It is, perhaps, the principal philosophical quandary of the Industrial Age, “Is capitalism fair?”
Resoundingly, our experience sends back the answer: “Sometimes, yes. Sometimes, no.”
I’m reminded of Winston Churchill’s speech in which he acknowledged that democracy could be said to be “the worst form of government except for all those other forms that have been tried from time to time.” Capitalism may be an unfair economic system, but it may also be the fairest that’s been tried. It can, at its best, reward ingenuity and hard work. At its worst it provides a rationale for the routine subjugation the powerful have always exercised upon the weak.
I’m not remotely prepared to argue the abstract virtues of capitalism against any other economic system. I am prepared to assert that capitalism has been a highly successful philosophy in recent centuries. If you want to get anything done in the world today, you had better know how to engage with capitalism.
A long time ago I decided that capitalism could be fair, and so it was a good enough place to exert our efforts. I don’t consider business a superior enterprise to government or charity work. Nor do I consider it inferior. When an individual or a company engages with a system like capitalism, we tap into its power. Capitalism is enormously powerful. It has tremendous potential to spread opportunity in the world by stimulating and rewarding innovation. The fact that some of its products fall short of that potential does not diminish it.
Capitalism can, for instance, be very generous to its storytellers. Capitalism rewards them even when they are disrespectful of the capitalist institutions on which they depend. NBC pays Jay Leno very, very well even when he’s spending his time ridiculing NBC. Producer Oprah Winfrey, comedian Larry David and New York Times economics columnist Paul Krugman are likewise paid (well, very well or unbelievably well) for communicating messages that are sometimes critical of the capitalistic institutions they serve and sometimes derisive in their tone. They are allowed this privilege because they attract audiences, and audiences pay money – both directly through their subscriptions and indirectly through advertising revenue.
Our business works the same way. Our writers sometimes criticize the system, but everyone understands that the system makes our existence possible. And the more successful our company is within the system, the more influential our work becomes. When our stories are interesting, we and our colleagues prosper. If we fail to compel an audience, the enterprise fails.
That’s fair, I think.
So our business competes in the marketplace – for audience, for advertisers, for people and for allies. When we are successful, we can create prosperity and personal growth for the people associated with our enterprise. The stakes in this game are pretty high. We’re trying to make sure they are won fairly and distributed fairly.
The distribution of resources is, perhaps, the most complex problem in any business that employs more than one person. Some managers like to claim that it is simple. They’ll assert that you just have to pay the market rates for payroll, goods and ser vices. Surpluses are distributed to shareholders. Easy as pie.
But what is the market-rate compensation for a highly motivated, creative and disciplined manager? At a small manufacturer in the Midwestern United States that number might be 1 or 2 percent of the market rate for the same individual at a Wall Street investment bank. I believe I’ve known highly intelligent individuals working and succeeding at small enterprises across the country who would compare favorably in every criterion – intelligence, creativity, work ethic, loyalty, dedication – to other friends of the same age and same qualities working on Wall Street. Nevertheless, the factory manager in rural Minnesota makes 1 percent of the Wall-Streeter’s salary.
Can that possibly be fair?
My friends in Kansas and New Mexico and Utah seem to be at least as happy, on the whole, as my friends working in the skyscrapers at the southern end of Manhattan Island. They are, from what I can tell, very engaged in their pursuits of building agricultural scales, mining potash or raising dairy cows. And they are conscious that they could have, if they had wished, pursued more remunerative careers. Why didn’t they? For that matter, why didn’t I?
For some, there were geographic considerations. Most people don’t want to sever their geographic and familial roots. Others discovered a sense of purpose or a personal passion for a vocation such as farming or engineering or journalism. But all of us share one characteristic that determined our fates, economically speaking: Money isn’t the most important thing we want from our careers. Our career choices weren’t determined by rates of pay, mostly, or we would have chosen differently.
Sometimes when we’re struggling to pay the rent it’s hard to remember, but most of us chose careers that we knew weren’t likely to make us rich.
So is it fair that we didn’t get rich? Sigh. Yeah, probably. If our stars align so that we make some money, do we feel gratified? Of course. Should we wear our affluence as a badge of superiority? Certainly not. If we don’t get rich, will we judge ourselves failures? Hell, no.
The question of whether Wall Street bankers are paid too much is a question, I think, of efficiency, not fairness. Maybe entrepreneurs should open more investment banks in South Dakota and Idaho to see if some down-to-earth organizations can’t supply the same services at a lower cost.
With all this in mind, how is an employer to decide whether he is compensating people fairly? I believe that, first, every employer should define compensation more broadly than pay. The payroll check is only one facet of a large, intricate compensation formula.