Inštitut za ekonomsko demokracijo

Thomas Piketty: “We need to share power”

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Two central intellectual authorities on economic inequality, Branko Milanović and Thomas Piketty, have now both proposed some form of economic democracy to decrease the pervasive inequalities of the 21. century. 

Before the reader starts rolling her eyes pointing to the empirical fact that most Europe – and Slovenia especially – is experiencing relatively low levels of (labour) income inequality, we should note that the major problem are actually wealth inequalities.

Branko Milanović shows that “the Gini concentration of income from capital in all rich countries is astonishingly high, in the range 0.85-0.95, almost twice as high as the Gini from labour incomes.” Obviously, this would not be a problem if less-paid workers were on the receiving end of larger capital income shares.

Even more obviously – they are not. When capital income inequality is coupled with fact that “capital income, even if underestimated in household surveys or tax data, is 15% of total income of the highest decile in the US, and is negligible among the bottom deciles”, we get vicious cycle of perpetuating inequalities. 

Milanović has throughout his work called for capital decentralization. He talks about employee ownership as a potential policy to decrease wealth concentration:

Workers should be encouraged through the existing mechanisms, like employee stock ownership plans, to become the owners of the companies in which they work. Obviously, when they leave they could choose to sell their shares, but the experience of having had some equity (acquired perhaps at preferential rates) may make them more willing to continue investing. In other words, the working class and small investors should enjoy the same tax and other advantages that today are granted only to the rich.”

And while such proposals have been in the forefront for Milanović, he was only more recently joined by another inequality mastermind, Thomas Piketty. 

In his seminal Capital for 21. Century (2013) Piketty provides a convincing case that markets will tend to produce inequalities if not for some structural changes to the way economy is organized. At the time, he maintained that the conventional, post-Blair social democratic after-the-fact government redistribution measures are sufficient to keep inequalities in check.

However, in his latest book Capital and Ideology (2019) he makes a stronger political case against inequality. Piketty joins Milanović and acknowledges that inequality can only be pushed against by fighting its causes – concentrated capital ownership.

In a recent interview for Social Europe Piketty argues that businesses should be democratized by including employees into ownership and governance structure of the companies where they work. He gives an example of co-determination in Germany, Sweden, and some other European countries, where the law requires corporations to guarantee board seats to employee representatives and some kind of programs of employee (or local government) share ownership.

It was pretty successful in Germany and Sweden. I don’t want to idealise the system but it has to some extent made it possible to involve workers in the long-run strategy of companies, in a way that is not perfect in Germany or Sweden but is a bit better at least than in France, Britain and the US.

We can go further in this direction, so the first pillar of participatory socialism I propose is to say ‘Okay, let’s extend this co-determination system to all countries’—all countries in Europe to begin with but all countries in the world, ideally. Let’s also extend it to small companies and not only the large companies where it applies in Germany. In Sweden it applies to a bit smaller companies but the very small companies are excluded. Let’s apply it to all companies, no matter the size, and let’s go further by assuming, for instance, that with the 50 per cent of the vote going to shareholders, a single shareholder cannot have more than 10 per cent of the vote in large companies—say of over 100 workers.

The general idea is that we need to share power. We need more participation by everybody. We live in very educated societies, where lots of people—lots of wage-earners, engineers, managers, technicians—have something to contribute to decision-making in the company.

Economic inequality is rising. Great number of people continue in their struggle to meet their ends. Even in the richest countries in the world. Robert Owen, a great industrialist from the 19. century understood that while necessary, social programs by the government are not sufficient in the long run. When labor is in the role of opposition, capital’s coalition will always be stronger. What needs to be changed are underlying property relationships in the economy. 

Inequality, coupled with environmental disasters, hyper-globalization, 4th industrial revolution and automation, the rise of right-wing populism, domination of speculative financial instruments and their negative effects on real economy, retiring generation of owners of SMEs, rural depopulation, and everything else, calls for a serious economic alternative.

Is it the time for economic democracy? We certainly think so.

 

Author: Tej Gonza

 

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