Hedrick Smith, NYT: When Capitalists Cared

[highplainsdem]

http://www.nytimes.com/2012/09/03/opinion/henry-ford-when-capitalists-cared.html

IN the rancorous debate over how to get the sluggish economy moving, we have forgotten the wisdom of Henry Ford. In 1914, not long after the Ford Motor Company came out with the Model T, Ford made the startling announcement that he would pay his workers the unheard-of wage of $5 a day.

Not only was it a matter of social justice, Ford wrote, but paying high wages was also smart business. When wages are low, uncertainty dogs the marketplace and growth is weak. But when pay is high and steady, Ford asserted, business is more secure because workers earn enough to become good customers. They can afford to buy Model Ts.

This is not to suggest that Ford single-handedly created the American middle class. But he was one of the first business leaders to articulate what economists call “the virtuous circle of growth”: well-paid workers generating consumer demand that in turn promotes business expansion and hiring. Other executives bought his logic, and just as important, strong unions fought for rising pay and good benefits in contracts like the 1950 “Treaty of Detroit” between General Motors and the United Auto Workers.

Riding the dynamics of the virtuous circle, America enjoyed its best period of sustained growth in the decades after World War II, from 1945 to 1973, even though income tax rates were far higher than today. It created not only unprecedented middle-class prosperity but also far greater economic equality than today.

-snip-

Great column by Hedrick Smith, not just for its description of what was also called "stakeholder capitalism" (with stockholders just one group of stakeholders to be taken into consideration by corporate management, along with employees and customers and the public at large) and the sharp contrast with today's "prevailing cut-to-the-bone business ethos," but also for the comparison with modern Germany, "still a manufacturing and export powerhouse" where "average hourly pay has risen five times faster since 1985 than in the United States," thanks to leaders who are still practicing stakeholder capitalism.

[moondust]

1. “the virtuous circle of growth”

That seems to have ended with globalization, offshoring, unlimited dirt cheap labor, and the challenge for corporations to keep finding new and better ways to create record profits that surpass the expectations of...Wall Street.

K/R