Re: Another potential flaw in current economic theory...

[Jim Burnes <jvb@ssds.com>]

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On Tue, 6 Oct 1998, Jim Choate wrote:

> Hi,
> 
> It occurs to me that there is another potential flaw in current economic
> theory and business practice.
> 
> Currently (ala Friedmann) the parties that reap the benefit of a succesful
> business are the shareholders, this is currently seen to exclude the
> employees in many cases/companies.
> 

Actually not.  There are quite a few business that have employees as
shareholders.  Most shares of companies are reasonably priced and
easy enough to get a hold of.  Selling them on the other hand is
not so straightforward.

> This approach undervalues the business worth of the employees commitment to
> the business.

Sounds Marxist to me.  Your percentage of equity in anything is
proportional to the risk level you take.  The employee risks none
of their own capital so cannot legitimately expect to be rewarded
with stock.  The employee is free to leave at any time and thus
discontinue their only investment in the company, their day to day
presense.

Of course that does not preclude the employer from offering stock
as an incentive to long term commitment or as an enticement to stay
when the market takes a downturn etc.  In that case the employee
is then taking a risk -- basically the opportunity cost of moving
to a more lucrative situation (one of which is working for himself
and becoming an "evil robber baron").

> 
> A more reasonable approach (and one that might make free-markets more
> workable, though not by itself) is to consider the employees shareholders
> even if they don't hold a single piece of stock. And no, their paychecks are
> not sufficient.

Hmmmm.  That would work like a charm when it comes to paying dividends.

> 
> Consider, another way to look at a business' goals is "to make every
> shareholder a millionare so they don't have to work at anything else". What
> business do you know has the specific goal of making their employees (all
> the way down to the janitor) sufficiently wealthy from their commitment to
> the business so that at some point they don't have to work any more either
> (and we are NOT talking about some measly 401k retirement program)?

What the business does it hire them so they don't have to risk their
own capital.  Of course the labor/socialist view is that they are
being exploited.  I encourage all workers who think the "from each
according to their abilities to each according to their needs" model
works well to emigrate to Russia.  As PJ O'Rourke says, "there they
boil stones for soup".  Go to China and see what kind of "profit
sharing" deal they will make you.  Better yet, try to become a 
prosperous self-employed person.

> 
> What would the impact be to the current business models if we include this
> axiomaticaly?
> 

Ask Marx.  Apparently you don't think capitalist models work.

jim

More PJ O'Rourke...

"And here is another shock.  Professor Samuelson, who wrote the early
editions [of "Economics"] by himself, turns out to be almost as much of a
goof as my friends and I were in the 1960s.  'Marx was the most
influential and perceptive critic of the market economy ever,' he
says on page seven.  Influential, yes.  Marx nearly caused World War III.
But perceptive?  Samuelson continues: 'Marx was wrong about many things
... but that does not diminish his stature as an important economist.'
Well, what would?  If Marx was 'wrong about many things' *and* screwed
the baby-sitter?"



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