The right to self-ownership and self-governance is perhaps the most fundamental of all human rights. Any system which seeks to delegate this right to some higher authority figure — whether it be a political administration, a corporate boardroom, or a clergy — faces a heavy burden of proof in justifying its imposed hierarchy. At times, such delegation of power may indeed be justifiable. But even then, such an arrangement must remain accountable to those whom it presides over, so that their right to self-governance is not undermined. In order to retain its legitimacy, such a system must be democratically controlled.
That’s one of the founding principles of the United States, defined decisively in the political realm by the American Revolution. Our nation’s founders recognized the need for the existence of a federal government, and acknowledged its potential power to improve their lives — but they were willing to fight to ensure that such a significant concentration of power would come with an equally significant level of accountability to those whom it served. The crucial element of their battle cry was not “no taxation,” but rather its qualifier “without representation.” The revolutionaries knew that accountability mattered. They knew that powerful hierarchical institutions could not be trusted to police themselves, or to keep their own power in check. And so, recognizing that these institutions could not — and should not — be merely abolished, they instead demanded that they be democratic, so that they could then be used as tools for good, rather than as instruments of oppression and tyranny.
This concept of democratic control over our most powerful institutions — in other words, self-governance — was something that the revolutionaries were willing to die for; and indeed, it is a principle which we proudly hold in the highest regard today. We cherish our democratic freedom above all other political considerations.
And yet…
All too often, we do not feel free. We spend our entire waking lives toiling away at jobs we hate, missing out on time with our friends and family, simply to be able to afford our own existence. We work ourselves to the bone just to make ends meet, thinking, “This isn’t how my life is supposed to be going. I work hard; where’s my American Dream?” And at the end of the day, we are too exhausted to “enjoy our freedom” at all — we have only enough energy to collapse in front of the television for a couple of hours before going to sleep and beginning the whole cycle anew the next day. Is this what freedom really looks like?
The truth is that we are not as free as we might like to think. True, we enjoy a significant level of political freedom — no small matter. But the political realm is not the only area of our lives in which freedom and democracy are relevant — and it is not the only area in which large, unaccountable institutions of authority threaten our personal autonomy. Indeed, despite our pride at living in a “free” society, we spend roughly half of our waking existence living under what is unmistakably an authoritarian model — in our workplaces. This is something which we rarely pause to consider; but if you are a typical American wage laborer, cutting steel or waiting tables, you walk into a dictatorship the moment you punch your timecard (to paraphrase Jacque Fresco). You receive orders regarding how you must dress, when you may eat, when you are permitted to go to the bathroom, and how you must interact with other people; you are monitored in all of your conversations and activities (you certainly have no “right to privacy”); and you have no personal say over your speech, your behavior, or your values. Your values are to maximize profit for the company’s owners. Your behavior is engineered to maximize profit for the company’s owners. And things like due process, protection against unreasonable search and seizure, and freedom of speech simply do not exist for you if you wish to preserve your livelihood. Your democratic freedoms, in other words, stop at the company door.
It’s a strange paradox: despite our ardent commitment to defending democracy when it comes to government, we Americans seem to have little trouble accepting authoritarianism in the private sector. It’s as if we believe that the suppression of basic human rights is perfectly acceptable as long as nobody voted for the person doing the suppressing, and that authority figures can be as cruel and ruthless as they like as long as they are doing it for profit rather than for votes. Concerns about workers’ rights are typically dismissed with the justification that “business is business” — as if this justifies anything at all (imagine a king or a dictator trying to justify his autocratic rule by saying “politics is politics”) — and even the most vocal self-proclaimed “defenders of freedom” will often leap to the defense of corporations’ suppression of their workers’ personal liberties, loudly declaring with no sense of irony whatsoever that the free market must be permitted to do whatever it pleases.
But of course, the so-called “free market” is not actually free at all — not if democratic self-governance has anything to do with freedom. If anything, the internal governance structure utilized by our modern corporations more closely resembles the old medieval model of feudalism, wherein the lord of the estate would maintain sole ownership and control of the entire domain — and the serfs, having no land of their own, would only be able to survive by working the baron’s land for him and obeying his every command.
Under this system, the master would hold unilateral authority over his subjects, and thus would inevitably keep for himself the bulk of the wealth produced by their labor. As for the laborers themselves, the lord of the estate would grant them only a small portion of the fruits of their own labor — typically only enough to live on. Yet despite the fact that the serfs were the ones who had done the work, and thus produced this wealth, they did not protest; on the contrary, they were grateful to their lord for so graciously “allowing” them the opportunity to work for their own continued livelihoods. After all, it’s not as though they could go to work for themselves as independent farmers — the barons owned all of the land and controlled all of the means of production. Laborers had no recourse but to submit to their masters — workers who dared to raise their heads would lose everything (or, at best, they would be exiled to another feudal estate where the conditions were just as repressive). The aristocracy owned all of the land; therefore, the aristocracy held all of the cards. And so, lacking any leverage over their masters, the laborers would simply learn to live with their situation — convincing themselves that it was the way things were just naturally supposed to work, and that they were lucky to have any means of support at all.
This unfortunate state of affairs was even easier for the ruling elite themselves to rationalize. Not only did feudalism represent the natural order of things, they would claim — it was the most moral and just arrangement possible. After all, without the masters’ generosity, who would supply the serfs with the resources they needed to survive? The system would fall apart without an aristocracy to allocate work to their subjects; so if anything, the barons ought to be praised for their noble munificence, and for the necessary role that they played in providing their serfs with their livelihoods. The lords’ absolute power over their subjects was fully justified, they claimed; the laborers simply had no basis for demanding something so ridiculous as democratic control over the land where they lived.
Today, of course, we can see the overwhelming flaws inherent to this arrangement. But to what extent have we actually done away with the assumptions of feudalism — and to what extent has the system simply evolved into a more modern form?
The corporation as feudal estate
Consider the internal governance structure used by the modern corporation. Obviously, there are plenty of differences — but at the most fundamental level, the hierarchical configuration of the modern corporation is not all that different from that of the feudal estate. We use terms like “boss” or “owner” or “CEO,” rather than the more flagrant titles of “lord” or “master,” but the basic concept is the same: one person (or group of people) enjoys unilateral, autocratic authority over the rest. This person is not democratically elected by his subordinates. He cannot be voted out of office for mistreating them. He is completely unaccountable to their wishes. And in fact, he retains the power to strip his workers of their livelihoods at whim (by firing them), should they choose to contravene his will. As for the workers themselves — they have no say whatsoever over their position; they are simply told by the authority figure how much they will be paid, what they will be required to do in order to receive that pay, and under what conditions they will perform that work. They may attempt to negotiate for better terms — and if they are organized, they may even score some victories — but at the end of the day, their only two choices are either to submit, or to lose their only means of support.
Indeed, the structural parallels here between the governance system of the modern corporation and that of the medieval feudal estate are so significant that if we were to imagine a future in which laborers actually began living in barracks on company grounds, the distinction would become barely discernible at all.[1]
Feudalism, it seems, never actually went away after all — it was merely privatized.
[1] Not incidentally, even this scenario is quickly becoming a reality, as corporations are increasingly choosing to house their workers on-site. The most high-profile example, perhaps, is Foxconn, the Taiwanese company which manufactures our iPhones, Kindles, Xboxes, and other consumer electronics. The worker abuse there is so pervasive, and the depths of its workers’ misery so intense, that the company has had to erect an elaborate scaffolding of nets around the base of its factory to prevent suicidal workers from flinging themselves to their deaths from the building’s upper stories, as many have already done.
Taking for themselves what others have rightfully earned
Under such a blatantly authoritarian governance system, worker exploitation is inevitable — not just in terms of owners taking away workers’ rights, but also in terms of owners usurping for themselves the wealth produced by their employees’ labor. With no internal checks against the power of company owners to dictate everyone’s wages — including their own — it is all too common to see companies where the employees do all the work, but their bosses keep a disproportionate share of the resulting profits. Sitting at the top of the hierarchy, after all, means that members of the privileged owning class are free to pay themselves as much as they can get away with (taking money which would otherwise go to the workers whose labor actually generated it) — not because they’ve worked a proportional amount to justify such exorbitant pay, but simply because they are the ones making the rules. The satirical newspaper The Onion has quipped, tongue firmly in cheek, that “America is a place where even the poorest immigrant can, through hard work and dedication, achieve the American Dream for his employer.” But there is a painful truth to this statement. Regardless of how hard employees may work, they will never get to keep more than a fraction of the wealth produced by their labor; they will always have to forfeit the rest to their corporate masters. Indeed, at the end of the day, it makes no difference at all who does the work, or how much wealth is produced by that work. Workers are simply not entitled to the wealth which they produce — their bosses are. And consequently, just like the feudal barons of medieval times, the members of this new economic aristocracy grow ever richer off the labor of others, irrespective of their own level of contribution (or lack thereof).[2]
Faced with this troubling issue, business owners and executives may insist that there is nothing unjust about the arrangement at all. They may claim that they are fully entitled to their multimillion-dollar paychecks because they have earned them through hard work, and that the natural mechanisms of the free market are simply granting them what they’ve earned. For a few of them, this may even be partly true. But there is a big difference between someone who builds a company from the ground up, provides the seed money, and comes up with new innovations to help the business grow, and someone who is able to extract wealth from the company merely by virtue of being in charge of it, regardless of their contributions.[3] And too many of these tycoons belong to the latter category; they are only collecting such exorbitant sums because they are the sole party within the worker-owner relationship with the power to reward themselves in such a way.[4]
Indeed, it is absurd — maddeningly so — to argue that every single one of today’s billionaire CEOs and shareholders is paid thousands of times more than their subordinates because they’ve worked thousands of times harder, or for thousands of times as many hours. While these executives are lounging by their pools or yachting in the Caribbean, their factory-floor employees are often found working 70- and 80-hour weeks, with no vacation time at all, simply to pay for rent, groceries, and other necessities.
It’s not a matter of who works harder; employees already work as hard as they can. And it’s certainly not a matter of impersonal market forces working naturally; if it were, employee wages would be rising as employee productivity rose, rather than the surplus earnings being directed to executive bonuses and stockholder gains while worker incomes stagnate.[5] No, the real reason for this gross imbalance between work and reward is the decidedly anti-market corporate power structure — an authoritarian structure which violates both democratic rights and economic laws.
If owners truly wanted to let the market dictate their level of prosperity, they could put their money where their mouth is, and open themselves up to free competition and salary negotiation with their employees. If, after all, owners’ contributions to the corporation are as vital as they claim, then market forces should reward them accordingly; employees desperate to maintain a healthy level of pay for themselves would recognize how much their companies’ success depended upon the owners’ unique skills and expertise, and they would therefore vote to continue rewarding owners with the exorbitant profits to which they were rightly entitled. Owners who were allocating themselves more money than they actually deserved would see their pay cut, of course, but genuinely gifted leaders would thrive more than ever. It would be an equitable and market-based approach.
But obviously, we don’t see this happening — and it’s not difficult to imagine why.
[2] This form of unearned entitlement even extends to intellectual labor; when a worker comes up with a groundbreaking new idea, there is no guarantee that they will actually see a single dime of the wealth produced by their unique insight. Orwellian as it sounds, even workers’ thoughts and ideas are considered company property; thus, whatever benefits their ideas might produce go to the company — i.e., the company ownership — not to the workers themselves. Who actually came up with the idea is irrelevant. Whether owners actually have the right to claim wealth they did nothing to produce is irrelevant. All that matters is that the owners hold all of the power within the arrangement; so they take what they want. In other words, might makes right.
[3] Even this distinction, in fact, between “self-made” owners who have “earned” their wealth and others who haven’t, can be a misleading one. After all, if owners are justified in running their companies autocratically just because they worked their way up from “rags to riches,” does that mean that a medieval king would be similarly justified in ruling his country autocratically just because he started off as a peasant and worked his way up the rungs of power? Or would the personal history of the person at the top of the hierarchy be irrelevant in determining whether the authoritarian structure of the hierarchy itself is unjust?
[4] One of the more high-profile examples of this (though far from the only example) recently emerged with the case of former Home Depot CEO Bob Nardelli. As described by Jacob S. Hacker and Paul Pierson: “When Nardelli reaped a $210 million severance package upon his firing in 2007, even as the company’s stock fell, he became a poster child for the pay-without-performance world of executive compensation.” Nardelli had contributed nothing to the company — on the contrary, its share value had dropped by nearly a tenth while under his control — yet his severance package alone (never mind what he made while actually running the company) totaled more than a $10-per-hour Home Depot cashier could earn in literally ten thousand years of full-time work.
Nardelli is not alone; since 1978, CEO pay has increased a staggering 726.7%, while worker compensation has increased a mere 5.7%.
Apologists for the current system may claim that owner compensation isn’t really taking away all that much from workers, and that even a total redistribution of wealth from owners to workers would only add a few dollars to each worker’s income — but the numbers tell a different story. As Salvatore Babones writes:There are plenty of resources in America for everyone to live a very good life. There’s so much income generated every year in America that if we distributed it evenly the average household could be living on $100,000 a year. Even allowing for the kinds of inequality found in America in the 1960s and 1970s — CEOs making 40 times their workers’ salaries instead of 200 times — the average household could be bringing in $80,000 a year.
With this in mind, consider one more case in point: the fact that six members of the Walton family — heirs to the Wal-Mart fortune, who contributed absolutely nothing whatsoever to that company’s establishment — control more wealth than the bottom 40% of Americans combined. That’s six people, who did nothing to earn their wealth, controlling more wealth than 48.8 million American families — slaving away their entire lives in their minimum-wage jobs — combined. A minimum-wage Wal-Mart worker, earning $7.25 per hour, would have to work full-time for approximately 7 million years in order to accumulate as much wealth as the Waltons have ($102.7 billion). To put that in perspective: that means that someone who’d been working full-time since the time of Christ wouldn’t even be one-thirtieth of one percent of the way there by now.
(See also here for more comparisons illustrating just how ludicrous the disparity is (e.g. “The [typical American] minimum-wage worker would have to labor for nearly three years to make what [the top American executive] earns in an hour”).)[5] According to economist Enrico Moretti, American factory workers in particular have tripled their productivity since 1978. Yet in that same time frame, it is the income levels of the country’s richest 1% which have tripled in turn, while worker incomes have failed to rise at all.
No other choice
The deeper explanation for this problem, then, lies not in the “will of the free market,” but in what economists refer to as unequal bargaining power — meaning that while company owners can crush basic human freedoms and impose smaller paychecks on their workers simply by threatening to replace anyone who doesn’t accept their conditions, wage laborers have no such leverage over their employers; they must take what they can get. As Charles Johnson puts it, workers “are generally much more dependent on keeping the job than the boss is on keeping any one worker.” Owners may claim that workers can simply choose to reject employment which does not meet their needs and go work somewhere else, but workers who attempt to “shop around” for better deals often find that this supposed “alternative employment” does not exist (a 2011 report showed that there were roughly five job-seekers for every job opening in the United States) — and that of the prospective employers that do exist, all are offering equally inadequate wages and working conditions (more commonly, employers will simply refuse to disclose how much they pay their employees, making an informed decision impossible). Thus, these individual workers must rent themselves out to the owning class for whatever price they can get, regardless of the gross unfairness of the terms, due to the simple fact that they do not have any other options. Their survival depends on their having a job; so although assertions of “voluntary contracts” and “mutual agreements” may sound reasonable enough on paper, they ring hollow when applied to the real-world relationship between owners and workers. Employers can freely choose from a massive pool of needy job-seekers (or even put employment on hold altogether and simply run a smaller operation for a while) — but the job-seekers themselves enjoy no such luxury. Despite the fundamental unfairness of having to choose between a repressive job that pays next to nothing and no job at all, workers are routinely forced into this decision. And although the owning class may insist that since we have a free market, people are always free to act and make decisions as they choose, merely calling it a “free market” does not make it free — and merely asserting that employment contracts are mutual and voluntary does not make it so. Being poor and desperate means not always having a free choice in decision-making.[6]
This simple fact — that people constrained by dire circumstances do not always enjoy perfect freedom in their decision-making — is widely rejected by many in our society who have never experienced it first-hand; but it seems obvious when applied to other areas. For instance, few people today would seriously contend that any woman living hundreds of years ago was freely consenting to become her husband’s property when she married him; on the contrary, we recognize that these women would have had no choice in the matter, because there was simply no other form of marriage to choose from at the time. Likewise, we can plainly see in retrospect that medieval serfs weren’t working for their feudal lords because they completely agreed that the arrangement was a just one; they worked as serfs because that was the only way to support their own continued existence. The same could be said of laborers in 19th-century factories; they weren’t working 16-hour days and having their bodies ravaged and mutilated in unsafe sweatshops because they wanted to — they were forced into it by circumstance.
And the same is true of all too many workers today. Under our modern-day system of corporate feudalism, unequal bargaining power between owners and workers inevitably means that workers will be taken advantage of, and that they will have no choice but to accept the arrangement. We rarely think of our modern-day corporate system in such terms — despite our lingering awareness, just below the surface, that the worker-owner relationship is not a free one (we refer to workers colloquially as “wage slaves,” for example). But the truth here is unmistakable. Being forced by circumstance into accepting an exploitative situation does not make it any less exploitative.[7] And the corporate institutions which we commonly refer to as the foundation of a free market are, if anything, anti-freedom in nature. They enhance the well-being of the privileged few, no doubt, but at the expense of everyone else.
[6] As commenter pizzaeagle puts it: “It’s like if a person was drowning, and I had the only life preserver. I offer to save him, but only if he gives me his house, his car, and everything he owns. Both parties would agree to this deal, but does that make it fair?” Indeed, could the agreement really be said to have been anything other than exploitative?
(Credit also to commenter Law_Student, paraphrased in the above section.)[7] Besides, even if it were true, the aforementioned argument against workers’ rights — that workers who feel they are being exploited or treated unfairly can always just move to another company — would hold only as much water as the argument that dictatorial political rule over a given jurisdiction is fair and reasonable because citizens can always just move somewhere else. Aside from being false, simply saying “if you don’t like it, you can leave” does not somehow legitimize authoritarianism, political or otherwise.
Human beings as company property
The fact of the matter is that this condition which we refer to as the “free market” essentially amounts to a system in which a small handful of oligarchs enjoys the “freedom” to buy and sell the livelihoods of other people at whim, as though they were mere commodities — while the less fortunate targets of this trade enjoy the “freedom” to accept whatever work they might be offered, and be happy that they are employed at all. It is simply taken for granted that like medieval feudal estates, corporations are pieces of property — not human communities — and thus they can be used and abused by the propertied class at will. This notion leads to the unconscious assumption that people who work in these corporations are, in a sense, property as well; the value of their presence is naturally bundled into the value of the corporation when it is bought and sold by its owners, just like any other asset. And indeed, mere assets are exactly what these employees are considered — they are regarded as little more than pieces of machinery, renting themselves out to the owning class for whatever purpose their masters might see fit.
This attitude provides a grim echo of the ancient belief that serfs “belonged” to their feudal lords, and it opens the door to a whole array of abuses of power. For instance, wealthy moguls looking for a quick profit can make millions by acquiring firms, hollowing them out — i.e., firing scores of employees in order to create the appearance of lower company costs and thus higher profit margins — and then reselling the firms for substantial gain (or letting the firms fail and making millions anyway from self-bestowed dividends raided from the companies’ funds).[8] The companies themselves are ravaged in the process, and untold numbers of workers lose their livelihoods. But again, it is simply taken for granted that since corporations are nothing more than mere pieces of private property, they can therefore be bought and sold at will, and used or abused in whichever way their owners choose. The autocratic nature of the corporate system ensures that regardless of how hard employees may work, regardless of their level of dedication, they are entitled to no say in their ultimate fate. If their masters decide that it would be more profitable to hollow out the company — and rob its workers of their only means of support — than it would be to build the company into a long-term producer of valuable goods and services, then their “right” to destroy these workers’ livelihoods for a quick profit unquestionably outweighs any rights that the workers might claim for themselves (owners are constantly stressing the importance of “company loyalty,” but this refers only to the requirement that workers remain loyal to the company, not the other way around). In this respect, as in all others, the right of the owning class to do whatever it wants with its “property” takes precedence above all other considerations. And any worker attempting to assert themselves within this system will quickly find themselves disposed of in favor of more docile and obedient replacements.
[8] 2012 Republican presidential candidate Mitt Romney was notorious for this technique in his pre-political days.
Divide and conquer
Jay Gould, one of the 19th century’s most infamous “robber barons,” once boasted: “I can hire one-half of the working class to kill the other half.” In modern terms, this outlook is frighteningly relevant; due to the fact that the number of prospective workers dwarfs the number of available jobs, owners can all too easily play workers off of one another by telling them, “There’s always someone willing to work for less… There are hundreds of people out there who would love to have your job… You should be grateful for what you have and stop complaining… It would be easy to find someone to replace you…” and so forth. Owners rarely need to actually verbalize these threats out loud, of course, much less follow through on them. Workers know all too well what the situation is; so the mere presence of the unspoken threat is typically enough to keep the workforce in line. But if anyone shows signs of agitating for better treatment or better pay, owners face little difficulty in weeding out the troublemakers — because after all, there is always someone out there willing to work for less (indeed, even when the “reserve army” of domestic labor begins to shrink, owners in many industries can still turn to surplus labor sources beyond the traditional domestic labor pool, such as outsourcing and illegal immigration).
Using this technique, owners can coerce their workers into accepting massive reductions in pay, elimination of benefits, and working environments that are less sanitary and less safe — or else lose their livelihoods. Doing so greatly increases the share of company profits which the owners can keep for themselves, naturally; but lower down the hierarchy, workers are forced to constantly undercut each other in order to keep their jobs. (As we can see for ourselves, many workers who might previously have enjoyed steady working hours and good benefits are now being turned into temp workers or “independent contractors” with none of those advantages available to them anymore. (See here for an eye-opening look.)) What’s more, they aren’t just struggling against their fellow Americans; in a globalized world, where owners and investors enjoy free movement across international borders but workers do not, workers are pitted against the entire global workforce, including those in the poorest countries. Domestic laborers who are unwilling to accept sweatshop wages and working conditions often face the threat of having their job shipped overseas to someone who will. And the end result is a phenomenon known as a “race to the bottom,” in which wages and social conditions for the working class are driven down to the level of the world’s poorest and most desperate — while the owners, able to pay themselves even more handsomely from the growing surplus of profits, grow ever richer.[9]
[9] As for the second- or third-world workers to whom these jobs are outsourced: they are certainly much better off than they would be with no jobs at all, no doubt about that. (In this regard, they share a common attitude with their first-world counterparts — “Well, this job is a nightmare, but what other choice do I have?”) However, like their first-world counterparts, these sweatshop workers still face the problem of not actually being able to keep the full share of what they’ve earned (in fact, they keep an even smaller share). The wealth that they produce, rather than staying in their countries to help grow their economies, is merely sent overseas to the owners — and in the meantime, workers must endure unspeakable working conditions and “management” regimes as brutally repressive and authoritarian as were those in the most wretched Soviet dictatorships.
This is not to say that globalization itself is inherently harmful — on the contrary, it can serve as one of humanity’s greatest resources for growth and development. However, the autocratic nature of our current system perverts the nature of this gift, allowing the owning class to claim a disproportionate share of the benefits while only offering marginal improvements for workers — an important distinction.
La compagnie, c’est moi
To be sure, this isn’t the only source of downward pressure on workers’ wages. It is obvious, within any competitive market, that any business attempting to pay its employees too much will not be able to keep prices low enough to attract customers, and therefore will not be able to survive. So to a considerable extent, downward pressure on workers’ wages comes not just from owners, but from the market itself. This is a good thing; competition is what drives innovation, keeps prices low for consumers, and ensures that businesses will run efficiently. However, the whole purpose of staying competitive in this way, for individual businesses, is to maximize profits — and this raises an important point. If companies must keep production costs low in order to keep profits high (as everyone agrees they must), why must it therefore follow that workers’ incomes be considered among these “costs” to be minimized (along with equipment, raw materials, etc.), while owners’ income is considered “profit” to be maximized?
After all, when accountants and business analysts say a company “performed well,” they are not referring to the success of its workers. (In fact, companies routinely improve their “performance” by laying off workers and cutting wages.) The word “profit” refers exclusively to the share of the company’s money allocated to its owners — and not only is pay for workers excluded from the “profit” category, it is counted directly against it as a “cost of production.”
There is no law of economics demanding this should be so. Nothing prohibits a company from including workers under its “profit” category as well — as partners in the company’s success, whose wealth and well-being the company exists to maximize along with that of its owners. Basic arithmetic shows us that the standard equation:
Owner profits = Revenues – Worker earnings – Various production costs
could just as easily be re-written as:
Owner profits + Worker profits = Revenues – Various production costs.
But this isn’t how modern companies are designed. Pay for workers is designated as a cost of production, plain and simple — and costs exist only to be minimized. So under this model, the otherwise true and obvious statement that “businesses exist to maximize profit, by keeping costs at a minimum” literally amounts to an assertion that “businesses exist to maximize owners’ wealth and well-being, by keeping that of its workers as low as possible.”
This notion that worker pay should be considered a cost of production, rather than being included as an element of company profits in the same way that shareholder dividends are, is entirely due, not to any economic law, but to the modern corporation’s autocratic power structure itself. The only reason why businesses are said to exist solely to maximize their owners’ wealth — as opposed to maximizing their owners’ and their workers’ wealth — is because the owners are the ones making that decision, while workers have no say in the matter. Like the fiefdoms and kingdoms of medieval times which were considered “successful” solely to the extent that they expanded their rulers’ wealth and power[10] — goals typically achieved, mind you, by sacrificing the lives and the welfare of hundreds or thousands of the serfs living under these autocrats’ rule (in other words, “strategically managing labor expenditures”) — modern corporations which exist solely to enrich their owners by minimizing the welfare of their workers distort the essential market principle of competition into a predatory instrument of exploitation.
So when we see corporate owners slashing their workers’ pay and benefits only to reward themselves with million- or billion-dollar paychecks, it should be clear that “streamlining production costs to keep prices competitive” and “passing savings on to the customer” is only part of the story. A sizable percentage of the surplus created by slashing worker earnings is simply being redirected into the owners’ pockets.[11]
[10] This notion is most memorably expressed by Louis XIV’s apocryphal assertion, “L’État, c’est moi” (“I am the state”).
[11] Indeed, corporate profit margins are currently at all-time highs, a fact which a recent JPMorgan Chase report on major American corporations shows can be attributed almost entirely to reductions in workers’ wages and benefits, “now at a 50-year low relative to both company sales and US GDP.” According to the report, 75% of the recent increases in profits are due to labor cuts.
Ravaging communities, externalizing costs
But it gets worse. Owners of large corporations can not only exploit individual workers by playing them against each other — they can extort entire cities, states, or even countries in exactly the same way. “If our company does not receive sufficiently generous tax breaks or subsidies,” they’ll insinuate, “we may just pack up and move our operation somewhere else — and we’ll take all the jobs with us.” Local politicians, terrified by the prospect of being blamed by their constituents for such catastrophic job losses, unfailingly give in to these demands — and are often rewarded handsomely by generous campaign contributions as a result (ironically, these politicians — who supposedly wield such great political power — seem to depend upon the good favor of the owning class just as much as ordinary workers do to keep their jobs; more on this in the next section). But handing out corporate welfare to these companies costs money, and that money has to come from somewhere. Governments must somehow make up for the lost budget revenue — and that means either slashing services or raising taxes on the very wage-earners whose incomes they were ostensibly “protecting.” In other words, when company owners demand more, ordinary families pay the price; and in a perverse kind of role reversal, governments lose their ability to tax corporations while corporations gain the ability to tax governments (to paraphrase Marjorie Kelly). Combine this with the trend of different states and countries competing with one another to pass the most owner-friendly — and worker-unfriendly — labor laws to attract the most businesses (a whole other kind of “race to the bottom”), and what emerges is a grim picture in which owners, even outside the walls of their companies, enjoy the ability to dictate grossly unfair terms to the wider population, in a manner which completely upends the principle of democratic self-governance.
Needless to say, practices such as these don’t exactly reflect a great deal of civic virtue on the part of the owning class. But we really shouldn’t expect anything better from tycoons doing business from distant Manhattan penthouses and boardrooms hundreds of miles away — because unlike the laborers who actually work in the companies’ regional factories and offices, the absentee owners of these operations are not rooted within the local communities, and thus do not factor the communities’ needs into their decision-making. We might decry their manipulative tactics as anti-American — but for the owning class, it’s just good business. Corporate welfare today makes up a significant chunk of corporate profits in many industries; and notably, it often makes up a far greater proportion of our governments’ budgets than aid to needy families.[12]
And that’s not all. Absentee ownership of corporations also means that there are significant incentives for these companies to externalize costs onto the local community in a more direct way; since the owners don’t actually live anywhere in the area, they won’t be as concerned if their factories are belching toxic fumes into the air, or leaking chemical pollutants into the local water supply (especially in the poorest countries). Obviously, these are matters which should concern them — doing the wrong thing can put children in the hospital, destroy the quality of life in once-beautiful communities, and even wipe out entire species. Indeed, our current climate crisis is unmistakably linked to our failure as a society to account for these so-called “externalities” — so without a doubt, the stakes here are as high as they can be. But such costs do not show up on corporate financial statements — therefore it is not considered particularly relevant whether the companies’ practices will devastate the local communities and environment. For the owners, in their distant boardrooms, such considerations are simply too remote from their day-to-day business dealings to have much of an effect on their planning. And so, naturally, anyone outside the elite upper circles tends to get left out in the cold. And the rich get richer.
[12] Noam Chomsky discusses how the “Golden Age of Capitalism” (which placed some limits on capital mobility in favor of free trade) eventually succumbed to a system which placed immobile communities and nations at the mercy of highly mobile capitalists:
The designers of the post-World War II international economic system advocated freedom of trade but regulation of capital; that was the basic framework of the Bretton Woods system of 1944, including the charter of the IMF. One reason was the (rather plausible) expectation that liberalization of finance would impede freedom of trade. Another was the recognition that it would serve as a powerful weapon against democracy and the welfare state, which had enormous public support. Regulation of capital would allow governments to carry out monetary and tax policies and to sustain full employment and social programs without fear of capital flight, U.S. negotiator Harry Dexter White pointed out, with the agreement of his British counterpart, John Maynard Keynes. Free flow of capital, in contrast, would create what some international economists call a ‘virtual senate,’ in which highly concentrated financial capital imposes its own social policies on reluctant populations, punishing governments that deviate by capital flight. The Bretton Woods assumptions largely prevailed during the ‘Golden Age’ of high levels of growth of the economy and productivity, and extension of the social contract, through the 1950s and 1960s. The system was dismantled by Richard Nixon with the support of Britain, and, later, other major powers. The new orthodoxy became institutionalized as part of the ‘Washington consensus.’ Its outcomes conform rather well to the expectations of the designers of the Bretton Woods system.
Buying political control
But the abuses of power don’t end there. One of the most significant consequences of having a top-heavy economy like ours, where a small sliver of the society owns a disproportionate share of its wealth, is that these ultra-rich elites enjoy an equally disproportionate ability to distort the political system in their favor. Just as concentration of ownership leads to concentration of wealth, concentration of wealth leads to concentration of power (to paraphrase Paul Jay); and the power to control our political institutions is one which the owning class wields freely. They dispatch armies of lobbyists to Washington to persuade politicians that what’s best for the owning class is what’s best for the country; and the politicians, many of whom are members of the owning class themselves (roughly half of all members of Congress are millionaires), obediently fall in line. Those politicians who serve the interests of the owning class most enthusiastically are rewarded generously with campaign donations — while those who dare to resist see those same donations flow to their opponents. Candidates who can’t raise money from the owning class stand little to no chance of being elected; and as a result, our elections process — which ostensibly functions as a means of discovering and selecting the best public servants — is instead reduced to little more than a contest to see who can attract the most corporate patronage by promising the greatest rewards to the owning class. Occasionally, candidates do emerge who refuse to play by these rules; but in the absence of strong popular movements to back them up, these candidates simply do not get elected. What we get instead is the cruel irony of seeing our democratic government — the very institution responsible for safeguarding us against predation — serving instead as a tool for the predators themselves to reinforce their dominance.[13]
[13] This corruption often comes in the form of blatant handouts — channeling taxpayer money directly into the pockets of the owning class through tax breaks, corporate subsidies, and the like. But for the most part, the biggest way in which our government helps to reinforce corporate power is by doing nothing at all. Loudly proclaiming the virtues of the “free market,” right-wing politicians will insist that the government should not meddle in corporate affairs or impose regulations to protect workers, and should instead stand aside and “let the market work.” In actual practice, this hands-off approach amounts to little more than a removal of the barriers to corporate power, along with an assurance to owners that they may abuse their power as they like without interference from the government. And without a voter-accountable check on its power, the owning class does just that.
Indeed, despite our tendency to blame our government for all our economic troubles — to say that if it would just get out of the way and let capitalism work, we would all be better off — this view is exactly wrong when it comes to the question of providing a check on corporate power. A government which actually answers to the people and avoids the corrupting influence of corporate money — in other words, a government which does its job — can serve as a tremendous force for economic justice. (The governments of northern Europe’s Nordic countries, while far from perfect, provide good examples of democracies functioning largely as they should.) It is only when democracy takes a back seat to economic aristocracy that a society suffers — and when it does, it’s not because of too much democratic governance, it’s because of too little. (See the Embers Project original essay “What is government good for, anyway?” here.)
There is plenty to be upset with when it comes to our government’s practices, no doubt about that. However, it should be clear to anyone paying close enough attention that these troubles are not solely the result of bad politicians; it is the owning class which is pulling all the strings, manipulating the process behind the scenes to serve its own ends. The problem, in other words, is not an inherently corrupt and unfixable government; the problem is an economic system which concentrates wealth in the hands of a small group of oligarchs and thereby enables them to monopolize political influence, while leaving everyone else too busy scrambling to make ends meet to engage politically at all. Contrary to the oft-repeated claim that government is inept and inefficient, our current political systems is actually remarkably effective in serving its base — the corruption and waste merely come when this “base” only includes about 1% of the population.
Plutocracy reigns
It’s easy to see where all this leads. Our system is designed to consolidate more and more wealth into the hands of a small and insulated group of economic elites; and as this process builds upon itself, there is little reason to assume that it will spontaneously reverse course. Taking a look at where we stand today, then, we can get a good idea of where we might be headed.
Presently, the net worth of the nation’s 400 wealthiest individuals exceeds the net worth of nearly two-thirds of all American households — roughly 200 million people — combined. The top 1% wealthiest Americans control more wealth than the bottom 90% combined, and they have tripled their level of income since 1979 (even after adjusting for inflation) while the income level of the bottom 90% has stagnated.[14] In 2010, 93% of national income growth went to the top 1%. (Infographics here, here, and here provide stunning illustrations of these developments.)
Now, the owning class may attempt to build some pretense of legitimacy to justify their dominance by claiming that such massive concentrations of wealth are the only way of providing capital for businesses. They might claim that since low-income workers do not have access to sizable capital reserves of their own, a well-capitalized owning class must therefore exist in order to provide companies with the funding they need to grow. But this argument gets the correlation backwards; it is only because such a grossly stratified hierarchy of wealth exists in the first place that workers must depend upon the patronage of the corporate elite for their continued financial support. Just as in the case of medieval feudalism, the fact that a small aristocracy holds such overwhelming dominion over society’s wealth does not mean that this aristocracy should be praised for allowing their society’s workers to serve them in exchange for a small fraction of that wealth. It is the wealth disparity itself which is the problem.
[14] As Nick Hanauer writes, “If the average American family still got the same share of income they earned in 1980, they would have an astounding $13,000 more in their pockets a year. It’s worth pausing to consider what our economy would be like today if middle-class consumers had that additional income to spend.”
The difference is even greater if we go back another decade; as Salvatore Babones writes, “If the US income distribution today had remained unchanged from 1969, by 2009 the average American household would have had an income of $86,479 instead of $49,777. If the US income distribution had become more equal in the four decades after 1969 — as it did in the four decades before 1969 — the average American household would be doing even better.”
[15] In fact, these two seemingly different types of economic bubble can even be one in the same; it’s increasingly common for various forms of consumer debt to be securitized — that is, converted into exotic financial assets — and then leveraged into even greater debt and re-sold by financial speculators for a profit.
The years leading up to the crisis of 2008 are a perfect example of this; Wall Street wheeler-dealers bought up billions of dollars’ worth of sub-prime mortgages, bundled them together and re-sold them as Grade-AAA investments — bringing down the entire economy when these mortgages turned out not to be such a good investment after all.
The American Dream deferred
These brutal facts are easy for the wealthy elite to dismiss. After all, “ruin” is probably the last word to describe what they’ve been experiencing lately — financially speaking, they’re doing better than ever. But for ordinary workers, things are different. Despite hearing their entire lives that all it takes to get ahead in America is hard work and perseverance, workers are playing by the rules, doing all the right things, and coming up empty anyway. They are working themselves ragged, day in and day out, only to see their bosses collect the riches. They are toiling away in factories or offices, wasting the better part of their lives in thankless jobs which they can hardly bear, in the hope that one day they’ll be able to actually achieve the American Dream which they have been promised — only to be used up and thrown out, like mere machines, with no guarantee that hard work will be enough to even let them keep their jobs at all. They have no control over their own fate — they are entirely at the mercy of their corporate overlords — but they submit because they have no other means of support. And so, the system persists. The rich get richer, and everyone else silently pays the price.
Who’s to blame?
Why, then, does the owning class continue to perpetuate such an obviously one-sided and predatory arrangement? Are they just evil?
Of course not. True, owners are all to some extent complicit in this system, and do have an ethical duty to resist.[16] But the underlying issue here is more complex than simple greed and exploitation; so it would be a mistake to simply call the owning class “evil” or “greedy” and leave it at that. Indeed, most owners are simply trying to achieve “success” and provide for their families the only way they know how. To the extent that their actions harm workers, it is largely just a matter of otherwise good people responding to bad incentives within the context of a bad system. So if we wish to address the real root of the problem, we must recognize that it is a structural problem, built into the system itself. Demonizing our perceived “enemies” and their specific abuses of power accomplishes little; rather, we must seek to address the system which makes all of these abuses possible. In other words, as Marjorie Kelly puts it, the point is not to punish wealth, “but to change the system design that gives illegitimate power to wealth — just as in the fight against sexism, the point was not to do away with men, but to change the system that gave illegitimate power to men.” We must aim not to abolish the privilege of becoming wealthy, but simply to extend it to everyone who is entitled to it.
[16] This includes even those owners who fancy themselves “good” or “fair” bosses, and who genuinely care about the well-being of their workers. After all, there undoubtedly existed benevolent feudal barons who genuinely cared about the well-being of their subjects, as well — but the morality of those at the top of the hierarchy does not excuse the morality of the hierarchy itself. A benevolent dictatorship is a dictatorship nonetheless.
Pushing for change
How can we create change, then?
One option is to make our voices heard in an arena where we actually do enjoy some measure of democratic representation: our government. We can agitate for tighter corporate regulations, greater worker rights, more progressive taxation, and so forth. This is certainly a good start — and without a doubt, it is a necessary one. However, policing business operations from the outside can never be 100% effective on its own — due in part to a lack of feasible enforcement mechanisms, and in part to the sheer scope of the corporate system. To paraphrase David Cay Johnston: government cannot effectively, efficiently, or fairly regulate the activities of every firm in every aspect of their operations, because so many of their day-to-day operations are judgment calls. Government can set minimum standards for these businesses; it can also pursue wrongdoers after the fact. But the blunt instrument of a regulatory agency can never be fine enough to police these companies at their most basic level. These day-to-day judgment calls can only be made by those in the firms themselves, who can decide what is acceptable conduct, what is acceptable risk, and what is best for themselves, their customers, and their communities.
So what about workers’ unions? Historically, unions have been a tremendous force for workers’ rights: they helped to end child labor, establish the eight-hour work day, implement unemployment insurance and medical/maternity leave, and protect workers’ wages and working conditions[17] (anyone who thinks that employers voluntarily bestowed these benefits upon their workers out of sheer generosity is, frankly, kidding themselves). And the organizational framework which unions provide is undoubtedly the most effective mechanism to date for workers seeking a voice in the workplace — so if any mass movement for workers’ rights does arise, it will likely be through the organizational framework of workers’ unions. Working as a united whole, rather than as isolated individuals, gives workers a far greater degree of leverage over owners (since the cost of firing an entire workforce is so much higher than the cost of simply weeding out a few “troublesome” employees), and thus allows them to demand better treatment and better pay. That being said, however, merely giving workers a partial voice through unions is also ultimately inadequate, because it does not fundamentally change the overall feudal dynamic of the owner-worker relationship — it merely tries to make it less oppressive. And if workers seek to truly achieve their rights within the workplace, this simply is not enough.
[17] As Harold Meyerson writes (citing a study by David Madland and Nick Bunker):
In 1968, when 28 percent of the workforce was unionized, 53 percent of the nation’s income went to the middle class. In 2010, when 11.9 percent of the nation’s workers were unionized, the share claimed by the middle class had fallen to 46.5 percent.
Around the world, wherever workers have unions, they get better pay. The most recent estimates suggest that unionization increases an individual worker’s pay by about 17%, but some argue that the effect on total pay (including benefits) could be as high as 43%. Though researchers argue over the exact figure, research consistently shows that unions increase workers’ wages.
Workplace democracy
There is only one real solution to the problem of corporate autocracy. And it is the same solution with which our nation’s founders defeated the autocracy of their own time. To paraphrase Noam Chomsky: the founders of this country, in their revolt against aristocracy, did not plead with their rulers to be more benevolent. They denied their right to rule. They demanded democracy. And it’s the same here; the suppression of basic human rights does not somehow become acceptable just because the authority figure doing it is someone other than the government. In a truly free and democratic society, people must be the masters of their own fate, not mere tools rented by a wealthy aristocracy.
In short, the nation’s shops, factories, and offices should be run by those who actually work in them. They should not be owned by the state, as communism might have urged. They should not be held at the mercy of absentee owners sitting in plush Manhattan suites hundreds of miles away, who never even step foot inside the businesses they own, as in our current system of autocratic capitalism. Rather, they should be owned and operated by those within the companies themselves, in a new system of free market democracy. Workers should be their own board of directors.
What would workplace democracy look like?
Under this system, ownership and control of productive assets would be locally rooted in jointly-owned, democratically-governed companies known as cooperatives (or co-ops, for short). Important decisions would be made by those most affected by the consequences — and harmful externalities would thus be reduced (e.g., workers would have far less incentive to pollute their own water supplies or destroy their own communities). Furthermore, companies’ internal governance and decision-making processes would be based on the knowledge of those most intimately involved in the companies’ day-to-day operations — maximizing the opportunity for direct, participatory democracy while simultaneously generating the best outcomes. Decision making would need not involve consulting all employees for every tiny issue (although this would be possible in smaller operations) — rather, workers could choose to have only large-scale decisions made by all employees during council meetings, with smaller decisions being made by those implementing them (while coordinating with the rest and following more general agreements). Or, as in our political democracy, workers could choose to elect representatives for managerial roles, who would be responsible for essentially the same duties as the managers within our present-day hierarchical corporations — but with the key difference that elected managers would actually be accountable to the workers themselves, rather than to distant stockholders. There are all kinds of different possibilities for internal governance within firms, and each individual business enterprise would no doubt have its own unique preferences. The key element, however, would be democracy. Workplace governance would be based on the fundamental tenet that (to quote Marjorie Kelly again) corporations are not merely pieces of property — they are human communities; and like the larger community of which they are a part, they are best governed democratically.[18]
The International Co-operative Alliance provides an outline of the foundational principles of workplace democracy and worker control:
Statement on the Co-operative Identity
Definition
A co-operative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise.
Values
Co-operatives are based on the values of self-help, self-responsibility, democracy, equality, equity and solidarity. In the tradition of their founders, co-operative members believe in the ethical values of honesty, openness, social responsibility and caring for others.
Principles
The co-operative principles are guidelines by which co-operatives put their values into practice.
1st Principle: Voluntary and Open Membership
Co-operatives are voluntary organisations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, political or religious discrimination.
2nd Principle: Democratic Member Control
Co-operatives are democratic organisations controlled by their members, who actively participate in setting their policies and making decisions. Men and women serving as elected representatives are accountable to the membership. In primary co-operatives members have equal voting rights (one member, one vote) and co-operatives at other levels are also organised in a democratic manner.
3rd Principle: Member Economic Participation
Members contribute equitably to, and democratically control, the capital of their co-operative. At least part of that capital is usually the common property of the co-operative. Members usually receive limited compensation, if any, on capital subscribed as a condition of membership. Members allocate surpluses for any or all of the following purposes: developing their co-operative, possibly by setting up reserves, part of which at least would be indivisible; benefiting members in proportion to their transactions with the co-operative; and supporting other activities approved by the membership.
4th Principle: Autonomy and Independence
Co-operatives are autonomous, self-help organisations controlled by their members. If they enter to agreements with other organisations, including governments, or raise capital from external sources, they do so on terms that ensure democratic control by their members and maintain their co-operative autonomy.
5th Principle: Education, Training and Information
Co-operatives provide education and training for their members, elected representatives, managers, and employees so they can contribute effectively to the development of their co-operatives. They inform the general public — particularly young people and opinion leaders — about the nature and benefits of co-operation.
6th Principle: Co-operation among Co-operatives
Co-operatives serve their members most effectively and strengthen the co-operative movement by working together through local, national, regional and international structures.
7th Principle: Concern for Community
Co-operatives work for the sustainable development of their communities through policies approved by their members.
[18] Under this system, of course, outside investors would still be able to invest in companies and expect a return on their investment — but it would be on terms which would not undermine the democratic governance structure of these companies. Investors would not be able to assume unilateral rule over company affairs, as they do in our current system; rather, they would play a role more akin to that of materials providers — suppliers, outside the daily workings of the companies, providing resources (capital) for the companies’ use at a price mutually negotiated and agreed to by both buyer and seller.
Profound benefits
This model — of a free market that truly is free and democratic — offers tremendous potential to fundamentally transform our entire society for the better. Under such a system, workers would actually be able to work with dignity. They would be able to make their own decisions regarding their lives, their jobs, and their futures. Worker-owned co-ops would still remain subject to the basic laws of market competition, of course (i.e. any co-op which wanted to stay in business would still have to make sure its payroll didn’t become unsustainably large) — and by competing with other co-ops, firms would be able to grow more efficient and creative. But workers would no longer have to fear the possibility of having their livelihoods yanked out from under them without ever even having a voice in the matter; and they would certainly not have any incentive to recklessly decimate their own wages, slash their own benefits, or export their own jobs overseas. On the contrary, a genuinely democratic system would empower workers to enjoy their most basic rights (most fundamentally, the right to self-governance) at all times — not merely when they’re off the clock. And in fact, it’s likely that co-op workers would be far more productive than they are currently, due to the added incentive of actually being able to keep the extra wealth produced by “going the extra mile” in their work (as opposed to our current system, in which workers know that any surplus value produced by their work will only add to their bosses’ paychecks, not their own). Workplace democracy would generate higher wages, more satisfactory benefits, and greater job security — and by offering these advantages to their workers, co-ops would also be able to attract a higher-quality pool of prospective employees to choose from in hiring. There would be less employee turnover as quit rates declined, and businesses would become more efficient, since less would need to be wasted on hiring and training. Most significantly of all, workplace democracy would ensure that the wealth generated by these co-ops’ activities would be justly distributed among the workers themselves, rather than simply concentrating the bulk of it in the hands of a few privileged owners.[19] This more equitable distribution of wealth, as well as the more prosperous consumer base which would emerge as a result, would mean a greater level of consumer demand in the economy; and in turn, this would also mean more business for companies across the board, more demand for new companies and services, and therefore even more economic growth and jobs being created to fulfill all of the new demand — a virtuous cycle. Workplace democracy wouldn’t solve all of our economic problems; but it is no exaggeration to say that it would represent an enormous step forward for the country’s workforce.
What’s more, the benefits wouldn’t have to be limited exclusively to the domestic workforce. If a more democratic system were implemented on an international basis, it would mean that more businesses would be rooted within their local communities (since the people controlling these firms would be local workers themselves) — so the threat of capital flight across borders would correspondingly diminish. Countries would actually be able to utilize their comparative advantage — impossible under our current system, wherein unrestricted capital flows pursue absolute advantage across borders — and international flow of traded goods (as opposed to mere flow of capital) would flourish. Best of all, a greater share of the profits would actually go to native workers themselves, rather than disappearing from the country into the pockets of international financiers; and workers would thus be able to build their own national economies, rather than merely sending profits abroad.[20] Third-world countries struggling with crushing poverty would finally be able to gain a foothold in the global economy, and richer countries like the United States would still enjoy the benefits of trade without having to sacrifice nearly as much in terms of local well-being. In short, free market democracy would bring all of the prosperity which our current system of autocratic capitalism promises but does not deliver (except to the privileged few). It wouldn’t give us a perfect world; but it would give us a genuinely better world.
[19] Now, as we briefly mentioned earlier, it may turn out that executives and investors do, in fact, provide such a rare and unique set of skills, expertise, and/or resources to help businesses grow, that the exorbitant payouts which they currently receive are fully justified. But if this is the case, then allowing for these gains to be determined by democratic market forces — i.e., negotiated with workers themselves — will only reinforce that fact; workers will be fully willing to pay owners what they are currently earning (in order to retain them at the company) if they are actually producing enough profit for the company to warrant it. If owners are, indeed, entitled to their current levels of pay, then they have nothing to fear from such an arrangement. However, if the owners are not actually producing the level of wealth which they are receiving, then why should workers continue paying the price for the discrepancy?
[20] Again, foreign investors would still be able to invest; the only difference would be that they would no longer be able to collect a greater share of the profit than their investment warranted (or crush workers’ basic human rights) without workers’ permission.
Workplace democracy in action
But is any of this actually possible, on a large scale? Can it truly be done? Critics will scoff and say that ordinary workers can never be competent or judicious enough to manage their own affairs, that there must always be some greater authority figure maintaining order or else the whole operation will come apart at the seams. But this was the same argument used in defense of political autocracy, against democracy — and we all know how true this turned out to be.
Besides, theoretical arguments aside, there is one irrefutable piece of evidence proving that workplace democracy can work — the fact that it already is working. As we speak, there are already thousands of firms operating across the country which are either partially or wholly owned by their employees (see here, here, and here – you may be surprised by some of the big names on the list), plus thousands more in other countries. These firms provide well-compensated, fulfilling jobs for millions of workers, and they collectively hold hundreds of billions of dollars in assets.[21]
In fact, the idea of workers actually having democratic rights within their workplaces has made such a significant impact that some countries have even passed laws requiring democratic worker representation. Germany is perhaps the most visible example of this; German workers directly participate in their companies’ management process through “works councils,” and worker representatives serve on their companies’ boards of directors alongside the usual assortment of wealthy capitalists. This might seem hard to imagine for Americans, but it has been a tremendous success for German workers, and for the German economy at large; Germany has become, in a matter of a mere decade or two, one of the most powerful and rapidly growing economies in the world (with other factors also contributing greatly). Rates of poverty and unemployment are typically far lower than those in the United States, and minimum wage laws are not even considered necessary because workers’ rights are so strong. While Americans’ average hourly pay has risen only 6 percent since 1985 (adjusted for inflation), German workers’ pay has risen almost 30 percent. And while the average American must work 1,804 hours per year, the average German only has to work 1,436 hours — the equivalent of nine extra weeks of annual vacation time. Perhaps most importantly of all, the fact that German workers are so active and engaged in their business enterprises serves to reinforce their overall involvement in civic life more broadly — and as a result, Germany’s political dynamic is much more participatory and democratic. To be sure, the degree of actual worker ownership is still only partial — most German companies, despite the high level of worker participation, are not (yet) 100% owned and operated by their workers. Nonetheless, the German system is undeniably a step in the right direction. Workers there have created a better life for themselves — and we can do the same.
[21] The tradition of co-ops in America goes as far back as Benjamin Franklin, who in 1752 helped organize the Philadelphia Contributionship, a fire insurance co-op which still exists to this day. Franklin is sometimes credited as “the Father of American Cooperatives.” Regarding foreign co-ops, a prominent example is the MCC of Spain’s Basque Country — which in 2010 earned roughly $20 billion in revenues while employing 100,000 workers, making it the region’s largest and most successful corporation.
Making it happen
So where do we begin? The challenge of establishing genuine workplace democracy is a formidable one, to be sure, and it can seem overwhelming. The owning class won’t give up its privileged position without a fight — and as it stands currently, they are the ones holding all the cards; so it would be easy to simply throw up our hands and write off workers’ rights as a lost cause. However, as Bill Moyers writes, “if the generations before us had given up, slaves would still be waiting on their masters, women would still be turned away from the voting booths on election day, and workers would still be committing a crime if they organized.”
Change is possible. But we must be willing to fight for it. We must look to history as a guide — because after all, this is not the first time ordinary people have faced seemingly impossible odds in their fight for equal rights. Learning from our predecessors in previous centuries, we can adapt their examples to our modern-day struggle — and if we do it right, we can win.
The imperative first step — as with all mass movements — is simple awareness-raising. Despite the soul-crushing repression inherent to our current system, most people never actually stop to question whether this is a problem which could be remedied; they simply take it for granted (as they did in feudal times) that this is the natural order of things, and that there is little that can be done to improve it. Showing them the true nature of our system, then — uncovering it for what it actually is — must be our first order of business. Our current autocratic system owes much of its strength to the mere fact that workers so rarely think to question it. However, once the predatory nature of the system is dragged out into the public square, so to speak, and subjected to direct public scrutiny by the broader population, there will be much less opportunity for it to continue unchallenged. We therefore ought to do everything we can to promote the cause of workers’ rights in the public arena — discussing the issue with friends and neighbors; spreading the word through online social networks; holding rallies, marches, and demonstrations; demanding greater coverage of corporate abuses in the mainstream media; and so forth. Most importantly of all, workers must formally organize — because without a powerful, unified front pushing for change, workers will never be able to fully claim their rights.
Reclaiming government for the people
This brings us to our next step, closely correlated with the first: workers must be willing to act aggressively in the political arena. One of the biggest reasons why the owning class is so consistently able to ward off potential challenges to its economic dominance is because of its ability to manipulate the political system — lobbying, donating heavily to the campaigns of compliant political candidates, and pulling the strings behind the scenes in Washington. Through these mechanisms, the owning class is able to ensure that the rules will continue to be written in its favor — slashing labor laws, eliminating punishments for abuses of power, placing a heavier tax burden on the working class, and so forth. But this is only possible through well-organized and well-funded political operations. And accordingly, shifting the balance in favor of ordinary workers will require an equally formidable level of political organization. Merely electing a few worker-friendly candidates is not enough; workers must establish a permanent political presence in Washington, in the state capitals, and everywhere laws are made. Workers must not be willing to simply settle for “getting the right people elected,” and then dusting off their hands and going home while expecting the politicians to fix everything for them; workers must be actively engaged in the policy-making process at all levels, exerting constant political pressure and making sure that the owning class does not undermine their progress behind closed doors. It is only through the exertion of such political “muscle” that workers will be able to make their voices heard amid the deluge of corporate money flowing through our political system. And although it won’t be easy to dislodge the iron grip of the owning class over our present political establishment, it has been done before. Tenacious workers of generations past, organizing into unions and civic activism clubs, fought tooth-and-nail to give us worker-protection laws, safer workplaces, and better wages. As Jacob S. Hacker and Paul Pierson recount, they “were on the front lines of every major economic battle of the mid-century — from the successful struggle for expanded Social Security program in the 1950s to the passage of Medicare in 1965. Labor leaders even lent critical support to the civil rights movement, leading one congressional champion to observe that ‘we would never have passed the Civil Rights Act without labor. They had the muscle; the other civil rights groups did not.’”[22] And although these workers were met every step of the way by furious opposition from well-funded and well-entrenched corporate interests, they ultimately triumphed — as can we today.
To be sure, within the context of our current political climate, it is difficult to imagine seeing something as direct as an outright requirement that firms be run democratically anytime soon. But our goal, after all, is to change the political climate to one which is more worker-oriented. And even if this takes a while, there are still plenty of ways in which we can pressure our elected representatives to promote democracy for workers in the meantime. The government can provide tax breaks for new worker-owned firms, for instance, as well as tax breaks for already-existing companies which transfer equity to their employees. It can mandate a worker buyout option for business operations which are in danger of being shut down by their owners (i.e., the people who work in these businesses would have a first-priority option of buying the enterprises for themselves, rather than being dismissed from their jobs). The government can extend a greater proportion of contracts to worker-owned firms while ending subsidies for companies that do not recognize their workers’ rights. It can shift to a more progressive tax system, returning to workers some of the wealth which is rightly theirs, and thereby making them less beholden to the owning class and more capable of starting up their own cooperative firms. It can pursue an aggressive public employment policy targeting workers who cannot otherwise find employment, so that their numbers do not accumulate into an excessive private-sector labor surplus which might drive down wages and reduce workers’ leverage. It can implement a more universal system of healthcare, so that workers are not forced to stay with abusive companies in order to afford health insurance. And most obviously of all, it can simply stop treating the owning class as though its abuses of power were acceptable. It can do what it was designed to do: protect the rights of its citizens. In a country which calls itself free, the principled advocacy of workers’ democracy is the least a responsible government could do.
Again, all of these changes will take time. The owning class currently maintains a tight grip both on our political system and on the economic resources necessary to conduct business, and it won’t let go willingly. However, as workplace democracy grows more and more widespread, the concentration of our country’s wealth within the hands of these few wealthy oligarchs will correspondingly diminish, and these oligarchs’ ability to monopolize control over our political and economic systems will diminish in turn. Workplace democracy will give workers a greater voice in government — and at the same time, a more worker-friendly government will help to strengthen workplace democracy. These two goals of more democratic government and more democratic control of the country’s economic resources will reinforce and build upon one another, at an ever-accelerating rate. And ultimately, if we’re willing to push hard enough, this snowball effect will help take us from a system in which workers have no control, no resources, and no choice but to submit, to a system in which workers do have a choice.
[22] See Hacker & Pierson’s book Winner-Take-All Politics for a must-read account of how wealthy special interests came to control our political system and why formal organization is crucial if ordinary citizens wish to reclaim it.
Coming together for democracy
But promoting workers’ rights isn’t just a question of politics. It permeates nearly every aspect of our economic lives; and accordingly, we can all help contribute to a better future for ordinary workers. Progressive-minded companies doing business with other firms, for example, can help promote workplace democracy by giving preferential treatment to those businesses which are run democratically (Cleveland’s Evergreen Cooperative network, for example, has largely been able to circumvent the need for venture capital by instead raising funds from the local community and having its member firms agree to purchase services from one another). Banks — and especially credit unions, which by definition are democratically controlled by their members — can help provide credit for new democratic enterprises, making it easier for start-ups to get off the ground. Even owners themselves can promote workers’ rights, turning from villains into heroes by embracing more democratic governance structures within their own companies. In short, everyone can play a role. But at the end of the day, it is the workers themselves who hold the greatest potential to transform their own lives. The beauty of workplace democracy is that workers need not wait for someone more powerful to make the first move for them. They can take the initiative themselves. They can protest, demonstrate, and go on strike for greater representation rights within their workplaces. They can look to the entrepreneurial example set by the thousands of co-ops already operating across the country; they can pool their resources, and they can take control of their own economic fate.[23] Democratically-controlled firms can support each other, buying and selling amongst themselves, and can thereby build each other up. And as more and more democratically governed businesses begin to emerge, the movement’s momentum will inevitably grow. In time, we may even hope to bring about a fundamental transformation of our economic system. And should that day come, we will enter a new era of prosperity and fulfillment of our true potential. We really will have a free market.
[23] As Gar Alperovitz notes, every co-op’s birth will be unique:
The Appleton company, a world leader in specialty paper production in Appleton, Wisconsin, became employee-owned when the company was put up for sale by Arjo Wiggins Appleton, the multinational company that owned it — and the 2,500 employees decided that they had just as much a right to buy it as anyone else. Reflexite, an optics company based in New Avon, Connecticut, became employee-owned in 1985 after 3M made a strong bid for the company and the founding owners, loyal to their workers and the town, preferred to sell to the employees instead. In the case of Science Applications International Corporation, the founder, Dr. J. Robert Beyster, has for more than thirty years simply believed that “people involved in the company should share in its success.”
And within certain types of firms, rebellious-minded workers can take inspiration from Marjorie Kelly’s example of “the revolutionary birth of St. Luke’s ad agency, which was formerly the London office of Chiat/Day.” Kelly writes:
In 1995, the owners of Chiat/Day decided to sell the company to Omnicon — which meant layoffs were looming — and Andy Law in the London office wanted none of it. He and his fellow employees decided to rebel. They phoned clients and found them happy to join the rebellion. And so at one blow, London employees and clients were leaving.
Thus arose a fascinating question: What exactly did the “owners” of the London office now own? A few desks and files? Without employees and clients, what was the London branch worth? One dollar, it turned out. That was the purchase price — plus a percentage of profits for seven years — when Omnicon sold the London branch to Law and his cohorts after the merger. They renamed it St. Luke’s, and posted a sign in the hall: “Profit Is Like Health. You Need It, But It Is Not What You Live For.” All employees became equal owners. Ownership for St. Luke’s is a right that is free, like the right to vote. Every year now the company is re-valued, with new shares awarded equally to all.Obviously, this “mutiny” approach won’t work in all firms; in many cases, it will be much easier for workers to strike out on their own, pool their resources, and start their own co-ops. However, it’s certainly worth keeping in mind, particularly for workers in knowledge-based fields. Kelly continues:
St. Luke’s… offers an intriguing model that might be replicated, like this:
Imagine a hostile takeover. When a company goes into play, let’s say employees decide they’re not coming along — all employees, from the CEO to the janitor (or perhaps all employees except the CEO, who is amply bribed by the stockholders). Employees might tell the buyer, “You can certainly buy this company, but you can’t buy us. Let’s see what the company is worth without its employees.” Valuation specialists could be called in to draw up relative values.
Let’s say a $1 billion company — stripped of all human knowledge — is worth half as much: $500 million. Then the value of the employee presence is $500 million. Should employees change their minds and decide to come along, that’s the amount of stock they would get. They wouldn’t take stock away from anybody, but would do what CEOs routinely do for themselves: issue new stock. If there are 10 million shares outstanding, employees would be issued an additional 10 million shares, so they end up with half the company. They could decide among themselves how to distribute it.
Or should the buyer turn tail and run, employees might sit down with the board and make the same demand: “We have now seen that employee knowledge is worth $500 million, so we demand that much in stock, or we’re leaving tomorrow.” Faced with this choice or the choice of governing a pile of lifeless assets — files no one can find, machines no one knows how to run, customers no one has heard of — a board might come to a decision rather quickly.
Imagine what would happen if this occurred at one major company, even at a branch of a major company. What tremors would run through boardrooms nationwide? And since this tactic would be inappropriate for a company with substantial employee ownership, what mad dash might we see to put stock in employee hands?
A St. Luke’s maneuver might have drawn the approval of John Locke, the first major theorist to say that governance rights can be forfeited when the governing power breaks the social contract — which it does when the ruler delivers “the people into the subjection of a foreign power.” This marks a “dissolution of the government,” Locke wrote, and once the government is dissolved, the people are free to erect a new government.
A corporate merger or takeover is literally a dissolution of the old corporate contract. It can mean collective bargaining agreements will be broken, layoffs made, benefits cut, offices closed, and charitable giving gutted. When such destruction of old agreements is in the offing, Locke said the people “have not only a Right to get out of it but to prevent it.” Far from being a theoretical right, this principle was enacted in practice by revolutionaries in both Great Britain and America, when they believed the king had broken the social contract.
In the economic realm, even conceiving of such a move as an imaginary exercise makes the point — without laws, without endless debates — that employees have a natural right to ownership, if they choose to claim it. A St. Luke’s maneuver makes another point as well: stockholders have no right to sell employees in the market as though the corporation were a feudal estate. Stockholders get away with such acts today because, as [Thomas] Paine said, “a long habit of not thinking a thing wrong, gives it a superficial appearance of being right.”
What is more naturally right is recognizing employees’ emerging property rights. In the knowledge era, it’s time to dedicate our economy to a new proposition: that corporate wealth belongs to those who create it.
NOTE ON SOURCES: This essay is largely based on Marjorie Kelly’s The Divine Right of Capital; some of the definitions also use wording found on Wikipedia. Embedded images and videos link to their original sources.
Albert Einstein, of all people, made a lot of the same criticisms of modern capitalism (although he took it in a more socialist direction):
"By using the means of production, the worker produces new goods which become the property of the capitalist. The essential point about this process is the relation between what the worker produces and what he is paid, both measured in terms of real value. Insofar as the labor contract is 'free,' what the worker receives is determined not by the real value of the goods he produces, but by his minimum needs and by the capitalists’ requirements for labor power in relation to the number of workers competing for jobs. It is important to understand that even in theory the payment of the worker is not determined by the value of his product.
"Private capital tends to become concentrated in few hands, partly because of competition among the capitalists, and partly because technological development and the increasing division of labor encourage the formation of larger units of production at the expense of smaller ones. The result of these developments is an oligarchy of private capital the enormous power of which cannot be effectively checked even by a democratically organized political society. This is true since the members of legislative bodies are selected by political parties, largely financed or otherwise influenced by private capitalists who, for all practical purposes, separate the electorate from the legislature. The consequence is that the representatives of the people do not in fact sufficiently protect the interests of the underprivileged sections of the population. Moreover, under existing conditions, private capitalists inevitably control, directly or indirectly, the main sources of information (press, radio, education). It is thus extremely difficult, and indeed in most cases quite impossible, for the individual citizen to come to objective conclusions and to make intelligent use of his political rights…
"Production is carried on for profit, not for use. There is no provision that all those able and willing to work will always be in a position to find employment; an 'army of unemployed' almost always exists. The worker is constantly in fear of losing his job. Since unemployed and poorly paid workers do not provide a profitable market, the production of consumers’ goods is restricted, and great hardship is the consequence… The profit motive, in conjunction with competition among capitalists, is responsible for an instability in the accumulation and utilization of capital which leads to increasingly severe depressions. Unlimited competition leads to a huge waste of labor, and to that crippling of the social consciousness of individuals which I mentioned before."