Wells Fargo's CEO was just forced out after testifying before Congress about the scandal at the bank. The company created a quota system for employees to sign up existing customers for additional accounts. These quotas were so unreasonable that thousands of employees created accounts for customers they never asked for and never knew they had.
Honest employees who refused to cheat their customers to meet the unreasonable quotas were fired (and have since filed a $2.6 billion lawsuit for unlawful termination).
The problems at Wells Fargo are not unique. Wall Street has totally unreasonable expectations for revenue growth: companies that don't meet "analyst expectations" are hammered in the stock market. CEOs are given bonuses when their stock price increases, and are fired (albeit with a golden parachute) when they don't meet those unreasonable expectations.
There are only a few ways that revenue can be increased: 1) sell more products, 2) reduce costs, 3) increase prices, 4) create more customers, 5) create new products, 6) create new markets.
Wells Fargo tried to do #1: sell more products to their existing customer base. The problem was these people didn't want these products, but since Wells Fargo had all their financial information it was trivial to rip them off.
This fails when customers already have all the product they want, or can't afford to buy more products. Since salaries have been pretty much stagnant since George W. Bush was in office, there is little hope for growth here.
Most companies try to do #2: reduce costs. This typically involves reducing the cost of production (like Apple switching touch screen suppliers, or cutting employee salaries, or moving production to Asia), or improving productivity (firing employees and making the survivors pick up the slack, reducing the number of employees by replacing them with machines, or using technology to improve the productivity of existing employees).
Problem is, cost reduction often reduces the quality of the product or service. It's also hard for employees whose salaries have been cut (or never rise) to afford to buy the products and services that companies need to sell to increase their revenues.
However, there is a huge potential for cost savings that remains untapped in the vast majority of corporations: executive compensation. CEOs and their executives can pull down billions of dollars in compensation: in 2014 the average Fortune 500 exec made $16 million in salary -- 300 times the average employee, and oodles more in retirement and stock grant benefits. In 1965 the average exec made only 20 times as much as an average employee.
Since execs are just management overhead, the quality of products and services will be almost completely unaffected.
Wells Fargo will save tens of millions of dollars by firing John Stumpf. Not as much as the $185 million in fines they'll have to pay for bilking their customers, unfortunately.
Method #3 -- increasing prices -- is a problem for most companies for the same reason as #1: customers don't have the money. But certain companies can get away with it: in particular, drug companies who have a monopoly on life-saving treatments. Like, for example, Martin Shkreli increasing the price of Daraprim fifty-fold, Mylan jacking up the price of the EpiPen several hundred percent, or the tripling of the cost of insulin for diabetic patients.
Drug companies can get away with this extortion because people will sicken or die without this medicine: they are holding a gun to their customers' heads and saying, "Your money or your life."
Number 4 -- creating more customers -- used to happen automatically: for centuries population increased geometrically. But population growth has stopped in most developed economies. The United States' population is still increasing but only due to -- you guessed it -- immigration.
Many young people today don't have very good jobs and don't anticipate that they'll be making enough money to afford a home and a family. So we won't be procreating our way out of this problem. Conservatives, afraid of losing their tenuous grasp on political power, are also afraid of immigration, so there's very little hope on that front.
In any case, population growth is not a solution: at 7 billion people, the world has already exceeded its carrying capacity. As the effects of climate change really start to hit hard and natural resources decline, the number of people the earth can support will decrease.
Item #5 -- create new products -- is the favorite of entrepreneurs. The problem is, again, that customers don't have the money to buy new doodads. And truly new products are extremely rare: the personal computer, the cell phone, the Internet were revolutionary.
But every time you come up with a new "killer app" it kills off some older product or service. The personal computer killed off the typewriter and jobs like secretary, file clerk, etc. The cell phone and the tablet are killing off the personal computer. The Internet is killing off newspapers and television networks.
And a lot of "new products" are just recycled garbage. The Great Recession was due to financial institutions selling failing mortgages by repackaging them in more and more obscure bundles to hide just how toxic they were.
Creating new markets -- #6 -- sounds great, but the only place to create new markets is to move into new countries. That means international trade. This is a hot topic in this election as Donald Trump touts gigantic tariffs on foreign countries' products to "punish" them for unfair trade practices. If we do that, they'll do the same to us, making it impossible to create new markets.
Also, in order for these new markets to buy our stuff, their citizens need the money to pay for it. The only new markets left are places like India, Indonesia, and Africa, where average incomes are generally very low. The only way for them earn the money to buy our products is if they have well-paying jobs. And the only way they can do that is if they're selling products and services to people who can afford to pay for them, and that means selling into western economies -- like ours.
(Creating new markets by going into outer space is intriguing, but impossible until we develop compact nuclear fusion generators -- something that doesn't look any closer than it was 50 years ago.)
All of these factors produce one inescapable conclusion: we are entering a steady-state economy and only a few small new companies can experience 10 to 15% revenue growth.
What this really boils down to is: what is the purpose of corporations? To make a small number of people filthy rich? Or to provide products and services to the people of the United States while giving a living wage to the people who actually do all the work?
The outcome of this election may very well answer this question, and determine the fate of the planet.
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