Isn’t that a prerequisite for enshitification? Publicly-traded companies are required (by law, I think) to maximize profits for their shareholders, even if that means utterly ruining their original product (Reddit, Boeing, etc.), yes? What do you think?
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Enshittification requires two specific conditions:
- when a company can get more profit by decreasing the quality of the goods/services that it offers; and
- when the company is willing to do so.
The company being publicly traded can cause #2, as the investors won’t be as emotionally attached to the goal of the company as the founders. However, it is not a prerequisite, with Reddit being an example (it started enshittifying way, way before the IPO).
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Short answer: No
Long answer: Look into the phrase “rot economy.” Basically, enshitification starts MUCH earlier in the process than an IPO or a major buy out. It happens because our financial markets value growth, not financial gain. We always here about how companies only worry about the bottom line, but they don’t, actually. They care about demonstrating growth. How do you make growth happen while not worrying about the bottom line? Easy! Operate at a loss on purpose! That way you can capture more of the market in a fiscal year, and then the next year adjust your prices a little bit and operate at slightly less loss and show investors you’ve grown. Those adjustments? That’s enshitification. It all happens from the very first moment when you decide, “We have to capture the market.” That’s not the IPO. That’s the very founding of a business.
We need to instead value sustainable businesses. Ones that have higher revenues than losses. And you’ll notice something VERY interesting about sustainable businesses: They don’t do MASSIVE 3rd quarter layoffs literally every year. Why? Because they don’t have to show the investors that they’ve made a profit, they just need to show they captured more market and then reduced costs
“Because” often doesn’t make sense in the real world where anything that happens is the sum total of multiple factors. Especially a trend as broad as enshitification.
Being publicly traded seems like a contributing factor, but a sole owner can still enshitify through greed or incompetence.
I would guess that market consolidation and low competition are more of a factor.
It’s also the anti commodity stuff IP has been allowing. If Hershey makes crap chocolate, there is little stopping you from buying Lidnt say. But if Microsoft makes a bad OS, there’s a lot stopping you from using Linux or whatever.
What’s worse is stuff like DRM and computers getting into equipment that otherwise you could use any of a bevy of products for. Think ink cartridges.
Then there’s the secret formulas like for transmission fluid now where say Honda says in the manual you have to get Honda fluid for it to keep working. Idk if it’s actually true, but I l’m loathe to do the 8k USD experiment with my transmission.
You’d think the government could mandate standards but we don’t have stuff like that.
It’s not really direct cause and effect, but yeah. The incentives for a publicly-traded company make enshitification far more appealing then it would be for most other organizations.
I’ve worked for a couple startups and you’re absolutely right. If you make a profit you pay taxes on that money, so startups like to spend most of the money they bring in. They also want to show revenue growth, since that’s what investors like to see. You grow revenue by getting more paying customers. And you do that by doing what your customers want.
When you go public, your goal is to increase shareholder value. So you do this by reducing costs and finding ways to wring customers out of revenue. You find ways to nickle and dime customers out of revenue so much you develop an entire branch of law devoted to you suing your customers
I knew that link was going to be something related to Oracle, and I was not wrong. xD
Oh, also, it’s a common misconception that publicly-traded companies are required to maximize profits. They can have whatever goals their shareholders want. It’s just that the way modern publicly-traded companies work, most of their shareholders are people quickly buying and trading shares based on who they think will earn them the most money this month, so that sort of inevitably becomes the goal of any publicly-traded company.
Also the reason they focus entirely on unrealistic quarterly measures and don’t value long term stability.
Some false premises in this thread — corporations are not required to maximize profits. Even if maximizing profit was mandatory, this is a pretty subjective topic — is short term profit while pissing off your customers “maximizing profit,” or is sacrificing short term gains for long term customer loyalty “maximizing profit”? It’s not a rhetorical question, and I think you can find examples of both.
Corporations are also not all pursuing endless growth; in addition to “growth stocks” there are “dividend stocks.” Some companies aren’t aggressively pursuing growth, but are making profit, and the stock reflects this. It feels almost antiquated in the “to the moon” era, but these companies do exist.
This is like the “there are some responsible assault rifle owners” argument. Although corporations are not required by law to maximize investor returns, CEO “compensation” is often tied to “performance” so the incentives of those with the most decision power make it de facto required to maximize returns to investors. That’s why Musk needed to convince his board of directors (who are there to represent the best interests of the share holders) to approve some ridiculous pay package. His “performance” in their eyes is proportional to share holder profits so if they’re happy, he gets his absurd pay package, which is why his incentive is to maximize profits for shareholders by any means necessary.
Corporations are inherently the vehicle of non-mutually-beneficial capitalist profit-seeking. They cannot really be anything else. That’s what differentiates them from a profitable ‘mom-and-pop’ grocer selling local produce and handcrafts. The purpose of incorporating as a business is to limit liability by separating the assets and incomes from the owners and investors, in order to allow profits to be gained without actually engaging in a good-faith exchange with prospective business partners/customers (since corporate bankruptcy limits their ability to recoup losses from the individuals running the business).
Weapons are a means to do harm, but they are not something that the mere ownership of implies a threat from; most people do not being their guns everywhere. If they do bring it somewhere, that indicates an adversarial stance towards the place or persons who they’re meeting. Put another way, “gun ownership” is very different than “having a gun present with which you could threaten someone”.
Corporations, on the other hand, are at all times and in all business dealings leveling that threat of one-sided liability, because it is intrinsic to them as corporations. You can own a gun without threatening to shoot anyone with it. You can’t operate a corporation without threatening to evade rightful liability.
It is possible to be a “responsible assault rifle owner”. It’s not possible to be a non-exploitative corporation.
Interesting little article
In other words, it is activist hedge funds and modern executive compensation practices — not corporate law — that drive so many of today’s public companies to myopically focus on short-term earnings; cut back on investment and innovation; mistreat their employees, customers and communities; and indulge in reckless, irresponsible and environmentally destructive behaviors.
So I guess the publicly-owned model allows the bad shit to happen when the majority of shareholders are get-rich-quick hedge fund types then?
The ones that are successful at enshitification have captive markets. They’re a monopoly, monopsony, or in another kind of inelastic market. https://pluralistic.net/2024/04/24/naming-names/
Publicly-traded companies are required (by law, I think) to maximize profits for their shareholders,
The is not true, stop spreading misinformation
They may not have to maximise profits but the shareholders will question every decision that doesn’t maximise profits so the result is the same. That’s why activist investors that push companies to more ethical behaviour are important.
Yeah, but we’ve had countless examples of loss-making tech companies with sky-high valuations. Amazon didn’t make a profit for something like 20 years. Investors of course want returns, but they can differ on the timeframe they’re willing to wait for them.
They may not have to maximise profits but the shareholders will question every decision that doesn’t maximise profits so the result is the same.
If that were true, we wouldn’t see the obscene salaries of C-suite level execs skyrocket… That money cuts into the profits as well, you know?
They are ok squeezing their workers while giving themselves the sweet life on the company’s dime
That’s why activist investors that push companies to more ethical behaviour are important.
This is a fairy tale force, like Santa or the boogie man. You’ll never get ethical behavior from profit seeking entities
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No, plenty of private companies are profit driven
Any organization that’s forced to pursue endless growth is going to end up enshittifying eventually, because there’s only so much innovation and wow factor that you can do to make a product appealing before you hit a talent/demographic/creativity limit. Not to mention that infrastructure and operating costs are massive when you hit that level of scaling and that needs to be funded somehow. Eventually they’ll be forced to start extracting more value out of their existing userbase to keep the revenue growth going. Going IPO is mostly just a telegraph for how things are going behind the scenes.
I’ll let others address the “enshittification” angle but I thought I’d point out that “shareholder value uber allies” is a relatively recent … “innovation” … in economic theory, brought about by failed Supreme Court nominee Robert Bork and Milton Friedman in the last half of last century:
https://www.chicagobooth.edu/review/what-made-chicago-school-so-influential-antitrust-policy
The rethinking of what the boards of companies are supposed to do (from maximize stakeholder value to maximize shareholder value) and how they can operate (from requiring justification to approve mergers to requiring justification to block mergers) really took off with them, and exploded when former union boss Ronald Reagan found “religion” (because Nancy’s pussy was just that good) and ruined the economy for workers.
Lots of other people contributed, including Clinton after he “won” the 1992 election with 40% of the vote due to Perot splitting the Republican vote. His campaign of fiscal conservatism but without less bigotry became the model for the Democratic Party for the next two decades.
Anyway, Biden’s FTC is finally working to help workers again, which might even release the death grip of the Chicago School from our economy. We’ll see after November I guess.
bill clinton didn’t start fiscal conservatism until after 1996 when newt gingrich swept congress, though.
'Member before publicly traded companies? We had dudes like Rockefeller and Carnegie. Company towns, rats in the sausage, kids getting caught in giant cogs…
No, it’s not because they’re publicly traded. It’s because people like money, and if they have enough they can pay to not look at the side effects of getting it - whether that’s dead kids or just no privacy and bad content.
You dont have those things not happen any more because of the stock market, you dont have to endure those things any more because regulations prevent it.
I can guarantee you 100% that if corporations could use child labor again, or dump rats in a meat grinder and sell it, they would in a heartbeat.
Yep. No disagreement.
OP was asking whether public trading causes shitty business behavior.
Ah fair enough, that makes more sense then. Read it as an argument for the free market
It wasn’t, although it wasn’t an argument against per se either. Both were/are markets.
What actually needs to happen with internet enshittification is probably some kind of regulation. People just don’t understand the magic boxes well enough to not fall prey. The EU is on it, at least. With Boeing, probably the Enron formula. We’ll see how many accidents it takes to create movement on that, considering it’s a company that makes the big banks look disposable by comparison.
The company I work for has acquired a number of small companies over the years; the result has been a mixed bag. In one case, the original product and employees were dropped completely, only retaining the IP. In a number of other cases, the original teams and products were kept intact with cross-over between products plus a huge boost in funding and customers over the years. In most cases, the companies were absorbed into existing management structures and the employees and technologies deployed inside the existing product line, sometimes with a few things that didn’t match the company strategy sold off or spun off into their own company.
Personally, I consider all the acquisitions except the single case where everything was abandoned to be a success; in that case, the exec in charge of acquisition was made redundant when everything else shut down.
Publicly traded companies are not compelled by law to maximize profits. That’s a long standing myth.
