With the economy stuck in neutral and a presidential campaign well underway, one word has remained on the lips of political and economic commentators alike: jobs. Jobs were at the center of the President’s State of the Union address. Jobs, we are told, drive economic growth. Jobs will determine who wins the presidential election. Recently, Republican presidential candidate Mitt Romney has come under fire for having cut jobs at some of the companies he financed while serving as head of Bain Capital. This concern is understandable—unemployment remains elevated—but the focus is misguided. To properly assess the political and economic discourse raging through the United States, we must stop thinking of potential employees as passive recipients of corporate gifts called “jobs”, and start thinking of them as individual traders, providing value to their employers and receiving compensation in return.
In “The Objectivist Ethics”, Ayn Rand coined the term “trader principle”, referring to the concept that all human interactions—and especially economic ones—should involve an exchange of value for value. This principle has virtually vanished from the current national conversation on jobs. CEOs are criticized for cutting their payrolls, as though people should expect companies to provide them with employment out of obligation, rather than out of consideration for the value provided. The recent criticism of Bain Capital, and the private equity industry in general, suggests that the interests of stockholders and the interests of employees conflict simply because the stockholders want to make money. President Obama perpetuated the idea of a conflict of interest in his State of the Union address when he argued that money earned by one individual was necessarily taken from another. This notion only holds, however, if jobs are viewed as a gift rather than as a service provided by the employee. If an employee provides a service that exceeds his or her pay in value, then he or she is a valuable worker and will typically remain employed. If his or her pay exceeds the value provided to the firm, he or she will either see a pay cut or lose the job entirely.
Some might view the trader principle as unfair because everyone needs to work in order to live, and so everyone deserves employment. In fact, the trader principle is the only fair arrangement of economic transactions. Consider the alternative: People are paid in excess of the value they provide, sapping the firm of resources. In order to subsidize the underperformers, the firm must cut the wages of the high-performers, driving them out of the company, further lowering productivity. This process continues until the firm has no more resources to waste on un-productive workers and it goes bankrupt. If this scenario sounds familiar, it should. This is the story of General Motors and Chrysler, which the President seems proud of turning over to the employee unions, the same unions who drained the companies of their resources in the first place. Those who insist that companies must exist for their employees, rather than for their shareholders, are really endorsing this failed business model. Fortunately, most businesses are not run in this manner.
Unfortunately, when the government intervenes in business, often on the behalf of workers (or the environment or consumers, etc.), employees’ ability to add value is often reduced. For instance, when the government imposes costly regulations on business, such as mandates to hire only union workers or pay a minimum wage, the cost of hiring goes up, decreasing the value of each worker’s labor to the firm. In another context, if the government halts a business from opening a new facility, it is not only the business that is hurt. Last year, the National Labor Relations Board refused to allow Boeing to build a non-union plant in South Carolina last year because the Board thought Boeing should build a union plant in Washington instead. As a result, it denied otherwise available jobs to thousands of people in South Carolina who could have added value, sacrificing them to benefit the unionized workers in Washington. Those potential South Carolina employees, though they had no right to expect Boeing to give them jobs, had every right to expect the freedom to choose to work for Boeing if Boeing found their services valuable. Those potential employees were wronged by the government, because they had value to add and were denied the opportunity.
Contrast that example with the Occupy Wall Street protestors who are demanding that someone give them a job. Never do we hear them proclaim their marketable skills, advertising the value they could offer to a potential employer. They insist that their need for work is justification enough. But we do not buy cars or refrigerators or iPads because the company needs us to buy them. We buy them because they add more value to our lives than what they cost. Why should we hold companies purchasing our services to a different standard?
This country would benefit greatly if the mass of unemployed and under-employed individuals (and there are many) stopped asking themselves “Who will give me a job?” and began asking themselves “How can I provide the most value, and to whom?”
Ryan Krause is a PhD Candidate and Associate Instructor of Strategic Management at Indiana University’s Kelley School of Business. He conducts research in the areas of strategic leadership and corporate governance.