Capitalism, Unions, and Offshoring (Part I): A Tale of Two Firms

Once upon a time, there were two firms, Meritocratus and Egalitarius. Both firms operated in the $10 billion widget industry, and each had 50% market share.

Widgets were not a commodity. Purchasers were sometimes willing to pay a premium for a superior product.

By the end of 2011, both Meritocratus and Egalitarius had identical products. The only thing separating them were their operating philosophies.

Meritocratus was ruthlessly focused on the bottom line. Its overriding goal was to return value for its shareholders. It would pursue anything that would increase profits, provided its actions were legal.

Egalitarius’ management wanted to balance its corporate goals with a broader focus on the social well-being of the communities it served.

Below is a spreadsheet showing how both companies ended 2011 with identical profits and valuations of $300 million and $3.15 billion, respectively. Both companies operate and pay taxes in the United States. Labor comprises 50% of each company’s cost of goods, and neither company offshores its labor force nor does either have unionized employees…yet.

Source: ©2011 Reflections of a Rational Republican

This series will explore the effects of several management decisions Meritocratus and Egalitarius make in 2012 regarding labor relations, research and development, legal, and offshoring. The intent is to provide examples of how incentives drive society’s decision-making, and to shed light on America’s current economic malaise.

Advertisements

About Sean Patrick Hazlett

Conservative clean energy crusader, national security hawk, financial analyst, engineer, and former military officer.
This entry was posted in Business, Finance and Economics, Investing, Mathematics, Policy, Politics, Predictions, Taxes, Unions and tagged , , , , . Bookmark the permalink.

3 Responses to Capitalism, Unions, and Offshoring (Part I): A Tale of Two Firms

  1. I will follow this with great interest!!

  2. I think you can pull posts back can’t you??

    I use windows live writer and I can open posted item and change the publish date to in the future and repost. Then it will post later.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s