Does Shared Capitalism Work?

When I think about the evolution of economic systems over time, from a nomadic existence long ago through feudalism and eventually capitalism, I often wonder if capitalism is the end of the road, the last and best economic system that will emerge. I'm not sure, but I see no necessary reason why we can't do better.

But what would come next? One possibility is employee ownership. At first glance it appears to provide better incentives to workers than wages, but more thought leads to a consideration of free riding problems - if everyone but you works really hard you will still receive a large profit share - and it was never clear how such a system could work in its pure form since the entrepreneurial function would be absent. That is, how would new businesses get started? Who would accumulate the capital and execute the plans needed to get things going? Financial innovation could pool funds, but how does a large group of workers get together and decide to open a new business? It seems like some sort of individual entrepreneurship function would still be necessary, coupled with some economic incentive to transfer ownership to workers over time.

Despite those problems, however, employee ownership is growing in popularity:

Does shared capitalism work in the United Kingdom?, by Alex Bryson and Richard B. Freeman, Vox EU: Does shared capitalism work in the United Kingdom?

Of course it does. Isn’t John Lewis the best store in the world?

Of course it doesn’t. Except for John Lewis, the best store in the world.

Shared capitalism, by which we mean firms that pay all or almost all employees in part on the basis of performance of their enterprise or workplace, has traditionally been viewed as a niche part of an economy; John Lewis in the United Kingdom, Mondragon in Spain, and at one point United Airlines in the United States. In its 1991 PEPPER (Promotion of Employee Participation in Profits and Enterprise Results) Report and in ensuing reports, the European Union endorsed ownership and profit sharing.

Our analysis shows that in the United Kingdom and United States, and to a growing extent in other advanced countries, shared capitalist modes of pay and work arrangements have increased way beyond niche economic status. Today, more employees have a bigger financial stake in their firms than ever before. Forty-four percent of US workers have part of their pay linked to company performance, either through ownership, stock options, profit sharing, or gain sharing. In Britain, one-fifth of private sector workplaces have share ownership schemes covering one-third of employees (Bryson and Freeman, 2008).

Some of the growth in share ownership in Britain over the last quarter century (and in Employee Stock Ownership Plans in the United States) is attributable to government tax privileges given to firms that pay workers with ownership stakes. But some of the growth is also part of a movement towards incentivising workers through collective forms of pay (Bryson, Pendleton and Whitfield, 2008). Despite the United Airlines bankruptcy, overall employee ownership in the US has not fallen. In the United Kingdom, an increasing number of firms, some with very different ownership models, have joined the Employee Ownership Association, which represents the growing co-owned sector.

Is this any good for the economy?

The narrowest theory of worker behaviour says it can’t be any good. Workers will free ride on the back of others instead of trying harder because of the financial incentive. Under UK tax law, employees have to hold onto shares for three years before they benefit from the tax breaks. Shares can go down as well as up. And worker effort and activity is only one factor influencing the company’s performance. Aside from CEO and top executives, few employees have sizeable holdings that give them both a large financial stake and influence on decisions.

But share ownership and other forms of shared capitalism are large and growing. Shared capitalist enterprises are meeting the market test. So do they really lead to better performance?

Isolating the effects of share ownership on performance through econometrics is tricky. Estimating production functions or profit functions from administrative or survey data is subject to all sorts of problems. Firms do not choose the schemes randomly. Nor do they choose other inputs randomly. Share capitalist companies may be those that have identified benefits in sharing the rewards of company performance with their employees, but other firms have chosen to be “lean and mean” because that pays off for them. Many believe that the firms adopting share schemes have more sophisticated managements than firms that do not, and that it is that management leadership that really matters, not the scheme.

Evidence from the United Kingdom

Two new studies for Britain find, as best as one can with this type of data, that yes, indeed, shared capitalism works for UK firms beyond the fabled John Lewis. They also find substantial differences in the effectiveness of various schemes and that effectiveness differs in combination with other practices.

The first study, commissioned by HM Treasury, is the largest study of share ownership ever to have been undertaken in Britain. Linking administrative data taken from HM Revenue and Customs records to company performance data, the authors find “on average, across the whole sample, the effect of tax-advantaged share schemes is significant and increases productivity by 2.5% in the long run”. They also find that “there are further benefits to be gained from operating several types of schemes” (Oxera, 2007a, 2007b). And they found that schemes chosen by firms without tax advantages tended to pay off more than those with tax breaks.

Our work (Bryson and Freeman (2008)), based on nationally representative workplace data from the 2004 Workplace Employment Relations Survey, finds positive effects of share ownership on workplace productivity variously defined, with the effects being much more pronounced when shared capitalism schemes are deployed in combination. Among the single schemes, share ownership has the clearest positive association with productivity, but its impact is largest when firms combine it with other forms of shared capitalist pay. This may explain why British firms are increasingly choosing multiple collective pay systems (Bryson, Pendleton and Whitfield, 2008).

The findings on shared capitalism in the United Kingdom mirror , to a considerable extent, results from the United States in the 2000s. Researchers at NBER went beyond the production function methodology to survey tens of thousands of workers in firms concerned about what makes shared capitalism work more or less effectively under a research project on ”Shared Capitalism” (Blasi, Freeman, Kruse, 2008). The research, to be published as an NBER volume in 2009, shows that shared capitalism improves outcomes for companies and their workers. For example, owning company stock strongly predicts both an innovation culture and willingness to engage in innovative activity. They also find that shared capitalism and high performance work policies have stronger effects in predicting an innovation culture when they are combined in a setting that encourages worker co-monitoring.

We have learned a lot about shared capitalism schemes as a result of this recent research but much still remains to be understood. Firms often change the specific schemes they use. The schemes appear to have larger positive effects in some sectors and firms than in others (with almost no evidence of any negative effects). Absent experimental data, it is possible that the analyses have not identified true causal effects on performance. Neither the Treasury-sponsored study nor ours felt sufficiently confident in the magnitudes of the estimated effects to assess whether the tax privileges given shared capitalist arrangements are socially optimal. And neither we nor the NBER researchers feel sufficiently confident that we have identified the right mix of schemes and other policies that guarantees success with shared capitalism. But taken together, the growth of shared capitalist forms of pay and the econometric evidence that it pays off for firms and workers gives a picture that diverges greatly from the old view that this is just a small niche part of capitalism.

Shared capitalism works in the United Kingdom outside of John Lewis. And it works in the United States and in many other economies as well.

References

Bryson, A. and Freeman, R. B. (2008) ‘How Does Shared Capitalism Affect Economic Performance in the UK?’ NBER Working Paper #14235

Bryson, A., Pendleton, A. and Whitfield, K. (2008) ‘The Changing Use of Contingent Pay at the Modern British Workplace’, NIESR Discussion Paper No. 319

Blasi, J. R. , Doug Kruse, and Richard Freeman (edited 2009, forthcoming NBER) Shared Capitalism at Work: employee ownership, profit and gain sharing, and broad-based stock options

Oxera (2007a) “Tax Advantaged Employee share Schemes: analysis of productivity effects Report 1 Productivity Measured Using Turnover”, HM Revenue and Customs Research Report 33

Oxera (2007b) “Tax Advantaged Employee share Schemes: analysis of productivity effects Report 2: Productivity Measured Using Gross Value Added”, HM Revenue and Customs Research Report 33

[Update: See also Shared capitalism and employee ignorance - Vox EU.]

Comments

[David N. Welton]

You might want to check out the fate of Burley Bicycles in Eugene to see another example. It didn't work out so well despite some good products and a lot of hard work. There was a good story in the Register Guard a number of years ago talking about the history of the company.

[Robert Oak]

Over on The Economic Populist, a series Manufacturing Mondays overviewed the big three auto companies and their new demand for $50B in taxpayer funded loans for retooling.

One of the issues discussed was how to tie in those loans into US citizen jobs and investment/profit in the United States.

One of the suggestions was employee ownership of GM, restructuring forced on the condition of this $50B of loans.

Thanks for this post for something has to be done on GM as well as manufacturing/alt. energy vehicles. The idea that GM (big 3) get $50B in US taxpayer loans while losing $15.5B in one quarter, investing $1B in India for manufacturing and selling Aeros in China for 1100USD sure implies this would be more corporate welfare while the US and US citizens don't get any return.

I hope further analysis on applying these results to the US is researched.

[Gegner]

You're on the right track but you need to think a bit further 'outside the box'.

Money isn't capital, people are capital. Money does nothing, people do what it takes...and most of them do it for a paycheck.

Better, resources are free...it's allocating resources that might be troublesome, but that's what money is for.

Here's a bit of economic heresy for you...what is the 'purpose of commerce'? Does it exist to serve society or does it exist to serve the shareowners?

Naturally, it is the former...although our current system uses the latter under the very predatory mindset of 'they need what we have and they'll pay what we ask for it.'

If we use the former as our template (commerce exists to serve society) Then logically society is our 'paymaster'.

Understand that money only has value to society. I can't pick up a rock, or an acorn or a piece of grass and call it 'money'.

Money is an 'agreed upon' thing, that said, money only has a 'use' to the individual.

Um, without going into a detailed explanation, humor me and say that there are only 12 fields of human endeavor...although each of these fields would have use for many disciplines within them if one was not a 'specialist'.

Which is to say every field of endeavor would require people involved with order processing and records keeping...which would not be a field of endeavor unto itself.

So we have these 12 fields. Now, a 'balanced' economy is one where every able bodied person works and contributes,(in one of the 12 fields) thereby providing them with the means to 'consume'...and society itself 'cuts' their paychecks.

Let's leave aside the issue of people 'incapable' of working for the moment. (they'll be 'carried', just as they are now.)

One of the 'problems' of our current system is it is incapable of providing employment for everyone who needs it.

Well, these 12 'fields of endeavor' don't need profit to operate (since labor and resources are free...or worse profit centers in our current model.)

While there is no shortage of things that need doing, we have many more workers than we 'need', so the workweek/day would be modified to accommodate the 'surplus'.

And all jobs would pay a 'living wage'...which is not to say that all jobs would pay the same. Your pay would be tied to your skill level, rather similar to today's accepted practice but without the nepotism. (Let's leave how that works aside for the moment as well.)

Now, since society would pay you to 'do what you do', there would be no need for you to pay the 'vendor' as well.

All 'services' would be free...as would the 'stack of lumber'. Banking would be an internal function of your field of endeavor (I call them 'divisions')and your money would be for you.

The only way to get money would be to work for it and the only way to 'spend' money would be at a retail division 'outlet'...who doesn't need your money...it is merely erased from your account.

There would be no 'cash' and there would be no way to transfer funds between individuals. There would also be no taxes...as infrastructure would fall under the construction division and utilities would have their own division as well as education.

One of the mistakes of our current set up is the separation of profitable work from necessary but unprofitable work...although there is nothing today more 'profitable' than government work...what a surprise!

Appreciate that this is a 'thumbnail sketch' of a 70 page plan.

I call it 'labor driven society'.

Um, here's a little more 'heresy'...I've also devised a way to make it happen.

I call it the 'human anti-exploitation' law. It means what it says. It outlaws the employer/employee relationship by making it illegal for any human to profit from the labor of any other.

In this way we can put an end to the practice of working to make someone else rich (while you get older and deeper in debt.)

It's the next logical step and an idea whose time has come.

[anon]

Employee ownership has been around for quite a while. Stock is a form of compensation. There's nothing wrong with it. In fact it's arguably a good thing.

What is wrong is the idea of stock options as compensation, for executives or otherwise. The asymmetry is pure evil and can only distort the strategic motivations of management. Stock options should remain outside of the employee compensation sphere.

[Diversify]

Enron employees owned quite a lot of company stock. It didn't work out too well for them. The problem with employee ownership is insufficient diversification. That is, employees are generally better off buying a total stock market index fund, rather than putting their nest eggs into the company stock. Employees then benefit from the growth of the economy as a whole, and individual company failures don't destroy employee life savings.

[paine]

gegner

"the 'human anti-exploitation' law. ... outlaws the employer/employee relationship ...
illegal for any human
to profit from the labor of any other "

the chap
re invents the time worn "invisible box ":

money that isn't money but still is money
which leads to
pay that is pay but still isn't pay

geg ends up right in
the middle of his own version of
the invisible box

now of course he can't see it
can't see the new box
so he feels outside any box
any box with..'exploitation"
and he is ...

after all
he abolished it ...in his head

[spencer]

Two big problems with employee ownership.

one is how does it deal with a firm in a declining industry where the number of firms should be contracting.

The second is closely related in that too many examples of it in practice is that it is applied in a declining industry firm.
Often corporate management decides a division is not meeting its returns objective and after shopping it around and finding no buyers they sell it to the employees at an inflated price.

[robertdfeinman]

I'm glad to see some discussion of new economic models starting. I've been raising the question of what comes next for some time. My most recent attempt:

Capitalism must die!

The problem is that the focus is still too traditional. What the three big economic frameworks (capitalism, socialism, communism) have in common is that they only talk about who owns the means of production. There is no consideration of why we need production, or what sorts of production or what impact such production has on the environment.

We in the developed world have reached a level where we consume more than we need to. Factories can turn out product that easily exceeds demand so an ancillary business of demand creation (advertising, marketing, etc) has arisen to persuade people to keep buying.

The Bush entreaty to go shopping to combat 9/11 shows how distorted priorities have become. Similarly the recent stimulus package was also predicated on the idea that there is only one solution to every economic problem - consumerism.

So we are faced with two questions if we want to break the cycle of production and disposal.
First, Mark Thoma's, how do we foster innovation and entrepreneurship?
Second, what will we do with all the people if they are not wage slaves?

I've answered the second in some of my older essays, briefly we redirect our goals in life away from "stuff" and towards community and self-realization.

As to the the first question, there are lots of ways to raise capital for a new enterprise, but one has to decide if making a "profit" is going to be one of the criteria for investment. Gameen Bank is "for profit", but only as a way to get the capital to expand its operations.

Other existing approaches include loans, grants, partnerships with existing firms and co-ops. I'm sure other variations exist as well.

It is not who "owns" the firm that is important, it is how it is governed. Right now in the US stockholders "own" the firm, but have no say in how it is run. Instead, self perpetuating boards and handpicked CEO's do what they wish without any apparent constraints as to prudence or even legality. So, perhaps, discussions should focus on management rather than ownership issues for awhile.

[ScentOfViolets]

IIRC, one type of organization to use employee ownership - and use it effectively - were the old Brit-derived pirates. Interestingly (or perhaps, ironically), the system of democrat governance, spheres of limited power, lays (shares), etc. were a reaction to the corporate-style autarchy that was the model for the Royal Navy and also the Merchantmen of the time.

How do I know all this? Because pirates are cool! My daughter started with the "You wouldn't want to be a Pirate's Prisoner" in the You wouldn't want to be series. We worked up from there, so that by the time the "Pirates of the Caribbean" series came out, she was kid-knowledgable about the various in/accuracies in the movies.

[paine]

"new economic models starting"

rf

jobbler ownership sharing is as old as mechanization of production

vide robert owen
i like spencer for hire's take :

"corporate management decides a division is not meeting its returns objective and after shopping it around and finding no buyers they sell it to the employees at an inflated price"

universal profit sharing and stock options
like universal stock investing union pension funds
won't socialize corporate amerika
won't even civilize it in fact

corporate exploitation
of hirelings will indeed be sublated
but not by
simple simon alternative models
like owen's co ops of the repub senate's esops
or
any other varient
of
EEEEEssau's ....MESS OF POTTAGE

face it the sublation will emerge
in stages
and
thru political over throws
even if worked out in detail
thru arduous but ultimately "spontaneous"
firm level
self reformations

[Winslow R.]

Paine wrote: "after all
he abolished it ...in his head"

Not sure how you see this so clearly.

Not sure money even needs to be abolished, just need to open up the money creation process.

[Winslow R.]

The roadblock to ESOPs is obvious to me.

Employee ownership will flourish when employees (individual citizens) can access money at lower rates than corporate boards.

Right now the reverse is true and the many employees can't compete economically with the corporate entity for ownership. Simple citizen access to the Fed window would solve this problem.

[bakho]

Saying that the US is raw capitalism oversimplifies the reality.

In reality the US and all modern economies are hybrids. There are some capitalistic elements, some socialistic elements and some command elements. Most of the modern questions concern the mix and what components of an economy should be capitalistic and what parts should be socialistic. The economic world is rife with ideologues that promote one system over all others in all cases. Ideologues create a problem for serious discussion because they constantly spout jingoistic slogans and eschew serious consideration of the specifics.

Managing a modern economy well should toss ideology out the window and look specifically at success and failure. Where capitalism fails (as in social safety net) other elements need to be utilized. ideologues that refuse to use the entire tool box are willing to settle for not fixing problems.

[Noni Mausa]

diversify said: Enron employees owned quite a lot of company stock. It didn't work out too well for them. The problem with employee ownership is insufficient diversification.

In that case, the problem was lack of visibility and control by the worker/shareholders. Oh, and a conflict of interest with the workers who did know what was happening, or at least some of it, encountering the fact that if they blew the whistle the whole thing would deflate. So, even honourable people who might have blown the whistle, would be deterred by their concern for the other employees. Result, all go boom.

Noni

[Bruce Wilder]

I see lots of problems with employee ownership, and not so many solutions.

rdf picks up a useful thread: the problem is not ownership -- it is governance.

In the course of the 350 or so years since feudalism collapsed in the wake of the Dutch Revolt and the English Civil War, and the agricultural, commercial and industrial developments began, that would later be recognized as industrial revolution(s), the dazzling advancement has been the application of scientific knowledge as technological innovation. But, in terms of economic, social organization, the general trend has been toward ever more "overhead" and less and less "direct labor": we have built up towering, fragile hierarchies layering social control over armies of machines.

Every time I read the nonsense phrase, "skills-based technical change", I cringe. We cannot say, "power" and mean political power, but the construction of, now, huge social hierarchies of control for business, and government, enterprise has become the defining characteristic of 21st century capitalism. Over half of the American population is employed by organizations with more than 100 employees, and most of those people are employed as bureaucrats, clerks and "salesman" (by which we usually mean ambassadors between bureaucracies). Information processing, in the service of control functions, is most economic activity. Actual, direct production is a minority economic pursuit. Piecework -- the simplest form of pay for performance and product -- isn't even conceivable for most people -- there's no relation between what people do for a living and the cost of any "unit" of production.

Even among the goods we "consume", a large part of our incomes goes to consumer durables, which, in turn, produce the goods and services we "consume".

In the vast, social network of control, there's a diffuse struggle going on, to concentrate power and income and wealth at the pinnacles and gateways. Some of this is unintentional, and ridiculous: star systems that pay fortunes to Keanu Reeves and Wolf Blitzer. Some, like funnelling a huge book advance to Newt Gingrich, or speaking fees to various talking-head pundits, is subversive and nefarious. And, some, like paying a hedge-fund manager a half-billion for doing his part to destroy the banking system, is insane.

There are great opportunities for reform, particularly in the distribution of income, because the distribution of income has so tenuous a connection to the functioning of the economic system. Most of the products we consume "cost" at the margin a small fraction of their price -- a large part of the price paid feeding armies making war with superfluous salesmanship and marketing and giving tribute to some half-forgotten sunk cost investment, nevertheless enshrined in law as a patent or franchise or, sometimes, just a brand or a location on the marketing map of mind.

And, there are great opportunities for disaster and collapse. Great economies are built on fine control of error, which makes our systems increasingly fragile and vulnerable. Our cellphones drop calls. Our imperial dominion is threatened by madmen with box cutters.

The technology of fifty years ago -- the greatly feared nuclear weapons -- required massive organization and cooperation. A grad student in a moderately well-equipped university biolab could create a lethal contagion that would dwarf Hiroshima.

And, yet, a concentration of resources focused on a genetically-enhanced cyborg may well hasten The Singularity in the form of the Republican wetdream of an aristocracy based on actual, inherited superiority of ability and merit. Not exactly, an ESOP.

[ken melvin]

Rdf – I agree we need a new model.

I think this we have, evolved around the industrial revolution, is long since antiquated, and, perhaps was never a very good one. As with many another patchwork solution thing, it has become an unmanageable rat nest. We need start afresh.

Ideally, we come up with a model flexible enough that it works for different ages, i.e., one that works for the post industrial age, the technological age, … Given the huge reduction in work force requirements we’re facing, we’re in need of a new means of distribution. In transition, a model that paid the fewer more so that they might spend more for service and those providing those services were well paid might work fairly well, but what we have is a group in control of both the left and right that want to maintain high income for themselves while paying all other as little as possible and production workers pay didn’t go up.

Ownership without employees becomes socialism, no? May well be the final, after everything else, solution. Ironically, the Grover Norquists of this world seem to understand better than anyone what’s going on. They who are determined to maintain the ownership status quo do speak Orwellianly of ‘the ownership society’. They are being effective. The left is dumbfounded.

[Winslow R.]

Paine wrote:

"face it the sublation will emerge
in stages
and
thru political over throws
even if worked out in detail
thru arduous but ultimately "spontaneous"
firm level
self reformations "

I've been thinking about the 'unguided' process as we see the political backlash against outright fiscal bailouts.

Without fiscal bailouts we will follow Japan towards the zero bound which may not be a bad thing. Much has been written about tne 'natural rate' of interest being zero and I find myself tending to agree we are likely to follow Japan's path.

1) The process starts with a financial 'bubble' that deflates but politically will not be reflated.

2) The Fed must then use the tools it has available, and lowers the Fed funds rate to zero and provides unlimited liquidity to the financial system.

3) With the Fed absent its only tool to stimulate the economy, fiscal policy takes over.

This is where Japan is and is unlikely to move, even with the temporary increase they have seen recently in inflation.

4) The next step in the process is the increase in access to unlimited liquidity. Japan, as in the U.S., has funneled liquidity through the financial system placing those with access at the top of the power structure. To avoid stagnation, political economies will be forced to open access to liquidity. Eventually all citizens will have access, perhaps near unlimited access because so few take advantage of it.

The choice becomes the status quo and stagnation, constant government directed fiscal policy (America's next stage), or open access to liquidity(Japan's next stage) and its unintended consequences.

Those that laugh, I point out that Ben has already started opening access through the TAF and other faciliites. It is just a matter of time, perhaps a very long time.

[paine]

win

i agree but for money i write credit money
to remind me what sort of money i mean

the distinction between means of purchase
and means of payment needs steady renewal

mark t writes :
"the entrepreneurial function would be absent.... "

"how would new businesses get started"

"Who would accumulate the capital ..."

mark answers this one himself
"Financial innovation could pool funds"

but who would
"... execute the plans needed to get things going?"

which is another way of asking
the recruiting type question

" how does a large group of workers get together
and decide to open a new business "

which is to say
the driving force and nucleus
might remain one or a few folks gathering the original crew around them in the venture
apropos
i think the 90's hi tech venture boom
showed part of the way forward here
asthe 80's bio tech/venture cap boom showed
the emerging new "public "investment paradigm "
on innovation and firm start up
to gather the initial crew
employee payment in stock --pre ipo stock --
allows risk and reward to
both founders and stock paid initial work force

[paine]

bakho
part socialized part privatized ???

your benign eclectic take
fails to notice the intrinsic mutual antagonism
of these modes of production
the capitalist empowering type society
needs to preserve a set of job market "conditions"
that make the system of production
"safe for exploiters"

[JeffF]

I find the German system interesting. Large companies in Germany have non-ownership based employee input at the highest level of corporate governance through a secondary board which is usually three people, one of whom is selected by the employees.

It seems to me to be an interesting model for how one can get the benefits of capitalist ownership, but recognize the stake of employees in the business and hopefully make companies more resistant to being run too much for the short term benefit of upper management.

[Sarah]

I'm surprised no one has yet mentioned Ricardo Semler. Or, for that matter, open-book management, which was one of his inspirations. The system of 360 degree reviews which Semler started effectively takes care of the free rider problem-- as he points out, in small groups, people always know who the 'dead wood' is. If they have an incentive to eliminate it, they will-- either by social pressure on the offender (very effective) or by kicking them out altogether. And everyone knowing what everyone else earns provides both a brake and a floor on salaries. Management can't claim an excessive share of the company's profits if everyone else, seeing the effects on their own compensation and the company's bottom-line, can veto it.

The problem is not really with capitalism per se, but with the way our culture has come to interpret it. Treating workers fairly and well is good for the bottom line, as Robert Owen discovered well over a century ago. The problem is that people in positions of power are willing to sacrifice profits-- to the extent they can-- in order to maintain that power.

[paine]

bruces are wild :

"the problem is not ownership -- it is governance"

i submit the two are entwined

mode of ownership dictates mode of control
as one morphs so do dah other

how much latitude ???
well less then soviet dreamers wished for ....

"...social organization.. toward ever more "overhead" and less and less "direct labor...we have built up towering, fragile hierarchies layering ..... control over armies of machines"

nice picture of ....pre computer corporations

now we are mechanizing the weberian hierarchies too

"there's no relation between what people do for a living and the cost of any "unit" of production. "

nice
anti clark obervation
no just desserts
marg-rev-proc fantasy need apply

but this js millish update
sounds to me like the jingle bells of folly

"There are great opportunities for reform, particularly in the distribution of income, because the distribution of income has so tenuous a connection to the functioning of the economic system"
how do u brake this law
power follows the money
and stay within "the system"

which does indeed look like this gothamic hodge podge :

"... feeding armies making war with superfluous salesmanship and marketing "

"..and giving tribute to some half-forgotten sunk cost investment,"

"... enshrined in law as a patent or franchise
or, sometimes,
just a brand or a location
on the marketing map of mind "

great stuff looking macro
but at firm level
try sorting the pepper from the fly shit

[paine]

sarah
open book transparency
plus intra job unit hire fire
is great sky pie
but it amounts to destruction
of the spirit if not the letter of capitalism...exploitation
so like
the abolition of chattle african slavery
won't come about
without a civil war

[paine]

the words power and control
here
hang by sky hooks
the powerless don't take power
from the powerful

power can only struggle with power
control with control
the cap class
is entrenched and well organized in depth
and cleverly two faced ....
both fiend and human

and we jobblers are .....??????

[paine]

"I find the German system interesting"

well its crumbling even as i type this comrade

[paine]

bw:

"among the goods we "consume", a large part of our incomes goes to consumer durables, which, in turn, produce the goods and services we "consume". "

important distinction here
between marketed and non marketed production

but nearly all households
no matter how skilled and mechanized
can't self produce the bulk
of their means of subsistence
and must sell some serious hunk
of their own households total life time
on the job market

they go into business as time sellers

they try to get the biggest buck for their time
and they "invest in marketable skills"
for varius household members
and and and ...
most of us are simple self time sellers
or future self time sellers
or former self time sellers

most days
we buy on many markets but sell on only one ...

[Winslow R]

paine wrote"i think the 90's hi tech venture boom
showed part of the way forward here"

I agree. The hi tech boom had many unintended consequences that should be explored and improved upon.

Were the 90's venture capital 'brokers' just earlier versions of the real estate brokers of yesterday? Did the venture guys also have enough access to the banking structure to cause its regulated capital base to fail? Were there breaks in the regulatory structure that allowed for the gaming of the venture capital system through false appraisals/unworthy borrowers that was later hidden by shifting credit creation to the housing market?

My answer is yes.

The credit creation process along with its regulations is an unwieldy dangerous thing to the economic health of a nation that can lead to rapid growth and development followed by financial excesses. It is the credit creation process that needs examination and not fixed fiscal bailouts and minor tweaks in the regulatory structure.

As Japan attests, political support for fiscal bailouts and minor tweaks of the financial system is gone. But is fiscal policy the best replacement? I think we might prefer the entrepreneurial spirit of the 90's tempered with personal accountability.

[Carmine Gorga, PhD]

Workers ownership is only one leg of a sane and sound economic policy. Just yesterday the editors of my Gloucester Daily Times grabbed a page from one of my websites and cobbled together this piece. A bit premature, in my opinion, for the local audience, but not for your audience, dear Professor Krugman. And timely for your current post. Here it is:

Published: September 02, 2008 04:40 am

My View: Land holdings, taxation a key to economic justice
My View
Carmine Gorga, Ph.D

Concordian economics is a theory in progress of development. The attention is focused not on a simplistic observations of markets, but on the economic effects of the inner workings of economic justice.

To best understand Concordian economics, one has to relate it to the conditions of the modern world. The essentials of this condition can be put quite simply. While the followers of Don Quixote (artists and the literati) chase windmills, the followers of Galilei (scientists and technologists) build windmills; and a chosen few — the oligarchs — concentrate on owning the windmills.

The numbers are impressive. Summarizing the results of numerous studies and official government reports, Paul Krugman, the noted Princeton economist and columnist, has specified in the New York Times of Feb. 27, 2006, that, between 1972 and 2001, the wage and salary income of Americans at the 90th percentile of the income distribution rose only 34 percent, or about 1 percent per year. So being in the top 10 percent of the income distribution, like being a college graduate, wasn't a ticket to big income gains.

But income at the 99th percentile rose 87 percent; income at the 99.9th percentile rose 181 percent; and income at the 99.99th percentile rose 497 percent. No, that's not a misprint.

Just to give you a sense of who we're talking about: the nonpartisan Tax Policy Center estimates that this year the 99th percentile will correspond to an income of $402,306, and the 99.9th percentile to an income of $1,672,726. The center doesn't give a number for the 99.99th percentile, but it's probably well over $6 million a year.

Aren't you at least a little bit curious as to how the oligarchs do it?

Hint: They do it legally.

Double hint: They do not corrupt judges and legislators.

Triple hint: These results have nothing to do with the laws of supply and demand, but with the workings of the economic process as a whole.

What does economic justice recommend? The way I read it, economic justice recommends that one should be neither a Luddite, I do not believe in smashing the windmills; nor a socialist,

I also do not believe that "the state" will ever help us wrest the ownership of the windmills from the oligarchs. I do believe in the power of these four economic rights and responsibilities to set things right in the modern world:

1. We all have the right of access to land and natural resources. This is a natural right. It belongs to us just in virtue of our humanness. The oligarchs control an enormous portion of land and natural resources because they do not pay fair taxes on them.

2. We all have the right of access to national credit. Since national credit is the power of a nation to create money, and since the value of money is given by the value of wealth left over by past generations and the creativity of every person in a nation, national credit is the last frontier: the last commons. Capital credit liberates, while consumer credit enslaves us.

3. We all have the right to the fruits of our labor. This right should not be limited to the right to obtain only a wage. It should be extended to the right to the other major fruit of economic growth over time: capital appreciation — as well as being subject to capital loss, of course. While workers receive the pittance of a diminishing wage, the oligarchs receive the blessings of capital appreciation.

4. We all have the right to protect our wealth. It used to be that the oligarchs would make money on money, now they use money to buy and sell entire corporations.

I must say that there is not a stitch of originality in these principles. They all stem from the thought of Benjamin Franklin, Henry George, Louis D. Brandeis, and Louis O. Kelso. Read them in rapid succession, and you discover that one picks up from where the other left off. Individually, they do not stand; but together they form a very sturdy compound; together they shape an unassailable, comprehensive, all-American economic policy concerning (1) land and natural resources; (2) money; (3) labor; and (4) physical capital.

We at www.concordians.org are not simply talking about these principles; we are starting a movement to implement them. Here are some of our guidelines. Feel free to create your own.

Do not fight City Hall; rather, ask your city councilors to gradually shift the tax burden from buildings onto land. That is all that they have to do. For details, see www.urbantools.org.

Do not fight the oligarchs; rather, join them. Ask them not for a wage, but for a share of the profits — a share of the ownership of the corporation in which you work — and assume the risks of doing so. Gradually transform the Labor Movement into an Ownership Movement. For details, see www.nceo.org.

Do not fight the conglomerates; forget about becoming a globalist; rather, become a localist. Hold those pieces of the conglomerates that happen to be in your community to the fire of truth, economic justice, and economic freedom for all.

Carmine Gorga, Ph.D., is president of Polis-tics Inc., based on Middle Street in Gloucester. He is also founder of Concordian Economics, and the author of "The Economic Process: An Instantaneous Non-Newtonian Picture" (University Press of America, 2002).

[paine]

DOC GORGA IS A TREASURE CHEST OF VINTAGE APLOMB

his first point is pure george and makes high sense
his second point runs aground on his metasocial presumptions

the fruits of this credit common should be shared collectively not individually
vide ramsey
for want of a better jargon:
make any real interest payments
into a universal
loan capital tax

the real rate of interest reflects capital scarcity
its a dynamic reality
that in the long run will assymtote toward real zero
till then the proceeds of its "investment"
oughta be
whole nation owned

point three is a train wreck
on the society wide scale
the fruits of labor
and of private capital
are in direct conflict with each other

point for is utterly misbegotten 17th century ...harringtonism

[Barkley Rosser]

There is a very large literature on this, with it reviewed in _Comparative Economics in a Transforming World Economy_, 2nd edn., 2004, MIT Press, by me and Marina V. Rosser. Winslow and in a way Sarah have hit on the main issues as well as problems.

1) Worker-owned firms may be more efficient because of the incentive of worker-owners to monitor each other, although the "360 degree" stuff tends to get gimicky and does not work very well without real workers' ownership. But such monitoring is the real meaning of workers' management, which ultimately failed in Yugoslavia, where it was not combined with workers' ownership (although one can find quite a bit of that now in the most successful of all the transition economies, the former Yugoslav republic of Slovenia, the only transition economy to have been allowed to adopt the euro so far).

2) But, Winslow hits the nail on the head that the problem is financing. It is both that the worker-owners want (and need) to diversify holdings out of the company, but that such companies face problems from the banking and financial sectors. This does seem to be a systemic problem, one that could be overcome with some political push from above, as the Mondragon cooperatives have overcome it. But, this is a generalization of the academic literature: more productive, but screwed over in their financing.

BTW, much of this does work much better when the firms are smaller and less needing of lots of financing to operate. An observation in much of the literature is that there seems to be a limit of around 60, with lots of high-tech, worker-owned startups (usually led by some visionary entrepreneur) who all know each other and all monitor each other in "one big family." Once size goes above 60, it seems that this does not work anymore, hierarchy, anonymity, and professional management appear, and things are not the same. My guess is that this may be something hard wired in from some limit in our ancient past of the sizes of family clans in hunter-gatherer societies, but who knows?

[James]

Partial employee ownership helps by creating greater employee loyalty, which is one reason why many companies hand out employee stock options.

[Tomislav Najdovski]

Transferring small parts to small % of workforce in that company may or may not work.... But transferring bigger shares to larger mass of of theemployed in a company is 100% disaster.
Workers ownership ? Believe me we had it and it Didn't work...
Now Macedonia is with 35% unemployment... mainly because of bad privatization, and workers ownership..

It is really functioning like a government, even politicians pay taxes - and they still don't care stealing from taxes...
It happened the same with workers, managers soon become corrupted(workers ownership) even when it is in their interest the success of the enterprise, owning a small part of the enterprise makes them more willing to steal money from it...
Even if corruption problem is solved, the whole corporation works like a union, not interested in long-run financial stability(? or reliability don't know the term)... Their main goal was always increasing the wage's even above productivity leading companies into liquidation... Moreover they were never interested in company growth only in wage growth.

The fundamental problem is that uneducated or even educated workers are not all economists, therefore they always have good reason to vote yes for wage increase. (wondering what will be the optimal choice for economist's, better wage or good company ? :) )

If anyone needs empirical date to prove that workers ownership doesn't work you can find it in Macedonia.

[paine]

heed tomislav's knuckle drilling of co opted co ops

"Transferring small parts to small % of workforce in that company may or may not work.... But transferring bigger shares to larger mass of of theemployed in a company is 100% disaster."

makes for sober reading
"even politicians pay taxes - and they still don't care stealing from taxes"

i like the analogy

why should a wage geef give a shit about
a company and its long run ????
his/her stake in the company equity wise
is as tiny as his/her share of the total wage bill
the risk of a distant loss gets swamped
when figured against the certain
gains from more cash now
so
why ever look beyond his pay check ???
why worry about the company sinking into bankrupcy ????
why worry about the bosses stealing the borrowed state funds ??
they'll steal em any way and any equity too
so get yours up front

[Julio]

paine:
"heed tomislav's knuckle drilling of co opted co ops"

Barkley Rosser:
" An observation in much of the literature is that there seems to be a limit of around 60, ... who all know each other and all monitor each other in "one big family." Once size goes above 60, it seems that this does not work anymore"

Size matters.

[Winslow R.]

Tomislav wrote: "Workers ownership ? Believe me we had it and it Didn't work...
Now Macedonia is with 35% unemployment... mainly because of bad privatization, and workers ownership.."

You make some good points as people may be more willing to 'take' from a company they own and that tendency may even outweigh the people who are willing to work harder for a company they own. But, even you don't think worker's ownership is the main blame for Macedonia's unemployment as you mention the lack of education. Owning a failing business could be the start of that necessary education.

"Economy Macedonia
Economy - overview: At independence in September 1991, Macedonia was the least developed of the Yugoslav republics, producing a mere 5% of the total federal output of goods and services. The collapse of Yugoslavia ended transfer payments from the central government and eliminated advantages from inclusion in a de facto free trade area. An absence of infrastructure, UN sanctions on the downsized Yugoslavia, and a Greek economic embargo over a dispute about the country's constitutional name and flag hindered economic growth until 1996. GDP subsequently rose each year through 2000. In 2001, during a civil conflict, the economy shrank 4.5% because of decreased trade, intermittent border closures, increased deficit spending on security needs, and investor uncertainty. Growth barely recovered in 2002 to 0.9%, then averaged 4% per year during 2003-07, expanding to 5.1% in 2007. Macedonia has maintained macroeconomic stability with low inflation, but it has so far lagged the region in attracting foreign investment and creating jobs, despite making extensive fiscal and business sector reforms. Official unemployment remains high at nearly 35%, but may be overstated based on the existence of an extensive gray market, estimated to be more than 20 percent of GDP, that is not captured by official statistics. "

https://www.cia.gov/library/publications/the-world-factbook/print/mk.html

[Winslow R.]

The Mondragón Cooperative Corporation (Spanish: Mondragón Corporación Cooperativa - MCC) is a group of manufacturing and retail companies based in the Basque Country and extended over the rest of Spain and abroad. It is one of the world's largest worker cooperatives and one important example of workers' self-management.

http://en.wikipedia.org/wiki/Mondrag%C3%B3n_Cooperative_Corporation

[Tomislav Najdovski]

The system was failing before the embargo, corruption excluded.. Motivation for increased productivitay was failing...
What logicaly derives from this is that: workers ownership MAY work when the porfit for one worker is significantly greater then his wage.

[Lafayette]

The preserve of the New Nobility

Article: Workers will free ride on the back of others instead of trying harder because of the financial incentive.

This will happen only if profit-sharing is limited to a bulk sum shared equally by all workers. Such is necessary but insufficient.

The challenge is to make profit-sharing a function not only of equal sharing but also of performance achievement by means of the Salary Review.

A Salary Review is typically, at least, an annual event where a Job Plan (tasks/objectives and their metrics) is considered in terms of an employee's performance. Particularly, it must contain metrics. A common metric, for instance, for a salesperson is to have made their budget in terms of overall sales value. Or perhaps have prospected for the company a given number of new clients.

Not all Job Plans, however, render themselves easily to metric review. How does one measure performance on an automotive assembly line, where individual workers do repetitive work, which is cadenced and invariable? For such work environments a measure of peer review can help to identify shirkers.

The objective of worker entitlement to profit sharing should be no different, really, than that of management. Management is tasked upon objectives and stock-options given accordingly. Why not workers?

Well thought out, worker profit-sharing entitlement could do wonders to rectify Uncle Sam’s Gini Index and bring income fairness to a whole new class of workers lower in the totem pole – instead of keeping it the preserve of the New Nobility of American Top Management.

[Lafayette]

We have met the enemy

Gegner: Naturally, it is the former...although our current system uses the latter under the very predatory mindset of 'they need what we have and they'll pay what we ask for it.'

You seem to insinuate that commerce is predatory. Only if we let it be so.

The fact of the matter is that American consumers (and not just American consumers) are manipulated by boob-tube commercials that spawn peer-envy consumption. After all, it IS a free market. No one is forcing anyone to walk into Wal-Mart, which has made a fortune for the Walton family. Slavish consumer peer-pressure does that work quite nicely, and requires no Marketing Expense.

French TV just televised a report showing a Wal-Mart company employee meeting that looked like some sort of religious event. Everyone singing the praise of Wal-Mart as if Sam walked on water. It was shocking to see the control of mindset that had been accomplished by management on its staff.

So, what can you do? If people want to behave sheepishly, then they deserve to be sheared like sheep. It's all part of the "dumbing down of America", a central part of which is the mindless pursuit of consumption the patterns of which that are wholly dictated by well-tried and effective mass merchandising principles.

We have met the enemy and he is us. (Pogo by Walt Kelly)

[Patricia Shannon]

Lafayette,

I get upset with people, too, but my rational part realizes it's not fair to blame people for being the way they have been created by nature and culture. Evolution works on a short-term scale. It can't evolve us for long-term eventualities. That's why the dinosaurs are extinct.

[Lafayette]

PS: ... my rational part realizes it's not fair to blame people for being the way they have been created by nature and culture.

I am sorry, PS, but I cannot believe that either nurture or nature is a good enough excuse for crass consumerism. Americans buy a lot of junk and they go deep into debt to do so.

WW2 was a turning point. Before the war, the middle-class worked hard and diligently to make ends meet. They did not have that much discretionary income. Post war, that all changed. Now, everyone needs the latest fad and their children need two, not one. Discretionary income is magically created by credit. We're duped into thinking that we can spend more than we earn.

I do not see the good sense of undermining one's life with debt just because your neighbors are doing so. But, that is what "keeping up with the Joneses" increasingly entails.

[Real Person from the Real World]

Lafayette:
"French TV just televised a report showing a Wal-Mart company employee meeting that looked like some sort of religious event. Everyone singing the praise of Wal-Mart as if Sam walked on water. It was shocking to see the control of mindset that had been accomplished by management on its staff."

You certainly are aware where this started.... The Japanese. We gave them Quality Control, and they invented Corporatism along with JIT inventory. Anne says borrow from the foreigners overseas, well, here's one case where someone did, and another foreigner is pointing to other foreigners *exposing* it as some sort of excess.

[Mariella]

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