#LivingWage: “They don’t understand business”

Such is the claim of those who oppose a living wage, arguing that it will create upward pressure on prices and cause inflation.

Does Walmart understand business? They’re a pretty hard nosed company, who’ve recently realised that what’s described as ‘efficiency wages’ or ‘more than the going rate’ is leading to greater staff purchasing, improved morale and lower staff turnover.

Henry Ford knew that paying assembly workers $5 a day gave them a chance of buying the vehicles they put together for mass consumption. Some might argue Boeing workers can’t afford one of their airliners, but this is not something intended for mass consumption.

On this side of the pond, John Lewis does substantial business. 60 years ago, the founder of the John Lewis partnership put his case to the BBC.

“My father, who had been born in Somersetshire, worked his way to London and there in his twenty-ninth year started business for himself in one little shop in Oxford Street. Forty years later, on my own nineteenth birthday, I came into that business. By then it was large but still wholly his own.

“It was soon clear to me that my father’s success had been due to his trying constantly to give very good value to people who wished to exchange their money for his merchandise but it also became clear to me that the business would have grown further and that my father’s life would have been much happier if he had done the same for those who wished to exchange their work for his money.

“The profit, even after ten thousand pounds had been set aside as interest at five per cent, upon the capital, was equal to the whole of the pay of the staff, of whom there were about three hundred. To his two children my father seemed to have all that anyone could want. Yet for years he had been spending no more than a small fraction of his income.

“On the other hand, for very nearly all of his staff any saving worth mentioning was impossible. They were getting hardly more than a bare living. The pay-sheet was small even for those days.

“The ideas in this respect, that my father follo wed with the exceptional ability and energy that he put into all of his work, were not surprising in someone whose start in life had been so different from that which his hard-won success had enabled him to give to his two sons but six years of experience of those ideas led me to the notion of the John Lewis Partnership, the notion that the relation of employers to employees should be that of lawyers or stockbrokers to their clients or of doctors to their patients or of teachers and trainers to their students. None of these experts ask for their services more than a definite fee quite moderate in relation to the importance of the service they give for it.

“Some critics of this notion will point out that employers carry financial risk. Even if they do, why should they ask for themselves more than a definite limited reward? Why should they claim the whole or almost the whole of any profit, no matter how great it may be?”

Dear to my Heart (BBC 1957)

Paying wages below the minimum required to meet basic needs not only decreases the flow of wealth within communities, it also places an increased burden on the state. Meeting that cost falls on us, as taxpayers.

We pay tax through VAT on consumption, regardless of net gain. A sure way of strangling the flow of wealth.

We make pariahs of those claiming benefit for their dependency, yet the real “benefit cheats” are those who create the need for benefits in the first place. Those who avoid taxation and turn toward the developing world to minimise costs in the supply chain.

In recent years, Cooperatives Europe and Fair Trade International have teamed up to promote people-centred business in supply chains. Business which puts people before shareholder returns.

It could be taken further, using business to drive the elimination of poverty, as was argued 20 years ago in support of people-centred business:

“In Chapel Hill, North Carolina, for example — where P-CED was born in 1997 — multi-millions of dollars are donated each year to charities, after which the money is typically given away, spent, and gone. Two churches adjacent to the university campus recently raised in excess of four million dollars to improve their buildings. (As a counterbalance, a third church chose to forego its own plans for a building and donated its entire building fund to a badly-needed support program for the elderly.) If twenty percent were set aside to fund a “P-CED enterprise”, that money would never go away, but would instead grow as it should in business. Once the seed capital is available and the business plan implemented, everything after that goes the normal way of business. Employees are paid according to the local pay scales, receive benefits, and so on. They would also enjoy profit-sharing directly for themselves from a total pool of ten percent of profits. Forty percent of profits would be rolled back over into the company for growth. The remaining fifty percent would go to the trust fund. Thus, aside from the final direction of profits, everything is exactly the same as with any other business enterprise.”

“Just changing the way business is done, if only by a few companies, can change the flow of wealth, ease and eliminate poverty, and leave us all with something better to worry about. Basic human needs such as food and shelter are fundamental human rights; there are more than enough resources available to go around — if we can just figure out how to share. It cannot be “Me first, mine first”; rather, “Me, too” is more the order of the day.”

Establishing in London in 2004, we described this as ‘Profit for Purpose’

What is Profit for Purpose?