Saturday, March 21, 2015

Workers of the World, Invest!

Or, Socialist (in the sense of 'worker-owned') Capitalism: An Immodest Proposal.

This is from David D. Friedman's Machinery of Freedom, a libertarian classic from 1973 (still in print, and now in its third, revised edition) currently being reviewed by the incomparable Scott Alexander of the blog Slate Star Codex.

Alexander highlights the following passage from Friedman's book for our consideration, which, though I have read the book, I had quite forgotten about:
How much would it cost workers to purchase their firms? The total value of the shares of all stocks listed on the New York Stock Exchange in 1965 was $537 billion. The total wages and salaries of all private employees that year was $288.5 billion. State and federal income taxes totalled $75.2 billion. If the workers had chosen to live at the consumption standard of hippies, saving half their after-tax incomes, they could have gotten a majority share in every firm in two and a half years and bought the capitalists out, lock, stock, and barrel, in five. That is a substantial cost, but surely it is cheaper than organizing a revolution. Also less of a gamble. And, unlike a revolution, it does not have to be done all at once. The employees of one firm can buy it this decade, then use their profits to help fellow workers buy theirs later. 
When you buy stock, you pay not only for the capital assets of the firm—buildings, machines, inventory, and the like —but also for its experience, reputation, and organization. If workers really can run firms better, these are unnecessary; all they need are the physical assets. Those assets—the net working capital of all corporations in the United States in 1965—totalled $171.7 billion. The workers could buy that much and go into business for themselves with 14 months’ worth of savings.
As Alexander points out, under current conditions it would probably take longer for this to work, but the general idea still seems sound.

Of course, from Friedman's point of view, this is mostly a thought experiment to show that the workers actually benefit from the expertise of the owners of capital and the employees they hire to manage their capital and their workers. But, even if Friedman is correct about this, if his underlying argument is sound (perhaps a big 'if'!), then it seems that workers could still just purchase stocks in firms or otherwise become owners of capital themselves through saving and investing, thus de facto obliterating the distinction between workers and capitalists.

Of course, as many people have already pointed out, this has already partially happened, since a greater percentage of the population have investments in private corporations through their benefits packages etc., but Friedman's proposal suggests that this process could be greatly expanded and accelerated.
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