Wealth Inequality

4 Ways Society Can Fix Capitalism Right Now

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4 Ways Society Can Fix Capitalism Right Now

By Leigh McMullen - Guest Author

An ethos of Western civilization is that we should reward merit proportionately, yet the aggregation of wealth prevents this. Simply put, it permits hereditary or political advantage to triumph over merit.

The fundamental problem of capitalism is that wealth snowballs, creating a compounding generational upper hand until it eventually morphs into feudalism. We are essentially in a state of "Democratic Feudalism" today. We must fix capitalism if the United States is to survive. Fortunately, it may be relatively simple — though not easy — to do so.

The answer is a wider distribution of wealth but government redistribution is a sub-optimal answer to the problem. What I present to you is a very straightforward, market-driven, and government-supported approach.

1. Tax corporations, not people.

We shouldn't tax behaviors we want, and it goes without saying that we want people to work. Therefore, don't tax work. All other arguments aside, the simple fact is that only corporations have the ability to use technology to offset the cost of their tax bill. We want technology investment and the jobs that technology investment will create.

Active income — that is, income earned through employment — should not be taxed. Taxing passive income may seem fine now, but as we'll see, we want more shareholders, and this affects them. Eventually, it becomes a de facto income tax again.

2. Public companies should be at least 50% employee-owned.

Given that the answer to fixing capitalism is wider distribution, we can instead more widely distribute ownership rather than redistributing proceeds through government intervention. This is achieved by having all public companies reserve half their stock for employees. This has the intended side effect of restoring a soul to the public company.

The Milton Friedman ethos that corporations are best when they serve a soulless, psychopathic shareholder has proven to be disastrous for society. Friedman posed the question of who gets to decide the ethical point of view for a corporation. His answer was to prevent what he perceived as corporate tyranny driven by powerful CEOs with agendas.

This problem ceases with employee ownership. We trust representative democracy to govern and set the ethical agendas for the most powerful nations on Earth but not most companies. Why not? Representative democracy works.

We witness that founder-led, family-run, and employee-owned corporations tend to outperform their peers consistently. This may also increase investment in moonshot innovation, which has largely evaporated from most corporate boardrooms because CEOs are incentivized to be short-sighted.

Why didn't Ford take stimulus money? Because a guy named Bill Ford was chairman of the board and was looking after his family legacy. Not just some CEO only worried about increasing quarterly performance and boosting their stock price.

Having public companies be 50% employee-owned provides benefits on both sides:

  • Employees benefit from stock appreciation due to market speculation.
  • The market benefits from stable, predictable employee ownership limiting downside. Corporations naturally become more in tune with the ethos of the communities they serve.

This doesn't require great government intervention but rather changing the rules of how public companies can be structured and progressive scheduling for those already existing. Competition for talent will drive the rest.

3. Provide a Universal Basic Income (UBI).

Simply put, we built this amazing civilization on labor that we don't need as much anymore. The music has stopped and there are people without chairs. This trend is only going to increase. We need to stop lying to ourselves and admit that the only fair answer is a Universal Basic Income.

Data shows that as economic security increases, population rates fall. People will make good economic decisions for themselves, which is why UBI shouldn't go up based on the number of kids one has.

This also has the intended positive side effect of improving many workplace ills and abuses. Employees won't risk starvation if they leave. They won't tolerate abusive bosses or workplace harassment. Talent will finally become "The companies most valuable asset," as inspirational posters have advertised for so long.

4. Make the government a whole lot smaller.

With the deployment of the UBI, all other government social programs could potentially cease to exist. By eliminating income taxes on individuals, the IRS can functionally cease to exist, as can most of the state governments serving those functions. Public companies have public auditors who already audit their books. Officiating tax collection can be a value-added service.

Now, what's stopping this? The top 20% are the actual beneficiaries of Trickle Down Economics with 401Ks and profit-sharing bonuses. In letting them share in their wealth, the top 1% have enlisted them as human shields to protect it. That is a deadly trap. Until larger majority sides with the workers, it is not only the 1%. We are collectively responsible.