Friday, January 01, 2010

Where Mackey and I agree: Big is not necessarily bad

See my previous post here.

John Mackey, CEO of Whole Foods, is not wrong on a lot of things. He is correct that we all need a diet based more on vegetables than red meat. He is correct that most American should re-balance their diets, which is another way of saying eat more vegetables and less red meat. He is rightly concerned and has taken stands against factory farming methods that are unusually cruel to animals (He has become a vegetarian and even a vegan). He revolutionized the health food movement because he successfully grew his business into areas where people had no choice for vegetarian and healthy meat fare, albeit with money and connections from his very wealthy Dad--but at least he was not hanging around a country club drinking alcohol and beating a barmaid with a cane. And he is obviously treating hs workers decently in a relative manner since his company's turnover rate is very low.

Mackey is also correct that big is not necessarily bad. And that's really important for public policy purposes. As bad as Wal-Mart is, it's not its bigness that angers me, it's Wal-Mart's labor policies. When Wal-Mart entered the organic food business, it was a tremendous boon to the organic food business because of Wal-Mart's wide distributive reach. As Mackey says in the New Yorker article, there are myths about small business. Politicians often say small businesses create more jobs overall than large businesses. But that is gross jobs, not net jobs. That statistic does not take into account that most small businesses fail in a few years (literally 1 to 4 years, more closer to 2 years). If you are employed with a large business (not Wal-Mart, which has excessively high turnover rates), you tend to stay longer and have more stability in the job you have. See, for starters, this Michael Kinsley article from Slate attacking Bush the Younger's "absurd obsession with small business."

Does anyone think the middle class created first through Henry Ford's $5 a day in 1905, and then the success of the 1935 Wagner Act, and the United Auto Workers (UAW), would have occurred if Ford, GM and Chrysler had not first become behemoths and were able to throw off so much profit that there was an ability to spread that profit around? That proposition should be undeniable. Unions don't rise in small businesses, because usually the proprietor is working his or her tail off right next to the workers, and is usually making a very small profit. I have great respect for most entrepreneurs, but I don't want them making public policy for the community because they tend to see the world only from their perspective, and not from any community growth and maintenance perspective, say as Alexander Hamilton and James Madison did or, as Lincoln and FDR understood.

There is a view, prevalent among many Americans, even the New Left intellects in the 1970s and since, that unions were themselves another inhibitor to innovation, particularly in the American auto industry. But Walter Reuther, who was a leader of the UAW from the late 1930s through his untimely and mysterious death in 1970, had called on the auto companies to embrace making smaller cars, embrace environmental policies as well as national health insurance (instead of employer-based insurance) to make American cars more competitive with the foreign car industry. Reuther first raised the issue of building small cars at a time of American automotive dominance in the 1950s.

What we see when we study the interactions between labor and capital in the auto industry is that unions were always subordinate to capital, but that the political environment created during the New Deal had made business leaders wary of upsetting workers--up until the late 1970s gave business leaders their opening in the changing political climate. And since then, we have lived through a Gilded Age of profiteering amongst business leaders, and they have ravaged the industrial heart of America with their foreign investments and financial schemes. They have also been able to use their excess money to buy the political process (with not much beyond blogging as a way for people to express themselves) and have helped push through trade deals that only codify the very trends that were undermining our industrial capacity, our workers and even our ability to promote environmental legislation.

These are the opening points of a conversation much larger than may be covered in a mere web-log. But it is important that we not fall into the "small is beautiful" thinking that causes us to lose sight of the fact that big is not really bad in and of itself. The question for public policy is the regulation of the big businesses*, and democratizing their workplaces through union power. Unions do end up limiting some of an executive's monetary compensation (though if Mackey is taking $1 a year, and living on the stock wealth, he should be personally less concerned with unions). Mackey, however, just doesn't want his workers organized to question his strategies, meaning he fears democratic values more than sharing monetary wealth. Yes, Mackey allows "votes" from time to time, but these are ultimately charades because each worker knows he or she is an at-will employee, and Mackey and his supervisors over these workers clearly and strongly make their views known. One can overstate this, however, and let's give Mackey credit for giving workers at least some voice, something that in this political environment, is quite extraordinary.

On a personal note, I have been a general counsel to two publicly traded companies where there were no unions, including one that was largely consisting of factory workers. I have advised the companies how they may avoid unions, though we never had any "threat" of union organizing while I was working at the two companies. My job, which I did well, was to stop problems before they happened. The companies failed for reasons of signing long leases for iffy business prospects, or the effects of the dot.com implosion after 2000. The workers were treated at these companies better than they are at Wal-Mart, and probably even better than at Whole Foods (we had very low turnover rates).

I also agree with Mackey, again, that if you treat workers with dignity and respect for the most part, they will not form unions. And that means paying them decently compared to other companies, something Mackey appears to do. And that means providing them with benefits, which Mackey does. He does offer, for example, a PPO medical plan to employees, but since the average wage is still too low (again, he is better than average, but in a weak union environment for grocery workers, it's not that hard to be competitive), most of his work force finds it difficult to afford such coverage.

Again, these are the issues we should begin to discuss.

* To quote James Madison, in Federalist Paper no. 10:

But the most common and durable source of factions has been the various and unequal distribution of property. Those who hold and those who are without property have ever formed distinct interests in society. Those who are creditors, and those who are debtors, fall under a like discrimination. A landed interest, a manufacturing interest, a mercantile interest, a moneyed interest, with many lesser interests, grow up of necessity in civilized nations, and divide them into different classes, actuated by different sentiments and views. The regulation of these various and interfering interests forms the principal task of modern legislation, and involves the spirit of party and faction in the necessary and ordinary operations of the government.

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