Home > Uncategorized > DEAR AMERICAN COMPANIES: Here’s How To Fix The Economy – Business Insider

DEAR AMERICAN COMPANIES: Here’s How To Fix The Economy – Business Insider

In 1914, a business executive named Henry Ford did a startling thing:

He announced that he was going to more than double the wages he was paying his employees, from $2.34 to $5 a day–the equivalent of $120 a day in today’s money.

The country was as shocked by this then as it would be today.

A powerful company voluntarily sharing some of its profits with its rank-and-file workers and paying them more than it absolutely had to?

Had Henry Ford gone mad?

Didn’t he understand that the only goal of a business was to make money?

Didn’t he realize that, as a successful business executive, he was entitled to make as much money as he could possibly make–the financial health of his employees being nobody’s business but their own?

Didn’t he understand that smart executives pay their employees no more than “market rates” because the executive’s job is to “create shareholder value,” everyone in our economy gets what they deserve, and the financial well-being of employees is not something that business owners or bosses or shareholders should be concerned with?

Yes, Henry Ford understood all that.

The story you hear frequently about why Henry Ford made this decision was that he wanted to allow his workers to be able to afford to buy his cars. The wage increase certainly made the cars (and many other products) more affordable for Ford employees, but the historical consensus is that Ford actually made this decision for a different reason: To reduce employee turnover–and, in so doing, reduce recruiting and replacement cost.

Regardless, it worked.

Thousands of people immediately lined up to get jobs at Ford. Employee turnover plummeted, and recruiting and training costs dropped. The new wages allowed Ford employees to live middle-class lives, instead of being poor. And it presumably made Ford, Ford’s senior executives, and Ford’s shareholders even more proud of what they had created.

In short, instead of viewing “shareholders” and “customers” as the only two corporate constituencies that matter, Ford introduced the idea that great companies should also serve a third constituency:

Employees.

And because one company’s employees are another company’s customers, Ford’s decision helped spread the country’s wealth to more citizens and expand the purchasing power of the country as a whole. And, in so doing, it helped the overall economy.

Specifically, Ford’s unprecedented move also helped usher in an age in which the middle class became the driving force in the American economy, turbo-charging the nation’s economic growth right up through the early 1980s, when relative middle class wages began to decline.

Henry Ford’s story is highly relevant today.

Why?

via DEAR AMERICAN COMPANIES: Here’s How To Fix The Economy – Business Insider.

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