Joseph Blasi, a veteran researcher and professor at Rutgers University in New Jersey, has furthered the national debate on “income equality” with a call for workers to get a piece of the profits in their companies through broad-based stock plans, just as the executives and shareholders do. He has joined with fellow Rutgers Prof. Douglas Kruse and Richard Freeman, a Harvard University economist, to write “The Citizen’s Share: Reducing Inequality in the 21st Century.” Noted French economist Thomas Piketty, who has written about the growing concentration of wealth, has praised Blasi’s book.
Q: What is the issue you address?
A: The deck is stacked against the middle class, the working stiffs and even couples who make up to $200,000 a year who struggle to get their kids through college.
Real wages have been flat for 30 years. Wealth has increased only for people who have capital shares, a share of ownership. The solution is to broaden the pool of people who have access to shares of profits and their company stock. We’re not talking about a 401(k) retirement plan where employees use their own wages. Or an Employee Stock Ownership Plan (ESOP) where employees are buying their shares with their wages or through concessions. We’re talking about ownership grants on top of fixed wages. The founders of our country believed that broad property shares were the primary solution to economic inequality, and were necessary in order to sustain a republic with full democratic participation of every citizen. The current political debate is polarized between those who are for tax cuts on everything and those who see tax increases as the solution to our problems. There is a fertile middle ground, namely tax cuts for those businesses and individuals who implement broad-based share plans that help reduce economic inequality.
Q: Why does wealth inequality matter? Aren’t there winners and losers in capitalism?
A: Income and wealth inequality often reflect differences in abilities and performance and such inequalities are normal in market economies. Today … the large gaps in income and wealth inequality are not mainly based on who works harder or smarter in a workplace. They are based mainly on who owns shares of businesses, stocks, bonds, financial assets and real estate and who enjoys most of the capital gains from these assets and receives shares of profits. If you do not own capital and if you do not have access to capital gains … then your economic prospects are declining. Business profits and productivity have been rising. The problem is that regular citizens are not getting a share of the profits and wealth that they are creating. When the top 10 percent own 90 percent of all corporate stock, 80 percent of financial assets and 75 percent of all wealth … and growing, this is not sustainable in a democratic country without threatening the disappearance of the middle class and the substantial weakening of our democratic political system.
Q: How do you convince boards of directors, mostly composed of the economic elite, that they should spread the wealth to working stiffs?
A: Two ways. First, the profit-sharing and grants of stocks and stock options … and all “performance-based compensation” is tax deductible for the business. The taxpayers subsidize these $20 million pay packages for Target executives and other corporations. The condition for any business receiving any tax deduction … is a broad-based stock ownership plan [for all employees].
The key cause of the extreme levels of income and wealth inequality is the high concentration of ownership of capital and access to capital gains. One clear solution is to broaden the ownership of capital and the access to capital gains. This can be done well within the tradition of the Founding Fathers and a private market economy, without the redistribution of wealth, by allowing tax cuts for any corporation that maintains substantial broad-based share plans such as profit-sharing, Employee Stock Ownership Plans, broad-based stock option plans, or other lower risk share plans. Adopting employee share ownership and profit-sharing would be a condition for a company to receive any corporate tax incentive offered by the federal government or state governments.
Q: What do you think of the global wealth tax proposed by Thomas Piketty?
A: The global wealth tax takes another approach by taxing the wealth of every person every year and then redistributing it to the rest of the population. I think that it would be very hard politically to legislate a global wealth tax in the United States. A 1 to 2 percent global income tax and taxes of up to 80 percent on the wealthiest would be very hard to implement. But if we continue headlong toward this feudalism there will be more and more demands for higher taxes. I am offering a broad-based alternative. There is no reason why our current wealth taxes, such as the income tax, the corporate tax and capital gains taxes could not be lower for corporations and individual business owners who promote broad-based share plans.
Q: What is the politics behind this proposal?
A: If the federal government and the states radically promoted share plans to broaden citizen access to capital ownership, they would follow the footsteps of many of the founders, a bipartisan approach likely to receive support from both Republicans and Democrats. It would also have the political advantage that “a piece of the pie,” a share in the profits … motivate workers to work harder and smarter. The idea would actually strengthen personal responsibility and entrepreneurship. I am afraid that sheer political polarization is what current political leaders want: all tax cuts for any reason or all tax increases for any reason. Both views lack original thinking, and neither simplistic view really addresses the inequality dilemma head-on.
Q: Sharing the ownership isn’t redistribution of wealth?
A: No, it is not redistribution of wealth. Redistribution of wealth is taking the wealth of one person and simply giving it to another. Profit-sharing is based on the notion that the workers promised a share of the profit will increase the overall size of the pie. Sharing capital ownership through grants of shares of stock is based on the same principle. In fact, decades of research show that on average, companies with share-ownership plans do better.
Q: Are all share plans good?
A: Not all. Business people have invented share plans that simply threw a lot of risk at workers. In the very popular 401(k) plan today, many businesses encourage workers to buy shares of company stock with their own wages or retirement savings. Some workers will heavily over-invest in company stock with their own savings. That is very high risk. I am in favor of lower risk share plans such as profit-sharing which comes on top of wages, or Employee Stock Ownership Plans, where workers get grants of stock they do not have to buy.
Q: What is your message to conservatives?
A: I would say that an honest reading of early American history and the founders shows clearly that they were interested in small government and low taxes, but that they also added a third very important element to their interests, namely, broad-based property ownership. They in fact believed that broad-based shares of property throughout the entire economy made small government and low taxes possible. Conservatives need a market economy strategy to broaden access to capital.
Q: What is your message to liberals?
A: Much of the talk about the decline of the middle class is dishonest by progressives and liberals if they do not recognize the fact that most of this decline is due not only to flat wages but to lack of access to capital ownership and capital income. Progressives … often talk about methods and ideas that are not going to move the needle on wealth inequality very much. Shares are a sensible solution that promote more fairness in the economy, but they require progressives to think larger than just taxes and spending as their tools.