Harley Davidson is handing out shares in the company to all 4 500 employees. They are following the lead of investment giant KKR (which has >$200 billion under management.) In recent years eight industrial companies owned by KKR have awarded more than $500 million worth of shares to their employees.
The idea of workers sharing in ownership of the companies they work for has been gaining traction amongst a surprising constituency – company owners.
In the UK, the Employees Ownership Association is run by businesses, including such giants as Arup, to promote the idea that employee ownership is good for the economy, good for businesses and good for workers.
Back in the USA the baby boomer generation is (finally) aging itself out of business. There is a legacy of small and medium sized enterprises valued at hundreds of billions of dollars whose owners are dying or retiring – leaving the businesses vulnerable to closure or the being taken over and asset stripped by larger companies or vulture private equity funds. The Fund for Employee Ownership is one of a number of initiatives aiming to address a critical problem for business owners and employees alike. They do this both by financing the purchasing of shares on behalf of the workers, and by providing technical support, documentation and legal advice. This allows the owners to exit completely or to hold some shares and it ensures the ongoing success of the business and allows the workers to progressively take ownership of the enterprise.
Meanwhile, back in South Africa Cocoa Cola has committed to upping worker shareholding in the company to 15% and to putting two worker representatives on the board. Depending on how those shares are paid for, that is an important achievement in constructing Black Economic Empowerment that is genuinely redistributive and insulated from the repetitive “re-empowerment” of a limited number of politically connected individuals.
We should be adopting shared business ownership as a necessary advance on the idea of “inclusive growth” which is so often used by development agencies, governments (including the SA government) and impact investors to “explain” how poverty will be tackled and inequality reduced. Like so much development speak it is a term that is infuriating in its lack of precision. Questions bubble to the surface amidst the froth. How much growth? What happens if there is no growth? Who gets included? In what? How do you “do” inclusive growth? Questions which are often not addressed at all by those who bandy the concept around.
So what is inclusive growth anyway
I have done some looking around documents and websites that deal with the idea.[i]
The good news is that those who use the term are clear that economic growth by itself is not good enough. This, sadly, remains an important point that needs to be made. There are still enough economists, and certainly more than enough CEOs and asset managers who choose to believe that economic growth is enough to solve the world’s problem. If there is only enough of it, they can keep on getting richer, and tiny amounts will trickle down to keep the restless masses quiet.
The advocates of inclusive growth acknowledge that there is no clear single definition of the term but include a word cloud of descriptors such as “pro-poor” “creates decent work” “is developmental in nature”, “takes place where poor people live, in industries they work in (like agriculture), and uses their unskilled labour” “benefits the most marginalized” and of course (since 2015) the imperative “aimed at achieving the SDGs”.
OK. Good intentions. But all I get from this is that you can attach your favourite definition of “development” to the concept of economic growth, and you can call it “inclusive growth” if you like. It really does not tell you what needs to happen politically and economically to achieve these desired outcomes.
So, the first flaw in the concept is its lack of specificity. It’s a feel-good term without much content.
In my view the second flaw is much more fundamental. By suggesting that poverty and inequality can only be defeated by growth (which lies in the future) we are treating as irrelevant the causes of poverty and inequality that lie in the past, and the whole historical accretion of enormous wealth and horrendous poverty are made irrelevant by a nice sounding phrase. Irrelevant too are all current practices that stabilize and entrench the economic injustices that have brought us to where we are.
In the past is slavery, colonization, pillage of natural resources and, in South Africa, Apartheid. In the present we find of terms of trade the hugely benefit the global north, transfer pricing, tax evasion and the use of tax havens that together extract hundreds of billions of rand from the “developing world”. The primary producers of agricultural commodities still earn shameful pittances for their labour so that the food companies that exploit them can earn fortunes for their investors. The economic system responsible for all of this has brought us to the brink of several linked cataclysms (climate change, accelerating inequality, the economic after-effects of the pandemic);
Let us test the hypothesis that we can eradicate poverty through “inclusive growth”.
Can we grow our way out of poverty?
The best interrogation of this that I have found is a spectacular analysis by David Woodward from 2015 built on a wide knowledge of the field, detailed modelling and clarity of assumptions.[ii] The most important thing to remember in reading what follows is that almost throughout world history, the rich and powerful have pocketed the lion’s share of any growth anywhere. (The exceptions are rare and short lived).
Extracting a few pertinent morsels from this piece, the key message for my argument is this:
i. If you wanted to get everyone in the world to live on $5 a day without changing the way the benefits of growth are distributed, (and assuming 4% annual growth) then it would take until 2222, (yes two centuries!) and the world GDP would have to grow to more than 170 time its present size. (I guess we can call this the “trickle down model”.) Note that inequality would get worse, but no-one would be totally poor.
ii. If you wanted to achieve the same result quicker, then you could intervene in the global economy to ensure that the poorest 10% of the population benefited proportionately from growth. In other words, inequality would neither get worse or better. This would allow you to get everyone over the $5 a day target by 2128,(that's a gain of a hundred years) and you would only have to grow the global economy 19 times. Inequality would stay the same. I guess this might be called “more inclusive growth”.
iii. If you wanted to move even quicker, you could direct a significantly larger share of growth to the poorest 10% of the population – so that they would benefit more than the rich. Using Woodward’s assumptions, we would get beyond $5 per person per day by 2076 and “only have to grow the world economy by 6 X - so 55 years from now, without considering the effects of such growth on climate change, nor the enormous setback that the COVID 19 pandemic has caused.
Woodward himself calls this third option “pro-poor growth” and notes that achieving it would require “a reassessment of the current models of the global economy and of development in terms of their impacts on the poorest, and of their long-term viability and sustainability in a carbon-constrained world, and a real willingness to make fundamental changes in both to maximise their poverty impact and sustainability. “(p60).
If eradicating poverty by 2076 is good enough, and you believe that growth that benefits the poor more than the rich is really possible for the next half century, then I guess that pro-poor growth would be the way to go – although the kind of “re-assessment” that Woodward is talking about would certainly require radical restructuring of the global economy.
This brings us back to the question I posed above: If we are committed to eradicating poverty (and hopefully also making some dent in inequality) within a few decades rather than centuries, why do we restrict ourselves to how global growth is shared. To use accounting terminology, we are focusing exclusively on how we share the proceeds of the income statement. But global production over centuries has stored up a balance sheet so stuffed with assets that it would in theory be possible to make major inroads into global poverty by sharing it out more equitably.
I am not suggesting that the assets of the global economy should simply be “redistributed”. That is an interesting but rather complicated idea. However, to take us back to the beginning of this article, an important first step is that that governments, the private sector, financiers and trade unions should commit to a vigorous programme of creating shared ownership of enterprises throughout the economy and developing financing models that accelerate the benefits for workers. This would improve income and begin to build trans-generational wealth.
In countries (like South Africa) with such high levels of unemployment this is only a partial solution. But it seems highly likely that the multiplier effect of improving workers’ financial situation would have an immediate positive effect on the economy. It is a strategy and a policy choice that all parties should be able to embrace.
[i] See for example the many papers on the website of the International Policy Centre for Inclusive Growth, https://ipcig.org/ and this article from the United Nations Development Programme: https://www.sdgfund.org/what-does-inclusive-economic-growth-actually-mean-practice
[ii] David Woodward”: Incrementum ad Absurdum: Global Growth, Inequality and Poverty Eradication in a Carbon-Constrained World.” Economic Review 4: 43-62, 2015
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