- any companies with more than a billion dollars in revenue must have a Federal charter, which can be revoked by bureaucrats at the request of state attorneys general;
- have 40% of their directors be elected by the employees, and
- basically must act like nonprofits, with a board that must “manage or direct the business and affairs of the United States corporation in a manner that seeks to create a general public benefit; and balances the pecuniary interests of the shareholders of the United States corporation with the best interests of persons that are materially affected by the conduct of the United States corporation”, yada yada yada.
The reasoning proffered is typical of the shallow thinking endemic among socialists. (Matt Yglesias, for example, wearing about fifteen pairs of rose-colored glasses, says that it will “redistribute trillions of dollars from rich executives and shareholders to the middle class — without costing a dime”) It goes:
- people will be able to vote themselves more money from companies, or sue them about it; and
- this kind of thing already exists in Germany and the Scandinavian countries and works fine.
As is usual in these days of autohagiography and rationalization, the interesting reactions are in opposition. Megan McArdle ripostes that 40% isn’t a majority, and that Scandinavia is poor evidence as to what’s possible in other countries, because the basis for all of its societal solutions is extremely high levels of social trust that most countries, including the United States, don’t have and can’t easily get. Kevin D. Williamson’s piece is about the cynical political-science aspect. “Progressive neo-feudalism” is the theme of Robert Tracinski’s piece in National Review, because the companies’ Federal charters could be revoked upon the request of state attorneys-general, turning the companies into their vassals.
The reason I see why it can’t work is a bit more basic.
First, the artificially inflated portion of wages come out of economic surplus. There is a limited amount of economic surplus, based on a finite amount of economic activity and a finite quantity of goods and services sold, all of varying profitability. “It is not the employer who pays wages,” wrote Henry Ford, in his classic book My Life and Work
. “He only handles the money. It is the product that pays the wages and it is the management that arranges the production so that the product may pay the wages.” Most products are commodities, which means that there’s a race to the bottom on prices and that the businesses making them have very low profit margins to begin with. (See, for example, this post
by CoyoteBlog, whose small business runs campgrounds.)
So, who gets that surplus? The best illustration of that situation comes from a very different Warren: Buffett. In one of Fortune magazine’s most famous articles, he talks about the percentage of earnings taken by government taxation as if Federal, state and local taxation powers were superior classes of stock that get paid before the real shareholders, which is an excellent way of thinking about it:
“Investors in American corporations already own what might be thought of as a Class D stock. The Class A, B, and C stocks are represented by the income-tax claims of the federal, state, and municipal governments. It is true that these “investors” have no claim on the corporation’s assets; however, they get a major share of the earnings, including earnings generated by the equity buildup resulting from retention of part of the earnings owned by the Class D shareholders. … Whenever the Class A, B, or C “stockholders” vote themselves a larger share of the business, the portion remaining for Class D — that’s the one held by the ordinary investor — declines.“
The “wages” of unionized employees (or employee “owners”) are essentially yet another class of stock, one which comes before any of the above “classes”, amounting to yet another “share of the business” which under Elizabeth Warren’s proposal they would have a significant ability to vote to increase.
Yglesias agrees that doing this– creating political owners, reducing the take for economic owners– would cause stock prices to decline. That’s what happens when “owner earnings” go down. Where he’s crazy here is in thinking they’d decline only 25%. He is surely aware of the “tragedy of the commons
” but appears to have turned off his brain. Most people are greedy, stupid and shortsighted, and if this proposal were enacted and worked as intended, they would swiftly vote themselves, and consume, the seed corn. Then they would whine. I can only suppose that Yglesias thinks that Leftist Mandarins would have the backbone to stand in their way. No one with a brain would own shares of a company whose remaining profits depend on the self-control and forbearance of policymakers like either group. Vitally, neither would they lend to it, except under exorbitant conditions.
Old-time Yankee inventors were famous, in American myth, for trying to invent a perpetual-motion machine. Their intellectual heirs are today’s Left.