How to Compel Big Employers to Be Better Employers

Dennis Fujimoto/The Garden Island via AP

A Walmart store in Lihue, Hawaii

Nick Hanauer, who may be the nation’s only venture capitalist who fully understands just how much havoc American capitalism since the 1970s has wreaked with all but our wealthiest citizens, and who’s put forth some of the most far-sighted remedies to spread the wealth Americans create to the hundred-plus millions who actually create it, is at it again. Yesterday, our friends at Democracy posted a new article by Hanauer that proposes a range of policies that would hold large employers to higher labor standards than the higher universal labor standards that Hanauer has proposed in previous articles in both Democracy and the Prospect.

In earlier articles he wrote with labor leader David Rolf, Hanauer called for establishing a “shared security system” under which employers would be required to provide workers with portable, pro-rated and universal benefits, whether those workers were direct employees, sub-contracted employees, part-timers or independent contractors, based on the amount of time the workers put in for the employer. Those employers, whatever the status of their workers, would also be required to meet wage and benefit standards.

In his new article, Hanauer addresses the issues of the increasing economic concentration to which the growth of monopolies and monopsonies has subjected workers and consumers, and the increasing geographic concentration of investment which has devastated many American communities. “America is suffering from interconnected crises of risinging market concentration and rising economic inequality,” he writes. The solution he proposes in his new article is to hold “dominant employers to progressively higher labor standards than their smaller, more fragile and weaker competitors.” Large companies—those with more than 500 employees—now account for 52.5 percent of U.S. employment up from 45.5 percent in 1988, he points out, and companies with the buying power of Walmart can and do insist that the companies that supply it with the goods it puts on its shelves cut expenses—that is, their employees’ wages—to the bone. Hanauer’s solution is to required scaling wages, benefits and standards higher for companies whose size or market impact are large. 

The Hanauer solution comes in two versions: the simple and the complex. In the simple, the only metric determining standards is number of employees—so that, for instance, a company with fewer than 500 employees might be required to pay at least $15 an hour, a company with between 500 and 5000 would be required to pay $17, and a company with more than 5000 would be required to pay $22. As the larger employers do more hiring in their areas than the smaller ones, the threat of workers moving to larger employers might raise wage standards at smaller companies seeking to retain their workers.

The complex version more directly addresses a host of ailments to which our economy is prey. It could require higher standards on companies, for instance, that have a high ratio of CEO pay to median worker pay (a favorite cause of mine), or a high ratio of profits to labor costs, or that pay so poorly that its workers are compelled to be on Medicaid, or receive the Earned Income Tax Credit, or rely on food stamps to feed their families. More ambitiously still, it could required higher standards of companies that extract more income from regions than they provide—say, having a low-wage workforce in one area, while rewarding distant shareholders and executives with outsized profits. Walmart, Hanauer points out, takes the profit from its stores and showers it on shareholders, the children of Sam Walton first and foremost. A locally owned store in the same town as a Walmart spends its proceeds locally—and so while it must meet Hanauer’s universal labor standards, the standards on Walmart should be higher. Such a system, Hanauer readily acknowledges, would be more difficult to devise than one based simply on company size, but it could more directly address such problems as growing economic inequality, the gutting of many local economies, and even the increasing dearth of start-ups in the face of dominant monopolies.

Hanauer doesn’t counterpose his proposals to others that also seek to remedy our towering inequality, the growth of monopolies, and the flight of capital from non-metropolitan America. Rather, he means his ideas to complement and supplement initiatives such as those that would raise the minimum wage across the board, enable more workers to join unions, and direct more investment to rural and small-town economic deserts. My reaction to his suggestions is that they should be part of the broad progressive initiatives that the left and center-left are now formulating. The infrastructure and “Green New Deal” policies that progressives develop in the coming months and years will surely seek to remedy some of the regional underdevelopment problems that plague us, and Hanauer’s proposal for requiring higher standards on companies that, like Walmart, extract more wealth from communities than they provide, could well become a part—but only a part—of the solution. 

As to setting higher standards for larger companies, or companies whose practices foster one or another form of inequality, we already have a version of such standards for banks. Responding to the crash of 2008, the Federal Reserve has set higher standards for “systemically important” financial institutions, requiring the mega-banks to keep more capital on hand than smaller banks, so they won’t tank the economy by running out of funds in the next financial panic.  

Hanauer’s proposals are not a panacea, nor does he claim that they are. But viewed as part of a broad set of public policies to raise workers’ incomes and benefits and create the kind of “middle-out” economy that Hanauer has long called for (in part by inspiring and supporting the Prospect’s ongoing evisceration of trickle-down economics), my reaction is, “what’s not to like?” Hanauer has opened a new front in the battle to rebuild a mass middle class in America, for which he deserves our thanks.

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