Can remuneration of employees be increased through the political process without violating owners’ legitimate claims to the revenues of businesses?
[Anyone wanting a refutation of the ‘left’ or the ‘right’ will be disappointed, but all pertinent ideologically based desires (other than Marxists’) are fulfilled.]
Anyone could make a claim that the whole of the economic system of the U.S. is illegitimate (even, for that matter, all of this nation’s ‘institutional arrangements’). Also, anyone could arbitrarily privilege ‘equality’ over ‘liberty’ to de-legitimate the status quo in business (or broader economic) arrangements. Herein, without going to either of those places, but allowing for liberty to govern business relations, I’ll make a case that a legitimate claim to ownership of the revenue of a business ends at the portion of that revenue made available for remuneration of the people involved in the business, including the owner.
That means that in the U.S. ‘equality’ could legitimately be invoked through government (via the political process) to require owners to change the remuneration of employees. In short, it is a philosophical justification for a minimum wage of any size or some other way of addressing ‘income inequality’ as it pertains to employers and employees.
At the end, though, I’ll reference a way of legitimating the distribution of remuneration within businesses via the labor market. It would provide for a guaranteed job for any (adult) citizen, with a minimum income on which a person could actually live (say, $18/hr.; $720/wk.) — but without using government to take one penny from the owners of businesses.
That would require an Act of Congress. It would effect a major (one could fairly say revolutionary) change in the way the existing economic system functions, but it would still be that system.
In A Theory of Justice (1971), John Rawls spent a fair number of words examining the notion of ‘ownership’. On what grounds can we humans legitimately claim ownership of anything?
Rawls concluded that the only basis for any claims we can make for what is ours and ours alone is our ‘legitimate expectations’ in the society in which we live. For those expectations to be ‘legitimate’ requires that the structure and (sanctioned) functioning of the “basic institutions” of the society must be ‘just’.
His argument seems to become rather circular, but the point is well made that in practical terms ‘legitimate’ is a societal construct. To be fair, Rawls was primarily concerned with a practical application of the “basic notions of justice” within Liberalism (the meta-ideology based on the belief that equality and liberty are the ‘twin pillars of justice’ for a just society) to a society.
Philosophically, though, the question of ‘ownership’ remains larger than that. At that level, Rawls argued that we humans are insufficiently independent beings to claim ownership of anything in an absolute sense. Even our ‘selves’ are the products of other people and the society at large. Since our selves are a social product, what we can legitimately claim for ourselves can only exist in the context of the social construct in which we exist.
On the other hand, John Locke, the English philosopher who wrote the book (Two Treatises of Government, 1689) that basically became the manual for building Liberal nations (those that accept equality and liberty as the twin pillars of justice), emphasized that humans are separate and independent entities with respect to one another. That status that people have with respect to one another is the very thing that should govern the governance of society.
In the U.S. our societal construct does rest on the twin pillars of equality and liberty. As I see it, our approach to business in this country focuses on liberty (as opposed to the focus on equality in our democratic political process). Liberty presupposes a certain degree of independence: at a minimum, the independence to act on the basis of self-interest.
Enter Adam Smith, with Wealth of Nations (1776), who famously argued that people seeking their self-interest will result in the best possible set of outcomes for society as a whole. Still, that is dependent on the nature of the societal context in which those interests are pursue — and how “best possible outcomes” is defined. In Nazi Germany and Soviet Russia ‘best for society’ was deemed to be what was best for the Party, while the members the governing Parties pursued their self-interests with a vengeance.
In short, liberty presupposes people’s independence with respect to one another, but that fact of human being does not in itself guarantee liberty for all. For that, society must be structured in a way that fosters liberty.
Getting back to ownership per se, Rawls had no problem in acknowledging that in any Liberal society people can legitimately claim ownership of personal property we have acquired through legitimate means, such as freely exchanging money for it. Locke said that legitimate ownership requires “mixing” one’s labor with it, but to acquire a piece of property by using money obtained from labor is mixing labor with the property in, I would say, a sufficient if indirect way. (For present purposes, at least, any form of investing/trading is considered sufficient as a form of labor for obtaining money.)
Any business does consist of property, both tangible and intangible. To own a business is to own those properties — and establishing/running a business definitely includes mixing one’s labor with it. So in the U.S. claiming ownership of a business is a completely legitimate claim. The question becomes, what further legitimate claims follow from that one?
Here we must finally get to what “ownership” means. Mostly, it is about exclusivity: to own something is to have a legitimately exclusive say in any issue related to it.
Whoever owns a business can certainly choose to run it — or choose who will, and even then how it should be run. The point of a business is to make money. Deciding the best way to achieve that goal — running the business — is the legitimate province of the owner of the business.
That brings us to the money a business brings in: its revenue. Can the owner of the business legitimately claim ownership of that money?
We have seen that independence has a great deal to do with any legitimate claim of ownership. A person can act independently enough to claim ownership of property, including the properties that are part and parcel of a business.
Any business is itself, though, an interdependent operation. The revenue that comes into the business is the result of the efforts of everyone involved in it. Therefore, it becomes a legitimate question to ask whether that revenue can legitimately be the exclusive property of the owner of the business.
One issue that arises is that the owner, in running the business, must decide how revenue will be disbursed. That means that the owner can exclusively determine how much of the revenue that the business accrues will be available for the remuneration of everyone involved in it (including the owner).
I maintain that it is not legitimate for the owner to decide how that portion of the business’s revenue will be shared, without regard for the self-interests that the employees, as fellow human — separate and independent — beings, have. Within any business at any given time there is a finite amount of money available for remuneration, and the more that is claimed by anyone, the less there can be for any others; the less the owner might allow others to have, the more there would be for the owner. Can the owner legitimately make such arbitrary decisions?
To have power is to be able act arbitrarily, but employing such power — acting arbitrarily — in human relations is, according to Locke, what injustice is. Relations among human beings are always just that, regardless of the context. (I do hope no reader will be so specious as seek to obviate that observation with a reference to parents and their children: there is a place for a discussion of justice in those relationships, too, but a discussion of business relations clearly is not it.)
Someone might counter that the labor market makes the determinations concerning remuneration, so it is not a matter of the owner acting arbitrarily.
I understand that there are some people who are beyond weary with being confronted with incantations of the ‘the market’ as if it really were a magic spell that would solve everything — ‘if only markets were allowed to function without interference from government’. In theory, though, markets are supposed to prevent people from being able to act arbitrarily by diffusing power: no one’s actions can be deemed to be arbitrary because all are governed by the market. i.e., the independent actions of all others. Where markets do function as they are supposed to function in theory they really are a form of governance that requires no supervision or intervention from any entity outside the market.
The thing is, the labor market is about nothing but relations of power, and the relations of power in that market in the U.S. today are decisively asymmetrical. The theory of markets overlooks the importance of the ‘possession arrow’ (to borrow a term from the sport of basketball). In a competitive market, it can make all the difference whether a person controls that for which others are competing or that person is competing with others for something in the control of some other person. The more necessary, as opposed to merely desired that thing might be, the more important possession can become.
Possession is not a decisive issue in every market, but it definitely is one in the labor market. The labor market is under the control of employers. They have control of that which people need: jobs that pay money. Employees must therefore compete — bid against one another — for those positions. While employees can to some degree negotiate remuneration (the more, the higher in the company the position involved), the fundamental asymmetry of the relations of power in the labor market remains a fact of life in the U.S. today.
The labor market really is, for employees and potential employees, a rigged system. Fixing that market is, again, where this argument ultimately goes. To reiterate, “fixing” does not mean government interjecting itself in businesses’ business, though it does include a guaranteed minimum income for all adult citizens. First, though, there are other issues to address.
Someone else might counter that the owner, in paying the employees, is purchasing their status as separate and independent beings for limited purposes — but all purposes — related to employment in the business.
One problem with that argument is that it overlooks the importance of money. Employees can be legitimately expected to defer to the owner of the business when it comes to running it. In that regard the business is legitimately under the exclusive control of the owner. Money, however, is integral to life itself in a monetary economy, one in which money is needed to purchase the necessities of life, much less any further wants. People cannot be legitimately expected, as separate and independent beings, to put aside their self-interest to maximize their own incomes unless forced to do so. That they do so in accepting the process by which the distribution of remuneration within businesses takes place implies that force is being applied in some way. That could take us back to a discussion of the market — ‘market forces’, as opposed to owners acting arbitrarily — but that I’ve addressed.
Someone might yet insist that people have acted freely as separate and independent beings in becoming employees who have surrendered that status as far as their employment in the business is concerned, even if it does include having no (determinative) say in the distribution of remuneration.
First of all, the word “unalienable” comes to mind. That word means that which cannot be legitimately taken from someone (absent, in the U.S., legal actions involving due process) or even freely surrendered by that person. There cannot be any such thing as unalienable Rights for people, including a Right to liberty, unless we are unalienably separate and independent beings — as both Locke and Thomas Jefferson said. (The latter wrote “equal and independent” in his original draft of the Declaration of Independence.) We cannot legitimately surrender that status.
Furthermore, that aforestated position implies that people are at least sufficiently free to become an employee of some business or not. The nature of the labor market arises yet again: it simply is not the case that employees are able to act with anything approaching sufficient freedom for that argument to stand. It is not possible in the economy of today in the United States of America for every adult citizen to obtain money, necessary for life itself, with no one being employed in any business. For everyone to have any money, some people must be employees of businesses.
Someone might argue that even if this or that individual cannot escape the asymmetrical power relationships of the labor market as it exists in this country today, since all people are free to garner sufficient negotiating power (knowledge, expertise, experience, etc.) to counter sufficiently the power of the owner of a business and, besides, any individual could conceivably turn the tables by starting a business of one’s own, or escape those relations of power altogether (i.e., singular self-employment), etc., there is sufficient freedom in this country regarding that market.
First, that last point concerns freedom from that market. It does nothing to legitimate the structure/(sanctioned) functioning of the market. [I put “sanctioned” in parentheses to indicate the expected, legal functioning, as opposed to operations in the market that are contrary to its expected, legal functioning. It is never possible to prevent corrupt behavior completely where human beings are concerned; the best we can hope for is to make sanctioned behavior as just as possible.] Becoming an owner of a business certainly does nothing to solve the problem of justice in the labor market, either.
To the other point, for some to do well, no matter how many or how much, cannot justify the structure and functioning of the labor market. Robert Nozick, who who mostly restated Locke’s arguments in an updated way in Anarchy, Sate, and Utopia (1974), did make the salient point that outcomes cannot be the measure of justice. Any outcome selected to represent ‘justice’ will necessarily be arbitrary. For society as a construct, justice exists or not in the structure and functioning of systems and processes. Just outcomes follow from just systems and processes; such outcomes are just whatever they might be. (Rawls made a qualified version of the same argument to support his position on people’s remuneration: his famous “difference principle.”)
More broadly, in the philosophical foundation of the U.S., justice requires universality. Equality and liberty are legitimate as the values underlying justice in Liberalism because they are deemed to be universal values. For the labor market to be just it must just for all (including employers), at least in its structure and sanctioned functioning. To reiterate, if the labor market is fundamentally unjust regarding those, then no outcomes in that market can be presumed to be legitimate, regardless of how many people might benefit from participating in it or to what extent. An unbalanced asymmetry of power in a market that is nothing but relations of power, resulting in an ongoing exercise of arbitrary power among human beings in that market is explicitly unjust according to the philosophical context in which the U.S. as a nation exists. That the outcomes of that market are integral to the lives of the citizenry of the nation heightens the need for justice.
So, I have argued that within the philosophical premises that are the foundation of the U.S. as a nation the owners of businesses do not have a legitimate claim to the revenues of those businesses as far as determining how the portions of businesses’ revenues available for remuneration will be distributed is concerned. Moreover, the labor market as it exists is insufficient for overcoming the control over those revenues that owners of businesses exert: as things stand (potential) employees are in too weak of a position within that market relative to (potential) employers to alleviate sufficiently for justice the arbitrariness with which owners act in the distribution of remuneration within businesses. As a result, owners of businesses continue to maintain illegitimate control over those revenues. The availability of means of possibly escaping the labor market does nothing to address its legitimacy.
I understand that my argument can be challenged, but if it were unassailable, where would that leave us? In a nation dedicated to “liberty and justice for all” it certainly calls for a serious reassessment of the process of remuneration of employees of businesses.
Even so, any such reassessment cannot slip the bounds of the philosophical premises on which this nation is founded yet claim legitimacy within them. Of course, since equality is as much a part of the idea of justice on which this nation is founded as liberty is, privileging equality over liberty to justify some alteration to remuneration, such as limiting the ratios of incomes between owners and (other)employees and/or using taxation to bring more balance to the distribution of disposable incomes, would not slip those bounds. On the other hand, the solution proffered by Karl Marx and them is a straightforward transfer of arbitrary power: “all power to the proletariat” (which, not surprisingly, ended with all power in the hands of people falsely claiming to have the best interests of the proletarians at heart). Surely a solution that would transform the market for labor in this nation without transgressing the place of liberty in business relations is worthy of consideration.
As it happens, I have developed such a solution. It is a way of ensuring that all (adult) citizens would be able to become eligible for a minimum income that would be sufficient to live on (say, $18/hr.; $720/wk.). Again, the structure and functioning of the economy as a system would not change. It would impose no costs on employers. It would not impose any limit on remuneration. It would not involve taxes in any way. It would not entail privileging equality over liberty. The philosophical premises on which this nation is founded would not be abrogated.
In a nutshell, the pay of employees in minimum-pay positions would not come from employers. It would come from either the central bank or a newly created monetary entity that would be separate from and independent of both government and the central bank. Either way, the money for that income would be created as needed.
Even though the amount of the income would in the end be arbitrary, it would be based on current levels of income for the nation and it would not represent a redistribution of anything; its existence would not be a cost to any person or other entity. (It can be thought of as a kind of permanent ‘quantitative easing’ — especially if it came from the central bank — but with built-in protections against inflation.)
With this paradigm in place employers would find themselves using benefits to compete for minimum-pay employees (in addition to the ensured sufficient income that they would not have to pay — directly or through taxes), but people who wanted more income than that (paid in full by the employer, as at present) would truly be freely choosing to compete for positions that provided such pay. The relations of power within the labor market would be sufficiently balanced to make remuneration within businesses based on competition within that market legitimate within the strictures of the societal context that is the U.S. today.
if curious (enough): “Permanent ‘Quantitative Easing’,” here in Medium, but not behind the paywall (In “Same Economy,” an article linked in that article, I refer to a minimum income of $15/hr.; $600/wk., but I also assume we would take advantage of the opportunity to eliminate all taxes, making that amount of income worth more than $18/hr.; $720/wk. would be today in the U.S.)