Firms Relying On Unethical Business Models Should Be Allowed To Fail

Published by AceK in the blog IRQ42's Blog. Views: 650

Firms Relying on Unethical Business Models Should be Allowed to Fail

When I take a look at American society it is clearly evident the socioeconomic inequality and injustice that exists. Is it ethical to allow such social injustice to continue unchecked? Allison Aubrey, in her article, alludes to the rising income disparity in America: "Overall, the average compensation of fast-food CEOs has quadrupled since 2000" (1). What Aubrey is affirming is not only to show that CEO compensation has risen by what amounts to an approximate 300 percent increase, but to bring our attention to the fact that the middle and working class have not seen wage increases of a similar proportion. Dee Dee Myers, in her article, What Class Warfare Really Looks Like, points out the facts of income distribution in America: "The top 1 percent of Americans now take home nearly a quarter of all income and control more than 40 percent of the country's wealth “ roughly the same amount as the bottom 90 percent" (2). Here, Myers is acknowledging that not only are earners in the 99[sup]th[/sup] percentile incredibly wealthy, but also that the super wealthy hold nearly half of the available wealth in America. This is a problem, but there is a slightly less obvious evil that must be addressed. Within the scope of this paper I will draw upon the works of Aubrey and Myers, as well as other sources, to project my thesis. Corporations that rely on paying unlivable wages in order to stay in business, while making their executives and shareholders rich, should not be allowed to exist and should simply go out of business; this would be favorable for the entire country.

Consider the case of a corporation such as MacDonald's. They rely on a business model that requires their staff employees to be compensated very poorly. One might suggest that if they would raise the price of a McDouble very slightly that they could pay a higher wage, and these workers would be able to buy more food from MacDonald's, having more money to spend. However, if they could increase the cost of a McDouble to increase their profit margin and still remain relevant in the market, they would have already done so. MacDonald's sells low quality food, what would be considered an inferior good. When people have greater expendable income the demand for normal goods rises, however, the demand for inferior goods falls. As such, it is not in their favor to make anyone wealthier, except the greedy executives and shareholders. Of course, MacDonald's and their workers contribute to real GDP growth in the economy. However, some will argue that the minimum wage workers responsible for doing the grunt work do not deserve wage increases, (in fact their real income is falling) as they are not contributors to the growth in output; this is bunk, without these workers MacDonald's would not be able to be do business under the business model they have built.

For instance, in Jeffrey Dorfman's article, Almost Everything You Have Been Told About The Minimum Wage Is False, he acknowledges that labor productivity has grown faster than the minimum wage over the last few decades, but that using the overall growth in productivity as an argument for a minimum wage increase is flawed; he claims that we need a metric of the productivity growth of the subset of workers making minimum wage (3). What Dorfman is alleging here is that in his opinion, economy wide increases in growth are to be considered irrelevant when considering wages and real income among minimum wage workers. GDP growth results in inflation, and the value of currency falls. There are several means by which the Fed controls inflation that are outside the scope of this paper, but the point is that the Fed strives to maintain a roughly stable positive inflation rate. When considering the economy overall, it is irrelevant who contributes the most to economic growth, since all of us are using the same currency.

Considering this, I find these types of claims morally objectionable, as well as unethical. I also feel the same way about corporations that adopt such business models that are fueled by the greed of the elite upper class. These firms are effectually robbing the poor to accumulate wealth. Why is society content with such immoral practices that could be argued to be a drain on society? It may be because it is not immediately obvious, until one looks deeply into the economic aspects and the financial practices of these firms. Some of these huge firms are likely engaging in business practices which would be criminal were they not armed to the teeth with lawyers. The United States v. AT&T antitrust case of 1982 comes to mind, which resulted in the breakup of the company into the many baby bells. This is not capitalism, there is virtually no perfect competition here, anti-competitive strategy is rampant, and Pareto efficiency is no more than a pipe dream.

Furthermore, the workers making minimum wage cannot support themselves without government benefits, another fact that supports my claim that these firms are a drain on society. According to Nell Minow, "Taxpayers are subsidizing the CEO pay plan "¦ and that's (sic) simply intolerable" (qtd. in Aubrey 2). Aubrey is bringing to light here the fact that these firms are being indirectly subsidized, forcing their employees to rely on government benefits, rather than pay them a living wage as they should. A portion of the taxes paid by society in effect is being used to keep firms such as MacDonald's in business, which would otherwise fail. According to Aubrey, a report that was released found that 52 percent of fast-food workers are receiving government benefits of some form (2).

Naturally, this is a major problem. I also see no signs of improvement, rather the contrary. When this country was built it could not have anticipated the existence of such large firms. Thus, it was not prepared to lay down the proper laws in the very beginning to prevent this problem. The corporations are now virtually writing these laws, so that they can legally exploit the public in ways that would otherwise be criminal.

I acknowledge that many may disagree with my assertions, and may claim that these large firms are behind much of the driving force of growth and innovation. I do not dispute this, or claim that this is untrue. However, the business practices of these firms, according to my own code of ethics, are morally wrong. Every person has their own type of ethic and their own values; however, I believe that there are some ethical values which should be common among humanity. The people of society cannot coexist together peacefully until we all find some moral fiber within ourselves, and stand together against what is evil.

In short, many large firms rely on greedy business practices to stay in business. These practices are unethical, and a drain on society, as they take advantage of the poor to support their evil empires. Firms that could not stay in business if they were to compensate employees with livable wages should simply be allowed to fail. The sociopaths that run these firms should either change their business models to something more ethically acceptable, else simply be allowed to fail. I do not believe this would be detrimental to the economy. New firms would sprout up to take their place, and it is possible to run a business while paying employees a decent wage. This would require a different type of business model, and different strategies. Perhaps it would require more effort from the CEOs, demanding a bit more intellect from them to design systems that are actually efficient. Pareto optimality may not be possible to fully achieve, though I do believe that by changing our way of thinking, it is possible to approach as near as is possible.

Works Cited​

Aubrey, Allison. "Fast-Food CEOs Earn Supersize Salaries; Workers Earn Small Potatoes." NPR 22 April 2014: 1-2. Print.

Myers, Dee Dee. "What Class Warfare Really Looks Like." Politico 11 July 2011: 2. Print.

Dorfman, Jeffrey. "Almost Everything You Have Been Told about the Minimum Wage Is False." Forbes 30 Jan. 2014: 3. Print.

Pinheiro, John. "AT&T Divestiture & the Telecommunications Market." Berkeley Technology Law Journal 2.2 (1987): 316. Web. 7 May 2016.
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