When does capitalism become predatory?

WHEN is the last time you had an interaction with a company that made you question your sanity?

Mine was with a long-term care insurance provider. My parents, both in their 80s, have paid for their policy for decades, so when my dad told me he had been struggling – unsuccessfully – to submit a claim, I figured I could easily resolve the problem.

Instead, I found myself tangled in a Kafkaesque bureaucracy that was clearly designed to maximise a customer’s frustration until they give up. Communications went into the void. Forms were repeatedly lost or rejected for absurd reasons – and even when the company allowed it had received them, it was months before they were accepted, much less processed.

It was a textbook case of what I call predatory capitalism: companies’ increasingly common willingness to harm customers in their pursuit of short-term profits. It is a notorious issue in the insurance industry (remember the wave of public rage directed at insurers after the killing of United HealthCare chief executive officer Brian Thompson?), but it appears elsewhere as well.

Take private equity (PE)-owned nursing homes, for example; research has found that when a PE firm takes over, the quality of patient care decreases, as do quality ratings and patient mobility. Meanwhile, pain levels and short-term mortality increase.

Beyond healthcare, consider online gambling – particularly sports betting. In addition to draining the savings of those who can least afford it, these companies have been accused of using sophisticated analytics to target people with gambling disorders.

In fact, researchers say problem gamblers account for a hugely disproportionate fraction of online gambling revenue. A University of California San Diego study found that when online sportsbooks enter a state, Internet searches seeking help for gambling addiction go up by 61 per cent.

Companies seek profits. That is their job. And nothing I have described here is illegal. But the law does not dictate the bounds of ethics – particularly when companies have vast political power to shape the law for their own benefit.

When businesses take advantage of that legal leeway to harm their customers, people’s faith in the system and in corporate leadership erodes. Some companies have always acted badly, but the public’s attitude towards business has changed radically in a generation. Gallup polling shows that the percentage of Americans who have “a great deal” or “a lot” of confidence in big business has plunged from 30 per cent in 1990 to 16 per cent in 2024.

Why are businesses now so routinely predatory? It is rooted in the “financialisation” of the American economy. As the financial sector has gotten larger and more powerful, its expectations and demands have changed the behaviour of companies in all parts of the economy. That means more companies have made outperforming the market – and delivering the best short-term results – their highest priority.

Businesses that want to improve their numbers to fulfil those demands have, at the highest level, two choices. They can create new customers, or they can squeeze more out of the ones they already have. The first is usually difficult. It requires innovation, inspiration or both. The leaders who can consistently do so become legends – think Steve Jobs or Henry Ford.

The second is easier. A lot easier if you are willing to squeeze people who cannot push back, like senior citizens. Might customers who feel cheated or abused abandon you eventually? Sure, but by the time that happens, you would have banked the necessary profit – and the fallout will be your successor’s problem.

Aggregate that attitude across the entire economy and you get rising corporate profits, a booming stock market, low unemployment, and a population that increasingly feels like corporate leaders and capitalism see it as prey.

Leaders who are shocked by Americans’ distrust (and the attendant rise of politicians preaching socialist politics) might be well-advised to look at many of their fellow CEOs for an explanation. If they want to restore faith in the system, they can start with their own actions. Here are a few suggestions.

• Stop saying that your only responsibility is to maximise shareholder value. As a matter of law, it is not true. And it serves as an excellent excuse for any kind of predatory behaviour.
• Acknowledge that some regulation – even regulation that hurts short-term profits – is necessary and even beneficial in the long run. Companies are measured against their competitors. If your rival is boosting its numbers through predation, it puts enormous pressure on you to do the same. Regulation can solve that problem for you, and business leaders should be unafraid to call for banning behaviour that they know is morally unacceptable, however profitable it might seem.
• Act as stewards, not predators. A predator feasts and leaves nothing behind. A steward’s chief responsibility is to leave things better than he or she found it. Being a corporate steward means building a company that will endure – and requires an honest relationship with customers. Predators are feared and despised. Stewards are honoured and loved. Which one would you rather be? BLOOMBERG