Inštitut za ekonomsko demokracijo

Disastrous wealth inequality and the role of employee ownership

Wealth Gini

By now, we have become close-to immune to hearing about the unsustainable levels of inequality plaguing our society. But it gets even worse – most of the academic and public policy research focuses on the income inequality, while it neglects the much more radical wealth inequality (inequality in personal savings, ownership of financial assets, or productive capital).

On his blog, Michael Roberts writes:

“In 1912, Italian sociologist and statistician Corrado Gini developed a means of measuring wealth distribution within societies known as the Gini index or Gini coefficient: its value ranges from 0 (or 0%) to 1 (or 100%), with the former representing perfect equality (wealth distributed evenly) and the latter representing perfect inequality (wealth held in few hands).

And when you use the gini index for both income and wealth for each country, the difference is staggering. Take a few examples. The gini index for the US is 37.8 for income distribution (pretty high), but the gini index for wealth distribution is 85.9! Or take supposedly egalitarian Scandinavia. The gini index for income in Norway is just 24.9 but the wealth gini is 80.5! It’s the same story in the other Nordic countries. The Nordic countries may have lower than average inequality of income but they have higher than average inequality of wealth.

The question is which drives which? This is easily answered. Wealth begets wealth. And more wealth begets more income. A very small elite owns the means of production and finance and that is how they usurp the lion’s share and more of the wealth and income.

Moreover, wealth inequality has risen, mainly as the result of the increased concentration and centralisation of productive assets in the capitalist sector. The real wealth concentration is expressed in the fact that big capital (finance and business) controls the investment, employment and financial decisions of the world. A dominant core of 147 firms through interlocking stakes in others together control 40% of the wealth in the global network according to the Swiss Institute of Technology. A total of 737 companies control 80% of it all. This is the inequality that matters for the functioning of capitalism – the concentrated power of capital.

What that means is that policies aimed at reducing inequality of income by taxation and regulation, or even by boosting workers’ wages, will not achieve much impact while there is such a high level of inequality of wealth. And that inequality of wealth stems from the concentration of the means of production and finance in the hands of a few. While that ownership structure remains untouched, taxes on wealth will fall short too.”

One of the major social roles of economic democracy is the decentralization of these vastly concentrated levels of wealth inequality. A recearh by Rutgers Institute in 2019 showed that ESOPs in the US have decreased wealth inequality, which implies that employee ownership has a huge potential to further the anti-inequality agenda. The study finds that:

(a) The average wealth for the low and middle income worker in the US is $17,000, while the average wealth for the comparable ESOP employee is almost 10-times higher at $165,000.
(b) There is a similar, more than a ten-fold difference in retirements savings for the low and middle income workers.
(c) ESOP employees enjoy much lower racial and gender wealth inequalities relative to workers of non-ESOP companies.
(d) A great number of ESOP employees managed to receive loans based on being co-owners of their companies, which helped them to pay off student debts, medical bills, and send their children off to schools.

These results are encouraging to say the least. And while economic democracy is not receiving nearly as much publicity as it deserves, it seems that its time to shine is soon to come (if not …).



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