An Idea for the Economy

I had an idea tonight.  I don’t know if it’s the right idea and maybe I shouldn’t write a blog about it.  After all, it usually takes a day or two for the flaws in my own thoughts to become apparent to me but what the heck.  If there are flaws in this, getting it out there might be the best way to tackle them.

Anyway, I was thinking about Henry Ford and how he changed the economy in the Twentieth Century.  I’ve brought this up before and I keep coming back to it but that’s okay because it’s significant.  When he realized the value of the assembly line and the money it would make his company, he did what no “smart” businessman does.  Instead of just maximizing his profits, he used it as a way to fund our greatest social experiment ever.  He paid his workers more money for significantly less work with the idea that with the extra money and leisure time, they’d pump more dollars into the economy.  This led to the industrial boom that put our country at the top of the economic world.

Fast forward to the present.  Because of advances in communication and information technology, we’ve had a productivity boom creating similar windfalls for companies now.  This isn’t just for large corporations.  I’m now an independent consultant working from my home, partnered with the two owners of my former employer.  The three of us are almost accomplishing as much as two offices did in the past.

This has been fantastic and tragic for us all.  It’s fantastic because it’s created new ways to work and companies can make more money with less overhead than ever before.  It’s tragic because one part of that overhead is employees.

I’ve heard the statement a thousand times: companies are making record profits but unemployment is still too high.  How is that possible?  The answer is in the question.  They aren’t hiring any more because they don’t have to.  It takes less people to make a car, connect phone calls, sell a book, or get you your medication than ever before.  Plus, new breakthroughs happen every day to make us more and more productive.  Yes we’ve lost manufacturing jobs to other countries and yes that’s not a good thing.  But even the number of people needed on overseas production lines will continue to shrink.  The government can blunt the problem but they can’t create a business case to hire out of thin air.

I have yet to be convinced this isn’t a bigger issue than tax rates, government debt, entitlements, or all the other stuff we turn blue arguing about.  Those things are important, yes, but this is at the heart of it all.  Our growth, success, and ability to support entitlements are all tied to jobs.

So that’s the problem.  It’s a problem that I’ve heard no one in power offer an answer to.  It’s much easier to stir people up about taxes than a chronic issue with a fuzzy answer.  I think the idea I had tonight addresses a lot of it, though.  I don’t know if it’s the answer.  For all I know there are a bunch of economists who thought of it a while ago and I’m just treading on well worn ground.

My idea is that some corporation or corporations are going to have to make a strategic decision to start taking their profits and using them to increase the pay and benefits of their “bottom rung” employees beyond what most would call sensible.

For the educated, highly skilled employee, this is already happening.  Trust me, as I recruit these guys for a living.  We have a huge shortage of key skill sets and as anyone who has taken Economics 101 can tell you, that equals more pay.

But for the person on the customer care line, store floor, or administrative desk, things are either getting worse or staying flat (which over time is the same as getting worse).  And why should they get more?  They haven’t acquired in-demand skills or done the hard foot work to make up for that.  If they haven’t done anything to make themselves valuable to the economy, then it’s logical they won’t be very valued.

Except that the people on Ford’s line hadn’t acquired any special skills either.  They were just there first.  The line was the value generator, not them.  Almost anyone can bolt in a tire over and over again.  Yet he paid them more for less work and it somehow became the greatest business idea ever.

It’s, of course, easier to do this when you’re a privately held company in a new industry.  If a public corporation did the same thing today, the stock market would kill them for it the next day.  We’ve allowed stock MBA thinking to turn us into greedy cowards.  But somewhere in the business community there has to be some leaders who can convince their corporations to weather the storm for greater long term gain.

Because even though we’ve been trained to look at a call service rep as unskilled and not valuable, there are those who work harder and smarter than others.  A company that pays them a lot more will have more of those folks flock to them.  Better customer service agents will give better customer service which will lead to more loyal customers which will lead to expanded sales.  Over time this becomes a reputation for quality that can put you at the top of your industry.

On the bigger scale, other companies will have to increase their pay to compete for people and more money for customer service agents means more money for the economy.  More money in the economy means growth, maybe even enough to close the productivity gap.  A growing economy means more tax revenue for the government.  More tax revenue for the government equals shrinking debt.

Now we still need to right-size the government, stop getting into useless wars, etc, but those are issues that have dogged us throughout our history, no matter what shape the economy has been in.  This is the unique, bigger issue.

To get the ball rolling, though, companies need to start taking those record profits and make it happen.  So who is the first one to defy “common sense” and pull their money out of financial market shenanigans?  Who will be the first to stick their thumb in the eye of conventional wisdom?  Who is going to be Henry Ford this time around?

Those are my thoughts, many of them coming together for the first time as I wrote them here.  So am I crazy to think that upping the pay on unskilled labor is a key to solving our problem?

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2 thoughts on “An Idea for the Economy

    1. At this point, people scream socialism at the drop of a hat, so it’s not surprising. It’s actually a solution that works in a capitalistic framework, though most MBAs will tell you it’s a crazy thing you do. Like I said, they’d also tell Henry Ford he was being an idiot, as he paid his people way more than they were “worth” in the market. They praise him for this but can’t make the leap to applying it today.

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