US Wealth Distribution is Crazy

This is a great, clear video showing how the distribution of wealth in the USA has gone crazy. Joe Stiglitz, the Nobel prizewinning economist, concluded from his research that the market has no Invisible Hand that makes things all right. What works in the market is power, and when you let the powerful off the hook, when they no longer have any sense of being responsible for the consequences of their actions, then this is what happens. Only six minutes, and very well worth seeing.

Strengthening Democracy

StrengthenDemocHeaderThe first of four workshops was held recently in Glasgow, in the Scottish Universities Insight Institute, on the theme of Strengthening Democracy. The key topic was to look at the ways that employee ownership strengthens democracy in the communities around the employee owned firms. David Ellerman opened, with a survey of his search, when he was a young philosopher, for the intellectual basis on which capitalism is founded. He was at that time (1960s) convinced that capitalism was by far the best system in the world, and so set off on his quest for its philosophical foundations with some confidence. However, what he discovered was that there is no valid basis for the key relationship on which our current system depends: employment. Examined dispassionately, the employment contract is a fraud – a way to remove from people the wealth that they create through voluntary cooperation with their work-mates; and to force them into a subservient role instead of acknowledging their autonomy. By contrast, when a company is owned by its employees the business consistently outperforms similar businesses conventionally structured. Why? Because people cannot give up their autonomy, and when they are forced in the conventional employment relationship to pretend to do so, they perform less well: they don’t identify with the business to anything like the same extent, and so they don’t think about it, they don’t feel so confident, nor so cooperative, they end up competing with their colleagues for hierarchical position instead of cooperating to innovate. There is overwhelming evidence that employee-owned companies are more productive, and the reason is that they treat people as the partners they actually are, whatever contracts they have to sign to get a conventional job.

Employees and Owners

WagesPercentGDPGetting a job is a good thing – it helps you stand on your own feet. Those who don’t have jobs tend to have worse health, higher divorce rates, earlier deaths. But in the US, the world’s strongest economy, those who have jobs have been getting less and less of the pie they have created. The chart shows the strong declining trend, from about 1970 to now, in how much of the pie employees get. If today employees got the 53% of GDP they did in 1970 instead of the 44% they actually get now, they would receive in their pay packets $1,350 billion more than they do get. That is very nearly $10,000 per person employed. That would alter the ability to pay mortgages and look after children.

DividendsPercentGDPWhere has the money gone? Over a third of it has gone to company owners. Dividends, shown in this graph, stayed between 2% and 3% of GDP from the 1940s to the late 1980s. Then the owners pushed them up to nearly 6% of GDP before the crash. In today’s terms, the owners took from each employee an extra $3,600 every year. Today, they still take $2,600 more from each employee than they would have in the 40s, 50s, 60s, 70s or most of the 80s. And it is rising.

How has this happened? The owners have simply been exercising their rights. Employees cooperate voluntarily to create the wealth, but have no right to participate in the wealth they create. The owners can legally take all the wealth for themselves, and in one way and another they have been exercising that right. Private equity leveraged buyouts, for example, are simply the ruthless exercising of the rights of owners, at the expense of everyone else, whether employee, supplier, customer or taxpayer.

It is different in employee-owned companies. The next blog will be about who shared in the profits of two major British retailers: Marks and Spencer, owned mainly by the financial institutions, and the John Lewis Partnership, owned since 1929 by a trust for its employees.

Mr Jackal’s Hit Man, or, The Fiction of Employment

FrenchPresidentGunSightSuppose you are employed by Mr Jackal. According to the dominant economic theory, you have sold him your labour. Since you have sold it to him, he controls it: it is up to him how that labour is used. Mr Jackal tells you to go and assassinate the French President. So, since you are his employee and your labour now belongs to him, you go and assassinate the French President.

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A Case Study: Employee Ownership worked, IPO led to failure, and why

Download the ‘TR-Inveresk’ pdf file to read the case study:

TR Inveresk

Productivity: The Employee Ownership Effect

Productivity: The Employee Ownership Effect

This case study tells the fate of two paper manufacturers in Scotland. They were similar in every way except one: their ownership strategies. Inveresk carried out an MBO – Management Buy Out – and then floated their shares on the stock exchange. Tullis Russell chose an EBO – an All-Employee Buy Out. Inveresk, which started well ahead in terms of productivity, slowly declined and eventually went bust. Tullis Russell’s employees – who all together had control of the company – increased their productivity dramatically year after year after year, as shown in the graph. Yet again, employee ownership showed itself to be better for all concerned than the plc-Stock Exchange route, which extracts wealth instead of building it.

 

Are we peasants or partners?

Peasants' RevoltPeasants of old right across Europe, and doubtless in most other parts of the inhabited world at the time, were ruled by rich and powerful lords and knights and bishops. And how did the lords and knights and bishops become rich? By taking stuff from the peasants they ruled. And when they wanted more, they took more. If the peasants objected they were thrown into prison, tortured and executed, often publicly, to encourage the others to be more obedient.
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