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APRIL 30, 2015
The $70,000 Minimum Wage —
Capitalism Gone Bad … or Good?
FAITH & BUSINESS
TIM WEINHOLD
Tim Weinhold serves as Director of Eventide's Faith
& Business Initiative, and has served in a faith and
business/investing thought leadership capacity
with Eventide since its founding. Since relocating
from Boston to Seattle a few years ago, Tim has
served on the Executive Advisory Council of the
School of Business and Economics at Seattle
Pacific University, and on the Executive
Committee of the school's Center for Integrity in
Business.
Dan Price, the young CEO of Gravity Payments in Seattle, recently generated a
boatload of publicity — and controversy — by committing to pay every one of
his 120 employees at least $70,000 per year. Dan said he was concerned that
some of his lower-paid employees were struggling to make ends meet. As well,
he was concerned about our country’s continuing rise in economic inequality
and the spiraling CEO compensation he believes is a big part of the problem. To
fund the raises, which will benefit more than half of the company’s workers, Dan
cut his own salary from $1,000,000 to $70,000, and decided the company could
afford to take a 50 percent reduction in profits.
Plenty of people thought this was terrific, including more than a few CEOs. In the
week after the story first broke Dan got emails from nearly 100 CEOs lauding his
decision. But not everyone was so enthusiastic. The New York Times ran a followup piece detailing some of the criticism directed toward Dan and his decision.
These criticisms, by purported defenders of free-market capitalism, evidence
egregiously flawed thinking about both capitalism and free markets. As well, they
are at direct odds with the wisdom of Scripture. Because these
misunderstandings deeply distort the public discussion about business and, too
often, the behavior of business people, Christians included, it’s important to
address them directly.
Perhaps the most prominent critic, according to the New York Times, was Rush
Limbaugh, who lambasted Dan’s decision as “pure, unadulterated socialism,
which has never worked.” He added, “That’s why I hope this company is a case
study in M.B.A. programs on how socialism does not work, because it’s going to
fail.”
This is nonsensical on its face. Gravity Payments sells its payment processing
services to other businesses — at a very nice profit. The company has every
intention of continuing to do so. In fact, as a result of the recent publicity, several
new clients have signed on. Dan Price and Gravity Payments are practicing
simple, straightforward, for-profit capitalism, not socialism.
Limbaugh’s unspoken premise, however, is that it is a gross violation of (his view
of) capitalist principles to pay people any more than the lowest price at which
the market would allow one to hire appropriate workers. He is hardly alone.
Diana Furchtgott-Roth, an economist at the conservative Manhattan Institute for
Policy Research, said that if Gravity is paying above-market wages, then Mr. Price
“is running it more as a charitable organization, because he could get people for
less.” Clearly this ‘pay workers as little as possible’ version of capitalism has more
than a few partisans, and not just among pundits and academics. Walmart, to
pick a prominent example, certainly shares the same conviction.
But leaders at many of the most successful companies reject that approach as
foolish and shortsighted. Costco, for example, pays its people nearly triple the
Eventide | Faith & Business Blog Tim Weinhold on the $70,000 Minimum Wage
2
‘Good-jobs’ companies
consistently
compensation at Walmart, including hefty profit-sharing bonuses. But instead of
struggling to compete because of that higher cost structure, Costco dramatically
outperforms Walmart in virtually every bottom-line category of business
performance:
outperform their
• Costco turns its inventory 50% faster than Walmart, and compared with W almartowned Sam’ s Club, enjoys 70% higher sales/square foot and double the level of
sales per employee.
competitors. And not
• Walmart’s revenue growth rate for the past year was 3.2%, and for the past 10 years
was 8.5%. Costco’s comparison numbers are 7.1% and 9.9%.
by a little.
• Over the past decade, Walmart’s share price is up by less than 100%, while Costco’s
share price has more than tripled.
As with Gravity Payments, Limbaugh likely believes Costco’s compensation
equates to socialism. Furchtgott-Ross presumably thinks the company is being
run along the lines of a charity. Those not suffering from self-induced ideological
blindness, however, look at the company’s results and draw the obvious
conclusion — that Costco is practicing an entirely superior, and entirely
admirable, version of capitalism.
But even compelling real world results like Costco’s can have a hard time cutting
through some people’s ideological fog. Patrick R. Rogers, an associate professor
of strategic management at the School of Business and Economics at North
Carolina A&T State University, weighed in this way: “The sad thing is that Mr. Price
probably thinks happy workers are productive workers. However, there’s just no
evidence that this is true. So he’ll improve happiness, only in the short term, and
will not improve productivity. Which doesn’t bode well for his long-term viability
as a firm.” During an interview with Dan Price on MSNBC, Sam Stein, an editor at
The Huffington Post, was considerably more direct: “Are you crazy?” he asked.
Yet Costco’s experience is hardly an aberration. Zeynep Ton, one of the country’s
leading retail operations experts, and a faculty member at MIT’s Sloane School,
researched the performance of low- cost retailers offering ‘good jobs’ versus
those offering ‘bad jobs.’ As reported in her book, The Good Jobs Strategy, not only
were those companies, like Costco, who pay and treat employees well, able to
compete successfully with those, like Walmart, who pay and treat employees
poorly — but, in fact, the good-jobs companies consistently outperform their
competitors. And not by a little. In bottom-line productivity measures like
inventory turns, sales/square foot and sales per employee, the good-jobs
companies are better than their competitors by anywhere from 50-300 percent.
With real-world results like these, why is it so hard for Limbaugh, et al, to see the
drawbacks of a ‘pay workers as little as possible’ version of capitalism? The
problem, it turns out, is that many ‘free market’ capitalists are betrayed by an
inadequate understanding of free markets.
Markets work really well, i.e., they produce both efficient and laudable outcomes,
when participants are truly free to choose among various vendors, or even to
choose not to purchase at all. This is the essence of a “free” market. But many
times markets are far from free. In such cases they produce distorted, even
morally indefensible, outcomes. So, for example, after a natural disaster that
destroys stores and transportation infrastructure, the market’s supply-anddemand pricing logic may argue for selling a loaf of bread or a bottle of water for
$100 or more. But most citizens, and governments, and a great many business
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God frequently and
emphatically
condemns business
people who take
advantage of their
workers, particularly
through exploitive
compensation.
people as well, recognize such behavior not as good business but as
unconscionable profiteering. And why, in such cases, does the market produce
such distorted and indefensible results? Precisely because starving people
effectively have a gun to their heads — and, as a result, the baseline condition for
a “free” market has entirely disappeared.
Just like with bread and water in our example, there simply aren’t enough good
jobs to go around. As a result, people ‘choose’ to work at Walmart and other badjobs employers only because they too have a survival gun to their heads. In such
cases compensation outcomes often represent a grievous corruption of those
produced by a truly free market and fall well short of the care and dignity God
intends for people created in his very image.
Capitalism, wisely practiced, is a wonderful means for value creation for all
concerned — customers, employees, shareholders, and society as a whole. But
when it is thought of as justifying, even requiring, taking advantage of workers
for the sake of fatter profits and fatter CEO paychecks, then that’s a version of
capitalism that deserves to be condemned. This was powerfully expressed by
FDR back in 1933 in words that still resonate deeply today: “No business which
depends for existence on paying less than living wages to its workers has any
right to continue in this country.”
Scripture has a similar perspective. To start with, God frequently and emphatically
condemns business people who take advantage of their workers, particularly
through exploitive compensation:
“I will come to you in judgment. I will be quick to testify against those who practice
divination, those who commit adultery, those who break promises, and those who
exploit workers, widows, and orphans, who refuse to help the immigrant and in
this way show they do not fear me,” says the LORD who rules over all, Malachi 3:5
(NET).
“Why have we fasted, they say, “and you have not seen it? Why have we humbled
ourselves, and you have not noticed? Yet on the day of your fasting, you do as you
please and exploit all your workers, Isaiah 58:3 (NIV).
“Look! The wages you failed to pay the workers who mowed your fields are crying
out against you. The cries of the harvesters have reached the ears of the Lord
Almighty,” James 5:4 (NIV).
But God does more than condemn employers whose pay practices are exploitive.
Through Moses and the Apostle Paul, he makes clear what he intends as the
alternative. In I Corinthians 9:9-10, Paul provides a fascinating insight into
something Moses wrote centuries earlier (though, without Paul’s help,
something whose meaning we would likely miss):
It is written in the Law of Moses: “Do not muzzle an ox while it is treading out the
grain.”
Is it about oxen that God is concerned? Surely he says this for us, doesn’t he? Yes,
this was written for us, because whoever plows and threshes should be able to
do so in the hope of sharing in the harvest.
The larger context of this passage is Paul making the case for why he, like other
apostles and ministers, appropriately deserves compensation for his work on
behalf of the gospel. But for our purposes, it is how he makes his case that is so
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Paul makes clear that
God’s real reason for
this command is to
instruct employers —
employers of oxen, yes,
but primarily of human
workers — that all who
help produce a harvest
are meant to share in
the rewards of that
harvest.
instructive. Looking carefully at Paul’s argument, he says that it is God (not merely
Moses) who commands that as oxen work to tread out a farmer’s grain they must
be allowed to eat whatever supplemental grain they want, i.e., be allowed
‘bonus’ feedings over and above the normal feedings (wages) provided by the
farmer. Then Paul makes clear that God’s real reason for this command is to
instruct employers — employers of oxen, yes, but primarily of human workers —
that all who help produce a harvest are meant to share in the rewards of that
harvest.
In fact, the real thrust of Paul’s argument is that God takes this shared-rewards
principle so seriously that he extends its sweep even to the working animals
whose labor helps contribute to the harvest. Nevertheless, his real concern is
human workers — those who plow and thresh. And God’s larger principle, Paul
makes clear, is that workers deserve not merely (market-dictated) wages, but an
appropriate share in the rewards of business success — the harvest — they help
create.
In fact, ‘shared rewards’ as a principle for business is simply a particular
application of the much larger ‘Love your neighbor’ First Principle of God’s moral
universe. This comes through especially as we think about the implications for
employers in passages like this from Jesus: “Do to others whatever you would like
them to do to you. This is the essence of all that is taught in the law and the
prophets,” Matthew 7:12 (NLT). And in this passage from Paul: “Let each of you
look not only to his own interests, but also to the interests of others,” Philippians
2:4 (ESV). Given that, the fact that God goes to the trouble to make explicit for
employers the shared-rewards principle embedded in ‘Love your neighbor’
serves to further accentuate its divine importance.
Notably, this is not just noble moral advice. It is also real-world business wisdom.
Recently, Southwest Airlines announced that its 2014 profit-sharing bonuses to
employees were a whopping $355 million — fully one-third of total profits. Herb
Kelleher, co-founder and long-time CEO of Southwest, was frequently asked how
he justified such largesse. He had a ready answer: “We take great care of our
people, they take great care of our customers, and our customers take great care
of our shareholders.” In fact, this shared-rewards approach works so well for
Southwest that for much of the company’s history its market cap has been
greater than for all nine of its major competitors combined.
Neither Herb Kelleher at Southwest, nor Jim Sinegal at Costco, ever thought that
capitalism meant paying workers the smallest amount possible. They were way
too smart for such foolishness. So is Dan Price. Hopefully their examples may help
more of their peers to smarten up as well . . . so that fewer American workers
continue paying the price for the greedy shortsightedness of their bosses. After
all, though God is slow to anger, he is also the ever-vigilant champion of all the
exploited.
The material provided herein has been provided by Eventide Asset Management, LLC and is for
informational purposes only. Eventide Asset Management, LLC serves as investment adviser to
one or more mutual funds distributed through Northern Lights Distributors, LLC, member
FINRA. Northern Lights Distributors, LLC and Eventide Asset Management are not affiliated
entities.
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