Henry Ford the Epitome of American Capitalism

Henry Ford was the epitome of American Capitalism.  His rags-to-riches success story of entrepreneurialism is an inspiration to all of us.  Born and raised on a rural farm in Michigan, Ford only achieved an eighth-grade education, but he was a mechanical and industrial engineering genius.  His greatest achievement was the implementation of industrial mass production which created an economy-of-scale to build the automobile.  This made the automobile very affordable to the general public.

But working on an assembly line is repetitive, back-breaking, boring, and de-humanizing.  There was a huge turn-over in the labor force.  If the company needed one-hundred workers, they would have to hire 1000 due to attrition.  So Ford came up with another ingenious idea: incentive pay.  Workers could earn as much as $5 a day for an eight hour work day, more than double what the typical worker earned.  Paying workers more would decrease attrition and enable his workers to buy his automobiles, a win-win solution.  After it was announced, 10,000 people showed up the next day to apply for a job.  The work still sucked, but hey they were earning $5 a day!

But earning that $5 a day came with a huge price.  Workers would have to jump through ridiculous hoops to get it.  For example, the company engaged in social engineering where they demanded emigrant workers learn English and become Americanized.  The company would send their social police to their employees homes to ensure they were living wholesome American lives and not engaging in vices like smoking, drinking, or gambling.

In addition, workers were not allowed to talk while on the job.  They weren't allowed to sit down or take potty breaks.  They would have to be productive all the time even if they were ill.  And the company's security force would brutally enforce Ford's work rules.  It was classic management by fear, intimidation, and brutality.  Latter, when automobile workers tried to organize a union, Ford, through his hired thugs, brutally fought the unions tooth and nail.  The only reason Ford finally capitulated to the union's demands is because his wife Clara threatened to leave him.  Henry Ford had, in fact, become a greedy, power hungry, obsessive-compulsive control freak.

Yes in-deed, Henry Ford epitomized the best and worst in American Capitalism. He epitomized the best because of his rags-to-riches story, his pioneering implimentation of the assembly line to make automobiles affordable, and his $5 dollar a day wages. And he epitomized the worst because of his love of money, power, control, and oppression of workers. Since then, working conditions in America have improved quite a bit through legislation, unionization, and evolving social norms and mores. But the dark side of American Capitalism is still alive and well and living in the hearts of many business managers today who, like Henry Ford, still try to earn a profit at any price.

  

The Virtue of Responsible Citizenship

I urge, then, first of all, that petitions, prayers, intercession and thanksgiving be made for all people—for kings and all those in authority, that we may live peaceful and quiet lives in all godliness and holiness. This is good, and pleases God our Savior…”  (St. Paul, 1 Timothy 2:1-3)


Every year or two in the U.S. we are asked to go to the voting booth and choose someone to represent us in local, state, or federal government.  Both mainstream political parties try to convince us why we should vote for their candidate while at the same time disparaging the other party or candidate.  Issues range from moral issues to fiscal issues, that is, how we should live our lives and how we should spend our money.

I chose several years ago to become a political independent and vote according to my conscience guided by my Roman Catholic beliefs.  Often times this is not easy to do as there's hardly any candidate that completely meets all the criteria. But I try to keep an open mind.  So I wanted to share with you the U.S. Council of Catholic Bishop's voting guide.  It's in PDF format so you can print it out or save it to your hard drive for future reference.  I realize that many of my readers are Protestant Christians, Jewish, or People of Good Will, but I think you'll discover we have much in common.

Finally, I urge all my readers not to disparage our political leaders but hold them up in your prayers.  And don't engage in political one-up-man-ship with others who may see the world differently than you do.  Just agree to disagree, keep them in your prayers, and continue to be cordial.

Bitcoin by Allen F. Laudenslager

The following article is by Allen F. Laudenslager who writes a Blog A Voice In the Wilderness

A voice in the wilderness

A lone voice against conformity.

TUESDAY, OCTOBER 7, 2014

Bitcoin

Bitcoin is a full on fiat currency supported only by the user’s faith that someone else will accept it at what they paid for it. Looked at one way it is a fraud since there it has no intrinsic value supporting it.

In another sense it has exactly the same value as an ounce of gold. The trust that someone else will accept the value and exchange it for something we both agree is an equal value.

I remember once when I was about 13 (1958) and traveling with my parents, we stopped for gas in a small town in western Pennsylvania where my father tried to use an American Express Traveler’s Check. That was a matter of trust - this small town gas station had never seen one and didn’t know if he could trust it or not. He did know and expect that he could trust a 5 or 10 or 20 dollar bill!

Back to that ounce of gold you trust so much. In the depths of antiquity certain types of sea shells drilled and strung like beads were a medium of exchange. They were rare and hard to get, at least far from the coast, and people accepted them in return for goods and services. As travel became easier and the shells lost their rarity they were supplanted by other mediums. Iron, copper, silver and gold coins for a long time were the standard and later were replaced by paper that could be exchanged for set amounts of the actual metal.

Gold, silver or any other metal has only the value we give it. Each of these has a use in manufacturing. You can build things from iron and steel or even copper. Gold and silver have industrial uses beyond their use in jewelry. But if you are in the wilderness, and need a meal, that ounce of gold will not feed you unless someone else has food AND is willing to exchange that food for the gold.

So why might they give up an immediately useful thing like a meal for an immediately useless thing like an ounce of gold? Because they trust that someone else, somewhere else will want to trade what they have for that ounce of gold. So in a very real sense, that gold relies on exactly the same “value” that a Bitcoin does - trust!

For good or ill, Bitcoin is now a permanent part of the financial landscape and will be a permanent part in some form or another from now on. So before you start wailing and moaning about Bitcoin being worthless and the ultimate fiat currency; remember that it rests on the same foundation as gold, US dollars or a can of soup. We expect that someone else will accept gold or soup as unit of storage of value. And that they will be willing trade whatever they have for that gold, US dollar or can of soup.

If you think this is a new concept think about this, approximately 800 years ago St. Thomas Aquinas said, "Men could not live with one another if there were not mutual confidence that they were being truthful to one another." 

The Social Doctrine of the Catholic Church

III. The Social Doctrine of the Church

2419 "Christian revelation . . . promotes deeper understanding of the laws of social living." The Church receives from the Gospel the full revelation of the truth about man. When she fulfills her mission of proclaiming the Gospel, she bears witness to man, in the name of Christ, to his dignity and his vocation to the communion of persons. She teaches him the demands of justice and peace in conformity with divine wisdom.

2420 The Church makes a moral judgment about economic and social matters, "when the fundamental rights of the person or the salvation of souls requires it." In the moral order she bears a mission distinct from that of political authorities: the Church is concerned with the temporal aspects of the common good because they are ordered to the sovereign Good, our ultimate end. She strives to inspire right attitudes with respect to earthly goods and in socio-economic relationships.

2421 The social doctrine of the Church developed in the nineteenth century when the Gospel encountered modern industrial society with its new structures for the production of consumer goods, its new concept of society, the state and authority, and its new forms of labor and ownership. the development of the doctrine of the Church on economic and social matters attests the permanent value of the Church's teaching at the same time as it attests the true meaning of her Tradition, always living and active.

2422 The Church's social teaching comprises a body of doctrine, which is articulated as the Church interprets events in the course of history, with the assistance of the Holy Spirit, in the light of the whole of what has been revealed by Jesus Christ. This teaching can be more easily accepted by men of good will, the more the faithful let themselves be guided by it.

2423 The Church's social teaching proposes principles for reflection; it provides criteria for judgment; it gives guidelines for action:

Any system in which social relationships are determined entirely by economic factors is contrary to the nature of the human person and his acts.

2424 A theory that makes profit the exclusive norm and ultimate end of economic activity is morally unacceptable. the disordered desire for money cannot but produce perverse effects. It is one of the causes of the many conflicts which disturb the social order.

A system that "subordinates the basic rights of individuals and of groups to the collective organization of production" is contrary to human dignity. Every practice that reduces persons to nothing more than a means of profit enslaves man, leads to idolizing money, and contributes to the spread of atheism. "You cannot serve God and mammon."

2425 The Church has rejected the totalitarian and atheistic ideologies associated in modem times with "communism" or "socialism." She has likewise refused to accept, in the practice of "capitalism," individualism and the absolute primacy of the law of the marketplace over human labor. Regulating the economy solely by centralized planning perverts the basis of social bonds; regulating it solely by the law of the marketplace fails social justice, for "there are many human needs which cannot be satisfied by the market." Reasonable regulation of the marketplace and economic initiatives, in keeping with a just hierarchy of values and a view to the common good, is to be commended.

Fired Humvee whistleblower wins $990,000

Fired Humvee whistleblower wins $990,000

• Article by: RANDY FURST , Star Tribune 
• Updated: September 17, 2014 - 5:33 AM

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David McIntosh alerted the Army to a design change in an armored Humvee that he feared could have fatal consequences for soldiers in Iraq and it cost him his job, his home and was a "significant factor" in the collapse of his marriage. Tuesday, the U.S. attorney's office announced the 49-year-old whistleblower from Stacy, Minn., would receive nearly $1 million as part of a $5.5 million settlement.

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David McIntosh’s fight to expose a design change in a Humvee gun turret that he feared could have fatal consequences for soldiers in Iraq cost him his job and his home, and was a “significant factor” in the collapse of his marriage.

Tuesday, the 49-year-old whistleblower from Stacy, Minn., was awarded nearly $1 million as part of a $5.5 million settlement with the companies that produced backup batteries for the Humvee’s turret.

“It was never about the money,” McIntosh said Tuesday. “It was about doing the right thing and protecting the people who protect us.”

McIntosh lost his job that paid him “about six figures,” struggled for years to find work and now is employed as a laborer and truck driver on road construction projects.

The sealed acid batteries turn the turrets on the Humvees if the engine gives out, but unbeknownst to the Army, the manufacturing process was changed, cutting the battery’s life span by as much as 50 percent, McIntosh said

“Worst-case scenario, if the troops in a Humvee were in a firefight … they may have only half the power the Army was promised, which could mean life or death,” McIntosh said.

McIntosh was a regional sales representative for M.K. Battery when he tried to persuade top company officials to alert the Army, but after 14 months, they still would not do so, he said. So in 2007, he called the Defense Department. Three weeks later he was fired.

“They told me I was being terminated for insubordination,” he said.

Design changed

On Tuesday, U.S. Attorney Andy Luger announced the settlement agreement with M.K. Battery and several other companies, resolving allegations that they had violated the False Claims Act. It settled a suit brought by McIntosh’s attorneys, Clayton Halunen and Susan Coler of Minneapolis.

M.K. Battery, with offices in California and the company that owns it, East Penn Manufacturing, located in Pennsylvania, declined requests for an interview, but issued a statement Tuesday saying they “denied that the batteries at issue did not meet the required specifications and the settlement with the government acknowledges that denial.”

Still, the two firms said they “were pleased to resolve these claims with the government in order to demonstrate their commitment to supplying the government with high quality batteries as well as to avoid the expense, distraction and uncertainty of protracted litigation.”

McIntosh said he was first alerted to a potential problem by an e-mail from a company engineer saying that the design and manufacture of the battery had been changed “and he didn’t know how it would affect my accounts.”

McIntosh said he tested the batteries to measure their performance. “Many times” they had half their previous capacity, he said. The new manufacturing process, he said, was designed to reduce costs, but he worried about the impact.

‘A strange call’

Over 14 months, he corresponded and spoke with top company officials about his concerns, according to the lawsuit, and warned them if they did not contact the Department of Defense, he would. When he learned the company did not plan to disclose the results of his tests, he said he contacted the Defense Department on April 24, 2007.

“It was a strange call to make,” he said. “I know these agencies. I never thought I would be contacting them in my life.”

On June 13, 2007, the company fired him. “I felt alone,” he says. “I knew these individuals quite well.”

He struggled for six years to find full-time work, he said. “Battery companies tend to know each other,” he said. “I don’t know if I was blackballed, but it felt like it.”

So he did house remodeling for friends and families and tried some private ventures that did not pan out. “It was very difficult to get full-time, gainful employment,” he said, and the resulting stress was a factor in his divorce.

‘Classic … corporate greed’

A second part of the suit, dealing with McIntosh’s termination, is expected to go to trial next spring before U.S. District Judge Donovan Frank. “We are not interested in settling that case,” said Halunen, McIntosh’s attorney. “He wants to tell his story publicly at trial.”

A spokesman for the U.S. attorney’s office said it was unaware of any lives lost because of the batteries, but Chad Blumenfield, the assistant U.S. attorney in Minneapolis, issued this statement: “The Department of Defense relies on companies it deals with to be honest about the products they provide, especially when those products will be used on the battlefield. Inaccuracies about such products cannot be tolerated.”

Halunen offered a harsher assessment.

“From Day 1, it is a classic example of corporate greed,” he said. “Profit was more important than protecting human lives, in this case, the men and women serving our country, which is particularly repugnant.”

Randy Furst • 612-673-4224 Twitter: @randyfurst

This article can be found at this link: http://www.startribune.com/local/275386301.html?page=all&prepage=1&c=y#continue

Lost in the Woods

I am the way, and the truth, and the life. - Jesus (John 14:6)

When I was around 12, my Dad moved our family from the suburbs of Minneapolis to a rural area of Northern Minnesota.  He’d started a new job there working in the iron mines.  I’ve always had a bit of wanderlust in me, so I began exploring the woods surrounding our home.  Before long, I’d become a pretty decent woodsman able to successfully navigate my way through the dense underbrush of Minnesota’s jungle-like forests.  I didn’t think much of it at the time, but those skills are actually not easy to learn.  In fact, the U.S. Army teaches these basic skills to their soldiers and officers.

I moved away from home when I was 20 and have lived in cities ever since.  When I was in my early 40s, I’d gone home to visit my folks and my little sister happen to have her four-wheeler there.  Impulsively, I jumped on her four-wheeler and took off into the woods following a trail.  I mistakenly got off the main trail and found myself in a dense area of underbrush.  I tried to put the four-wheeler in reverse in order to get back on the main trail but it wouldn’t go into gear.  (I didn’t know it at the time, but the reverse mechanism on her four-wheeler was broken.)  I kept going deeper into the forest hoping to find a place to turn around but couldn't.  I eventually got stuck and couldn’t move any further and finally admitted to myself that I was lost!

I started to panic a bit, but then pulled out my cell phone and used satellite navigation to find my way back home on foot.  (As an aside, I actually stumbled upon a newly born deer fawn; I was really in the boonies now.)  When I got home, I called my nephew Micah to come and save me.  He’s a much better woodsman than I ever was, and he was able to save the day.

Learning to navigate our way through the dense underbrush of the forests of life is not easy either.  When we’re young, our parents try to teach us right from wrong, how to live, and how to find our own way.  They may bring us to church, teach us to have faith in God, and guide us along the way.  But as we grow older and get out on our own, we oftentimes forget the basics of navigating through life and may lose our way.  When that happens, call on God to save you and show you the the way home.  God is just a prayer away.

Robert Reich Calls Out Harvard Business School for Its Role in Widening Inequality The top educator of American CEOs needs to rethink what it is teaching.

Robert Reich Calls Out Harvard Business School for Its Role in Widening Inequality

The top educator of American CEOs needs to rethink what it is teaching.

The following essay originally appeared on Harvard Business Review’s blog and can be found by following this link: http://www.alternet.org/economy/robert-reich-calls-out-harvard-business-school-its-role-widening-inequality

September 15, 2014   No institution is more responsible for educating the CEOs of American corporations than Harvard Business School – inculcating in them a set of ideas and principles that have resulted in a pay gap between CEOs and ordinary workers that’s gone from 20-to-1 fifty years ago to almost 300-to-1 today.

A survey, released on September 6, of 1,947 Harvard Business School alumni showed them far more hopeful about the future competitiveness of American firms than about the future of American workers.

As the authors of the survey conclude, such a divergence is unsustainable. Without a large and growing middle class, Americans won’t have the purchasing power to keep U.S. corporations profitable, and global demand won’t fill the gap. Moreover, the widening gap eventually will lead to political and social instability. As the authors put it, “any leader with a long view understands that business has a profound stake in the prosperity of the average American.”

Unfortunately, the authors neglected to include a discussion about how Harvard Business School should change what it teaches future CEOs with regard to this “profound stake.” HBS has made some changes over the years in response to  earlier crises, but has not gone nearly far enough with courses that critically examine the goals of the modern corporation and the role that top executives play in achieving them.

A half-century ago, CEOs typically managed companies for the benefit of all their stakeholders – not just shareholders, but also their employees, communities, and the nation as a whole.

“The job of management,” proclaimed Frank Abrams, chairman of Standard Oil of New Jersey, in a 1951 address, “is to maintain an equitable and working balance among the claims of the various directly affected interest groups … stockholders, employees, customers, and the public at large. Business managers are gaining professional status partly because they see in their work the basic responsibilities [to the public] that other professional men have long recognized as theirs.” 

This view was  a common view among chief executives of the time. Fortune magazine urged CEOs to become “industrial statesmen.” And to a large extent, that’s what they became. 

For thirty years after World War II, as American corporations prospered, so did the American middle class. Wages rose and benefits increased. American companies and American citizens achieved a virtuous cycle of higher profits accompanied by more and better jobs.

But starting in the late 1970s, a  new vision of the corporation and the role of CEOs emerged – prodded by corporate “raiders,” hostile takeovers, junk bonds, and leveraged buyouts. Shareholders began to predominate over other stakeholders. And CEOs began to view their primary role as driving up share prices. To do this, they had to cut costs – especially payrolls, which constituted their largest expense.

Corporate statesmen were replaced by something more like corporate butchers, with their nearly exclusive focus being to “cut out the fat” and “cut to the bone.”

In consequence, the compensation packages of CEOs and other top executives soared, as did share prices. But ordinary workers lost jobs and wages, and many communities were abandoned. Almost all the gains from growth went to the top.

The results were touted as being “efficient,” because resources were theoretically shifted to “higher and better uses,” to use the dry language of economics.

But the human costs of this transformation have been substantial, and the efficiency benefits have not been widely shared. Most workers today are no better off than they were thirty years ago, adjusted for inflation. Most are less economically secure.

So it would seem worthwhile for the faculty and students of Harvard Business School, as well as those at every other major business school in America, to assess this transformation, and ask whether maximizing shareholder value – a convenient goal now that so many CEOs are paid with stock options – continues to be the proper goal for the modern corporation.

Can an enterprise be truly successful in a society becoming ever more divided between a few highly successful people at the top and a far larger number who are not thriving?

For years, some of the nation’s most talented young people have flocked to Harvard Business School and other elite graduate schools of business in order to take up positions at the top rungs of American corporations, or on Wall Street, or management consulting.

Their educations represent a substantial social investment; and their intellectual and creative capacities, a precious national and global resource.

But given that so few in our society – or even in other advanced nations – have shared in the benefits of what our largest corporations and Wall Street entities have achieved, it must be asked whether the social return on such an investment has been worth it, and whether these graduates are making the most of their capacities in terms of their potential for improving human well-being.

These questions also merit careful examination at Harvard and other elite universities. If the answer is not a resounding yes, perhaps we should ask whether these investments and talents should be directed toward “higher and better” uses.

Robert B. Reich has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He also served on President Obama's transition advisory board. His latest book is "Aftershock: The Next Economy and America's Future." His homepage is www.robertreich.org.

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.

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.

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.