Tuesday, September 2, 2014

On Raising the Mimimum Wage

On Labor Day (September 1st 2014), President Obama called on the U.S. Congress to raise the minimum wage in our country.  I believe this is the right thing to do.  First, I believe this is in line with the teachings of the Roman Catholic Church on just wages and benefits for workers.  Fiscal conservatives will (hands down) always win the economic argument of why we shouldn’t raise the minimum wage, and fiscal liberals will (hands down) always win the moral argument of why we should raise the minimum wage.  As a Christian I believe that paying just and fair wages is more of a moral than an economic argument.  Of course, we have to be fair with employers too, so striking a balance is important in coming to a reasonable compromise.

Second, the minimum wage has not kept pace with the cost of living.  I believe the Congress should consider indexing the minimum wage to the cost of living just as they do with Social Security.  This way it’s not such of a political fight every time our Congress considers it.  Back in the 1970s when I was earning the minimum wage of around $3.00 per hour, my wages went a lot further than they would now.  In terms of buying power, $3.00 back then would equal about $11.00 today.  Of course there are places like California and the Northeast where the cost of living is much higher than the national average. (The cost of living in San Diego for example is about 30% higher than the national average.)  In these cases, each state could make adjustments accordingly.

Third, I believe the cost of goods and services won’t dramatically increase.  Opponents say that raising the minimum wage will raise the cost of goods and services.  That may be partially true; however, a business cannot charge more than consumers are willing and able to pay for those goods and services.  If the cost of a McDonald’s quarter-pounder goes from $3.00 to $8.00, consumers will choose not to buy it.  They’ll shop around for other food choices and McDonalds will be forced to lower their price to a point consumers are willing and able to pay (maybe around $3.50).  The reality is the profit margins for businesses will decline, but they'll still make money (just not as much as they'd like to).  In a previous blog, my writing partner Allen Laudenslager and I showed that the reason Apple manufactures their iPads in China rather than the U.S. is because their gross profit margins would shrink from 80% to 20%.  When businesses use these scare tactics with consumers, they're being disingenuous and covertly greedy.

Fourth, I believe that raising the minimum wage will put upward pressure on all wages and ultimately stimulate the economy.  The sad reality is that everyone’s wages have been stagnating for years as corporations are recording record profits and sitting on mountains of cash.  Everyone has been adversely affected by the economic downturn which started in 2008.  Raising the minimum wage would prime the economic pump of our economy.  Inflation, is always a concern for any economy, but so is deflation.  Ironically, the cost of goods and services have been increasing while wages have simultaneously been decreasing.  Go figure?

Finally, there are people I admire and respect who may disagree with raising the minimum wage.  I believe most fiscal conservatives care about the downtrodden of our country too, they just want to solve the problem in a different way than fiscal liberals do.  So let's debate and discuss this issue and solve this problem together.

Monday, September 1, 2014

Economic Justice For All: A Catholic Framework for Economic Life

Economic Justice For All
A Catholic Framework for Economic Life 
A Statement of the U.S. Catholic Bishops November 1996
Copyright © 1996 by the United States Conference of Catholic Bishops Inc.; Washington, D.C. All rights reserved.

As followers of Jesus Christ and participants in a powerful economy, Catholics in the United States are called to work for greater economic justice in the face of persistent poverty, growing income-gaps, and increasing discussion of economic issues in the United States and around the world. We urge Catholics to use the following ethical framework for economic life as principles for reflection, criteria for judgment and directions for action. These principles are drawn directly from Catholic teaching on economic life.

1. The economy exists for the person, not the person for the economy.

2. All economic life should be shaped by moral principles. Economic choices and institutions must be judged by how they protect or undermine the life and dignity of the human person, support the family and serve the common good.

3. A fundamental moral measure of any economy is how the poor and vulnerable are faring.

4. All people have a right to life and to secure the basic necessities of life (e.g., food, clothing, shelter, education, health care, safe environment, economic security.)

5. All people have the right to economic initiative, to productive work, to just wages and benefits, to decent working conditions as well as to organize and join unions or other associations.

6. All people, to the extent they are able, have a corresponding duty to work, a responsibility to provide the needs of their families and an obligation to contribute to the broader society.

7. In economic life, free markets have both clear advantages and limits; government has essential responsibilities and limitations; voluntary groups have irreplaceable roles, but cannot substitute for the proper working of the market and the just policies of the state.

8. Society has a moral obligation, including governmental action where necessary, to assure opportunity, meet basic human needs, and pursue justice in economic life.

9. Workers, owners, managers, stockholders and consumers are moral agents in economic life. By our choices, initiative, creativity and investment, we enhance or diminish economic opportunity, community life and social justice.

10. The global economy has moral dimensions and human consequences. Decisions on investment, trade, aid and development should protect human life and promote human rights, especially for those most in need wherever they might live on this globe.

According to Pope John Paul II, the Catholic tradition calls for a “society of work, enterprise and participation” which “is not directed against the market, but demands that the market be appropriately controlled by the forces of society and by the state to assure that the basic needs of the whole society are satisfied.” (Centesimus Annus, 35).  All of economic life should recognize the fact that we all are God’s children and members of one human family, called to exercise a clear priority for “the least among us.”

The sources for this framework include the Catechism of the Catholic Church, recent papal encyclicals, the pastoral letter Economic Justice for All, and other statements of the U.S. Catholic bishops. They reflect the Church’s teaching on the dignity, rights, and duties of the human person; the option for the poor; the common good; subsidiarity and solidarity.

Sunday, August 31, 2014

Satisfying the Needs of People by Allen Laudenslager & Bryan Neva (2005)

Satisfying the Needs of People
by Allen Laudenslager & Bryan Neva (circa 2005)

Around 1914, Henry Ford announced that he’d decided to pay his workers the unheard of sum of $5 for an eight-hour workday (which replaced the going wage of $2.34 for a nine-hour workday).  The business community in general thought that wage was unsupportable and that he would soon have to reduce wages or risk closing shop.

It is not the employer who pays the wages.  Employers only handle the money.  It is the customer who pays the wages. — Henry Ford

Ford knew that paying his workers well would have several benefits.  First, by reducing worker turnover, employees fought to stay in the best paying job in the area.  Ford saved money by not having to train new workers.  

Second, more experienced workers were more productive than less experienced workers.  Simple things like floor sweepers picking up tools and small parts that were dropped rather than just throwing them away created their own savings.  

Third, Ford believed that his own workers should be his best customers, and the higher wage meant that his workers purchased more goods and services in their communities and subsequently the community had more money to spend with Ford.

Ford essentially primed the economic pump; whereas, greed and shortsightedness by some, trying to satisfy their short term needs at the expense of others, stopped the money from circulating through the economy causing undue hardship and limiting overall economic growth.

In many direct and indirect ways all the stakeholders of a business enterprise—owners (entrepreneurs and investors), managers, employees, customers, creditors, suppliers, distributors, governments, communities, societies, and the environment—derive benefits from businesses.  Entrepreneurs like Ford conceive an idea for a business and investors provide the capital funding to start it.  Managers are hired to operate the business enterprise and employees are hired to create and add value to the products or services that meet the needs of a certain group of customers.  Suppliers and creditors provide the business with the raw materials and short-term loans to make the products or provide the services.  Distributors (wholesalers, retailers, or salespeople) actually sell the products or services to customers.  And it’s the customer who buys these products or services in order to meet their own specific needs.  The income generated from the sales of these products or services pays the overhead, taxes, and salaries of the managers and employees, and the net profits help repay the owners (entrepreneurs and investors) for the risks they took starting the business.  The managers and employees must pay income taxes on their salaries, which support their communities, and their earnings help them pay for their needs and wants.

Using their individual talents, many people work together to produce and distribute a product or service that ultimately adds value to everyone’s lives.  The business enterprise satisfies the needs of the owners (entrepreneurs and investors) through the products or services that were created and the profits returned to them to spend or to reinvest in their business.  It satisfies the needs of the managers and employees by providing them and their families with a livelihood.  It satisfies the needs of the suppliers, creditors, and distributors through interest income and sales of their products or services.  And most importantly, it satisfies the needs of the customers who purchased the products or services created by the business.  

Indirectly, the business satisfies the ancillary needs of governments through local, state, and federal taxes.  It satisfies the ancillary needs of communities and societies through employment for their citizens, taxes for the local infrastructure, and goods and services purchased by the business, managers, and employees.  And it satisfies the needs of the environment through the responsible use of our natural resources so that the business itself and future generations can enjoy and prosper from them.

The ultimate purpose of business then must be to satisfy the needs of people!  All the stakeholders who have a vested interest in the success of the business have different needs to meet and a good business enterprise must balance all these competing needs.  A business must also balance its own long-term survival against its responsibility to its stakeholders.  Only by satisfying the greatest number of needs for the greatest number of stakeholders can a business thrive and ultimately survive in the long-term.

A business has to balance all the competing demands of its stakeholders as its long-term goal, but the demand to survive the short-term is the first order of business.  This includes making a profit to ensure future survival.  The second order of business is to plan for long-term survival.  This includes employee development so that workers are trained in newer, more productive methods, and planning for future products and services it can sell to customers.  The third order of business is the development of the community where the business is located.  This includes being good corporate citizens so that its employees and their families have a good place to live and work and the business can continue to produce and sell its product.

At first glance, the idea that a business serves all these stakeholders may seem odd, but we assure you that any business that does not serve customers by filling a need will not survive.  We’ve all heard of businesses that failed miserably because they did not provide a good product or service, over-charged, defrauded, or mistreated their customers or employees.  On the other hand, we’ve also heard of businesses that failed because they were simply unprofitable despite having great products and working environments.  This dichotomy between satisfying people’s needs and profitability is perplexing.

While absolutely necessary, profit is really only one indicator of business success.  It’s a scorecard on how well a business has performed over a small period of time.  Satisfying the needs of stakeholders is also an indicator of business success, but it’s more difficult to measure and manage.  Rather than focusing only on profits, a business should instead focus on satisfying the needs of its stakeholders especially those who add the most value to its business.  Doing this will make the business more profitable in the long-term.

Fostering a business attitude of satisfying the needs of people is a legitimate profit strategy because it helps businesses focus on the stakeholders who add the most value to their companies—customers, employees, suppliers, creditors, and distributors.  If a business satisfies these important stakeholders, it will ultimately be more profitable and successful in the long-term.  And if the business is successful over the long-term, then it will satisfy the needs of its owners, investors, and managers, and society in general will benefit from a thriving business.

Customers, employees, suppliers, creditors and distributors really do add the most value to a business.  Without customers a business wouldn’t have any income; without employees a business couldn’t make products and provide services; without suppliers and creditors a business wouldn’t have the raw materials and money to produce its products and services; and without distributors (wholesalers, retailers, and salespeople), the business couldn’t sell its products and services to its customers.  And ultimately, it’s customers who pay for everything!

On the other hand, the owners, investors, and mangers add the least value to a business.  Without owners or investors a business wouldn’t exist in the first place.  But after the initial investments of time and money, a business no longer needs the owners or investors to function unless they perform management roles.  Managers, more importantly, provide the overall leadership an organization needs to accomplish its goals.  But managers are still overhead in an organization and don’t add as much value as the people doing the day-to-day work of the organization (i.e. employees).  This idea is supported by the fact that companies today are getting rid of many layers of management in favor of empowering their employees.

In summary, we’ve offered further evidence that the ultimate purpose of business is to satisfy the needs of people, and that profit is a natural byproduct of satisfying people’s needs.  And who are the people?  They’re the stakeholders of a business: the entrepreneurs, investors, managers, customers, employees, suppliers, creditors, distributors, governments, communities, societies, and the environment.  To be successful, businesses must balance all the competing needs of their stakeholders. However, a business should focus their energies on satisfying the needs of its principal stakeholders who add the most value to their business: the customers, employees, suppliers, creditors, and distributors. If the business succeeds in satisfying the needs of these principal stakeholders, then the needs of the other important stakeholders will also be satisfied. Understanding how the economic business cycle works and how money flows through our economy is the first step in making the leap to a better way of doing business.

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