In the past 50 years, America has transformed into a class-divided country — one of striking similarity to the country it was founded to escape from. Not only is this what a country should ideally avoid if one cares about morals, but it is intrinsically dangerous. History has shown that society cannot exist with such unequal dyads, whether it be in the Spartans fearing the Helots, the French Revolution, the Roman mutiny rebellions, or the various murderous communist regimes. When so many feel so unrewarded, they will naturally try and take what they believe is owed to them. If one watches the news, America seems to be on the brink of all-out civil war, with the mainstream media attempting to disguise riots burning down buildings and killing people throughout the country as mostly peaceful, politicians espousing billionaires should not exist, people no longer caring for facts, and the placing of a guillotine outside Jeff Bezos’ mansion.
Democrats preach equality and the rights of the people while their cities have rampant inequality that can make one shutter. The ratio of the mean income of the top quintile of earners in San Francisco divided by the lowest quintile was 26.27 in 2018. This was an even more drastic 43.12 in New York. Compared to a Republican city like Houston (Harris County) which has only 12.79, not to mention the fact that cities naturally have higher inequality than suburbs and rural regions (which are widely Republican), things do not look very rosy for Democrats. This divide is especially stark during 2020 which has seen the rich flee to their Hamptons and Florida estates and continue working remotely while the majority of people have been locked in their homes, losing their jobs and struggling to pay rent. Some of the world’s richest have felt a huge growth in their accounts, such as Elon Musk, Mark Zuckerberg, and Bezos who earned $60 billion, $21 billion, and $48 billion in the past few months respectively.
ESG (Environmental, Social, and Governance) investing has become very popular in the past few years, with companies no longer just aiming for their own profit growth. People now value and perceive companies based on how they affect the world around them. Larry Fink, CEO of the world’s largest asset manager, BlackRock, focused his last two Letters to CEOs on all stakeholders, not just shareholders, and the environment — thus, it seems like compensating employees fairly should be more important than we are experiencing.
Assuming it is agreed that such inequality is bad and that we should fix it, how do we? I disagree with a wealth tax that the socialists propose because it is simply another one of their ex-post, after the fact, bandages meant to fix a problem that needs to instead be fixed ex-ante, before it happens, so it can not continue to exacerbate, punishing those who succeeded within the rules of the game given to them. America needs to better align the interests and rewards of employees with owners.
From 1978 to 2019, CEO pay grew 1,167%, while pay of the typical worker grew less than 14%. The ratio of CEO-worker compensation has ballooned to 320-1. While most employees are paid an hourly wage or an annual salary, this may represent only 10% of executives’ earnings. Some are lucky enough to be a founder and hold shares when the company exercises its initial public offering and sees its price appreciate, or if the executive is given stock options and awards as part of their compensation. This supposedly incentivizes their executives to work productively for the company so that the company’s performance reflects its income. But why do these few people have so many shares? I believe more employees should receive more stock in the public companies they work for. Musk, Zuckerberg, and Bezos are not making their billions from their salaries — they earn it from stock appreciation — and it would benefit people to have a share in that instead of being “wage slaves.”
Public companies should not only be required to pay their employees minimum wage but also to provide them ownership that is to some degree proportional to their seniority. Pleas for the minimum wage to start at $15 an hour are prevalent, yet even if that wage amount is granted, the annual salary for the average job with that minimum wage would only be about $30,000, hardly enough to get by in America. Conversely, imagine if each Amazon warehouse worker was compensated just one share of stock per quarter. If an Amazon employee worked from January 1, 2015, to January 1, 2020, they would receive 20 shares, with the appreciation of their oldest share rising over 500% from $313 to $1904 and even up to about $3,200 today. This would historically reward the employees much more than the cost incurred to the firm.
When a company goes public, it becomes something new. Private companies are usually much smaller, and the founder is frequently still the CEO, with their personal earnings being directly tied to how much their company earns. Inversely, public companies have thousands, at times even millions, of employees and often are not run by the founders — yet the founders’ heirs still own a huge amount of the company without actually being involved, like the Disney or Walton grandchildren who are the richest people in the world. As companies become public and detached from the founder, the founder should be required to sell shares over a period of time to the public and specifically to the company and its employees, ensuring that heirs 100 years down the line who do not know the founder are not instantly in control of its ownership.
John Lewis Partnership is a department store in the UK and is the prime model for employee-owned businesses. The firm generates over £11 billion per year and is privately owned by its 80,000 employees who share in the earnings and management. A company should not just try to make as much money as possible — it should do this whilst earning money for all its employees and benefitting all stakeholders.
Remember, a deprived populous is bad for the whole society. We cannot have masses default on loans, uninsured, unable to afford rent, and unable to invest in themselves or the next generation. If we want a healthy economy for everyone and to create a more perfect union, we need to do better than creating “wage slaves.” More people need to share in the ownership of what they put their sweat and tears into and truly reap the rewards of our great capitalist system.
America was founded as the land of opportunity, a sanctuary from aristocrats and inherited wealth, As time continues, however, our nation’s fate seems to parallel that of which our Founding Fathers fought tirelessly to avoid.
Dain Rohtla is a 4th year Management student at the University of St Andrews in Scotland, where he is President of the intellectual society Roosevelt, and author of The Sustainability Handbook. You can follow him on Twitter @economicsmussel. To read more of his articles, click here.