WHY INCREASING THE “MINIMUM WAGE” WOULD NOT HELP THE “POOR”, AND WHY BOTH PARTIES ARE WRONG ABOUT THE RIGHT SOLUTION. (THERE IS A “WIN WIN” SOLUTION). Right now the most heated debate that is transpiring is over how we solve the problem of “Income Inequality” and elevate the prospects of the Poor. The Liberal Left want to raise the Minimum Wage and the Right wants to raise taxes. Both have well-intentioned advocates for why this is correct. Both are wrong as a practical matter and both “solutions” would create new problems far greater than we now experience. The predicate that the Liberal Left relies upon is that if the “Poor” had more money, they would spend more money which would stimulate the economy and everyone would benefit. The far Right believes that Tax Cuts would stimulate Employers to spend more money on hiring more workers and that these funds would “trickle down” to the Poor after the economy returns to Pre-Recession growth levels. Yikes. In Business, there is a famous quote that “You cannot solve a problem until you define what it is” that comes out of the Management Consulting arena. It is a predicate that most decision makers undervalue and fail to use, yet it is an extremely valuable risk management tool. The problem is that most Public Servants are not business people and most business people rush to “solve” problems before they are adequately or accurately defined. There are also very emotional feelings about these issues. There is a righteousness about defending the Poor that often blinds public servants to the negatives of acting on various “popular” solutions to high priority “problems”. Say the word “Poor” and you have a sacred polemic that no one can challenge: Civilized people in a Democratic society take care of their Poor. (Who could argue with such a premise? ). The same applies to cutting Taxes for Businesses and Wealthy Investors. Here any critique is met with threats of blackmail as to the consequences of not cutting taxes in a world where we are admittedly losing ground to other countries with lower tax rates (A zero sum game no matter how you look at it). So at the risk of inviting public censure, here are my thoughts: Lets start with “Income Inequality”. There is a mounting drumbeat around the idea that Rich people in America are too rich and that they should “share” their wealth with the “poor”. The goal of this argument is to level the playng field and make everyone more “equal”. Basically this is Socialism. In a Democracy there will ALWAYS be income inequality and the more inequality there is, the more likely it is that the country will thrive because our Economy is strong and there is incentive to invest here. The only valid argument is whether our “Poor” are suffering and require Government intervention. Up to a point, I agree with this especially because the Courts have gutted Employee and Tenant rights. There must be protection of the rights of those at the bottom of the pyramid. No one should have to work two jobs to pay their basic living expenses. However, more attention needs to be paid to the definition of “Poor” and to much of the Fraud that is masquerading as Public Assistance. Talk to anyone familiar with Medicaid, and they will tell you stories about abuse by people who have no reason not to work. Of course, human beings will always act in their own interests to survive and when Employers are not hiring them, they have to live. In a full economy, more “Poor” will be employed and contribute to the economy overall. But there will always be Income Inequality as “Winners” are rewarded in a democracy and where there is no “cap” for these rewards. There is only a temporary safety net for the “Poor” that guides them back into the right workplace. We also need to examine “Who are the Poor?” for diagnostic purposes. The Poor are disproportionately Women, both very young and very old, but most markedly Minorities. Minorities have Poverty rates among the “Working Poor” are DOUBLE that of Whites.* Education was also a big factor with Poverty being TWICE the rate among High School grads and College graduates. None of this should be a surprise. However, the context of this trend must be evaluated through a realistic lens. These are largely UNSKILLED or SEMI SKILLED workers. That means that paying these workers MORE for LESS will be a drain on the profitability of Corporations and ultimately will force Employers to cut jobs to remain competitive. We have seen productivity has been growing at the expense of wages for most American workers. The Boston Consulting Group has advanced the novel theory that we are “price competitive” with China and that this bodes well for the Manufacturing sector (which has struggled fiercely to remain competitive). Let’s be clear about one fact: WE WILL NEVER BE PRICE COMPETITIVE WITH CHINA BASED SOLELY ON LABOR. Labor is a huge factor in Gross Margins and we have seen how scale corporations like Walmart who pay Minimum Wages have struggled to survive. They are all reducing jobs and will continue to do so at an alarming rate to remain competitive especially Globalized companies. Twenty states have approved the Minimum Wage. We don’t know the economic profile of these states but we do know what will happen: Over time (it could be in the next year or two) Employers will have to cut jobs to sustain profits with these wages. They will not be able to remain competitive otherwise unless they create Value Propositions that incorporate this as part of their success factor. To date no one has successfully done this. Cutting taxes for Business would automatically reduce revenues. While there is the suggestion that large global employers would become more competitive with the rest of the world (true), a large portion of these possible incremental earnings would not go back into the US economy but into global markets where other favorable business climate incentives are fierce. There is no question that Exports would increase but there is also no guarantee that these tax cuts would return profits to the US and that those profits would result in hiring of more Unskilled Workers. Remember Exporters have choices and there are a gazillion worker pools to choose from around the world. So AT BEST, cutting corporate taxes would stimulate the earnings and shareholder value of Global corporations, but would have no impact on the Poor. We need to step back a bit and make sure that we understand what the problem really is. Are the “Poor” in the United States worse off compared to foreign countries? We need to study this and to correct for variables like currencies. We also need to revisit the legal definition of “Poor”. The biggest problem with this definition is the straight-line application to all markets with variable COL standards. The basis of Free Enterprise is that Government does not intervene to disturb the natural order of things. As Labor becomes more competitive (skilled), Employers automatically start hiring and then raise wages as competition forces the same. The plan to help the Poor would compel employers to pay unskilled workers MORE for LESS value. That being said Government clearly has a role in ensuring the right to work for all Americans and the protection of those who cannot work, with a large portion of “gray” where employees need accommodation to work, and where all PCs receive the support of Employers to secure Equal Opportunities. I personally believe we need a “Reach Back” Program for Minorities and Women and the Disabled that rewards (rather than punishes) Employers who hire qualified Protected Class workers with equal compensation to Young White Males. That’ s just one idea that has been tossed around but if there is no precedent within Government leading by example, and taking some risks in hiring practices. We have a VERY BIG IDEA about how to effect this social engineering without burdening Free Markets. We also have a big idea for making Corporate America more competitive that does not involve simple tax rate reductions. The role of Government should not be “Shaper” but “Stimulator” of Growth. At the end of the day we have tens of millions of Unskilled Workers that cannot be placed because of POOR PLANNING over a period of decades. We simply only have ourselves to blame for not looking over the horizon to see the Baby Boom demographic that has menaced Medicare and Social Security (though we don’t know why if proper fiscal controls were in place). So “ it is what it is” as they say. Now talking about PreK and other “cool” programs might get people excited about Educating Unskilled Workers but these untested and unproven programs will take 14 years to pay off IF they do. (I personally did not attend PreK and I do not think it handicapped me. Advanced Placement was far more valuable). We need a Remedy right now. Fortunately, we have ideas for such innovations if anyone is willing to listen and to dispense with proprietary objections. There is more than enough credit to go around IF we get this problem solved correctly. Before we start throwing money at Corporate America again, we need an innovative Vision for how this country is going to evolve in a global marketplace with scale players like China and India. We cannot simply throw money to every Employer who asks. We need criteria and that only comes from a strong sense of Mission, Vision and Strategy. We are going to have to be very honest with ourselves and ask tough questions like “Why industries can America succeed in attaining a market leadership position in? The answers will surprise and astound. And they will direct us as to WHERE our labor force should be deployed. There are myriad options to redeploy our labor force without perpetuating a culture of entitlement. However, the lynchpin and the missing piece of the puzzle is the dysfunction of the Judiciary and the failure of the Courts to enforce Employment laws. Without these protections any gains will be ephemeral. The Courts need to be restructured and previsioned to prepare the third arm of government for a sea change in the way we eaddress Conflict Resolution and the right of every Employee to Equal Opportunity and Equal Compensation for Equal Work. We also need to get over all the hang ups about unspoken “quotas” and refusal to enforce Make Whole damages so that victims who want to work not only CAN but are compensated for any injuries they sustain due to backward discriminatory Employment practices. One of the articles below criticizes the President for reducing the deficit (and the corollary downsizing of government), two polemics the Republicans fought tooth and nail for. I personally believe that this reduction in Government spending was ill timed, and that it not only contributed to the massive unemployment but to the sluggish growth. I think we should have waited until we were in the clear and at “par” on growth before reducing Government’s role in hiring. Further, there is the issue of infusing cash into the economy to stimulate it and whether the Fed’s TARP reduction is a good thing. In principles I believe that we should operate with a balanced budget and that reducing the dependence on government intervention. There are many ways to generate Cash for investment. For starters, banks are now better capitalized due to Risk Management requirements. There is also a virtual tidal wave of potential investment lying latent IF the right ideas are presented. We are going to have to start taking risks again. We won’t feel so nervous about this if we know where we are going. We also need to have a foci to galvanize the public and business around. There is no reason why America should have really Poor people or why some people have to work multiple jobs just to have a roof over their heads There is a problem with lack of skills that must be met head on. The Immigration issue must also be incorporated if we expect a permanent solution. When we look to the Future for answers, and they exist and will astound everyone because they will put America on the path to growth and progress again, we must have all three arms of Government on board and we must vet our leadership of ineffective leaders If we don’t do this, it will be like building a new roof on a house with a rotten basement. Eventually it will collapse. America’s corporations will have to invent new ways to compete. When they do, they will be motivated to hire “Reach Back” workers, perhaps after undergoing intensive Retraining programs. Skilled workers with translatable skills will be able to maneuver between industries and countries with ease, leading the way. For all of this to succeed, there must be an overarching strategic concept that propels the agenda forward. People who see the world differently will envision solutions that no one ever imagined, just as Steve Jobs did with his obsessive commitment to innovation and excellence. Perfection has to become one of America’s values if we expect to regain our leadership position. Most importantly, we need to ditch “Consensus Management” and “Conformity” as desirable values and we need to allow Innovators to safely surface their ideas without being crushed by the tidal wave of bureaucratic mediocrity that prevent us from seeing and embracing the Future. The Future where America leads in very different ways than it does now. A diverse Future that opens, not closes, doors for talented PCs. Lastly, if we are going to be successful we must make sure that our “rulers” are appropriate to the challenge and that we benchmark our progress using appropriate measures. For starters, do we recognize Total Productivity and what role does this play in Fed monetary policy, if any? Most importantly, can we devise a strategic paradigm that redefines “productivity” completely? And when we do can we restructure compensation strategies to incentive greater accountability and freedom to invent? Where envy of wealth is abandoned, and aspirational values rooted in entrepreneurship and self determination are embraced. K.G.J. J. p.s. Can we put all the small fry stuff in perspective and not worry about inconsequential matters and pointless, petty feuds. United We Stand. Divided We Fall. LINKS: forbes/sites/johntharvey/2014/07/06/raising-minimum-wage-not-the-answer/ reason/archives/2014/03/03/9-reasons-why-raising-the-minimum-wage-i *Stats on Elderly and Disabled were not available for Poor breakdown..
Posted on: Mon, 01 Sep 2014 03:02:22 +0000
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