No Stupid Questions

Disclaimer that I'm not an economist

I believe I have heard a discussion about this before... that the "always grow bigger" model is not only not a necessity under capitalism, it wasn't even the predominant economic model in the US for a while. Post war, FDR's New Deal followed the Keynesian model, which from my understanding indirectly led to the type of regulated capitalism with a much heavier emphasis on shareholder/employee satisfaction... and also when the extremely high progressive income tax brackets happened. The always need to grow bigger idea may or may not have come from Milton Friedman of the UChicago school in the 1970s: one of the core assumptions of the Neoclassical model is that companies maximize profits.

Also this is definitely not just a US megacorp thing. Other countries have megacorps too. Case in point South Korea...

If the owners primarily want to make money by taking out a portion of revinue as dividends or distributions, like a family business typically does, then stable revenue is more important in some ways than reinvesting in growth.

If the ownership wants to make money by eventually selling their stake (shares or equity) in the company then growth is fundamental to the strategy.

I guess because otherwise you have something more akin to communism.

Which is a big scary monster and the biggest economies in the world would rather suppress a system the levels the playing field and helps everyone than give up their dollary-doos.

I think about this from time to time.

Its like, hey we make a product and it costs this much to make and we make this much profit, so that should be it. Thats how much this product makes. Dunzo. Next muffin. But it never works that way, once they have found the sweet spot where the product is useful and works well whilst also selling for a price that pays for production development and wages then it becomes about cutting costs to increase profits and that takes the form of using cheaper materials, paying lower wages, firing staff, incorporating planned obsolescence so people need to buy more. All in the name of profits and bonuses.

Its disgusting, it damages society, the environment and warps peoples minds so that people like donald trump exist and i hate it.

Year over year is what EVERY company looks at.

Making the same amount of money as you did last year is considered a failure in business.

If you have a company in a small town and everything is paid for and the size of the town isnt growing or changing, you actually do not need to grow. There is a company in Leadville, Colorado called "Melanzana". They make technical hoodies - they're pretty good. They actively shrank their business by closing their online storefront to reduce demand and reduce the burden of keeping up with that demand.

HOWEVER, if you have a business that is plugged into a larger marketplace and you have investors or have growing rents, etc. your investors expect a return on their investment and your growing costs need to be addressed so the only option is to grow to keep up.

Super interesting topic when you contextualize within a closed, limited, physical space. And by "super interesting" I mean dystopian.

Growth stocks are worth more than mature stocks, because people are more likely to invest if they think they'll make money back.

Because they took the money. If you take the money, the path is inevitable

When you take on investors, you just invited in someone who looks at your company like a farmer does to their crops. They want you to grow as much as possible, but they don't actually care if you live or die - you're one of many using up resources

If your growth slows, they're going to demand more. They might demand you make cuts, they might push you to take loans and expand, they might try to sell to someone else. If your value isn't increasing faster than other possible investments, they lose imaginary money to opportunity cost

And by virtue of being an investor, they have plenty of money and want to gamble with it. A total loss probably wouldn't impact their lifestyle, they want invest in Apple at the ground floor and become a billionaire

You can start a company through loans, risk your house and build up slowly, and walk away clear. And people do.

But then they want to retire... And there's this neat trick you can do if you want to own a small business... You can make it buy itself. You can take out a loan to pay out the previous owner, say 5 years of profit, and make the business take on the loan. But now, just to break even, you've got to beat what you paid for it plus interest over the term. And both business and individuals can do this

So in short? The reason is debt. A small business can make you upper middle class, a large one could make your entire family insanely wealthy for centuries.

But once you take the money, the business has to grow, or it'll be harvested

Shareholders are always going to demand more profits. There is no mechanism in a capitalist economy that reinforces the concept of having "enough."

Growth=good is also a sentiment for whole markets.

In a market where new customers start buying the products every day (growth market), e.g. the smartphone market 20 years ago, you can generally just come up with new products and someone will buy them, if they're good.

On the other hand, in a market where customers only replace their old products as needed (market saturation), e.g. basically the smartphone market of today, things are much more tight for companies. They have to primarily be more cost-efficient than their competitors in order to survive.

Companies grow and shrink from a combination of market and internal forces. Companies sometimes need to shrink or grow. The economy and culture are constantly changing. That is why it is very hard to predict where things will go.

Your example of having a company with a set amount of employees that produce a set product happens pretty frequently. A lot of employee owned or family businesses are this way.

I think most of your post can be summed up with why do investors want more and more money. The answer is because they can. If your company owes money to investors then they will beholden to them in one form or another.

There is another worthy discussion here and it is about boards. Boards that do not contain equal representation for the employees and the public can be very destructive.

Most of the corporate abuses we have suffered come from having perverse leadership non-representative of these two most important influences.

There has to be some growth because inflation eats at the value of your capital every year.

Because the moment they go public the stock market demands they constantly have an improvement basis to keep their stock holders in a state of security to keep invested. So like get this: there’s a company that makes medical machines to keep people alive. A founder retired and the stock market dipped to half the price. Which only lasts less than a month and it recovers. Of course anyone who’s leading teams would then panic and get flustered

…like this is a company that should have its target about human life. And all the stock holders are worried about is the suit. Like it’s not even an improvement of a product. Improvements are all bullshit announcement for Wall Street.

That is..until crypto collapses it all.

Tax the rich and fix this shit.

If you have competitors, they will develop and have better products / service than you

There’s always room for improvement, and improving requires resources

Note that even if by all practical terms a business isn't growing, then it's still growing.

Part of the whole deal is that there's an intent for the money supply to change for a roughly 2% inflation. In an oversimplified sense, the idea being that everything gets 2% more expensive, everyone gets 2% raises, and investments at least generate 2% returns.

We've basically decided that we need to trick ourselves into feeling progress by making "standing still" look like growth. So if someone had flat income year over year, they actually lost in real terms.

Shareholder primacy. Thank you Dodge v Ford. Thank you Friedman Doctrine.

Under capitalism, companies do what their owners want them to do. The owners can choose to try to grow, to shrink, to sell, or to close.

Publicly owned companies have shareholders, and the shareholders usually want the company to grow so their investment grows. Shareholders can have other values, but anyone can become a shareholder.

Under non-capitalist systems, the government might own some or all companies. Then the companies do whatever the party in power wants. The party in power probably doesn't have time to run all the companies, so they give some level of independence. They can reign that back whenever they like.

The most common motivation in non-capitalist systems is probably greed and growing personal wealth of party leaders via corruption under that system. Luckily, the people can vote in a different party and/or protest against party corruption except in all real-world cases, where that is banned or suppressed.

Assume you're saving X amount of money each month for your retirement.

Your options for storing that money is either:

1. In cash which will "lessen" in value as time goes by due to inflation
2. In a savings account with middling interest rate
3. Or you could invest in the stock market which will typically offer better return.

Assuming you go for option 3, would you choose to invest in a company with zero growth meaning your retirement fund won't grow, or would you choose a company that is constantly growing?

Nobody would choose to invest in a company with zero growth or which doesn't return money back in the form of dividends.

You're objectively better off investing in companies that grow since those are the companies that will grow your investment.

I guess it's mostly because companies that don't try to grow are eventually pushed into irrelevance by companies that do. So most companies you hear about are growth oriented.

In some sense it can be good for consumers. If you have a nice idea for consumers, it's good that you are able to reach more of them or become more efficient in doing so.

Also, to start a business you need money. You can get money from investors, but they expect either interests on the loan, or that you grow so that their share is worth more. The latter is attractive, because you don't have to pay interests that can weigh your company down. But then the value of your company is almost defined by it's potential for growth. If you then decide not to grow anymore, this will tank the value of the company, and you might be stuck with a huge pile of stinking debt.