The issue of income inequality is front and center in the American conversation. A recent poll showed 66 percent of Americans agree that money and wealth should be more evenly distributed in the United States. Instead, the rich are getting richer and wealth gap is increasing.
As the run-up to the 2020 election begins, there is one notable policy proposal to reduce income inequality — and it would not cost the taxpayers a dime. That proposal is codetermination: a system that allows employees at large corporations to elect members of the boards of directors. With workers serving as directors, it is argued they would be in a much better position to obtain higher wages for themselves and block excessive management compensation packages.
Codetermination has been in effect in Germany, Scandinavia, and other northern European countries. And, if Sen. Elizabeth Warren (D-MA) has anything to say on the matter, it will be implemented in the US as well. Warren is the first major Democratic candidate to announce her plans to run for president, having set up an exploratory committee on New Year’s Eve. Her rhetoric foreshadows a campaign centered on anti-corporate populism and income inequality. “How did we get here? Billionaires and big corporations decided they wanted more of the pie. And they enlisted politicians to cut them a fatter slice,” Warren announced in a video sent to supporters.
Codetermination is a major part of sweeping legislation she introduced this last summer, the Accountable Capitalism Act. Her legislation would require that:
- All companies with over $1 billion in revenue would be granted a federal corporate charter through a new “Office of United States Corporations” in the Commerce Department. The charter could be revoked if corporations were to not follow its rules, including engaging in “repeated and egregious illegal conduct.”
- Employees would elect at least 40 percent of all company directors of these chartered firms, giving them representation on corporate boards.
- Executives who receive shares of stock as compensation would have to hold them for at least five years. The rationale for this measure is to ensure that decision-makers focus on the long-term interests of all corporate stakeholders — rather than enriching themselves on the basis of short-term gains in the companies’ share prices.
- Board members and shareholders would have to approve all political spending.
Restoring a balanceThe main selling point for Warren’s federal chartering proposal has been a challenge for income inequality. Proponents view the requirement that employee-elected board members make up 40 percent of corporate directors as a needed check on the power of capital. “My bill will help the American economy return to the era when American companies and American workers did well together,” Warren declared when the legislative proposal was rolled out last summer.
Advocates note that for the bulk of the post–World War II years, labor shared in the growing productivity, with workers’ living standards rising during the postwar boom.
That began to change in the 1970s. Despite continued economic growth and productivity, wage rates flattened out. Advocates point out that over the last decade, big American companies have dedicated 93 percent of earnings to shareholders — redirecting trillions of dollars that could have gone to workers or long-term investments in these corporations.
Eighty percent of the value of stock is owned by only 10 percent of the population, and half of Americans own no stock at all. This has accelerated the trend towards greater inequality. And, according to progressive economists, this tunnel-vision dedication to short-term shareholder profits has had other consequences.
Photo credit: WhoWhatWhy based on data from Ed Wolff
“Too much money, chasing too few assets had led to asset inflation and financial volatility. And too little capital invested in productive investments,” Robert Hockett, a co-author of the Warren bill, told WhoWhatWhy.
Supporters of the bill view the German codetermination system as a model. They point to the strong German economy, where income differentials between CEOs and rank-and-file workers are much smaller than in the US.
Less inequality translates into a stronger middle class and more consumer purchasing power, according to the bill’s proponents.