Tag Archives: markets

Necessary Distinctions

I’ve spent a fair amount of time on this blog criticizing corporate interests–Big Oil, the Kochs, all the mega-corporations evading taxes by any means arguably lawful, and others of that ilk. But a recent story reminded me that markets often exert powerful pressure for good, and not just because competition tends to drive down prices and make goods and services affordable. The vast majority of businesses operate in competitive markets that reward good behavior as well as low prices.

A good example is the fight for equal rights for GLBT citizens. Business has been in the forefront of that fight.

The link in the first paragraph is to an article about Chik-fil-A, which is furiously backpedaling from the anti-gay remarks made last year by its founder and CEO. While it would be nice if that retreat was the result of some sort of moral epiphany, the truth is that it has been forced by the realities of the market. (As one consultant recently wrote,  “There are few more treacherous actions a CEO can take than to make derogatory comments about gay men and lesbians or to be publicly exposed for funding anti-gay causes.”)

Chick-fil-A’s socially conservative agenda, which formerly led the company to donate millions to charitable groups opposed to gay marriage, has been tempered. This, just as the company aims to quickly expand into Chicago, New York and Los Angeles. Southern hospitality must give way to urban reality as the 1,800 store chain moves to compete with big city success stories like McDonald’s, Panera Bread and Chipotle.

Homophobia, racism, anti-Semetism and the like are bad for business. That lesson has been learned by hundreds of thousands of entrepreneurs, middle-managers and HR folks–and along the way, many of them have become true believers in the value of valuing diversity. Their advocacy, in turn, has moved the entire culture in a more inclusive direction.

For every asshole who is buying politicians and squirreling profits away in the Cayman Islands, there are twenty companies genuinely making America a better place–by treating GLBT people fairly, by becoming more environmentally conscious, by adopting local schools or supporting civic and charitable causes.

We need to rein in the bad actors, but we also need to appreciate the good guys. Even the guys who are only being good because that’s what the market rewards.

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Job Creators or a Tale of Two Big Boxes

There are job creators, and then there are job creators.

Debates about economic policies tend to center on concerns about job creation. Corporate CEOs often argue that raising tax rates or the minimum wage will suppress hiring. (I’ve often wondered why we can’t just offer a tax credit for each job created, rather than keeping rates low and hoping that will translate into additional employment. But I digress.)

The question that is too seldom addressed is: what kind of jobs do we want to incentivize? Because all jobs are not equal–not from the standpoint of the employee, and not from the standpoint of the taxpayer.

A recent study released by Congressional Democrats underlines the issue. According to that study, Walmart’s wages and benefits are so low that many of its employees are forced to turn to the government for aid, costing taxpayers between $900,000 and $1.75 million per store. As Mother Jones reports,

Walmart’s history of suppressing local wages and busting fledgling union efforts is common knowledge. But the Democrats’ new report used data from Wisconsin’s Medicaid program to quantify Walmart’s cost to taxpayers. The report cites a confluence of trends that have forced more workers to rely on safety-net programs: the depressed bargaining power of labor in a still struggling economy; a 97 year low in union enrollment; and the fact that the middle-wage jobs lost during the recession have been replaced by low-wage jobs. The problem of minimum-wage work isn’t confined to Walmart. But as the country’s largest low-wage employer, with about 1.4 million employees in the US—roughly 10 percent of the American retail workforce—Walmart’s policies are a driving force in keeping wages low.

Businesses do not have to be conducted this way. Good jobs that don’t require public support are not inconsistent with  healthy profits. A recent Business Week article reports on the very different business approach taken by Walmart competitor Costco.

Despite the sagging economy and challenges to the industry, Costco pays its hourly workers an average of $20.89 an hour, not including overtime (vs. the minimum wage of $7.25 an hour). By comparison, Walmart said its average wage for full-time employees in the U.S. is $12.67 an hour, according to a letter it sent in April to activist Ralph Nader. Eighty-eight percent of Costco employees have company-sponsored health insurance; Walmart says that “more than half” of its do. Costco workers with coverage pay premiums that amount to less than 10 percent of the overall cost of their plans. It treats its employees well in the belief that a happier work environment will result in a more profitable company. “I just think people need to make a living wage with health benefits,” says Jelinek. “It also puts more money back into the economy and creates a healthier country. It’s really that simple.”

Despite its higher wages and more generous benefits, Costco nets more per square foot than Walmart.

I have increasing numbers of students who believe that all business enterprises are at worst evil and at best unconcerned with anything but the bottom line. They look at Walmart and the many businesses that emulate its rapacious approach; more recently they point to the employers who are cutting workers hours in order to avoid having to provide health insurance under the terms of the Affordable Care Act, and they note the huge disparities between the salaries of CEOs and their employees, and they see those behaviors as an inevitable result of market capitalism. It isn’t.

Costco and many, many other enterprises demonstrate that concern for workers’ welfare is entirely consistent with a healthy bottom line. The problem is not with our markets, it is with our culture, and with public policies that enable and reward despicable behaviors.

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Health and the Market

Well, I see that the Congressional GOP is threatening to shut down the government in October if the Democrats block repeal of the Affordable Care Act, aka Obamacare, and the partisan rhetoric is predictably flying.

A Democratic friend sent me an email listing the multiple sins of the Bush Administration, from wars of choice to decimation of the economy to the massive increase in the national debt; the message was something like “You didn’t get mad about any of these things, but now a black guy wants to provide healthcare to Americans who don’t have it, and that makes you mad!?” A Republican friend sent me a similarly incendiary message insisting that Obama is a “socialist” who hates capitalism and wants to destroy the market “that made American health care the best in the world.”

Let’s stipulate that not everyone who opposes Obamacare is a racist, and that American healthcare before the ACA was not only not the best in the world, but actually ranks around 37th. Other than that, my purpose is not to engage these arguments, but to point to a perfect example of the way “the market” works in areas like healthcare, where buyers and sellers are not on equal footing, and do not possess the sort of equivalent information that is necessary for markets to work.

I have previously referred to a book written my cousin, Morton Tavel, in which he takes on the “snake oil” aspects of the healthcare industry. He has now created a blog devoted to the subject, and his first post is a perfect example of “the market” in medicine–a discussion of all the ads about “low T”–testosterone deficiency. I encourage you to click through and read the whole post, but the bottom line is that  “low T” is extremely rare. The numbers the manufacturers are hyping are misleading at best and fraudulent at worst, and the “remedy” they are promoting is expensive, unnecessary and unlikely to restore the virility of the aging men who miss their morning erections.

Markets are wonderful where they work. And they work more often than they don’t. But in those areas where they don’t work, they enable the snake oil salesmen who prey on the unwary and drive up costs for everyone.

As with so many policy debates, this isn’t an “either-or” debate between all market all the time and socializing every aspect of the economy. We “socialize” functions that markets cannot efficiently provide–police and fire protection, infrastructure provision, national defense, public education. We leave to the market those economic areas where markets have proven their effectiveness.

The decision whether to leave an activity to the market or provide it through government should be based on evidence, not ideology. And as every other western industrialized country has long recognized, the evidence for government’s role in healthcare is overwhelming, just as the evidence for the market in consumer goods and manufacturing is overwhelming.

The evidence also tells us a lot about elected representatives who–having lost the argument–are willing to shut down the American government in order to protect the profits of health insurers and drug companies.

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