A colleague of mine recently wrote an article in which he talked about how economic successes can compound in ways that are terrible for economies as a whole, as well as for most of the people who work within them:

Of course, this is true.

For some, it takes all the running they can do, just to keep in the same place. For others, they can sit on their thrones (as the Red Queen does) and drift farther and farther ahead. And for others, all the running they can do just leaves them further and further behind the pack.

But, to me, there is another way of looking at this story: as one about the division between wage-share (also known as labor-share) and capital-share (also known as profit-share).

From Wikipedia:

In economics, the wage or labor share is the part of national income, or the income of a particular economic sector, allocated to wages (labor). It is related to the capital or profit share, the part of income going to capital… the wage share was once thought to be stable, which Keynes described as “one of the most surprising, yet best-established facts in the whole range of economic statistics.” However, the wage share has declined in most developed countries since the 1980s.

The Left, including myself, have often railed against capital-share. The far-Left has often wished to abolish it, while the center-Left has merely wished to see it rise. Both have proclaimed doom and gloom over its descent:

graph from here+

I should note that I agree — is a man not entitled to the sweat of his brow? The idea that people are entitled to enjoy the fruits of their labor is, I think, a self-evident moral principle. That our present institutions seem more interested in rewarding ownership than a hard day’s work is a moral outrage.

Matt Bruenig even declared that the point of the Left’s policy proposals is “to reduce capital’s share and increase labor’s share of the net national income. This goal is rarely articulated so bloodlessly, but it is nonetheless what basically all of the current populist policy ideas are aiming to accomplish”.

Bruenig goes on in that same article to group such policy proposals into three categories: external, internal, and ownership. External policies are those that increase the bargaining power of employees by making it easier for them to quit. Internal policies — such as those designed to encourage and support unionization — are those that increase the bargaining power of employees within the firms that they are already employed at. Ownership policies — such as social wealth funds or cooperatives — are those that attempt not to increase the bargaining power of employees, but to instead make them into partial or full owners of their workplaces.

Photo by Austin Distel on Unsplash

It’s this last set of policies that seems most illustrative to me of the limits of increasing wage-share — i.e., that it cannot be increased to 1. The closest that we can get is an institutional set-up in which both the wage-share and the capital-share got to the workers — which is close to, but not technically, the same thing.

If we had an economy where all firms were cooperatives or where all capital was owned by a perfectly democratic (never mind the mechanism!) social wealth fund, we would still have to have some portion of outputs be used for re-investment — i.e., if the workers did own the means of production, as in the farthest desires of the Left, they would be both worker and owner — and would necessarily have to take on the roles of both. This is seen in actually existing worker co-operatives, where the standard set-up is for the cooperative to pay each worker-owner an hourly wage — and then for any profits to be split between a dividend for all worker-owners, savings for the cooperative, and re-investment in the co-operative — as determined through internal workplace democracy.