Edit: This question attracted way more interest than I hoped for! I will need some time to go through the comments in the next days, thanks for your efforts everyone. One thing I could grasp from the answers already - it seems to be complicated. There is no one fits all answer.
Under capitalism, it seems companies always need to grow bigger. Why can’t they just say, okay, we have 100 employees and produce a nice product for a specific market and that’s fine?
Or is this only a US megacorp thing where they need to grow to satisfy their shareholders?
Let’s ignore that most of the times the small companies get bought by the large ones.
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Extremely oversimplified:
-for Public Companies: CEO and executives are obliged to pursue maximum profit (either short-term or long-term) for the shareholders, thus the company must grow. - - For shareholders its Cost of capital (basically shareholders want bigger returns than the investment they made) and Opportunity Cost (lose money because you don’t move your investment to a company that is more profitable or gonna be more profitable)
-for private companies: Competition (grow or die from your competitor), efficiency (reducing cost), exit (sell it big and retire), psychological reasons (better safe than sorry), etc…
There are many family business or small companies that function as you describe, but they get replaced and driven out of business in a matter of years or decades (with exceptions). But being stable in an growing economy is very hard and risky. And Capitalism by definition must grow or it gets in crisis.
Because greed
More money more better…
I hate it. It even bleeds over into performance reviews. Like you’ll never get a perfect score no matter how hard you work because you always have to be improving on something. It’s supposed to be the sure fire sign of “success” but all it does is create impossible goals and bring everyone down.
I think the focus on growth is not the problem. The problem is leadership thinking that the individual has a significant role in how much they can create growth. The environment is much more significant.
Inflation, but also scale of manufacturing and tooling.
I was a Buyer for a chain of bike shops. You will not buy the same stuff forever. Continuous manufacturing is also generally much more expensive. Most cheap modern goods are made through contract manufacturing. That creates the cycle of seasonal products. Even something like cars involves a tooling cycle where the same stuff cannot be made indefinitely; the tools wear out with time. The market saturates with any given design. All people do not want to drive a Toyota Corolla from 1992 in beige.
Probably same reason cancer always needs to grow. It’s a fundamentally broken part of the system.
- Start business. Business very small, want business big. Big business happier than small business.
- Need money to big business, small business not enough money.
- Ask another big business for help small business
- Big business tells small business: We give you money, you get big, you owe us money back.
- small business always trying to be big business
I highly recommend reading this https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co.
This, citizens united and credit scores is where it all started to go wrong
I’d highly recommend watching this video, it goes through the history of capitalism and why it is the way it is now
Shareholders are always going to demand more profits. There is no mechanism in a capitalist economy that reinforces the concept of having “enough.”
My understanding is that this isn’t quite how it is. Shareholders don’t demand profits as much as they demand that their share value go up.
I read some time back that this is because of tax law. Dividends are taxed as income, but growth in share value is capital gains and so isn’t taxed nearly as much or in the same ways. It does unfortunately make some sense, if share value repeatedly goes up and down I wouldn’t want each “up” to be taxed as if you’d accumulated that much additional money. You’d have to be constantly selling shares to pay your taxes on them. But as a result, it means that when a company winds up making a profit and having a big pile of cash they need to decide what to do with, shareholders will usually prefer that the company invest that cash into making the company bigger and more valuable rather than simply giving it back to them as a dividend. So you get companies always trying to grow, because the shareholders demand it for reasons that make perfect sense to each one individually.
I’m not sure what a good solution to this is. Economics is one of those fields that seems simple on the surface but has a ton of gotchas hidden at every variable. It’s a special case of game theory.
Depends, but to meet demand seems reasonable?
Imagine you invent something splendid and life-changing. You have your company with a 100 employees but you can’t satisfy the market so you expand.
Like with the safety match.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:
- In cash which will “lessen” in value as time goes by due to inflation
- In a savings account with middling interest rate
- 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.
As a co-owner to a business, we grow because sometimes the funds from what we’re already selling slow so we branch out in other directions to cover it. An answer for small businesses at least.
Yeah that’s the entire problem.
“Always bigger” is delusional or cancerous.
Change the “or” to a “and”, and you got it.
