On the Free Market...

I will acclaim, up-front, that I am a free market capitalist, BUT…  I also believe that freedom comes with some sense of responsibility.  What does that mean?

Most people would say that they believe in “freedom”, and yet…most people do not believe in “unlimited freedom”.  Unlimited freedom goes by another term:  “anarchy”…where everyone is free to do anything they wish without the constraints of law.  The close brother to anarchy is pure “democracy”…where the majority is free to do anything they wish without the constraints of law…because the majority rules and creates/alters the law.  The point is that, in a Republic, another ideal, “justice”, is a natural constraint upon our freedoms, especially where interactions with other freemen are concerned.  We are free, but we are not free to exploit others.

Likewise, most Americans believe in capitalism and in a free market economy, and yet…most would not approve of an unconstrained free market.  For example, we would not accept “slave labor” or “child labor”.  We would not tolerate a needlessly dangerous workplace just because the company wants to save a few dollars.

While we believe that there should be a high degree of freedom in the marketplace, we also believe in having some basic fair labor standards.  Some people believe that wages should be more fair and equitable and seek to impose things like minimum wage standards as a solution to perceived oppression in the labor force.  Some people believe that executive salaries are obscenely high and are calling for maximum salary restrictions.

The real question may be:  How can we best impose constraints that require fair treatment of the labor force while not punishing success?  For example, executives that do an excellent job of growing their company should be rewarded, but not if they grew the company’s bottom line by exploiting/oppressing employees.  It doesn’t take a genius to improve the bottom line by firing employees, moving the factory overseas, and hiring workers at $2/day.  It doesn’t take a genius to convert your full-time staff to all part-time staffers, cutting all insurance and benefits.  Executives who use such strategies should not be rewarded as though they ARE geniuses.  The genius is the executive who creates good paying front line jobs, expands the work force, and still guides his company to make good profits.

Granted, this is only my personal “value judgment”, but… I don’t believe that any man is worth 1,000 times as much as the front line employees who work for him.  I’m not completely convinced that even a sharp executive is worth 100 times their average employee.  As a outflow from this belief, I take a different approach to wage equity.

Proportional Wage Constraints:

First, I would do away with minimum wage and other wage restrictions.  There are some types of businesses that simply cannot support the needed number of employees at even a minimum wage level.  Farms employing migrant workers might be one example.  Eliminating minimum wages would allow farmers to do, legally, what they are already doing, illegally:  pay what the market will bear.  This would allow them to continue their business without forcing a drastic increase in overhead, and thus…an inflationary rise in food costs.  This may hold true for other labor-intensive businesses, as well.

In place of minimum wages, I would institute comparative wage restrictions – links between the annual salaries of workers at various levels of the organization.  For example, the salary of the top executive in an organization would be tied to the salaries of the lowest paid worker and/or the average worker.  If an organization had only full-time, well-paid workers, the ceiling for that executive’s salary would be significantly higher than in an organization where there were part-time, poorly-paid workers.

One advantage of a Proportional Wage Constraint is that a start-up business has the option of hiring workers at a very low wage, reducing costs during start-up; of course, the executive salary during that time would have to be proportionately low, as well.  Then, as the business grows and becomes successful, in order to reward that executive for the growth and performance of that business, the company would have to also raise the minimum and average employee’s salaries, effectually allowing them to share that reward for success.

We recognize and expect that some executives would try to find loopholes and other ways around such a law, thus, we would have to impose safeguards against finding creative ways around the wage constraints.  For example, we would include in the constraints all forms of benefits and compensation, including health care, bonuses, stock options, company car (or jet), and so on.

These constraints would also have to apply to any company related to the original company.  For instance, a ABC Company could not have low-paid workers then hire a separate, high-paid XYZ “management firm” to run the ABC Company.  Nor could an executive group (XYZ) hire some cheap labor through some temp company (ABC) to skirt around the Proportional Wage Constraints.  Any company connected to the original company (such as a management firm, a “parent” company, a consulting firm, or a temp agency) would also be forced to comply with the company Proportional Wage Constraints.

This kind of Proportional Wage Constraint does not restrict executive salaries.  It only ensures that the rewards for success are shared by executives and front line workers alike.  It also ensures that executives are not rewarded for oppressive treatment of their other employees.  Lastly, it allows a flexibility for start-ups and for labor-intensive type companies that minimum wages don’t allow for.