In an article written by Daniel Altman on 7/22/2015, “Hillary Clinton’s Bad Economics,” it was argued that there is no evidence that Hillary’s plan to incentivize companies to share profits with workers will work.
Hillary’s edited remarks, courtesy of the Wall Street Journal:
I submit to you that Hillary’s proposal is a great idea. It does not matter if Atlman thinks her plan will work or not; it should not have to.
I want to set the stage first, so that there is no misunderstanding as to the nature of the environment being addressed.
Most, if not all, companies are in business to make profits. Profits for themselves, their stakeholders, their shareholders, whomever owns a piece of the pie, but profits none the less. The very basis of capitalism is that the market regulates, through a system of supply and demand, the amount of profits that can be made in any particular industry.
The thing is, no one expects anything different. No one is expecting companies to suddenly turn into benevolent benefactors of their employees or of society in general. However, there is an argument to be made that profits should not be at the expense of the workers either, for if the workers are mistreated, unhealthy, lacking in basic life necessities, they are unable to work as well.
In fact Hillary is trying to create an environment where the profits are being shared with the workers, who directly influence the company’s ability to gain profits through their ability to work and work effectively.
Consider, for a moment the following quote, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities, but of their advantages” Adam Smith An Inquiry into the Nature and Causes of the Wealth of Nations – Book 1 – Chapter 8
Hillary Clinton said in her speech at New York City’s New School that,
The defining economic challenge of our time is clear. We must raise incomes for hard-working Americans, so they can afford a middle-class life. We must drive steady income growth that lifts up families, and lifts up our country.
And while Adam Smith agrees that companies are in business for their own self-interest, to make a profit, he also agrees with Hillary. In fact, her words could have come out of his mouth.
In the same book and chapter, Smith goes on to say,
The liberal reward of labour, as it encourages the propagation, so it increases the industry of the common people. The wages of labour are the encouragement of industry, which, like every other human quality, improves in proportion to the encouragement it receives. A plentiful subsistence increases the bodily strength of the labourer, and the comfortable hope of bettering his condition, and of ending his days perhaps in ease and plenty, animates him to exert that strength to the utmost. Where wages are high, accordingly, we shall always find the workmen more active, diligent, and expeditious than where they are low: in England, for example, than in Scotland; in the neighbourhood of great towns than in remote country places. Some workmen, indeed, when they can earn in four days what will maintain them through the week, will be idle the other three. This, however, is by no means the case with the greater part. Workmen, on the contrary, when they are liberally paid by the piece, are very apt to overwork themselves, and to ruin their health and constitution in a few years.
Here Adam Smith supports Hillary’s proposal that sharing the profits with the workers on every level, will increase productivity, which will increase profitability for the company and better the society in general. Adam Smith argues that there is more tendency towards workahol-ism than slacker-ism.
With this in mind, let us consider Daniel Altman’s argument that incentivizing companies through a tax deduction, to share profits could create wage instability. Daniel argues that we need to consider the possibility of the profit shares replacing existing compensation and the potential for wages to become volatile.
My argument is that if a company realizes the connection between their profits and their workers, they won’t institute any such changes that would jeopardize the labor wage in the first place. In fact, if companies recognized the direct tie between the wage of their labor force, productivity and the cost of turn over due to an unhappy labor force, they wouldn’t require incentivizing to share a portion of the profits.
Adam Smith addresses this concept in this fashion, in the same section as before,
Is this improvement in the circumstances of the lower ranks of the people to be regarded as an advantage or as an inconveniency to the society? The answer seems at first sight abundantly plain. Servants, labourers, and workmen of different kinds, make up the far greater part of every great political society. But what improves the circumstances of the greater part can never be regarded as an inconveniency to the whole. No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, clothe, and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, clothed, and lodged.
In essence, if those that provide the goods and services that we as a general society require to live, cannot afford those goods and services themselves, how can we expect them to continue to provide those goods and services with any level of proficiency to which we have become accustom?
So once again I say, Hillary’s idea is a good one. We as a society, as a governing body, should be encouraging, in whatever fashion is necessary, the companies that make up our society, to do right by the workers, that directly influence the very profits for which the company is in business. If the companies recognized the connection between profit and the quality of their labor force, which is directly influenced by the wages they provide, they will not hesitate to share profits to some degree with all levels of labor within the company, for their own sake if not for the worker’s sake.
Poverty benefits no one and paying workers a livable wage and sharing profits only benefits the entirety of our society. So I repeat, Hillary Clinton’s plan is a good one, but it should be unnecessary.