Lessons from Benjamin Franklin on Business Success

Ultimately, for Benjamin Franklin, the question of how to succeed in business could not be divorced from how to succeed in life and, therefore, the ends to which one should live. To live like a king seemed distinctly un-American. To live for no one else seemed unimaginable. If Americans view things differently today, perhaps that says less about how we succeed in business than what we believe it means to lead a life well lived.

—  John Paul Rollert, “How America Lost Track of Ben Franklin’s Definition of Success”, The Atlantic

Five Myths About Fast Food Jobs

As one of the fastest-growing industries in the country, food service — along with other low-paying sectors like retail and hospitality — is becoming the new normal of employment.

But as the following list from the Washington Post shows, this is a troubling trend, as many Americans do not realize what little the industry has to offer to its burgeoning and increasingly desperate labor force.

1. Fast-food workers are mostly teenagers working for pocket money.

Fast food was indeed an adolescent gig in the 1950s and 1960s, when the paper hat symbolized the classic short-term, entry-level job. But today, despite arguments that these low-wage jobs are largely filled by “suburban teenagers,” as the Heritage Foundation put it, labor data show that about 70 percent of the fast-food workforce is at least 20 years old. The typical burger-flipper is an independent adult of about 29, with a high school diploma. Nearly a third have some college experience, and many are single parents raising families on $9 an hour. In contrast to McDonald’s rather optimistic model budget — which assumes that an employee lives in a two-income household and doesn’t need child care or gas or groceries — a large portion of fast-food workers are forced to borrow from friends to cover basic household expenses, or sometimes fall into homelessness.

According to researchers at the University of California at Berkeley, about half of the families of front-line fast-food workers depend on public programs, compared with 25 percent of the American workforce. About 87 percent of fast-food workers lack employer health benefits, compared with 40 percent of the general workforce. And roughly one-fifth of workers’ families are below the poverty line. That adds up to some $7 billion in welfare payouts each year — essentially enabling fast-food mega-chains to subsidize ultra-low wages with public benefits.

2. Employees can work their way up and eventually even own a franchise.

Burger King’s career Web site proclaims: “You’ll never be short of opportunities to show what you’ve got. And if we like what we see, there’s no limit to how far you could go here.” The New York Restaurant Association boasts that restaurant work “creates an opportunity for people to live the American dream.” Under its franchise “success stories,” McDonald’s features a man who advanced from being a crew member to owning a franchise in just a few years.

The dream of upward mobility, however, eludes most workers. The National Employment Law Project (NELP) points out that about 90 percent of the fast-food workforce is made up of “front-line workers” such as line cooks and cashiers. About 9 percent are lower-level supervisors, who earn about $13 an hour. And just 2.2 percent of fast-food jobs are “managerial, professional, and technical occupations,” compared with 31 percent of jobs in the U.S. economy.

As for the notion of working your way up to ownership, NELP reports that 1 percent of the fast-food workforce owns a franchise — a purchase that could require $750,000 to several million dollars in financial assets. And there’s no indication that many of these franchisees actually did “rise through the ranks” to become owners, which requires an amount of capital that might top the lifetime salary of an average kitchen worker.

3. Fast-food companies can’t control franchise wages or working conditions.

McDonald’s plan to raise wages at least $1 over the local minimum wagewas announced this month to much fanfare. But the raise applies only to employees of the 1,500 stores McDonald’s owns directly. The company contends that as a chain franchisor, it merely licenses its brand to individual franchise operators; is not legally liable as an employer; and thus “does not direct or co-determine the hiring, termination, wages, hours” and other working conditions for all who toil under the golden arches.

But critics say these fast-food chains actually exert powerful oversight over their franchisees by closely tracking their spending and operations. Domino’s, one franchisee claims, critiqued how his employees answered the phone; Burger King franchisees sued the chain in 2009, claiming that it was forcing them to sell menu items for a loss at $1. Companies often pressure owner-operators to squeeze down labor costs: According to one employee quoted in the Guardian, “McDonald’s corporate representatives turn up at the restaurant where he works five or six times a year, counting the number of cars using the drive-through service, timing sales, making sure staff are preparing food according to McDonald’s specifications.” More so than most fast-food chains, McDonald’s wields financial control over its franchisees and owns the rental real estate of the restaurants.

Former McDonald’s executive Richard Adams has said: “McDonald’s franchisees are pretty compliant. They don’t really organize, they don’t really protest. And if you do, they tell you you’re not a good member of the McFamily. I don’t want to make this seem too Orwellian, but the average franchisee has about six restaurants, and the franchise agreement is for 20 years. You’re probably going to have a renewal coming up. If you’re not a compliant member of the team, you’re probably not going to get that renewal.”

The issue of whether McDonald’s can be labeled a “joint employer” is being litigated in numerous claims of unfair labor practices that workers have filed with the National Labor Relations Board. The NLRB’s general counsel recently deemed McDonald’s a joint employer, and if it is ultimately penalized as such, workers could see a dramatic expansion in the company’s legal and regulatory obligations.

4. Flipping burgers is an easy job.

Some people chafe at the idea of “unskilled” fast-food workers meriting a wage more suited to a “high-skilled” job. Not only does this ignore the fact that this work requires skills — from managing inventory to training and supervising other employees — it also disregards the day-to-day challenges workers navigate on the job. According to a slew of complaints filed with the Occupational Safety and Health Administration, workers often suffer injuries such as hot-oil burns and are sometimes denied proper medical care. (Some are told to dress wounds with condiments.) Violence is also common at fast-food restaurants; according to a recent survey, roughly one in eight workers reported being assaulted at work in the past year.

Workers have also complained of racial discrimination, sexual harassment and retaliatory punishment by management. More than 40 of the NLRB claims filed against McDonald’s in the past few years alleged illegal firings or penalties because of workers’ engagement in labor activism. Add to all of this the challenge of just getting paid: Subway was found guilty of 17,000separate wage and hour violations since 2000, and in 2013, Taco Bell was hit with a $2.5 million settlement in a class-action lawsuit over unpaid overtime.

5. Paying workers $15 an hour would make burgers prohibitively costly and hurt the industry.

Some analysts, particularly on the right, have laid out doomsday scenarios of massive economic disruption caused by a sudden doubling of wages in the fast-food industry. The Heritage Foundation argues that raising wages to $15 an hour could lead to a price spike, shrinking job opportunities, and huge drops in sales and profits . In reality, any such wage increase would probably be incremental and could be absorbed in large part by lowering the fees collected by parent companies from franchisees. Fast-food workers already enjoy such higher pay in other countries with strong labor regulation and union representation. A Big Mac in New Zealand costs less than one in the United States — $4.49 vs. $4.79, according to the Economist’s Big Mac index — and it’ll likely be served by a full-time union worker earning about $12 per hour.

Higher wages might also bring business benefits, in the form of lower turnover and good press. The Michigan-based fast-casual restaurant Moo Cluck Moo offers a $15 wage alongside premium grass-fed burgers, turning its reputation as a socially responsible employer into a selling point. The market for super-cheap fast food is apparently declining. Consumers just might be hungry for a more conscientious business model.

‘Walmart’s Worst Nightmare’ Is Expanding Massively

This is definitely a good company to keep an eye on, especially as it continues to expand across the west coast (and hopefully beyond). WinCo is employee owned and managed, and offers generous pension and healthcare benefits even to part-timers — all this while managing to offer lower costs to consumers than even infamously exploitative Walmart. Hopefully this model catches on. Read more about it on Forbes.

Why Can’t Most Jobs Pay Better?

I believe that most jobs need to start paying people better regardless of skills, experience, or educational background. Even if we were to fill up the remaining vacancies for high-paying occupations (such as engineering or nursing), you would still have tens of millions of people employed in low-wage jobs like fast food, retail, and domestic assistance — indeed, the majority of new openings have been in these areas, meaning most people have been given no choice but to take dead-end jobs that often have little opportunity for upward mobility.

The fact is, there simply aren’t enough professional, technical, or administrative positions out there for everyone — nor should there be. We don’t need tens of millions of doctors, lawyers, managers, and the like, because by definition they’re highly specialized. In fact, we’re already over-saturated in some of these fields (namely law), partly because people have desperately been trying to find alternatives to the bulk of low-paying work.

With outsourcing, technology, and administrative innovation eliminating the need for even some well-paying work, what will we be left with by service-oriented jobs that mostly pay little. An economy in which only a minority of people have secure and sustainable work is likely to become unstable in the long-term.

To be clear, by paying people better, I mean between the hourly wage of $13 to $20, which is more or less middle-wage in most parts of the country. There also need to be real raises and benefits given to people who work somewhere a long time. I’ve heard too many anecdotes about folks working in a position for years and receiving literally a few more cents annually.

Since the majority of the largest low-wage employers have been making record profits, I think they can spare giving their workers some of the share — after all, they reward executives and shareholders with bonuses and dividends for a job well done, so why not the people they employ who help make that happen? The capital and resources are there, but they aren’t being invested into the laborers who in turn drive our economic growth through their disposable income.

Indeed, as my friend Will noted in his response to my status update on the subject, many of the common objections that are raised against across-the-board pay increases are either logically consistent or unsubstantiated:

Executive pay isn’t the one and only reason for the plight of workers, but it’s good to bring up because it illustrates the true problem: it’s not about economics, it’s about internal politics– whose interests are taken account of, and whose are minimized with ad hoc rationalizations dressed up as economics?

For example, pay: if we are talking about ordinary workers in firms, we are told that “economic efficiency” is the reason for the decline of their wages as a share of profits; companies squeeze workers because then they can provide products at the lowest price. Amateurs even sometimes argue that this is actually GOOD for workers because they then don’t have to pay as much for underwear and carbonated sugarwater, and raising their wages would just go to inflation and actually do them no good. (As though it’s literally IMPOSSIBLE to pay workers more in real terms.)

But when the conversation is turned to high-level executives, somehow paying them less isn’t relevant to efficiency and lower prices. Instead, we get tortured arguments from conservative/libertarian economists that executive pay ought to be HIGHER to increase efficiency, because huge payouts and stock options give executives “incentives” to do a good job– “skin in the game” is a popular phrase among conservatives/libertarians for why we are actually better off if executives get paid more and own larger parts of their companies’ equity.

So here’s the thing: if you are going to argue for or against raising the compensation of ANY group in the production process, low-wage of high-wage or capital or whatever, you can ALWAYS make these same arguments for both sides. Lowering compensation is efficient, because then there’s more to reinvest and the average cost per unit is lower. Higher compensation is more efficient because it induces the compensated party to work harder and more honestly. Apparently, you can get whichever result you want– argue for whichever set of interests you prefer, essentially– at whim. (To actually settle the issue, we’d need empirical evidence of a kind I’m not sure we actually have.)

In a similar vein, the notion that higher pay in itself leads to economic stagnation — namely in the form of unemployment and low job growth — is also unsubstantiated. To quote my friend once more:

So far as I know, there is no historic empirical correlation between high wages and unemployment, which would need to be the case to establish this claim. Indeed, right now we are in a prolonged period of falling/stagnant wages combined with higher unemployment; of course additional factors may be involved, but it’s at least not obvious that lower wages mean more jobs and higher production. Indeed, I’m pretty sure there’s nothing in economic theory to tell us that lower wages should lead to more jobs and higher production. Don’t confuse what ONE COMPANY does– hire more people and increase units produced– when it can get the same labor for lower cost, versus what the WHOLE ECONOMY or aggregate of companies does in the same situation. Just because one firm would, IF OTHER COMPANIES’ LABOR COSTS ARE UNCHANGED, increase jobs and production in response to a fall in its own labor costs, does not mean that such a fall FOR ALL FIRMS SIMULTANEOUSLY would lead to more jobs and more production; indeed, it might well lead to less, which has at least been the correlation (I won’t assume causation, of course) we’ve gotten for the last 30 years or so.

For anyone who doesn’t already understand it, look at the Mantel-Sonnenschein-Debreu theorem. It’s a dirty little secret of mainstream economics, which explains why you can’t just reason from the parts to the whole in economics.

In short, there’s little practical reason not to pay most people better, or at least ensure that they’ll actually receive growing wages over time. The money is there and so is the incentive: a larger and wealthier pool of potential consumers who can drive the demand these firms crave so much. As I’ve noted before, if companies want to avoid state coercion and/or disruptive labor action, then they should take it upon themselves to prove their social, economic, and environmental responsibility.

Bangladeshi Factory Workers Still Without Justice

Several months after a horrific factory collapse killed over 1,000 Bangladeshi laborers — exposing the callous and pervasive disregard for workers in that country’s biggest industry — there has still been little change in businesses practices in one of the world’s poorest nations. A recent investigation by Richard Bilton of the BBC uncovered yet another disturbing practice: forcing already-low paid and neglected employees to remain at work for nearly 20 hours.

We’ve been told this factory — Ha Meem Sportswear — works incredible hours; we’re hiding in the shadows to get the proof.

There’s a guard sitting in front of the main gate. He hasn’t spotted us.

He’s about to do something shockingly dangerous.

At 01.15 – with workers still busy inside – he locks the main factory gate and wanders away.

This place had a fire a few weeks ago and they’re commonplace in the industry. If anything goes wrong tonight, the workers are trapped inside.

The shift finally ends at 02.30. That’s a nineteen and a half hour day.

One worker agrees to talk. He earned about £2 for the shift and he’s exhausted. He has to be back at work again for 07:00.

He says: “My feelings are bad and my health is too. In the last two weeks, approximately, it has been like this for eight nights.”

Two days later, I return to Ha Meem Sportswear. I am going undercover as a buyer from a fake British clothing company.

I want to hear what the factory owners say about shifts.

We are shown around. The factory is old and cramped. One woman is working under a table.

The managers show us the order they’re working on: 150,000 pairs of jeans and dungarees for the discount supermarket Lidl.

I ask about working hours and I’m assured the factory closes at 17:30.

I ask about whether gates are ever locked: they say they are always open.

It’s clear the buyer is told what he wants to hear.

They even provided timesheets for the night I watched the factory. They say the shift ended at 17:30.

The paperwork looks convincing. If I hadn’t seen it myself, I would never know that workers were being forced to work such long days.

Ha Meem Sportswear is far from the only clothing manufacturer pulling this trick.

Kalpona Akter, from the Bangladesh Center for Worker Solidarity, says many factories hide the truth about working hours from Western retailers.

“The factory owners, they keep two different books. So one they show to the buyers, the other they show to the worker. These retailers’ so-called audits really don’t work.”

It’s practices like this — common throughout the third world — that make me cynical about industry opposition to regulation and unionization. If this is the sort thing they do in the absence of any sort of oversight or check on their power, why should we give them more freedom? If firms don’t want labor movements or the state coercing them to be ethical, then they should be setting the example by treating their employees better on their own. 

Indeed, there has already been significant pushback against this widespread abuse, as thousands of garment workers have gone on strike to demand an ultimately modest rise in their pay.

More than 100 Bangladeshi garment factories were forced to shut on Monday as thousands of workers protested to demand a $100 a month minimum wage and about 50 people were injured in clashes, police and witnesses said.

Garments are a vital sector for Bangladesh and its low wages and duty-free access to Western markets have helped make it the world’s second-largest apparel exporter after China.

But the $20 billion industry, which supplies many Western brands, has been under a spotlight after a series of deadly incidents including the collapse of a building housing factories in April that killed more than 1,130 people.

Workers took to the streets for a third day on Monday, blocking major roads and attacking some vehicles in the Gazipur and Savar industrial zones, on the outskirts of the capital, Dhaka.

At least 50 people, including some policemen, were injured, witnesses and police said, as police fired teargas and rubber bullets, and workers responded by throwing broken bricks.

Some workers also vandalised factories, witnesses said.

“We had to take harsh actions to restore order as the defiant workers would not stop the violence,” an Gazipur police officer said.

The monthly minimum wage in Bangladesh is $38, half what Cambodian garment workers earn.

The government is in talks with unions and factory owners on a new minimum wage.

Bangladesh last increased its minimum garment-worker pay in late 2010 in response to months of street protests, almost doubling the lowest pay.

Recently, factory owners offered a 20 percent pay rise which workers refused, calling it “inhuman and humiliating”.

“We work to survive but we can’t even cover our basic needs,” said a protesting woman worker.

The fact that a billion dollar industry is reluctant to pay people a mere $100 a month — not including any benefits of perks — speaks volumes about the culture of greed and elitism that has taken hold of many corporations. It also says a lot about the sort of environment such firms would rather operate in, and what their vision of America would be like were they given the chance to implement.

Link

Corporate Profits Soar as Workers’ Incomes Slump

There is yet more evidence that our economy has become a zero-sum affair, where the growth of corporate profits (and by extension the coffers of the elites) come at the expense of average workers.

With the Dow Jones industrial average flirting with a record high, the split between American workers and the companies that employ them is widening and could worsen in the next few months as

That gulf helps explain why stock markets are thriving even as the economy is barely growing and unemployment remains stubbornly high.

With millions still out of work, companies face little pressure to raise salaries, while productivity gains allow them to increase sales without adding workers.

“So far in this recovery, corporations have captured an unusually high share of the income gains,” said Ethan Harris, co-head of global economics at Bank of America Merrill Lynch. “The U.S. corporate sector is in a lot better health than the overall economy. And until we get a full recovery in the labor market, this will persist.”

The result has been a golden age for corporate profits, especially among multinational giants that are also benefiting from faster growth in emerging economies like China and India.

These factors, along with the Federal Reserve’s efforts to keep interest rates ultralow and encourage investors to put more money into riskier assets, prompted traders to send the Dow past 14,000 to within 75 points of a record high last week.

While buoyant earnings are rewarded by investors and make American companies more competitive globally, they have not translated into additional jobs at home.

And why not? There is plenty of money to go around. Companies can well afford to hire new workers and pay their current ones better, and still have plenty of profits left over for their CEOs and shareholders.

As a percentage of national income, corporate profits stood at 14.2 percent in the third quarter of 2012, the largest share at any time since 1950, while the portion of income that went to employees was 61.7 percent, near its lowest point since 1966. In recent years, the shift has accelerated during the slow recovery that followed the financial crisis and ensuing recession of 2008 and 2009, said Dean Maki, chief United States economist at Barclays.

Corporate earnings have risen at an annualized rate of 20.1 percent since the end of 2008, he said, but disposable income inched ahead by 1.4 percent annually over the same period, after adjusting for inflation.

“There hasn’t been a period in the last 50 years where these trends have been so pronounced,” Mr. Maki said.

 

The problem is simple: corporations don’t want to to pay their workers better because their standards of sufficient wealthiness are getting ever higher. Business elites are finding their growing appetites for money ever more difficult to satiate. It used to be that making a million or so dollars was more than sufficient —  but nowadays, it seems every executive wants tens of millions, if not hundreds of millions, and their shareholders and board members are no better.

When a handful of people want more and more money, the natural consequence is to make cuts (e.g. layoffs, benefits, hours) and withhold investment (e.g. raises and benefits). Otherwise, where else will all this money come from? Consider the following  case in point:

“Right now, C.E.O.’s are saying, ‘I don’t really need to hire because of the productivity gains of the last few years,’ ” said Robert E. Moritz, chairman of the accounting giant PricewaterhouseCoopers.

At 218,300 employees, United Technologies’ work force is virtually unchanged from seven years ago, even though annual revenue soared to $57.7 billion in 2012 from $42.7 billion in 2005.

The relentless focus on maintaining margins continues, even though profit and revenue have never been higher; four days after the company’s shares soared past $90 to a record high last month, United Technologies confirmed it would eliminate an additional 3,000 workers this year, on top of 4,000 let go in 2012 as part a broader restructuring effort.

“There’s no doubt we will continue to drive productivity year after year,” Mr. Chenevert said. “Ultimately, we compete globally.”

And that last sentence denotes a bit part of the problem: even if a company’s executive or board wants to be ethical and pay their workers better, they’ll come under relentless pressure by investors and shareholders to provide a bigger return on investment. Competition is cutthroat and no-holds-barred, and this country’s particular hyper-individualism and dog-eat-dog mentality only makes it worse. There is no sense of social obligation — it’s all about the bottom line and how much one can make for themselves, regardless of the costs to others, the environment, or society as a whole.

Our culture and attitudes need to change. How to do so is a different story altogether.

Big Business, Corporate Profits, and Low Wages

This past summer, the National Employment Law Project (NELP) had published a report that reached some rather disquieting (though sadly unnoticed) conclusions. It found that the majority of America’s lowest-paid workers – whose numbers are growing quickly – are employed by large corporations, not, as it is widely believed, by small businesses. Furthermore, most of the largest low-wage employers have recovered from the recession and are in a strong financial position.

The main findings are as follows:

The majority (66 per cent) of low-wage workers are not employed by small businesses, but rather by large corporations with over 100 employees;

The 50 largest employers of low-wage workers have largely recovered from the recession and most are in strong financial positions: 92 per cent were profitable last year; 78 percent have been profitable for the last three years; 75 per cent have higher revenues now than before the recession; 73 per cent have higher cash holdings; and 63 per cent have higher operating margins (a measure of profitability).

Top executive compensation averaged $9.4m last year at these firms, and they have returned $174.8bn to shareholders in dividends or share buybacks over the past five years.

In other words, these can well-afford to pay their workers better, but are shifting most of their profits to their executives and shareholders instead. It’s not a lack of capital that’s the problem, but the way that capital is distributed – disproportionately to those at the top. As the report concludes:

Three years after the official end of the Great Recession, the US continues to face a dual-crisis of stagnant wages and sluggish job growth. Critics argue that a higher minimum wage will discourage companies from hiring, and that most low-wage employers are small businesses that are still struggling in a weak economy. In fact, this report demonstrates that the majority of low-wage workers are employed by large corporations, most of which are enjoying strong profits.

To make matters worse, the Bureau of Labour Statistics found that the top two fast-growing jobs are low-paying, paying less than the minimum wage did in 1968, once adjusted for inflation. Furthermore, these accounted for more than half the gains of the entire list of 30 fastest-growing jobs. In other words, more and more people can only find work in fields that pay less and less, and data gathered from the NELP show that most gains have been in insecure, low-paying work that often lack benefits.

So while there are many problems with our economy, it seems clear that an underlying weakness is this hierarchical class structure that is helping to entrench inequality. The more profits go to the folks at the top, the fewer resources for the rest of us; subsequently, more people either fall back onto (meager) government programs – which these same robber barons seek to cut – or are forced to take on more debt in order to sustain themselves.

Workers need to get a bigger slice of the pie. There’s nothing unfair or radical about that. Companies can still be profitable, and executives and shareholders can still be paid very well, while ensuring their workforce receives a living wage. It’s not a zero-sum game, except for those who feel the need to make more and more millions a year at the expense of a growing number of people – and the economy as a whole.

Al-Jazeera English has an excellent piece on the subject, which cites some of the same sources.

Why Won’t Businesses Hire?

Supposedly, it’s because the US business environment is unfriendly. Corporations want to place all the blame for our economic problems on the government. It is certainly true that the state has not been guiltless in this mess. But neither have business elites. Let us analyze the facts.

Contrary to popular belief, the United States still remains among the top ten countries in the world in terms of economic freedom, business friendliness, and competitiveness (sources include the Freedom of the World Index , the Index of Economic Freedom, the Ease of Doing Business Index, and the Global Competitiveness Report ; note that many of the countries that surpass us in these areas are what we would otherwise call “socialist” – they have higher wages, universal healthcare, more state intervention, and so on).

Yet companies are firing people, freezing wages, slashing benefits, and refusing to hire, citing the business climate as too unpredictable, unfriendly, and oppressive to facilitate investing in the economy. Really? If that is the case, how have companies managed to gather a total of $2 trillion in cash reserves, continue to pay their CEOs millions in bonuses, and consistently make profits throughout the recession (in some cases even breaking records)? By just about every measure, most businesses are clearly doing well.

The government has screwed a lot of things up, but it has little to do with business leaders deciding they want to pocket more money for themselves while pretending, despite all the evidence, that they can’t afford to do their part.

 

Hard Work and Wealth

A lot of wealthy executives (among others) claim that anyone can get as rich as them with enough hard work. But there are two problems with this argument.

First, it suggests that income and wealth always correlate with work ethic. So, the implication is that all rich people are hardworking while anyone who is poor is lazy. But there are plenty of people born into wealth who did nothing to deserve it, and many more people who work hard their whole lives and never become wealthy.

Second, these business elites run companies that require the perpetual existence of a low class labor force. They will always seek workers that can be paid poorly for doing menial but vital work. So clearly, not everyone can make it through hard work. The system they support will always demand cheap and exploitable labor, whether it’s here or in some other part of the world.