The Stock Market – the Elephant in the Room?

Once upon a time, I worked for a privately held multimedia company.  We developed educational CD-ROM’s, which you could find on the shelf at your local retailer.

It was a small business – under 50 employees.

The impetus for doing business was pretty clear.  Make great products.  Make them as cost-efficiently as possible.  Treat the employees well.  And keep the business alive, so that all the aforementioned could continue to happen.

Well, after I moved up the ranks from Producer to Director of Product Development, something happened that changed all of those things.

The company went public.

When this happened, the CEO of the company held a meeting with all of the employees – assuring us that nothing would change…. that we’d still be about making great products and all of that – and that it would NEVER be about what the number was on the NASDAQ Small Cap.

Within 6 months, the overall focus was – you guessed it – what the number was on the NASDAQ Small Cap.

I know for certain that I’m not the first person to make this observation – but at this particular juncture, I think it’s a valid one to re-examine – that the stock market by its’ very nature is not only detrimental to this holistic model of doing business – it’s damaging to employees, consumers and the economy as a whole.

Now I should say that I’m not an economist by any stretch.  What I know about the machinations of the market could be fit on the back of a napkin.  But for the purposes of this treatise, I think that’s a valuable commodity – I can look at the market at arm’s length.

So…

Let’s look.  You, Joe or Jane Q. Public, start designing and creating water pistols.  Everybody in your neighborhood thinks they’re the greatest thing since sliced bread. You keep your manufacturing cost as low as possible – as long as the product doesn’t suffer, you can fairly compensate your employees for the work they do at the water pistol factory, and you can invest some revenue back into the company for maintenance, new equipment and the like.

End result – you’re happy, your employees are happy, and the public is happy.because you make great water pistols – AND you employ people.

So far so good.

Now – you decide to take on investors.  So you take the company public – great – you have an infusion of capital so that not only can you expand your line to include water grenades, but you can expand your distribution of water armaments throughout the region.  All sounds wonderful.

Except…

The investors?  They want the value of your company to constantly increase.  And, they’d also like your manufacturing and labor costs to go down – more profit for the company. Now this might sound incredibly oversimplistic – but take a look for yourself. When a company like AT&T lays off five or ten thousand people, guess what happens?  The stock goes up.

In the meantime – what’s happened to the original scenario over at Jane’s House of Water Arms?

Well – the manufacturing was moved overseas, to maximize the cost-efficiency of production… works well that way, because where it got moved to, the environmental regulations are next to nil, there are no unions, hence the company can pay what would be considered slave wages in the U.S. – and real estate is cheaper to lease.  All of which means reduced cost and increased profit for the company – which makes the value of the company go up – and the shareholders very happy.

Now the water pistols aren’t made as nicely as they used to be… with decreased quality control and unskilled labor – The employees are certainly not happy now… seeing as the vast majority of them have had their jobs relocated elsewhere…

But hey… when they got laid off, the stock price went up!  Yay.

Which brings me back to my central point. Jane’s House of Nifty Water Pistols used to be a great little business – then it got a little bigger, which is great for them.  Until they went public, which was no good for anyone – except the shareholders.

Now you could argue that the taking the company public made it better for the consumer, ’cause the cost of the products went down.

Tell that to Nike, who can charge well over a hundred for a pair of sneaks that cost well under ten to make.  Tell that to any number of clothing or electronics manufacturers who charge outrageous markups on what it actually cost to make their items.

And tell that to people who have no choice but to look for the cheapest products possible… many of them are working two jobs to feed, clothe and shelter themselves and their families – not just because the dollar value of their jobs has gone down (because manufacturers have learned to use just the threat of moving jobs overseas to make unions knuckle under in wage negotiations – Caterpillar is a great example), but also because manufacturing jobs are more and more scarce.

Look back 50 years – the average family could afford to support themselves with only one income.  Now, it takes both people to work full-time jobs to support that same family.

Then look at the steady rise of the value of the stock market over that same time period.

In the end?  Shareholders=happy.  Average Joe or Jane=miserable.

Now look at the latest corporate bailout of Wall Street – over 700 BILLION in handouts to corporations who have, as evidenced by the above, made it their business to screw the individual – the very individual whose tax dollars are being used to fund the handout.  According to U.S Census estimates, the total population of the U.S. is pegged at around 300 million people.  You can call this radical if you like, but if that 700 billion were handed back to the American people, it’d result in around 23 grand going to every man, woman and child in the U.S. – now THERE’S a way to get the economy moving.  Not that it’s ever going to happen.

In the end, what this all comes down to for me is – the very nature of the stock market perverts the healthy nature of running a business.  And I hope and pray that maybe, just maybe, the current debacle will get people to think about it.

This government, which is alleged to be of, by and for the people, has just had its’ hand forced…. And now we see that a family working 4 jobs with no health insurance, just making ends meet with no security, is not a crisis.

But God forbid the stock market should drop.

Hopefully, the current financial debacle will cause people to actually look for themselves.

Unless, of course, Housewives of Sheboygan is on.