Featured Quote

In 1913, Henry Ford wrote the following as the directors had been reaping the rewards of profits - "The wages we pay are too small in comparison with our profits. I think we should raise our minimum pay rate".

Tuesday, March 15, 2011

Ethical Capitalism

We need to start having conversations about Ethical Capitalism.  It is the most logical, most effective and most Free-Market solution to our economic woes.

To understand the solution, we must first understand the problem.  The statutory corporate tax rate in the United States is 35%.  With write-offs, tax breaks and loopholes, the most profitable companies in the United States pay an effective rate of 3.4% - three point four percent.  They also use tag-dodging methods that would land any citizen in prison - such as using offshore tax havens, reporting losses in the U.S. and reporting profits in offshore, low-tax areas.  To add insult to injury, they lobby for even more tax breaks and "incentives" to do business here in the United States.  They pay a few people very large amounts of money to figure out ways to cut costs and dodge taxes while reaping huge profits.  It is a very short-term oriented method of generating profits.

Their "Business Model" has several effects.  It decreases the amount the company contributes to sustaining the environment in which it profits - our society.  It decreases the purchasing power of the very consumer base that it seeks to exploit for it's profits.  It increases the income gap and the wealth gap.  It shrinks the number of 'wealthy' and increases the number of  'poor' citizens.  Eventually, the top-heavy economy will collapse due to the eroded consumer base.  This is what most extremist Republicans are wanting the country to run headlong at top speed toward - in fact, we are already heading swiftly toward another total collapse.

So what is the Solution? What is Ethical Capitalism? Well, there are sites out there that call Ethical Capitalism being 'green' and environment conscious.  There are some that use the term "Sustainable Capitalism" to mean pretty much the same thing - business environmental consciousness.  While those things are important, I am more focused on purely economic ethics and sustainability.  (Some come very close.)  Our current model is profiting a select few and draining money out of the economy at a staggering rate.  Leading, inescapably, to economic collapse as the consumers who drive the economy have less and less to spend.

The Ford Motor Company - under the direction of Henry Ford - was a prime example of Ethical Capitalism. When I started working in the 1990s, the minimum wage was $3.75 an hour.  Ford said, "The wages we pay are too small in comparison with our profits. I think we should raise our minimum pay rate".  One year later, in 1914, Ford set his company's minimum wage at $5 per hour.  Even the janitors got $5 an hour.  Turnover fell from 370% to 16%, Productivity rose between 40% to 70% and profits increased 20% within a year.
Ford instituted employee profit sharing - and are still doing it today!  He told a newspaper, "We believe in making 20,000 men prosperous and contented rather than follow the plan of making a few slave drivers in our establishment multi-millionaires." (blog worth a look)

Today, we have turned away from Ford's very successful business model and have chosen to make a few executives millionaires and leave our workforce struggling to survive.  I feel strongly that this has led to our current economic woes.  We need to take a look back on our economic history and see what worked and what did not.  There are things that created economic bubbles - only to be taken to excess and burst.  I do not believe that extreme measures on either side of the scale are the answer.  Only Moderation can set us on a long-term sustainable path.

Once again, the wages we pay are too small in comparison with our profits.  Instead of grossly over-rewarding a few, we should more adequately compensate a larger portion of our workforce.  If I have my tax code right, paying workers more with the excessive profits would also greatly reduce the taxable income and lend to less tax-dodging.  Not only is such a thing reasonable, rational, ethical and moral, but I am sure that right now, it is necessary.

If we can get government to close the loopholes, eliminate the subsidies, end the tax breaks and put an end to the tax-dodging using offshore tax havens, then there will be more incentive to pay workers a living wage.  We could then lower the statutory corporate tax rate while raising the effective tax rate.

I believe that Ethical Capitalism is the answer.

(and we are not the only country having this issue!)  ( a Myth-debunking about the Boston Tea Party??? )

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Look at the minimum wage chart again. You see how the constant dollars minimum wage topped out in 1968 and has been falling ever since?  A job that made an effective $7.21 in 1968 would make an effective $4.41 in 2007.  It may be slightly less or slightly more now, but I'd wager on slightly less.

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Corporate Taxes :
The idea that businesses pass on taxes to the consumer is absurd.  Corporate taxes are on profits, so if they pass on the tax to consumers by increasing price, it would increase their profit, increasing the tax and creating an infinite loop of cause and effect.  There are many of ways for a business to decrease their tax burden - pay workers more, lower prices on products, pay more for parts or shipping or storage, increase research and development.