What Can Realistically Be Done About Inequality?

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.