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Firms Don’t Want Low-Paid Workers. They Want High-Paid Workers Who Help Them Make More Profits.

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In 1981, Magic Johnson signed a 25-year, $25 million contract with the Los Angeles Lakers. The deal was massive for its time. The Lakers rewarded Johnson with an eye on keeping him with the team forever, but eventually the contract proved rather pedestrian. Management wound up writing new, more lucrative contracts for the Laker legend.

Johnson’s first post-rookie contract proved small because NBA team revenues were eventually so large. When Johnson entered the League, playoff games were still shown in tape-delayed fashion at 11:30 pm. Johnson and Larry Bird brought the NBA into prime time in a literal and figurative sense. Player salaries soared as a result. As Warren Brookes once put it, “we are blessed by the genius of the relatively few.”

Fast forward to the present, and last week the Lakers signed forward Anthony Davis to a five year, $190 million contract. They also signed LeBron James to a two-year deal worth $85 million. As the NBA’s fortunes have risen in modern times, so have those of the players. Imagine what kind of contract Magic would command today.

And while the numbers are smaller, Amazon recently announced a $500 million bonus for its front-line workers who’ve been extraordinarily busy over the last eight months. The retailer paid out a similar amount in June. The pay per employee is more in the $300 each range, but it’s plainly Amazon’s way of letting its employees know they’re valued. And that they’ll be rewarded when the company does well.

Amazon isn’t the only business rewarding its employees. According to the Wall Street Journal’sMaria Amenrtal, Walmart has distributed $1.1 billion to its “associates,” while Target raised its starting pay for employees to $15/hour. Amazon announced a similar starting minimum in 2018.

About the bonuses and wage increases mentioned, let there be no illusion as to the why behind them. Businesses are in the business of profit, and well-compensated workers are a certain driver of profits. Translated for those who need translation, self=interested company executives chose to pay company employees more.

The simple truth is that low-paid workers are incredibly expensive. They are because they frequently don’t appreciate their jobs, and as a consequence don’t take the work seriously. All of this frequently results in bad experiences for customers.

Worse, low-paid workers have a greater tendency to quit. This is true in the NBA, and it’s also true in retail. The Lakers rewarded Davis and James with big contracts because they didn’t want to lose either to free agency. The same thought process is plainly at work inside Amazon, Walmart, and other retailers. If they don’t overpay their employees, and if they don’t occasionally give them bonuses, they’ll soon enough not have enough employees. It’s expensive in the near-term to be stingy. So is it in the long-term.

Indeed, the Lakers, like Amazon and the rest, are thinking long-term in paying out the big dollars now. They want to win. They know that the path to regular victory is paved with talented employees. And so they compensate their employees handsomely with the long-term in mind.

Crucial about the pay described is that it’s rarely evident inside corporations or industries that are doing poorly. As I point out in my 2019 book They’re Both Wrong, in the 1970s the NBA wasn’t very successful. As  mentioned previously, so limited was fan interest back then that playoff games went “live” in tape delayed fashion late at night. Funny about the ‘70s is that print media was thriving then. NBA reporters flew in first class while NBA players flew in coach. Those same players courted print media members because those in thriving media enjoyed generous expense accounts such that they could spend lavishly on players. How things have changed.

In modern times print media is gasping for air, and its members are usually in coach if in the air at all. On the other hand, NBA players fly in chartered jets.

The first lesson of the above is that when corporations thrive, their employees are rewarded. It’s that simple. This basic truth should be remembered the next time some dope utters a nonsensical line about how corporations must be taxed more. What shrinks the funds of businesses also shrinks the fortunes of those in the employ of any business.

More important, the anecdotes about the Lakers, Amazon, Walmart and Target are a reminder of how just how nonsensical all the talk about stagnating U.S. wages these last few decades is. Can economists, journalists and pundits even pretend to be serious anymore? Stagnating wages in the richest country in the world?

If so, as in if American earnings have been flat for decades, why the influx of immigrants during those same decades? Why have the world’s producers worked feverishly to meet the needs of a U.S. market that’s been suffering flat wages? Most of all for the purposes of this piece, how could a country full of the world’s most valuable companies have such undercompensated workers?

The answer to the half-awake is that American workers aren’t undercompensated, and they haven’t endured wage stagnation. Implicit in such a view is that companies and teams become great by routinely ripping off their employees. No, not even close.

Amazon et al easily discredit what never made sense. Please read the news, but do the reading with a skeptical eye.

John Tamny is editor of RealClearMarkets, and Vice President at FreedomWorks. AP Photo Marcio Jose Sanchez

A Walmart In The Neighborhood Does More For Affordable Food Distribution Than Food Baskets From Charity.

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Among economists’ insights over the last almost 250 years, one of the keenest is that one can do good while doing well. The idea traces to Adam Smith. It means capitalists’/entrepreneurs’ pursuit of profit can have favorable consequences for the community at large—and not just for capitalists and entrepreneurs. It applies equally to landowners and workers pursuing their own interests.

The following are two of Smith’s statements of the “doing good while doing well” proposition. The first is from The Wealth of Nations and the latter from Smith’s 1759 Theory of Moral Sentiments.

“It is not from the benevolence of the Butcher, the Brewer or the Baker that we expect our dinner, but from their regard to their own interest.”

“Every individual… neither intends to promote the public interest, nor knows how much he is promoting it… he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.”

One frequently hears about capitalists/entrepreneurs making substantial gifts either before or after their deaths to colleges/universities and other non-profit organizations. Many say it is an opportunity for them to “give back,” which suggests, at least to me, that the wealth making the gifts possible was obtained in less than noble ways. Regardless, the benefits the community at large reaps from these gifts are not what the doing good while doing well proposition is about.

The doing good while doing well proposition does not describe government officials’ actions.

Rather, the proposition refers to the process by which the capitalists/entrepreneurs earn their wealth. It’s not what they do with their accrued wealth. It’s the benefit the community realizes as this wealth is accrued. To paraphrase Smith, people enjoy the benefits of meat, beer, and bread as a result of their respective producers’ efforts to earn a profit. What these producers do with their wealth is a different question.

It should also be noted that the doing good while doing well proposition does not describe government officials’ actions. For these officials, making personal monetary profits from their jobs is illegal. The result when government officials pursue their own interests, given this illegality, is the topic of the public choice economics. The results do not parallel those of Adam Smith.

The coming of Thanksgiving and Christmas each year brings with it churches and benevolent groups organizing distributions of food baskets. I have participated in these efforts, though probably with less enthusiasm than others.

Americans are surrounded 24/7 by a process (Smith’s invisible hand) that is wealth-producing for all, thereby making these charitable acts possible.

Always in the back of my mind was the doing good while doing well proposition. That is, how do the effects of the proposition compare with the distributions by churches and benevolent groups? To repeat a previous cautioning, how does the process by which capitalists/entrepreneurs pursue profit affect the community at large?

My mind went to the case of Wal-Mart. No one would deny that Wal-Mart is a profit-pursuing entity. At the same time, there is credible evidence that Wal-Mart’s presence in a community reduces food prices between 10 and 15 percent. Put on an annual basis, this is equivalent to food shoppers receiving 5.2 to 7.8 weeks of additional food shopping per year. It follows that Wal-Mart spreads far more holiday food cheer than churches and public service groups do.

Food basket distributions presumably trace to noble intentions, while pursuit of profit is widely held to be ignoble. Noble trumps ignoble. That’s why the doing good while doing well proposition has always been a tough sell for economists. For many, good things only happen when people intend to do good things.

None of the above is meant to trivialize church food baskets during the Thanksgiving and Christmas holidays. Nor is it meant to disparage those making end-of-life or after-life contributions to colleges/universities or not-for-profit institutions. These acts of charity have long played a vital role in American life. Moreover, they are voluntary, and I would be the last to put them down.

Instead, my purpose is to point out that Americans are surrounded 24/7 by a process (Smith’s invisible hand) that is wealth-producing for all, thereby making these charitable acts possible.

T. Norman Van Cott, is a professor of economics at Ball State. This article first appeared at FEE.org

The Blockchain is Helping to Curb Foodborne Illnesses

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Each year, roughly 48 million Americans fall ill because of foodborne illnesses. Of those who fall ill, 128,000 are hospitalized and 300 die. For most of human history, determining the source of the contamination has been extremely difficult, if not impossible. And even if tracking down the origin of contamination is possible, it is a timely process that can take weeks, in which time many people could potentially be harmed. But thanks to the blockchain technology, contaminated produce that could potentially result in widespread foodborne illness is now easier to trace and thus, easier to prevent than ever before.

By the end of January 2020, California-based produce companies wanting to do business with Walmart and Sam’s Club will be required to incorporate a blockchain-based supply chain into its standard operating procedures. These companies include giants of the produce world like Dole, Taylor Farms, and Fresh Express.

Frank Yiannas, Walmart’s vice president for food safety, said:

“We’re requiring our suppliers of fresh leafy greens to be able to trace back their product to the source, to the farms, in seconds and not days or weeks.”

It makes perfect sense for Walmart to make this move. Just last spring, Arizona-based produce manufacturers were hit hard when romaine lettuce that originated there was found to be tainted with E. coli. The contaminated lettuce impacted 205 people in 36 different states. Ultimately, it ended up claiming the lives of five people. Consumers felt almost powerless in the situation, as they realized just how hard it was to find out where their produce originated.

After a lengthy investigation, only one farm could be traced back to the spread of the illness, though experts know from experience that it is rarely just one farm implicated in contaminations of this magnitude. But without the proper apparatuses in place, it is extremely difficult to get to the bottom of these types of produce scares. It is for this reason that the tainted romaine lettuce went on to harm consumers for several months, lasting from April to July. In fact, it was the deadly produce outbreak that had struck the industry in modern times.

Yiannas continued:

“The time is now for a better way to tackle the issue of food traceability. There’s a strong public health case as well as a business case for doing so.”

In the digital age, where blockchain has made it possible to share information with the public within seconds, there is no reason for contamination on this scale to continue.

The Blockchain and Consumer Safety

For almost two years now, Walmart has been experimenting with blockchain technology to see how it could help prevent future outbreaks of foodborne illness. Big name companies like Nestle, Danone, Unilever and Driscoll’s berries have participated in these pilot programs, and almost all have a vested interest in doing so.

By incorporating blockchain, these companies have almost nothing to lose and everything to gain. Not only does this help prevent being at the forefront of a future contamination crisis, but it also shows that these brands are dedicated to using technology to ensure food excellence—something all consumers can get behind.

As described by the Los Angeles Times, the incorporation of blockchain technology would work by:

“The first block of the chain would come from growers providing information by smartphones, or in some cases via preprinted boxes and labels. Next, packers and shippers would enter information on every lot of produce they process as it passes through their facilities to trucks and enters the Walmart distribution system.

Each move is known to other parties, who must verify the activity in a system in which no one knows everything, but everyone knows every move. (That has earned blockchain the dual nicknames of the Internet of Trust and the Internet of Distrust.)”

But the industry has more to gain from this than just food safety. Blockchain will help expedite contract payments and also help supply more information to potential buyers.

Foodborne illnesses end up costing $152 billion in health care costs each year, but by utilizing blockchain’s decentralized capabilities, grocery retailers and consumers will be able to know where their food is coming from so that they may be able to avoid any harmful produce. And when an instance of contamination is detected, it can be stopped before causing widespread damage.

The fact that this type of technology can be used to ensure our food safety is just further proof of blockchain’s revolutionary implications. Even though government regulatory agencies have existed to “protect” consumers from these types of instances, the government is not by any means, a foolproof way of protecting consumers. Foodborne illnesses still spread each year in spite of the existence of these regulatory agencies. But by decentralizing information and making consumers more informed about their purchases, the market is becoming a safer place to do business.

Bernie Sanders’ Continues His Crusade against Amazon

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Amazon has had a very good year as it has reached $1 trillion in market cap, solidifying the vital role it plays in the global economy. But as can be expected, in light of this exciting news, Bernie Sanders has taken his crusade against Amazon to new levels and has proposed a new bill that is conveniently being called the “Stop BEZOS Act.”

“BEZOS” is, of course, an acronym for the full bill’s name, which is “Stop Bad Employers by Zeroing Out Subsidies Act.” However, either way you look at it, this is a direct hit to Amazon from Sanders. If the bill gains any traction in the Senate, it would essentially force private companies like Amazon and Walmart, to pay for government food stamps, public housing, Medicaid and any other federal assistance program employees may use. This would happen by mandating that companies with 500 or more employees must pay 100% of the cost of federal assistance programs being used by employees.

Sanders has tried to frame his bill as an effort to relieve the taxpayers from having to pay for these welfare programs. That might seem reasonable on its face value, but the reality is anything but.

Sanders has not been shy about accusing Amazon of paying its employees too little, and this bill is an expansion of this narrative. Since be believes that Amazon and Walmart underpay their employees, he is essentially blaming the continued use of welfare assistance programs on the companies themselves, a claim that is absolutely ludicrous. He said:

“In other words, the taxpayers of this country would no longer be subsidizing the wealthiest people in this country who are paying their workers inadequate wages. Despite low unemployment, we end up having tens of millions of Americans working at wages that are just so low that they can’t adequately take care of their families.”

He also tweeted:

“Thousands of Amazon workers have to rely on food stamps, Medicaid and public housing to survive. That is what a rigged economy looks like.”

But, like many things Sanders says, the facts don’t add up.

Fact or Fiction?

Sanders’ claims that many of Amazon’s employees are struggling to get by are simply untrue. Not only did he include global employees in his initial allegations, but he also included temporary employees who are not actually full-time with the company. In response to his allegations, Amazon published a blog addressing his inaccurate statements.

The post says:

“…Senator Sanders continues to spread misleading statements about pay and benefits. Amazon is proud to have created over 130,000 new jobs last year alone. In the U.S., the average hourly wage for a full-time associate in our fulfillment centers, including cash, stock, and incentive bonuses, is over $15/hour before overtime. (Sen. Sanders claims that Amazon’s median U.S. salary is $28,446, despite the fact that we’ve made clear that this number is global and includes part-time employees. In fact, the median U.S. salary for full-time Amazon employees is $34,123). We encourage anyone to compare our pay and benefits to other retailers.”

Amazon’s blog post also addressed the inaccurate picture Sanders painted of Amazon employees being the recipients of food stamps. Many of the workers who were on food stamps were temporary employees without full salaries and benefits. And many had taken temp work because they were already experiencing financial setbacks unrelated to Amazon. So to blame Amazon for this, and then force them to pay for government programs is absurd.

Of course, this isn’t the first time progressives have gone after Amazon in an attempt to force the company to pay for welfare assistance programs. Seattle’s City Council voted to force Amazon to subsidize housing for the homeless because they believe it is paying its employees too much, thus driving up the costs of homes. This is actually hilarious in light of Sanders’ new bill which claims Amazon is paying its employees too little. It seems like the real problem here is that Amazon success has made many progressives feel as if they are entitled to some of its profits. But these types of policies serve only to hurt employees.

What is Unseen

If Amazon is forced to pay for welfare programs, in addition to other attempts to squeeze money from the company like in Seattle, it will have to make cutbacks somewhere. So, either consumers will see a rise in the cost of consumer goods or employees will see a decrease in their pay. Of course, there is still another option on the table. If Amazon is forced to pay for these programs and chooses not to lower employee wages to make up the difference, it may be forced to lay off employees.

Long story short: no one wins in this situation except for Sanders, who gets to have a false feeling of moral superiority. There is no logical reason behind making Amazon pay for food stamps and public housing. Hopefully, the rest of the U.S. Senate understands this and shoots down this bill before it goes anywhere.

Physical Retail Stores Are Getting Smarter about Competing with Amazon

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Healthy competition makes every single one of us better. It allows us to come to terms with our limitations and challenges us to push ourselves to achieve bigger better things. And it is competition that drives the market and technological innovations that make our world more wondrous with each passing year.

However, competition is not always welcomed by businesses that have long dominated their industry and thus feel as though they have earned some sort of market tenure.

However, after losing consumers to the convenience of Amazon and online retail in general, many brick and mortar locations are finally realizing that they must either innovate or cease to exist. And this change in attitude is in part thanks to the new Amazon Go location in Seattle.

Amazon Go

Amazon has completely changed the way consumers purchase items, and brick and mortar retail establishments are not happy about it. Amazon is great at what it does, so much so that consumers prefer to order almost everything they could ever want online from the comfort of their homes, rather than patronize physical establishments. But more Amazon shoppers means fewer people visiting physical stores. This has caused so much outrage, even President Trump has chimed in on Twitter, calling for a regulatory crackdown on Amazon.

Yet, even in the era of abandoned shopping malls and dying retail chains, Amazon has found a way to reinvent the brick and mortar experience with its new Amazon Go location. And this new Amazon experience is finally forcing some retail locations to raise their game.

Amazon Go is unlike any other store you have ever visited. Completely automated, Amazon Go puts the shoppers in control of their experience. To enter the store, each shopper must scan the Amazon Go app on their smartphone. After gaining entry, shoppers need only grab what they want, and then leave the premises. It’s as simple as that. The store shelves have sensors that know when a shopper has picked up an item. If the shopper changes his or her mind and returns an item to the shelf, their Amazon Go cart will adjust the total accordingly. And since the app is connected to their debit or credit cards, payment occurs automatically and without having to wait to see a cashier or use the self-checkout.

The Uber Example

The most obvious modern example of businesses trying to avoid healthy competition is the “Uber vs. Taxi” war that has raged over the last several years. The taxi companies had enjoyed an 80-year stranglehold on the market simply because there was no better way of doing things at the time. But instead of encouraging innovation, protectionist policies like New York’s infamous medallion laws limited who could enter the market, so as not to threaten those already in it. But this gave these existing taxi companies absolutely no incentive to change.

So when ridesharing came into existence, rather than innovate their own outdated models, cab companies used the state to attempt to regulate ridesharing out of existence. They didn’t see this competition as a challenge to grow, but as a threat to be nipped in the bud, even though it meant limiting consumer choice.

However, even though the big cab companies did enjoy mild regulatory success, consumers were still crazy about Uber and Lyft, preferring them to hailing a cab, which allowed ridesharing to triumph in the face of protectionism.

And while the cab industry’s war on Uber has subsided a bit, a new battle is occurring between Amazon and traditional retail establishments.

Competing with Amazon

As Martin Hitch, the chief business officer of Bossa Nova Robotics, a company that works with stores like Walmart to help with inventory management commented on Amazon Go, saying:

“Unanimously, there was an element of embarrassment because here is an online retailer showing us how to do brick and mortar, and frankly doing it amazingly well.”

Retail companies who have managed to stay afloat in the era of online shopping would do well to take notes from Amazon Go’s model, as Hitch points out. And this is exactly what Walmart and other retail stores around the globe are looking into and trying out now. Specifically, China retailers are aggressively innovating their own models to compete with the Amazon.

The Chinese startup Bingo Box is aiming to open 100 automated grocery stores that function almost exactly like Amazon Go. The Chinese retailer, JD, is also moving towards automation by putting chips in all its retail items, making the scanning and checkout process easier. Additionally, Alibaba, one of the largest internet companies in China, has announced it will be opening 35 of its own automated stores that will allow customers to order groceries on a mobile app in advance, and then use facial recognition to complete the checkout process once in the store.

And in the United States, grocery giant Walmart is considering similar moves.

Already, Hitch has helped Walmart move towards more automation in select stores. So far, this new plan would utilize robots to keep tabs on inventory as well as mislabeled products. It would also allow shoppers to use their smartphones to pay for the items in their cart without having to wait for a cashier. The grocery chain Kroger is also taking this competition with Amazon seriously. Currently, Kroger’s plan is to test mobile purchasing apps in more than 400 of its 2,700 U.S. stores.

This retail competition has also presented new opportunities for startups dedicated to modernizing the way we shop in and check out of physical grocery stores. And while Amazon is taking the lead on automated grocery stores, the race is definitely on to see who will be able to a viable competitor with the online retail giant.

Alan O’Herlihy, as chief executive of the Irish company Everseen, which works with checkout technology for retail stores commented, “There’s a gold rush feeling about this.”  And the fact that retail establishments are taking the Amazon Go threat seriously is great news for consumers. Currently, there is only one Amazon Go location in the United States. While it is rumored that there are plans for additional locations, as of now their influence is limited to those in the Seattle area. But if these other retail stores are able to get these new projects up and running, Amazon may finally have a worthy opponent.

One thing that is for certain, more of these futuristic grocery stores means more options for consumers. Prices are likely to go down as stores vie for customers. Amazon Go has finally given brick and mortar stores the stimulus they needed to shake up their outdated models, and this is something to be celebrated.

Write for CFI