Posts Tagged Business
I have been meaning to write on the topic of unions for some time. I still don’t have all my thoughts lined up, but I just sort of love this story. It’s a few days old now, but in case you missed it, from twitchy.com comes this union protest at a Subaru dealership in Wichita:
Followed by the dealership’s response:
Check out the original, linked above, for details. But what I want to ponder here (beyond this dealership’s pitch-perfect reaction) is the nature of the union protest. The job went out for a competitive bid. The dealership gave the contract to the lowest qualified bid. Carpenters Local 201 lost. They simply lost the bid, that’s all. Someone else got the job. Let this be perfectly clear. The term “labor dispute” conjures up mental images of management breaking contracts, failing to pay agreed-upon wages, things like that. That is not what happened here. They simply put out a contract for bids, and hired the people they thought best, and those that didn’t get hired are responding by attempting to harm their business in revenge. In what context is this acceptable? Is this grade school? Are unions run by children?
When I graduated college, I applied for a slew of retail and service jobs. I got called by some, not by others. Would it have been reasonable for me to then blow up one of these rats in the parking lot of Barnes & Noble?
I imagine I would get arrested. Or sued. And I would deserve it.
I don’t necessarily have any sort of ideological or philosophical problem with private individuals unionizing. I do have a problem with individuals being coerced into joining a union against their will. And I do see major problems in the nature of a public sector union, as did progressive pro-labor pioneers such as Franklin Roosevelt and Fiorello LaGuardia. These are topics I hope to look at in greater depth.
I definitely have a problem with bully tactics meant to intimidate. Can we at least all agree that blowing up a giant inflatable rat to scare off customers and intimidate employers–just because they hired someone else–is unacceptable? I’m always hearing about how bullying is bad. Let’s lead by example, ok?
The Wall Street Journal recently reported that many large U.S. corporations are hiring, but hiring more people in other countries than they are here at home.
Eager to highlight the evils of multinational corporations, Think Progress reported on the report, noting that some companies had even cut jobs in the U.S. while hiring abroad. References to the problem of outsourcing and a look at the article’s comments section make clear how Think Progress and the left see this issue, and that this sort of information is their evidence.
Here’s what they overlook. Think Progress calls out Wal-Mart specifically (because who doesn’t love to hate Wal-Mart), and then posts the chart at right. The bottom section is the group guilty of layoffs in America while hiring overseas.
But these aren’t outsourced call centers and sweatshops. UPS, Starwood Hotels, International Paper. Think about what these companies do. UPS employees get in trucks and drive packages around their city, or work in warehouses necessary in every city they deliver to. UPS isn’t going to hire a driver in Detroit to deliver packages in Peru. Attacking UPS won’t save any jobs, it will just make it more expensive to order products online. In the same way, it makes no sense to blast Starwood Hotels for hiring people in Brazil to staff their hotel in Brazil. It’s not like hotel chains run sweatshops in China. They open hotels all over the world, and staff them locally.
They go out of their way to mention Wal-Mart, though they didn’t even make the list. But Wal-Mart has opened almost 700 stores abroad since 2009, giving them almost 1200 more stores abroad than they have here at home. And they still employ almost twice as many people in America as they do in other countries (around 1.4 million). Are they supposed to fly cashiers from Minnesota to Singapore every day so that they can use American labor? Yet these are the numbers the left points to when they complain that businesses need to be more regulated and punished for not hiring American workers. This is the standard counterargument whenever someone uses the term “job creators.”
As it turns out, manufacturing in America is still strong. We’re still, by far, the most productive country in the world, and manufacturing salaries continue to rise (currently averaging around $50,000). International Paper, also on this list of offenders, is a good illustration of manufacturing in the modern world economy. International Paper runs paper mills and distribution centers in America to sell to America. They also have dozens of mills, offices, and centers in other countries. To do business in those countries. Just like Toyota and Honda have factories in Indiana and Ohio to make cars to sell in America. Just like American auto makers have opened factories in China–gasp!–to sell their cars in China. Doing otherwise would be inefficient and make their product more expensive. Attempts to impede companies’ ability to operate where it makes sense to operate will not save any jobs–it will only drive up the cost of products and services. It will make all stuff more expensive. Helping the poor, that ain’t.
I know there are companies that make use of cheap overseas labor. Yes, Apple has a lot of components put together in China. But they also employ 47,000 people here at home, more than twice as many people employed abroad. And that’s only direct Apple employees–that business supports literally hundreds of thousands of other US jobs in affected industries providing raw and technical materials, services, transportation, health care. If you forced the 23,000 employees in other countries out of their jobs, Apple might be able to hire some here, but they’d also lose a lot of their sales when the price of the new iPhone doubled, and have to lay those workers right back off. And thousands of people in China would be kicked off the lifeline that’s finally pulling that country out of a peasant economy.
So if you think Apple’s overseas factory is the reason for 14% real unemployment here in America, you’ll be disappointed to see the hundreds of thousands of American workers harmed by making it harder for Apple to do business. And since the most common fixative I hear liberals support in order to deal with this supposed problem is to levy extra taxes on companies that do business overseas, you’ll be disappointed when all that does is make your vacations and Amazon purchases more expensive. Most of all, if you think damaging UPS and Starwood Hotels’ business is worth it just to “get” companies like Apple, keep in mind the hundreds of thousands of US workers you’re “getting” at the same time, and driving up the cost of goods for every single one of us.
All the supposed solutions simply make imports more expensive. If you make imports more expensive, then the end product will be more expensive too, and that’s bad for the customer and manufacturer alike. That just means less business gets done, and you and I have access to less stuff. Protectionary tariffs are one of the things that led to the Great Depression. If you threaten businesses here, some may submit, but none will choose to do business in America any longer if they can help it.
Conservatives have an alternative. Free trade makes the world a better place. It’s hard to get many economists to agree on anything, but they generally agree on that. More jobs here, more jobs abroad. If one company moves a call center to India, another company opens its doors here in America. Cheaper goods everywhere. And the more markets we open for American goods to be sold abroad, the more American manufacturing jobs can be created.
If you really want to help the poor, that sounds like a good start.
And, a Deep Difference Between the Camps
A few days ago, Bank of America announced that it was canceling its planned $5-a-month debit card fees. Sen. Durbin (D-IL) immediately rejoiced on the Senate floor, taking partial credit for the change that he claimed was due to “a combination of reasonable regulation and consumers voting with their feet.”  Politico calls it “a win for President Barack Obama and Occupy Wall Street.” 
All of which is shortsighted. We’re still going to get charged those fees.
I pointed out in a previous post (see: Why Government Decisions Matter) that Sen. Durbin’s public attacks on BofA and their proposed fee were ironic, considering that the fee was a direct result of legislation he successfully attached to Dodd-Frank that capped debit card swipe fees charged to retailers. First off, expecting any other response on the part of the banks was ridiculous on its face, and demonstrates that he either has zero understanding of basic math, or the whole thing was a political song and dance meant to further endear the Democrats to those of an anti-Wall Street bent. Since Sen. Durbin does not come across as stupid, I will assume the latter.
For the record, it really is simple, basic math. If you write a law forcing a business to cut price X, they will respond by raising price Y. It’s that simple. Businesses aren’t going to provide services for free. If you regulate the price of a Big Mac to $1 (to help the poor!), McDonald’s will charge 6 bucks for a Coke. If you command that everything on the menu must be $1, then they will charge customers a $5 fee just to get in the door. See the result here–your actual price to get a combo meal goes up, and people that just wanted a Coke to begin with really get screwed. Or customers simply decide it’s no longer worth it to patronize these stores, and McDonald’s lays off employees due to loss of sales. It doesn’t matter that you intended to help the poor. This is the real-world effect of this type of government control over the economy.
Meanwhile, all of our taxes pay for the army of government bureaucrats working to enforce the harmful regulation, it’s harder and more expensive to start a business, and personal freedom is further eroded. (And Democrats continue getting votes because they say, “We cut prices on your Big Mac,” and the people cheer, and think no more of it.)
But I was talking about the debit card fees. They are not going away. The banks are going to get paid for that service. Dodd-Frank made them stop charging the way they were originally–so they attempted to put the fee up front. Everyone freaked out, so they took it back. This just means they’re going to put the fee somewhere else. Like a cover charge for McDonald’s, we will see interest rate changes, a reduction in some previously free service (like free checking accounts), etc. We’ll still pay the debit card fees. They’ll just be better hidden.
In a further irony, Sen. Durbin is now crusading against hidden and complicated bank fees–he wants them all simple and up front. Yet his policies help create the very situation he’s complaining about.
This is useful in that it illustrates a basic, fundamental difference between conservatives and liberals today. When presented with a problem, liberals often see a need for the government to step in and solve it. Conservatives, on the other hand, often want the government out of the way–because we understand that government solutions always have these unintended consequences.
In 1993, President Clinton attempted to deal with “unfair” CEO pay by capping the salary a company could write off on corporate taxes at $1 million. The next year, the ratio of CEO-to-worker pay, relatively stable for decades, began a ten-year spike that peaked at around 300:1.  Businessweek wrote that, “As a practical matter, the law… quickly established $1 million as the minimum base pay any self-respecting CEO expected from a major corporation.”  Companies began avoiding the new tax by paying CEOs in stock rather than straight salary–which led to more unintended consequences on the side, namely, the CEOs found themselves with powerful personal incentives to boost short-term stock gains at the risk of long-term health. (Not to mention that they also found themselves now paying a lower tax rate on their dividends than their secretaries paid on their salaries.)
Liberals, however, don’t see the changes in CEO pay or new bank fees as consequences of government interference. The government regulations are well-intended, so you’d have to have bad intentions to be against them, they say.
Conservatives look deeper. Intentions are important, but consequences are ultimately what really matter. Regardless of intent, if these regulations make things worse, they should go. If government interference in the market hurts us, we’re right to want less government interference in the market.
This means Dodd-Frank has to go. This means Sen. Durbin’s and President Obama’s economic solutions will not work. And this means we all need to support conservative candidates in the next few months so that these changes can take place.
There’s an annoyingly common belief that taxes and regulations have no effect on what a business can and cannot do. The standard argument for increased taxes and heavy regulations on businesses is based on a premise that raising said taxes or changing regulations won’t change the business. For example, Sen. Dick Durbin (D-IL) was behind recent legislation that capped the amount that banks can charge retailers for processing debit card transactions–then, nonsensically, he flipped out on the Senate floor when banks started charging consumers for the transactions instead, as if banks ought to be able to provide their services for free. One wonders where Sen. Durbin thinks Bank of America gets the money to pay their 288,000 employees (not to mention the irresponsibility of a Senator publicly calling for a run on the nation’s second-largest bank).
In some people’s heads, it seems like every business, every business owner, every CEO has millions of dollars of pure profit coming in daily, and that it can’t cost much to run a business, so this is all just going into that CEO’s bank account. So many people, when they think about business owners, picture Scrooge McDuck swimming in a pile of gold coins.
The thing is, this belief comes from these media and cartoon sources, and not from reality. Businesses and CEOs live in the margin. Let’s look at numbers rather than cartoons. If a corporation takes in $50 million in a given year, and pays its workforce of a few hundred people a healthy $30 million (including payroll taxes), and spends $20 million on materials, manufacturing, and distribution of its product… this $50 million dollar company makes zero profit that year.
If that’s our starting point, then check out the effects of a new regulation on this big, evil corporation that provides millions of dollars in payroll to hundreds of workers. If the government creates a new regulation that costs this company $500K a year to comply with, the company will have to find $500K worth of expenses to cut, or raise their prices to compensate. There was no profit margin to work with.
Pay no attention to the fact that it’s a $50 million dollar company. It doesn’t matter. Here’s the real effects. This means:
- a few people laid off, or
- everyone in the company losing some benefit, or
- trimming overhead (i.e. salaried employees now have to work unpaid overtime, etc), or
- raising prices (which means inflation, which means everyone in the world is poorer).
None of these options is going to lead to increased hiring or productivity.
Or, say the company was profitable. Say they were $1 million in the black. Now, the new regulation means their planned million-dollar construction project will have to wait, or they will have to cancel plans to expand your department and hire 10 more people, or whatever they were going to do.
Now imagine that we’re not talking about one company, but about a regulation that affects every business in America–say, the Affordable Care Act. Conservatives think it’s a bad idea not because we don’t want to take care of sick people, but because we understand its effect on the rest of the economy. This new regulation and others are partly responsible for our current high unemployment and the oft-referred-to $2 trillion or so that businesses are afraid to spend at the moment.
It’s important to keep these things in mind when listening to people complain that nobody is hiring or building, and that the government ought to regulate more to make things work better. That’s like opening your fridge to cool off the kitchen. Sounds like a good idea, but it will actually make things hotter overall. 
But back to the hypothetical company. There’s another possible outcome. Maybe the new cost imposed means there’s simply less profit going to the shareholders. People say, so what? They’re just the rich fat cats not doing any work. Thing is, that’s not true. For one thing, shareholders often means you and me. Anyone with a 401K holds stock in dozens or hundreds or thousands of companies.
And even when we’re talking about the rich company owners, what’s happening is that they are getting properly rewarded for funding and creating productivity. That’s a good thing. Remember productivity? Productivity is critical. The more the economy produces, the more jobs are available, the cheaper goods become, the more able we all are–rich and poor–to get the things we want. You’re not going to move someone in poverty to the middle class by giving them welfare–but you might if you give them access to a job and allow them to acquire real wealth themselves. It’s productivity that does that for people. We’re going to help the poor more by growing the economy than by handing out checks.
If we want more productivity, the last thing we want to do is remove incentives to be productive. Our system ought to reward the things that move society forward. It’s good when there are incentives to innovate, to be more efficient, to lower prices and get your product to more people.
And we’re absolutely not going to create more productivity or make people wealthier by making business more expensive. Conservatives understand that it matters when the government steps in and creates new, expensive regulations and taxes. That’s never going to make business easier or get more people working. How much the government allows a company to keep obviously and directly affects that company’s ability to hire you and me. Government decisions change everything from how many employees a company can hire, to how much it costs to swipe your debit card when you buy a Big Mac. Government decisions matter.
 Vaguely annoyed that I drafted this Scrooge McDuck swimming in gold coins reference a couple of weeks before it was in the recent Family Guy gag.
 Then you’re just running a motor in the middle of the room and making it hotter. The fridge moves heat from the inside of the box to the radiator on the back–that’s all. It doesn’t move it outside, and it certainly doesn’t create cold by magic–just like the government can’t create wealth by magic. It can just move things around.
or, You Should Hug a CEO Today
One of the foundations of a conservative political ideology, possibly the most critical, is the understanding that businesses create everything that we have and enjoy. The food in your fridge, the fridge itself, the kitchen it sits in, the lumber and paint and everything that built the structure. All created for the profit of some business. The car you drive, the music you listen to, the medicine you take, the website you’re reading right now and the computer you’re reading it on. The hand-stitched, organic-cotton toe socks you bought from the neat hipster shop directly from the person that made it. The mass transit you ride. The public education you enjoy. The money you donate to charity. All of it comes from businesses.
“Mass transit? Public education? Charity? What?” Yes, every last bit. It’s obvious when you buy something like an iPod, that yes, this was built by Apple, a for-profit business. And yeah, of course cars, appliances, construction, music, these are all for-profit enterprises. Less pleasing to some is the fact that even such necessities as farming and distributing food are run for profit, but we all know deep down that they are. And the handmade artsy stuff you buy directly from the handmaker, okay, they are technically a business of one. That hippie is one of those CEOs liberals like to complain about. Fine.
But government programs? Cops and teachers?
Emphatically yes. Provided to us and paid for 100% by for-profit businesses.
Not only are all the buses and trains and school buildings built by businesses, but every dollar that the government spends on programs is taken directly or indirectly from, or because of, some business’s profit. No business; no productivity. No productivity; no profit, no payroll. No profit or payroll; no taxes. No taxes… no government programs. Condense that, and: no businesses, no government programs. It really is that simple. Every service the government provides is, ultimately, provided by businesses.
This is clear enough in the case of corporate income taxes. But I’m talking about everything. Income taxes work the same way. Your income occurs because you are being productive for a business. Even if you’re making and selling your own stuff out of your own home–now you’re a small business owner. Your income still occurs solely through the mechanism of business. And if you’re an employee, income taxes mean that your company has to pay you that much more to justify your work. If taxes drag a company’s employees below a livable wage for the area the company is based in, employees will no longer be interested in taking a job there. They have to pay you more to make up for it. One way or another, that tax is coming out of the company’s balance sheet.
Property and sales taxes too–the money you use to pay them found its way into your pocket through business (even if it was redirected through the government first). No matter how you look at it, business is the ultimate source of every dollar that goes to teachers’ salaries or Social Security or NASA or AIDS programs in Africa or WIC or the paycheck of someone tapping on a calculator at the federal building downtown or whatever else the government decides to do. Every dollar you give to charity was paid to you, or to someone, by a business, in exchange for productivity. Whatever it is, businesses provided it.
To visualize the overall concept: the economy is, basically, money in motion—and businesses provide the locomotive force. Businesses and profit are like the gas in the car. You can have a really, really snazzy car, but without gas, it’s not going to get you anywhere.
Look at it this way. If Ford makes 10,000 Mustangs and puts them on the market, obviously they are providing stuff to the economy right there in step 1. That’s good, we like Mustangs, we’re better off if they exist rather than not. Look at the rest, though. The government (making up numbers) taxes their profits and takes a million dollars. The cars sell, providing a million dollars to the government in sales tax. Ford pays their employees, and the government taxes their income for another million dollars. The employees own homes thanks to their work at Ford, and pay property taxes for another million dollars. So now the government has four million dollars. The government then spends that four million dollars on Medicaid. In reality, Ford’s productivity directly and indirectly provided that Medicaid insurance, not the government. The government was just the middleman. If Ford wasn’t there doing business, none of this money would be coming in for the government program. If you take away Ford’s ability to do business or to make a profit, guess what—the government benefits go away too.
One more analogy. Say Fran owes Irene $100. Paul has lunch with Fran, and says, “Hey, I’m going to see Irene later, I can take her the money you owe,” which he does. Nobody would say that Paul paid Irene $100. Fran did. It was Fran’s money, Paul just carried it. In the same way, when the government writes Fran a Social Security check, it’s not the government’s money. The government is just carrying it from the businesses and people it was taxed from, all made possible solely thanks to the productivity of businesses. We might all get together and agree that Social Security is a good thing and this is how we want our society to conduct itself, but we must never lose sight of the fact that it’s only thanks to business that any of it can happen. If we do, we end up despising Fran for being greedy and giving Paul a trophy for his selfless generosity, even though Fran really paid Irene.
So, what’s so magical about businesses, that everything else in society depends on them? They are productive. They’re not just hoarding money, they’re using it to build stuff or do stuff for people. That’s it. The more stuff they make or do, the more stuff per person there is in the world, the richer everyone is. Principles of supply and demand say that the more stuff there is, the cheaper it is for anyone to get the stuff–that means, the more and better stuff businesses produce, the more your dollar is worth. So when a business is rolling in money and making tons of stuff, you as a consumer are reaping the benefits as well. So to repeat that point (it’s important): the more businesses produce, the richer everyone in the world is.
Before I start getting hate mail, let me include two caveats.
First, sometimes businesses do things that are bad for their employees, for their customers, for the world in general. Sometimes businesses can do things that are truly evil. This is often done via a complicit government, and whenever this happens, it needs to be stopped.
And second, of course the government provides goods and services too. Productivity isn’t restricted to private industry. There are some things that only a central government can provide effectively, and that’s well and good–in some cases, absolutely necessary for our society to run. This is a complicated topic deserving of its own discussion. However, certain facts should be apparent. Given that the government is by definition a monopoly, and–by popular consensus–only marginally competent and often corrupt, it’s always going to run things less efficiently than a competitive market will. That being the case, the government’s role is to do the things it has to do, as efficiently as it can manage, and then to do as little else as possible.
Now, with those two issues in mind, the basic framework remains. Everything in our society, whether it’s obvious or not, whether it masquerades as free or not, no matter who or where you get it from, exists directly or indirectly because of for-profit business. And the more businesses produce, the more productive and efficient the overall economy is, the more our money is worth. Therefore, when businesses succeed, we all become richer.