One of the most common responses I get from people when I talk about business owners stealing worker wages to accumulate wealth—particularly billionaires—is that the business’s success is reliant on the owner, that they built the company, and their efforts should be rewarded, even if it’s exorbitantly.
Let’s explore this.
For the purposes of illustration, we’ll say our hypothetical business owner has a knack for chair building and decides to quit his job as an investment broker to build chairs full-time.
Things work out well, and before he knows it, he’s making a lot of chairs and bringing in quite a bit of money. After he pays for his materials, operational costs, workshop rent, marketing, and whatnot, he gets to keep everything that’s left over.
However, it isn’t long until the demand grows so much that he can no longer build chairs fast enough—without sacrificing quality—even if he works 16-hour days. He finds that he can make only 5 chairs a day, but he needs to make more than that to keep up with demand.
So, he hires another chair maker. And in short time, the two of them are pumping out 10 chairs a day, with each of them making 5 a day.
But now he has another expense to factor in: the wages of the other chair maker. And he pretty much has two options. He can split the difference down the middle after all the other expenses are paid, or he can see the other chair maker’s wage as another expense, paying a set rate, then keeping whatever is left over after all expenses.
The problem with the latter option is that the owner is now getting what’s leftover after all expenses, including wages, for 10 chairs, the same leftover amount from his 5, plus any leftover amount after paying out wages to the other chair maker. He’s getting more even though he’s pretty much performing the same amount of labour as before, other than some marginal increases in fielding phone calls from new customers.
Which brings me to the next evolution of the business.
Word gets out about the high-quality chairs, and demand starts increasing. The owner has to hire two more chair makers: one to take over from him—he’s having to coordinate with suppliers, vendors, and customers and is finding it hard to build chairs, too—and one to help with the increasing demand.
Now he has 3 chair makers, all being paid the same wage for their labour, and he’s pocketing what revenue is leftover from paying all expenses, including wages for the chair makers.
Demand keeps increasing, so he keeps increasing his team. More chair builders, bookkeeping staff, sales and marketing staff, maintenance staff, and so on. And before he knows it, he’s no longer building chairs, no longer dealing with customers, no longer coordinating with suppliers and vendors. Now he’s focused on things like strategy and planning.
He no longer gets all the profit though because the shop is getting too small and he needs to set some aside for a new place (or maybe a second one) and some new equipment, as the current equipment is getting worn out.
Even though he’s not getting all the profit, he’s still getting a large chunk of it, and certainly more than he was taking off the top when he was the only chair maker, despite no longer actually being directly involved in the customer’s purchase.
When the customer pays for a chair, what does she think she’s paying for? The chair itself? Made by the chair maker. The pleasant phone calls and follow-up emails? Made by the sales staff. The well-lit parking and clean reception area? Made possible by the maintenance workers. Does she think she’s paying for the strategy? Probably not.
And when the procurement team manages to reduce material costs through bulk discounts, thereby increasing profits, does the owner use it to increase worker wages without having to increase product prices?
When the owner automates some of the processes, allowing workers to build 8 chairs per day each instead of 5 without having to work harder, does he increase their wages to match the additional revenue created each day, or does he keep their wages the same because they still have an 8-hour shift?
When it comes down to it, those workers are the ones who built those chairs, and customers buying those chairs are what built that business. Did the owner contribute to the business? Of course.
Enough to warrant significantly more than the ones building the actual products the customers are buying?