Labor and Capital Need Each Other
Even reporters on NPR can fall into the logical trap of the indispensable wealthy. On the show, "Marketplace", a reporter was making the argument that the wealthy have led the way in launching new products and technologies. I heard mainly the segment on Tesla, which could have been the only actual reporting in the piece. The point was the high price of the sports car, intended to be followed by lower-priced second and third models. The implication was that without sales in the first version, with Porsche-class pricing, the affordable versions would not happen.
This is fallacious, in that the high-priced custom coaches and Stanley Steamers did not lead to mass-marketed cars. Henry Ford just went for it, thinking he'd make more money by selling more units. His Model T design was informed by his experiences, which were shared by others in the young car business. But his offer of a wage twice the going rate, $5/day in 1914, was hardly ordinary.
It doesn't look like Ford intended to depend on selling only to the wealthy. The Model T debuted in 1908, at $850. Its simplicity and robust design made it a good buy, and sales rose, with the price dropping to $360 in 1916 as sales passed 472,000.
We have to be cautious about applying the history of Henry Ford to electric cars now, for a couple of reasons. First, cars were not already everywhere, perfectly adapted to existing complex road systems. Second, there was not a competing fuel distribution system that was painless and reliable, allowing a refill for another few hundred miles with a pit stop of a couple minutes. So the Tesla could use more than a few wealthy buyers. It will not move into decent market share without a competitively-priced car. That will depend on very long-viewed investors, or more likely, stronger incentives to develop the electricity-delivery system.
But we can't have our affordable cars without those large factories and labor. Neither can the Henry Fords have their market share without affordable cars, ergo mass production and labor. Hedge fund managers that get lucky can have a good year with only the elite for clients, but the clients need their businesses to have a good market share, thus they need to be big, and need labor.
Businesses do not give away jobs, they hire in order to make more money, if they think demand will rise, or to catch up with already rising demand. And most of us lack the talent, the luck, the friends (Ford enjoyed a number of different investors and advisers, including Edison), to play in the big leagues. Good thing, actually, since if we all tried there would be no mass market, only private coach makers. You might have a lovely coach-and-four from Ghia or Fischer, but the coach makers were not going to ever become Rothschilds.
We need each other, but labor doesn't need the owners to be non-wealthy. Owners do need labor to achieve wealth, and they need workers to not get too many ideas about competing. Another asymmetric comparison is that liberals have never espoused 100% tax rates (well, AIG bonuses may escape that restraint). But owners have often tried to maintain that zero taxes is ideal, forgetting that their business depends on government supports, be they highway subsidies, oil depletion allowances, import duties to protect national business sectors, navies to enforce trade deals and shipping of natural resources, and armies to control land that holds resources.
I'll admit I like working for a large outfit, and pulling a paycheck, since I lack the talent to be my own businessman (I've tried). Will the large companies ever again admit they need good workers? Ford did when he saved money by spending more money, holding his trained machinists, enjoying the easier and better training they gave to new hires, and the reduced turnover, and the new class of potential purchasers he created.
Oh, I forgot, AIG was just arguing they needed to spend on bonuses to retain those talented financial-products folks that lost few hundred billion bucks. (Except most of them had already left.)
I mentioned elsewhere that this whole thing smells like Madoff. Making sure his wife has close to 100mill in assets (that we know about). Those checks found in his desk the day after he was arrested.
Modus operendi.
First Rule of Capitalism in the 21st century:
Make as much money in the shortest period of time.
Irreplaceable. What a ruse!!!!
March 17, 2009 8:41 PM | Reply | Permalink
Tom,
I agree with your premise, but as someone who's business is mainly a management/employee consultant - I have to say that somewhere along the way, too many employers quit valuing their employees and while they paid for all types of training for their management, little was done for positive employee relations, et al.
I'm a bit leery that with so many people needing work it is so to speak a buyer's market and there will be less incentive to provide a healthy (emotional, mental and physical) work environment. Ironically, employees who have this are more productive and more willing to 'invest' in the business.
But, your premise is correct, we do need employers to be profitable and employees need a business to provide jobs. A large quantity of product/service can provide the same, if not greater profit, than limited product/service. And quality does not need to suffer.
Round and round we go......
Thanks. Rec'd.
March 17, 2009 8:44 PM | Reply | Permalink
Our state psychological association gives awards for "psychologically healthy workplaces." And it's been shown that about 40% of people in doctor's offices or seeing therapists are there due to work stress. So not only is it good for business to attend to the worker in the workplace, but it will lower the cost of health care and benefit society.
I know this is off-topic of the post, but I was so glad to see you address the worker issue, Aunt Sam!
March 18, 2009 7:15 AM | Reply | Permalink
Perhaps Tom will disagree, but I don't think the employee issue is off topic. He was writing as to the benefits of being an employee.
Crucial point: Without employees to produce the product/service and supporting work, there is no business. Thus, no profit, etc.
Thanks Thera. And Tom, again, thanks for post.
March 18, 2009 1:11 PM | Reply | Permalink
Hey Tom. The Tesla has no unique selling feature outside its battery. The battery is lithium-ion, and yes, they've done great design work (both external, from Lotus, as well as other techie aspects), but fundamentally, it's an electric car that runs on lithium-ion batteries, which we haven't seen very much of.
And the development of the lithium ion battery? Consumer electronics. Laptops and cellphones and iPods and such. The cost ONLY came down because scale production and sales reached into the tens of millions. The driver, in other words, has been... mass production.
I always like to see fancy new gadgets get out there and be sold to the (imaginative) wealthy, as long as they're ultimately going to be useful gadgets, and while they may help carry the 5%-10% front-end of the lifecycle, it's all of us, buying en masse, that cary the freight.
March 17, 2009 8:52 PM | Reply | Permalink
Yes indeed.
First Solar gave credit to Germany's legally mandated higher electric rates for renewable-source energy, to let it ramp up production and sell as low as $1/watt.
March 17, 2009 9:01 PM | Reply | Permalink
From a marketing perspective (exclusive of strategic security reasons), the hurdle that must be jumped by electric cars is the same as for any disruptive innovation. It isn't enough that electric cars might be merely superior to internal combustion cars, they must be COMPELLINGLY so. The electric car will have to be far better than the gasoline car, either in some already established product metric (such as, acceleration, fuel economy, range, payload, emissions, safety), or in some new product metric (typically, by being more convenient to use in some manner, or by being greatly more stylish). Only then will the cost and effort of switching become worthwhile.
Cars supplanted the horse & buggy because they represented a compellingly superior mode of personal transportation. On every product metric except cost & possibly reliability, cars were far superior. That's where Ford revolutionized automobile production, by significantly reducing the cost premium of attaining the compellingly superior performance and style (relative to the horse & buggy) offered by the automobile. The Model-T still cost more than a horse & buggy and probably wasn't as reliable, but now, the far superior performance and style of automobiles made the narrowed cost premium justifiable to great numbers of working-class families.
The problem of infrastructure to support electric cars would then naturally follow, just as it did for gasoline cars when roads, fuel refineries, and service stations had to be built, en mass.
March 18, 2009 11:17 AM | Reply | Permalink
It is always good to see standard economic models challenged. I hope you won't mind if I attempt to shift the paradigm just a bit more.
So many of the privileges the wealthy claim as providers of capital are based on the outdated notion that there is a natural division between capital and labor but look at who owns (at least nominally) most of the shares of public corporations: mutual funds, pension/retirement plans, banks. Now think about where these investors get a lot of their money -- from laborers.
We have been brainwashed into believing that we risk catastrophe if we pool our resources into government enterprises while pooling them into private enterprises is their highest and best use.
Yes, I know the arguments in favor of private enterprises but I am not convinced. Nor do I think the only alternative is, omg, communism or even socialism.
I wonder how many US citizens realize that they are technically shareholders in the Tennessee Valley Authority (TVA).
TVA is an independent, federal-government-owned corporation chartered in 1933 as part of the New Deal.
Are they profitable? Net income for 2008 was $817 million. And, TVA recently proved it can be just as polluting, just as self-serving as any private enterprise.
Something to think about.
March 18, 2009 11:33 AM | Reply | Permalink
Good point! It's a curious thing. We have a better chance of reining in the TVA then we do a private enterprise. We simply lack the will to do so.
March 18, 2009 11:58 AM | Reply | Permalink
I think one of the main reasons for making TVA an independent corporation was to prevent a lot of politically-motivated reining in and micro-managing.
Certainly management should be held accountable their decisions in general and for the recent flyash disaster particularly but TVA should not be required to meet higher environmental standards than its competitors. That would handicap it and likely end up damaging, if not killing, the idea of a wholly government-owned independent corporation.
Personally, I like imagining profits from government owned enterprises replacing some of our taxes. :)
March 18, 2009 4:22 PM | Reply | Permalink
If the gov't has the monopoly, there is no competition to create this race to the bottom line. There is, however, a transparency that allows us to improve the function of the entity and in that there is ownership, the capacity to change directions as need be. Frankly, if a practice is environmentally detrimental and we have the capacity to do it another way, I feel we have an obligation to change. If it costs more, then that's just the cost of doing business, but necessary. I despise companies that know they will make more money if they use fewer safeguards, like those oil ponds created and abandoned by Texaco in Ecuador, or continuing making those Ford pickups with the gas tanks vulnerable to explosions on side impactss because it's cheaper to pay the suit then to change the assembly line or design.
March 18, 2009 6:49 PM | Reply | Permalink
In the construction industry I work in, everything is considered from the point of view of who will have to pay if things fail. There is insurance, of course, but whose insurance? What is negligence and what is an "accident"? The fine print in these matters can grow to the font one uses on really big checks.
In regards to the manufacture and building of things, there has been a very strong tendency to offload liability for the consequences of making things to an unassigned agent of the future. This is why we have government agencies like the EPA Superfund offices attempting to address what has happened in the past because there were no clear rules formed about who is responsible for what was done while things were being made back then.
So I submit that you don't have to garner a certain proportion of income to make enterprises more responsible, you just have to make the wealth completely dependent upon the total cost of their production.
March 18, 2009 7:28 PM | Reply | Permalink
I like the distinctions you're making, Emma. Or perhaps I should say I like that you're showing public and private often overlap and artificial distinctions are made as if "the people's money" is not involved in both govt and "capital" investments.
March 18, 2009 12:06 PM | Reply | Permalink
Sort of. I guess. I am not sure what you mean by "the people's money". It sounds kind of PRC-ish.
On the other hand, if you just mean people's money I have to say that my bank account cannot tell the difference between a withdrawal for taxes and one for mandated auto insurance. Mandated health insurance won't be any different.
Thanks for the opportunity to slip in another paradigm shift.
March 18, 2009 3:58 PM | Reply | Permalink
I understand that the rationale for paying the AIG bonuses is that those being paid them are the only ones anywhere that understand how the CDS, which they created work, these are the products which have brought about the disaster. That is to say that without them the world economy will collapse, in short they have the universe by the nads. Neat, huh?
March 18, 2009 12:38 PM | Reply | Permalink
Yes. Kind of like paying a suicide bomber to disarm that bomb on their chest because they best know how it works. Sweet, eh?
March 18, 2009 12:49 PM | Reply | Permalink
Here is this juicy quote from yesterday's Washington Post editorial:
March 18, 2009 12:54 PM | Reply | Permalink
An intersting, and frustration inducing article clipping. The entire financial industry is in dire need of dramatic sweeping regulation, and anti-trust action. It's clearly a matter of national security.
March 18, 2009 1:15 PM | Reply | Permalink
Given that the issuers show little deep understanding of the instruments they created, I see no downside to letting them walk. Let Treasury figure it out.
And we have only opaque assurances by compromised parties that there is this risk. Since they have much reason to inflate their own importance, we can start by discounting their warnings absent a thorough and public dissection of the monster they created.
March 18, 2009 4:38 PM | Reply | Permalink
I may be wrong but I think I read an article in the newspaper yesterday that said a lot of the bonus money went to people who had already left the company.
March 18, 2009 5:51 PM | Reply | Permalink