How Focusing on Profit and Shareholder Value is Endangering our Well-Being
The tyranny of capital is costing lives and destroying people’s wellbeing
“Let’s walk around the other side of the building; I’m not convinced this walkway is safe.”
I looked at my friend in disbelief as he maneuvered me along the far side of the new train station: “Why wouldn’t it be safe?”
“You’ll think I’m paranoid, but you can’t really trust modern construction these days,” he replied. “Everything is built as cheaply as possible. When I see a weirdly protruding piece of building like this, I can’t help but wonder if it’s safe.”
Every time I walk past the station, I think about this conversation. And even though I’m too lazy to take a detour, I think he has a point.
We see companies and politicians put profit before our well-being and safety. Maybe we can no longer rely on buildings not falling down.
The race for profit is making infrastructure unsafe
Buildings used to be built for eternity. At least in Europe. In Austria, you can stay in inns that were built hundreds of years ago and whose walls are more than a meter thick.
The oldest highrise building in the country was built in 777. And it’s still standing. So, we’re conditioned to expect buildings to stand forever.
Until a few centuries ago.
We assume that the buildings and roads around us are robust and safe.
We have to. A constant fear that the floor might cave in or the roof come down would paralyze us.
When we imagine shoddily built houses, we tend to think of houses built without proper supervision in countries with lax legislation and supervision, such as the cheaply built houses that collapsed like cardboard in the earthquakes in Turkey.
But we never expect it to happen to us. But that doesn’t mean it won’t.
Cutting costs to maximize profit is one of capitalism's pillars. And shirking security is one of the easiest ways to cut costs.
The race for more profits has accelerated since the 1970s.
A cheaper material here, one less bolt there, planned obsolescence to make people buy new stuff when the old fails right at the end of the guarantee.
We’ve seen it happen many times with the little things in our lives. Home appliances, personal computers, and even cars mysteriously fail after a specific point in time. Precisely calculated by the vendor.
Now, what used to be a personal financial inconvenience is happening at a frighteningly large scale.
Entire buildings, bridges, and roads collapse because someone wants to cut costs or time.
For example, in 1981, two walkways of the Hyatt Regency Hotel in Kansas City, Missouri, collapsed in one of the deadliest building collapses in US history. 114 people were killed and 200 injured. The reason? Design changes were made to save time and money that compromised structural integrity.
And in 2018, the Morandi Bridge in Genoa, Italy, collapsed during a storm, killing 43 people. The unusual design and materials chosen for cost reasons and speed of construction, as well as neglect of maintenance, led to the collapse.
Cost cutting and using cheap, unskilled labor in construction create more issues. Nowadays, nearly every new building undergoes a phase of “corrections” after completion.
A friend of mine moved into a newly built apartment and had to move out just a couple of months later.
The ceiling below the bathroom was destroyed because the shower drain was never connected to the plumbing, and all the water from the shower had gone into the ceiling and under the wooden floors of the entire apartment.
If you want to know what cost-cutting and cheap development in the construction industry can mean in the worst case, take a look at what are called “Tofu Dreg” buildings in China.
Ceilings collapse, insulation falls off the walls, or waterfalls appear on the walls.
This is what lies in store for us if everything is built in the cheapest way possible.
Flying is one of the safest ways to travel, but capitalism is changing this
I used to fly a lot for work. Knowing that take-off and landing are the most dangerous parts of a flight, I was always very relaxed for the rest of the flight. But this is no longer something we can count on.
Seems like we now have to be anxious the entire flight.
How scary it must have been for the passengers of the Alaskan Airline flight in January when their plane suddenly lost a door mid-flight.
But looking at Boeing's recent history, they were really lucky. After all, they all made it out alive.
Unlike the doomed passengers of the Lion Air Flight 610 and Ethiopian Airlines Flight 302. Their crashes led to the grounding of all Boeing Max 737 MAX.
The reasons for the lost door are more or less the same as those for the crashes.
Focusing on profit and shareholder value over safety.
The crashes did not have to happen. Management was alerted to the potential issues and decided not to do anything because, well it was cheaper not to.
Managers twice rejected adding the new system on the basis of “cost and potential (pilot) training impact,” the complaint states. It was then raised a third time in a meeting with 737 MAX chief project engineer, Michael Teal, who cited the same objections as he killed the proposal.
Watch “Downfall: The Case Against Boeing,” if you want to know more about how cutting costs and ignoring safety concerns led to this unnecessary loss of lives.
It's sad and scary to see how a company with such strong ethics and values was destroyed by greed.
And it looks like they learned nothing from these disasters. Instead of focusing their efforts on making their planes safer, they continued to focus on shareholder value.
According to Boeing’s annual reports, in the last five years Boeing diverted 92% of operating cash flow to dividends and share buybacks to benefit investors. Since 1998, share buybacks have consumed $70 billion, adjusted for inflation. That could have financed several entire new airplane models, with money left over for handsome executive bonuses.
Sure, Boeing’s CEO David Calhoun has to leave now, but he is not more than a well-paid scapegoat. He will walk away with $24 million for his troubles.
Little will change as long as shareholder value, not safety, is the top corporate agenda.
Calhoun will get even more money from his stocks if his successor manages to revive the stock price.
In the capitalist market, people like Calhoun cannot lose. Instead of being personally liable, corporate lackeys like him will always be rewarded with a fat bank account.
After all, he did what he had been hired to do: concentrate on making money for the shareholder at all costs.
Killing people for profit in the food industry
If you can’t kill people by crashing planes or collapsing bridges, why not sell them poisoned food to make a profit?
Not surprisingly, food safety in a capitalist society is not a given.
Of course, it would be bad for business if all your customers died after eating your product, but what if you could keep the death rate low enough?
This is what happened at the Peanut Corporation of America (PCA), which sold contaminated peanut butter from rat and roach-infested production facilities to the unsuspecting public.
They sold their product to schools, hospitals even to the military. And it is said they “ran it (the company) like a plantation,” exploiting their workers to make even more money.
30 million dollars in profit a year was enough for Stewart and Michael Barnell to disregard people’s well-being.
Expert evidence at trial showed that tainted food led to a salmonella outbreak in 2009 with more than 700 reported cases of salmonella poisoning in 46 states. According to the Centers for Disease Control and Prevention (CDC), based on epidemiological projections, that number translates to more than 22,000 total cases including nine deaths.
The owner was sentenced to 336 months in prison. This seems like a lot, but if you saw the videos from the factory, you would think it wasn’t enough.
If you’re wondering how someone in his right mind would knowingly sell poisoned food to other humans or ignore safety warnings, rest assured, it’s easy.
Nowadays, there is a great distance between production and consumption. The people who sell you things don’t know you or care about you. No matter what a company’s marketing says.
People like Calhoun or Barnell don’t have any emotional connection to their consumers. They’re only concerned with the numbers.
Everything comes down to cost and profit.
To them, everything is an expense: the material needed to produce the product, the workers who produce the product, and safety measures to keep people safe or alive.
These expenses get in the way of profit or shareholder value.
Unfortunately, no bonuses are paid for safety statistics, but there are bonuses for increasing stock prices, so CEOs focus on this.
People who love capitalism always claim a free market will rectify all the issues we have. But that’s not likely, is it?
The disasters we’re seeing now are the result of a poorly regulated market, and we can only imagine how bad it would get if we removed the few remaining restraints.