Jul 25, 2019
Corporations’ Constant, Overriding, Desire Is To Make More Profit/Unit By Cutting Labor Costs
By David Grace (www.DavidGraceAuthor.com)
About 10,000 People Control Over $14.3 Trillion Dollars In Annual Business Income
87% of the money received each year by U.S. corporations, about $14.3 TRILLION dollars, is taken in by the top 1,000 companies.
Because individuals often serve on the boards of more than one public company and because, on average, public corporations have nine board members, about 7,000 people control the companies that take in almost 90% of all U.S. corporate income.
Add a few thousand CEOs, COOs and CFOs and roughly 10,000 people control almost 90% of the corporate business income in the United States.
The United States is a country of the corporations, by the corporations and for the corporations.
The power and influence of these 10,000 people cannot be overestimated.
Who Are These People?
While you could look them up, company by company, for the most part you don’t even know who these people are.
When the news says “Carrier To Send 2,000 Jobs To Mexico” you don’t know the names of the people who actually made that decision, leastwise anything about them.
No website or newspaper published the names of the members of the Carrier board of directors or the names of its executives who were responsible for making that decision.
When Wells Fargo got caught running a scam to open millions of fake bank accounts in their unwitting customers’ names, no one reported the names of the human beings who actually approved and implemented those policies or knew about the misconduct and allowed it to continue.
When Boeing released a fatally-flawed jet and decided to charge $80,000 extra to include a second sensor that might have kept the planes from crashing, we have no idea of the names of the Boeing executives who actually decided to charge extra for that safety equipment instead of including it in the plane’s basic design.
Public Corporations’ Prime Directive
In the real world, public corporations are all about and only about getting more money any way they can. At one time I would have said, “Any way that isn’t clearly illegal” but that’s no longer true as Volkswagen, Wells Fargo, Enron, Purdue, etc. have proven.
As far as public corporations are concerned, illegal activities are OK as long as the executives involved think they won’t get caught or that the fine will be smaller than the profit the corporation will make from the illegal activity.
The overriding goal of these 10,000 people and their subordinates is not to do good, create great products, help people, or make the world a better place. Their only goal and their believed fiduciary duty is solely and only to make their corporation richer by any means possible.
If their executives engage in illegal activities in order to increase profits, the members of the boards of directors make sure that they close their eyes tightly enough to be able to claim they didn’t know what was really going on.
If these corporations could make more money by selling Zyklon B gas to extermination camps, they would, and, in fact, I.G. Farben did.
These 10,000 individuals are the people who really run this country through their captive executives, lobbyists, politicians and bureaucrats, and they run it solely and only for the financial benefit their corporations no matter what the cost to their customers, employees, vendors or the public.
Why would anyone expect them to do otherwise? Making as much money as possible is the sole and only reason that those companies exist, and the only reason those people are on those boards of directors and are sitting in the CEOs’ chairs. Their overriding JOB is to make the corporation more money.
How Companies Make More Money
The only priority these 10,000 people have is more profits and there are only, fundamentally, three ways that a corporation can make higher profits:
- Sell more units at the same amount of profit per unit
- Sell the same number of units at a higher profit per unit
- Sell ancillary services or charge add-on fees to bring in additional income
or some combination of the three strategies.
Sure, a corporation can try to earn some additional profit per unit and also sell more units, and if it can do both it will but which of the three choices is the primary strategy.
The choice isn’t even close.
The Preferred Strategy To Make More Money Is To Increase Profits Per Unit Sold
Every single executive and board member understands that by far the best way to increase their corporation’s profits is by increasing its profits per unit sold.
Why?
Because selling more units is expensive and making more money per unit sold is cheap.
Selling More Units Costs The Corporation Money
To sell more units you have to engage in expensive marketing. If you’re successful, then the increase in the number of customers increases your warranty, support, legal and liability costs. Making more units increases marketing costs, facilities costs, capital costs, labor costs, and materials costs.
Selling more units costs you more money. You don’t want to spend more money. You want to spend less money.
Selling Fewer Units At A Higher Profit/Unit Makes The Corporation Money
Increasing your profit per unit sold saves you money.
If the increased revenues from a higher price more than offset any decline in sales caused by the higher price then increasing revenues by raising your price gets you essentially free money. You don’t have to do any work to get it, and if you make more money while building and selling fewer units, your production costs also decrease.
Selling fewer units at a higher profit per unit makes you more money and, at the same time, it reduces your facilities, materials, labor, warranty, customer support, legal and liability costs.
A win-win.
Sure, if you can sell more units and also lower the cost per unit, that’s terrific, but first and foremost you want to lower your costs per unit, and only after you’ve done that as much as possible are you going to concentrate on selling more units, because selling more units costs you more money.
What’s The First Place You Cut Costs?
The absolutely easiest way to cut expenses and the first thing companies do to cut expenses is to reduce their biggest cost and the easiest one to cut — labor costs.
Corporations’ constant, overriding, perpetual desire is to make more profit/unit by cutting labor costs.
Workers Used To Be A Throwaway Resource
Until the rise of industrial unions in the early twentieth century, employers were able treat unskilled workers like any other item of capital equipment — buy what you needed as cheaply as possible, use it until it broke or you didn’t need it any more, then throw it away.
Unskilled labor was what lawyers call a “fungible” resource, meaning it was an interchangeable, standardized item like a particular grade of coal or steel or glass.
Hire so many workers, use them up, throw them away when you don’t need them any more, replace them with new workers if and when your business improved.
But the rise of powerful unions such as the United Auto Workers, the United Mine Workers and the Teamsters, put a crimp in the corporations’ plans.
The unions increased the workers’ bargaining power and political power to the point where the corporations had to pay a living wage, overtime, medical costs for on-the-job injuries, sick leave, etc. All the things we take for granted today.
The corporations did not like that. Not at all.
Union wages and benefits for unskilled labor created much of the growth in the middle class in the 1940s, 1950s and 1960s. Unskilled workers were now able to buy a house and a car, even send their children to college.
These higher labor costs were a huge problem for the corporations because they increased the corporations’ cost per unit sold. From their point of view, that was going in exactly the wrong direction.
Executives didn’t want to have to do the hard work and spend the additional money required to make higher profits by selling more units because that required aggressive and costly marketing and competition. No business wants to compete. Businesses hate competition.
The corporations desperately wanted to go back to the old way of making more money, by making a higher profit per unit sold by reducing costs, especially labor costs, but the increased costs for employees were thwarting their desires. How could they get rid of all those high-cost workers and cut their per-unit expenses?
Send Union Jobs Off Shore
The answer was obvious — have their products built by low-cost workers. The people in China, Taiwan, Korea, India, and Mexico would happily work for next to nothing, with no overtime, no worker’s compensation, no vacation pay, no sick leave, no nothing.
Those were workers who knew their place, who understood that they should be grateful to the corporation for paying them anything at all. Foreign labor would return workers to the category of a disposable item.
Many corporations’ boards of directors and their executives began shipping their U.S. manufacturing technology, capital equipment, intellectual property and the like to low-wage countries, paying foreign employers to build the same products there either as a subsidiary or on a contract manufacturing basis, and then importing those lower-labor-cost goods back into the U.S. where they could be sold at a higher per-unit profit.
Reduce Remaining Workers’ Bargaining Power
Not only were the corporations able to get rid of much of those expensive U.S. union employees, but the ones they couldn’t get rid of were cut off at the knees with the threat: “Shut up and take what we’re offering you or we’ll close the factory and move production to Mexico.”
With the corporations’ control of both political parties, there was never any real government attempt to
- Impose import duties on the once American-made products that were now being made with cheap foreign labor and then imported back into the U.S.
- Impose job retraining obligations on the corporations for the terminated workers
- Require the corporations to pay salary subsidies equal to the difference between what the workers were making before production was moved offshore and what those same workers were earning after the plant closed for a period to time proportional to their years of service.
How Could They Keep Wages Down For The Jobs That Remained?
Service Jobs Were Difficult To Unionize
Of course, not every job could be moved off shore. They couldn’t move low-level service jobs such as hotel, restaurant, transportation and retail, but that was OK because most of those jobs were difficult or impossible to unionize.
Without a union, the individual unskilled workers had essentially zero bargaining power. That, plus the necessity of having to buy food and pay rent right now, forced unskilled workers to accept whatever employers offered, just the way it used to be for manufacturing and mining workers before the UAW and UMW.
The Plan To Fight The Minimum Wage — The Lie That A Minimum Wage Causes Unemployment
But the corporations still wanted even higher profits per unit. They still wanted even lower labor costs per unit, and the government was standing in their way. The government was making them pay overtime and a minimum wage. They had to provide medical coverage for on-the-job injuries. They had to provide some minimum sick leave.
But the 10,000 people developed a new strategy to avoid these costs too.
They got their minions to claim that any job at any starvation wage was better than no job, and that any increase in wages would mean that all the jobs would disappear, that if workers got a pay increase that people would stop buying hamburgers and staying in hotels and stop buying cheap Chinese-made blenders at Walmart.
If wages were increased, overnight, they warned, employment would just disappear.
A New Plan — Get Rid Of Employees Entirely
But even that wasn’t enough to beat down the cost of labor and increase their per-unit profit enough, because there never is enough profit, so some businesses hit on a new scheme — get rid of employees entirely.
Turn every worker into an “independent contractor” who isn’t entitled to overtime, vacation pay, sick leave, medical benefits, pensions or social security contributions.
Make the employees pay all the costs of doing the corporation’s work but with none of the benefits and, on top of that, be able to fire the workers whenever the company wanted without any obligations whatsoever.
Turn every worker into a theoretical independent contractor so that instead of being their employer the corporation was transformed into the worker’s theoretical customer.
- Yes, the guy delivering Amazon packages is really the CEO and sole employee of an independent business that is selling transportation services and Amazon isn’t his employer. No, Amazon is his customer.
- The woman transporting passengers for Uber isn’t Uber’s employee. No, she’s running a business and Uber is merely supplying her with marketing and payment processing services.
Suddenly, no overtime. No workers’ compensation. No unemployment insurance. No social security contributions. No vacation pay. No sick leave. No retirement contributions. No nothing.
You’re on your own. Work until you get sick or injured (without any health insurance) then go on welfare or live in a cardboard box behind the bus station or die. Who cares? Not Amazon’s problem. Not Uber’s problem.
You’re not an employee. You’re just a replaceable part to be thrown on the scrap heap when it breaks down.
Do you see how that works?
The New Sharecroppers
These so-called independent contractors with a side hustle are like sharecroppers growing cotton on the plantation owner’s land for starvation payments.
Don’t try to tell me about the wonderful “gig economy.” It’s just another way to make unskilled workers poorer and corporations richer.
See my column:
A Better Name For The So-Called “Sharing Economy” Is “The Shareworker Economy” — A Shareworker Is Nothing More Than An Old-Time Sharecropper In Fancy New Clothes
— David Grace (www.DavidGraceAuthor.com)
