Henry Blodget — Sorry, but it's not a 'law of capitalism' that you pay people as little as possible — it's an excuse

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

It's a choice.

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

It's 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 really care.

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

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 this masks the fact that they are making a selfish choice.

But that's exactly what they're doing.

If we want to get our economy humming again, we need to remember that the economy is an ecosystem and that healthy ecosystems are balanced. We need to encourage our companies to maximize value, not profit. And we need to encourage great companies and managers to serve three important constituencies — customers, owners, and employees — instead of just one.

Sorry, but you are wrong about this. Capitalism is based on competition and the way that competition works is that efficiency prevails.

The only way to correct excessive efficiency that harms effectiveness is through public action that forces all firms to observe certain standards. It's what commercial law is about for instance. Some Libertarians that laws are unnecessary unless aggression against person or property is involved, arguing that the market is the ultimate corrective. That's just nonsense, as everyone with any experience knows. Markets don't automatically correct.

Competition based on efficiency results in a race to the bottom. This is supposedly beneficial economically in that everyone gets the lowest price and firms eventually compete profit away. There is no evidence for that being true in a modern monetary economy.

Evidence shows that firms will cut the wage bill as much as possible to compete against other firms. It's not a matter of sharing profit or anything of that sort. The market works to ensure that all firms act efficiently and those that don't eventually fail.

Without minimum wage laws and increasing the bargaining power of labor through collective bargaining, enforcing standards for imported goods, and the like, then firms will not do this on their own because competition.

That's the beauty of the market and why markets don't work, too, unless they are managed by voluntary association or by government. While there has been a certain amount of voluntary standard setting in industries, unless there are some enforcement of standards a few firms can free ride and some will. This is why law and regulation are needed to correct the insufficiency of markets.

Business Insider
Sorry, but it's not a 'law of capitalism' that you pay people as little as possible — it's an excuse

Henry Blodget