune he made from another company that wouldn't have been possible if his income had been capped. Second, yes, it's a small company, but it also serves a small niche market. It cannot compete in the mass market. And third, it doesn't even an entire car, it only makes the drivetrain. Lotus makes the rest of the car for them.

Most big corporations could easily be broken down. Exxon Mobil, all of the big oil majors could be shattered. Same for all the big retail chains. Banks too. Most big companies got big by driving the competition out of business and buying up their remains.

How do you drive the competition out of business?

You offer better products and/or better prices. And that's a good thing for consumers. I'm not sure why you think taking away the incentive to do so is somehow going to benefit consumers.

There are cases where companies are bigger than they should be. But for the most part, government isn't who should be deciding that, shareholders are. The only proper role of government in reducing the size of massive corporations is to stop creating laws and regulatory environments which favor such massive companies. And in general, that means reducing the regulatory burden across the board. Big companies LOVE regulations, because they can bear the compliance costs more easily than small companies. Reduce that, and you reduce the artificial incentive that companies have to get bigger. And in the case of banks, of course, stop bailing them out.

 

[wrs]

It's not nearly as good a case as you presume. First off, it was founded by a billionaire using a fortune he made from another company that wouldn't have been possible if his income had been capped. Second, yes, it's a small company, but it also serves a small niche market. It cannot compete in the mass market. And third, it doesn't even an entire car, it only makes the drivetrain. Lotus makes the rest of the car for them.

Doesn't matter if it took a billionaire to found it, the barrier to entry is fairly low and could have been done with a number of investors. The fact that Lotus makes a lot of their parts is favorable to my argument.

How do you drive the competition out of business?

You offer better products and/or better prices. And that's a good thing for consumers. I'm not sure why you think taking away the incentive to do so is somehow going to benefit consumers.

This is the idealization. How did Exxon Mobil get to be so large? Consumers are employees of businesses. If businesses were on a more equal footing, more consumers would have more money to spend and be able to afford higher prices and would gain better quality as a bonus.

There are cases where companies are bigger than they should be. But for the most part, government isn't who should be deciding that, shareholders are. The only proper role of government in reducing the size of massive corporations is to stop creating laws and regulatory environments which favor such massive companies. And in general, that means reducing the regulatory burden across the board. Big companies LOVE regulations, because they can bear the compliance costs more easily than small companies. Reduce that, and you reduce the artificial incentive that companies have to get bigger. And in the case of banks, of course, stop bailing them out.

Big companies can only be regulated by govt since they are chartered by govt. Govt should absolutely be in a position to regulate them to the benefit of society. Govt is acting in a way that benefits big companies as you point out. That needs to stop and govt needs to act in a way that benefits the people that govt is supposed to represent and moreover, to be composed of. Part of the result of breaking down big corporations would be to break down their stranglehold on govt.

 

[Ziggurat]

Doesn't matter if it took a billionaire to found it

It certainly does for this thread, where we're talking about lowering maximum wages.

the barrier to entry is fairly low and could have been done with a number of investors.

It WAS done with a number of investors. But the idea was still risky enough that it took one individual with a lot of money to kickstart the process.

The fact that Lotus makes a lot of their parts is favorable to my argument.

Not nearly as much as the fact that it's a niche product is unfavorable to your argument.

No small car company will ever compete with Toyota or Ford or Honda for a mass-market car. It's simply not possible to recover the development costs required to make a competitive car at low margins if your volumes aren't huge.

This is the idealization. How did Exxon Mobil get to be so large? Consumers are employees of businesses. If businesses were on a more equal footing, more consumers would have more money to spend and be able to afford higher prices and would gain better quality as a bonus.

This doesn't actually make any sense. Making businesses small doesn't put them on a more equal footing, and being on an equal footing doesn't mean that their employees would be making any more money.

Big companies can only be regulated by govt since they are chartered by govt.

Nonsense. Government can regulate any business, chartered or not. Government can regulate individuals engaged in commerce.

Govt should absolutely be in a position to regulate them to the benefit of society.

I'm not arguing to do away with any and all regulations. But you're delusional if you think all regulations benefit society as a whole. Many of them do not. Many of them are, in fact, directly harmful to society as a whole, and only of benefit to narrow interests which successfully lobby for them. Commerce is currently over-regulated, and many of those regulations provide no real protections or benefits to society at all.

Govt is acting in a way that benefits big companies as you point out. That needs to stop and govt needs to act in a way that benefits the people that govt is supposed to represent and moreover, to be composed of. Part of the result of breaking down big corporations would be to break down their stranglehold on govt.

This is exactly the wrong approach. You cannot solve the problem of the abuse of government power by giving government more power. But that's exactly what you're proposing. Who gets to decide which companies get broken up, and what the pieces will look like? What sort of incentive structure do you think that will create for companies to lobby government in order to control the effects of such breakups? You're basically creating a massive scheme for corruption, all in an effort to try to reign in corruption. It will not work. It will backfire, just like the idea that government can control large corporations through regulation has backfired.

 

[The Don]

Doesn't matter if it took a billionaire to found it, the barrier to entry is fairly low and could have been done with a number of investors. The fact that Lotus makes a lot of their parts is favorable to my argument.

It indicates that you need tens if not hundreds of millions of dollars to found even a niche car manufacturer. If this doesn't come from very wealthy individuals (who wouldn't be able to acquire their wealth if you cap incomes) then it would require the funds to come from shareholders. In another thread you propose taxing corporate profits at 70%, how will the shareholders get a return under such a punitive tax regime ?

The barriers to entry are very high and, as Lotus make the chassis, it requires another large company backed by a Malaysian multinational. So even a small niche car manufacturer requires the backing of a billionaire and a multinational.

 

[joesixpack]

Envy is a sin. And rather silly.

So is greed I hear.

 

[wrs]

It certainly does for this thread, where we're talking about lowering maximum wages.



It WAS done with a number of investors. But the idea was still risky enough that it took one individual with a lot of money to kickstart the process.

Has nothing to do with limiting compensation of executives.

Not nearly as much as the fact that it's a niche product is unfavorable to your argument.

No small car company will ever compete with Toyota or Ford or Honda for a mass-market car. It's simply not possible to recover the development costs required to make a competitive car at low margins if your volumes aren't huge.

Sure they would if Toyota were broken up.

This doesn't actually make any sense. Making businesses small doesn't put them on a more equal footing, and being on an equal footing doesn't mean that their employees would be making any more money.

Of course it does and of course they would.

Nonsense. Government can regulate any business, chartered or not. Government can regulate individuals engaged in commerce.

You missed my point, no other mechanism is going to limit large corporations from abusing smaller competitors as well as the individuals working for them.

I'm not arguing to do away with any and all regulations. But you're delusional if you think all regulations benefit society as a whole. Many of them do not. Many of them are, in fact, directly harmful to society as a whole, and only of benefit to narrow interests which successfully lobby for them. Commerce is currently over-regulated, and many of those regulations provide no real protections or benefits to society at all.



This is exactly the wrong approach. You cannot solve the problem of the abuse of government power by giving government more power. But that's exactly what you're proposing. Who gets to decide which companies get broken up, and what the pieces will look like? What sort of incentive structure do you think that will create for companies to lobby government in order to control the effects of such breakups? You're basically creating a massive scheme for corruption, all in an effort to try to reign in corruption. It will not work. It will backfire, just like the idea that government can control large corporations through regulation has backfired.

Because you can't conceive it working doesn't mean it won't. The banks couldn't get bailouts when they were smaller, they were shut down and liquidated. In 2008 the banks showed who owns govt. I really don't need to argue this because if you can't see it then you are just ignoring the obvious facts. Govt is owned lock stock and barrel by large corporate interests. The way to change that is to break up those corporate interests but it first means breaking the power of the entrenched corporate minions in congress. Trust busting was common 125 years ago, no reason it can't be again.

Govt already has all the power it needs to limit the size of companies and the compensation of their executives. The alternative to a corporation is a privately held business whose owners can be sued due to no limitation of liability through corporate shielding. Limitation of liability on the part of executives should come at a much higher price than it currently does.

 

[wrs]

It indicates that you need tens if not hundreds of millions of dollars to found even a niche car manufacturer. If this doesn't come from very wealthy individuals (who wouldn't be able to acquire their wealth if you cap incomes) then it would require the funds to come from shareholders. In another thread you propose taxing corporate profits at 70%, how will the shareholders get a return under such a punitive tax regime ?

Privately held business needn't be subject to such limitations but then the executives are subject to personal suit. Corporate charters which limit the liability of management should come at a high price. The current price is far too low.

The barriers to entry are very high and, as Lotus make the chassis, it requires another large company backed by a Malaysian multinational. So even a small niche car manufacturer requires the backing of a billionaire and a multinational.

You are simply reiterating the status quo. If govt was to limit the scope of all business entities then there is no justification for your arguments. These businesses didn't get big due to their success, they grew large by cornering the market.

 

[Ziggurat]

Has nothing to do with limiting compensation of executives.

It absolutely does. Those kinds of high-risk investments are typically made by small groups of focused investors who can afford to risk significant capital, provided they have a lot of control over the investment. In other words, very wealthy individuals like Musk who earned his money as an executive.

Sure they would if Toyota were broken up.

In other words, if ALL cars were significantly more expensive, then niche car makers would be competitive.

Tell me again: who is supposed to benefit in this scenario? Because it's not the average consumer, I can tell you that.

Of course it does and of course they would.

There's nothing "of course" about it. These are assertions of yours for which you have provided neither evidence nor argument.

You missed my point, no other mechanism is going to limit large corporations from abusing smaller competitors as well as the individuals working for them.

I don't care if corporations "abuse" other corporations, small or not. Corporations have no right to survival if they can't compete, and if they can then they won't get "abused". And small companies can (and do) treat their employees just as badly as large corporations.

Because you can't conceive it working doesn't mean it won't.

You don't get it. The problem is not that I can't conceive of it working, the problem is that I see specific mechanisms that will make it fail. And you don't seem to have the faintest clue about these mechanisms, let alone have any suggestions for how to prevent that failure.

The banks couldn't get bailouts when they were smaller, they were shut down and liquidated. In 2008 the banks showed who owns govt. I really don't need to argue this because if you can't see it then you are just ignoring the obvious facts. Govt is owned lock stock and barrel by large corporate interests.

And have you never thought to wonder why? It's precisely because they cannot afford to NOT own government. Government interferes in the marketplace to such an extent that businesses which don't lobby extensively get eaten by their competitors who do lobby extensively to use the power of government against them. The fundamental problem is one of incentive: we've created a situation in which bribing government has one of the highest returns on investment. The solution to that problem is not more government. The solution to that problem is not to make it even more worthwhile to bribe government. The solution is to extract government from the market as much as possible so that bribing government is no longer as profitable as simply investing in the business itself. Businesses won't pay costs when there isn't a return.

The way to change that is to break up those corporate interests

It's naive to think that you can or will. They'll just form trade groups to do the lobbying they want to, the effects will be the same.

The alternative to a corporation is a privately held business whose owners can be sued due to no limitation of liability through corporate shielding.

Once again, you have no idea of what you're talking about. That's a recipe to drive small investors out of the market completely, depriving the middle class of the best means of significant wealth accumulation. If you think that's going to create a better economy for the middle class, you will be sorely disappointed if you ever get what you want.

Limitation of liability on the part of executives should come at a much higher price than it currently does.

That's a very different matter than what you have discussed so far, and it's a very different matter from shareholder liability. But you probably don't have a clue about how to do that sensibly either.

 

[Brainster]

Consider the pro sports teams, whose top players may make $20 million or more a year. Unless you choose a really high multiple (most of the proposals I have heard though that 10X was appropriate), you're going to have groundskeepers and ticket-takers earning six or seven figures. Of course, the teams will not do that; they'll contract the work out to another company (perhaps one that wicked CEO owns). But let's suppose instead that they decide to "do the right thing" and pay their groundskeepers that kind of dough. Is that really fair to, say, groundskeepers at municipal golf courses, or ticket-takers at the local movie chain?

 

[The Don]

Privately held business needn't be subject to such limitations but then the executives are subject to personal suit. Corporate charters which limit the liability of management should come at a high price. The current price is far too low.

If privately held businesses are exempt from the punitive taxation rates but have increased liability, this will tend to concentrate assets in the hands of those people who have the money to invest and who can afford to protect and indemnify themselves against that liability - the super rich.

There would be nothing to stop these large privately operated businesses outcompeting the smaller and less efficient businesses (or deploying predatory business methods if you wish to take the opposite view) but the proceeds would find their way into the pockets of the oligarchs who own these large businesses instead of into the pockets of the the millions of people with modest pension funds who currently receive a share of the profits in the form of dividends.

You are simply reiterating the status quo. If govt was to limit the scope of all business entities then there is no justification for your arguments. These businesses didn't get big due to their success, they grew large by cornering the market.

As I keep trying to point out, there are a lot of businesses where merely acquiring the plant or the intellectual property to operate efficiently costs billions of dollars.

Somebody who wants to set themselves up as a maker of bulk ore carriers cannot do so in their back yard with $20, their best friend and their dog. They could set themselves up as a maker of rowing boats but to get from there to making ships 300m long isn't something that's going to happen.

Companies do get big through success and there is precedent for companies which do get too large and which present a risk to the market being broken up. For example the EU competition commission is very hot on this kind of thing.

You seem to have a very twisted view of the U.S. market and a sketchy idea of how markets outside the U.S. operate. Perhaps this is influenced by your own business experience but in the vast majority of cases business responds to market demand and we end up in a situation where consumers end up with a wider choice of goods and services at a more competitive price.

 

[Puppycow]

Cars do not need to be produced by large corporations, Tesla is a good case in point.

Not everyone can afford a Tesla.

Without mass production you're not going to have mass consumption. Instead you'll have much fewer cars produced, and the price will go through the roof because supply cannot meet demand.

Also, while Tesla may have started small, they aren't very small anymore.

http://www.valuewalk.com/2014/02/tesla-motors-inc-tsla-stock-high/

Tesla Motors Inc (NASDAQ:TSLA) now has a market capitalization of nearly half that of General Motors Inc (NYSE:GM). As of this writing, Tesla’s market cap is just shy of 24 billion, while GM’s market cap is $55 billion.

 

[TellyKNeasuss]

Rather restrict the maximum wage, wouldn't it be a better idea to try to eliminate non-market forces pushing up executive pay, e.g., eliminate the tax advantages of giving stock options to executives?

 

[wrs]

Not everyone can afford a Tesla.

True but what is so funny about that? I am amazed at the number of Model S that I see on the roads of Austin now. It's a 6 figure car if you get decent options and yet I see two or three a day. My neighbor has one for his daily driver but he also has a Ferrari 458 and an Aston Martin DB9 and a Lambo so this is just a toy for him.

Without mass production you're not going to have mass consumption. Instead you'll have much fewer cars produced, and the price will go through the roof because supply cannot meet demand.

No, the point is that more companies will make smaller numbers of cars but the total number produced should still meet the market demand. That is what I am conjecturing as a result of breaking up the big corporations.

Also, while Tesla may have started small, they aren't very small anymore.

http://www.valuewalk.com/2014/02/tesla-motors-inc-tsla-stock-high/

Stock market cap is a bad measure of company size since stock price can fluctuate 10% day to day. Anyway, I think they have good growth potential and as they produce more they will come up with ways to reduce the cost. I think they have a decent product and I considered buying one but bought what I view to be more car for slightly more money from BMW.

 

[wrs]

Rather restrict the maximum wage, wouldn't it be a better idea to try to eliminate non-market forces pushing up executive pay, e.g., eliminate the tax advantages of giving stock options to executives?

This might be a good place to get started. It's a good example of how corporations end up paying less taxes than individuals.

 

[Ziggurat]

True but what is so funny about that? I am amazed at the number of Model S that I see on the roads of Austin now. It's a 6 figure car if you get decent options and yet I see two or three a day. My neighbor has one for his daily driver but he also has a Ferrari 458 and an Aston Martin DB9 and a Lambo so this is just a toy for him.

You know what your response reminds me of? The fact that so many supposed champions of "the people" wore Rolex watches.

No, the point is that more companies will make smaller numbers of cars but the total number produced should still meet the market demand.

"Market demand" is not a single number, wrs. Yes, they'll meet the demand: the demand that exists for their expensive cars.

They will not meet the demand that exists for cheap cars, because they won't be able to produce cheap cars.

 

[wrs]

I don't think you understand the regulatory process or the relationship between patient, doctor and pharmaceutical company. I also think you don't understand how complicated it is to develop a new drug and how complicated and expensive it is to determine whether a drug is safe and effective.

Why would you think this?

The stupidity or otherwise of the consumer is not the primary reason for the regulatory process

Then caveat emptor.

and categorising doctors as pushers and shills for the drugs companies is incorrect and insulting (especially in countries like the UK where doctors are encouraged and indeed incentivised not to presribe).

Since I am in the US, maybe you should restrict your responses to the situation in the US. I am well aware that the UK has a vastly different but probably not better medical system than we have here in the US. The fact is that doctors do shill drug products here in the US and they get shilled by the drug manufacturers who shill them on TV to me and others. If you don't ask your doctor, he probably will ask you.

Boeing isn't the only large commercial plane maker left, it's just the only one in the U.S. The reason why it's the only one left is that the other makers couldn't afford the vastly expensive process of getting commercial airliners certified.

Well that isn't the way I understand it. Boeing bought out MD and Lockheed built the L-1011 but it was just a money loser and so they dropped it. I am not sure what you mean by the vastly expensive process of getting them certified. It's a vastly expensive process to certify any jet aircraft including the military ones.

Nevertheless, isn't AirBus pretty much a GSE over there in Europe?

Tesla is a poor example, it's a small volume niche player which sells a small number of very expensive vehicles to enthusiasts. To be able to deliver large volumes of cars at affordable prices requires the economies of scale that come with large factories, extensive automation and large purchasing organisations which in turn result from large organisations.

No the people buying Teslas aren't just enthusiasts, I see more and more of them on the road here in Austin. Since you are in the UK, maybe you shouldn't make such generalizations about the US. At the new Whole Foods they have special parking spots for rechargeable cars. Austin is very progressive.

Many large companies could be broken down, that's true and in so doing will result in increased costs and less efficiency. Instead of having one person buying all the widgets for the whole company, you now need one person for each of the companies.

Helps out with unemployment doesn't it?

Instead of negotiating contracts for ten thousand widgets, you're got contracts for a few thousand so the cost per widget will rise.

Not if there are lot's of widget manufacturers competing for your contract. Don't forget, this works across the board. Lot's of smaller companies producing the same or greater number of higher quality goods.

When the time comes for the multi-billion dollar investment in a new oil field, while the old company could afford to make that investment, each of the small companies could not without imperiling themselves financially. One of the reasons why there are so few major players in the world oil industry are the huge sums that have to be invested and even then sometimes they have to pool their resources.

Well you don't know much about oil here in Texas. That isn't the way it works here. I think you might be biased in your thinking by what you have read about really deep water projects. The problem there is that the big oil companies are so big, that to maintain their size, they have to find gargantuan fields.

You should google Wolfcamp shale or Eaglebine or Eagleford or permian basin to see how it has worked out here in Texas. I have leases on a number of productive wells here in Texas and not one of them is with a major. In fact, the well that is currently being drilled on my West Texas acreage is being drilled by a wildcatter. The field is being developed by a very large number of E&P companies including Cimarex, Devon, Petrohawk, COG and a lot of really small outfits. If you are curious about who drills oil wells in Texas, go to the RRC website and search the W-1s, you might be surprised by what you find.

 

[wrs]

You know what your response reminds me of? The fact that so many supposed champions of "the people" wore Rolex watches.

How so?

"Market demand" is not a single number, wrs. Yes, they'll meet the demand: the demand that exists for their expensive cars.

They will not meet the demand that exists for cheap cars, because they won't be able to produce cheap cars.

Is there really such a thing as a "cheap car" any longer? At least not a new one.