I had this grand theory a few years back that our society was descending into cannibalism. While I guess that could be a literal descent into eating our fellow man and woman, but I mean it in a metaphoric way.

I’m sure there are better examples, but for our purposes let’s use the companies Costco and Starbucks. Both companies take very good care of their employees. I believe the starting pay at a Costco is $10, and most employees actually earn a living wage and (gasp) have healthcare. Starbucks gives all employees healthcare, even part-time ones. Both companies are known for creating positive, healthy, supportive atmospheres. I don’t think it’s a coincidence that these environments are created by companies that believe in sharing financial success with their employees.

Let’s say that your neighbor works for Costco. He’s a nice guy and your kids and his kids play together. Everyone gets along. Let’s also say that you own Costco stock in your portfolio. Costco has been growing like crazy over the past few years, not only opening new stores across the country, but also growing same store sales. The stock has obviously done well because of this growth. However, once they open in enough areas and growing the sales in-store year-over-year becomes harder– you, as a stockholder want the stock up. For that to happen you need profits! So what do we see? Oh, hmm…they pay way more in employee salary and benefits then a competitor…say Wal*Mart! “Why are they paying above market rate? That’s crazy! We can get a 15% increase in profits, which is a 10% increase in my stock price…” As a publicly held company, the pressure mounts to cut benefits so the stock can go higher. Benefits are slowly reduced, salaries gradually decrease. You just wanted your portfolio or 401K to go up– not for someone to have to work two jobs! Wait! … Cannibalism, baby. Cannibalism.

But that’s how “the market” works. The beauty of markets is their (ruthless) efficiency. If you ran a private company, you decide how you want to treat your employees, and maybe even make this a core part of your strategy. For companies like Costco and Starbucks, happy, caring and motivated employees are core parts of who they are as companies. Imagine how disrupted the “third-place” that Starbucks is would be by surly, angry employees. As long as your business is doing well and growing, you hold “the market” at bay. They let you do what you deem best. But once growth disappoints, you lose control to those who know better.

Both Costco and Starbucks are still growing and doing well. But once they get into Microsoft-territory, as a firm who’s growth days are seemingly behind it? Look out.

What’s interesting to me is that “the market”, this blind force that creates efficiency is really just you and me. And in this case, it can turn neighbor’s interest against neighbors.

Oh, and to be clear: I’m a free-market kind of guy (mostly), and so I’m not bashing “the market”– just pointing out this thing which I’ve found pretty interesting.

And if I owned Costco or Starbucks what would I want to do once they became mature businesses? I, personally, wouldn’t look to cutting salary & benefits. I think keeping labor happy and motivated should be a HUGE focus-area of businesses. They often make or break a customer’s experience. A strong management team could and will think of a number of ways to smartly grow the business/profits through expansion, joint-ventures, and cost-cutting in other ways that the consumer doesn’t see. I try and buy socially-responsible stocks and stay away from the scummy, ethically-challenged companies. But then again, I might be the worst stock-picker known to man…so one should take what I say only so far.