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.