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It’s Better to Be a CEO

Ken Nesmith

Can you imagine working 40-, 50-, or 60-hour weeks at physically stressful, menial tasks and yet not being able to afford the most basic necessities of life -- food, shelter, perhaps clothing for your spouse and child, who also work to contribute to family income? Of course not. We can’t fully understand it unless we’ve experienced it, and as MIT students, most of us haven’t.

Much more suited to our position is airy economic analysis of the consequences of instituting labor standards and minimum wages designed to help the bottom dwellers, as Dan Tortorice provided last Friday. The least we can do is ensure that that analysis is accurate and respectful.

Economic theory suggests that raising the price of labor means that less labor will be purchased for two reasons. One is that businesses will substitute other inputs for low-wage labor in order to achieve greater efficiency and higher profits. The other is that businesses will raise prices in response to their increased costs, causing consumers to buy less, leading to reduced output and lower profits for the firms and consequent reductions in labor force. As MIT students, although we cannot perfectly empathize with the poor, we can grasp simple concepts easily, and as such, we can skip any further didactics about cost and benefit.

No matter how boundless our confidence in the primitive theory, evidence does not support the position that properly implemented labor standards ultimately hurt the laborer. A minimum wage increase in the mid-1990s, predicted by its opponents to devastate industries reliant on low-wage labor and to cause massive unemployment, had no ill effect; in fact, historical minimum wage increases are not at all regarded in economics textbooks as destructive to business or employees.

Current efforts to institute labor standards in apparel factories worldwide have been increasingly comprehensive and successful. Several successful companies make deliberate, conscious efforts to ensure that their clothes are produced in responsible working environments, even though it may be immediately cheaper to make use of any factory no matter how repulsive its treatment of employees.

Here in the United States, living wage campaigns have been growing in popularity, and for good reason.

Whatever the empirical evidence, living wage laws make good economic sense. If employees are not paid enough to meet the basic costs of living, it is the government, and hence the taxpayer, who offers them subsidies through social welfare programs. Living wage laws shift that cost away from the taxpayer to the employer. Without charitable intervention by government and private charities, paying poverty wages becomes an unsustainable practice.

Living wages have been shown to lower worker turnover and absenteeism, reduce employee training costs, raise morale and productivity, and strengthen the consumer market. A brief note about productivity and wages is also illuminating: between 1973 and 1998, worker productivity increased by 46.5 percent. During the same interval, hourly wages for average workers fell 6.2 percent, and weekly wages fell 12 percent, adjusting for inflation.

Too often, the same pundits who hold tightly to free market dogma concerning those workers paid least readily look past flagrant market abuses at the highest levels. More often than we’d like to admit, the mechanics of private enterprise are determined less by the market than they are by simple whim. Skyrocketing CEO salaries demonstrate that boards of trustees of companies performing quite poorly do not hesitate to mete out massive sums of money to themselves and their leaders even as their business falters. In 2001, the economy struggled. Corporate profits declined by an average of 35 percent; the S&P 500 dropped 13 percent. Yet median CEO pay grew 7 percent above salaries that had already grown exorbitantly in the 1990s, according to The New York Times.

Enron was recently found to have aggressively manipulated western power grids against the deregulated California power market during the depths of the crisis, making about $30 billion through what amounts to theft. This travesty seems all the more nauseating when considered in conjunction with the vicious, intentional deceptions the company’s leaders laid upon its employees and stockholders as they made huge personal profits above the collapsing infrastructure, wrecking their employees lives as they did so. Again and again, we see that at the highest levels of business, tremendous sums of money are doled out willy-nilly even for poor performance, simply because it’s easy to do so.

Global free trade is not an easily judged phenomenon. Certainly its evils are well known, and its benefits can be elusive. History does not provide us with ready examples of nations who transformed themselves via global capitalism, i.e. labor exploitation, from third world nations to something better than that. Those that have done so, including several nations in southern Asia, had the economic protection of tariffs for key industries as well as other inhibitors to unchecked free trade.

These are now forbidden by the World Trade Organization, as are any laws designed to protect the fragile integrity of the environment or the populace that would limit a company’s ability to generate profit. National sovereignty has been replaced with economic sovereignty. It is ironic that United States, free trade’s chief priest and practitioner, recently enacted tariffs on steel imports to clumsily protect our own industry. Even as we wallow in wealth, we cannot endure free trade’s lightest pains as it miserably tests the mettle of nations and peoples around the globe.

But it would be deceitful to pretend that globalization is some monstrosity that we foist upon a global lower class. The simple reality is that workers choose to work in these factories, implying that they represent a better opportunity that whatever else life has offered them. While this doesn’t excuse hellish conditions and abuses, the fact that it is their choice to work there significantly changes the structure of the debate. This was best evidenced only this spring, when workers from garment factories in Bangladesh toured the U.S. to speak about their working conditions. Yet they pleaded with students not to boycott stores who sold their products, because they feared losing their jobs.

It seems impossible to even approach such systematic, widespread problems, especially given current demands upon our time. Perhaps we can just be thankful that it is not a favorable decision for us to work in sweatshop conditions or otherwise demeaning environments. We’re quite fortunate, so let’s try to have at least some thought for those who are faced with such hardships, beyond, “sorry, that’s capitalism.” It really is nearly the least we can do.