As John Locke pointed out centuries ago, capitalism is a self-initiating strategic response to the possibility of becoming independently wealthy once the state lost or diminished its ability to arbitrarily assume ownership of individual wealth. The idea is simple enough: combine the assets of several people into a single corporate body so that each contributes capital making it more possible for the single corporation to control production and distribution to dominate the market and thus maximize the amount of wealth that can be shared amongst the owners of capital (so-called capitalists) within the corporation. Because it is an economic system, not a social system, the corporations (thus the capitalists in the system) are nothing more than strategic constructs. They have no inherent mechanism of exhibiting social consciousness or social responsibility for people beyond the ownership of the corporation. Many corporations require employees, but many do not, they can be operated completely with owners and no one else. Employees in a capitalist corporation are really just packages of energy and skills. If the “person” part of the employee can be more inexpensively replaced by a machine, the corporation “feels” no compunction about making that replacement.
The end result of this strategy has been an immense increase in the industrialization and competitiveness of many countries. In most cases, the overall wealth of a country, especially in the early stages of the development of capitalism in a country, increases rapidly. Both in the early years and in the mature years of a society operating a capitalist economy, the workers (employees) are very poorly treated. Sometimes in the early years, workers are actually formal slaves, and in the more mature capitalist systems become what has been termed “economic slaves.”
As Friedman and others recognized, unemployed people are necessary to maintain the ability of corporations to keep costs of labour down when machines can not be substituted for people. The idea is that if someone is without work, they will happily step into an empty job that is underpaid just so that they have access to at least some revenue. The incumbent worker has the choice of agreeing to a low wage or quitting and joining the ranks of the unemployed. This arrangement is great for the capitalists and in general the end result is that corporations grow larger, wealth becomes concentrated in a few while the gap between the highest and lowest earners expands. The wealthiest move subtly or not-so-subtly to control the government so that they do not lose the ability to continue to become even wealthier. Eventually, something must give. The most common is a resistance to the poor conditions by the employees. Early resistance takes the form of establishing groups of employees, sometimes formally into unions, or cooperatives, and sometimes informally as protest groups. Historically the balance between corporate need for increased profit and the daily needs of employees has provided a steady increase in the general wealth of all of society. After a fairly long period of increasing wealth and the development of a strong middle class, however, the continued need for increased profit margins by corporations begins to place stress on the cost of employees at all levels, but especially at the bottom of the pay scale.
In the “golden years” of a typical capitalist democracy, the expectations for material wealth and entertainment increase rapidly in the younger generations. These expectations are happily fed by the various industries that supply the goods and services required. At least based on a wide range of examples, with a few exceptions, the system becomes unstable by virtue of the bloated expectations that become translated into high levels of personal and corporate debt encouraged by the central banking system that shifts from a solid base for currency to a debt-based currency. IN some cases rampant corruption exacerbates the situation. If at the same time, increasing population and declining resource availability act together the strain becomes great enough that the economy falters and declines, sometimes slowly, but more often rapidly, increasing the unemployment and loss of market opportunities for companies due to shrinking personal budgets for most people. Often the unemployed attempt to gain revenue from a wide range of independent small business enterprises, ranging from street hawking to internet based services. How well the current move to cottage industry made possible by the growth of the Internet and digital technologies will play out against the major corporations remains to be seen.
In modern developed democratic societies, the tension between the lower income and higher income brackets can be seen playing out in many countries just now, most notably in Europe and the US. In some cases, the tension destabilizes the government through mass protests or even revolution.
Is there a way to add a social component to capitalism to prevent the extremes of wealth concentration and unemployment? For sure, some CEOs are active in supporting their employees, especially if it is in the business interest to have high achieving employees. This tends to be the exception rather than the rule.
It would seem that one of the most profound objections to the use of taxation is not about common services or about services that benefit business. Instead the objection seems to be most rooted in the idea that if a person earns money, that money should not be given to someone else who didn’t earn it. Thus, the idea of government run health care, unemployment programs, child care programs, arts and culture programs, and so on are seen to be simple transfer of funds from those who earned it to those who did not. The earners fall into two categories: the employed and the owners. Earning is divided into two categories in most countries, active earning (being employed, carrying out a business or service) and passive earning (interest or dividends from investments). Wealth can increase if the value of held assets increases. In some countries this is taxed annually, in others it is not taxed until realized by sale, and in still others it is not taxed.
The complexity of systems designed to use taxes in various ways is truly mind-boggling. The strategies used to avoid taxes or to attempt to direct them to self-interest is even more astounding. The act/react formula leads to an evolution of strategies on each side to maximize their benefit – an obvious effect given the nature of our biological propensity to do just that. It is reasonable that the same strategies should extend to business. But the result so far has been that as the capitalist/human relationship develops and matures, corporations get larger, wealth concentrates at the top, and income at the lower and middle end drops until the system is under extreme tension.
If the end result desired by everyone were to develop a society in which everyone pulls their weight, is able to continually increase their wealth, and taxes are used only for purposes the “capitalists” vote for, perhaps some coordinated effort could be made to get there. What about the concept employed by a few, that is that employees can earn ownership in a corporation and become shareholders? Can that idea be expanded to some benefit of society as a whole without losing the capitalist concept? What I am about to suggest is not something that would be implemented with any ease, of course. In fact it is not likely to be implemented without some massive emergency precipitating a need to handle the potential decline of entire societies. In the past, that potential demise has not necessarily resulted in rational thought and the implementation of sensible governance – usually it simply signals the fall of the society.
But what if we had a plan all ready to implement? One that was not based on the imposition of a system that was intended to create wealth for a few, but instead a system intended to create a more egalitarian and managed wealth among the citizens? Suppose by some amazing stroke we collectively understood the need to manage resources for the long-term and that a healthy and happy populace might actually be more productive than one under strain, while serving only a few wealthy people? At the same time we want to be certain we do not repeat the historical lessons and attempt solutions that have proven to fail in practice.
Of course, I am not naive enough to think this might happen easily, but if the plan were there, it might have a chance of success. Imagine a world faltering on the brink of declining energy, declining food, rising temperature, massive migrations retreating from coastal areas under new floods from rising oceans, enormous losses of currently fertile areas because of drought and sea water contamination, lots of desperate people starving and thirsty. Most of history suggests the result will be the decline of civilized society and the rise of gangs taking advantage of the weak to benefit themselves.
Instead of waiting for the tumble to begin, what if the plan were instituted early as a safeguarding mechanism intended to preserve civil society? What if we outlawed having employees. That way everyone is earning whatever income the corporation has, and there is no distribution of that income to employees, only to owners. Everyone working for a corporation becomes a shareholder and owner. The maximum range in recompense is 10x. That is the CEO makes a maximum of ten times the lowest paid shareholder. Corporate taxable income would be simply gross revenue minus direct costs. Details inevitably will need solving, but as a general principle, not much would be deductible if it wasn’t a direct cost. The taxable income would also become the total shareholder income to be divided as owner revenue. All shares are voting shares. Shares are owned, but for a set period can be revoked if the holder does not perform in the job as required and agreed to by all shareholders. After a set period, a percentage of shares cannot be revoked, and they become a pension plan. The company must set up investment funds to cover potential dividends on pensioned shares (same 10x top to bottom applies for pensioners).
If company does well, shareholders do well. If company loses money shareholders don’t get paid and / or lose value on their shares. The incentive to do well and monitor, police, train, and encourage other shareholders is built in.
Finally there would be no personal income tax, but sales taxes could be implemented on certain items. To ensure a relatively equitable distribution of wealth, the maximum wealth any individual would be allowed, including shares in any single or combination of corporations would be a set value, perhaps equivalent to a billion US dollars in today’s money.
What might be the end result of this type of legislation? The inventiveness of humankind is endless so a real prediction is not possible, but in theory at least, the richest would be no richer in income stream than the lowest by about 10 times. This equalizing of the population would not in any way decrease the incentive to perform because everyone is a shareholder voting member of corporations. As such their contribution is reflected in their revenue stream. Corporate competition and innovation should remain high as there is still a complete capitalist system at play. While the maximum wealth is set a billion US$ that is more than enough for anyone’s needs in terms of personal requirements. The corporate wealth could be vast. Should for some bizarre reason a corporation reach the point where every shareholder is a billionaire, then new shareholders with needed skills or assets can be invited in so that the size of the corporation can continue to grow.
Needless to say, not everyone in a capitalist country is in a capitalist corporation. Many companies are family-owned small businesses or even individual consultants, artists, or service types. The concept of everyone being an owner is not in any way compromised by small businesses. What to do about farming and other industries that need part time seasonal labour, but could not afford to have everyone on full-time? In this overall scheme a single person can be a capital owner in several corporations just as today. Also, as in today’s world, the ownership can be derived from work, purchase, or asset contribution.
Finally the question arises about what to do with people who are not owners, not in business for themselves and not able to provide for themselves and their families for some reason. Just for now, let’s say it doesn’t matter if they are disabled, incapacitated by some illness or genetics, or even are found to be cheats, thieves, or worse. In the society we envision here, some measure of support is offered to all of the people in the citizenry, or even in some cases to visitors, legal or not. In the case of criminals and thieves, the support is in the form of imprisonment and training for rehabilitation. If one were to make the case that cheaters are just people who are maladjusted to their society and are essentially crippled or disabled from a societal perspective, then the rehabilitation support offered to the disabled or needy in the normal sense of the word can be rationalized for the cheaters as well.