Uncommon Sense

January 28, 2012

Profits: Means or End?

Filed under: Economics — Steve Ruis @ 9:08 am
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On TV last night the company Element Electronics was highlighted for bringing jobs back to the U.S. Element, based in Minnesota, has been supplying stores like Target, Wal-Mart, and Costco with Chinese televisions. Now, they will begin manufacturing, servicing, and supporting televisions in Canton, Michigan. Element will start by hiring 100 workers and then add as they grow.

Element’s president, Michael Shaughnessy, spoke about growing up in Canton, Ohio amongst the shuttered factories and their impact on friends and family. He also admitted that the decision to manufacture was partly emotional because of that history. Shaughnessy believes that he can make televisions (starting with 46 inch flat screens) here in the U.S. for the same costs as making them in China.

We have stated quite a few times that the raison d’être of corporations, to make profits, should be a means to an end and not an end in itself. Toyota, the second largest manufacturer of automobiles in the world, for example, has stated as one of its goals to make well-paying jobs for its workers. Element Electronics is now doing the same.

Rapacious capitalism has run its course. What is needed now is a change of heart. Making profits off of other people’s misery is just not good enough any more. Impersonal profits are not good enough any more.

June 22, 2010

The Immorality of A Pure Profit Motive

Filed under: Economics — Steve Ruis @ 4:13 pm
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I am puzzled by the concordance between the very right-wing part of this country (the Tea Baggers, etc.) which are simultaneously pro-religion and pro-business, specifically pro-corporation. These folks claim there is no morality without religion and corporations can be trusted to do what is right. Both of these points are quite debatable, but what I want to address here is the second. Our corporations are, by and large, the most amoral institutions on the planet, so why would “morals” believers want to trust them?


I think one of the biggest problems we have in the U.S. is we have elevated “profit” to being an end in itself, actually we have elevated it to a near divine principle. Making a profit has become a moral principle. Almost all corporations say what is the equivalent of, “well, we have to make a profit,” as an answer to almost any question regarding the business of that corporation. Wall Street bankers defended their actions (the ones that triggered the recent financial meltdown) with “Our job is to do whatever we can to make a profit for the company.” Really?

Chip Conley in a TED presentation took Maslow’s pyramid and remade it so that it applies to businesses instead of individuals. Here it is:

Starting from the bottom, a business needs to earn a profit to survive. That seems obvious. If the business doesn’t survive all questions become moot. Actually I have seen a great many businesses violate this principle in that the founders drew quite nice salaries while on “start-up” money, then limply surrendered when the business didn’t make enough profit to attract more money from venture capitalists. They had “got theirs.” But, by and large, if a business wants to continue as such, they must make a profit. Even Amazon.com, whose business plan famously included “don’t worry about making a profit” for up to eight years needed to make one.

The next step up is “Success.” Nobody wants to be a part of a business that just survives, just limps along. Part of being considered a success in the “world of business” is making healthy profits. CEO’s of businesses making really good money get touted for better jobs, get written up in magazines, sell a lot of books with the title “The Way.” That kind of thing. Even the lowliest workers prefer working in a company that is “successful” as they think it means their jobs are stable. (Might even get a raise, what?)

The highest step “Transformation” is the equivalent of “Self-actualization” for an individual and this is mostly a state of intangibles.

So, trying to make a profit to survive: to meet your payroll, to keep your doors open, to be able to buy the equipment of production, all of that is quite understandable. In this profit is not an end in itself. It is “making a profit to survive.”

Once you get past that point, though, is where the dysfunction arises. Just when did making a profit become an end in itself. Often a company says things like: “Last year we made a 5% profit. This year we have set a goal for 8% profit.” Why? What was wrong with the 5% profit? The answer is typically, “Well, with higher profits, we can expand the business and make even more profit!”

So, let’s say you make the 8% goal, then 11%, then 12%, then 14% . . . so what?

Too often this is done to manage stock holders. If the stock holders think the company is doing better and better and that its dividends get larger and larger, they hang onto to that stock; it gets scarce and the price of that stock goes up. If the company needs extra money, it can then sell some of the stock it possesses to raise those funds.

So? Is this just a giant game? The one with the most profit wins?

I do not think that we can accept profit—in itself—as an end. I think we clearly must insist that it be a means to an end.

The goal of every business must be stated “to make a profit while. . . . ” I accept that a profit needs to be had, but to what end? A number of people have started businesses to provide jobs for their workers. “To make a profit while providing quality jobs for our workers.” That has a nice ring to it. It is prominent in Toyota’s mission, for example. Some companies have been started to make the world a better place. “To make a profit while producing clean, renewable energy to Americans so our children will inherit a cleaner, safer world.” Nice. Some companies have a smaller focus. “To make a profit while providing wholesome bread inexpensively.” Also nice.

I think we need our corporations to explicitly state what their “while” is and when they take actions to increase their profits, they need to make explicit how that affects the “while” part. I imagine it would take several PR firms to help BP come up with “We cut corners and endangered our workers and the entire population of the American Gulf Coast and all of the wildlife therein in a reckless pursuit of profit to . . . to. . . .

I’m waiting to hear from them on this.

May 23, 2010

Sometimes the Answer is Right in Front of Our Eyes

Filed under: Politics — Steve Ruis @ 10:44 am
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Not so long ago (1984) the Toyota Motor Corporation created a joint venture with General Motors to make cars in the U.S using Toyota’s manufacturing systems. The result of this was the Fremont, CA NUMMI plant. The motivation on Toyota’s part stemmed from U.S. limits on sales of cars made overseas and Toyota wanted to such limitations on the numbers of cars they could sell in the world’s biggest car market. The problem is “Could American auto workers adapt to using Toyota techniques?” Complicating this was the fact that the plant undergoing the transformation was one of the worst performing plants in GM’s stable (it had been closed two years earlier).

To make a long story short, the NUMMI plant was an instant success. It lead all kinds of quality measure categories and performance categories, too. Attempts to export the NUMMI model to other GM plants met with total failure, though, as the imposition of the NUMMI model met stiff opposition from GM managers and from the auto worker’s union (UAW).

Now, if you are a conservative, you see that this little story has a moral: labor unions are an absolute impediment to progress. If you are a progressive, you see that this little story has a moral: corporate management is an absolute impediment to progress.

The story continues, of course, GM insisted on making cars no one wanted due to poor design and poor workmanship, and lost its #1 company in the world position (ironically to Toyota) and eventually got taken over by the federal government and is just now climbing out of the morass.

But was this a union problem or a management problem? Well, we have to stop thinking in “either or” dichotomies. The problem lay in the relationship between management and the union, that is, it was a problem of both.

When Toyota and GM began their joint venture, they took over a hundred GM workers to Japan, for training and to introduce them to Toyota’s corporate culture. There these grizzled GM veterans saw a system in which workers were treated as an integral part of the quality system and not just as cogs in a machine. They were transformed. When they returned to work and used Toyota’s systems, the number of mistakes made per vehicle almost disappeared. Workers were happy, managers were happy.

So, why didn’t this work at other GM plants? The basic reason was a lack of trust between labor and management. Neither management nor labor had any reason to put aside decades of lack of trust in their relationship. They didn’t get the transformative trip to Japan. They didn’t even get a trip to the NUMMI plant. But, they were supposed to drop years of hardened attitudes for, . . . , what was the reason again?

Managers found themselves being asked to eat in the same lunchroom as workers and park their cars in the same lots. But they had no respect for their own workers and saw these as demotions. Workers were asked to give up job seniority. This was asking way too much, in their opinions.

I am not going to defend making decisions based on job seniority. (Aha, surprised you, didn’t I?) There is no rational basis for using seniority to make job assignments except that it is a totally arbitrary, unbiased system, one that cannot be manipulated by either party. It is also a dead end in decision making, like flipping a coin to decide who makes the NFL playoffs (Look it up, it is in the rules!). The reason the seniority rules existed is because of a lack of trust, trust in management to make good decisions. And the longer such rules exist, the more calcified they get and these rules had been in place for decades. It order to break free of such bad relationships, something transformative is needed and GM didn’t supply it for the other plants. Which, of course, is another example of bad decision making.

Being a strong union guy does not mean that I will whitewash the union and just blame management. In this case both were wanting. And, things are always more complicated than the typical “let’s just blame one party” approach can decode. Both the UAW and GM management lost a huge opportunity, an opportunity to make money, save jobs, increase worker job satisfaction, and enhance GM’s reputation. It almost cost the company its existence.

Solving real problems requires focus on the real issues, which are almost never exposed in newspapers, news magazines, or blogs. Serious people want to know more details and want serious consideration of issues before deciding them. Are you a serious person?

PS You do know, don’t you, that Toyota’s methods were developed based on the seminal work of W. Edwards Deming, an American? Deming never got embraced in this country.

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