Editor’sCorner
Hoarders: WallStreetEdition
I
n late November, voters in Switzerland rejected a proposal that would have limited the salaries of top executives to a 1:12 ratio to their lowest paid employees. While the proposal was a grassroots effort, garnering at least the 100,000 signatures required to put it on the ballot, over 65 percent of voters rejected the notion that wealth should be reined in. Certainly, Occupy Wall Street-types shook their head in dejection, while American executives rejoiced for their Swiss brethren, confident that such a proposal would never make it past the Internet outrage stage in the US. But they shouldn’t be so quick to smirk. At first glance, the Swiss proposal looks like the dreaded income redistribution at its worst, funneling hard-earned wealth from those who created it down to those who, well, also helped create it. at’s something that execs fail to remember when donning the “job creator” crown: the economy is not a monarchy, with the ruling class lording over the peasants. It’s an ecosystem, in which every part—from the lowly janitor up to the business-whiz CEO—serves an essential function. So why has the income of the top 1 percent in the US grown by 31.4 percent between 2009 and 2012, while everyone else’s income only grew 0.4 percent? Because the top 1 percent are hoarders. Instead of hoarding knick-knacks and newspapers and cats like those poor souls on television, the rich hoard their money. In a way, it makes sense: when you already have five houses, ten cars, a yacht and a private island, it’s rather impossible to spend everything you make. So as corporations increase profits, the recipients of shareholder dividends and fluffed portfolios just shunt the cash into investment accounts or offshore holdings or a giant silo to swim in like Scrooge McDuck. Of course, many in the top percentile of US earners argue that inequality is necessary—after all, how can people strive for greatness if they’re not mired in poverty? is is true, to some degree. Ambition and opportunity are pillars of the US’ economic supremacy—but there’s a difference between some inequality and too much. Some is
good. But tales of the consequences of too much have left a bloody stain on the history of human civilization. So where is the balance? How can US companies uphold their freedom of prosperity while ensuring the furious masses don’t revolt? e secret is that it doesn’t have to be a choice between the two. Companies can thrive while also providing their employees with attractive wages and benefits, as long as they understand that the two goals are not direct corollaries. Paying employees more will not automatically increase profits, of course—but in the grand scheme of the economic ecosystem, it will. To put it simply, who is buying the products and demanding the services of major US corporations? By number and value, mostly the middle and lower classes for the obvious fact that they account for most of the population, and also because they tend to spend money when they have it. Sure, many people have savings accounts, but come on—the entire advertising industry is built upon the ravenous consumerism that makes American culture unique. Give the lower and middle classes more money, and they will spend it. When they spend it, that creates demand, which increases production (and employment), resulting in bountiful quarterly reports. e CEOs are happy, the shareholders are happy, the employees/consumers are happy. Bloody revolution is averted. To make the idea more palatable, don’t think of it as redistributing wealth—think of it as recycling. As wealth moves through this cycle, everyone wins: jobs are created and thus entitlement spending declines, which in turn allows more funds for education to prepare the next generation of workers/consumers to participate in the ecosystem. And really, investing in wealth recycling won’t make as much of a dent in a company’s ledger as many might think. Take Nucor for example—while there isn’t too much definitive information out there (and calls to the company were not returned), it appears the average non-management position makes about $50,000 annually. Now think about how much of an impact a 10 percent raise
($5,000/year) would make on that average worker: on a monthly basis, the extra $415 could mean a payment on a new car, or multiple dinners out, or movies at the theater every week, or a weekend trip, or new clothes, or paying down existing debt to allow for disposable income in the future. And all these purchases have instant reverberations in the economy—there’s no such thing as “trickle-down”, just “trickle-around”. Considering that Nucor has about 20,000 employees, and many business analyst sources estimate the industrial corporation manager-to-employee ratio to be around 1:10, that means a 10 percent raise for the 18,000 or so non-management employees at Nucor would cost the company about $90 million per year. While that sounds like a lot, the company made $147.6 million in profits during the third quarter of 2013 alone, and its current cash liquidity sits at $1.77 billion. Yes, billion—if anyone else had 1.77 billion of anything squirreled away, it would be considered hoarding at its most extreme. So to Nucor, AK Steel and Gerdau, plus all the other steel mills and distributors and fabricators and end-users—heck, all the major corporations in the US, from WalMart to Coca-Cola to Apple: why not try it, as a socio-economic experiment of sorts? See what happens in the local economy. See what happens in the macro-economy. I bet you’ll be surprised—but I won’t. SO \
Katie Memmel