Thursday, April 17, 2008

Where is the Accountability?

I was a business major in my undergraduate college degree. I have admiration for the theory of the free-enterprise system. But doesn't there need to be some accountability? Doesn't doing what is right for America still outweigh gouging for all the greedy profit one can get?

I cite two examples: Exxon-Mobil continues to rack up obscene quarterly profits -- PROFITS (that's after expenses) for the last several quarters. I'm talking about profits like no corporation in history has come close to. Yet all the while they are taking the United States down into a recession -- coupled with inflation. After all, fuel prices affect the price of EVERYTHING. Can I afford $4 a gallon gas? Yes, in my two Honda Civics, I will be OK. But my heart hurts for the poor who will have to do without food perhaps in order to get to their job -- if they are fortunate enough to have one. It is sinful and unholy greed. And I do believe that a just God does not close His eyes to greed and taking advantage of others.

But where is the accountability? There is none. There isn't really even the practice of a free market system here. The oil companies essentially have a monopoly. In economics, it is called an olygopoly (sp?) in the case of big oil; where there are only a handful who are competing. And how easy would it be for those few to be in collusion with each other?

2nd example: AMR (parent company of American Airlines) reported yesterday that their quarterly losses amounted to $328 million dollars. I can remember a day when bonuses were given for superior performances. So with that staggering quarterly loss, what happened to the top corporate executives of AMR? The CEO received a bonus of $1.7 million, while the CFO received only a paltry (I am being sarcastic) $934,000. Not salary -- but bonus!

What do you think the company is going to tell the pilots and flight attendants and other employees when it comes time for contract talks? They will say, "Have you seen our bottom line? We are losing money. Why can't you people understand that and accept your 10% pay cut like good, loyal employees during these hard times?"

Again, where is the accountability? Does ANYONE out there picture God smiling on such greed?


Anonymous said...

Great post! Those you are describing remind me of the book of Amos (the prophet of social injustice). They "sleep on beds of ivory" yet "trample the heads of the poor and deny the justice to the oppressed."

I am typically not an alarmist (I'm more of a realist). However, I fear that this nation is undergoing a judgment. Not as the chosen nation of Israel, but as one built on godly principles that no longer influence our land.

Jeff said...

I'm not an economist but it seems crazy to me that we all want higher salaries, more benefits and bigger retirement accounts and think that we won't pay for it. How do we get more money, benefits, etc? Businesses have to raise prices and it costs us more to get what we need. It's a crazy cycle.

That's not to say the profits Exxon are bringing in isn't excessive or that the bonuses paid to AMR executives are unreasonable. I'm not familiar enough with their situations but they certainly look a bit out of whack on the surface. On the other hand, I don't know what is going on in the background. I'm familiar with a company now that is paying legal fees to defend itself in bogus legal actions and where is the money to spend on a legal defense coming from? The customers of course. Higher prices are necessary to keep money flowing for the business not to pay employees better or offer benefits but to defend itself from a disgruntled employee.

Sadly, I feel like I see greed all around me everyday at varying levels and it usually starts when I look in the mirror in the morning.

Kevin said...

As a student of US history, I have often wondered if the Great Depression was not God's way of imposing accountability on the immoral greed and excesses that permeated most of society during the late 1910's and throughout
1920's (i.e., banks/citizens playing the stock market on borrowed dollars, the excesses of "high living', issues brought on by prohibition, etc.) Just a thought.

Kyle R. said...

Here's my $.02--

I'm not sure accountability is the issue here. It's probably more a consumption and use issue, from my perspective.

Yes, Exxon-Mobil (XOM) has indeed racked up some immense actual net profits in recent years--unbelievable amounts of money. I totally agree that for a company to make over $40 billion in net profits for one year is near incomprehensible. But that $40billion represents only about a 10%net profit margin. Chevron and Conoco-Phillips have net profit margins of about 9% and 6%, respectively. Now don't accuse me of being a greedy oil exec, but those profit margins aren't really that high, relatively speaking. XOM for example, has $360 billion in annual expenses--that's a lot of cash to just pay the bills for a company.

Compare those 6-10% profit margins to companies like Microsoft and Google who have 25-30% profit margins.

I agree it hurts a lot more for Exxon, Chevron, and Conoco to make those kind of profits compared to what it feels like for Microsoft or Google because it's a whole lot easier to go without using software and internet searches than it is to fill up the tank.

But we all must admit free markets work better than any other man-made economic system. To have any other way would not be freedom. (And we are not a true free market system anyway because there are government controls and regulations).

In a free market (or relatively free market), the markets will dictate the prices. It goes back to a very simple concept that we all know regarding the law of supply and demand. When demand is high and rising, guess what happens to prices? We all know-- prices are high and rising.

So how do we send a message to XOM and their like? We must decrease our demand, change our habits or demand another energy source.

(I am not even going to include a discussion of how much the Arabs are profiting off of our American energy appetites. Check out Dubai if you want to see luxury and excess).

If history is at all our guide, we will not consume all of our world's oil products before another energy source takes its place. Look at the history of horse/mule to wood/coal to oil. My guess is that natural gas power will surpass oil in my lifetime and safe nuclear power will be after that.

I realize many or most of you may not agree with my assessment of this matter.

As far as AMR goes, to me, those bonuses are utterly ridiculous just for the morale of the company. I, too, don't understand the idea of bonuses for company losses, especially when the employees have sacrificed so much so recently. It makes me not want to even fly American.

The airline industry is a tough business, with razor thin profit margins (usually less than 3%),or in AMR's case last year--less than1% net profit. So look what's happening in the industry. Mergers. More mergers means less competition. More mergers mean oligopoly. Less competition and oligopoly means higher prices. Just wait. If you don't believe me,compare what happened to the oil industry about ten years ago. How do you think we got Exxon and Mobil jumping in bed together? Or how about Conoco and Phillips shacking up? Low oil prices and high operating expenses lead to mergers. Mergers lead to oligopolies. Oligopolies have lead to high prices. All of this is directly related to supply and demand.