Better Than Redistributing Income

Redistributing IncomeBringing democratic decision-making into the core organization of enterprises provides the best chance for a less unequal initial distribution of income than is now common in most societies. Transition to an economy where many enterprises were organized as worker self-directed enterprises (WSDEs) would likely proceed further in reducing income inequality.

Widening gaps between rich and poor, the top 1% and the rest, are heating up debates, struggles and recriminations over redistributing income. Should governments’ taxing, spending, and regulatory powers redistribute income from the wealthy to others, and if so, how exactly? As opinions and feelings polarize, political conflicts sharpen.

Yet should redistribution be our focus? Thomas Piketty’s recent Capital in the Twenty-first Century believes it should. He caps his analysis of how and why capitalism generates deepening economic inequality by advocating progressive income and wealth taxation. He wants to offset or reverse that inequality by redistributing income from the rich to the middle and the poor. Discussions of Piketty’s work show considerable support for redistribution

Yet history has shown both its friends and foes that redistribution has at least three negative aspects. First, redistribution mechanisms rarely last. Once established, progressive tax rates, social securities, safety nets, minimum wages, welfare states, and all the other mechanisms of redistribution can be and usually are undermined. The last 40 years, and especially the aftermath of the global crisis in 2008, starkly illustrate the undoing of redistribution.

Second, redistribution is socially divisive, often extremely. When taxes not only pay (quid pro quo) for government services rendered, but also serve to redistribute income, opposition usually grows. Some taxpayers suspect they pay more and get less in public services than others. Deteriorating economic conditions that lessen capacities to pay taxes intensify resistance. That often turns into opposition to income redistribution in principle. Lower-income people get demonized as lazy welfare-dependents. Racist and anti-immigrant oppositions get drawn into the mix, and so on. Meanwhile, advocates of redistribution make ethical appeals and/or threaten that without income redistribution, deepening income inequalities endanger capitalism and the social status quo.

Third, redistribution is costly. Taxing, spending and regulating require large government bureaucracies funded by tax revenues. Opposition to taxes easily extends into opposition to bureaucracies like the IRS. Those bureaucracies usually intrude on privacy and quickly become objects of influence peddling, bribery, and abuse. Exposés of the latter provide further fuel to redistribution’s opponents.

A rather obvious solution is available if we put aside the presumption that redistribution is the only way to counter deepening inequality. To avoid redistribution’s insecurity, social divisiveness and wasted resources, we could instead distribute income much less unequally in the first place. Then redistribution would be unnecessary and society could avoid all its negative aspects.

The question then becomes: how might we secure a significantly less unequal original distribution of income? The answer is a transition from the current hierarchical internal organization of enterprises to an alternative cooperative organization. Key drivers of unequal distributions of income are

  • the major shareholders and
  • the boards of directors they select to run the capitalist corporations at the top of the economic pyramid.

Those two groups together basically decide how to distribute their enterprises’ profits. When large shares of those profits go to shareholders as dividends and to top executives as pay packages, they widen income inequality. When these two groups reduce the demand for workers (for example, by relocating production abroad or via automation), they usually slow or stop wage growth and thereby widen income inequalities. The last several decades exhibit many of just such decisions.

Consider then the alternative organization of worker coops, or, more precisely, worker self-directed enterprises (WSDEs). In such enterprises, each worker has two job descriptions. First, he/she has assigned tasks in the enterprise’s division of labor. Second, he/she participates in the democratic decisions by all workers about what, how and where to produce and how to distribute the enterprise’s profits. In WSDEs, workers comprise their own boards of directors.

Their decisions would need to be reached together with those of the residential communities that comprise each enterprise’s geographic hosts and customers.

Workers’ pay in WSDEs would likewise have two portions. Wages for each individual’s specific labor, the first portion, could still vary based on skill level, education, the enterprise’s need to attract and retain particular job-holders and so on. On the other hand, a more egalitarian distribution of the enterprise’s profits among all employees would make the second portion of each employee’s total pay contribute far less inequality to the society-wide distribution of income than capitalist corporations now do.

Bringing democratic decision-making into the core organization of enterprises provides the best chance for a less unequal initial distribution of income than is now common in most societies. A small, partial step in that direction – Germany’s system that gives workers a significant influence on large enterprise boards, dividends and executive pay packages – shows salutary effects on income inequality. Transition to an economy where many enterprises were organized as WSDEs would likely proceed further in reducing income inequality.

Producer or worker coops have a long history in the United States and around the world. Many concrete examples exist from which to cull lessons for how to establish, operate and grow WSDEs. From small start-up enterprises to huge conglomerates like the Mondragon Cooperative Corporation in Spain (MCC operates its own university with courses on all aspects of cooperative enterprises), we have a solid basis for a transition toward more WSDEs. Imagine – alongside the Small Business Administration – a Cooperative Business Association that comparably leveled the competitive playing field between hierarchical and cooperative enterprises. After all, MCC went from 6 workers in 1956 to 100,000 today, outcompeting countless conventional capitalist enterprises along the way, even without Spain’s government leveling the playing field among competing enterprises.

richard wolffWe can do better than hierarchical enterprises and the resulting bitter and endless struggles over redistribution. By instituting cooperative enterprises, we can reduce the originally unequal distribution of income and thereby reduce the need for redistribution.

Richard D. Wolff

Republished with the author’s permission.

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Comments

  1. Ryder says

    It’s *easy* to make sure income distribution is more even… be sure that everyone has nothing…

    Take, and take, and take… until there is just enough to survive on, and we will have equal “distribution”.

    Not an especially worthy goal…

    Right now, we are redistributing from people that worked hard to advance themselves… through long years at school and great effort… and their money is being sent, all too often, to poorly educated women so that they can have children into a broken home, and then send them to broken schools… and eventually they end up in prison (paid for by guess who), or doing just what their mother did.

    This little piece of utopia is carved directly from the book of redistributed income… and one has to wonder if redistribution is really any kind of a solution to anything at all.

  2. JoeWeinstein says

    Workplace democracy is NOT ‘better’ than ‘re’-distributing income. It’s another and valuable process which may help equalize income but also does other good things in and of itself.

    Properly viewed, workplace democracy and government-implemented income-entitlement are NOT mutually exclusive but rather BOTH are desirable, for reasons which partly coincide but partly differ.

    The article notes that arrangements for ‘redistribution’ – more accurately, for government-implemented income entitlement – will always have (and generate) opposition, but the same too can be said about arrangements for workplace democracy.

    I will be the first to advocate and the last to diss genuine workplace and corporate democracy – because in fact we need more genuine democracy BOTH in the workplace (and in ownership decisions involving large private enterprises generally) and in public affairs. A major reason we have accepted a lack of democracy in the workplace and in the corporation is that our model for public affairs is deliberately and constitutionally (per the 1787 US Federal Constitution) anti-democratic. This model features decision-making by a selected and pampered elected and appointed political oligarchy (a system which likes to call itself ‘representative democracy’ in order to fallaciously appropriate the ingratiating term ‘democracy’).

    However, that said, if you actually want to ensure results – not merely a process that might yield results – nothing beats actual income entitlement. Notice, I say entitlement, not ‘re’-distribution. ‘Re’-distribution hints at a zero-sum process, but (as Keynes will inform us) that’s not how income entitlement need work. Done right, and at the right level, guaranteeing a minimum sufficient annual income will stimulate the economy so that the great majority of folks will come out ahead by being taxed a little more in order to fund the entitlement. (‘Re’-distribution implies that we can pay Paul only by robbing Peter, but in fact taking a bit from Peter to ensure a minimum for Paul may actually result in Peter more than getting his money back.)

    Toward the basic aim of more income equality, a government-implemented income-entitlement offers another advantage too, in comparison with reliance for that aim primarily on other strategies like workplace democracy. Namely – like Social Security and unlike the USA’s silly pre- and now post-Obamacare med-insurance schemes – income-entitlement will be portable, and not tend to tie folks to a single workplace (‘democratic’ or other).

  3. Harry says

    In 1980, while on a week long business trip to the Baltimore Harbor area, I stayed at a hotel in the harbor area that cost $10 a night more than my expense account would allow. It was the best deal I could find and I thought to make that up on the cost of my meals.

    Each day, I walked the six blocks from my hotel to the conference site. On the way, I noted what appeared to be a homeless person asking for money, wrapped up in his blankets. When walking to dinner on the third day, I stopped and asked him if I could bring him a plate of food on my way back. He declined and I offered more than once.

    We had a late session on Thursday and I did not leave for my hotel until after six. I stopped to get myself a dinner to go and noted he was not at his normal location. I asked my hotel clerk if he knew of the man and he said yes. His question to me was about a car. The clerk wanted to know if there was a light
    green Cadillac parked near him on the street? I told him it was on the way to the conference but not today on the way back.

    The clerk had known Roy for years, knew where his home was, and even knew the name of the man’s wife and where she worked. The clerk told me this was the Roy’s only job and he was making over $250 a week tax free begging for money at that site.

    I have offered meals to what appeared to be homeless men begging at interstate exchanges. As you can image, there are always places selling food at these locations. I am never able to give away a meal, they only want money. So I have found a different way to feed the homeless. I give a lot of money to the Salvation Army and to the local food banks. They will make sure my money goes to needy folk and will do so cheaper than my government and I can always trust them to do a better job than our government. I wish our government was not in the business of dealing with the poor as it does not do the job as well as local charities. Sometimes I wonder if the government could do better if it were to contract out it’s charity duties to those who already do
    it better.
    Roy was making more than I was as a new college graduate with a computer degree and working for the federal government and I had to pay taxes. I wonder if Roy’s income increased over time as did mine. So much for the civil servant being over paid. I had a STEM degree and was making less than a man begging for money on the streets of Baltimore, plus I paid taxes.
    The government should go all out on creating tax payers. We need them in order to help those without jobs who end up being tax users..

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