We live in an imperfect world. People lie, people cheat and people steal – and yes, some of those people happen to be CEOs, venture capitalists and corporate financiers.
But turning the plight of the world’s working poor into a class conflict between the haves and have-nots – as many activists seem intent on doing – is not only oversimplifying a complex issue, it can actually hurt those it ostensibly helps.
If you attended any of the International Worker’s Day events on May 1, you probably got an earful of people screaming to you – or at you – through megaphones.
One of the main claims made by these labor “advocates” is that poverty is the result of greedy corporations raking in exorbitant profits.
The best way to ascertain the veracity of this claim is to simply examine a test case. For our purposes, a well-known, relatively large-but-not-massive corporation like Nike will do fine (and yes, the choice of a company that has been criticized for various workers’ rights abuses is intentional).
Nike has pulled in a little over $16 billion in revenue since last May, $1.5 billion of which was profit. The company itself employs about 30,000 workers, but its affiliated factories (where Nike products are actually made) employ close to 650,000.
So what would happen if we decided to stick it to this greedy corporation and, well, give every worker a whopping 10 cent raise per hour?
That would cost Nike over $150 million per year – 10 percent of its annual profits – and that raise isn’t even enough to pull people up from what the World Bank calls “extreme poverty” into what it just calls “poverty.” Think of the consequences of a raise that was actually meaningful!
“So what?” you ask. “So some CEO has slightly less money to swim around in. Big deal.”
Unfortunately, when people hear the term “corporate profits,” there is a common misconception that these profits go to pay the salaries of a bunch of fat cats sitting around lighting their cigars with hundred dollar bills. This is not so.
The average CEO of an S&P 500 company makes between $10 and $15 million a year; that’s a lot of money, but nowhere near enough to cover the costs of instituting significant worker pay increases. Corporate profits either go back into the company for research and development, or they go to pay the company’s owners – i.e. its stockholders, the majority of whom are average people like you and me.
If Nike were to become less profitable all the sudden, stockholders will take their investments elsewhere and the company will fold.
If this happens, you can be sure that the ones who suffer won’t be the corporate officers. They all have golden parachutes packed and ready.
Instead, the losers will be the thousands of low-wage employees who don’t have the luxury of severance packages to rely on.
Those living around the world in extreme poverty need real solutions, not just bromides that let us point fingers at those more wealthy and fortunate. These solutions will come neither from the gospel of the free market, nor the gospel of socialism.
Each side will have to make compromises. Governments will have to invest heavily in education to make workers more productive, but they will also have to deregulate industries, thus promoting competition among employers and driving up wages.
If we really want to change the world, these are the reforms we should be demanding.
