I’ve been listening to Aquired recently (podcast about company origin stories) and when talking about privately owned companies (for instance, the recently Mars Inc. episode) they always do back of napkin estimated earnings because the company is private, which apparantly means they don’t have to disclose earnings.
But in my country, Denmark, every company earning above 50.000 DKK (=7853 USD) has to disclose earnings. I believe this is for price discovery purposes, so that other entrepreneurs can see how much margin companies have and try to compete if they earn too much money, which is an important part of capitalism, right?
How come this is not required in USA, the “home” of capitalism? If I’m not mistaken of course, my apologies if so.
Competition isn’t really a thing in the US at the high level.
They all work together to make sure new competitors can’t compete.
A startlingly high fraction of US businesses rely on a combination of tax evasion, accounting fraud, and wage theft to make the business work. Everyone knows this, but it’s still sufficient reason to keep reporting minimal.
to make the business work.
To pay for the owners’ lavish lifestyles.
The people making too much money can always make less and the rest of us would be better off for it.
Capitalism isn’t a system that functions by any real plan of humans, but by what’s profitable. Capitalism is a control system in a sense, relying on profits for information. In more “advanced,” higher stages of capitalism, with less working class organization to resist it, laws better reflect whoever has the most capital. Statesian capitalism isn’t “designed,” it’s a system of plunder that is more naked due to the US Empire being the global imperial hegemon. Denmark is imperialist, but secondary to the US (as well as other countries like France, Germany, the UK, etc), and has stronger worker organization, as well as proximity to the former soviet union, so it isn’t quite as nakedly terrible.
So in the US, there are two kinds of corporations: Public (as in publicly traded on the stock market) and Privately owned (shareholders with stock unavailable to the public).
Publicly traded companies are required to be much more transparent to the public and their potential/active investors (to deter earnings fraud ala Enron), so therefore have plenty of data published for analysts to work with.
Privately held companies, by contrast, don’t need to tell the public anything. By not being listed on the stock market, they can do almost anything they’d like with little danger of their business practices being scrutinized (It also doesn’t help that the US is relatively weak when it comes to business regulation to begin with).
However, one advantage of this is that they aren’t beholden to public investors demanding growth above all else - Publicly traded companies are legally bound to prioritize shareholder demands ahead of any other duties. Valve, for example, is able to perform a lot more pro-consumer moves with their services and software because they don’t have Wall Street hounding them for quarterly returns.
Unfortunately, the reality is you can’t have the best of both situations from the public’s perspective. The US has more financial obscurity than is typically presented, and that often manifests as businesses dodging regulation, oversight, and accountability as much as possible. Mars, for instance, probably has skeletons in their closet on the supply chain front (abuse in the production of chocolate), that may give them incentives to remain as private as possible - no financial records, no transparency reports, no investor conferences.
(Also slightly away from the subject but consolidation is incredibly high in the US - many industries are effectively controlled by an oligopoly of companies)
Publicly traded companies are legally bound to prioritize shareholder demands ahead of any other duties.
This is actually a myth. They are expected to be responsible with their money, but they are not in any way required to maximize profit from a legal perspective. They repeat the lie because it is a good excuse to be evil. If a company doesn’t do what it’s shareholders like, they may vote out the board, or they might sue if the prospective was fraudulent (said they were working on something that they weren’t for example… But remember also that American companies don’t make forward statements like European ones do, so those cases are going to be things like “last year we spent 10 million on R&D” when they actually spent the money on plane trips to cocaine parties) but those are the recourses available to shareholders.
Wasn’t that genuinely litigated in Dodge v. Ford? (https://en.m.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co.) I’ve seen that decision cited countless times.
It was argued, yes, but that is a state supreme court decision, not binding in any other state, and there is still no law that says this is true. Friedman wouldn’t have bothered arguing about it in 1962 if it was unquestionably federal law or already settled by 1919. It is only convention.
But why can’t you have the best of both situations from the publics perspective? You could require companies to disclose financial numbers if above a certain size, even if privately owned. That wouldn’t force the owner(s) to be beholden to anyone, they just have to report the numbers. It’s what we do here.
When you say “the reality is”, do you mean that the existing players are just too powerful to allow it? Or is there something inherint to the system that wouldn’t allow it?
Campaigns, campaign financing, and lobbying. US polotics is pay to play. Plus Americans are very individualistic. We would rather get screwed over by companies and the rich then have government tell us what to do. Does not always make sense.
The players are just too powerful to allow it. There’s no limitations if a private corporation wanted to disclose information, but unless they are compelled, it will not happen. To our congressional representatives and current supreme court, applying any “burdensome restrictions” on corporations any more than the existing status quo is political poison for their careers.
I agree with you that it would be better if that were the case, but the reality is the regulators are complicit in the system being as broken as it is.
How come this is not required in USA, the “home” of capitalism?
I dont know why, but the US is definitely the home of pure unadulterated capitalism, no air quotes needed. Why would private entities need to disclose anything to public interest? There is no reason to add competition to the market, most that try get bought up or sued out of business.
I know nothing about any of this except capitals sole interest is to make any money as easily or as shady as inhumanely possible.
There is a refrain that there is only one true law in the USA: “Line (investment returns) must go up.” Nothing else truly matters in the grand scheme of the financial ecosystem. If an investor cannot throw their money into an investment fund broker like Vanguard, BlackRock, or State Street and get steady returns, it’s time to panic and bail. (See 2008, or 2020).
In general the concept is that related buyers have a right to be informed but anyone else in the market. So if you were to buy stake in a private company during that youd have the right to the books during that sale and covering that is fraud.
Kind of like how buisnesses would have no right to know how much equity i have unless it was relevent to any actual agreement.
Not saying i think its right way or better but i dont see total transparency of details not related to a direct sale and the partipants to be necceray for a market to be “free”.
Most countries don’t require it for privately traded companies.
The standard for reporting for private companies is usually far lower than publicly traded companies because it is expected that people with enough money to invest in financial companies have enough money to invest in their own auditing.
Also, as you pointed out, there is value in that data. It appears to be that companies would rather keep their data private than look at others’ public data.
Even in some EU countries it’s not required.
At least in my country (CZ) there are more types of companies some have to disclose earnings, yearly economic outcomes… and some don’t have to do it. Even there it is different on how much it is disclosed publicly or only to “shareholders” (owners usually) and how detailed it is.
The USA is not capitalist in the sense most people (e.g. Adam Smith) mean. It is a protectionist oligarchy, that is capitalist only in the sense that it protects those with capital over all else. Monopolies and trade restrictions protect the capital class at the cost of the populace, and most laws are now written by corporations who hand them to their sponsored representatives. It is exactly what Adam Smith warned against.
The US Empire is capitalist in Smith’s sense, though. The US still operates on commodity circulation, private ownership of capital, etc. Smith was just wrong in thinking the invisible hand would fix everything (along with other issues like the way he categorized fixed and circulating capital being a step back from Quesnay and the physiocrats).
The “protectionist oligarchy” was in capitalism from the beginning of its formation, what’s important to recognize is that systems grow and change through their own compulsions and contradictions. Capitalism necessarily centralizes and expands over time, and the state exists to keep that system going.
It really isn’t. Smith argued (I agree wrongly) that the invisible hand of a free market would correct everything, but that monopolies and restrictions distort the market and that the worst thing we could do would be to allow corporations to dictate law. That was my point. The US has set up too many barriers to entry to reasonably claim it is free market, and corporations have absolute control over the current government.
Any reasonable reading of Smith’s Wealth of Nations would be socialist anyway. He outright stated that the capital class had a responsibility to entirely pay for the expenses of the state in caring for the populace.
The better discussion of Smith would be what industries could reasonably be capable of sustaining an actually free market. I would argue that housing, communications, agriculture, and healthcare are impossible to de-monopolize due to practical spatial limitations and therefore would have to be under state control, given Smith’s statement that capitalism’s invisible hand only works in a free market.
Even in Smith’s time, the state was already a tool of the capitalist class and centralization was occuring. It wasn’t what it looks like today, of course, but today isn’t fundamentally different at its core. The US is capitalist today, just at a later stage.
Secondly, capitalists paying for social safety nets isn’t socialism. If you want an actual dive on socialism built off of Adam Smith instead of Marx, a fun thought experiment, I recommend the article Adam Smith’s Socialism.
