In The Outline of Sanity, G.K. Chesterton mentioned a few approaches to the realization of Distributism:
The most cautious, from a capitalist standpoint, is the gradual extension of profit-sharing. A more stringently democratic form of the same thing is the management of every business (if it cannot be a small business) by a guild or group clubbing their contributions and dividing their results. Some Distributists dislike the idea of the workman having shares only where he has work; they think he would be more independent if his little capital were invested elsewhere; but they all agree that he ought to have the capital to invest. Others continue to call themselves Distributists because they would give every citizen a dividend out of much larger national systems of production.1
Chesterton preferred the second approach. My much less eminent preference is for the first, because it would be simpler and involve less social upheaval, and also because there is a large working infrastructure on which to develop such a plan. There is already a lot of profit-sharing and employee ownership going on, and all that remains for those interested in the project is to move these existing practices in a more distributist direction.
By contrast, it would take an enormous effort to transform every business into a workers’ cooperative. This is not to say that the outcome wouldn’t be salutary, but the social transformation involved would be immense. It would also be expensive, since non-working interests would have to be compensated fairly for the loss of their investments. Outright confiscation could avoid the expense, but it would be grossly unjust, and would entail the kind of class war that distributists should rightly eschew. The cooperative enterprise is a worthy one, but it is something that should only be encouraged, not mandated.
The idea that workers should diversify their investments has merit, but it can never be part of a distributist plan. Mandating diversified investment would entail a good deal of centralized planning and control, and any level of meaningful subsidiarity would go out the window. Any distributist will agree that working people should have capital to invest, as Chesterton pointed out. But the funding for that capital should come from work in the first instance, which requires adequate compensation for work, and workers should be able to invest in any manner that they see fit.
Giving citizens a dividend out of the entire production of the nation would really be a kind of tax, since it would be unrelated to work performed by any individual. There’s nothing wrong with taxes that redistribute wealth where it is needed, but we hope that the implementation of distributism would reduce the need. Moreover, since a dividend wouldn’t be needs based, it is difficult to see what benefit would accrue from it that wouldn’t be better served by a more targeted redistribution.
Profit-sharing, as I’ve mentioned, is what I will urge here, but I don’t mean that, necessarily, in any technical sense. Broadly defined, it is simply an equitable sharing in the profitability of the business one works for. It can take many forms, and can have varying degrees of complexity, and it is not necessary to be too rigid in our approach to it. Profit sharing can take the form of money paid over to employees, which they, in turn, can invest as they please, or it can involve distribution of ownership shares. In Rerum Novarum, Pope Leo XIII urged no more than that wages be sufficient for a working person to support his family and, with thrift, set aside “some little savings and thus secure a modest source of income.”2 Such a policy, he said, would encourage “as many as possible of the people to become owners,” and would have the salutary outcome of property becoming “more equitably divided.” Broad based and equitably divided productive property is, of course, the very aim of distributism.
But how can mere wages ever amount to profit-sharing worthy of the name? This is hard to imagine in an economy such as subsists in the United States, where there is a wide disparity of income, and CEOs can make more than 300 times the median salaries of their employees.3 It is hard to imagine, that is, until it is remembered that things weren’t always the way they are now. In 1965, during what has been called the “Golden Age of Capitalism,”4 the CEO-to-worker compensation ratio in the United States stood at about 20-to-1. That doesn’t tell us that a simple return to conditions in the 1960s would bring about a just society—there was plenty of poverty in the United States even then—but it demolishes any argument that exorbitant executive compensation is necessary for a thriving capitalist economy.
It also reveals that standards could be legislatively set, tying CEO compensation proportionately to the pay of a company’s lowest paid workers, with no damage to the economy whatsoever. In fact, because it would have the effect of increasing purchasing power throughout society, it would doubtlessly be beneficial to the economy as a whole. The idea is, simply put because it can be, to establish a required wage ratio between a given company’s highest paid executive and its lowest paid worker.
This is an idea that has been around for some time, and it has been suggested that the exact ratio to be established matters less than that there should be such a ratio.5 But that is inadmissible from a distributist perspective, since the distributist goal is to enable the acquisition of productive property on as widespread a basis as possible.
Ben & Jerry’s, the Vermont ice cream company, originally had a policy that no employee could make more than five times what the lowest compensated worker was paid. Unfortunately, that practice came to an end when founder Ben Cohen retired as the top executive, and the company had to search for a new chief.6
The Wagemark Foundation, a Canadian non-profit, certifies companies that meet its standard for a wage ratio. It explains its standard this way:
The Wagemark Standard is based on a formula for calculating the ratio between top and bottom earners within an organization. The standard compares the total earnings of the highest paid employee with the average pay of the bottom decile of earners within an organization. This decile is based on the proportion of full-time and part-time employees within the organization. Earnings include all tax-reported income and benefits. Wagemark Certified organizations must achieve an 8:1 or better wage ratio.7
The Wagemark method has the disadvantage of being more complicated to calculate (the average of the bottom decile has to be calculated), and also seems to be easier to fudge. The lowest paid worker in the bottom decile could be compensated in a substantially less amount than other employees who are also in the bottom decile. The more straightforward approach of using a wage ratio between the highest and lowest paid employees is to be preferred.
The most direct way to bring about a proper wage ratio would be legislation simply mandating it. But the idea might encounter less resistance if it was accomplished through favorable tax treatment of those companies implementing such a policy. One extant proposal is a business tax rate that is based on the wage ratio within a given company. A company with a 5 to 1 ratio would be taxed at 5 percent, a company with a 20 to 1 ratio would be taxed at 20 percent, and so on.8 A company with a 300 to 1 ratio would be taxed at 300 percent. The advantage of this idea is that it would avoid the setting of a ratio arbitrarily that might not be best for all concerned, and, instead, allow for businesses to make adjustments taking account of a variety of factors. It would also provide a trade-off between the interests of individual companies and social concerns. Such a tax policy would be, in effect, saying that a company could operate under a regime of trickle-down economics provided that it ensures that wealth really trickles down. It is to be remembered that a company could lower its tax by raising the wages of its lowest paid employees as well as lowering the compensation of its top executive.
There are a number of ideas extant for reducing the income gap that has become such a serious concern in recent years. The establishment of a national wage ratio may well be the simplest and most workable of the solutions available. It would certainly go far toward ensuring that working people share in the profitability of the companies they work for.
- G.K. Chesterton, The Outline of Sanity.
- Leo XIII, Rerum Novarum, no. 46.
- Sara Burke, Claudio Puty, “The Post World War II Golden Age of Capitalism and the Crisis of the 1970s”.
- Peter Drucker, “Is Executive Pay Expensive?” Wall Street Journal (May 23, 1977).
- Conceptual Math.