April 20, 2024

Economix: Shared Capitalism

Today's Economist

Nancy Folbre is an economics professor at the University of Massachusetts Amherst.

Legend has it that Bob Montgomery, a left-leaning economist at the University of Texas at Austin in the 1950s, was once asked if he believed in private property.

“I certainly do,” he said. “I believe in it so much I think everyone in the state of Texas should have some.”

It’s such an ecumenical line that President George W. Bush used it to good effect in a 2004 speech. The basic idea begs for extension: If capitalists are so great, shouldn’t everybody be one?

The term “shared capitalism” is a catchall for a variety of arrangements that businesses can make to share profits with a large number of employees, whether through stock ownership or incentive pay based on company performance.

The adjective carries some subversive tang, if only because it suggests that capitalism, unqualified, is unshared. An alternative term, “inclusive capitalism” sounds less overtly egalitarian but also implies an unspoken opposite: exclusive capitalism.

The choice of terms matters less than the evidence that real wages have stagnated for most workers in the last 30 years, while economic growth has pumped up the incomes of the top 1 percent.

Many Americans long for more evenly shared prosperity, and a new wave of economic research suggests that more gain-sharing in large companies could help us move in that direction.

An important collection of essays edited by the economists Richard Freeman, Joseph Blasi and Douglas Kruse and published last year by the National Bureau of Economic Research documents several crucial  points: about half of all private-sector workers already have some kind of sharing arrangement with their employers; sharing tends to make employees happier, more productive and better off, as long as they do not take on too much risk by over-investing in the company they work for, and companies often benefit as well, showing improved performance along several different dimensions.

A conference on share ownership and gain-sharing at the Centre for Economic Performance at the London School of Economics last week explored related themes, including macroeconomic implications. A presentation by Douglas Kruse and my colleague at the University of Massachusetts Amherst Fidan Kurtulus analyzes a large national sample of publicly traded companies in the United States from 1999 to 2008, offering evidence that companies with employee ownership showed greater employment stability in face of economic downturn.

In other words, workers at such companies were less likely to lose their jobs.

How could public policies promote and expand this shared capitalism? Public policies already offer companies tax benefits for setting up employee stock-ownership plans, and these could be increased. It would also be relatively easy to encourage companies to offer more workers incentive pay based on company performance.

In a report published by the Center for American Progress in March, Professors Freeman, Blasi and Kruse point to a strange anomaly in current tax policy: Companies are allowed to write off costly stock options that represent incentive pay for top executives, despite a lack of evidence that such incentives lead to improved company performance.

Why not restrict the tax benefits to companies that provide the same type of incentive pay for all full-time employees, stipulating that the value expended on the bottom 80 percent of employees by salary must equal at least that expended on the top 5 percent?

Similar restrictions have long been in effect for employee retirement and health plans. The costs of these programs are not tax-deductible unless they are offered in a nondiscriminatory way to all workers.

Private-sector precedents are also strong. Two very successful American companies, the Wegmans supermarkets and Cisco Systems, offer broad-based incentive systems that effectively meet these restrictions.

If America’s capitalists mean what they say about the virtues of an ownership economy, they should throw their weight behind modest changes in tax incentives that could expand it. If they don’t, we might infer that they prefer to keep the benefits of ownership to themselves.

Article source: http://feeds.nytimes.com/click.phdo?i=3d620a395f6a1b4f7ee12cd2bfdc7dd3

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