Joe Jordan

the geek of hearts

What are companies for?

Thank you for your input in part 1, all! If you think I’ve misquoted you, please comment and correct me.

I had several offers of explanations for the purpose of companies. Alas, I didn’t state my parameters as precisely as I might have; several people gave answers aimed at the legal entity of a “limited liability company” – to incentivise enterprise by reducing the personal risk in starting a business – correct, but not what I was driving at.

Someone also mentioned the role of companies in absorbing (“internalizing”) externalities- which I will have to try and read about (I thought they were so named because companies externalized* them…most of the time.)

I was trying to get at the purpose of private enterprise more generally; and a couple of people gave explanations along those lines. One guy pretty much summed up the short version of what I’m about to say here.

No-one gave the “obvious” answer that I want to refute- that companies are there to make a profit. I guess that’s what you get for asking Internet geeks instead of normal people.

My opinion is thus: companies are there to do stuff, and do it well. They are the capitalist monomer; the links in the supply chains that make the (capitalist) world, in all it’s complexity, work. They made the device that you’re reading this on, supplied the energy powering it, and likely the chair you’re sitting on too.

All that capitalism asks of you to do whatever you want is that it is useful; that overall it costs the economy less than the benefit people gain from it. All you have to do it break even, and you’re in business.

Sure most people will find greater value in job security, choosing where to live or being able to “switch off” after a hard day of doing something you don’t much like. But if you want to live to work, rather than work to live, then capitalism has provided you with the perfect limited liability legal framework with which to express your creativity.

What companies, or rather the people who invest in companies, tend to focus on too much in today’s world, leading to an (apparently illusive) popular conception that all companies want is money, is return on investment (ROI). This may mean increase in business value or profitability (and thus dividends.) This focus, especially on share prices, has damaged the way companies are assessed and ranked; not for the quality of their products, nor for internalizing externalities (like taking on extra costs in order to be Carbon neutral while still charging competitive prices,) but for how much they pay their CEO and how many costs they can cut by worsening factory conditions for their (usually indirect) employees.

Stockbrokers have forgotten what companies are there for; to do stuff, and do it well, not mess around maximising short term profits to the detriment of quality and long term sustainability. Of course it is usually possible to do both, but “business” needs to realise that while ethics may come at a cost, sustainability is just good business sense (in the medium and long term).

So, two things to take away: firstly, don’t let laziness stop you doing what you love; start a business and do it or join one already doing it in your style; that’s why we put up with capitalism in the first place.

Secondly, don’t believe the hype, reward companies who do things the way you like (whether that’s lowering prices to enfranchise more of the population, or by making high quality products that bring you delight,) by buying from them, working for them, or recommending them to your friends; don’t let the cityboys have the last word on what people should do with their lives, and how.

* Apologies for the American spelling, but the world spells economic jargon in American, not English. Seriously, Google “uninternalised externalities”, you’ll see what I mean.

originally appeared here