Economics as if people mattered

Inequalities in income, wealth and opportunity are not just widening, but the rate at which their widening is growing. And there’s been a succession of governments that have not acted. For one of the main drivers of inequality, look at tax trends in the US over the last 60 years:

Corporate tax in the in 1952 was 32%. In most States in 2015 it was around 9%.

The top income tax rate in 1950 was 91%, in 2015 it’s 39%.

Estate [inheritance] tax in 1950 was 80% with very few exemptions, today it’s around 35% with so many exemptions that only 0.2% of the wealthy pay any.

With these trends, asking how this current form of neo-lib capitalism will end is not the right question. It’s harder to imagine how it can possibly continue. There are enormous social costs.

The ‘land of opportunity’ is now one of the most unequal countries in the OECD and one of the most difficult in which to claw your way out of poverty. And where the public purse is starved of funds there’s little help from government.

Since 1950, the prison population has soared in the US from 93 per 100,000 to 743 per 100,000, which is 8 times higher than any OECD country including Russia.

It’s no coincidence that in countries like the Netherlands that have low rates of inequality also have low rates of incarceration.

The UK and Australia have suffered similarly tapered tax trends to the US. And it’s in the English speaking countries particularly where taxes are no longer the engine of social policy.

This form of capitalism has become the rule by the few and is taking its toll on democracy, the rule by the many. It’s a systemic crisis and it won’t get solved by politics as usual.

The young are the biggest losers. University debt, unemployment and rising house prices has suppressed spending power and prospects. At no time in industrialized history has income and opportunity for the young become so compromised.

This explained the success in the US of the youth-powered septuagenarian Bernie Sanders. In the UK, though Labour’s Jeremy Corbin is not popular among the rank and file, in many parts of Britain party membership has soared 200 – 300% through Millennials’ subscriptions.

Social enterprises have been flourishing. 

One of the best examples of regional economic development through employee empowerment, is the federation of worker cooperatives known as Starting in the Basque region of Spain it arose in 1956 with a few workers in a disused factory, using hand tools to make oil-fired cooking stoves. Today it’s a conglomerate of 260 manufacturing, retail, financial, agricultural and civil engineering co-operatives employing 85,000 workers, with annual sales of $24 billion. In the aftermath of the GFC, when unemployment rose to 26% and to 53% amongst the young, Mondragon kept jobless levels in the Basque region to under half the national average.

Cooperatives have been happening in Australia too but on a smaller scale.

In 2014, Everlast Hydro Systems in Dandenong faced the fact that much of what they made was being sold in Australia for what it was costing Everlast to make them. But as manager, David Kerin  says “With not-for-profit co-operatives, we can be competitive …as long as we can comfortably cover costs, we don’t need to make a profit.”

They no longer have big salaries for the bosses either. In a worker cooperative all employees have a stake in the business and an equal vote in the way it runs and pay is much more even. Kerin earns no more than double the lowest-paid worker.

In other parts of Australia, new worker co-operatives include a civil engineering collective in Melbourne, a café in Adelaide, a date farm near Alice Springs, and an aged-care business in Sydney. In Brisbane the Nundah Community Co-operative provides employment and training opportunities for people with mental health issues. It delivers a range of services to businesses, government and the community across Brisbane.

In April this year, RACQ, announced plans to establish a mutual banking subsidiary within the RACQ Group.

In the past, Australian workers have chosen to unionize to bargain wages up, which exacerbates profitability, rather than organize to own production themselves. Melina Morrison, CEO of the Business Council of Co-operatives and Mutuals, [BCCM] says “Co-operatives thrive in times of economic downturn because they are a self-help solution …the Australian economy is facing major challenges with productivity, competitiveness and resilience which co-operatives have the potential to overcome.”

Recognizing the important part cooperatives can play in the economy, a Senate Committee was set up and reported in March 2016.

In the US, the largest retailer, Walmart, pays $12 per hour to its average worker whilst Walmart chief, Doug McMillon, made $25.6 million last year. Meanwhile worker’s cooperative, Costco is the 4th largest retailer in the US and pays its workers an average of $20 per hour and its CEO is happy earning $240,000 per annum.

Recall also how the heads of big multi-nationals make poor ethical decisions from half a world away to boost profits, and these decisions often impact on worker’s health and the environment. The bosses are not concerned with pollution or poisoning the air. This won’t happen in a cooperative where the workers breathe and live the outcome of their decisions.

Also, participants in this radically decentralized form of socialism means more job satisfaction and far less industrial unrest because their workplace – where they spend most of their lives – has been properly democratized.

Think of all the failed governments’ attempts to reduce inequality, to engage with climate change and to make workplaces more egalitarian and work more satisfying. Workers’ cooperatives are beginning to do these things and still compete efficiently in the market place.

It’s a glimpse of economics, as Ernst Schumacher put it in his book, Small is Beautiful: “as if people mattered”.

Graham Carter