Thursday, September 26, 2013

Henry Blodget — This Selfish Ayn Rand Business Philosophy Is Ruining The US Economy

Mr. Binswanger was kind enough to join me and Aaron Task on Yahoo's Daily Ticker today to talk about his philosophy (video here). He argued that CEOs and entrepreneurs should pay employees as little as possible. After all, Mr. Binswanger argues, the employees are just "trading" their labor for the entrepreneur's money. That's the employees' decision, and they don't deserve a penny more than they get.

That's one way of looking at it.
The other way of looking at it is that employees are members of a team. And that, as members of the team, employees should not be paid as little as possible but, instead, share in the value they help create.
That, for what it's worth, is the way I look at it.
And my view of this isn't the product of an armchair philosophy.
It's the product of living and working in the once-vibrant U.S. economy and of running a successful company with ~130 employees.
Most of the full-time employees at our company, Business Insider, have stock options. These allow everyone to share in the success of the company. We don't pay our employees "as little as possible." We pay our employees as much as possible while still achieving our financial goals. As the CEO of the company — and as the entrepreneur who co-founded it and an investor who funded it — I don't hallucinate that all of the company's success is due to me. It is a privilege to lead our team, but it is the hard work of the ~130 talented people on the team that make us successful. And it is the revenue we receive from our readers and clients that sustains the 130 jobs at Business Insider — not me. The overall mission of Business Insider, meanwhile, is not to "make as much money as possible." It is to produce a great product for our readers and clients, produce a compelling return for our investors, and provide excellent jobs for our team.
In short, the goal of our company is to create value for all three of our important constituencies: customers, shareholders, and employees.
(h/t Yves Smith at Naked Capitalism)


mike norman said...

Blodget conflates teh goal of a private entrepreneur with that of a society collectively. The private entrepreneur should, indeed, have a goal of wealth accumulation. (As long as it's done legally, imo.) In that regard, the Ayn Rand guy is right: labor is a cost, zo why pay more?

On the other hand, the "society" may have a different goal and that is, to create the best outcome for all the citizens.

The question then really becomes, is capitalism the best way to achieve both and if so why should there be any minimum limits on what firms pay employees? I think the "team" "society" etc, concept breaks down wit that model.

Tom Hickey said...

Mike, this is contra current management science and research. Companies that seek to maximize owner value don't do as well as companies that focus on the consumer, suppliers and employees. They may short-term but they are eating the seed corn to do so.

They way to deal with a minimum wage is the MMT JG.

Tyler Healey said...

I also like JG as a tactic for ensuring an effective minimum wage.

Until then, uemployment insurance should be so generous that its cumulative expansionary effect would prevent long-term unemployment.

Robust UI would have the added bonus of forcing employers to offer a healthy minimum wage.

Peter Pan said...

Profit sharing is an alternative to wage only contracts. Employees who receive wages are motivated to work as little as possible. Businesses are then forced to hire supervisory staff.

Anonymous said...

Seems like there are two issues. One is whether companies would do better for themselves in the long term, by paying more attention to employees and stakeholders in the present.

But I think Mike raises a key point. If there are important structural flaws in the economic system from the point of view of overall social well-being, then they aren't going to be fixed just because business people start taking a a longer term view, or because some of them have a come to Jesus moment. You need to change the laws; change the institutions.

Our forebears did just that. I just downloaded this new book by Sam Pizzigati that looks like a great read:

Tom Hickey said...

The factor here is Wall Street. All companies of significance are traded in equity markets and the way things work now is CEOs manage to the quarterly report and analysts expectations. This creates a huge perverse incentive that affects management in many ways, not the least of which is cramming down labor costs. But that is not the half of it. The whole executive compensation structure revolves around this.

The only way to deal with this is through legislation and regulation. It's too wealth-enhancing for top management to change, which is their chief objective rather than enhancing shareholder value.

Matt Franko said...

WalMart's ad campaign is:

"Save money, live better..."

With the implication that if you shop there, they drive down their costs so that you will have "money" left over for other things that can help you "live better"... so it is a 'value proposition' for their customers...

imo this 'value proposition' is VERY powerful in the US, and many firms seek to reduce costs (incl labor) to deliver 'value' to their customers, and MANY in the US really lap this up...

(I'm sure WalMart did extensive testing of this campaign in focus groups...)

My experience is that the US are not a bunch of 'spendthrifts' they have become the biggest bunch of "cheap SOBs" on the planet... we love a great (low) price.


The Rombach Report said...

"why should there be any minimum limits on what firms pay employees?"

In 1964 the minimum wage was $1.25 or the equivalent of 5 silver quarters. The silver content of those 5 quarters is now worth about $20, so maybe the minimum wage should be $20/hour?

Anonymous said...

The only way to deal with this is through legislation and regulation. It's too wealth-enhancing for top management to change, which is their chief objective rather than enhancing shareholder value.

Right. But whenever the capitalists get caught robbing people, they always fight back with some New Coke business guru BS. The business magazines will be full of articles trumpeting some "new breed" of enlightened executives who throw more peanuts at the wage structure and organize worker softball games in between their trips out to the Hamptons.

Tom Hickey said...

In a perfectly competitive economic system, there would be no profit (surplus) because all factors would receive just what they are worth including capital.

Obviously, that is not capitalism as we know it, and capitalism has always been about generating a surplus through market imperfection.

Then the issue is distribution of the surplus and that's a matter of power structure.

The Rombach Report said...

"Then the issue is distribution of the surplus and that's a matter of power structure."

Great comment Tom.