Buckdog

By Henry Blodget,
Financial Post


"One of the big reasons the U.S. economy is so lousy is the 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 to encourage 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 after the malaise of the 1970s has evolved into a warped consensus that the only value that companies should create is financial value (cash) and that the only thing managers and owners should ever worry about it 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 an economic system that sustains not just this country but most countries in the world: Free-market capitalism.
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 of 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 exactly what they deserve to get paid: Anyone who wants to get paid more 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.
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