Taking wage subsidies and paying dividends: Is it moral?
Is it moral to take wage subsidies from the government while being profitable and paying dividends?
Consider the following scenario, common during the COVID-19 pandemic as governments have attempted to control the spread of the virus by imposing economic lockdowns:
The government has ordered many businesses to close again. To protect employees against job loss during the pandemic, the government has also established an emergency wage subsidy to help employers partially cover wage costs to avoid lay-offs. Your retail operations have been deemed “non-essential,” and the government forced you to shutter your stores.
However, other parts of your business don’t employ frontline workers and are still profitable. The pandemic and its economic consequences have reduced these divisions’ revenues, and the company’s share price has declined. You are planning the company’s future beyond the pandemic: how to finance the economic recovery and the necessary growth that such recovery requires.
You decide to apply for the government wage subsidy and to pay dividends to your shareholders to incentivize them to keep investing in your company in the future. The next thing you know is that politicians and academics are attacking your company’s conduct as immoral.
This is the situation recently faced by Bell Canada Enterprises (BCE), a large Canadian telecom company. Terence Corcoran tells the story in a Financial Post editorial, takes on BCE’s critics, and defends the company on economic grounds: the economic value it creates for its shareholders and customers and the job opportunities this provides employees.
To answer whether it is moral to take wage subsidies while profitable and paying dividends, let’s look at both sides of the argument.
The political and academic critics of companies such as BCE argue that this is immoral. Their argument is based on the principle that pursuing self-interest—such as long-term value creation for shareholders—is evil, and that sacrificing self-interest for the sake of others, is moral. This is today’s dominant moral code of altruism. Prioritizing shareholders over other stakeholders (employees, customers, competitors, communities, etc.) is immoral because it fails to recognize the needs of the stakeholders and to serve them equally with shareholders.
In the corporate critics’ view, business has a responsibility to contribute social and environmental goals (such as reducing income inequality and achieving net-zero carbon emissions to fight climate change). To be moral from the altruist perspective, profitable companies must forego government wage subsidies and re-allocate shareholder dividends to their employees’ wages instead.
The moral defense of taking wage subsidies and paying dividends is based on the opposite moral principle: that pursuing self-interest is good and sacrificing for the sake of others is immoral. This is the moral code of egoism. Although commonly misunderstood as exploitation, egoism is based on the recognition that to survive, we must pursue our rational, long-term self-interest—which precludes sacrificing others. We must achieve values—such as food, shelter, jobs, medicine, education, means of communication—instead of giving them up.
The egoist code applies equally to business: companies must pursue their (shareholders’) self-interest by creating material values, goods and services, and trading them for profit. The profit motive is the incentive to create material values that our lives, and jobs, depend on, such as the wireless home internet and 5G networks that BCE and other telecom companies are building and expanding.
To create material values, companies require investment capital—and investors. Investors require a return on their capital in the form of increased share price or dividends, or both. Providing such returns from a company’s profits is in all parties’—the shareholders’, customers’, employees’—mutual self-interest, and therefore moral.
Profitable companies taking wage subsidies during economic lockdowns is also moral according to egoism (although it is not the government’s proper role to give them, nor to impose lockdowns).
Besides not making a difference in the spread of the pandemic, such lockdowns constitute violation of individual rights to liberty and property by the government and have caused economic devastation (business failures and losses of jobs, income and investments) for which we’ll continue to pay for years. Some companies have suffered from the lockdowns more than others, but those who have remained relatively profitable are in the position to build back faster, a win-win situation for all.
Taking wage subsidies is a small compensation for the economic damage the government has caused and helps companies recover faster. Therefore, it is morally justified.
How you judge the taking of wage subsidies and paying dividends depends on your moral code. But if you care for human flourishing, I recommend you side with egoism.