How to Share ‘Value’ (Added in the Production Process) between Workers and Owners
“The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.” ― Franklin D. Roosevelt
This article is the ninth in a series of eleven short papers that address how we can use ‘market mechanisms’ to better share the world’s resources, without destroying the biosphere upon which all life depends; now and into the future.
It discusses how we may better share ‘paid work’ between all people capable of doing it.
Each of the articles is written to be self-contained. If you want an overview of the series, it is provided here.
As discussed the first article, it does not matter how big the economy gets, ‘the market’ cannot decide ‘fair shares’ where the participants have unequal knowledge and power (including all other creatures), many costs are not accounted, and 50% of the population is ‘outside the market’!
Articles two through seven discussed how to implement a Market-based Universal Basic Income (M-UBI) to eliminate ‘systemic’ poverty using Australian data to illustrate its practicality. They also discussed how such an approach could address all the concerns many people have with ‘traditional’ UBI and the many benefits it could deliver: not just alleviating ’systemic poverty’, but helping to better manage the economy and improve individual and social well-being in general.
The eighth article discussed the need to share work between all people capable of doing it, to give:
- some people working long hours more free time to enjoy the fruits of their work, and
- others who work in jobs that don’t fully utilize their capabilities, or who work fewer paid hours than they want to, or none at all; more money to better enjoy their free time.
This article discusses how we may better share the fruits of production between ‘workers’ and ‘owners’, using well-tried ‘market mechanisms’.
Sharing the Value-Added in the Production Process
This problem too is a topic on its own that is only touched on here. Suffice to say, there are two ‘system problems’ at the heart of the growing wealth divide:
- Unequal Knowledge and Power
- The Primacy of the Financial Economy over the Real Economy.
Unequal Knowledge and Power
When most power and knowledge sits with one side (capital), it is not unexpected that the share accruing to the other side (workers) is diminished.
The growing consolidation of key sectors of the economy into monopolies and oligopolies only makes the situation worse.
Power imbalance is not new, of course. It’s existed throughout most of history.
Unions and enlightened regulation helped to mitigate it during the mid-twentieth Century; creating in some countries ‘market-driven social democracies’ that use markets to create wealth and social contracts to share it. The US is included in this list as it embarked on its New Deal in the 1930’s that saw an explosion of the middle class in the 50’s and 60’s, as workers shared in the huge ‘re-building boom’ after WWII.
Unfortunately, particularly in the US but elsewhere as well, the 20th Century sharing mechanisms have been wound back in the mistaken belief that ‘unrestrained’ markets will create more wealth for all.
The mistake is in thinking that ‘the market’ will naturally ensure the increase in wealth is widely shared. It will not.
One solution is to (re)establish social systems/contracts that have proven effective in equalising power and knowledge in the bargaining process. These include employee board representation (to give employees a full understanding of the real profit available to be shared, as well as the need for re-investment in the business and to attract capital); and collective bargaining at the level of the firm (to avoid the threat of individual job loss being used as a bargaining chip). Exploring the pros and cons of these, and the various other strategies successfully deployed across the world in the last century, is beyond the scope of this article.
The point is to highlight the need for redress.
A few other observations…
Keeping wages low through ‘threat of dismissal’ as a way of accruing more profit (rather than increasing wages or lowering prices) is not only a moral blight, it is a short-sighted strategy for business in general, as workers are customers also. People need either higher wages or lower prices, for more of us to afford what each business offers.
Of course, we have seen price/performance falls across many consumer goods, so workers have not entirely missed out.
Where they have missed out is:
First, in the shift to lower paid, more precarious jobs (that lack the ‘traditional’ benefits negotiated in the 20th Century) as more gig work has taken hold… often through the ‘ruse’ that the worker is a ‘self-employed’ contractor, further reducing their power to negotiate a ‘fair’ share.
Secondly, workers have also lost out as a result of the huge increase in the prices of health, education and property relative to wages over the last 30–40 years. To a large extent, these price rises have resulted from regulation designed to ‘protect standards’, also protecting incumbents from competition.
Fortunately, there are some promising technological developments that may swiftly reduce the costs of health and education, while delivering better outcomes, through the use of ‘online’ services. The problem of high property prices may also be impacted by the increased use of remote working and virtual reality, reducing the need to travel, reducing demand for ‘inner-city housing’.
These developments, along with a tweaking of the social contract, combined with a UBI, would give people more to spend, generating extra demand. This would encourage investment growing the economic pie. The new measures would also ensure the extra wealth is shared more widely.
However, these measures alone will not be enough to correct the imbalance entirely. We also have to redress…
The Growth in the Financial Economy at the Expense of the Real Economy
Despite the old sayings that ‘money goes round’, and that ‘wealth trickles down’…
The truth is, money ‘flows up’ (through higher senior salaries and profits), much faster than it ‘tickles down’ (via spending by the rich in the ‘real economy’).
The reason is simple. Most of the additional earnings accruing to capital are taken out of the real economy and spent in the financial economy, pushing up asset prices, without adding to society’s productive capacity or demand for real goods and services.
This trend has worsened since the GFC with the advent of Quantitative Easing and the return of Share Buy-backs (once illegal in some countries). These ‘innovations’ have pushed the price of securities ever higher, even as the health and happiness of more and more people have suffered. This could not be plainer than in the current disconnect where markets are rising as millions of small businesses collapse across the world, and hundreds of millions are left without work as a result of the corona virus pandemic.
Once money has flowed into the financial economy it rarely trickles down, as the incomes of the rich are more than sufficient to sustain their consumption. That is, the rich don’t need to liquidate assets to spend in the real economy. They just spend a part of their incomes, and ‘invest’ the rest… in the financial economy.
This ‘one-way’ flow of money out the real economy into the financial economy requires ever more money to be injected into the real economy, just to maintain demand. Today, this happens as people borrow more to simply sustain their life-styles in the face of rising health, education and housing costs…. until they no longer can, when the whole thing collapses, requiring more money to be injected ‘at the top’ to ‘rescue the financial system’, but not the people in the collapsing real economy — with the new QE money flowing to ‘investors’ who use it to purchase assets (including homes) at bargain prices, further concentrating wealth.
Rinse and repeat.
Fixing this problem requires us to wind back Quantitative Easing and reform our banking and money systems. While there are novel ways to do this that involve ‘nationalizing our money’ (not banking), these too are topics for another day!
Surprising as it may seem, I happen to think that, up to now, the increasing concentration of wealth has been a good thing!
Not for the people who have missed out, but for the whole planet and all future generations.
Imagine if we were all now consuming at the rate of the middle class, let alone the rich. The planet would already be stripped bare.
Which brings us to the last question: