İçeriğe atla

how can capitalism save itself

How to Save Capitalism: Treat Employees Better – Part 2

Recently, we had the chance to chat with a group of university students, who were going to earn their graduate degrees this summer. We were already interested in the different approach of younger generations to work and life, so we asked whether they would want to work one more hour, each day, to get a 10% more paycheck. Not surprisingly, only 3 out of 10 youngsters preferred that option. We even heard one of them mumbling ‘I have a life’. 

As of 2015, millenials (not to say ‘millenials and GenerationZ’ over and over again, we will combine them as millenials) are the largest generation in US workforce and by 2020 they will make up 50% of global total. This is a new generation, which differs from older ones in many aspects, like being a global citizen (at least online). We put great importance to this, because we think that even the wildest and wisest futurologists couldn’t have thought how internet and its’ offsprings, like smart phones and social media, changed and shaped the world. For us, the biggest change that we owe to internet might be the increased access to ALTERNATIVES, which we believe is the main factor shaping millenials’ approach to their careers and lives. 

There are lots of good articles, like this or this, about the millenials and how their approach to working differs from earlier generations. We do not want to fully repeat their ideas, but only to summarize some important findings and try to connect them with our emphasis on alternatives. 

First of all, although we have argued that corporates should pay workers more in Part-1, the millenials can not be easily tempted by money, as we have shown by our little survey above. There is a growing number of research concluding that flexbility is the top priority for millenial employees, even surpassing health benefits. Ever increasing number of employees want the chance of working flexibly, sometimes from their homes. This statement we’ve read somewhere strikingly sunmarizes the idea; ‘if you don’t trust me that I could be successful working flexibly, why did you hire me in the first place?’. In fact, flexible employees can also benefit the corporates, in terms of lower office costs. 

Employee friendly working environment is as important as flexiblity. More often than not, order generations fail to notice that we spend most of our lives in the workplace, more than our time with families or friends. Millenials seem to be better aware of this fact and they ask for more employee-friendly work environment. They see what working at Google is like and they dream of similar jobs. 

Next, millenials care for personal involvement and development in their jobs and they are not afraid of quitting, if they do not find a meaningful purpose or a goal. Research suggest that the average duration, which the millenials change jobs is only two years, compared to seven years for the baby boomers. Millenials also care for seeing the contribution they make to their jobs and, from a wider perspective, to the society and the world. 

Last but not least, the millenials want to get feedback for their work and they want it very fast. This is not surprising, if we consider the importance of being ‘Liked’ in almost every social media platform. We can add here the fact that the millenials prefer to see a leader rather than a boss. Another good expression we’ve come across about the millenials approach to their careers was; ‘They want to work WITH you, rather than work FOR you’. 

How to tie all together?

The baby boomers lived in an era during which their countries was trying to get back on their feet again, after a devastating first half of the 20th century. Thus, we believe their (subconscious) attitude was to ‘rise together’. Furthermore, they did not have the communication opportunities of todays’ generations, so they were less aware of what was going on out of their world. 

The millenials, on the other hand, are living in a relatively more stable world. The baby boomers have done a great job in creating a generally solid economic foundation for them. They figuratively have created a machine, which can operate as a whole, independent from its’ parts. Consequently, todays’ newer generations can think more about their personal well-being, without giving much thought about the overall system. Hence, the ‘individualist’ youngsters, as they hate being labelled as ‘selfish’ or even ‘narcissistic’. 

Furthermore, not only millenials but anyone, can literally reach anything they want today, using internet. They know more about the world, other people, other cities and other countries. They can see what good or harm their (or firms’) actions were doing on others. They have access to lots of different life-styles, societies or leisure options. Most of all, they can look for better jobs for them, even while they are sitting in their offices. Hence, the ALTERNATIVES.! Todays’ employees, and people in general, have much more alternatives than older generations, or at least they like to think so. They feel that they did not have to sell their souls to company store anymore.

After a long story that had to be divided in two, we can sum up our thoughts about how capitalism should change, in order to continue to dominate the world. The corporates should pay more attention to employees overall well-being. More inclusive and responsive governance, increased flexibility, happier offices and more space for work-life balance are the keywords. We believe that todays’ employee generation will be the last to work 9-5 hours. Of course, a more equal share of wealth would never hurt. 

How to Save Capitalism: Treat Employees Better – Part 1

Several months ago, a friend had argued that, after the collapse of communism as an anti-thesis, capitalism had no reason to favor the labor force anymore. We don’t know whether he was the original owner of this idea or he had read it somewhere. Nevertheless, given the increasing inequality and rising populist waves around the world, this was a striking argument and clearly worth thinking about it. 

We have previously written about the inequality debate in this years’ Davos WEF meetings. At that time, we have argued that the current corporate governance system, which awards the high-level management, sometimes at the expense of regular employees, could be the key cause of the problem. Today we will further explore the subject, in light of economic data. 

We will employ the US data here for several reasons: (1) the extent of data, which is like the Disneyland(*) for economists, (2) the facts that US being kind of synonymous with capitalism and (3) that Mr. Trump’s victory being the current and hardly contestable pinnacle of populism. 

All the figures below are annual data in current dollars, unless noted otherwise. We have indexed them as 1965=100, in order to eliminate the differences in scales. 

The first two graphs compare the growth rates of overall vs. per capita GDP. The left-side shows that overall economic growth had outpaced the increase in GDP per capita, during the past 50 years. Furthermore, the divergence seems to have picked up speed during 1980’s, the decade during which USSR was collapsing(**) However the left side suggests that the difference in growth rates of two series were continuously declining through past 50 years (***). This may be due to declining growth in population, as the denominator of per capita GDP.  However, these pictures are yet far from giving us a convincing evidence about our question at hand. 

Next, we try to understand whether the corporate sector was indeed not favoring the employees since 1990’s. First we compare the development of corporate profits against overall economic growth. Here, we can see that corporate profits have started to outpace GDP growth since late 1980’s and then sky-rocketted since early 2000’s.

Such a great increase in corporate profits should not be a bad thing for any country, as long as it is distributed fairly (not necessarily equally). Let’s see if it is the case for the US. 

The next graph plots the past 50 years of corporate profits vs. compensation of employees. The picture is quite similar to what we have seen above. Corporate profits grow higher than compensation since 1985 with an almost uninterrupted increase in difference. Here, we should note that the compensation of employees in the National Accounts includes all employees, i.e. CEO’s, as well as regular workers.

The only disruptions in the break-neck speed of corporate profit growth during the past 35+ years, were crisis periods. We can count the China’s accession in the WTO, at least as a factor that contributed to the resumption of the trend in 2000’s, if not the leading cause. 

The corporate growth trend since late 80’s did not seem to lead new jobs either. The graph below, shows that neither of these show an upwards break, similar to corporate profits, during the period we analyze. In fact, second order polynomial trend show that job creation is slowly decreasing, while number of firms seems to fare better. 

To summarize, we see a clear break in wealth distribution structure in the US, since mid-80’s. This break is also reflected in the shares of different income strata within the economy. The lower 60% of the economy is clearly and continuously losing ground against the upper 40% (****) . Consequently, the Gini Index shows a sudden shift in 1990, which is confirmed by Chow break test we have run on the linear trend. 

Of course, we would never argue that the structural break in the corporate profit growth, since 1990’s, was only due to the fall of communism. The past 30 years have seen big transformations in the global economy; globalization, technological advance, the rise of China and productivity gains being among the first ones that come to mind. Nevertheless, the timing of the take off in corporate profit growth is quite note-worthy, even it is a mere coincidence. Whatever the reasons are, there is a certain break.

All-in-all, the low and middle income class were unhappy about the current establishment and income distribution, so they have elected Mr. Trump the challenge it. Rulers of the corporate world, which did not voluntarily share the wealth with lower levels of income until now, are already feeling the arm-twisting from Mr. Trump. We will curiously monitor what will be the turn of events, in the coming months and years. 

The better income distribution is only one part of our argument that capitalism should treat better to employees, in order to survive. We will talk about the changing worker profile and their different motives in Part-2: Watch out, the millenials are here…!

(*): Being in Disneyland can be both great and painful. Children can be easily confused about which parts to visit, in their limited time. Similarly, dealing this much data contains the risk of not looking every available indicator, thus maybe being led to false conclusions. 

(**): Although USSR has officially ended in 26 December 1991, setting the date of the collapse in one particular year would not be the best choice. Today, historians prefer different intervals, which cover at least between 1985-1991. Thus, we generally look for a structural break in US data between 1980-91, rather than only 1991. 

(***): The GDP-income difference seems to have stalled decreasing during 1980’s. This is particularly interesting, since this was the period of Reaganomics, which is today being likened to economic plans of Mr. Trump. 

(****): One can argue that the wealth of American people can not only be measured by wages or total compensation, given the countless investment opportunities and capital gains. Having lived in the US for two years, we can comfortably say that higher levels of income were the ones, who mostly enjoyed those opportunities. Anyways, we all know how it ended in 2008, after the years that lower levels of income were increasingly included in Wall Street gimmicks.