Have to disagree, if charitable funds paid taxes on the assets they accumulate then junk the 5% rule but they don't. They can fund raise on bleeding heart adds, pay their staff huge salaries and pay only 5% towards what they claim to be trying to alleviate. It's a scam for elitists to make money pretending to be doing good but only enriching themselves.
Exhibit 1 is the Clinton foundation...millions in assets Chelsie gets a reported 300k salary and the foundation according to AI spent 24k on political donations IN 2024, that was it. Pretty good deal if you want my opinion.
Well, one reason to oppose is obvious in this specific case: most of the donors did so for the purpose of buying political favors.
So not only do they not mind, IT. WAS. LITERALLY. THE. POINT.
Their dollars being tax-free upon receipt allows the Clintons to skim off even more.
I believe any and every organization with tax-free status should not be allowed to compensate anyone more than, say, the 10th percentile (high to low, so 99th is at the bottom) of incomes.
Given that countries other than the USA don't have those constraints, why hasn't it happened already?
For example a non-PAF trust in Australia can distribute nothing as long as it is still pursuing its charitable goals. So an AI alignment trust could accumulate capital "until a company produces an AI" or a climate change trust could save "until 2125".
A trust whose purpose was "the liberation of capitalism" which just accumulated capital until (say) it owned at least 51% of all world assets (or 95%) could exist, the most significant challenge is that it has to fit into one of the pre-existing frameworks
• Advancing education
• Advancing religion
• Advancing health
• Relieving poverty
• Promoting public debate (maybe)
• Benefiting the public in other broadly accepted ways
So given that it is possible, maybe we need to run an experiment to figure out why "not having the USA's 5% rule" is insufficient. Shall we set up an extremely long term trust and see what happens?
Capitalism is merely another expression of freedom dynamics. And it's easy to be seduced by the fact that "more freedom = better outcomes" because who doesn't like freedom?
Yet, time and time again, we are faced with the grim reality that too much freedom actually backfires on the desired objectives of freedom.
Take speed limits on highways - I know that I'm an excellent driver who is able to avoid accidents at virtually any speed. I would, preferably, be able to go at any speed I like due to my own personal abilities to navigate complexity.
However, system-wide, me driving at any speed I desire does have negative knock-on effects for overall highway safety, reducing the actual value of the highway system writ large.
So, while many of us with higher capacity to navigate business/capitalism are naturally frustrated by guardrails and regulatory frameworks to "slow" growth, they are, in effect, trying to act as speed limits.
So what I think the key question for future thought is: what are the right regulatory frameworks in the economic sphere that act as effectively as the highway speed limit system for system-wide balance of general safety with associated benefits?
On the contrary, I believe that capital (monetary contribution) should only entitle one to a share of profits, and not to voting rights in general assemblies or control over the company. Only contribution through industry (labor) should entitle one to voting rights. I think that most of the harmful effects and abuses of capitalism stem from this problem.
Just because a somewhat wealthy person wishes to invest money to finance their retirement doesn't mean they have any competence to direct a company in which they have never worked. Delegating decisions to bankers or finance consultants with impressive, reassuring degrees is hardly more valid. The most competent people to make a company succeed are generally the entrepreneurs who founded it or their successors—in any case, people who actually work in the company.
Buying a company to improve it... The reality is often a fiasco, frequently resulting in the dismantling of the company and destruction of value and jobs. Most takeover bids (OPAs) result in financial failures (around 70-80% according to KPMG and McKinsey).
Unlike all but one of the commenters here, I have no quarrel with your 5% “corporate raider” elimination, but a big problem with your 5% private foundation one.
These foundations - the Clinton one being a prime example - are used for so many other purposes than truly charitable ones. Far better to eliminate the tax break for giving to such foundations altogether, to help lower taxes for the rest of us. Or else narrowly limit such tax breaks to orgs doing “truly” charitable work and spending much greater than 5% of assets on such charity.
The example of private universities - which have the status you suggest here, I believe - and what they have done should be another warning sign. Frankly, I think it’s borderline offensive that we allow contributions to private universities to be tax-deductible.
Even if one isn’t a non-leftist who understands Constant’s Law and opposes your proposal for that reason alone, your own argument about lower taxes for all should be reason enough.
The TLDR is that if firms are treated like assets in a portfolio of firms, then stakeholders seek to diversify that portfolio against risk. When a firm buys other cyclically anti-correlated firms, it becomes immune to creative destruction.
I'm not saying this should be illegal, nor that anyone is exploited (perhaps consumers are worse off). However, creative destruction seems like an important part of capitalism. Do you have any counter-arguments to this idea? Would portfolio firms simply get acquired and recycled by better ones in a true free market?
Status quo bias might explain protecting existing managers from corporate raiders. The raiders are seen as aggressive, grasping, clever, opportunistic, selfish upstarts (reminiscent of an antisemitic trope), the existing managers as pillars of the “community.”
Concerns about inequality and “unaccountable” power might explain preventing foundations from growing indefinitely.
This is a very narrow view of company acquisition. Mostly its about tax avoidance. The buyer borrows to fund the purchase, the company is able to charge the repayments against tax. The taxpayer funds the value growth.
Sorry, with a couple exceptions (e.g. buying existing tax losses), I think most such claims of acquisitions being primarily about tax avoidance are bunk.
The fact that some tax rules favor borrowing notwithstanding. A bad deal is still a bad deal even if it’s subsidized by tax policy. Only a slightly below par deal can be pushed over the top to becoming worthwhile by tax subsidy benefits.
If you have facts or specific high profile counter-examples to my claim, I’d love to hear them.
What I'd most like to see to unleash capitalism would be stronger consumer protection laws against planned obsolescence. Washing machines only last a few years, but it's well within the ability of the manufacturer to make a washing machine that lasts 50 years. It would just cost twice as much to manufacture and they'd lose out on repeat business, but it would be *far* more efficient for the consumer, adding long-term value to the economy. Companies get away with this because the information about how long the product is likely to last is not available to the consumer, so they cannot factor it into their purchasing decision.
This is a problem that could be solved through e.g. a government certification process yielding product labels that say, "This product will likely last X number of years at Y total cost of ownership per year," employing skilled engineers unaffiliated with the manufacturer to make that call, with financial penalties for the engineers if they're wrong. i.e. the engineers compete in a prediction market for lifespan and TCO of the product.
Having prominent total-cost-of-ownership and expected-lifespan labels like that on all kinds of products would also cut down on certain other anti-consumer activity. Companies that make their products harder to repair, or tie key functions to an unnecessary online service, or charge exorbitant prices for printer ink and disallow third-party ink, would suffer on the independently certified TCO label.
Yes, that would be the case. But Sir James Goldsmith and the thugs at KKR didn’t do that, they used the companies money to lever their borrowing capacity, levered up to the hilt, prevailed and then proceeded to break up the parts and recoup the debt and then some. All the while their “fees” were covered. Jimmy Goldmsith probably walked away from the Diamond “acquisition” with $100M. Now you will argue the company was lousy and the break up worth it. Thus “Greed for lack of a better word is good.” Ole Gordo was right as long as you’re Gordon Gecko or Jimmy Goldsmith. When he went after Goodyear the Board had some tough old birds on it a they ran Sir James off..devil is in the details. From this writer’s point of view, not enough bad stuff can happen to the owners of the casino aka Wall Street for strip mining the nation for 30 plus years. But let’s see what is going to happen! It will be interesting and your post was very thought provoking! Carry on.
How about a podcast episode with a mainstream theoretical corporate finance professor so we can see your ideas explored and challenged better? Maybe you can't get Tirole on, but could probably get someone.
Well, doesn't appear to be a professor. He appears knowledgeable though. But generally, I'd like to see you engage a bit more with state of the art micro theory and for it to engage with your ideas.
Have to disagree on corporate raiders as well. They don’t create any real wealth, other than their own. They have to sell the assets to pay for the deal and if the purpose was to make the assets and company better it has not worked out that way over time. Grand Union stores? Diamond International? Scott Paper, sunbeam? KKR is richer, the partners all billionaires, they leave a trailing wake of wreackage that make the Great Depression look like the mirror room in the fun house. But they donate college libraries named after themselves. Nothing like guilty virtue signaling. Do weak firms deserve to die? Do three legged animals in nature survive? All depends. To really unlock wealth get rid of onerous taxes and regulations and let business to be business. Hands off from Washington and 50 capitals in the USA? Watch the country flourish.
Well to quote a Famous American President it all depends on what “is” is “is.” There was no real value creation in the acquisitions that have been posed as examples of low value acquisitions and divestitures. If one thinks it is good to churn capital for the sake of churning and earning fees, and profiting from the churn, well okay, no harm no foul. But there was no real new iron in the ground, no new jobs created, and no new product or services made or offered. It’s a dull knife only getting more dull. The counter argument might be made, no the knife got smaller, as the businesses were spun off and the good units got better, sharper. That didn’t happen in the cases mentioned. People lost jobs, products that had value usually competed with the acquiring company so they ended, and the buyers product got more shelf space. PE firms use their funds to buy assets and build portfolios, but generally have 5, 7, maybe 10 year horizon after which the firm has to find the next bigger fool, to buy their assets on offer. During ownership they trim costs, preventative maintenance, annual maintenance, run the operation leaner. Eastern Airlines was a great airline, got older and flabby and acquired. Northwest and Delta merged. Two lousy intercontinental airlines combined to make one terrible bigger airline. If you flew either before and then after you know the story. Not to mention the cultural aspects of the firms clashing. People made money. The investments banks and law firms chiefly advising on the deal. But the customers didn’t see an improvement. So if that isn’t “bad.” What is your definition of bad? Not to say your point isn’t well taken, but one might argue there have been far fewer good mergers than not. Look at the car companies. It has been a bun fight and okay some good, but it doesn’t seem like a whole hell of lot of greater value has been created. That may be to do with lousy management. But, it’s easier to blame the customers. Which a case can be made for as well. Never underestimate the stupidity of the purchasing public. PT Barnum had a point based on experience. Regardless, no one argues with real value creation. But, just spinning assets for the sake of a few people making a killing doesn’t do too much other than make a few guys very very wealthy for relatively little heavy lifting.
What you fail to realize is that by talking capital out while the enterprise still delivers as much output as before, it is delivering that output with less capital, freeing that capital to be used for other productive purposes.
And when Goldsmith purchased the company/vehicle in the first place, the cash he paid to the prior owners can be used for other productive purposes, so even if you wanna claim that somehow *his* investments “create no value”, he is enabling others to put their capital to uses even you might find productive…
In principal what you are discribing is so. What this writer witnessed was the era of corporate raider that brought value only to themselves. Sir James Goldsmith used the company/target(s) own cash to fuel the acquisitions and then got green mail bonds to lever beyond 100% and succeeded in taking over the company. The lousy Boards of Directors fired and paid off evaporated and then Jimmy Goldsmith would go to work selling the assets usually for far less then they were worth, but enough to cover his nut and in the main he paid himself handsome fees. One can argue that the “corporation” was worth more broken up than remaining as an under performer. Greed for lack of a better word is good. Well good for the Gordon Gecko’s of the world for not so good for the assets and employees. Some companies saw the ruse and fought back Goodyear comes to mind and Icahn got stumped a couple of times as well. We could argue that Warren Buffet isn’t perfect but when he acquired companies he let them run and prosper. Georgia Paciific after decades of underperforming in the public markets was purchased by the Koch’s. It prospers thus to your point some good can come from it. But mostly the last 30 plus years have been a disaster for the US industrial base and we did to ourselves. Time will tell if the situation can be recovered. The baby boomers having stolen more than enough and ought to ride unhappily into the sunset it is time for the X,Y and Z generations to take it all on. Good luck to them. They really can’t do any worse!!
By your logic, Adam Smith’s invisible hand is fundamentally bad.
We should punish the butcher and the baker and farmer for providing the food on our plates because they do so for their own selfish purposes - to make themselves better off - not to serve the collective interest.
Seriously, what is the difference between your argument and the one laid out in my sentence above?
It seems we are on different tracks. My points related to corporate raiders and by extension investors of many stripes and colors who have learned it is easier to move capital from one pocket to the next pocket to the back pocket than it is to creatively create capital by as example owning a butcher shop or bakery. A service provider makes bread presumably because he or she are good at it, and like it, and as a willing seller, sells it to a willing buyer. The corporate raider could give a toss about anyone but their desire to make money for themselves. This writer was around for the Diamond International raid, the management was lousy and were cowards, the BOD more so, and if they had chosen to as example properly value 2 million acres of forest, aka timber and proper stumpage prices Sir James Goldsmith even with Michael Milken’s greenmail would not have been in the same area code for a deal to get done. Sir James provided zero value. Sold the assets of the firm at discounts, collected his cash and moved on to Crown Zellerbach. It was a long way from a baker buying the ingredients for his bakery, paying for the energy to make the dough and bake the bread, paying the rent on the store front and selling at a presumed profit to a willing buyer.
You keep saying he added zero value, and yet there was in fact more value when he was done than when he started.
Now make no mistake, I’m not suggesting he adds anywhere near as much value to society as a Musk or Bezos or Sam Walton on Steve Jobs does. I’m just saying that in fact it is more than zero.
But besides your distaste for him, and your claims he added “zero value”, are there specific laws you would put in place that would prevent him from doing what he’s done that you think would make the rest of us in toto better off?
P.S. You can claim better intention/motives all you like, but in fact you have no way of knowing that the baker “could give a toss about anyone but their desire to make money for themselves” any different from Goldsmith.
And the brilliance of the capitalist (free enterprise) system is that it matters not to our well being and standard of living precisely what their motivations are.
Though I’m quite sure that for at least *some* bakers, there is indeed no difference (while I’ll grant you for more than half there likely is).
There's probably a Pareto-efficient deal that could be struck along such lines: you prevent new entrants from competing against current interests but also eliminate all other limitations on or protections for these current interests. Let the titans duke it out.
Have to disagree, if charitable funds paid taxes on the assets they accumulate then junk the 5% rule but they don't. They can fund raise on bleeding heart adds, pay their staff huge salaries and pay only 5% towards what they claim to be trying to alleviate. It's a scam for elitists to make money pretending to be doing good but only enriching themselves.
Exhibit 1 is the Clinton foundation...millions in assets Chelsie gets a reported 300k salary and the foundation according to AI spent 24k on political donations IN 2024, that was it. Pretty good deal if you want my opinion.
Dick Minnis removingthecataract.substack.com
If their donors don't mind staff salaries, why should you mind?
Well, one reason to oppose is obvious in this specific case: most of the donors did so for the purpose of buying political favors.
So not only do they not mind, IT. WAS. LITERALLY. THE. POINT.
Their dollars being tax-free upon receipt allows the Clintons to skim off even more.
I believe any and every organization with tax-free status should not be allowed to compensate anyone more than, say, the 10th percentile (high to low, so 99th is at the bottom) of incomes.
Given that countries other than the USA don't have those constraints, why hasn't it happened already?
For example a non-PAF trust in Australia can distribute nothing as long as it is still pursuing its charitable goals. So an AI alignment trust could accumulate capital "until a company produces an AI" or a climate change trust could save "until 2125".
A trust whose purpose was "the liberation of capitalism" which just accumulated capital until (say) it owned at least 51% of all world assets (or 95%) could exist, the most significant challenge is that it has to fit into one of the pre-existing frameworks
• Advancing education
• Advancing religion
• Advancing health
• Relieving poverty
• Promoting public debate (maybe)
• Benefiting the public in other broadly accepted ways
So given that it is possible, maybe we need to run an experiment to figure out why "not having the USA's 5% rule" is insufficient. Shall we set up an extremely long term trust and see what happens?
Sure, try it, but I suspect the lack of rules to prevent this in many places is mainly because no one tried it there before.
Capitalism is merely another expression of freedom dynamics. And it's easy to be seduced by the fact that "more freedom = better outcomes" because who doesn't like freedom?
Yet, time and time again, we are faced with the grim reality that too much freedom actually backfires on the desired objectives of freedom.
Take speed limits on highways - I know that I'm an excellent driver who is able to avoid accidents at virtually any speed. I would, preferably, be able to go at any speed I like due to my own personal abilities to navigate complexity.
However, system-wide, me driving at any speed I desire does have negative knock-on effects for overall highway safety, reducing the actual value of the highway system writ large.
So, while many of us with higher capacity to navigate business/capitalism are naturally frustrated by guardrails and regulatory frameworks to "slow" growth, they are, in effect, trying to act as speed limits.
So what I think the key question for future thought is: what are the right regulatory frameworks in the economic sphere that act as effectively as the highway speed limit system for system-wide balance of general safety with associated benefits?
On the contrary, I believe that capital (monetary contribution) should only entitle one to a share of profits, and not to voting rights in general assemblies or control over the company. Only contribution through industry (labor) should entitle one to voting rights. I think that most of the harmful effects and abuses of capitalism stem from this problem.
Just because a somewhat wealthy person wishes to invest money to finance their retirement doesn't mean they have any competence to direct a company in which they have never worked. Delegating decisions to bankers or finance consultants with impressive, reassuring degrees is hardly more valid. The most competent people to make a company succeed are generally the entrepreneurs who founded it or their successors—in any case, people who actually work in the company.
Buying a company to improve it... The reality is often a fiasco, frequently resulting in the dismantling of the company and destruction of value and jobs. Most takeover bids (OPAs) result in financial failures (around 70-80% according to KPMG and McKinsey).
The whole Private Equity business model runs this way
Unlike all but one of the commenters here, I have no quarrel with your 5% “corporate raider” elimination, but a big problem with your 5% private foundation one.
These foundations - the Clinton one being a prime example - are used for so many other purposes than truly charitable ones. Far better to eliminate the tax break for giving to such foundations altogether, to help lower taxes for the rest of us. Or else narrowly limit such tax breaks to orgs doing “truly” charitable work and spending much greater than 5% of assets on such charity.
The example of private universities - which have the status you suggest here, I believe - and what they have done should be another warning sign. Frankly, I think it’s borderline offensive that we allow contributions to private universities to be tax-deductible.
Even if one isn’t a non-leftist who understands Constant’s Law and opposes your proposal for that reason alone, your own argument about lower taxes for all should be reason enough.
I'm not sure how pertinent this is, but there is an idea going around about unproductive firm acquisition, Samo Burja calls it "the portfolio theory of the firm". https://www.palladiummag.com/2024/08/30/when-the-mismanagerial-class-destroys-great-companies/
The TLDR is that if firms are treated like assets in a portfolio of firms, then stakeholders seek to diversify that portfolio against risk. When a firm buys other cyclically anti-correlated firms, it becomes immune to creative destruction.
I'm not saying this should be illegal, nor that anyone is exploited (perhaps consumers are worse off). However, creative destruction seems like an important part of capitalism. Do you have any counter-arguments to this idea? Would portfolio firms simply get acquired and recycled by better ones in a true free market?
That sort of behavior won't result in increasing the value of the firm via a cycle of buying then selling it again.
Status quo bias might explain protecting existing managers from corporate raiders. The raiders are seen as aggressive, grasping, clever, opportunistic, selfish upstarts (reminiscent of an antisemitic trope), the existing managers as pillars of the “community.”
Concerns about inequality and “unaccountable” power might explain preventing foundations from growing indefinitely.
This is a very narrow view of company acquisition. Mostly its about tax avoidance. The buyer borrows to fund the purchase, the company is able to charge the repayments against tax. The taxpayer funds the value growth.
I have no problems with fixing any problems with the tax code.
“Mostly it’s about tax avoidance.”
Sorry, with a couple exceptions (e.g. buying existing tax losses), I think most such claims of acquisitions being primarily about tax avoidance are bunk.
The fact that some tax rules favor borrowing notwithstanding. A bad deal is still a bad deal even if it’s subsidized by tax policy. Only a slightly below par deal can be pushed over the top to becoming worthwhile by tax subsidy benefits.
If you have facts or specific high profile counter-examples to my claim, I’d love to hear them.
What I'd most like to see to unleash capitalism would be stronger consumer protection laws against planned obsolescence. Washing machines only last a few years, but it's well within the ability of the manufacturer to make a washing machine that lasts 50 years. It would just cost twice as much to manufacture and they'd lose out on repeat business, but it would be *far* more efficient for the consumer, adding long-term value to the economy. Companies get away with this because the information about how long the product is likely to last is not available to the consumer, so they cannot factor it into their purchasing decision.
This is a problem that could be solved through e.g. a government certification process yielding product labels that say, "This product will likely last X number of years at Y total cost of ownership per year," employing skilled engineers unaffiliated with the manufacturer to make that call, with financial penalties for the engineers if they're wrong. i.e. the engineers compete in a prediction market for lifespan and TCO of the product.
Having prominent total-cost-of-ownership and expected-lifespan labels like that on all kinds of products would also cut down on certain other anti-consumer activity. Companies that make their products harder to repair, or tie key functions to an unnecessary online service, or charge exorbitant prices for printer ink and disallow third-party ink, would suffer on the independently certified TCO label.
Yes, that would be the case. But Sir James Goldsmith and the thugs at KKR didn’t do that, they used the companies money to lever their borrowing capacity, levered up to the hilt, prevailed and then proceeded to break up the parts and recoup the debt and then some. All the while their “fees” were covered. Jimmy Goldmsith probably walked away from the Diamond “acquisition” with $100M. Now you will argue the company was lousy and the break up worth it. Thus “Greed for lack of a better word is good.” Ole Gordo was right as long as you’re Gordon Gecko or Jimmy Goldsmith. When he went after Goodyear the Board had some tough old birds on it a they ran Sir James off..devil is in the details. From this writer’s point of view, not enough bad stuff can happen to the owners of the casino aka Wall Street for strip mining the nation for 30 plus years. But let’s see what is going to happen! It will be interesting and your post was very thought provoking! Carry on.
Who exactly do you think is exploited in the scenario where they buy a firm at a low price and later sell it at a high price?
How about a podcast episode with a mainstream theoretical corporate finance professor so we can see your ideas explored and challenged better? Maybe you can't get Tirole on, but could probably get someone.
I'll record & post a convo w/ author of book mentioned here on Wed. https://www.overcomingbias.com/p/futarchy-for-fundraising
That's a good start, but I want a mainstream theory professor.
Someone from https://financetheory.org/
How is Chew not mainstream? If you can get others to talk to me, I'll talk to them.
Well, doesn't appear to be a professor. He appears knowledgeable though. But generally, I'd like to see you engage a bit more with state of the art micro theory and for it to engage with your ideas.
Have to disagree on corporate raiders as well. They don’t create any real wealth, other than their own. They have to sell the assets to pay for the deal and if the purpose was to make the assets and company better it has not worked out that way over time. Grand Union stores? Diamond International? Scott Paper, sunbeam? KKR is richer, the partners all billionaires, they leave a trailing wake of wreackage that make the Great Depression look like the mirror room in the fun house. But they donate college libraries named after themselves. Nothing like guilty virtue signaling. Do weak firms deserve to die? Do three legged animals in nature survive? All depends. To really unlock wealth get rid of onerous taxes and regulations and let business to be business. Hands off from Washington and 50 capitals in the USA? Watch the country flourish.
If I buy something, change it, and then can sell it for more than I bought it, how am I not adding value?
Well to quote a Famous American President it all depends on what “is” is “is.” There was no real value creation in the acquisitions that have been posed as examples of low value acquisitions and divestitures. If one thinks it is good to churn capital for the sake of churning and earning fees, and profiting from the churn, well okay, no harm no foul. But there was no real new iron in the ground, no new jobs created, and no new product or services made or offered. It’s a dull knife only getting more dull. The counter argument might be made, no the knife got smaller, as the businesses were spun off and the good units got better, sharper. That didn’t happen in the cases mentioned. People lost jobs, products that had value usually competed with the acquiring company so they ended, and the buyers product got more shelf space. PE firms use their funds to buy assets and build portfolios, but generally have 5, 7, maybe 10 year horizon after which the firm has to find the next bigger fool, to buy their assets on offer. During ownership they trim costs, preventative maintenance, annual maintenance, run the operation leaner. Eastern Airlines was a great airline, got older and flabby and acquired. Northwest and Delta merged. Two lousy intercontinental airlines combined to make one terrible bigger airline. If you flew either before and then after you know the story. Not to mention the cultural aspects of the firms clashing. People made money. The investments banks and law firms chiefly advising on the deal. But the customers didn’t see an improvement. So if that isn’t “bad.” What is your definition of bad? Not to say your point isn’t well taken, but one might argue there have been far fewer good mergers than not. Look at the car companies. It has been a bun fight and okay some good, but it doesn’t seem like a whole hell of lot of greater value has been created. That may be to do with lousy management. But, it’s easier to blame the customers. Which a case can be made for as well. Never underestimate the stupidity of the purchasing public. PT Barnum had a point based on experience. Regardless, no one argues with real value creation. But, just spinning assets for the sake of a few people making a killing doesn’t do too much other than make a few guys very very wealthy for relatively little heavy lifting.
“…no new jobs created…”
What you fail to realize is that by talking capital out while the enterprise still delivers as much output as before, it is delivering that output with less capital, freeing that capital to be used for other productive purposes.
And when Goldsmith purchased the company/vehicle in the first place, the cash he paid to the prior owners can be used for other productive purposes, so even if you wanna claim that somehow *his* investments “create no value”, he is enabling others to put their capital to uses even you might find productive…
In principal what you are discribing is so. What this writer witnessed was the era of corporate raider that brought value only to themselves. Sir James Goldsmith used the company/target(s) own cash to fuel the acquisitions and then got green mail bonds to lever beyond 100% and succeeded in taking over the company. The lousy Boards of Directors fired and paid off evaporated and then Jimmy Goldsmith would go to work selling the assets usually for far less then they were worth, but enough to cover his nut and in the main he paid himself handsome fees. One can argue that the “corporation” was worth more broken up than remaining as an under performer. Greed for lack of a better word is good. Well good for the Gordon Gecko’s of the world for not so good for the assets and employees. Some companies saw the ruse and fought back Goodyear comes to mind and Icahn got stumped a couple of times as well. We could argue that Warren Buffet isn’t perfect but when he acquired companies he let them run and prosper. Georgia Paciific after decades of underperforming in the public markets was purchased by the Koch’s. It prospers thus to your point some good can come from it. But mostly the last 30 plus years have been a disaster for the US industrial base and we did to ourselves. Time will tell if the situation can be recovered. The baby boomers having stolen more than enough and ought to ride unhappily into the sunset it is time for the X,Y and Z generations to take it all on. Good luck to them. They really can’t do any worse!!
You keep repeating that it was bad, but don't say specifically HOW it was bad.
By your logic, Adam Smith’s invisible hand is fundamentally bad.
We should punish the butcher and the baker and farmer for providing the food on our plates because they do so for their own selfish purposes - to make themselves better off - not to serve the collective interest.
Seriously, what is the difference between your argument and the one laid out in my sentence above?
It seems we are on different tracks. My points related to corporate raiders and by extension investors of many stripes and colors who have learned it is easier to move capital from one pocket to the next pocket to the back pocket than it is to creatively create capital by as example owning a butcher shop or bakery. A service provider makes bread presumably because he or she are good at it, and like it, and as a willing seller, sells it to a willing buyer. The corporate raider could give a toss about anyone but their desire to make money for themselves. This writer was around for the Diamond International raid, the management was lousy and were cowards, the BOD more so, and if they had chosen to as example properly value 2 million acres of forest, aka timber and proper stumpage prices Sir James Goldsmith even with Michael Milken’s greenmail would not have been in the same area code for a deal to get done. Sir James provided zero value. Sold the assets of the firm at discounts, collected his cash and moved on to Crown Zellerbach. It was a long way from a baker buying the ingredients for his bakery, paying for the energy to make the dough and bake the bread, paying the rent on the store front and selling at a presumed profit to a willing buyer.
You keep saying he added zero value, and yet there was in fact more value when he was done than when he started.
Now make no mistake, I’m not suggesting he adds anywhere near as much value to society as a Musk or Bezos or Sam Walton on Steve Jobs does. I’m just saying that in fact it is more than zero.
But besides your distaste for him, and your claims he added “zero value”, are there specific laws you would put in place that would prevent him from doing what he’s done that you think would make the rest of us in toto better off?
P.S. You can claim better intention/motives all you like, but in fact you have no way of knowing that the baker “could give a toss about anyone but their desire to make money for themselves” any different from Goldsmith.
And the brilliance of the capitalist (free enterprise) system is that it matters not to our well being and standard of living precisely what their motivations are.
Though I’m quite sure that for at least *some* bakers, there is indeed no difference (while I’ll grant you for more than half there likely is).
I want Zambia to be great again.
There's probably a Pareto-efficient deal that could be struck along such lines: you prevent new entrants from competing against current interests but also eliminate all other limitations on or protections for these current interests. Let the titans duke it out.