Profits vs. People

Eric Schneiderman, New York’s AG, is bringing a case against some retailers for their questionable employee-related practices. The power of businesses to cut their costs and their pursuit of efficiency has evolved into a grotesque practice of “on call shifts” where the employees don’t know whether or when they will be called to work, therefore making it impossible for them to make any plans or even to know whether or not they will be able to pay bills. I guess the cost-cutting business majors “geniuses” at those companies just made an assumption that if an employee is not called to come to work on Saturday at, say 2pm, he will then turn around and just find another hourly job that’s just sitting and waiting for him to turn to, at a moment’s notice. Or, that while tending a McDonald’s counter, he’s incessantly checking his Blackberry to see if the instructions came in to drop it and be at a Gap location in a half hour. I wonder how much more businesses can squeeze out of their employees, all in the name of efficiency? And when will we stop worship this kind of “entrepreneurship”? So, kudos to Schneiderman here.

I wanted to expand on this. The goal of businesses, which is profit, has reached such a revered and celebrated status, and we’re so captivated with this notion, that we’re unable to put things into perspective. What if a business can’t turn a profit without dehumanizing and shortchanging its workforce? What if it’s built in the very business model? Here we, as a society, tacitly acknowledge that profit is a more virtuous and legitimate pursuit than the welfare of employees and customers, or in other words, citizens. (Welfare in a sense of mutually beneficial outcome, not ‘government dependency’ as this word has evolved to represent over the years). So then what is the function of state in this case? To protect profits or to protect citizens? Let’s leave politics aside and look at it from a purely philosophical perspective. The existence of businesses is only as good as their contribution to the welfare of society, while also turning a profit. But profit should not be a sole defining and absolving factor of a business’ legitimacy: if it can’t turn a profit without shortchanging employees, without tricking its customers, without dumping shit on its neighbors, without undermining political processes then such a business’ moral dominance in the current zeitgeist (which is: businesses are more important than people because businesses give people jobs) should be questioned. “Don’t touch businesses” we’re told, “or they will take their toys and go home, leaving us all unemployed.” I say not necessarily. Because if a businessman’s choice is between earning a 6% margin by fucking his employees and earning 5% by giving them some breathing room, then he will take the latter option rather than closing up shop. (I mean, what he’s gonna do, put his money in a bank and sit on it? Haha!) And if his margins are so thin that giving his employees breathing room will put him in a negative territory then such business model is simply unsustainable and he has to find another line of business.

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Unbelievable Blindness.

So extremists parties all over Europe are poised to win elections. It is making the Davos crowd nervous.

And what else did you expect? This year income inequality is all the rage and everyone is positioning themselves as defenders of the common folk. Ray Dalio of Bridgewater Associates, a $160bn hedge fund, bemoans the danger of extremists parties emerging and urges the moderate parties to “do something about it.”

But him and other Davos attendees – all billionaires and movers and shakers – don’t take it one step further. They don’t call on themselves to stop fucking with the politicians, stop lobbying, stop asking for favors. They refuse to admit that the current scheme works like this: business interests lobby the politicians –> politicians act on it –> common man gets squeezed (asked to work harder, study more, take more loans, take more pay cuts, etc.) –> economy dives –> businesses ask for more favors and loopholes –> common man gets fucked even more –> politicians bring on austerity –> common man gets fed up – >extremist parties win.

But Ray Dalio doesn’t see it that way. He think that he stands outside from all this mess and just does his business. He thinks he can just ask mainstream parties to get its shit together and when they will everything will be back to normal. But the cycle has to run through. So when the extremists win the Davos crowd will have no one to blame but themselves.

Fuck’em. Try to do business with Syriza and Sinn Fein and UKIP. See how that goes.

Rupert Murdoch makes a weak case for the morality of markets.

Rupert Murdoch, chairman and CEO of News Corporation, addressed the morality of free markets in his recent editorial. The essence of Mr. Murdoch’s argument is that free market is inherently moral and that greed is not the driving force of success.

“The market succeeds because it gives people incentives to put their own wants and needs aside to address the wants and needs of others. To succeed, you have to produce something that other people are willing to pay for.” Mr. Murdoch writes.

Let’s dwell on this for a moment. Benevolence is not why people start a business. Businesses are profit driven. Some enterprises can begin as an experiment and be iconoclastic and pioneering in nature, like Apple; the rest are founded with the sole purpose of making a profit. If someone wants to put his own wants and needs aside to address the wants and needs of others he volunteers or starts a non-profit.

One can’t mindlessly marvel at the virtue of the free markets without considering the following: people are not always rational; markets do not always self-correct; there are informational asymmetries between transaction parties; there’s an agency problem (that is when a hired representative, in business or in public life, represents his own interests rather than the client’s). If we lived in an idealistic world of artisanal mom and pop shops, Mr. Murdoch would have a case for the morality of market participants. But when those small shops run out of natural customers the troubles begin. Embarking on the quest of permanent growth, those businesses tend to enter the realm of creative finance, consolidation, dubious products and political favors. Business models for many big firms have long ceased to resemble the innocuous model that some laissez faire idealists subscribe to. We’re not living in the world of mom and pop cupcake stores and community banks anymore. Consumers’ interests and corresponding profits are not aligned anymore: customers and their interests are secondary to the interests of shareholders and investors. Because everything is put at the altar of “growth” there’s a point where a business begins to invent useless or harmful products (addictive prescription drugs, subprime mortgages, leveraged buyouts, entertainment disguised as “news”).

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Inflation of Labor

Republicans now are rediscovering the “middle class”. Rubio made sure to make “middle class” the focus of his SOTU reply. It’s a welcome about face in a party that just a few months ago was celebrating business owners (as opposed to people who work for them) on Labor Day. It wasn’t surprising: the current Republican dogma coalesced around the idea that only business owners work hard; everyone else is either lazy or not entrepreneurial enough. In Republican mind, whoever didn’t become business owner or “made payroll” is implicitly a lesser member of society, a leech and a moocher.

Republicans love to keep their focus on inflation: there was no shortage of dire warnings coming from the right quarters about inflation that was just around the corner. The inflation that they had in mind never materialized, but in the meantime the other type of inflation – labor inflation has been devastating the communities for decades but received little attention of the doomsayers.

Back in the day, the time that many conservatives are nostalgic about, the 1950-60s, it was possible for a man with a high-school diploma to work at a factory and get paid enough to provide a middle-class lifestyle for his entire family. For a man with a college degree the career paths were wide-open and his chances of successful employment were even more robust. To achieve and maintain a middle-class lifestyle one didn’t need a double-income family and didn’t need to leave home and 6am and get home at 12am and be available on weekends. Since then “success” has been redefined. To be considered successful these days you have to negate your own self and turn into a machine.

Toiling away from paycheck to paycheck and working harder and longer hours is required nowadays just to keep one’s head above water. The world where business owners work 24/7/365 and everyone else works from 9 to 5 with an hour break for lunch is a fantasy. Let’s examine a minimum wage worker working shifts at Walmart. If he or she works 8 hours a day they would make roughly $15K a year. I would argue that if this person is presented with an opportunity to work longer hours or find another part-time job, say, at nearby Taco Bell, he would take it. Many do. We’ve all heard stories about people working 2-3 jobs. Or let’s even take an average Wall Street employee: no matter how entrepreneurial they might feel about themselves – they are still just glorified salary workers (with bonus). They are expected to be on-call 24/7 checking their blackberries at night and on weekends and they have acquiesced to this way of life as a default and some, in some masochistic way, even consider it a badge of honor. Working hard and especially reveling in your hard work is as American as apple pie. Our entire way of life now is treating the best-case scenario as a base-case scenario. In other words, there were times when working 8-hour days meant to be average and working 12-hour days and weekends meant to be successful. Now, for many, to work 12-hour days plus weekends is a given, a base-case scenario.

Humans have a great adaptive mechanism – we can get used to many things and we can accomplish remarkable feats especially if we’re in a survival mode. But we can only stretch our productivity so much, and after a certain point more workload becomes detrimental to an individual, counterproductive for companies, and eventually damaging to society. We physically can’t work more than 24 hours, we can’t be at 2 places at the same time, we can’t win on every trade. At some point there will be no room left to push harder. The benefits of longer hours and constant availability are becoming marginal. To take success onto the next level from what is considered successful career today is to become superhuman, develop magical powers or to rig the game. And if you have no way of doing it – you’re just an average, talentless, lazy schmuck. But don’t dare to complain about it – to complain is un-American.

There’s clearly an inflation of labor for those holding a wage job. Over the years the normalcy of 8-hour work days turned into 10-hour work days and then into 12-hour work days, but the benefits are failing to keep up with the contributing effort. The jobs for which a high-school diploma was sufficient, now require a college degree; and where before a college degree would provide job security for life, a graduate degree is required and yet it is no longer a guarantee of lifelong employment. It’s hard to say which came first: inflation of college degrees or inflation of labor. Surely, today this labor inflation can be attributed to high unemployment rate, but this phenomenon was prevalent even during the roaring years prior to the 2008 collapse.

The “moochers” that Republicans keep talking about are stretched too thin. They are one accident, one blown tire, one missed paycheck away from not being able to keep afloat. It is only in the imaginary world of self-declared “makers” everyone else lives off of the fruits of their labor. In the real world, “makers” expect everyone to be on call at all times for pennies and then have the chutzpah to accuse them of being lazy. Well, at least some in the GOP, who actually have to win elections rather than exercise their wits at the expense of an average Joe, are rediscovering that such attitude is damaging the brand. I’m following their transformation with great interest.