Throughout the long sordid history of socialism, socialists have decried the supposed conflict of interest between employers and employees. Employers exist just to exploit the workers, socialists claim. If it weren’t for government minimum-wage laws, employers would pay their employees no more than bare subsistence wages. Socialists have also long claimed that though their acquisition of profits, employers steal what rightfully belongs to the workers, whose work has brought the employer’s product into existence.
As we are seeing in the coronavirus crisis, there is a commonality of interests between businesses and their employees. If a business isn’t making any money, it cannot afford to keep its workers employed. When a business is bustling, the employees have job security.
Thus, it is in the interests of both employers and employees to have a dynamic, successful business. When that happens, the business prospers and so do its workers.
In fact, it is in the interests of workers to have other businesses prospering as well. That’s what guarantees that the business will paying better wages to its workers. When there are all sorts of businesses doing well, they have the financial capability of paying workers more money. If businesses are going out of business, like they are during the coronavirus crisis, there is little or no competition for labor.
Even if a business owner is the most selfish person in the world, he cannot drive wages to subsistence levels if there are lots of other dynamic, successful businesses in the economy. Businesses compete for workers, which bids up the price of labor. If that selfish business owner decides not to match the going rate, he loses employees to competing firms.
What is the difference between a business and an employee? Risk and security. When a business person or entrepreneur starts a business, he is risking his own money or the money of investors. He hopes to be successful but there are no guarantees. He has to rent or buy a place to do business, hire workers, purchase tools, equipment, and supplies. Much of the time, there is a delay in getting customers.
After all that, there is no guarantee he will successfully satisfy consumers. Let’s say he spends $150,000 in start-up costs for a small business. He stands to lose it all if things don’t work out.
Employees, on the other hand, take no such risk. When they get hired, they are guaranteed a steady income, assuming the firm is successful and assuming the employee is doing a good job. That’s the way most employees want it. They choose job security over the risk of losing all their money in a business venture.
There is another factor to consider: It is in the financial interests of business to maximum their profits. How do they do that? One big way is by increasing productivity. A farmer who is producing 1000 bushels of wheat is likely to be making more money than when he producing 100 bushels of wheat on the same farm.
How does he increase productivity? With better tools and equipment. He goes out and purchases a tractor, which increases the productivity of his farm workers. The tractor enables him to increase production from 100 bushels to 1,000 bushels.
That increased production also means higher wages for his workers? Does this happen out of the kindness of the employer’s heart? It might but not necessarily. Competition for workers from other farms causes him to increase his wage rates to avoid losing his workers to competitors.
Where does the farmer get the money to buy the tractor? From previous savings, or he goes to the bank and borrows the money. Where does the bank get the money to lend to him? From savings of workers who are putting their savings into banks. Thus, the more the savings, the more money there is to lend to employers to purchase tools and equipment that make workers more productive.
Thus, as our 19th-century American ancestors discovered, the ideal economic system is one in which everyone is free to keep everything he earns and in which charity is 100 percent voluntary. That was America’s founding economic system for more than 100 years. No income tax, IRS, Social Security, Medicare, and no warfare state. When people were free to accumulate unlimited amounts of wealth, everyone, including workers, benefitted. America became not only the country with the highest standard of living in world history, it also became the most charitable nation in history.
Through that economic system, the world learned how to end poverty. Too bad 20th-century Americans abandoned it in favor of the welfare-state, warfare-state type of economic system under which Americans today suffer.
As we are seeing during this crisis, there is a commonality of interests between businesses and employees, contrary to what the socialists have long claimed. When businesses are doing well, workers do well. When businesses fail, workers go unemployed.
* This article was originally published here
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