For Michael Hiltzik, Reality Is Still Loudly Knocking At the Door

For Michael Hiltzik, Reality Is Still Loudly Knocking At the Door
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Los Angeles Times business columnist Michael Hiltzik writes that “[O]f all the addictions that undermine stability in communities and society at large, surely one of the worst and most persistent is the addiction of corporate managements to pleasing their shareholders.” So much confusion in one sentence.  An inconvenient truth that’s plainly eluded the aggressively imperceptive Hiltzik is that absent shareholders, there are endlessly shabby communities, very little polite society, no corporations and zero jobs.  Somehow it never occurred to Hiltzik that the very shareholders he naively denigrates are the creators of all corporations and all jobs. 

As readers may have figured out, Hiltzik’s latest column is about how supposedly exploitative businesses are underpaying workers; all to please those nasty shareholders.  Reading the column brought to mind that scene in Woody Allen’s Annie Hall in which the self-serious man in the movie-theatre line went on and on about Marshall McLuhan despite knowing little about the media philosopher.  That’s what it’s like reading Hiltzik when he presumes to comment on the compensation practices of businesses.  To say he’s never run a business or invested in one is shooting fish in a crowded barrel.  Hiltzik’s problem is that in trashing the source of capital, he’s revealing blindness to how businesses are opened to begin with.  Such is the downside of capitalism: its advances provide a platform for the very people who strive to discredit it.  In Hiltzik’s case, he would be hopeless without the investors and profit-makers about whom he speaks so negatively.  Lucky for him, he’ll never have to know how hopeless.  But I digress.  For now.

Also missed by Hiltzik is that shareholders take all the risks.  He may not know this, but most businesses fail.  What this means for shareholders is that most of the time they’ll lose the money they've committed.  The employees? They’re paid either way.  This asymmetry plainly favors the worker, and only the shareholder assuming what’s unlikely: the business actually succeeds. 

All of the above might help Hiltzik understand why management is so “addicted” to shareholders.  It is simply because shareholders wouldn’t be shareholders assuming a scenario whereby they were required by management to suffer all of the likely downside of business failure, but also expected to hand over to workers all of the unlikely upside.  The journalist in Hiltzik is naively asking for the impossible, which brings new meaning to obvious.  For there to be investors willing to take risks, there must be potential reward for those same investors.  Management isn’t addicted to shareholders as much as management is practical.  Hiltzik doesn’t have to be practical. He just writes.   

Hiltzik’s expressed frustration is that supposedly eager to avoid offending greedy shareholders, businesses are purposely keeping wages down.  Supposedly investors torch the companies who are generous to employees. His evidence: American Airlines.  He writes that “The narrow attitude that wage growth is bad for business is exemplified by the pummeling that American Airlines suffered from Wall Street a year ago, when it announced healthy wage increases for pilots and flight attendants, even before their union contracts expired.” So that’s it?

Can Hiltzik not know that $10,000 invested in Starbucks in 1992 is worth $2 million today; this despite Howard Schultz’s relentless efforts to compensate his baristas left and right, including free college education? Has Hiltzik been following Amazon? The latter is very publicly searching for a second HQ city, expects to pay the employees at its second HQ well above the market (thus the excitement among the cities AMZN is seriously considering), yet its shares continue to reach news highs as Amazon vies with Apple (can Hiltzik say with a straight face that Apple’s value is an effect of worker exploitation….?) to be the most valuable company in the world.  Hiltzik is seemingly older, but precisely because he is he might remember that when the 21st century began, General Electric was the world’s most valuable corporation.  GE’s nickname among employees was “Generous Electric” Were/are the shareholders of these three the exception to the exploitative rule? Hiltzik no doubt has some lame story.

Back to reality, stocks never, ever price in the present as Hiltzik assumes.  If they did, Amazon would have gone bankrupt long ago, so would Apple have, as would have many of the U.S.’s most successful businesses of the moment.  Not only are the shareholders Hiltzik dislikes patient in the face of likely losing all of their money, they’re also patient once a business is up and running. 

Better yet, their focus on the long-term means that they would in fact punish businesses so short-term in their thinking as to underpay (meaning, run off) the very workers whose efforts make positive shareholder returns possible.  Important here is that unlike Hiltzik, investors have money at stake.  Precisely because they do, they can’t be so shallow in their understanding of how businesses are run.  Human capital is crucial, which is why the best businesses pay up for it with shareholder approval.

The U.S. is chock full of businesses regularly bidding for top talent.  Rather than acknowledge the obvious, Hiltzik hides behind statistics.  He notes that “labor['s] share” of corporate profits has declined from 46% in 1991, to 43% in 2016 while ignoring how much larger 43% of profits is today.  Goodness, if American workers were truly exploited would producers from around the world be exporting so much of what they produce to the U.S.?  The meaning of Say's law plainly eludes Hiltzik too. Ideally readers aren’t as myopic.  For those firmly planted in the real world, it’s hopefully starting to dawn on them why management treats its employees so well.  The good treatement is rooted in addiction to pleasing shareholders.  

Hiltzik gets none of this.  Figure that he doesn’t have to be right, or even reasonable.  Since his paychecks are signed by a multi-billionaire, Hiltzik has the luxury of being endlessly obtuse.  More than he realizes, he’s the substantial beneficiary of the very shareholder patience that he naively claims doesn’t exist. 

John Tamny is a speechwriter and writer of opinion pieces for clients, he's editor of RealClearMarkets, Director of the Center for Economic Freedom at FreedomWorks, and a senior economic adviser to Toreador Research and Trading (www.trtadvisors.com). His new book is The End of Work, about the exciting explosion of remunerative jobs that don't feel at all like work.  He's also the author of Who Needs the Fed? and Popular Economics. He can be reached at jtamny@realclearmarkets.com.  

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