Days of Change

Why Capitalism Works | July 24, 2015

Not to give away much about myself, but I work for a company with a relationship to the McDonald’s Corporation. Today, I was discussing NY governor Andrew Cuomo’s plan to raise the minimum wage for employees of large food corporations (McDonald’s, Burger King and others) to a ridiculous $15 an hour. The minimum wage in the state is $9 an hour and half of upstate New York probably makes less than $13 an hour. In NYC, wages (still less than $15/hr) and other costs are already so high that franchises can’t offer “dollar menu” items for $1.

Any number of people where I work, who have sometimes decades in with the company, said they would quit to work at McDonald’s for $15/hr. My guess is that won’t happen. If that switch were pulled, the number of employees at McDonald’s restaurants would plummet. In Europe and Oak Brook (McD headquarters) they are already using kiosks for ordering and sometimes machines to expedite sandwiches. If you could run a shift with 2-3 employees, they could all be salaried anyway. The low-tech solution to insane wages is to reduce the overall number of stores in your territory. Where I live, there are two McDonald’s within 5 minutes of each other. It might save money to just consolidate the two and hope the inconvenience doesn’t lose too much business.

Socialism is about rewriting the way people do things to better allocate resources. It involves complex rules and enforcement to force people to do things against their self-interest. Dissatisfaction is so strong most times that either the workers have to be pacified (unsustainable social benefits) or punished (the Reign of Terror). These systems breed underground “black” markets and high level corruption and eventually fail. When it fails, it is often painful.

Why does capitalism work? In short, it is a self-enforcing system where doing better is rewarded and doing nothing is not. In longer form, here are some reasons.

  • Capitalism is simple. The rule is that something is worth what people are willing to pay for it. Before Chinese manufacturing, new products were often more expensive, and people went without them. In some cases, they were built better and could be resold. People pick up many items from garage sales or hand me downs. Now, the goods are less robust but cheaper to buy. That personal computer you bought in the 80’s probably didn’t see its successor for a decade. Now you can buy a new iPhone every few years.
  • Capitalism abhors waste. Most people who own a car have less than 1.5 passengers in it while it’s operating. Plus, it sits somewhere about 95% of the time. What if you could make a few bucks by picking up and driving people when you had some available time? Welcome to Uber. The same goes for renting out an unused guest room.
  • Capitalism consolidates labor. One thing McDonald has tried is using call centers to take drive-thru orders and transit them to their ordering system. Other places use online ordering. Taco Bell has an app that allows you to drive through without yelling your entire order through the speaker. Less work per employee means fewer employees, a necessity when socialism rears its ugly head.
  • Capitalism values competence. We’ve all heard stories about communist countries and the guaranteed jobs that people constantly slack at. In the US, we have union auto workers doing drugs during lunch. In a purely capitalist system, there would be no minimum wage. With no minimum wage, employers wouldn’t have a government-sanctioned low point. People would work at their jobs until they were better than the wage, and find another job with better pay. With government jobs in the US offering better pay and more benefits with lower expectations, employers in the private sector can’t compete for skilled workers and those skilled workers can work below their potential.

The most insidious thing about socialist policies is that the loss is in the innovation and efficiency lost that we never see. As socialism makes an economy worse, the solution seems to be more socialism. Then we have to wait decades for it to fail and people to come to their senses.


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1 Comment

  1. From maybe the greatest Englishman who ever lived:

    Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy, its inherent virtue is the equal sharing of misery.

    Winston Churchill

    Comment by Mary — July 26, 2015 @ 3:35 am

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