The counter balance

What is worse, a business that pays people so poorly that they cannot afford to live without support from the government or a union that places such restrictive rules on a business that it cannot change to keep healthy?

Obviously this question is a trap. But it is a trap that can and should be avoidable, (and generally is avoided).

When employees of a business feel well treated they tend not to need the power of unionization. And when companies consider themselves the sum of all their employees, investors and customers then the company treats everyone well and doesn’t need to fear that unions will limit their ability to thrive.

When a business finds ways to consider it’s employees in different “classes” there is always the risk that the disparity between the classes will grow in ways that are not reasonable.

Everyone loves to be treated as an individual, and want’s to be rewarded for his or her unique skills. When a cake decorator becomes a master at his/her profession they would like to be rewarded for their excellence. If they get the same pay as someone else who is not as skilled at piping, they have less incentive to hone that skill.

When someone founds a business and spend decades nurturing and growing that business they obviously deserve the rewards that come with that level of dedication.

And when an employee is hired to perform a function for that business they don’t expect to get the riches associated with being the business owner.

There are well documented corruptions of the worker – business relationship, where workers were coerced to either take on highly risky behaviors or were placed in positions of financial subservience where they could not afford to lose their job yet were not paid enough to live. The Spector of these relationships can be seen in many large organizations today.

When unions negotiated benefits as an offset for lower wages, this was a way of a business delaying these payments to their workers. But often the long term costs of these benefits are now causing these very businesses to try and renegotiate. Some of these negotiations see pensions being reduced, while other are through the courts with companies asking for their previous agreements to be swept aside as part of pre-bankruptcy considerations.

I always thought that unions accepting lower pay in exchange for amazing retirement plans was naïve, as there is always the risk that companies can change the rules later.

Companies that treat every employee as a unique individual, providing healthy profit sharing between all levels of employees, investors and customers and not creating barriers between any levels of employees are most likely to not suffer the excesses of union mandates.

But the pressure to reduce costs and increase profits is always going to make this very hard.

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A Global Economic Holiday Story – A story often told

This story is fictional or maybe it’s better to say it may be fictional…

I owned a bakery, we had been in business for thirty years, proudly providing baked products to our community. We make excellent bread! Over the last few years there has been a significant change in our business, and it all started out really well. A new ultra large retailer started to carry our produce in their stores. This was great for us.

After about a year of carrying our product locally, we had a meeting with the local product manager and they asked to double the amount of product they were buying from us every week. We were so excited, this was just the break we needed, and we hired more staff and were doing very well.

About a year later the same product manager came to us and again asked to double the amount of product they were buying from us every week. Wow, we were so excited, this was a massive deal for us. After visiting the local bank to get a loan we doubled the size of our bakery, hiring loads of new people and moved ahead feeling wonderful about the future.

About a year later the same product manager came to us again and asked to double the amount of product they were buying from us. And again after visiting the bank, with our business plan we built a new bakery, hired more staff and met this exciting business challenge.

I was able to buy a bigger house, my two kids were able to go to the best universities, and the Christmas bonuses and raises to all of the staff made everyone very happy. Business was great

About a year later the same product manager came to us again, and expressed how pleased he was with out product, and that he wanted to again double the order, but this time he would only do this if we dropped out prices by 25%. He also added that if we didn’t drop our prices, he would cancel the whole order and take his business elsewhere.

What were we to do, this one customer now accounted for over 90% of our business, and without their order we would go bankrupt within weeks, not being able to pay the staff or the bank. So we reluctantly took the deal.

The price we were being paid for our product was now below our costs. So we had to cut costs. I fired 10% of the staff, reduced the salaries and benefits of those left and renegotiated the loans we had with the bank. We were now able to keep in business, but our profit margins were very slim, that any further reduction in price would destroy us.

About a year later the same product manager came to us again, and expressed how pleased he was with out product, and that he wanted to again double the order, but this time he would only do this if we dropped out prices by a further 15%. He also added that if we didn’t drop our prices, he would cancel the whole order and take his business elsewhere.

I was distraught; this was going to kill our company. But the product manager was unmoved. I had no choice, and took the deal.

Now I had to cut costs even more dramatically. To fulfill the new increased order at this lower overall price, I had to get draconian on our business model. Instead of buying my ingredients locally, I had to instead but bulk product directly from south America and Asia. The quality control wasn’t as good but the price was all I could afford. I had to fire another 20% of the staff, and move many of the other staff to lower hours, so as to stop having to pay them benefits. But we were still in business.

I started to have health problems due to the stress, and many of my best staff resigned. But what choice did I have.

About a year later the same product manager came to us again, and expressed how displeased he was with out product, the quality had gone down, and unless things got better he would cancel the deal.

My business has just gone through liquidation. We lost everything to the bank. A few of my former employees were able to get jobs at the large retailer that was our former customer. They pay and benefits are terrible, but they are now making their own baked products and they are the only one left in the area that does.

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The cycle of Society

Everyone would like to be rich, but of course everyone cannot be rich.

The concept is simple, if everyone had loads of money, then why would people want to work, and so they would prefer to hire people to do things for them. But of course there would be no one to hire, as everyone else is rich and in the same situation!

So to get anything you would have to find a price that would motivate these other rich people to do things, and they in turn would have to find ways of motiving you. So if everyone had loads of money, the value of money would just decrease. What once cost $1 would now possibly cost (for example) $1,000,000.

Quite simply if everyone was rich then all that would happen is we would suffer hyper-inflation, a massive devaluation of money.

Economics requires disparity; there must be people who want more and are willing to work for it, and people who have more, who are willing to spend in exchange for services and goods.

The challenge comes if the spread of wealth is too big. If too many people are too poor, then society fails. While if too many people are too rich, then there isn’t enough people to work and society fails.

I’m not sure there is a perfect balance, but there is a healthy balance where everyone is motivated to make society better. A balance where there is enough chance for poor people to become less poor, creating motivation to be part of society. And the wealth of society is active rather than sitting in accounts doing nothing of any value.

Society works best when wealth is active, meaning it is used to create more things.

Banks have a very positive role to play in this, they should be able to loan money to businesses to allow for investment in new ventures, and in exchange receive a fair level of interest on the loans. But if banks take too much, then we get back to that place where there is too much in the hands of the richest, and not enough in the active part of the economic system to be healthy.

It’s a tough thing to get right, and it’s very rare that it will stay right for long. This capitalist system that we have is without a doubt the best system that mankind has ever used, but no one would honestly say it’s perfect.

When it gets out of balance in most respects it is destined to eventually work itself back to a manageable system. But there are times when the process of correction can be extremely painful for many involved.

Some of the rhetoric from extremists at either end of the economic scale will always sound preposterous to the majority of people. If it doesn’t sound scary to you then you may be part of the problem.

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Communists are total idiots!

There is a concept called communism that was considered by many people in many countries to by preferential to the systems that were in place at the time. These concepts were tried and roundly proved to an abject failure.

The idea of a classless society, where everyone is equal just doesn’t work. People have different skills and different motivations. When you try and pay everyone the same for doing different work, then there is absolutely no motivation to make things better.

What you end up with is a ruling elite that becomes frustrated by the lack of progress, and they start to force people to act as they need them to. This leads to a terrible society for most of the people in it (see Russia and China)

Capitalism has been proven to be a much better system. Where capital is invested to produce things. The more you produce the bigger the rewards.

But it seems there is a point where capitalism can actually start to look like communism. When capital is not invested to produce things, but instead is invested in such a way as to move more and more money into a smaller and smaller number of pockets (Wall Street making money out of playing with money, and not out of producing). Then the ability for the working person to get more by working harder is diminished.

What you end up with is a ruling elite that becomes frustrated by the lack of progress, and they start to force people to act, as they need them to. Sound familiar…

Capitalism works best when there is a framework in place that ensures that everyone involved in the capital machine stands to grow.

When the ruling elite is allowed to make ever-greater profits, by actually destroying the workers this is failure.

When the ruling elite pays lower and lower levels of taxation on a larger and larger share of the money. And they do this while lowering the quality of life of the workers by paying them less and less (outsourcing, reduction of benefits) then the capitalist system and the communist systems have intersected.


This isn’t complex. Capitalism has to be free to be effective. But that does not mean that business can move production to places that offer lower benefits and still expect to sell their goods the same way. The playing field needs to be balanced by levies placed on goods made (in part or totally) outside the country. That taxation must be reinvested as capital to replace the production that was moved offshore.

This creates the balance that capitalism needs to be healthy.

Without this balance economies fail, and capitalism stalls.

The issue is that there is so much money involved, it’s almost impossible for a politician to get into a position of influence without selling their soul to the business ruling elite. Every single politician today seems to be totally infected.

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