What’s the deal with employers getting so much money while their employees get so little?
Employers (owners) are often seen as worthless components of the economic puzzle, where the employees (workers) are the ones who do everything and the employers just sit back and take the worker’s profits. It certainly can be the case, but it rarely is.
Employers generally bring a lot to the table. And even if they are not actively “working” on any project for the operation, they still provide a great deal of value. Specifically, many employees are the original owners, who put in a lot of time and resources into the operation to make it successful. Employers also take on a lot of the risk. Finally, they are the rightful stewards of many of the contracts that ensure the operation’s success.
It would be great if a person had an idea, and they could easily get a few dozen people together to split the work and turn the idea into reality. Unfortunately, things don’t work that way and likely never will. People generally want some kind of work shown, some kind of initial product and success, before they’ll get on board with a project. The owner or owners of a startup often spend 80+ hours a week, for five or more years, before an operation really starts to come into its own. Combining that time, and initial resources that the startup owners put into the company constitutes a significant investment.
Over the course of a business’ growth, it collects various contracts. These contracts include distribution and sales contracts, intellectual material contracts, and so on. Each employer-employee relationship is also a contract. The employer agrees to give a certain pay in return for a certain amount of work and, generally limited, responsibility. Businesses can have hundreds, if not hundreds of thousands of implicit and explicit contracts binding them together.
Many of these contracts were established by the owner when the company was a startup, or are a consequence of those initial contracts. Even if the current owner isn’t the original owner, the contracts were conveyed to the new owner(s). Therefore it is the owners who have stewardship of the contracts. Debtors aren’t going to go after the employees if a business cannot pay off its debt. It’ll go after the owners, at least to an extent. An LLC only partially shields an owner from legal responsibility. Often personal collateral and credit are put on the line. It’s only for very large businesses that form as C corps that there is essentially total protection from debtors. And even then there are limits.
Even without this point, to violate all of the contracts maintained by the owner would be unethical, and a person who holds stewardship of a contract is in their right to leverage it for revenue. So a business owner/employer offers something of value to the company. Even if it isn’t manual labor, the employer is providing the operation with assets to operate and that is a primary source of their value and reason for getting paid quite a bit.
With Great Pay Comes Great Responsibility
While not always the case, pay and responsibility tend to go hand in hand.
The discussion of contractual obligations leads directly into a discussion of responsibility. Pay is determined by a number of factors. Generally it all boils down to the basics of supply and demand. Supply is determined by how many people are in the work force, how much training they’ve undergone for the task, and other related factors. So there isn’t a great deal of mystery there. But what about demand?
The amount of skill that a person has certainly has a major impact on the person’s demand. So does their experience, their work ethic, and other related factors. But another aspect of demand is their ability to take on responsibility. And it’s on responsibility that I’d like to focus my attention for this discussion.
As members of a community, we all have certain responsibilities. But not everyone has the same level of responsibility. An individual worker in a firm may cause trouble if they make an error, but they do not necessarily bear the burden, even if they made the error. Generally a manager will be held accountable for the mistakes of any person they manage. Likewise, the owner of a firm has a great deal of legal and ethical responsibility.
People have been hating on Jeff Bezos for a while. And to be fair, I think Amazon could do a lot to improve, and in fact I think we can move towards a post Amazon world; I’m working on a project in this regard, but I digress. I have had people tell me that nobody deserves to make the amount of money that he has made. And he does make a lot of money. His net worth increases by about $6.5B a year. Admittedly, not even close to all of that money is usable, but a lot of it is.
Expanding Alternative Options
I have no issue with employer-employee operations, as a whole. They’re a fine way of managing resources. But I’m also a fan of having options. I’m a huge fan of worker owned cooperatives. But these kinds of institutions are useful for short term projects, rather than continuing operations. Guilds are collaborations of independent contractors and other freelancers. They’re perfectly suited for short term projects and collaborations between individual tradespeople.
The problem with worker owned cooperatives that engage in continuing operations, especially larger ones, is that they’re generally more unwieldy, and even more importantly, getting them started is a problem. Large scale operations require a lot of startup capital, including labor. That’s again what an owner often brings to the table: they, or their predecessors, put in the labor to start the operation. Without significant compensation, people wouldn’t generally just hand over the product of such hard work.
Moreover, the workers cannot simply say “we’re here, and you’re not, so its our personal property now.” While it’s true that private property and personal property are different, there are numerous agreements in place. Every single person who does business with that employer already has contractual agreements with them. To simply ignore those contractual agreements would be a violation of civil trust.
So larger worker owned cooperatives would be difficult to create. They would have to be purchased and converted into a worker owned cooperative instead. This approach is feasible, in some cases. The workers could band together and put in an offer to buy the entire operation from the owner. They could get further support by leveraging crowd funding. So it is possible, but still difficult. I don’t expect most larger continuing operations to ever be worker owned, and that’s fine. The point isn’t to force a total paradigm shift, but rather increase the number of options.
I’m not too confident in the ability for anarcho-syndicalism — which generally promotes worker ownership of even large scale operations — to succeed. Larger operations require a lot of resources to grow, and a lot of sacrifice from those who start the operation. But I would love to see more worker owned cooperatives. And I think that the Guild Association will do great things in promoting the success of freelancers and other independent tradespeople.
Originally published on the Politicoid publication on Medium