Mega corporations have come under attack with many in the Democratic Party alleging that the large companies aren’t paying fair wages. Most recently, Vermont Senator Bernie Sanders has focused his attention the nation’s largest retailer by launching the “Stop Walmart Act,” which will have significant ramifications if passed.
While the legislation has a thin to zero chance of passing the GOP-controlled Senate, it’s worthy looking at what exactly the bill would do.
The Stop Walmart Act is primarily intended to enforce stricter regulations regarding how Walmart treats its employees. Under the Stop Walmart Act, companies would be required to pay employees at least $15, in addition to limiting the amount of money it pays its CEOs. Further, companies would have to let employees earn more in paid sick leave.
If companies do not meet these requirements, they would not be able to buy back stock. Thus, there is a penalty for companies — such as Walmart — who do not treat their employees a certain way, rather than making these issues entirely illegal or against regulations. And though these regulations would apply to all companies in America, it is specifically targeted towards Walmart’s current business practices.
The “Stop Walmart Act” had very little chance under the Republican-controlled Congress, but now that Democrats control the House there are concerns that this and similar acts could pass in at least one part of the legislature. While it’s still very unlikely, it does represent a trend that could send some large businesses spiraling. Walmart isn’t the first large business entity to be targeted for corrective economic measures; earlier in the year, Amazon found itself under scrutiny as well.
It’s too early to tell how the split Congress or Democratic House may lock up or interfere with legislature, but it does introduce some new concerns regarding the related issues, whereas previously there was little chance of similar issues passing. It’s likely that the Democratic Party will be emboldened by midterm election victories to attempt to pass other similar laws.
While historically many CEOs have been paid millions more than their lowest paid employees, the justification lies in attracting the right talent. A major concern is that CEOs who aren’t allowed to profit in America may move to other countries rather than take a pay cut. Further, the fear is that paying out CEOs and stakeholders less could ultimately make it so that innovation and development is stifled. In an open market economy, a major argument is that if a CEO is being paid a certain amount, that amount is how much they are truly valued.
It also remains in question whether the government should take it upon itself to target specific businesses when developing new measures. Regardless, it could have a significant impact on the way larger businesses are run. Large businesses such as Walmart are able to thrive in part because of their low employee costs, some of which are circuitously facilitated by the government; many Walmart employees acquire food stamps and other government aid. The direct consequences of the Stop Walmart act could lead to increased costs in America’s largest big box stores, rendering it difficult for the store to continue to fight off online retailers and local groceries. Regardless of political stance, this could be an interesting consequence for investors.
The ultimate goal of the Stop Walmart Act is to stop businesses from profiting through low paid labor, limiting the amount of money CEOs and stakeholders are allowed to make when compared to their lowest paid employees. However, it remains up for debate whether this type of socialism is desirable under an American system. Investors should keep an eye on this and other regulations that are unfriendly to business, as it may indicate important trends for the future as well as directly impacting future movements of stock.
Regards,
Ethan Warrick
Editor
Wealth Authority
