Tag Archives: Workforce

Labor is the Superior of Capital, and Deserves Much the Higher Consideration

Do you recognize those words? Scholars (and/or) American history buffs just might. They were spoken by one Abraham Lincoln on December 3rd, 1861, as part of his first State of the Union address. The quote comes from very near to the end of the speech; the beginning of the third last paragraph. The sentence on its own is worth pondering, but let’s put it in context:

Now there is no such relation between capital and labor as assumed, nor is there any such thing as a free man being fixed for life in the condition of a hired laborer. Both these assumptions are false, and all inferences from them are groundless.

Labor is prior to and independent of capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration. Capital has its rights, which are as worthy of protection as any other rights. Nor is it denied that there is, and probably always will be, a relation between labor and capital producing mutual benefits. The error is in assuming that the whole labor of community exists within that relation. A few men own capital, and that few avoid labor themselves, and with their capital hire or buy another few to labor for them.

As is clear, Lincoln is referring to what was a major problem at the time — slavery. While those words were initially spoken with regard to slavery, I think that they have a broader application. That is, labor really is the superior of capital and not just in the context of slavery. Without labor, there’d be no capital. Labor is the backbone of any economy — local or global. As a result, it’s frustrating to see how poorly mismanaged the workforce can be.

From a business standpoint, I can understand why managers would want to crimp on labor, both in the number of employees and their However, I see this as extremely short-sighted. Whatever short-term gains are made from this strategy, they’re lost in the longer term when one has to replace the employee because they’ve either quit or because they’re overworked (and needed time off because of stress and/or fatigue).

I wonder if treating labor as if it’s another “expense” or “liability” is endemic to the culture of work in America. If we revisit the chart about vacation from this past summer, we see that just about every country on that list is in Europe and from what we know about the culture of many European countries, there’s an air of slowness that you just don’t find in America. Maybe it’s that European businesses have already learned this lesson of treating the workforce like an expense and realizing that it’s just easier to pay up front. How different would business look like in the US if the workweek went from 40 to 30 and the number of mandatory paid vacation days went from 0 to 20? Even if the US workweek went from 40 to 37.5 as is the case in Canada, how different would things be, then?

This focus on the short-term seems to be in more places than one. It’s even present in the way public companies are structured — they have to report their earnings every quarter. That is, every 90 days — 90! — a company gives a report to their shareholders (and the public) about their earnings. Predominantly, people are looking to see whether a company “beat” estimates. If (when?) a company doesn’t meet estimates, the stock price usually takes a tumble. But what if this incessant push to meet estimates and focus on these 90-day windows doesn’t allow for an appropriate longer term strategy? What if this 90-day crunch is preventing a company from pursuing a strategy that would make it far more sustainable in the long run and if they attempted to pursue that strategy, their stock price would plummet?

I don’t have all the answers to these questions, but I believe the beginning of the answer starts with labor. Companies that honor and respect their workforce tend to perform better.

If You Want a Successful and Sustainable Company, Focus on the Workforce

Several months ago in one of those posts where I write about a bunch of ideas, but don’t flesh any of them out, I wrote the following:

Focus on Labor — I’ve never been the CEO or a highly placed Vice President of a company, but from an outsider’s perspective, I always have a hard time understanding the lack of focus on the labor force. At times, it really looks like labor is the key to success. If the labor force is well taken care of, production and profits tend to do well. It reminds me of that post I did about sustainability and pitchers. The relation here is that when management takes care of the labor force, it is with an eye towards long-term sustainability.

I still believe that this is an important idea. Without the workforce, where would a company’s profits be? Without the workforce, where would the economy be? Even after the rise of the robots, I still think it’ll be really important for companies to take care of their workforce. It turns out, I’m not the only one with this opinion.

From Henry Blodget, CEO and and Editor of Business Insider:

If you watch TV, you’ll be led to believe that the problem with the U.S. economy is that one political team or the other is ruining the country.

A sharp drop in government spending this year is, in fact, temporarily hurting economic growth, but that’s not the real problem.

The real problem is that American corporations, which are richer and more profitable than they have ever been in history (see chart below), have become so obsessed with “maximizing short-term profits” that they are no longer investing in their future, their people, and the country.

This short-term greed can be seen in many aspects of corporate behavior, from scrimping on investment to obsessing about quarterly earnings to fretting about daily fluctuations in stock prices. But it is most visible in the general cultural attitude toward average employees.

Employees are human beings. They devote their lives to creating value for customers, shareholders, and colleagues. And, in return, at least in theory, they share in the rewards of the value created by their team.

In theory.

In practice, American business culture has become so obsessed with maximizing short-term profits that employees aren’t regarded as people who are members of a team.

Rather, they are regarded as “costs.”

And “costs,” as we all know, are supposed to be reduced as much as is humanly possible (except the “costs” of the salaries of senior management and investors–those are supposed to be increased).

Bingo! Mr. Blodget hits the nail on the head. Regarding employees as costs is a fundamental mistake in thinking. As we know, our words are important. Not only for ourselves, but for those around us. He continues:

Whenever you suggest to folks that it doesn’t have to be this way, that some companies can and do balance the interests of shareholders with the interests of customers and employees–and, in so doing, create a symbiotic relationship that supports all of these constituencies–folks call you a “socialist.”

This is a strange insult, because the government has nothing to do with this. But, nevertheless, “socialist” is the label you get branded with if you suggest that the senior managers and owners of America’s corporations should share more of their vast wealth with the employees who create it.

This view of capitalism is that it is a sort of Lord-Of-The-Flies economic system in which the only consideration should be “every man for himself.” In this style of capitalism, leaders do not manage teams and organizations in a way that creates value for everyone–customers, shareholders, and employees. Rather, in this style of capitalism, a handful of winners extract as much value as they can from hapless losers who don’t have the skills, knowledge, or time necessary to “demand a raise” or “go get a better job.”

It doesn’t have to be this way.

There is no capitalist law that says companies have to view employees as “costs” and pay them as little as possible.

Senior managers and owners can choose to share more of a company’s wealth with the people who generate it. They can choose to make only reasonable profits, while still generating compelling financial returns. And they can choose to pay their team-mates living wages instead of viewing them as “costs” and extracting every penny of possible value from them.

If American corporations were struggling to earn money these days, we wouldn’t be having this conversation.

But they aren’t.

American corporations have the highest profits and profit margins in history.

American corporations can afford to pay their employees better, hire more employees, and invest more in their future and the country’s future.

But American corporations aren’t doing that.

Instead, American corporations are choosing to divert as much of their value as possible to their owners and senior managers.

Doing this is not a law of capitalism.

It’s a choice.

And it is a choice, unfortunately, that is destroying America’s middle class, robbing American consumers (a.k.a., “employees”) of spending power, and, ironically, hurting the growth of the same corporations that are making this choice.

If your customers are strapped, your company can’t grow.

And, right now, American companies are choosing to impoverish their customers (employees), while skimming off as much wealth as possible for themselves.

The idea of viewing employees as costs is perfectly in keeping with the idea that the US doesn’t require any paid vacation daysWhat kind of a company do you want to work for: one that treats its employees as assets or one that treats its employees as liabilities?