You got that right: Apple — just like with its groundbreaking approach to electronics — is leading investors into a new era of valuation. But this one will reward managers such as current CEO Tim Cook for realizing that if they give employees more, their businesses will be worth more.
A lot more.
Higher Salaries = Higher Value
The old, broken American economic saw used to go like this: If costs go up, profits go down and so do investors’ fortunes. Yes, it definitely sucked to lay off 1,000 farm workers in favor of a cheaper tractor. But by saving expenses — no matter how brutally — productivity was created, the right people got rich and better jobs were created. What drove the cost cutting, of course, were the different roles different people played in different businesses. Owners owned. Investors invested. Managers managed. And labor, well labored.
Who kept what was the struggle. On one side was the patron saint of the bare-knuckled free market, Milton Friedman, who said, “A society that puts equality before freedom will get neither.”
And then there was the equally cranky Karl Marx. “Capital is dead labor, which, vampire-like, lives only by sucking living labor” is my favorite ghoulish line of his.
Well, no more. What the collapsing digital age has done is send the business roles we all play to the woodshed. In these hectic “convergenced” days, all of us are owners. All of us invest. All of us manage. And heavens, we all work. You invest not with money you got from your folks, but from the cash you scraped doing something for somebody else. You manage not employees, but email. You do your own websites and accounting. You even do you own media. And in the aggregate, the dollars pooled by today’s neo-converged investor/owner/laborers are staggering. According to the quarterly statement from the Government Investment Fund of Japan, the mere pensions from public workers there is roughly $1.3 trillion. That’s just the public workers. From one country.
Now, to our credit, Americans have long believed that a company that could afford to pay employees more was worth more. Here’s a 1914 press release from Ford Motor about Henry Ford’s “$5 a day revolution.” In it, Ford brags that he will essentially triple wages and shorten the workday. Besides locking down who did what at the factory, he boosted earnings capacity, drove consumer demand for cars, spun up the American middle class — and, oh, by the way, began the greatest stock market boom the world had ever seen.
Tim Cook = Henry Ford 2.0
Apple is realizing that the $29 billion or so in cash that sits idle on its balance sheet does nothing for it. So it is betting Cook is a good enough manager to boost productivity and justify pumping more cash into pumping up passionate retail workers. That gives those folks more money to buy yet more Apple equipment, which boosts overall demand for Apple gear — as well as other goods.
The wisdom of this approach is staggering. Besides the profit in all those MacBooks and iPhones he will sell, it points the rest of America’s blue chips in the direction of creating their own markets. Go look at the balance sheets for America’s Fortune 1,000: What really is the last thing General Electric or International Business Machines need right now? More cash. Tens of billions are buried in each of these firms. What’s critical today is more customers. And by paying their own people more, yet staying reasonably profitable, these companies create their own demand for their own products.
And for investors? It’s a rare bright line of thinking. If GE, IBM, and every other legit corporate American body followed Apple with a 25 percent raise, think of the home sales. Think of the car sales. Think of the appliances. Think of the Dow Jones Industrial Average at 20,000. Or 30,000. Why not more?
A golden age is at hand. All we have to do is decide we want to invest in it.
—By TheStreet.com Contributor Jonathan Blum
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TheStreet’s editorial policy prohibits staff editors, reporters, and analysts from holding positions in any individual stocks. Disclosure information was not available for Jonathan Blum.