What Can Realistically Be Done About Inequality?

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Lifting All Boats, Even This Little One?

An important opinion piece on the Inequality issue by Joseph Blasi ought to get more exposure, because it makes a good faith effort to propose something realistic that could be done about it.  How refreshing!   Blasi suggests we look at ways to help workers at the middle and bottom of the income/wealth distribution acquire (a lot) more capital, and receive more capital income, via forms of shared corporate ownership.

This is the type of approach Democrats don’t think about much.  And it has a “collectivist” tone for many Republicans, depending on how it’s couched.  But it’s not a bad idea, especially in comparison to the puny (e.g. minimum wage adjustments),  grandiose (e.g., “rethinking free trade”), or delusional (e.g. repealing state “right to work” laws) ideas.  Most of  of the grandiose ideas,  not surprisingly, lack detail.

The famed Microsoft employee stock options (in addition to good salaries) is a leading example of what Blasi is talking about.  Microsoft Millionaires got that way not by inching up the career ladder at the company, or climbing the steps in the personnel department’s salary schedule, but by cashing in their stock options.  That’s not a realistic possibility for all companies and workers, and the Microsoft model doesn’t immediately translate to a medium sized restaurant establishment, but there is a lot more room for this sort of approach in the U.S. economy, enough to make a real dent in the income and wealth distribution.

Ownership sharing, with a reasonable apportionment of risk, has a lot more potential to move the needle than tweaks to the minimum wage. It has a much less catastrophic downside than “targeted protectionism.”  And it’s just a wee bit more pragmatic than constitutional amendments to overturn (anti union) “right to work” laws in the states, or restoring marginal tax rates to pre 1970s levels.

It’s also more realistic than Thomas Picketty’s international tax on wealth, while (in effect) accepting his theory that capitalism tends to produce gross inequalities over time because capital (right now owned by the few) reproduces itself much faster than ordinary income.  This is not to say, that disparities can’t get so great, with devastating effects on the overall economy, that more radical ideas won’t ever be palatable.

The “free market” on its own isn’t likely to deliver more sharing of profits and stock with workers. It would require, as Blasi says, “restructuring the tax code in ways that encourage a broader range of companies to embrace low-risk profit-sharing and employee ownership programs, perhaps even making such programs a condition for receiving federal corporate tax deductions.”  It’s hardly a slam dunk that liberals and conservatives could come together on this with just a little negotiation; but it’s a lot more likely than a consensus around wage regulation, higher taxes on the rich, or demolishing “free trade.” .

Employee ownership is not a panacea and can be bad for workers, depending on how its done.  Microsoft offered stock options to employees in addition to high salaries. Many companies offer them in lieu of good wages; especially start-ups, which can’t afford (or won’t risk) paying high salaries. Since start-ups also have high failure rates, workers may spend a some years at barely above minimum wage, and are then left holding worthless stock when the company tanks.

Another caution: I am aware that the last time liberals and conservatives collaborated to create an “ownership society,” we wound up with horribly bad home loans, an abundance of junk level securitized mortgages, and the worst U.S. financial sector collapse since the Panic of 1873.  Always nice to end on a high note.

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9 thoughts on “What Can Realistically Be Done About Inequality?

  1. Kurt

    That’s a nice step.
    >
    We dug the economic inequality hole one-step-at-a-time [since circa 1979], and we could dig our way out one-step-at-a-time. Or by revolution. Either way — step-by-step or revolution — there needs to be a framework-shift in America’s representative democracy; i.e. we need to get money out of elections so that we have a chance at getting candidates who are representing people, not money.

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    1. Irv Lefberg

      Absolutely agree with that, Kurt. That’s the bottom line. It can’t be repeated often enough. There was a degree of bi partisan agreement on this at one point (e.g. McCain-Feingold). How quaint 🙂 I think in second place is addressing the toxic dominance of propagandist news and “information”.

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  2. Stephen Glucoft

    I like it !!!

    Just not sure how it would work in real world of small businesses

    Hope all is well with you cousin!!

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  3. Irv Lefberg Post author

    Stephen. Yes, it’s not workable for a mom and pop or family style small business, though any business can choose to write a profit sharing contract with some or all if it’s employees. There are models for that, but since they’re not used very much, the incentives for it just aren’t there. But even if small business didn’t participate much, very large and highly capitalized ones, like McDonalds, Big hotel chains, Walmarts, Safeway, etc. , could do stock options or profit sharing if the incentives were there. They might have to be convinced that worker productivity would blossom and rapid employee turnover costs would be significantly reduced. All of those big box and chain establishments, together with the medium sized businesses , employ a lot more people than “small business.” And a lot of the workers who are at the bottom rung right now. Irv

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    1. KURT

      As I remember it, while setting up an office in England and hiring employees, England’s retirement strategy was based on the following: All employees participate in paying into their retirement fund, all employers contribute to the employee’s retirement fund, the fund is held by the employee and transfers with the employee when they chance jobs. Retirement funds have to be managed by conservative investment standards set by regulators.
      >
      Not perfect, but it allows all employees to participate in the overarching economy.
      >
      [As I remember it, and memory is not perfect.]

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      1. Irv Lefberg

        A really good point , Kurt, about the portability of pensions and lack thereof in US. That hurts labor market and overall economy , as much as individual workers. Of course, an even bigger problem in recent years has been decimation of pensions by the crash, and now fewer companies offering them. And almost complete disappearance of defined benefit plans.

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  4. Kurt

    Irv, in support of your point about the “ownership society” debacle/bubble that burst in 2007-8: I haven’t seen any evidence that this Congress can write a law involving financial markets without the authorship of that law being set by the worst kind of Ayn Rand Wall Street anti-regulation “gotchas” setting traps for the unsuspecting public. Using an economic technical term from your professional framework, the financial markets are dominated by “asymmetric information” in favor of Wall Street and against the average Joe.

    As we’ve seen before, here’s how Wall Street will use the “shared equity” boom: they’ll sell overpriced, high risk junk to the public at high fees — all in the name of “free market capitalism”. They were so good at it in the last bubble that they sold such “products” to pension fund managers who where supposed to be sophisticated enough to not be fooled. Plain old consumers didn’t have a chance.

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  5. Irv Lefberg Post author

    Kurt, I share your skepticism about what Wall Street would do in terms of shared equity products, I don;t think Congress is able to prevent this as long as they remain on the dole from special interests, So all of that is intertwined. Gets back to the constitutional amendment you;ve been advocating

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