What's Wrong With American Business Culture And The Economy?

[fhdz]

What passes for capitalism today is utterly unlike that which Henry Ford, for example, advocated and put into practice.

http://www.businessinsider.com/business-and-the-economy-2013-7

If you watch TV, you'll be led to believe that the problem with the U.S. economy is that one political team or the other is ruining the country.
A sharp drop in government spending this year is, in fact, temporarily hurting economic growth, but that's not the real problem.

The real problem is that American corporations, which are richer and more profitable than they have ever been in history, have become so obsessed with "maximizing short-term profits" that they are no longer investing in their future, their people, and the country.

This short-term corporate greed can be seen in many aspects of corporate behavior, from scrimping on investment to obsessing about quarterly earnings to fretting about daily fluctuations in stock prices. But it is most visible in the general cultural attitude toward average employees.

Employees are human beings. They are people who devote their days to creating value for two other groups of people: customers and shareholders.  And, in return, at least in theory, they are people who share in the rewards of the value created by their team.

In theory.

In practice, American business culture has become so obsessed with maximizing short-term profits that employees aren't regarded as people who are members of a team.

Rather, they are regarded as "costs."

And "costs," as we all know, are supposed to be reduced as much as is humanly possible (except the "costs" of the salaries of senior management and investors--those are supposed to be increased).

This view of employees was expressed succinctly yesterday by a Twitter user named Daryl Tremblay, who was appalled by the suggestion that McDonald's should increase the wages of its restaurant workers and pay for this by making a bit less money. (I was arguing that McDonald's employees should not be treated as "costs," but instead as valuable members of a successful team who shouldn't have to work that hard and still live in poverty.)

Here was Daryl's response:

They are costs. Full Stop. They don't have a stake, they hold nothing. They trade their labor for money.

— Daryl Tremblay (@DarylT) July 30, 2013

Now, Daryl is hardly alone in this view. Most senior managers and owners of big American corporations think this way these days. They regard the human beings they work with--the human beings who create the value that pays their salaries--as "costs" to be reduced to create "maximized earnings." Because "maximized earnings," it is now frequently said, is the only thing that any business owner or manager should care about.

Whenever you suggest to folks like Daryl that it doesn't have to be this way, that some companies can and do balance the interests of shareholders with the interests of customers and employees--and, in so doing, create a symbiotic relationship that supports all of these constituencies--folks like Daryl call you a "socialist."

This is a strange insult, because the government has nothing to do with this. But, nevertheless, "socialist" is the label you get branded with if you suggest that the senior managers and owners of America's corporations should share more of their vast wealth with the employees who create it.

This view of capitalism is that it is a sort of Lord-Of-The-Flies economic system in which the only consideration should be "every man for himself." In this style of capitalism, leaders do not manage teams and organizations in a way that creates value for everyone--customers, shareholders, and employees. Rather, in this style of capitalism, a handful of winners extract as much value as they can from hapless losers who don't have the skills, knowledge, or time necessary to "demand a raise" or "go get a better job." 

It doesn't have to be this way.

There is no capitalist law that says companies have to view employees as "costs" and pay them as little as possible.

Senior managers and owners can choose to share more of a company's wealth with the people who generate it. They can choose to make only reasonable profits, while still generating compelling financial returns. And they can choose to pay their team-mates living wages instead of viewing them as "costs" and extracting every penny of possible value from them.

If American corporations were struggling to earn money these days, we wouldn't be having this conversation.

But they aren't.

As this chart shows, American corporations have the highest profits and profit margins in history.
American corporations can afford to pay their employees better, hire more employees, and invest more in their future and the country's future.

But American corporations aren't doing that.

Instead, American corporations are choosing to divert as much of their value as possible to their owners and senior managers.

Doing this is not a law of capitalism.

It's a choice.

And it is a choice, unfortunately, that is destroying America's middle class, robbing American consumers (a.k.a., "employees") of spending power, and, ironically, hurting the growth of the same corporations that are making this choice.

If your customers are strapped, your company can't grow.

And, right now, American companies are choosing to impoverish their customers (employees), while skimming off as much wealth as possible for themselves.

[garbon]

This is based on the analysis of a twitter comment?

[CountDeMoney]

The economy is working just as it should, fahdizzle.

[fhdz]

This is based on the analysis of a twitter comment?

It's based on the analysis of a concept that happens to be expressed succinctly in that twitter comment.

[garbon]

This is based on the analysis of a twitter comment?

It's based on the analysis of a concept that happens to be expressed succinctly in that twitter comment.

[MadImmortalMan]

That may be true for McDonald's-type jobs, but it's not true for most of us. Employees usually need a good amount of training invested in them in order to be productive for the company's purposes. That money spent on training is an investment that brings a return in productivity, and the money spent on salaries and benefits protects the first investment. Now, for low-skilled work with negligible knowledge requirement, I can see where it's more in the cost category. Even Henry Ford had to get his peeps some training and practice before they could pump out as many cars per hour as he was shooting for.

Another thing is companies moving their training investment costs off to the state and selling it to the taxpayers as education. If you can get the state to train your employees for you, then that also contributes to labor becoming a cost only.

[fhdz]

This is based on the analysis of a twitter comment?

It's based on the analysis of a concept that happens to be expressed succinctly in that twitter comment.

You don't think that sort of thinking is prevalent?

[derspiess]

We need more green jobs.

[fhdz]

That may be true for McDonald's-type jobs, but it's not true for most of us. Employees usually need a good amount of training invested in them in order to be productive for the company's purposes. That money spent on training is an investment that brings a return in productivity, and the money spent on salaries and benefits protects the first investment. Now, for low-skilled work with negligible knowledge requirement, I can see where it's more in the cost category. Even Henry Ford had to get his peeps some training and practice before they could pump out as many cars per hour as he was shooting for.

Another thing is companies moving their training investment costs off to the state and selling it to the taxpayers as education. If you can get the state to train your employees for you, then that also contributes to labor becoming a cost only.

My experience in the job hunt has been that employers are a lot less willing to train than they used to be.

[Savonarola]

Even Henry Ford had to get his peeps some training and practice before they could pump out as many cars per hour as he was shooting for.

Henry Ford had his own vocational school to train his skilled workmen; my Grandfather went to it.  It ran through what would have been normal high school years; and the students were introduced to every individual aspect of machine operation, production and the like and they picked a specialty at the end.  (My Grandfather was a draftsman.)

The reason he stopped doing that was it was cheaper for Packard to hire a Ford graduate than to start their own academy.   

[CountDeMoney]

My experience in the job hunt has been that employers are a lot less willing to train than they used to be.

I posted statistics on that weeks ago, something like 75% of companies no longer train employees to any degree.  Training costs money, and we can't spend that on employees.

[Admiral Yi]

You don't think that sort of thinking is prevalent?

I think that sort of thinking is ubiquitous.  It's there when a person buys toilet paper at Walmart to save 30 cents, or when a person buys a book on Amazon to save $1.50.  It's there when a person leaves his current job to go make $200K working in the Ragnorak shale oil fields.

As to Henry Ford, I don't know if his motivation for raising wages to $10/day was altruism/teamwork/stakeholder value (although he does seem to have been kind of a dick as a person, so maybe not), but the upshot was that his workers worked harder than before to hold onto the fantastic wages, resulting in what economists described as an "efficiency wage."

The market solution to the problem you describe is for people with the same attitude as you towards profit and wages to seek out companies which pay their employees more than the market rate, and either give them business or invest in them (accepting a lower return than you would get as a Lord of the Flies).  Like fair trade coffee.  I also read about a guy who set up a Tshirt factory in the Dominican, pays his workers a living wage(tm) and sells the shirts in college book stores at a $5 premium.

[MadImmortalMan]

Ford's method was a disruption in the market that both gave him a competitive edge (hence more profit) and also benefited his workers. That's the winning formula.

Would Ford have done that if it did not give him the advantage? No way. What if his major competitors were significantly geographically separated from him in such a way that they were competing in completely different labor markets. What if Ford convinced Wayne State University to pump out dozens of graduates a day with certifications in motor construction and Washington DC to subsidize student loans for them all. He wouldn't have done any training either.

[fhdz]

As to Henry Ford, I don't know if his motivation for raising wages to $10/day was altruism/teamwork/stakeholder value (although he does seem to have been kind of a dick as a person, so maybe not), but the upshot was that his workers worked harder than before to hold onto the fantastic wages, resulting in what economists described as an "efficiency wage."

One of his specific goals was to make sure the people who worked on his cars could have enough money to buy themselves a Ford. It's a pretty clear example of increased wages going directly back into the economy - and not only back into the economy, but into his company as well.

[Admiral Yi]

One of his specific goals was to make sure the people who worked on his cars could have enough money to buy themselves a Ford. It's a pretty clear example of increased wages going directly back into the economy - and not only back into the economy, but into his company as well.

Which he achieved in large part by building cheap cars in what had previously been a luxury toy market for the wealthy.  Besides, what modern companies produce products that their employees can't afford?  McMansion builders?  Yacht makers?  Maybe Apple (if you count Foxconn employees as Apple employees) and athletic shoe makers.