Saturday, January 4, 2014

Social Covenant Broken: The Rise Of Bad Business In America

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The Basics: The rise of Bad Businesses in the United States has been systematic, gradual, and fundamentally un-American.

With the initiation of the Affordable Care Act and more than a dozen states passing raises in their minimum wage laws, citizens in the United States have a very clear picture of the fissure in the nation at this time. There are a number of businesses in the United States, packed with positions for their workers, that are entirely unaffected by either the ACA or minimum wage changes. Those companies, by and large, are ones that overwhelmingly pay a living wage (or better) to their employees and have benefits, like health care because they value their employees. This article is not about those companies.

Unfortunately, those good businesses are in the minority, which the growth in the disparity between the upper and lower economic classes (and the systematic elimination of a healthy, growing, middle class) illustrates. Sadly, most of the opportunities for workers entering the U.S. workforce are provided by bad businesses; companies that prioritize stockholder satisfaction and profit motive over any sense of social responsibility. The fundamental shift in business over the last thirty-five years has been that stockholder perceptions, profit motive, and corporate greed have disintegrated the progressive value of social responsibility big businesses once possessed.

Following the New Deal, throughout the 1950s and beyond, American businesses recognized that workers were an asset. To that end, workers fought for, and won, the right to organize, raise the minimum wage, and businesses wooed workers to their companies with fair pay and benefits. Benefits like pensions, health care, and profit-sharing were a fundamental part of a social contract between businesses and workers, a contract that was never codified as business law to benefit the entirety of the United States. Underlying that social contract was a simple truth: businesses acknowledged they needed workers. American industry was founded on the idea that business and workers had a symbiotic relationship: healthy, happy workers create strong, financially-powerful businesses.

And you know what? When the World Wars ended, despite Cold War spending skyrocketing, the worker’s rights movements and the social contract between business and workers created a strong middle class and the world’s most robust and diverse economy, an economy that invested in research and development to make almost every one of the most important technological advancements of the last fifty years. Despite how business interests today - and the politicians who they lobby to put voice to their reactionary views - cry out, providing fair wages and benefits for employees led to a growth of the most vibrant economy in the history of the world. Despite the propaganda surrounding such things as raising the minimum wage, providing benefits like health care, and investing in workers, the evidence from the American experience in restraining capitalism to make such populist/socialist changes has been that the economy and American lives have improved.

So, what changed? The social contract was broken.

Labor costs are one of the biggest expenses to running a business and the current generation of bad businesses has effectively devalued workers and demonized paying the expenses associated with labor. In other words, the current generation of business owners running big businesses no longer makes a correlation between having employees and making money. As ridiculous as that might sound, the systematic destruction of the middle class could not have happened if big businesses saw value in their employees and treated them accordingly. The evidence of this comes in the difference between good and bad big businesses today. The fundamental difference between the bad big businesses and good big businesses in the United States today is in how they compensate their employees. The bad big businesses all give in to negative stockholder pressure, an unrestrained profit motive, and a sense of corporate greed that works to the detriment of workers for a company.

Stockholder Pressure

Before the 1980s, stockholders were a mysterious group. Stockholders were a footnote in conversations between labor and big business. In fact, if one reviews popular news reports about businesses before the 1980s, stockholders are almost never mentioned. In other words, in the public perception of American business, the sides in play were labor and business. In the 1980s and throughout the 1990s, that perception was changed. The value of stocks became a common and popular topic on news programs. Ironically, as more citizens in the middle class had the ability to invest in the stock market, the perception of what stocks were became twisted and distorted. News reports about how CEOs and Boards Of Directors were accountable to stockholders became commonplace. Those reports, however, distorted the nature of businesses in the United States.

The rise of the popularity and strength of the stock market was not the creation of the stock market. However, the exceptional growth in the value of the U.S. stock markets came from investments without investment education. Before the 1980s, stockholders were business owners who invested in businesses both to make money and have a stake in the company in which they invested. Profits came over the long-term. In the 1980s and, especially, the 1990s, the public perception about the stock market changed and two important things happened: the new wave of investors expected incredible short-term gains and the perceptions about who was in the marketplace changed.

Conversations about economics in the United States actually began with a greater appreciation of the relationship between labor and business. The players in the discussion of business includes business and labor. When discussing economics today, that discussion is distorted to include stockholders as if they are a separate entity. However, stockholders and the influence they wield, are a component of business. In a post-1980s discussion about big business, Business has two seats at the table as the discussion has become a negotiation between labor, corporations and stockholders. Stockholders were always included in such negotiations before as they elected a Board of Directors and CEO to represent the business. Labor has become outnumbered by the fact that stockholder interests are treated as important to the discussion when, historically, stockholder interests were solely the interest of the stockholders within the business itself.

This change in perception has been devastating to the social contract between business and labor. As the perception has changed and stockholders more vocally assert their demands on maintaining profits, bad businesses have succumbed to stockholder pressures to cut pay, benefits, and options that benefit their workers. In other words, because stockholders do not equate workers with stockholder value, stockholders of bad businesses have systematically voted to provide less for their workers.

Unrestrained Profit Motive

Labor has always been one of the biggest expenses for almost every industry in the United States (heavy weapons manufacturing where parts are an incredible expense and major real estate-based operations are the obvious exceptions). While the social contract was in play, there was the understanding that the expense of labor was a necessary one. In other words, paying employees fairly was the cost of doing business.

Over the last thirty years, as the social contract has been eroded, in order to reach profit-based goals – even when those goals are unrealistic or offset by unforeseeable events (like natural disasters or costly production errors) – labor has been targeted as an unnecessary expense. The change in perception, which marks a fundamental disintegration of the idea that labor is integral to making profit and that a healthy workforce makes for a healthy company, is something of a self-fulfilling prophecy. When businesses cut employee benefits and see an immediate profit, it encourages them to continue cutting without looking toward the long-term. However, the only way to sustain continued cuts to employees and their benefits is to live without an understanding that a business has a responsibility to its employees and society at large.

Instead of labor being a cost of doing business in the United States, the perception has changed to “labor costs are an impediment to profit.” Prioritizing profit over labor’s value can only occur and grow when business is viewed independently of society at large. Businesses do not exist in a vacuum; they affect the environment and the citizenry at large by employing citizens. Until the social perception changes that just as workers have a responsibility to their employers, the cost of doing business in the United States includes a component whereby businesses have a responsibility to society at large, the continued denigration of labor is virtually guaranteed. Businesses are in the business to make profit, but until the concept that making profit is not guaranteed, assured, or may not come without any social benefit is codified, profit motive will overrun any sense of social responsibility in bad businesses.

Corporate Greed

One of the most powerful indicators that the social contract between employees and businesses in the United States has been broken comes from unrestrained corporate greed. While businesses are in the business of making profit, the extent to which they pursue profit has been entirely distorted by corporate greed. The social contract between employees and employers can be reduced to a few truisms. For decades, the United States economy was built on the trade-offs between employees and employers. Employees made products and provided services in exchange for the money (resources) to live life well as part of a generally organized society. During the boom times, when employers needed more from their employees, the employees were expected to show up, produce, and occasionally sacrifice time with loved ones and their own ambitions to meet corporate goals. That is the fundamental principle underlying overtime pay and the limited-hour work week. Rather than hire more employees, businesses would ask more of their employees. The exchange was that during the slow times, businesses carried their employees, even when they became an expense.

Today, bad big businesses flaunt how they have no regard for the prior social contract. Corporate greed leads employers to demand more of their employees during manageable and high-demand times. Rather than hire more employees for high-demand times, bad big businesses require employees to do more for them – often taking on responsibilities of multiple positions – without receiving any increase in compensation. In other words, bad big businesses will keep expenses down by employing fewer people for fewer hours (with the ACA as law, the rise of part-time positions has skyrocketed) at the same initially low pay/benefit rate as a single position with the responsibilities of multiple positions. And during the slow times, those employees have their hours cut. The idea that during slow-business times, a big business might incur expenses from labor is virtually unheard of. Unwilling to see red on the books for even a single week, bad big businesses cut workers hours as opposed to carrying them.

That level of corporate greed illustrates the fissure between business and social responsibility. Cutting workers hours because labor will be an expense that offsets income for a few weeks shows absolute disregard for workers (if not outright disdain for them). It’s not like the expenses employees have diminish based on corporate trends. Rent, mortgages, insurance expenses, electric, cell phone, and other bills employees have remain fixed regardless of how their employer’s business is doing. The unwillingness of businesses to accept that and guarantee their workers fixed hours in order to meet their expenses illustrates that corporate greed have overrun any sense of social responsibility in the American economy. There is no major American company that would collapse and become unprofitable over the course of a year if it bore the full expense of its workforce for even two months (i.e. it took in no income, but still had to pay its employees). All that accounts for the destruction of the social contract whereby employers actually look out for their employees through the lean times is unrestrained corporate greed.


But, it wasn’t always that way. The true cost of outsourcing, insourcing, and government protection of big businesses is that encourages the perception that to be profitable, a company has to adopt bad business practices. Employees are forced to settle for less and all evidence in the past few years has illustrated that with the rise of bad businesses comes the destruction of the middle class, lower home ownership and stagnant/reduced wages. For the first time in American history, the current generation of workers will not live as well as the generation prior to it in terms of economic prosperity.

There are good American businesses that are profitable, innovative, and operate with the understanding that they are made great based on the work their employees do. Those businesses are in the minority and until that trend is reversed, the United States will continue to make its march toward resembling the economic conditions of Dickensian London as opposed to progressing toward a more balanced economy and society.

The solutions are to raise the minimum wage, foster collective bargaining abilities, mandate fully-paid health insurance from employers, and restore the concept that businesses might be controlled by individuals, but are not living entities themselves. Until there is a codified priority given to living human beings over business interests, corporate greed, and profits for the wealthy few, both the economy and United States society will continue to decay in a predictable and destructive fashion. Making changes to protect workers will not destroy the United States; we have ample historical evidence to prove that both society and the economy will grow, just as we have evidence that the contrary is true and that the current course of the economy will only lead to ruin.

For other political and economic articles, please check out:
An Open Letter To President Barack Obama
How The Affordable Care Act Is Unconstitutional
If You Are Poor, The U.S. Government Does Not Care About You

For other reviews/articles, please check out my Review Index Page for an organized listing.

© 2014 W.L. Swarts. May not be reprinted without permission.
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