On Tue, 6 Oct 1998, Jim Choate wrote:

It occurs to me that there is another potential flaw in current economic theory and business practice.

Currently (ala Friedmann) the parties that reap the benefit of a succesful business are the shareholders, this is currently seen to exclude the employees in many cases/companies.

This approach undervalues the business worth of the employees commitment to the business.

Not labor any more than capital. I think what you refer to is often called "stakeholders" which includes suppliers and customers in addition to employees. However you do not need to play games to justify proper treatment of employees. If you consider capital such as a machine, it is usually better to keep it well maintained and in good repair instead of letting it wear out and rust - the quality of your goods will suffer, profits will go down, and shareholders will dump management. The same applies for labor. If you treat employees badly, and they are in a free labor market, you will be left with those who will tolerate your abuse, or ignore it. These are likely to be as less productive as the rusty machine. And employees usually create mental capital. Except for the most menial tasks, they will know who to call and how to get some otherwise trivial things done much more efficiently than someone new. And they will be able to identify ways to make their niche more efficient for little extra cost (v.s. having a bunch of consultants go through to obtain the same information). Lose a long term employee and you have lost a lot of knowledge which you will pay dearly to replace. High turnover is bad for almost every business. Maltreatment is universally bad. Our current stock market bubble - which is in the process of popping - distorted this. My concept of Usury (yes, another mideval or earlier idea) is loaning in the abstract. You just want 5% or 10%, and try to find a piece of paper (or electronic book entry) that will return it regardless of what is behind the paper. This can include ponzi schemes if they aren't recognized as such. If people were really investing in the non-usurous sense, they would be concerned with the company as an organic whole, with the suppliers, and customers, and employees, and the physical plant and everything else, since the overall health would have a direct impact on the return on their investment - and this would typically give a dividend yield a few percent above something like a 10yr treasury. If I want milk, I will be very concerned with keeping the cow happy and healthy, and doing so rationally - pampering the cow too much won't give any more milk and maybe make the cow less healthy, but starving it or beating it would be worse. But now people own mutual funds, and probably don't know what positions they are in today. They simply assume it will go up 10% "over the long term" regardless if they invest in CocaCola, RJR Nabisco, Yahoo, or GE, so why bother checking what is behind the stock certificate - if they miss their earnings, the fund manager will simply swap it for something else not based on the company or employees, but just on a few abstract numbers reported each quarter. I like Yahoo and Amazon, but can't concieve of any logic to their market capitalization. They would have to grow at double digit rates to long past my retirement to return to a rational valuation (assuming the stock price didn't go up further). I haven't heard a reason connected with something tangible (dividends, book-value, cash flow) for someone to own such a stock. Only that "it the internet". And I think this decoupling is at the center of what you are getting at. Paper v.s. people, and when it comes time to decide, the paper wins. There is a lot of ignorance, and it is rational in the short term - these stocks are going up, so it would otherwise make sense to follow the trend. But if the trend is all that is being watched, who is going to care if they are using slave-labor? - to mention just one issue. But that is investing in a bubble. The same thing happened in 1720 with the South Seas company in Great Britian and the Mississippi Scheme in France. The paper was appreciating daily, and that is all that mattered. Until the paper became illiquid. Then it mattered very much if the businesses were intrinsically sound and healthy and correctly valued. And I think we will see the same thing here and across the globe shortly. Japan started to see this in the early '90s.