One big reason the U.S. economy is so lousy is that big 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 and starving the primary engine of U.S. economic growth — the vast American middle class — of purchasing power.
If average Americans don’t get paid living wages, they can’t spend much buying products and services. And when average Americans can’t buy products and services, the companies that sell products and services 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 for big companies to pay their people more — to share more of the vast wealth 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 has evolved into a warped consensus that the only value that companies create is financial (cash) and that the only thing managers and owners should focus on is making more of it.
This view is an insult to anyone who wants a job that is about more than money. And it is a short-sighted and destructive view of capitalism.
This view has become deeply entrenched, though.
These days, if you suggest that great companies should serve several constituencies—customers, employees, and shareholders—you get called a “socialist.” 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 what they deserve to get paid: Anyone who wants more money should go out and “start their own company” or “get a better job.”
In other words, you get told that the idea that companies should share the value they create with all three constituencies instead of just lining the pockets of shareholders is idiocy.
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 companies 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.
It is, in other words, a selfish choice.
It is 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 earning record profits while choosing to pay their employees so little in many cases that the employees have to live in poverty.
And the senior managers and owners add insult to injury by blaming the employees for this: “If they want to get paid more, they should start their own company. Or get a better job.”
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 doing this makes it seem like they don’t have a choice—they just have to do it.
But they don’t have to do it.
It’s a choice.