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Hillary Clinton and Lake Wobegon Economics
On Thursday, Hillary Clinton invoked the famous (in New England) Market Basket saga while campaigning in New Hampshire:
Using last summer’s epic corporate showdown among members of the Demoulas family over the future of the [supermarket] chain, Clinton said customers realized “it’s not just shareholders who make you profitable, it’s everyone who buys things in their stores … the people at the cash register and stocking their shelves.”
She continued:
Clinton praised the company’s profit-sharing program [….]
“If you actually invest in your workforce and say, ‘You know what? If you work harder and there are profits, we’re going to share them with you.’ Then they work even harder.”
To give some background, Market Basket is a family-owned discount grocery chain that has over 70 stores in New England, employing about 25,000 people, none of whom are part of a union. Despite the chain neither advertising nor having a website, each store does about a million dollars in business every week.
Last year, CEO Arthur T. Demoulas (affectionately known as “Artie T.” to his employees) was fired by his cousins’ side of the family. The employees were furious, and — in a strange turn of events in the days of class warfare — the little guys risked their jobs for their multi-millionaire former boss. They protested every day in front of company headquarters, staged rallies attended by about 10,000 employees, organized a targeted strike (160 employees, mostly in the warehouse, walked off the job and left the chain crippled), and urged their customers to boycott. Read one store manager’s reasons for his actions here. There is even an employee rally song, a re-make of “We’re Not Gonna Take It”:
The customers of Market Basket happily complied with the employees’ request to shop elsewhere: they not only boycotted in such force that the chain lost $10 million a day, they designed, crowd-sourced, and produced a full-page, full-color ad in the Lowell Sun to tell-off the interim CEOs. The saga ended when Artie T. bought-out his cousins’ 50.5% share of the business for $1.5 billion.
What does any of this have to do with Hillary Clinton or her policies, you ask? If the world were honest, nothing. Market Basket gave its employees higher-than-average benefits in exchange for higher-than-average skills, effort, and maturity. All employees wear button-down shirts under their vests, and the men also wear ties; there is not a single self-checkout aisle in any store because the management emphasizes personal interaction; and the employees understand that no matter what job they are doing, they are there to help the customers. The famous Market Basket benefits — profit-sharing, scholarships for employees who are in school, promotion from within, etc. — are only given to those who have been on the job for at least a year. Grouchy schlubs need not apply, and will not last long enough to get those great benefits.
In the higher-pay/loyalty cause-and-effect chain, the awesome employee is the cause; the effect is the awesome benefits, motivated by the desire to retain and develop a superior workforce.
If all stores offered similarly-wonderful benefits, there would be no reason for an employee — who can get the same deal elsewhere — to stay on at Market Basket or for customers to feel such loyalty to the company. This isn’t Lake Wobegon: we can’t pay everyone above-industry average, nor can we expect everyone to become an above-average employee. We can’t reverse causation and assume that paying someone extra means that they will work extra hard or be extra nice to customers.
It is unclear how Hillary thinks her proposed regulations or laws would even be needed. The fact that the Market Basket endeavor is successful shows that current laws effectively protect even non-unionized employees. The entire point of the boycott was to show that customers — i.e., normal people — have free will and cannot be told where to shop.
You cannot legislate loyalty, hard work, or the free will to organize a boycott, but you can allow people to reward like with like in a free-market system. The only rational way to invoke Market Basket in economic policy is, “I’m not going to change a thing, because the system works beautifully.”
Published in General
Let’s start where we need to start. America needs a National Median Wage!
CTLaw: if you look at the bottom of mydemoulas.net, you’ll find that it is not owned or managed by Market Basket. This shows us:
1. what a lean operation Artie T runs (and perhaps the profits are due to low overhead costs, not merely super-magic from paying his employees well): and
2. The fandom of Market Basket customers.
I stand spanked. I maintain my recollection of hearing TV or radio spots for them.
“bridget
CTLaw: if you look at the bottom of mydemoulas.net, you’ll find that it is not owned or managed by Market Basket.”
How do shareholders make you profitable? Unless they simply return their dividends to the treasurer, or some such crazy thing they don’t make you profitable. I know she only mentioned shareholders to set up the dichotomy between ‘haves and have-nots’, but it is plainly silly.
My company has a great prospective product. I am such a bad CEO that I can’t convince anyone of that. I can’t get the $ millions it would take to bring the product to market. You find out about the product. You decide to invest in the company, allowing me to launch the product. Sales of the product make the company profitable. Silly?
Although that’s an extreme example, the same dynamic may be present to lesser degrees in other situations.
Except, raising capital in this manner normally happens only after a company has clearly demonstrated a profit-making product (or a related product line with a profitable track record). It’s pretty hard to convince investors to drop coin on a free range idea that’s just bouncing around in the CEO’s head.
At any rate, I don’t think these nuances are what Obillary had in mind.
Step 4) Extort campaign contributions by mentioning ‘regulatory compliance concerns raised by constituents’.
Step 5) After pocketing ‘voluntary’ campaign contributions, mention your charitable foundation’s good works in Haiti and elsewhere.
That is a fantastic ad by the employees.
It must be really nice for Artie T. to know that all of his efforts with his employees over the years have been noticed and appreciated. He must be a wonderful person.
It sort of makes me think of the story It’s a Wonderful Life.
No matter how it turns out, it’s already had a happy ending.
You must teach statistics some day ;-) This should be a Bernie Sanders slogan.
I was merely rebutting Wineguy13’s categorical statements.
You actually highlighted another point. In the current startup economy, shareholders are often what makes a company profitable (though not in a strict accounting sense). How many significant e-commerce, social media, etc., companies live off of stock sales rather than off of traditional revenue? They also can compensate their employees with options only because other investors are keeping the price up.
There’s also this stilted view of “shareholders” as “fat cats sitting on wealth.” In reality, shareholders can be the people who sunk their life savings into starting up this business; investors who kept it from going under for lack of cash flow; Mom and Pop out in Oklahoma or Montana who have a 401(k) that is invested in stocks; lawyers who take an equity stake in the company instead of charging an hourly fee; or a family that pooled their money together to start a business, then never went public.
In a publicly-traded company, nothing prevents any employee (insider trading laws aside) from using some of their salary to buy an equity interest in the company. That, however, comes with a risk that a profit-sharing plan does not.
etLaw: your example is one possible to make a company capitalized, and then maybe profitable. I grant that. However, and this is a small point, the first clause in my second sentence makes my statement anything but categorical. e.g. ‘Pedantry is always annoying, except when it is not’ is not a categorical statement. I always avoid categorical statements /sarc