‘It’s the Institutional Structure, Stupid’

An economy’s institutional structures determine its possibilities.

Photo by Scott Graham on Unsplash

When we see or hear the term “institutional structure” with regard to the economy we tend to think of large entities like government, the banking system, money itself, property, etc. It is easy to apprehend how those structures determine the possibilities within a given economic system.

In economics that large scale of study is called ‘macroeconomics’. We don’t think automatically of large institutional structures in the microeconomic level, the level of individuals and individual businesses, but they are there, and they have every bit as much to do with the possibilities in an economy as its macroeconomic institutional structures do.

In the U.S., individuals’ material well-being is overwhelmingly dependent on money and (other) wealth, with the latter dependent on the former. Money comes overwhelmingly from incomes. Incomes come overwhelmingly from employment in private enterprises. Remuneration in those enterprises is determined by individuals within them (except where minimum wage laws apply — and even then they are left to determine whether a position ‘deserves’ more than that or not). They are self-interested people who understand that the less is paid to some employees, the more will be available for others, including themselves.

That is, overwhelmingly, the microeconomic institutional structure of the distribution of individuals’ material well-being in this country. For that matter, that structure determines whether a person can have a job, therefore an income, therefore any money at all. (Of course, government could be an employer of last resort, but that would take spending, and spending by government is controlled by the political process, which is dominated by people and organizations with large amounts of money to spend there.)

Within that structure the remuneration a person receives depends on how much leverage a person has. Back when unions were strong in this country they gave significant numbers of individuals significant leverage to demand higher wages and greater benefits (which benefited all workers). Today almost all individuals’ leverage is strictly related to the overall demand and supply of the education and skills a person has. The result is an economy that does very well for people with education and skills that are in relatively scarce supply and very, very badly for people whose education and skills are in relatively abundant supply.

A “democratically distributed income” (DDI) would change that structure. People with more leverage could continue to use it to their advantage; those without much leverage would be ensured a decent level of material well-being. A DDI would raise the floor of material well-being for all citizens at no cost to anyone, without redistributing anything, and with no spending by government.

unaffiliated, non-ideological, unpaid, academically trained philosopher and political economist