A disturbing trend of late in newspapers and magazines has been to bemoan the heartlessness and greed of company shareholders and CEOs. These rapacious elements are accused of exploiting and heartlessly firing thousands of workers, even as their profits spiral ever higher. Newsweek, for instance, had a magazine cover with the phrase "Corporate Killers" emblazoned on it, and the faces of some six very old, very white and very well remunerated white men juxtaposed with information on the vast numbers of workers they had fired. It seemed these avaricious old men and what they stood for were the very incarnation of evil.
The problem with the heartrending picture painted by Newsweek and several other supposedly respectable publications is that it is utter nonsense. A thinking person can only accept the conclusions these publications have tried to draw by first agreeing to quite a few assumptions of quite dubious validity.
The first such assumption is that companies should be doing something other than maximizing profits and efficiency. What else can one be thinking if one chastises a firm for firing workers even when it is operating quite profitably? One is in effect telling the company owners "even though you can do things more efficiently than you are doing them, you shouldn't." This assumption betrays a severe lack of understanding of what business firms are and how they (ideally anyway) should operate considering their reasons for formation.
As far as this columnist can make out, a business is founded with the express and sole purpose of making profits, usually by fulfilling some unmet need or by fulfilling old needs in a more efficient way. The new entrant to the market competes by passing on some of its gains brought about by efficiency to the consumers, undercutting its competitors prices, and increasing the total value of goods and services that consumers' incomes will enable them to buy. With all this in mind, those who criticize firms for striving to be ever more efficient are seen to be effectively suggesting "let us do evil to the consumer, that good may result."
The second faulty assumption is that companies have moral duties to their employees which go beyond those specified by law. Companies "should" offer job security, we are told, they have a "duty" to the communities in which they operate. It is "evil" for a company to shut down shop in a community where it is the principal employer in order to move to a location where it can find more competitive labor. All this is, not to mince words, rubbish.
It might not be clear to some why such statements make no sense, and so at this point it might help to clarify things by further examining the functions of commercial enterprises. A typical firm is simply the product of the joint direction and capital of a bunch of freely associating individuals; the individuals are freely associating in that they are under no legal duress to join in the ownership of the company. The workers in a company are also freely associated with it; there is no institution or body which may draft a worker into service against his will. Where then does duty come into the relationship? No one would claim that a worker has a moral duty to stay with a firm if he can find a less stressful and better remunerated position elsewhere. Why then should one expect that a company owes
its workers any such obligations?
In a truly free and open society, just as a worker should be free to resign from his place of employment, the owners of a firm should be free to end their relationship with their employees whenever they deem fit. For, just as there is a market for employers, there should be a market for employees. Nearly everyone would deem it immoral that firms should collude so that only their products are obtainable at whatever prices they choose, yet few stop to consider that it is the same situation when unions restrict employment to their members and attempt to forcibly extract wage increases from employers.
It is striking that whenever one presents the employer-employee relation, situations which should rationally be viewed as symmetrical always seem to turn against the employer in the public mind. On further reflection, it becomes clear why this is so. While one can picture concretely Jim Bob being fired from the job he's held for 20 years and the ensuing hardship he will undergo, visualizing the situation of the shareholders is not at all easy, not to talk of empathizing with it. Too often one tends to view shareholders as lazy, avaricious plutocrats, stretched out on divans in their Manhattan penthouses while the struggling masses slave away on the factory floor.
Yet it isn't that easy. Much, if not most, of the stocks in this country are held directly or indirectly by the average man on the street. Whether it's through mutual funds, direct investment or simply interest on our bank accounts, we are almost all beneficiaries of the shareholder system. Furthermore, no one has yet come up with a better way. As study after study will show, the countries which are most prosperous, like Hong Kong and the United States, are those where economic freedoms are greatest for entrepreneurs. Those who think shareholders have it too easy are free to buy stocks themselves.
