My last article brought up some interesting questions. In the article, I established that the government has a responsibility to make sure that employees are treated fairly by employers. I gave some examples of how legal contracts are not inherently fair, but the first example actually showed how such a contract could be unfair to the employer and give an unfair advantage to the employee. This brings up a new question on the subject of fairness in business. If the government has a responsibility to enforce fairness in business, as it relates to the employee, does that not also mean that the government has a responsibility to make sure that the employer is treated fairly as well?
My answer to this is yes. If the employee deserves protection from unfair contracts, the employer also deserves to be protected from unfair contracts. If the employee is legally entitled to a fair share of the profits generated, the employer is also entitled to a fair share of those profits. Just as the employee deserves protection from unfair treatment from the employer, the employer deserves protection from unfair treatment from the employee.
You might ask if this is really a problem in the US. Most businesses seem to be doing far better than the average worker. Why should we even bother offering the businesses protection from unfair treatment by employees when the businesses have been the ones ripping the employees off for so long? The answer is actually very complicated. First let us talk about how employees are treating businesses unfairly.
There are some obvious ways in which employees treat businesses unfairly. The first is theft. Businesses already have some protection from that. If a business catches an employee stealing, the business can fire the employee and take him to court for damages. Theft is illegal, and the government does its best to enforce the laws against it. The second is laziness. Again, a lazy employee can be fired, though there are no laws requiring that the lazy employee compensate the business for losses. Firing a lazy employee can be dangerous though, as the business must keep enough records to back up their decision to fire the employee. This, however, is required to prevent businesses from firing employees for reasons that are illegal (religion or race, for instance) and then claiming that the employee was lazy to avoid prosecution. This is not all, but all of these are fairly minor, or are already protected against.
The biggest way in which employees treat businesses unfairly is unfair contracts. If you have not read the first article in this series, you probably should. I give a very good example of how an employee can benefit from an unfair legal contract with a business. Now, you probably want to know, if this is really that big, where can we actually see this problem in action? The answer is upper management. There are not exactly a lot of people out there with the experience to be qualified CEOs, but there are a lot of corporations out there that need qualified CEOs. This means that businesses are forced to agree to absurdly unfair contracts to hire a decent CEO. You might ask if CEOs do not deserve more pay, because they do harder work. I would agree. CEOs do deserve more pay than regular employees. CEOs generally put much more labor capital into a business than other employees. Further, CEOs often have to be available constantly and are often required to travel a lot. All of these things deserve greater compensation. That said, according to aflcio.org CEOs in 2011 made 380 times what the average worker made. Even if the average was minimum wage, the average CEO would have been paid $2,717 an hour. Computer programmers and electrical engineers do far more complex and difficult work than CEOs and they do not generally get more than $50 an hour. According to about.com the US President currently makes $400,000 a year. Assuming that the President only works 40 hours a week (which is absurd), that is only $192 an hour, and he runs the country!
This is a clear case where businesses are being taken advantage of by employees. This is wrong and not just because it is harmful to the businesses. That is money that has to be generated by paying other employees less and charging customers more. When one employee rips off a business, other employees suffer, even if the one ripping off the business is the CEO. In addition, when an employee rips off a business, customers suffer for it. Because of the extremely widespread harm that unfair treatment of businesses by employees causes, maybe it is more important for businesses to be protected from unfair practices than it is for employees.
Unfair treatment of businesses by their upper management is very probably the root of our recent economical problems. Much like unfair treatment of employees by businesses is very destructive to the lower and middle classes, unfair treatment of businesses by employees is very destructive to businesses and our economy as a whole. In the previous article, I said that without government enforcement of fairness in business, capitalism will ultimately lead to implicit slavery. The employees that are treated unfairly will be the slaves. The masters will be the employees that are treating the businesses unfairly.
Lord Rybec
04 May 2012
03 May 2012
Fairness in Business
Should fairness in business be enforced by the government? To what degree?
The US Republican Party asserts that businesses should be allowed to use their profits as they please. This is based on the claim that all profits gained by a business inherently belong to the business and its owners. This is seen by Republicans as a natural law. The principal of fairness, according to conservative thought, is entirely governed by contracts. The reasoning behind this line of thought is that all contractual agreements must be fair, otherwise the party being treated unfairly would not have agreed to it. Let us examine these assumptions.
First, do all the profits gained by a business inherently belong to the business? How do businesses gain profits? Most businesses gain profit by buying resources and either making them into something more useful and selling them for more than they paid, or directly retailing them at higher prices than they paid. It would seem reasonable to assume that because the business put up all of the initial capital, it is entitled to all of the profits. The business is, of course, bound by law to pay its employees whatever it contracted to pay them. This contractual agreement is assumed to always be fair, because employees would not agree to an unfair contract. The first flaw with this argument is the assumption that the business put up all of the initial capital. It may have put up all of the initial monetary capital, but where would it be if the employees had not put up work capital? The employees are thus entitled to a fair share of the profits. This brings us to the second assumption.
Is the idea that legal contracts are inherently fair, because both parties must willingly agree, a valid assumption? US law invalidates contracts that are agreed to under duress. This means that a contract where either party was forced to agree to it under threat of harm is invalid. The mere existence of such a law invalidates the assumption that contracts are inherently fair. This law is intended to mitigate a specific instance of potential unfairness of legal contracts, but by no means mitigates all of them. So, how does this apply to the previously mentioned employees?
The fairness of a contract agreement depends strongly on the specific circumstances. If the economy is in very good condition, the employees have many options for employment, the pay offered everywhere else is fair, and the other options are safe and desirable, then a contract would be totally fair for the employee. It might not be so fair for the employer though, because the employee may require more than fair wages and the competition for the employee's labor may put the business in a situation where it is forced to offer more than fair wages. If the employee is part of a union, this may make the contract even less fair for the business. The question right now though is whether the government should have a hand in requiring businesses to act fairly. Given the state of our economy and where most of the money is going, there is no question that most businesses are not suffering from being forced to pay employees more than is fair.
If the above circumstances were flipped, things would be very different. What if the economy is in the toilet, the employees have few other options for employment, the pay offered elsewhere is much worse, and the other options are not safe or are otherwise undesirable? If this is the case, a contract would not enforce fairness for the employee. The business could offer pay barely more than the other options, but far less than fair compensation for the work capital offered by the employee. The business could offer barely safer work conditions than the other options. Unless the employee is independently wealthy, he will be forced to agree to the contract so he can meet basic needs, even though it is grossly unfair. Evidence that contracts are not inherently fair can currently be found in the work contracts of every lower class worker and a good portion of middle class workers in the US.
Now for the question: What responsibility does the government have in enforcing fairness in business? Minimum wage law, that law invalidating contracts signed under duress, and many precedents set by judges ruling in favor of actors and actresses claiming that they were not paid fairly for blockbuster movies (even though they were paid exactly what they had agreed to in legal contracts) give us a pretty strong case to the effect that the government has a strong responsibility to enforce fairness in business.
Movements like Occupy Wall Street have a very strong position in their claim that responsibility for the distribution of wealth problem in the US lies squarely on the shoulders of the government. Previous government actions have asserted the responsibility of the government for enforcing fairness in business. The claims that natural law gives businesses the right to distribute their profits as they please are clearly false, as well as claims that legal contracts are inherently fair. I am all for free trade and capitalism, but I also recognize that without government enforcement of fairness in business, capitalism will ultimately lead to implicit slavery.
The US Republican Party asserts that businesses should be allowed to use their profits as they please. This is based on the claim that all profits gained by a business inherently belong to the business and its owners. This is seen by Republicans as a natural law. The principal of fairness, according to conservative thought, is entirely governed by contracts. The reasoning behind this line of thought is that all contractual agreements must be fair, otherwise the party being treated unfairly would not have agreed to it. Let us examine these assumptions.
First, do all the profits gained by a business inherently belong to the business? How do businesses gain profits? Most businesses gain profit by buying resources and either making them into something more useful and selling them for more than they paid, or directly retailing them at higher prices than they paid. It would seem reasonable to assume that because the business put up all of the initial capital, it is entitled to all of the profits. The business is, of course, bound by law to pay its employees whatever it contracted to pay them. This contractual agreement is assumed to always be fair, because employees would not agree to an unfair contract. The first flaw with this argument is the assumption that the business put up all of the initial capital. It may have put up all of the initial monetary capital, but where would it be if the employees had not put up work capital? The employees are thus entitled to a fair share of the profits. This brings us to the second assumption.
Is the idea that legal contracts are inherently fair, because both parties must willingly agree, a valid assumption? US law invalidates contracts that are agreed to under duress. This means that a contract where either party was forced to agree to it under threat of harm is invalid. The mere existence of such a law invalidates the assumption that contracts are inherently fair. This law is intended to mitigate a specific instance of potential unfairness of legal contracts, but by no means mitigates all of them. So, how does this apply to the previously mentioned employees?
The fairness of a contract agreement depends strongly on the specific circumstances. If the economy is in very good condition, the employees have many options for employment, the pay offered everywhere else is fair, and the other options are safe and desirable, then a contract would be totally fair for the employee. It might not be so fair for the employer though, because the employee may require more than fair wages and the competition for the employee's labor may put the business in a situation where it is forced to offer more than fair wages. If the employee is part of a union, this may make the contract even less fair for the business. The question right now though is whether the government should have a hand in requiring businesses to act fairly. Given the state of our economy and where most of the money is going, there is no question that most businesses are not suffering from being forced to pay employees more than is fair.
If the above circumstances were flipped, things would be very different. What if the economy is in the toilet, the employees have few other options for employment, the pay offered elsewhere is much worse, and the other options are not safe or are otherwise undesirable? If this is the case, a contract would not enforce fairness for the employee. The business could offer pay barely more than the other options, but far less than fair compensation for the work capital offered by the employee. The business could offer barely safer work conditions than the other options. Unless the employee is independently wealthy, he will be forced to agree to the contract so he can meet basic needs, even though it is grossly unfair. Evidence that contracts are not inherently fair can currently be found in the work contracts of every lower class worker and a good portion of middle class workers in the US.
Now for the question: What responsibility does the government have in enforcing fairness in business? Minimum wage law, that law invalidating contracts signed under duress, and many precedents set by judges ruling in favor of actors and actresses claiming that they were not paid fairly for blockbuster movies (even though they were paid exactly what they had agreed to in legal contracts) give us a pretty strong case to the effect that the government has a strong responsibility to enforce fairness in business.
Movements like Occupy Wall Street have a very strong position in their claim that responsibility for the distribution of wealth problem in the US lies squarely on the shoulders of the government. Previous government actions have asserted the responsibility of the government for enforcing fairness in business. The claims that natural law gives businesses the right to distribute their profits as they please are clearly false, as well as claims that legal contracts are inherently fair. I am all for free trade and capitalism, but I also recognize that without government enforcement of fairness in business, capitalism will ultimately lead to implicit slavery.
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