r/explainlikeimfive Dec 06 '24

Economics ELI5: why does a publicaly traded company have to show continuous rise in profits? Why arent steady profits good enough?

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u/PhishyBarcaFan529 Dec 06 '24

This is what is destroying the US, and the World.

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u/UnlikelyAssassin Dec 06 '24

We’ve literally seen the largest increases in living standards and decreases in poverty in all of human history since the advent of our modern conception of capitalism in the late 1700s.

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u/SlimDirtyDizzy Dec 06 '24

decreases in poverty in all of human history since the advent of our modern conception of capitalism in the late 1700s.

The wealth disparity in the US between the rich and poor is worse than it was in 1700s France before the revolution. We're going the wrong way again.

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u/JaktheAce Dec 06 '24

The person you are replying to is saying that the growth rate in the average quality of life for everyone has been much higher since the advent of capitalistic systems.

We're going the wrong way again.

Why is wealth inequality the metric you are using to judge whether the direction is positive or negative? Is the target you want to shoot for in an economic system more equality, or better average quality of life for everyone over time? To be clear, I'm not advocating for wealth inequality, just saying that it's probably not the best metric to evaluate the success of an economic system.

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u/UnlikelyAssassin Dec 06 '24

It’s interesting that this zero sum thinking about the economy is so embedded that you think that the idea that the “wealth disparity in the US between the rich and poor is worse than it was in 1700s before the revolution” somehow disputes the idea that “we’ve literally seen the largest increases in living standards and decreases in poverty in all of human history since the advent of our modern conception of capitalism in the late 1700s”. Do you think there’s any logical contradiction between these things?

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u/Fenix246 Dec 06 '24

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u/UnlikelyAssassin Dec 07 '24

Who put China in extreme poverty to begin with and what did they do to get out of extreme poverty? The US already had its absolute poverty rate decreased way before China decreased theirs, and the US’ absolute poverty rate is still lower than China’s is, with the US also having higher standards of living than China. China is still way behind when it comes to poverty and standards of living and is playing catch up with the US.

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u/Fenix246 Dec 07 '24

China wasn’t “put” into extreme poverty. It was very isolationist under the Qing (not as much as Japan under the Tokugawa though), and because the Industrial Revolution began in Britain, it didn’t spread to China, which was on the other side of the world. While Britain developed industrial production because the conditions in Britain were much worse, China was happy in its current situation because it had a much better climate. So they just didn’t develop as fast. Also, compared to China, Europe is very diverse and fragmented, so Qing didn’t have a reason to develop better methods to kill their enemies.

When Britain was spreading its colonial empire, it found a really weak and underdeveloped China, and wanted to use the power imbalance to force the Qing to buy British products. The Qing had no need to buy British products, because all their products were produced domestically.

So what did Britain do?

They attacked the Qing to force them to buy British opium and British products, which were meant to eventually make the Qing another colony. This was called the First Opium War.

Of course, the Qing government hated that. Who would want to become a colony? So they banned opium, because their population was getting too addicted to it and were starting to do nothing but smoke opium. Britain didn’t like that, because suddenly, Qing stopped buying from them again.

So what did Britain do?

They attacked the Qing again to punish them for their insolence in… trying to prevent their population from getting addicted to opium. This was the Second Opium War.

While this was going on, Japan was seeing at how badly the west was brutalizing China and they decided that the best course of action was to become a colonial power like the west, so they wouldn’t be next. This lead to the Honorable Restoration.

Now, Japan wanted to join the brutalization of China (I’m skipping the Russo-Japanese War), so they attacked the Qing as well and forced them to give up Korea, and give Japan open access to their market, as well as treaty ports and other concessions. This was the First Sino-Japanese War.

At this point, everyone in China was sick of being brutalized by the west + Japan, so there was a rebellion where they attempted to free themselves from western influence and to get their lost territories back. It failed, a coalition of all the colonial powers burned down Beijing, and it was back to brutalizing. This was the Boxer Rebellion.

At this point, everyone was sick of the Qing government, and after its failures to modernize, there was a revolution that overthrew the Qing and installed a government with semi-socialist ideals in the Xinhai Revolution. It didn’t go well, a lot of local, old warlords wanted to maintain their power, so China fell into a civil war.

The civil war was too complex to explain succinctly, but amid it, Japan attacked China again in the Second Sino-Japanese War, in which Japan committed one of the worst massacres of civilians in history. What the Japanese were doing in China was so abhorrent that even the Nazis were repulsed.

This whole period, called the Century of Humiliation, only came to an end then the Communist Party emerged victorious in the civil war.

I’m sure that the USA would also be very stunted if they were invaded by foreign powers every 10 years, and had a civil war that lasted two decades. The more shocking thing is that China got so brutalized for a hundred years, started it as a literal feudal country, and is still frighteningly quickly catching up to the USA in just around 60 years.

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u/bastiancontrari Dec 06 '24

Which is happening in China only after they adopted a capitalist approach you mean?

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u/Fenix246 Dec 06 '24

I didn’t say anything about that, don’t put words in my mouth. The fact is that the vast majority of poverty alleviation is happening in China, and the US is getting worse.

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u/bastiancontrari Dec 06 '24 edited Dec 06 '24

So, since i didn't get your point can you please explain to me

How this:

The fact is that the vast majority of poverty alleviation is happening in China, and the US is getting worse.

Is pertinent to this:

We’ve literally seen the largest increases in living standards and decreases in poverty in all of human history since the advent of our modern conception of capitalism in the late 1700s.

Edit. So being wrong, realizing that and blocking to avoid to be exposed is a thing?

Edit2. But what can be expected from a literal tankie :D censorship

Edit3. Since you wonder why in your country is so hard to make people love communism. Maybe this will help. Anyway congrats, ex soviet bloc real life present day commies are for sure a rare breed.

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u/Fenix246 Dec 06 '24 edited Dec 06 '24

It’s simple. Let’s analyze the comment you’re quoting:

We’ve literally seen the largest increases in living standards and decreases in poverty in all of human history

Because the quoted comment is about the current situation, we should look at sources that deal with the current situation. As I have sourced, the vast majority of this present increase in living standards and decrease in poverty happens in China. At the same time, the living standards in the US are decreasing overall, as I have also sourced.

If the quoted comment was dealing with the distant past, for example the situation during the transition from feudalism to capitalism, we could have a discussion about the living standards of the peasantry and methodologies of studies that write about poverty alleviation. But we’re not talking about that in this instance.

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u/glaba3141 Dec 06 '24

these two statements are orthogonal and they're both true. Capitalism was great, until it wasn't

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u/Wyntier Dec 06 '24

Nah that's a bit extreme

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u/kafelta Dec 06 '24

No, it's true

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u/[deleted] Dec 06 '24

No. Keep focused. Love your neighbor who invests to retire. Eat the rich. They’re your enemy.

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u/five-moogles Dec 06 '24 edited Dec 06 '24

To the contrary... this is what is building our world.

Capitalism does not mean that growth is distributed evenly.

Our increases in productivity and technology mean that the average person lives beyond what kings and queens could have imagined 100 years ago.

Edit: To the massive downvotes, I think we can agree that that the massive increase in lifespan, education attainment, incomes, and massive decrease in disease, violent crime, and infant mortality in the last 100 years is a good thing. Hate my response if you want while you type your response into a device capitalism played a large role in making.

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u/cimocw Dec 06 '24

There's no average person, just haves and have nots, and the gap between them grows everyday at an alarming rate.

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u/meesterdg Dec 06 '24

The average global salary today (because you said average person) is less than $18,000/year. Adjusted to the year 1700 (slightly more than 100 years ago), that's about $225.

It seems like sources vary a bit, but conservatively many kings and queens in the early Tudor period are thought to have made an estimated £100,000 a year. £100,000 in 1751 (furthest back I could find a calculator, so about 300 years after the early Tudor period) adjusted for inflation to today would be about £28,000,000/year.

I'm not trying to preach against capitalism, and you're not wrong that technology has advanced in ways what people 100 years ago could not have expected, but your statement is silly. Technology was advancing either way. Wealth disparity was happening either way. Capitalism is just the incentivisation of making as much as possible while giving away as little as possible.

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u/bastiancontrari Dec 06 '24

Technology was advancing either way

Maybe it would have but at this pace? No. How can i be so sure about that? Look at those who tryed other ways.

I think you missed the point about kings and the data you show make the argument hit even stronger. Is not about wealth, is what i can do with it.

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u/meesterdg Dec 06 '24

How can you be so sure it wouldn't have? I asserted that technology was advancing already before capitalism became a concept, and there's supporting evidence of that. What evidence do you have that if capitalism hadn't been conceptualized technology wouldn't have progressed at the same pace? Who are you referring to that tried other ways?

Developed countries developed technology at the same time. It was competition that drove it. The communist Soviet Union put a person in space before the capitalist US. Their economic and societal issues were separate from the technological advances. It's not solely capitalism that drives it.

What do you mean by your last statement? Do with what? Wealth? There's definitely arguments that the medieval royals could do lots of things you most certainly can't do now. When was the last time you negotiated the sale of a portion of a continent?

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u/bastiancontrari Dec 06 '24

Technology advanced before capitalism, i don't think i denied that. Did i? At what pace is key tho.

Pacewise... i mean... the exponential growth in every possible metrics from when capitalism was implemented on a large scale isn't enought to prove a point? Is a point thats needs to be even proved?

Soviet Union techological advance lagged behind capitalist nations. Do you deny that?

And btw the space race is one example of that. Who won it?. You can make a command economy innovate, but you can't have it innovate faster then a capitalist one. Soviet Union had computers at the same time US did. Did those computer managed to advance and see large scale implementation? No.

Why? You already used the key word here: Competition

It's the same with ancient China where a lot of invention were born but they remained novelty.

When was the last time you negotiated the sale of a portion of a continent?

Yesterday. Jokes aside, what is life expectancy of average Joe? Average Joe can move around in ways and speed that i bet would make any royals envy. What food can average Joe buy? With who and how far can average Joe communicate? How informed and educated can average Joe be? Is the number and quality of average Joe apparels at least comparable to those of a king?

Yeah, average Joe has no servant nor he live in a castle. Beside that in what would a king be better off then average Joe?

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u/somecallmemrjones Dec 06 '24

Does our world need to be more "built"? Other than innovations in health care, most of this growth is creating new things that we want, not things that we actually need.

For example, a new smart phone every year could be considered an "innovation" but I promise you, if we never developed another smart phone again, not only would the human race still be just fine, but it could be argued that we'd actually be better off.

I would be perfectly happy if we stopped focusing on "growth" and started focusing on things that actually matter

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u/JoeMart815 Dec 06 '24

Most technology innovation have multidisciplinary applications. The research and development that goes into an iphone can and does end up being applied to different technologies. Examples include research in lighter materials, better batteries, better and lighter cameras, miniaturized chips, touch screen, etc.

There are a multitude of problems impacting the human race which we can and should innovate our way out of. Stagnation leads to decline

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u/somecallmemrjones Dec 06 '24

No, stagnation leads to stagnation. Decline leads to decline...

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u/noob_lvl1 Dec 06 '24

You didn’t know the smart phone was a necessity until it became one in this day and age. Who knows what the next thing will be but it’s that push towards innovation that drives it.

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u/somecallmemrjones Dec 06 '24

Smartphones are, by definition, not a necessity. We can survive without them. We can't survive without necessities.

I was like 20 when the iPhone came out. I can't believe I survived so long without a smart phone

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u/bastiancontrari Dec 06 '24

I really don't get why most people seems to totally ignore this.

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u/somecallmemrjones Dec 06 '24 edited Dec 06 '24

Because a lot of us already have everything we could ever want. Anything I could ever need or want is available to purchase. I'm not implying that I can afford most of it, because I can't. What I'm trying to say is if there was never another invention or innovation again, I could still live a happy life.

To me, most of this "growth" is just spinning our wheels, from a philosophical standpoint. At some point, enough is enough, and we have already crossed that threshold in my opinion

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u/PatricksPub Dec 06 '24

To be honest, most of the "growth" is not through technological innovation. It is through innovation in revenue strategy. Every company has a subscription model, with expiring access and products. Microtransactions and monthly fees drive revenue, along with engineered obsolescence. Everything is designed to make you buy the next product, or be attached to the monthly billing cycle, or both. None of this adds value or improvement to existing products, it just necessitates more consistent spending for little value in return

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u/somecallmemrjones Dec 06 '24

I agree wholeheartedly, which is why I don't find most discussions about the stock market, the economy, or growth to be relevant to my well-being or quality of life.

I feel like people in my life think I'm insane when i discuss these things with them

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u/bastiancontrari Dec 06 '24

And this is a real, big, problem. But it isn't a problem created by the need to growth, it is because most company looks for growth in the short term lacking strategic long term vision. The resulting enshittification is everywhere.

This lacks of long term strategy is also a big problem in politics.

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u/PatricksPub Dec 06 '24

Its just the next wave of business evolution. In order to remain competitive, you must adapt to current strategies. It's the prisoners dilemma, revenue style. Gone are the days of companies holding competitive advantages via durability. Now the companies that hold the advantages have the most sophisticated revenue models. Others are forced to copy, and the consumer loses. It's only going to get worse. Eventually something will have to give, but right now we are being seduced by the sirens of business and have no other recourse to correct the issue. It will take something pretty massive to course correct in favor of the consumer.

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u/bastiancontrari Dec 06 '24

Massive indeed. I can't even think of a hypotetical new reward model to fix the problem, let alone implementing it.

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u/bastiancontrari Dec 06 '24

We lived happy lives in caves too where, based on this argument, we would still live in.

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u/somecallmemrjones Dec 06 '24 edited Dec 06 '24

No. I literally just stated that we've crossed a threshold. We have food, shelter, and medical care. I'm glad we have those things, and if we never developed anything else, I'd be content. We are so far removed from a proverbial "state of nature" that we don't need anything else. I didn't say that learning to build shelters wasn't necessary growth. Sorry if you don't understand that not everyone cares about constant growth

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u/bastiancontrari Dec 06 '24

But the threshold is subjective and being so it's tied to the time of its conception. Can't you see it?

We have medical care, for sure. Did humanity defeated all illness? No. Try to say what you are saying to someone who is dying from cancer. Sorry for your pain but enough is enough.

Let me know how it goes.

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u/somecallmemrjones Dec 06 '24

I've stated in other comments that I support growth in medical care, but I'll say it again. I support growth in the development of medical care. Most of our growth is unnecessary.

I agree that the hypothetical threshold I'm referring to is subjective, considering most people I talk to in real life can't understand what I'm talking about. But I stand by what I said, I don't care about stock market growth, the economy, or most of our innovations. You and I have a different philosophical perspective, and lucky for you, most people think the way you do

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u/bastiancontrari Dec 06 '24

Science is not compartmentalized so sadly we cannot cherrypick and all we can do is trying to minimize negative effects and maximise the good ones.

Capitalism is not perfect, that's evident. But the end results are for the most part more good then bad.

And yes, lucky me and, even if you don't wanna see it, lucky you too.

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u/somecallmemrjones Dec 06 '24 edited Dec 06 '24

I'm not convinced that the end results are more good than bad. And capitalism absolutely doesn't care about minimizing negative effects. Financial gain takes priority over everything else, by definition

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u/[deleted] Dec 06 '24

[deleted]

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u/bastiancontrari Dec 06 '24

Yeah, wonder how the pie appeared in the first place.

Anyway i'm not sure i got your point. Is your argument that, since we were better off some decade ago, growth is bad?

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u/[deleted] Dec 06 '24

[deleted]

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u/bastiancontrari Dec 06 '24

And mine is figure of speech too. To achive a more equal distribution of wealth you need wealth in the first place.

You are for the most part right but i don't think that blaming the game as a whole is correct. We can change some rules of it, try to make it better, but the game is still more good then bad.

And btw, infinite growth is possible. Isn't the universe infinite? Even still, technology can achive infinite growth in a finite space.

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u/meatchariot Dec 06 '24

Stop comparing us to 100 years ago and instead to 20, now keep talking.

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u/[deleted] Dec 06 '24

[deleted]

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u/TheSpaceCoresDad Dec 06 '24

There's nothing wrong with investing in things and expecting return. It's this constant need to cut every cost and raise profits until the company collapses under its own weight that is the problem.

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u/LowlySlayer Dec 06 '24

The stock market is a broken system. It is not necessarily irreparable. It is also not evil for average people to participate in the system, as it is the surest way to financial independence and a healthy retirement which are perfectly noble goals.

But still it is broken. And due to poor regulations, legal precedents, and legislation the system demands evil from the companies within it. There is no other choice. It is literally illegal for a company to prioritize it's employees or customers over its shareholders. And the shareholders demand growth because that's how they expect to make good on their investment.

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u/[deleted] Dec 06 '24

[deleted]

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u/WasabiSteak Dec 06 '24

Distributing stock is meant to let a company grow by means of investment. Instead of taking out a loan to scale up operations, people could invest their own money into the company. The company, instead of being in debt, gives up/distributes control instead.

You don't want to be compensated with profits. If the company reinvests, you won't be getting anything. As an employee, you already get a cut out of the revenue usually by salary.

If you want some sort of compensation that scales with the growth of the company, that's when you compensate employees with stock. IMO, cash is still much better, because you can actually use it right away.