Sorry, It’s Not A ‘Law Of Capitalism’ That You Pay Your Employees As Little As Possible

CashierBusiness Insider – by HENRY BLODGET

One of the big reasons the U.S. economy is so lousy is that big American companies are hoarding cash and “maximizing profits” instead of investing in their people and future projects.

This behavior is contributing to record income inequality in the country and starving the primary engine of U.S. economic growth — the vast American middle class — of purchasing power. (See charts below).  

If average Americans don’t get paid living wages, they can’t spend much money buying products and services. And when average Americans can’t buy products and services, the companies that sell products and services to average Americans can’t grow. So the profit obsession of America’s big companies is, ironically, hurting their ability to accelerate revenue growth.

One obvious solution to this problem is for big companies to pay their people more — to share more of the vast wealth that they create with the people who create it.

The companies have record profit margins, so they can certainly afford to do this.

But, unfortunately, over the past three decades, what began as a healthy and necessary effort to make our companies more efficient has evolved into a warped consensus that the only value that companies create is financial (cash) and that the only thing managers and owners should ever worry about is making more of it.

This view is an insult to anyone who has ever dreamed of having a job that is about more than money. And it is a short-sighted and destructive view of capitalism, an economic system that sustains not just this country but most countries in the world.

This view has become deeply entrenched, though.

These days, if you suggest that great companies should serve several constituencies (customers, employees, and shareholders) and that American companies should share more of their wealth with the people who generate it (employees), you get called a “socialist.” You get called a “liberal.” You get told that you “don’t understand economics.” You get accused of promoting “wealth confiscation.” You get told that, in America, people get paid what they deserve to get paid: Anyone who wants more money should go out and “start their own company” or “demand a raise” or “get a better job.”

In other words, you get told that anyone who suggests that great companies should share the value they create with all three constituencies instead of just lining the pockets of shareholders is an idiot.

After all, these folks say, one law of capitalism is that employers pay their employees as little as possible. Employees are just “costs.” You should try to minimize those “costs” whenever and wherever you can.

This view, unfortunately, is not just selfish and demeaning. It’s also economically stupid. Those “costs” you are minimizing (employees) are also current and prospective customers for your company and other companies. And the less money they have, the fewer products and services they are going to buy.

Obviously, the folks who own and run America’s big corporations want to do as well as they can for themselves. But the key point is this:

It is not a law that they pay their employees as little as possible.

It is a choice.

It is a choice made by senior managers and owners who want to keep the highest possible percentage of a company’s wealth for themselves.

It is, in other words, a selfish choice.

It is a choice that reveals that, regardless of what they say about how much they value their employees, regardless of what euphemism they use to describe their employees (“associate,” “partner,” “representative,” “team-member”), they, in fact, don’t give a damn about their employees.

These senior managers and owners, after all, are earning record profits while choosing to pay their employees so little in many cases that the employees have to live in poverty.

And the senior managers and owners add insult to injury by blaming the employees for this: “If they want to get paid more, they should start their own company. Or get a better job.”

It is no mystery why America’s senior managers and owners describe the decision to pay employees as little as possible as a “law of capitalism”: Because doing this masks the fact that they are making a choice.

But it is a choice.

Importantly, if big American companies were struggling to earn money, as they were in the early 1980s, we would not be having this conversation. Even if big American companies were only earning average profits, this wouldn’t be an issue. But the “efficiency” and “shareholder-value” drive that began in the 1980s has now gone too far the other way. Just look at these charts…

CHART ONE: Corporate profits and profit margins are at an all-time high. American companies are making more money and more per dollar of sales than they ever have before. Full stop. This means that the companies have oceans of cash to invest. But they’re not investing it. Because they’re too risk averse, profit-obsessed, and short-term greedy.

 

 

CHART TWO: Wages as a percent of the economy are at an all-time low. Why are corporate profits so high? One reason is that companies are paying employees less than they ever have as a share of GDP. And that, in turn, is another reason the economy is so weak. Those “wages” represent spending power for American consumers. American consumer spending is revenue for other companies. So the profit maximization obsession of American corporations is actually starving the rest of the economy of revenue growth.

 

 

 

CHART THREE: Fewer Americans are employed than at any time in the past three decades. Another reason corporations are so profitable is that they don’t employ as many Americans as they used to. This is in part because companies today regard employees as “costs” instead of human beings who are dedicating their lives to the organizations that, in turn, are supporting them and their families. (Symbiosis! Imagine that!) As a result of frantic firing in the name of “efficiency”  and “return on capital,” the U.S. employment-to-population ratio has collapsed. We’re back at 1970s-1980s levels now.

 

CHART FOUR: The share of our national income that American corporations are sharing with the people who do the work  (“labor”) is at an all-time low.  The rest of our national income, naturally, is going to owners and senior managers (“capital”), who have it better today than they have ever had it before.

 

 

In short, the obsession with “maximizing short-term profits” that has developed in America over the past 30 years has created a business culture in which executives dance to the tune of short-term traders and quarterly earnings reports, instead of balancing the value created for employees, customers, and long-term owners.

That’s not what has made America a great country. It is not what has made some excellent American corporations the envy of the world. It’s also hurting the economy.

Read more: http://www.businessinsider.com/companies-need-to-pay-people-more-2013-8#ixzz2bOQyi4h7

14 thoughts on “Sorry, It’s Not A ‘Law Of Capitalism’ That You Pay Your Employees As Little As Possible

  1. I don’t remember if you remember me saying here before, but I JUST DO THE WORK.
    I don’t care about PAY, I JUST DO THE WORK

  2. When there was work to contract, before the
    marxist takeover that’s killing our economy.
    I had folks employed that performed well.
    When they did, and the project allowed it,
    they received bonuses.
    As well as perks.
    I usually bought their breakfast and lunch.
    Paid them a set amount per hour.
    But that turned into per day, regardless
    how many hours worked.
    That gave them the incentive to perform,
    and well. Also protecting their jobs.
    For when we finished the amount of
    scheduled daily work. I called it the day.
    Most often after six or so hours.
    This was a win-win situation.
    The project stayed on schedule,
    I received great performance, and we
    didn’t burn our work up. This provided
    the time to do the things we needed to do,
    that otherwise, that had to be done on
    Saturdays.
    I made killer money, and the employees
    made way more than they ever could
    have anywhere else. At one phase of
    a particular project, they earned a 500,00
    bonus for making a goal I set so I could
    go hunting for a week. And they received
    that same week off too.
    Don’t ever tell me Capitalism doesn’t work.
    For when I make money, others will too.
    But only when they perform and are loyal
    to their jobs, and employer.
    The problem with many so called businesses
    these days is; after being burned by unions,
    hack socialist employees, and regulations.
    It’s near impossible to be successful.
    Those businesses stop being benevolent
    and the appearances of greed set in.
    Yes, there are those who ARE greedy.
    But if you take consideration of one’s
    employees, they’ll take care of business.
    At least it used to work that way …….

    1. Yes I used to have jobs like that too years ago, and the employese would damned near kill themselves for the emploers, and yes I loved my job back then. Now days though it is not that way anymore. There is nothing wrong with making a profit but when a damned cheap employer doesn`t even hardly pay enough to put gas in the car then it is wrong. My neighboring towns average wage is only 8.50 a hour and they say they could pay minimum wage so the employee better apreciate it that they are not working for minimum wage, and them dirty employers will keep them at that wage and only give a .05 – .10 cent raise for a damned year. Employers are cheap bastards and they just do not get it and they are lucky that they got employees working for them when the employees are treated that way, and I can guarentee that the employees would not work for them if there were more places that were hireing. People need to live a little too instead of always being treated like sh*t by their bosses or employers.

  3. The last employee I had (and believe me, he was the LAST employee I’ll have) I would have had a line around the block if I’d offered the job at half what I was paying him. Yet he still thought I was “exploiting and abusing” him for no other reason than that I (the business owner) was making more than him. It didn’t occur to him that it had taken me 40 years to build up the tools and skills that the business ran on, or that I had been making less than him for about 36 of those 40 years, or that he had a better job than I’d ever had in my life, including running the business that was employing him.

    Maybe this is what happens when you let communists run the school system and kids grow up thinking they should have cushy jobs with high pay and no performance requirements handed to them on a silver platter.

    The interesting thing about this one employee is that he didn’t just eventually cost himself his job, he cost every potential future employee here THEIR job. Any extra income I can earn by having employees isn’t worth even the possibility that their s**t will lower my quality of life. I can make my own living without them just fine.

    1. Doesn`t the quality of life mean anything to the employer. I mean if it wasn`t for the worker you wouldn`t have a income would you, at least not like you had with employees working for ya. It is a give and take situation and if you cannot be fair about that give and take then I hope them business owners/bosses fail and have to work in some low paying starting position type job at minimum wage damnit. No offence but business es are a part of the problem when all they want to do is pay minimum wage or low payin` wages and prt time jobs and if you were a business owner then you know exactlyu what I am talkin` about , and yes I am talking to you business owners and bosses.

      1. Diggerdan, you didn’t get it. Almost any businessman has their act together enough to make their own living without employees. They may have a higher income with employees, but employees are not necessary for them to survive quite nicely on their own.

        When employees or the rules surrounding employment become more of a pain in the ass than the extra income the employees yield to the employer, the employer can always opt out and can downshift to a smaller scale enterprise, which is what I did. The employee himself made employing him so unpleasant that my life improved dramatically by not employing him.

        His most fundamental mistake was thinking that I needed him to make my living (just as you have in your comment). The truth was he needed me to make his living. And BTW, what is this assumption about minimum wage? I was paying him $25 per hour, the exact same hourly I was getting for the same work as an employee of my own corporation before I hived off a separate business from that company.

        1. Tom maybe you were paying a fair wage but you look at the magority of employers out there and you will see that most will pay as little as possible. People need to make more than just enough money to drive to work and pay utility bills. Most employers don`t realy give a damn about their employees. atleast around my area. They say that if you don`t like working for 7-8$ a hour then you can go work two jobs and that you are always replaceable. Like I said ” I loved my job working as a land scaper and on the weekend at a nursury. Hard work low pay but I liked it. Got old, tired and just plain wore out now though or I would still do that kind of work though. We were not making 25.$ an hour either. we were only making minimum wage with no raises or holiday pay and the only vacations we ever got was in the winter.

        2. No Tom, it is you who are not getting it.
          You are not getting the difference between an honest American businessman and an international corporate franchise that puts honest American businessmen out of business and Americans out of work, thus creating a competition for the only jobs left which are working for the international franchise at a substandard wage. As a consequence, the standard of living for all Americans is driven down via the declaration that the international franchise has some kind of right to work American nationals at a substandard wage. These are the very sons of bitches that have the regulations passed into law specifically designed to put the honest American businessman out of business, as that which the honest American businessman cannot afford, the owner of the international franchise deducts as overhead, financed by his slave operations in other countries around the world.
          You seem like a decent enough fella, but I think you do need to open up your eyes all the way.

  4. “If average Americans don’t get paid living wages, they can’t spend much money buying products and services. And when average Americans can’t buy products and services, the companies that sell products and services to average Americans can’t grow. So the profit obsession of America’s big companies is, ironically, hurting their ability to accelerate revenue growth.”

    That’s ok, we’ll just bring in more Illegals and they can pay with our social security and food stamps. Problem solved. Sad, ain’t it?

  5. “You get told that, in America, people get paid what they deserve to get paid: Anyone who wants more money should go out and “start their own company” or “demand a raise” or “get a better job.””

    Sounds exactly like my Fascist company and why they refuse to give raises.

  6. “After all, these folks say, one law of capitalism is that employers pay their employees as little as possible. Employees are just “costs.” You should try to minimize those “costs” whenever and wherever you can.”

    I’m sorry, but I’m not a THING, I’m a PERSON! Employees are not “costs”.

    Reminds me of Disney English whose company directors tell their employees that “Education” is a “Product”.

    Education is NOT a product, you FASCIST BASTARDS!!!

    1. And what you said there is partly why I posted this article NC. Them cheap employers aught to get a real life, well at least a honest life anyway. Thumbs up to ya NC.

  7. “It is a choice that reveals that, regardless of what they say about how much they value their employees, regardless of what euphemism they use to describe their employees (“associate,” “partner,” “representative,” “team-member”), they, in fact, don’t give a damn about their employees.”

    Hence the neccessity for millions of illegals.

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