Tuesday, November
29, 2016 was designated “National
Day of Action to Fight for $15,” meaning an across the board hike in the
minimum wage to $15.00 per hour throughout the United States. Many workers at McDonald’s restaurants walked
off the job and participated in protests, with “dozens” being arrested in
various demonstrations across the country, according
to an Associated Press Report.
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| "I've been replaced by a robot" |
Earlier, McDonald’s
Corporation had announced a
nationwide program to replace human workers with self-service kiosks. Ed Rensi, McDonald’s former president and CEO
of McDonald’s U.S..A., analyzed the effects of the push for an increase in the
minimum wage — and the picture is not pretty:
In
2013, when the Fight for $15 was still in its growth stage, I and others warned
that union demands for a much higher minimum wage would force businesses with
small profit margins to replace full-service employees with costly investments
in self-service alternatives. . . . It’s not just McDonald’s that has embraced
job-replacing technology. Numerous restaurant chains (both quick service and
full service) have looked to computer tablets as a solution for rising labor
costs. . . . Eatsa, a fully-automated restaurant concept, now has five
locations — all in cities or states that have embraced a $15 minimum wage. . .
. the Starship delivery robot is now navigating the streets of San Francisco
with groceries and other consumer goods.
The company’s founder pointed to a rising minimum wage as a key factor
driving the growth of his automated delivery business.
This is bad
enough. People who once had an
inadequate income now face the possibility of having no income (assuming everything else stays the same, of course, as the rest of this analysis does). What Mr. Rensi and others on the producer
side don’t see, however, is the real significance of replacing wage workers
with technology.
Yes, they
understand that technology is expensive.
Some companies may be forced out of business because they can’t afford
the investment in the new technology to replace the human labor that they also
can’t afford.
It’s not just a
matter of raising prices. “Price” is not
a function of the cost of production to the seller, but of the value of a
product’s utility to the consumer. The
importance of price to a seller is that what he or she can charge for a product
must cover the costs of production and a reasonable profit, or it will not pay
the seller to supply the product to the consumer.
Yes, a smart
seller will price a product at the point of profit maximization — which does
not necessarily mean at the highest price.
The just market price of a product is not equal to the costs of
production, but to the value of the consumer’s utility.
A McDonald’s
quarter pound burger at $4 may be useful to the consumer, while the same
sandwich at $6 is not, especially if ground beef is $4 per pound. A smart consumer may decide that the
convenience of a McDonald’s sandwich isn’t worth it when four times as much
beef, bun, and fixings can be had for the same or lower cost.
The real problem for
business, however, is the same as that for the replaced workers: no income with
which to buy the product. Ronald Reagan
related an anecdote about labor statesman Walter Reuther, president of the
United Auto Workers:
Some years ago a top Ford
official was showing the late Walter Reuther through the very automated plant
in Cleveland, Ohio and he said to him jokingly, “Walter, you’ll have a hard
time collecting union dues from these machines and Walter said, “you are going
to have more trouble trying to sell automobiles to them.” Both of them let it stop there. There was a logical answer to that . . . the
owners of the machines could buy automobiles and if you increase the number of
owners you increase the number of consumers.
Over hundred years ago Abraham Lincoln signed
the Homestead Act. There was wide
distribution of land and they didn’t confiscate anyone’s privately owned land.
. . . We need an industrial Homestead Act.
(Speech to Young Americans for Freedom, July 20, 1974.)
The implied
lesson was ignored. Unions continued to
push for higher fixed wages and benefits . . . and U.S. automakers either
installed robots or shipped jobs to lower-wage countries. Detroit went from being a prosperous city in
the heart of industrial America, to the poster child for urban dissolution. Detroit hasn’t merely decayed, it has
decomposed, rotting from the inside out.
Contrary to Reagan’s
statement, however, Reuther didn’t let it stop there. As he testified before Congress shortly before
he was killed in an airplane crash,
Profit sharing in the form of
stock distributions to workers would help to democratize the ownership of
America’s vast corporate wealth which is today appallingly undemocratic and
unhealthy. The Federal Reserve Board
recently published data from which it is possible to estimate the degree of
concentration in the ownership of publicly traded stock held by individuals and
families as of December 1962. Preliminary analysis of these data indicates
that, despite all the talk of a “people’s capitalism” in the United States,
little more than one percent of all consumer units owned approximately 70
percent of all such stock. Fewer than 8
percent of all consumer units owned approximately 97 percent—which means,
conversely, that the total direct ownership interest of more than 92 percent of
America’s consumer units in the corporation-operated productive wealth of this
country was approximately 3 percent.
Profit sharing in a form that would help to correct this shocking
maldistribution would be highly desirable for that reason alone.… If workers
had definite assurance of equitable shares in the profits of the corporations
that employ them, they would see less need to seek an equitable balance between
their gains and soaring profits through augmented increases in basic wage
rates. This would be a desirable result from the standpoint of stabilization
policy because profit sharing does not increase costs. Since profits are a
residual, after all costs have been met, and since their size is not
determinable until after customers have paid the prices charged for the firm’s
products, profit sharing as such cannot be said to have any inflationary impact
upon costs and prices. (Testimony before the Joint Economic Committee of
Congress on the President’s Economic Report, February 20, 1967.)
A detailed
proposal that would address the concerns of both workers and business owners
(by turning workers into owners . . . .) can be found in the Capital Homesteading
proposal of the Center for Economic and Social Justice (CESJ).
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