On capitalism and exploitation (falsely so-called)

The “Occupy Wall Street” (OWS) crowd and others have frequently used the terms "capitalist" and "exploit" together where "exploit" is referenced in its negative connotation. Many times this application of the term refers to the "exploitation" of foreign workers. While acknowledging that, surely, some workers worldwide are likely subjected to truly coercive means (genuine "slave labor"), the "exploitation" term is wrongly applied on a far larger scale—generally by those with concealed motives or out of pure ignorance. Allow me to tell you why I say this.

For twelve-and-a-half years I lived in El Paso, Texas, which, as you may know, lies just across the Rio Grande from Ciudad Juarez, Mexico. As a businessman, I had reason to know something of the so-called "Twin Plant" operations (or maquiladoras), where U.S. companies frequently had facilities both in Juarez and El Paso. I also knew folks who lived in Juarez, Mexico, on a personal basis and had reason to converse with them on many topics.

At the time (mid-1980s), the typical U.S. plant in Juarez was paying workers something under two dollars per hour (I don't recall the precise figures). The typical U.S. plant was relatively new, air conditioned, well-lighted, and the firm provided safety training and safety gear to its workers. In many cases the U.S. firm also provided a cafeteria for the workers; and in some cases, these U.S. companies also provided on-site day-care for working mothers. Working at, let us say, $1.75 per hour, a worker in such a plant could make $70 in a normal 40-hour week, not including the value of the fringe benefits such as day-care or a free company cafeteria.

Also, however, among my personal acquaintances, was a typical young woman who worked for a Mexican employer—a baking company. This woman worked in a hot (not air conditioned) bakery for up to 60 hours a week. There was no company cafeteria and no on-site child-care paid at the expense of her employer. This young woman took home, on average, $11 to $16 (US) per week. That amounts to pay in the range of thirty cents ($0.30 US) an hour.

The differences between the working conditions and pay supplied by that nasty old U.S. company "exploiting" Mexican workers (as folks ignorantly decried) versus the working conditions and pay at that fine, wholesome, and upstanding Mexican firm explained clearly why—for every opening at the U.S. company's plant—there were more than 300 people just standing in line, waiting to "exploited" under such circumstances. These Mexican workers could not wait to be "exploited" at five or six times the pay, and working a 50 percent shorter workweek!

It is impossible to compare wages across such economic boundaries. No, $1.75 per hour—even in the 1980s—would not be a living wage for a man with a family in the U.S. But for a worker in Mexico, it was a rich wage for which they were more than grateful.

Exploitation, in its negative connotation, cannot happen in the absence of coercion or fraud. Most U.S. firms—I am convinced—do not participate willingly in situations where fraud or coercion is being used to unfairly extract labors from people—any people. Nevertheless, thousands of ill-informed people—especially those with strong allegiances to unions—will wrongfully call what the U.S. firm  was doing (as described above) "exploitation." It is, but only in the positive connotation of the term. (If you don't know what that is, then look it up. You need to understand it.)

Who is a capitalist?

What is a Capitalist? Or, rather, who is a capitalist?

HE'S COMMERCE with a smile on his face. He's REAL PROGRESS standing behind a counter, in a factory, or behind a desk.

Capitalists are the heartbeat of every Main Street in America. In fact, progress all over the world really stems from the risks the capitalists are willing to take.

Every man, woman or couple that decides to risk home and life savings by opening a new business is a capitalist.

Capitalists comes in all sizes, shapes and temperaments. There are tall, sad capitalists who sell hardware; and short, happy capitalists who manufacture shoes or produce software.

There are young capitalists who have taken over the family farm to grow and sell hay. There are old capitalists who still run the family clothing store chain and pay wages to thousands of folks on their payrolls.

A capitalist might be rich and powerful--but most are not. Or he may be small and energetic—most are—and he has risked it ALL to open the little shop around the corner from where YOU and I live.

But either way, rich or small, large or medium, he's the great American businessman who spins the wheels of trade and meshes the economic gears of the nation.

He's a capitalist.

He's a good neighbor back of a cash register, a desk or a milling machine. He's freedom with the front door of his business open to you!

He's America's greatest host and largest employer.

Each business morning he opens his glittering stores and displays what's fine in the world for all to buy at prices you can afford.

He creates, manufactures and/or sells bathtubs, wonder drugs, lumber, automobiles, bread, books, and much, much more.

He is the godfather of better living for you and me by supplying us with wages and helping to drive prices down through production—so our wages will go further and buy more to satisfy our needs and desires. He's the man who buys tomorrow at wholesale in the hope of pleasing YOU.

Yes! He's a capitalist!

He's also a philosopher with a fixed daily overhead and a diplomat with a file full of accounts receivable.

He's the community philanthropist who helps build hospitals, and helps pay for schools. He's the spark plug of every community producing benefits for others while seeking some profit for himself.

He's a capitalist.

Landlords love him because his payroll helps thousands of renters pay their rent on time. Bankers respect him because they understand the risk he undertakes day after day.

We, the customers depend on him.

He keeps the factories of the nation alive. His constant freight moves the overland trucks and the nation's railroad cars. His payroll churns the community's economy.

He's a capitalist.

He likes: Quality merchandise, people who pay their bills, modern stores, clean sidewalks, shiny store windows, good checks, a healthy economy, happy customers, courteous salesmen, the Chamber of Commerce, and Christmas.
He dislikes: Inferior merchandise, shoplifters, checks that bounce, rainy days, fly-by-night salesmen, dirty show windows, and unpaid bills.

He's a buyer and he's a seller. He's a gambler, betting his own money on what will may YOU and ME—his customers—happier tomorrow than they are today.
He's proprietor, a tax collector for the state, a bookkeeper, a straw boss, a messenger boy, an efficiency expert, a cashier, a credit manager, a trouble shooter, an order filler, a payroll clerk, a bill collector, a "Yes" man, a "No" man, and a civic builder.

He's the hardest-working, most valuable man on every Main Street.

He's a capitalist.

Job-killing Health Care Reform

Eric Staib, writing in The Free Market magazine, calls Obamacare what it is, a new "tax" on labor that will lead to increasing levels of unemployment and lower net earnings for employees all across the U.S.

"According to pages 269-273 of the [present version of the] bill, employers of full-time workers will be required to cover at least 72.5 percent of the premium of the least expensive health-insurance plan available that fulfills the bill's minimum criteria of 'acceptable coverage.' In cases in which family coverage is provided, 62.5 percent of the premium is to be borne by the employer," reports Staib. "Depending on the specific plan and other variables such as location, this amounts to a direct labor tax of approximately $300 per month for an individual, or nearly $700 for family coverage."

When a company hires an employee, they negotiate a pay arrangement in which the value of the employee's efforts on behalf of the firm must meet or exceed the amount of money paid out by the firm to retain the employee. In the final analysis, it makes no difference to the employer whether some of the money, all of the money, or none of the money paid out actually ends up in the employee's hands. Consider the following scenarios:

	Scenario
Expense Category	No. 1	No. 2	No. 3
Base Wages	$ 1,733	$ 1,433	$ 1,033
Employer-paid Taxes	$ 133	$ 133	$ 133
Cost of Fringe Benefits	$ 43	$ 343	$ 743
Cost of Training	$ 26	$ 26	$ 26
Cost of Safety Equipment	$ 6	$ 6	$ 6
Other Costs	$ 67	$ 67	$ 67
Monthly Cost of Employee	$ 2,008	$ 2,008	$ 2,008

In these scenarios, we are considering an employee that is worth at least $2,008 per month to his present employer. In the scenarios 1, 2, and 3, the only two factors that change are 1) Cost of Fringe Benefits (e.g., adding in mandated health-care insurance coverage costs) and 2) Base Wages (which are adjusted downward so that the "Monthly Cost of Employee" remains steady.

Scenario No. 2 represents the addition of $300 per month in individual health-care coverage costs. The increase in fringe benefits costs for this typical $10-per-hour employee from $43 per month to $343 per month calculates to almost 700% (698%). For the employer to stay par on the total cost of this employee, the employee's wages would have to drop from $10-per-hour to $8.27-per-hour, a decrease of 17%.

Scenario No. 3 looks at the addition of $700 per month in family health-care coverage as mandated under the Obamacare legislation. Adding in this $700 per month in fringe benefits (really, a "tax", since it will be mandated by the federal government) is a leap of more than 1600% (1628%) in the cost of fringe benefits for this employer. Again, for the employer to stay at par (i.e., the total cost of the employee remaining at $2,008 per month), the employee's wages would have to be slashed 40%, from his or her current $10-per-hour to $5.96-per-hour.

Most rational employers know that an employee that is presently making $10-per-hour is not likely to accept a 17% pay-cut simply because of this new government mandate, the likely outcome is that the employer will lay off the present employee and hire two or more part-time employees not covered under the Obamacare mandated "tax." In the alternative, the employer may lay off the existing $10-per-hour employee and seek to hire a replacement employee that is willing to work for $8.27-per-hour or less but still deliver at least $2,008 in value to the business. A third choice would be for the employer to simply lay off some of its $10-per-hour employees and try to make the remaining employees simply produce at higher levels. If all three of these options fail to sustain profitability in the firm, the employer will ultimately be forced to close its doors and lay off all of its employees.

Under any of these options, real wages in the U.S. economy will plummet and unemployment level will dramatically increase (at least for full-time workers). This is just bad economic policy.

Works Cited

Staib, Eric M. "The Health-Care Tax." The Free Market, December 2009: 1-3.



©2009 Richard D. Cushing