As long as the employee-owned sector remains only a small part of the whole economy, it cannot use very different pay scales from other companies. If employee-owned companies paid junior workers more than other companies, and the most senior staff less, then the junior staff would never leave and senior ones would be harder to recruit. However, as the employee-owned sector became larger, people’s norms and values about what are appropriate rates of pay for different jobs, and what differentials are acceptable, would change. We might at least move towards the norms of the public and non-profit sector. And if there was no longer a set of hugely wealthy private sector bosses inviting comparisons and making people think such salaries could be justified, the non-profit sector might itself become more egalitarian. Perhaps it is time we moved away from a world in which people regard maximizing personal gains as a laudable aim in life.
David Erdal, former chair of the Tullis Russell Group and Director of the Baxi Partnership, once studied the effects of employment in co-operatives on the communities in which they were situated.393 He compared three towns in northern Italy: Imola, which has 25 per cent of its workforce employed in co-operatives, Faenza, where 16 per cent work in co-operatives, and Sassuolo where there are no co-operatives. On the basis of rather a small survey and low response rates, he concluded that health, education, crime and social participation were all better in the towns with a larger proportion of the population employed in co-operatives.
As a way of creating a more egalitarian society, employee-ownership and control have many advantages. First, it enables a process of social emancipation as people become members of a team. Second, it puts the scale of earning differentials ultimately under democratic control: if the body of employees want big income differentials they could choose to keep them. Third, it involves a very substantial redistribution of wealth from external shareholders to employees and a simultaneous redistribution of the income from that wealth. In this context, that is a particularly important advantage. Fourth, it improves productivity and so has a competitive advantage. Fifth, it increases the likelihood that people will regain the experience of being part of a community. And sixth, it is likely to improve sociability in the wider society. The real reward however, is not simply to have a few employee-owned companies in a society still dominated by a hierarchical ideology and status-seeking, but to have a society of people freer of those divisions. And that can only be achieved by a sustained campaign over several decades.
Rather than being compatible with just one system of management and work organization, employee-ownership is highly flexible. It merely puts ultimate authority in the hands of employees to develop whatever systems they find work best. This enables systems to evolve to suit any situation. Systems of work teams, of directors elected for longer or shorter periods, of departmental representatives, of company trustees, of anything from weekly to annual company meetings, could all be tried from place to place. Power could be delegated, or exercised directly by the body of voting employees. Gradually people would learn the strengths and weaknesses of different structures and what forms of democracy best fitted the public and private sectors and how to represent the interests of consumers and local communities.
However, to ensure that the number of employee-owned workplaces increases, it is essential that they are constituted – as they easily can be – in ways which prevent employees from selling their companies back to external shareholders. Although most are adequately protected, there have also been cases of sell-outs in which companies have been lost to employee-ownership and control.
As a means of transforming our societies, employee-ownership has the advantage that it can (and does) exist side by side with conventional business structures. New and old forms of business can coexist: with the right legal support and tax incentives the transformation of society can start straight away. It enables us to embark on a fundamental transformation of our society through an orderly transition, making the new society grow within the old. Governments can give additional incentives and support to encourage employee share-ownership. Companies might be required to transfer a proportion of shares each year, and retiring owners might sometimes be willing to pass their companies to employees.
Although employee-owned and controlled industry need not involve local community and consumer representatives on the governing body, that is a fault which can easily be remedied. It might also be said in opposition to employee-ownership, that it does nothing about the basic amorality of the market. The desire to earn a bigger profit would still lead companies to act in anti-social ways, however they were controlled. As well as some highly ethical companies operating in the market supporting fair trade, the environment, giving to local communities, etc., there are, at the same time, also companies trying to expand markets for tobacco in the developing world in the sure knowledge that they will cause millions of extra deaths. There are companies which have caused needless deaths by encouraging mothers in developing countries to buy powdered baby milk instead of breast feeding, despite lack of access to clean water or basic hygiene. There are others which continue to destroy ecosystems, land and water supplies, to exploit mineral resources where governments are too weak or corrupt to stand up to them, and still others use their patents to prevent life-saving drugs being sold at affordable prices in poorer countries.
There are reasons to think that employee-owned companies might maintain higher standards of morality even with the profit motive. In conventional employment people are specifically hired to work for purposes which are not their own. They are paid to use their expertise to whatever purpose their employer chooses. You might disagree with the purpose to which your work is being put, you might not even know what the purpose is, but you are not employed to have opinions about such things and certainly not to express them. Such issues are not your concern. If you are hired to advise on how your company can expand its markets, improve profits, avoid press attention, the chances are that you are not being asked for an ethical opinion. You are hired to put your expertise to work to serve someone else’s purpose. Not only are the purposes not your responsibility, but as an employee you are likely to feel absolved from responsibility for them. This is why people have so often disclaimed responsibility for what they were doing by saying that they were ‘only carrying out orders’. The famous Milgram experiments showed that we have such a strong tendency to obey authority that it can result in us doing some pretty awful things. In what was presented as a ‘learning’ experiment, Milgram showed that people were willing to deliver what they believed were not only very painful, but also life-threatening electric shocks to a learning partner whenever the partner gave the wrong answer to a question. They did this at the request of a man in a white coat conducting the experiment, despite hearing what they thought were the screams caused by the shocks they delivered.394
However, within a framework of employee-ownership and control, people specifically regain ownership and control of the purposes of their work. If, for instance, you get to know that some aspect of a design or manufacturing process is harming children’s health, you would want to change it and would probably start by finding out what colleagues thought about it. There would not be the same pressure to keep your doubts to yourself. Nor would you be able to shrug it off, dismissing it as none of your business. Neither would you fear that your job would be in jeopardy if you raised awkward questions. Although employee-owned firms would not be above all anti-social behaviour, it is likely that they would succeed in making it at least a little less common.
FREEDOM AND EQUALITY
The idea that we can’t have both liberty and equality seems to have emerged during the Cold War. What the state-owned economies of Eastern Europe and the Soviet Union seemed to show was that greater equality could only be gained at the expense of freedom. An important ideological cost of the Cold War was that America gave up its historical commitment to equality. For the first Americans, as for Tom Paine, you couldn’t have true liberty without equality. Without one
you could not have the other. Slavery, as the simultaneous denial of both, proved that rule. Equality was the bastion against arbitrary power. This was expressed in the historical demand for ‘No taxation without representation’, and ‘No legislation without representation’. The American Declaration of Independence says that all men are born equal and endowed with liberty as an inalienable right, just as the French revolutionaries demanded liberty, equality, fraternity.
The complementarity of liberty and equality has been proclaimed in the writings of many democratic thinkers, including the social philosopher L. T. Hobhouse, who believed that liberty depended, in all its domains, on equality – equality before the law, equality of opportunity, equality of parties to a contract.395 Employee-ownership provides a way of increasing liberty and equality together.
RUNNING WITH THE TECHNOLOGICAL TIDE
In her book, The Weightless World, Diane Coyle points out that although people in most industrialized countries experienced something like a twentyfold increase in their real incomes during the twentieth century, the weight of all that was produced at the end of the century was roughly the same as it had been at the beginning.396 She also says that the average weight of one dollar’s worth of US exports (adjusted for inflation) fell by a half between 1990 and 1996. While the trend towards ‘weightlessness’ is partly a reflection of the growth of the service sector and the ‘knowledge’ economy, it is also a reflection of changing technology and the trend towards miniaturization. That so much of modern consumption is actually lighter on the use of material resources than it was, is presumably good news for the environment. But the underlying nature of the changes contributing to weightlessness may also have important implications for equality.
Introductory economics courses teach students the distinction between the ‘fixed’ costs of production on the one hand, and ‘marginal’ or variable costs on the other. Fixed costs are the costs of the factory buildings and machinery, and the variable costs are the additional costs of making one more unit of output – traditionally made up largely of the costs of the additional labour and materials needed, on the assumption that the plant and equipment are already there. Economic theory says that prices in a competitive market should fall until they equal marginal (or variable) costs. Prices higher than that would mean that by producing and selling more, a manufacturer could still earn a little more profit, whereas at a lower price making even one more item would add more to costs than it gained in income from sales.
Throughout large swathes of the modern economy technological change is rapidly reducing variable costs. For everything that can be copied digitally, additional copies cost little or nothing either to produce or to distribute over the internet. This applies to all music, to all computer software and games, to films, to all books and to the written word in any form, to all information and to pictures. That covers a large part of what is produced for entertainment and leisure, for education at all levels, and for many economic and professional applications of computer software – whether for stock control, statistical analysis or computer-aided design.
So low are marginal costs of digital products that there is a growing ‘free’ sector. Efforts are made to enforce patents and copyright protection in an attempt to restrict access and enable companies to hold on to profits; but the logic of technological progress is difficult to resist. Systems of copy protection codes are cracked and goods ‘liberated’. In some cases free access is supported by advertising, in others it is genuinely free, as with ‘freeware’ or ‘shareware’ computer programmes. The internet has already provided free access to almost unlimited information, not only books, encyclopaedias, dictionaries, newspapers, but increasingly to on-line journals. Whether legally or not, music and films are downloaded free. Some service providers now provide unlimited free storage space. Phone calls can cost only a fraction of what they used to and, when using computer links, are increasingly free. Emails and instant messaging also provide effectively free communications.
Though less dramatic than in the digital economy, the trend towards rapidly diminishing variable costs may also apply to many other areas of technology, including the products of nano-technology, biotechnology, electronically printed components and genetic engineering. These new technologies hold out possibilities of more efficient solar power, cheaper medicines and more economical new materials.
From the point of view of many of the companies producing digital products, the changes have not appeared as new opportunities for enhancing human life and enjoyment, but as profound threats to profits. Instead of maximizing the benefits of the new technologies, we find ourselves with institutional structures which have fought to restrict this new potential. The dramatic lowering of variable costs puts a rapidly widening gap between the maximization of profit and the maximization of public benefit. In this situation it is important that governments use their powers to aid the development of new institutional structures, not to prop up and defend the restrictions of the old ones.
It used to be argued that goods for which the marginal costs were close to zero were inherently public goods and should be made publicly available. Before the digital era, bridges and roads were commonly used examples. Once society has incurred the capital costs of making a bridge or road, maximum benefit from the initial investment is gained only if use is unrestricted by charging. Hence, people should be allowed free access. The need to provide unrestricted free access in order to maximize the public benefit was offered as an economic explanation of why roads and bridges were in public ownership – until governments began to try to recoup the costs of road building by charging tolls.
Once the capital cost has been incurred, the more people sharing the benefits the better. Where municipal investment provides local internet access, there is no need to restrict access to it. When the Victorians established free public libraries they recognized the same logic: a book can be read repeatedly at no extra cost. Perhaps we need public bodies and non-profits, funded from public revenue, able to negotiate a price at which to buy access or copyrights for the nation. Perhaps we need international bodies able to negotiate free access to educational and business resources throughout the world. From the point of view of society as a whole, the tendency for technological change to reduce marginal costs is rapidly tipping the balance of advantage away from allowing profit-maximizing corporations to control the distribution of goods. Increasingly they can only rely on the remnants of monopolistic power provided by patents or copyright. We need to find new ways of paying organizations and individuals for life-enhancing research, creativity and innovation – the geese which lay the golden eggs – which does not then restrict access to the benefits. Perhaps we need charities to fund the development of software for free worldwide use. We certainly need a complete revision of copyright and patent laws so that those who produce valuable goods and services can be paid in ways which do not restrict access to their products.
The question for politicians and the public is whether it is possible to find ways of paying corporations for their research and development without trying to police a pricing system which restricts access to the benefits of what they have produced – benefits which may include life-saving drugs, agricultural innovations which could feed the hungry, and access to scientific and academic journals for universities in the developing world. If it is correct to think that new technology tends increasingly to lower variable costs, then this problem will become increasingly pressing.
Perhaps the logic moves us towards a society in which access to an ever-increasing range of goods is no longer tightly rationed by income, and our possessions cease to play such an important role in social differentiation. We might hope that we will start to experience ourselves primarily as unranked members of the same society brought together in different combinations according to our various shared interests.
THE FUTURE OF EQUALITY
Caught up in day-to-day events, it is easy to forget that a longer view reveals an almost unstoppable histori
cal trend towards greater equality. It runs like a river of human progress from the first constitutional limitations on the ‘divine’ (and arbitrary) right of kings, and continues on through the slow development of democracy and the establishment of the principle of equality before the law. It swells with the abolition of slavery and is strengthened by the extension of the franchise to include non-property-owners and women. It picks up pace with the development of free education, health services and systems of minimum income maintenance covering periods of unemployment and sickness. It runs on to include legislation to protect the rights of employees and tenants, and legislation to prevent racial discrimination. It includes the decline of forms of class deference. The abolition of capital and corporal punishment is also part of it. So too is the growing agitation for greater equality of opportunity – regardless of race, class, gender, sexual orientation and religion. We see it also in the increasing attention paid by lobby groups, social research and government statistical agencies to poverty and inequality over the last fifty years; and most recently we see it in the attempt to create a culture of mutual respect.
All are different manifestations of growing equality. And, despite differences in political opinion, there are few people who, when looking back on these historical developments, would not regard them all as welcome. The historical forces underlying them ensure that these are changes which a large majority will want to continue. That this river of human progress is occasionally briefly dammed up, or we experience eddying currents, should not blind us to its existence.
The relationships between inequality and the prevalence of health and social problems shown in earlier chapters suggest that if the United States was to reduce its income inequality to something like the average of the four most equal of the rich countries (Japan, Norway, Sweden and Finland), the proportion of the population feeling they could trust others might rise by 75 per cent – presumably with matching improvements in the quality of community life; rates of mental illness and obesity might similarly each be cut by almost two-thirds, teenage birth rates could be more than halved, prison populations might be reduced by 75 per cent, and people could live longer while working the equivalent of two months less per year.
The Spirit Level: Why Greater Equality Makes Societies Stronger Page 24