Saturday, 26 April 2014

Economic Myths: "Workers should own the means of production"

... is one of those things which the Lefties like to say.

Whether or not this is a desirable aim in itself, they have sorely missed the point. I have often struggled to explain it to them, to little avail.

The productive economy has a certain level of output, i.e. total sales, the consumer surplus arising from all this goes by definition to consumers, most of whom are "workers". It's difficult to measure but it is a huge figure.

The total amount which businesses receive as turnover/sales can ultimately only go three ways (ignoring taxes and rents for the time being, as these reduce the amount which ends up being split between workers and owners of capital).

a) It can be paid out as wages.
b) It can be paid out as dividends.
c) It can be re-invested in the business, which benefits future workers and shareholders in the same ratio, so we can ignore this.

(Of course, most businesses will spend a lot of money buying stuff from other businesses, but those supplier businesses in turn can only split the money three ways ad infinitum).

So how much is paid out, in the UK, under (a) and (b)?

Total taxable income in 2011-12 according to from HMRC was as follows:

Employment income - £635 bn
Self-employment income - £73 bn
Pensions - £111 bn
Property, interest and dividends - £60 bn

According to Capita Registrars, total dividends paid out by UK companies in second half 2011 and first half 2012 were £77 bn, and total taxable profits of UK companies is around £150 bn (so half it paid out as dividends).

This is more than that declared to HMRC as taxable income, because about half of all dividends are paid to pension funds, so they ultimately show up as "pensions" (which is deferred employment income) rather than as dividends. And dividends are paid abroad, not declared etc.

It gets really tricky once you try to factor in rents and taxes; most rental income in this country (the rental value of owner-occupied homes) is completely off the books, that £200 bn does not show up in these statistics, and the rental value of owner-occupied business premises (about one-third of all business premises) is recorded as business profits, not as rental income.

So although most individual workers have little "control" of the means of production in the legal or day-to-day sense, who's to say that businesses would be run much differently, or that their terms and conditions of employment would be much different if they did? And as it is clear that "workers" receive around eighty or ninety per cent of everything that is paid out, i.e. for every £1 you earn, "shareholders" (around half of whom are former workers receiving pensions), they already sort-of own the means of production.

So why, and this was the second point of the post, are the Lefties so keen to tax workers? Aren't they depriving them of a large chunk of that part of the means of production which they do own (i.e. themselves and their own labour)? Or should we assume that this cancels out, because about half of what you pay in taxes is then paid out as wages or pensions to current or former workers?


Bayard said...

Also, why are the left not promoting partnerships? Is it because they are stuck with the C19th model of poor workers and rich bosses and simply want to swap one with t'other?

paulc156 said...

I think there are good reasons to think owner producers would act differently. In Spain worker owned [but not entirely worker controlled] Mondragon co operative [one of the largest companies in Spain] has worker/manager income ratios averaging about 5:1 and nowhere more than 9:1. CEO/avg worker income ratios in the US are in the hundred's' and even in Spain are over 100:1.

It's fine to talk about 'workers' getting the dividend payments or pension income but what proportion of that goes to the top 1% or thereabouts?

Mark Wadsworth said...

B, that's a separate topic.

PC, as I have written about before at length, I am thoroughly in favour of that "Spanish" model, where businesses are funded by 'deposits' rather than share capital, whereby those 'deposits' can be paid in in cash (by outside investors), or by employees simply not drawing their entire salary each month.

You can have John Lewis style works councils and directors being elected by "members" (i.e. depositors and workers) if you want, that is not actually essential.

And yes, the top 1% get a disproportionate share, but that is ultimately their slice of "rents" (banks, property companies, footballers, TV presenters, other protected industries).

Slap 'em with LVT, reduce state protections and open competition, that will all sort itself out.

Bayard said...

Mark, I wouldn't have thought so. In a partnership, as you explained above, the workers do own the means of production, i.e. the company.

Leg-iron said...

In my self-employed microbiologist hat, I am the sole worker and while I rent the lab, I own everything in it. So I own my means of production.

In the model-builder hat, I own all the tools and the stuff I use for making the models. As the only worker, I own the means of production. It doesn't make a lot of money but it counts as far as Tax Demon is concerned.

In my writer hat, I am again the sole worker and own the computer I type on as well as the source of ideas (a whisky-maddened brain). I own the means of production but not the means of dispersal. It costs nothing to put the books through a publisher or to self-publish (I do both, with different books). It all hinges on where the 'production' part comes in. At the point of writing, or at the point of sale of the book?

However, I also moonlight as a janitor. I do not own the uniform, nor any of the equipment. That all belongs to the company that employs me.

If the Left want all workers to own the means of production, does that mean all low-paid janitors and factory workers will have to provide their own equipment, tools, chemicals etc? Those jobs don't pay very much anyway, and if you have to get all your own 'means of production' before you start you'd need a hefty loan.

Or is it, as I suspect, that the Lefties want the rich guy to build and equip the premises and then just hand it over?

Because that will mean no factory will ever be built again and no business will ever employ anyone again.

Then everyone will be equal... equally starving to death.

Mark Wadsworth said...

B, that all depends what the rules are for becoming a partner. A partnership can be C19th-style segregated between "rich" partners and "downtrodden" workers. There again, it can all be happy clappy and equal, you can't generalise.

LI, good examples. Whoever build it, or paid for it to be built, gets to keep it. That seems like a good rule, doesn't it?

Lola said...

Simple observation, and running a small business, shows that that is how it actually works. I think lefties are fixated by envy, their own inadequacy and, most importantly, power. It's the Randian looters and moochers thing.

Sackerson said...

This left-right thing isn't very helpful. It's like a choice between freezing and burning.

Capitalism Poujade-style has little in common with the megabusinesses that have captured regulation, evade taxation by roaming the world, and extract value au vampire squid.

Rand was obviously mad, by the way, just look at video of her, and read her louche and selfish bio. Shame she had influence and legover with the elite.

The Stigler said...


If it was just about looting, I wouldn't mind. It's the righteous entitlement that grates, the sense that people who are philosophy students or people in soft council jobs deserve more than they get.

And they don't even get it. They want all the rewards, but they also want a massive safety net, interesting work, a work-life balance, respect in the workplace, all that stuff. They don't grasp that most businesses mean giving some of that up.

The worst thing I ever hear people say is "you get to work for yourself". No, I get to work for my clients, and actually, I'm far more focussed on their needs than many employees I've met who get a paycheque regardless.

DBC Reed said...

Right wing bullshit .You are missing the basic point that capitalists continually try to cut the wage bill when full-capacity working demands $1 in wages to buy every $1 worth of goods produced .See Karl Marx and Henry Ford. They then promote Homeownerist parties that further diminish "effectual demand" by ramping up housing costs, so "hardworking people" can only buy cheap foreign imports obviating the need for the Boss Class to organise any production at all or pay any wages , hence their sudden-onset internationalism : we must help the poor abroad by buying their stuff ......benefits of globalisation.... this hurts me more than it hurts you and other bollox.

Mark Wadsworth said...

DBC, you're falling into the "labour vs capital" trap.

The shares between labour and capital seem about right to me (although the share of labour between The One Per Cent and the other 99% seems a bit skewed).

The issue is labour+capital vs land+rents+banks.

Lola said...

DBC, eh? You say capitalists, but you're neglecting the other key components - markets, sound money, rule of law. What I think you are (rightly) railing about is cronyism. This is what MW is alluding to in his response.

DBC Reed said...

Capitalism has to make a profit margin so it is never going to distribute all the money in wages necessary to buy the goods produced or it wouldn't make anything on the deal. Commie bastards Marx and Engels had the land/rent/banks problem sorted in 1848 Manifesto's numbered points.
Marx agreed with George within limits and called LVT "capitalism's last ditch".It is an indication of the present system's complete walliness that it does n't occupy this last line of defence.But Marx believed that the problem of surplus value (production not covered by wages) would remain after the arrival of the LVT Utopia.
We aim to give the workers more spending power by cutting the exorbitant expense of housing and other costs for land use but wages will still not in aggregate stretch to buy all the goods produced.
Sorry to go on like Comrade X.Its really not my style.The old British post-war mixed economy in increasing aggregate wages by paying the public sector not to do very much filled the bill nicely, but the shitheads have so bribed all Brit homeowners with something for nothing capital gains in house prices that they believe capitalism is their friend and that they are all, as Max Keiser says, little lords of the manor like in Dowhham Abbey all hating public spending.
(MW you need to go on Keiser's show: 50% of it is about Homeownerist created House Price Bubbles.The word must be spread via this intelligent receptive duo Herbert and Keiser)

Bayard said...

"little lords of the manor like in Dowhham Abbey all hating public spending."

T'was ever thus. The British have always aspired to be landed gentry, ever since the end of the feudal system made such social mobility possible.

DBC Reed said...

Should be "Downton Abbey" above I think. (Have never watched a complete episode I'm proud to say.)

Marte said...
This comment has been removed by the author.
Kj said...

So ditch landownerism and preserve the capitalism that has labour rise with capital. Even witout LVT capitalism has created massive growth that we´ve pretty much wasted on land, recurring crises and creating non-jobs.
If there´s a problem of how the wealth is shared, that´s only a problem as long as that decreases the labour share of income in the long term, which correctly creates a fall in consumption. As long as it don´t, and capital does what it´s supposed to, and acts like the tool that is used to raise everyone´s living standard, who cares. The issue about the concentration of wealth (within the top percentages), and the extent that capital isn´t doing it´s proper job, is really about the stuff that is put in the way of more people getting richer and creating actual wealth. Those going into higher income tax brackets, who could decrease relative inequality and create more wealth. First of all the higher income taxes create a wedge that partly make their services more expensive to the rest, keeping other incomes down, partly slowing their own accumulation of wealth down. Secondly, they have the choice between two things, reinvest their income in actual wealth creating stuff, highly risky and taxed like it was a crime, or go all-in with land, split the profits with the banks and be content that "Downton Abbey-"ism is the ultimate goal. Most choose the latter don´t they?

Lola said...

KJ. Good point. You look at anyone that makes money from 'trade' (Alan Sugar for example)as soon as they can cash out they stick all (a lot) of their wealth into rent seeking and build property 'investments'.
We talk about 'capitalism' but that's only one factor (it's about ownership). We neglect the other factors - markets, rule of law, sound money, property rights and so forth.
The problem today seems to be that we've slipped back into an oligarchical/cronyistic arrangement. 'capitalism' (the catch all word) has not failed at all. What's failed is the democratic process.

Kj said...

Lola: exactly. It's not that everyone needs to be an "entrepreneur", it's just that getting your worth over and above what is deemed enough to get on the ladder and stay there is so utterly not what the setup is. The disadvantages of this "system" known as cronyist homeownerism or whatever transplants itself down the income scale, and the benefits is handed upwards.