Tuesday, March 22, 2011

Democratic Business Creates Free Markets

The Free Market philosophy assumes that a person makes as much money as s/he is worth. In real life, this is not true. The average Fortune 500 CEO makes 488 times more than his/her average employee. No one's work can possibly be worth 488 times more than another's. Beyond the Fortune 500, it is common practice for entrepreneurs to make a small, initial investment, build the business on the backs of others, and then receive a disproportionate amount of the rewards.

However, we cannot blame Free Markets for our economic disparity. We can no more blame Free Markets for unfair compensations than we can blame corruption on democracy. We can only blame economic disparity on human greed and business structures that encourage greed.  Just as corruption thrives when democracy is ignored, greed thrives in businesses that are run like a dictatorship. The inevitable end of corporate dictatorship will create an environment in Free Markets where people make as much money as they are worth.

Democratic businesses compensate people for what they are worth. The average democratic business pays less than 20 times more, than its average employees, to its highest paid employee. Moreover, democratic businesses compensates employees with ownership for their investment of time and effort. In sum, democratic businesses empower employees to resolve their own disputes between labor and management, and therefore, obviate the need for most government intervention and regulation.
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How Will You Measure Your Life?

I recently read this article by Clayton Christiansen out of Harvard entitled, “How will you measure your life?” It is what he tells his students on the final day of his class.

One of the items that he mentions sticks out to me. It reads as follows:

“One of the theories, . . . . . how to be sure we find happiness in our careers—is from Frederick Herzberg, who asserts that the powerful motivator in our lives isn’t money; it’s the opportunity to learn, grow in responsibilities, contribute to others, and be recognized for achievements. I tell the students about a vision of sorts I had while I was running the company I founded before becoming an academic. In my mind’s eye I saw one of my managers leave for work one morning with a relatively strong level of self-esteem. Then I pictured her driving home to her family 10 hours later, feeling unappreciated, frustrated, underutilized, and demeaned. I imagined how profoundly her lowered self-esteem affected the way she interacted with her children. The vision in my mind then fast-forwarded to another day, when she drove home with greater self-esteem—feeling that she had learned a lot, been recognized for achieving valuable things, and played a significant role in the success of some important initiatives. I then imagined how positively that affected her as a spouse and a parent. My conclusion: Management is the most noble of professions if it’s practiced well. No other occupation offers as many ways to help others learn and grow, take responsibility and be recognized for achievement, and contribute to the success of a team. More and more [people think] that a career in business means buying, selling, and investing in companies. That’s unfortunate. Doing deals doesn’t yield the deep rewards that come from building up people."

I’m sure you can see why it sticks out.