In the book Capital in the 21st Century, French author Thomas Piketty does a thorough analysis on the history of income and wealth distribution. One highlight from the data is that in most industrialized nations, about a third of all income is income from capital, as opposed to income from labor. In other words, doctors, cleaners, managers, technicians, teachers, and all other workers in the economy account for only two-thirds of income earned. The remaining third is the interest earned on land and property.
Pketty brought up a good point when he said it’s not the existence of inequality that’s a problem, it’s whether or not the society feels that that inequality is justified. Most cultures are somewhat intolerant of inequality of income from capital, and that is exactly the inequality that’s predicted to grow in the 21st century. In the United States, which is highly meritocratic, inequality of income from labor is highly tolerated. The US has what’s known as “super managers,” who earn ten to one hundred times the average income. We feel that hard work deserves extreme compensation in the US.
As mentioned in the previous post, this is where proprietism and ESOPs could shine in American culture. They would continue to reward hard workers, yet distribute the ownership of property more evenly. Piketty’s analysis is not apocalyptic, but he does imply the warning that there is no societal benefit to the continual accumulation of vast amounts of capital held by noncontributing people. Famous political philosopher John Rawls agreed on this point; he believed redistribution of income via democratic socialism was not the answer, but a repositioning of wealth could be.
A 21st century version of Marxism is alive and well in Argentina. It’s taking the form of worker cooperatives in plants that have been expropriated by the workers. The 2004 documentary The Take is a close look at an auto plant whose workers won the rights to run the factory in court after the original owner had filed for bankruptcy and then proceeded to sell off the plant’s assets. The worker cooperative documented in The Take is one of a growing movement in Argentina.
A plant overtaken and owned by the workers seems communist at first blush, but we must consider that the workers are doing it through the court system. Also, the workers initiated these expropriations themselves in Argentina. As an interesting contrast, Venezuelan ex-president Hugo Chavez created incentives for manufacturers to create workers cooperatives. Not surprisingly, that resulted in Venezuelan business owners falsely claiming their businesses as worker-owned.
It begs the question if there could ever be an acceptable form of a workers cooperative in the United States. It would have to have shared ownership, yet honor American meritocracy by allowing top managers to earn or own considerably more than the company’s hourly employees, technicians and representatives. Probably, it would look most like an ESOP (employee stock ownership plan). According to the Ohio Employee Ownership Center, ESOPs are doing well, especially when considering that they are usually formed to avoid foreclosing the business.
Louis Kelso invented the ESOP not because he was a Marxist advocate of a workers’ revolution, but rather because he was a capitalist. Central to his belief system was the idea that workers should be interest-earning capitalists just like wealthy business and land owners. He believed that previous assessments of political-economy did not factor in the element of continuous technological improvements in society, which would benefit the capitalists more than workers.
The debate over political-economy is snagged on whether a government should be more laissez-faire or more socialist. Bill Clinton was a big proponent of a cocktail of the two known as the “third way.” ESOPs and proprietism are an interesting alternative to the third way. They blend the meritocratic ideals of the free-market, but like socialism, they seek to eradicate the over concentration of wealth that results from capitalism. Call it the “other” third way: one that seeks to improve society with improved organizations without government intervention.