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Osawatomie's Dichotomies

Near the conclusion of his big speech in Kansas this week, President Obama praised business leaders who understand "their obligations don't just end with their shareholders." The president singled out Marvin Windows and Doors, based in Warroad, Minnesota, for not laying off a single employee during the recession, and choosing instead to cut the pay and perks of both workers and management.

This section of the speech is apparently based on a recent New York Times article about the company, one which complicates some of Obama's arguments, however, and highlights other things he declined to address:

1. Marvin Windows and Doors has the latitude to consider obligations beyond those to its shareholders because it doesn't have shareholders. The 107-year-old company is privately held: the president is the founder's granddaughter and her brother is the chief executive. The firm's work force of 4,300 included 16 members of the Marvin family.

2. Marvin also doesn't have, apparently, any obligations to unions; its workers don't seem to belong to any. When housing starts - and orders for new windows and doors - plummeted, management cut salaries by 5 percent, put hourly workers on 32-hour weeks, stopped paying tuition reimbursement, stopped allowing employees to cash in unused vacation days, and encouraged them to take unpaid leaves. Through attrition, the workforce is 14 percent smaller than at its housing-boom peak. The only things the company hasn't cut are jobs and health insurance benefits. There's not a hint in the Times article of any of these changes being voted on or negotiated with anyone - all appear to have been the owners' unilateral decisions.

3. Indeed, there were only two brief mentions of labor unions in Obama's Kansas speech, both treating their decline as an accomplished fact rather than a reversible one. (If "you're somebody whose job can be done cheaper by a computer or by someone in another country, you don't have a lot of leverage when it comes to asking your employer for better wages or better benefits, especially since fewer Americans today are part of a union." And, "The truth is we'll never be able to compete with other countries when it comes to who's best at letting their businesses pay the lowest wages, who's best at busting unions, who's best at letting companies pollute as much as they want." The president doesn't exclude the possibility that we could still be well-above-average at busting unions.)

4. If President Obama thinks cutting pay and benefits is morally superior to laying people off during a downturn, he could have shown his enthusiasm for this idea by using the enormous leverage his administration wielded over General Motors and Chrysler in 2009 and 2010 to insist on significant pay cuts and benefit reductions for their UAW hourly employees as a condition of taxpayer bailouts of those companies. Instead, he didn't even demand small, symbolic reductions.

5. The communitarianism of the Marvin company comes with baggage, according to the Times. The firm dominates the tiny town of Warroad: Another sibling of the two who run the company is the mayor, and the family or the company built the public library, senior center and high school's swimming pool. (The headquarters includes a visitors' center and museum displaying a lock of the founder's hair.) The noblesse oblige that comes with the no-layoffs policy is paternalistic and also, for modern Americans who like the advantages of contingency in many areas of their lives, more than a little claustrophobic. Whether the Marvin company model is a template for the future or a quaint relic is at the very least, an open question.

6. The Marvin company seems to have captured the spirit of the share economy, but not solved its dilemmas.  The company president says she is taking the "long view" by not cutting Marvin's "life blood," the "skills and experience" of its employees. But it's not clear, in the long view, whether that will turn out to be a good business decision. If we're talking about skilled or semi-skilled positions, some employees will have more skills and experience than others. A more cold-hearted company might have decided to reduce employee costs by laying off the 25 percent of the employees who were least skilled rather than reducing the compensation of every employee, from the most to the least skilled, by 25 percent. Figuring out, in theory, which company - Scrooge, Inc. or Benevolent Enterprises - will be more competitive isn't easy, and it will be important to analyze the empirical evidence that comes in over the years from Marvin and its competitors. Some Marvin employees, despite their gratitude for the no-layoffs policy, are leaving the company and the town for more lucrative opportunities elsewhere. Are these exiles a representative sample, or does their ambition and attractiveness to other employers suggest that they are in the more-skilled part of the company's bell curve? If the latter, the company is harming itself by refusing to differentiate among employees whose contributions are most valuable, in favor of treating all of them well, but identically. Both Mickey Kaus and Clive Crook raised doubts about the coherence and feasibility of what Kaus called Obama's "charity capitalism." Even the proffered business rationale for Marvin's no-layoffs policy might make more sense as a philanthropic one.

Categories > Economy

Discussions - 8 Comments

Excellent ;analysis. This displays the objectivity of which ;most of the American media are incapable.

the firm may not have PUBLIC shareholders but the very nature of ownership means that the family ARE shareholders

Too bad Obama didn't talk to the Marvins before closing down untold government motors dealerships. But of course we all know that "their obligations don't just end with their shareholders" is a moot point if those shareholders are union goons who wrest their profits from taxpayers and redistribute them back to Chief Extortion Officer (CEO) in the oval office.

Excellent post, thank you. The company survived because it could make the necessary adjustments that a unionized workforce would not have allowed it to make (imagine GM cutting its employees pay while they were staring bankruptcy in the face).

I also took note of his line essentially asserting that technological advances take away jobs. Evidently, greater productivity is a bad thing and if you're not in a union you'll lose your job as a result (like all the poor bank tellers).

This man really is clueless.

Seems highly conservative and anti-Keynesian. To call this a dichotemy seems to put you into a dichotemy.

It is rather obvious but I could explain.

You ought to spell "dichotomy" correctly before offering to explain it, John.

I misspelled it twice which shows consistency.

Lack of consistent terminology is the Sine qua non of "dichotomy".

The behavior of "Marvin's Windows and Doors" is much more deflationary than mass layoffs which immediately trigger the safety net, and thus pump liquidity into the system.

If everyone had reduced labor time and cut pay, no one would have qualified for unemployment and these dollars could not have circulated to prop up demand.

Arguably the Keynesian universalist approach would have the employer increase pay and make layoffs to maximize the amount of total dollars circulating in the macro economy. When these workers are about to have benefits expire, re-hire them, and fire the next batch who will qualify.

All the policies that Marvin Windows and Doors can achieve is a constantly diminishing Consumer Discretionary Income, which of course is powerfully pro-cyclical.

On the other hand this is essentially the "Holy Grail" of conservative thinking, see Reilly in comment 3.

Obama essentially said this: Like Aristotle I believe that a good man and a good citizen is made up of good habits. Working entails and necessitates a host of good habits. Encouraging these good habits and discouraging reliance upon the public dole is a public service, directly because such corporate responsibility helps reduce the deficit, and indirectly because idle hands are the devil's workshop. Unemployment leads to alcoholism, domestic abuse and the break down of the american family.

Seems conservative (I suppose with the eternal caveat being that it depends on the client).

"Even the proffered business rationale for Marvin's no-layoffs policy might make more sense as a philanthropic one."

Perhaps, but then again the tension between labor and capital was seen by the farsighted Henry Ford. Here I think the Michigan Supreme Court, was wrong and set us down the path to war between labor and capital. Ford v. Dodge was wrongly decided. This judicial activism by the courts necessitated a war, the shareholders could demand more and more profit, which necessarily meant that CEO's would have to squeeze labor. Why isn't the proffered business rationale to maximize shareholder wealth more philanthropic (and thus lower, and deserving of scorn and ridicule).

What would happen if the corporation owed a legally cognizable duty to maximize employee wealth?

No one is sure, but in some sense the free market, via the actions of Henry Ford sought out some form of this mean, but was over-rulled by the courts. At the end of the day, no market is pre-political, in part because a contract is a consented to obligation, the breach of which the law provides a remmedy.

Of course Ford did not end up with bailouts, Dodge/Chrysler did...perhaps because they set themselves up in an eternal war with labor. (not that Henry Ford's longview was able to avoid this alltogether.)

I am just saying, penny wise/pound stupid. After all GM and Chrysler are businesses that really went to war with labor. They ended up bankrupt in part because every issue became a side in a legal dispute where there was a conflict of interest.

In some sense "charity capitalism" or "compassionate conservatism" or whatever phrase some blow hard coins...is trying to get us back to a point before there were so many direct conflicts of interest.

"Perhaps, but then again the tension between labor and capital was seen by the farsighted Henry Ford. Here I think the Michigan Supreme Court, was wrong and set us down the path to war between labor and capital. Ford v. Dodge was wrongly decided. This judicial activism by the courts necessitated a war, the shareholders could demand more and more profit, which necessarily meant that CEO's would have to squeeze labor. Why isn't the proffered business rationale to maximize shareholder wealth more philanthropic (and thus lower, and deserving of scorn and ridicule).

What would happen if the corporation owed a legally cognizable duty to maximize employee wealth?

No one is sure, but in some sense the free market, via the actions of Henry Ford sought out some form of this mean, but was over-rulled by the courts. At the end of the day, no market is pre-political, in part because a contract is a consented to obligation, the breach of which the law provides a remmedy. "

It should be pointed out that there is a very strong argument that Ford's policies had at least as much to do with forcing the Dodge brothers out of the company (he suspected--correctly, as it turned out--that they were using their dividends from Ford stock to finance the conversion of their own company from one of Ford's part suppliers to a full-scale competing car company) as it did with any humanitarian ideas. He also felt that the company would make more money producing a lot of cars at low cost for the mass market than by making a few expensive cars for the rich. While that policy may have had good effects for the common man, it was hardly motivated by altruism. Ford was also the last of the big three to unionize, and he seriously considered shutting the company down rather than deal with the union. So he may not be the best example to bring into this argument.

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