What Does Economic Justice Look Like?

How to achieve equality

In public political discourse, lot of attention is spent on the topic of economic equality. This is, I believe, for good reason. There are many good grounds for opposing the high levels of economic inequality which one finds in the US and elsewhere. Among them are the following:

• Economic inequality is intrinsically unjust for egalitarian reasons

• Economic inequality is bad for utilitarian reasons, via the law of the diminishing marginal utility of income

• Economic inequality is corrosive to lots of things that are valuable- things like economic growth, political democracy, social cohesion, low crime rates, etc.

I will expand on all of these points in a future post defending the claim that we ought to combat economic inequality- here, rather than focusing on why inequality is bad, I would like to focus on the question of what sorts of institutions and policies we ought to implement if we actually care about economic inequality. In order to do this, we need an analysis of why there exists such rampant inequality in modern economies.

So, why is there inequality?

In a completely idealized free market capitalist economy, the national income is distributed solely on the basis of the marginal productivity of each unit of capital (by capital here, I mean, roughly, things which are used as inputs into production, such as equipment, buildings, etc.) and labor. This means, in effect, that you get money only if you own capital (in which case you get paid a capital income) or perform labor (in which case you get paid a labor income). This dynamic inevitably produces inequality for three primary reasons:

• Ownership of capital is distributed wildly unequally

• Labor power is distributed wildly unequally (around half of people can’t work- including children, the elderly, the disabled, etc)

• There are large differences in productivity between different kinds of jobs

What you end up seeing in capitalist economies, then, is that only a small number of people make any considerable amount of money from capital income, only around half of people make any money from labor income, and different people make wildly different amounts of money from their different forms of laboring.

Of course, there really aren’t any countries that embody “completely idealized free market capitalism”, but nonetheless, the dynamics that I’ve mentioned are the main sources of inequality in existing capitalist economies, and existing capitalist economies have been able to combat inequality more or less only to the extent that they’ve moved away from idealized free market capitalism in an attempt to remedy those dynamics.

The cure for inequality

So, what policies and institutions ought we adopt if we are concerned with sufficiently addressing economic inequality? With a solid understanding of where existing economic inequality comes from, I believe the answer to this question becomes much clearer. In effect, we are looking for policies that subvert the mechanisms which I mentioned previously. The most important policies in this vein are, I believe, the following.

• A welfare state, which taxes those who receive a labor income and redistributes some of that money to people who do not (again, almost always because they cannot).

• The socialization of capital, which takes ownership of the capital goods in a country out of the hands of a small number of exorbitantly wealthy capitalists, and redistributes it equally to the population as a whole.

• Unionization, which compresses wages between different groups of workers, and, as long as capital income remains highly unevenly distributed, serves to combat inequality by decreasing the amount of capital income that capitalists receive and increasing the amount of labor income that workers receive.

Still, I have said very little about what the institutions of an economically egalitarian society actually look like. There is much more detail to go into, for instance, about what a well functioning welfare state looks like, how we should go about socializing capital, and how our unions should be structured. The rest of this article will be dedicated to exploring those details.

The welfare state

So, I have said that one essential component of achieving economic equality is building a well functioning welfare state (of course, the welfare state has other functions as well, as will become clear). But what does that look like? In my view, a well functioning welfare state provides the following things:

• Health care for all. Everyone, regardless of their income, should have access to good quality healthcare. This healthcare should be paid for collectively by society via taxation, and provided by the government via a public health insurance program.

• Education and child care for all. Every child, regardless of their families income, should have access to child care and education, all the way from infancy into adulthood. Child care and education, again, should be paid for collectively by society via taxation, and provided by the government via public schools, public pre k, public child care, etc.

• Transfer income for non workers. Every individual who is effectively locked out of participating in the labor market (including children, the elderly, the disabled, students, caretakers, the unemployed, etc.) should receive cash transfers from the government (funded, again, via taxation) to compensate for their lack of a labor income.

• Paid leave. Everyone who works should receive paid, job protected time off for sickness, maternity/paternity, vacation, etc.

A society with such a welfare state in place would greatly reduce economic inequality, among other things. It would do so primarily by reducing the inequality between workers and non workers. However, different components of the welfare framework that I’ve laid out would work to reduce other problematic economic inequalities as well (such as the inequality between people who require more and less medical treatment).

Confronting capital

In order to combat the inequality which derives from the unequal distribution of capital, we must take capital out of concentrated, private hands, and put it into the hands of the public. In other words, in order to truly build an egalitarian society, we must collectivize the means of production. How can we do that?

As far as I can tell, there are about 4 practical approaches to public ownership of capital that you can observe in existing societies:

• State owned enterprises. State owned enterprises are probably the most traditional kind of public ownership. A state owned enterprise is essentially a company which is fully owned and controlled by the sate. A state owned enterprise generally involves pretty hands on state ownership- for instance, state owned enterprises will often have a board of directors which is directly selected by the president and confirmed by the senate and so on. Examples include the post office, public transit systems, etc.

• General government services. General government services are much like state owned enterprises, involving very hands on government ownership, except that they are not in the same sense run like companies, in that you don’t need to pay a fee to access the services that they provide. Rather, the services are generally funded through collective means such as taxation, and provided in a way which is free at the point of service to the population. Examples include public schooling, public healthcare programs, etc.

• Social wealth funds. A social wealth fund is a financial fund which is fully owned by the public and used for the benefit of society as a whole. The idea, roughly, is that the government directly owns a large pool of income generating assets (stocks, bonds, real estate, etc.), and uses the returns on those assets for social welfare purposes. Government ownership of companies through a social wealth fund is much less hands on than through the former two kinds of public ownership (although the government is still much more involved than it is with a private company). Management of the social wealth fund is carried out by a state owned enterprise which is created by the government, and whose members are in turn appointed by the government. Control over companies which are owned by a social wealth fund is exerted by the managers of the social wealth fund, whose aim is to maximize the revenue of the fund while respecting certain guidelines set by the government (such as requirements that the environment, human rights, etc. be respected). Notable examples include the Alaska Permanent Fund in America, as well as Sweden’s social wealth fund.

• Worker coops. Worker coops are companies which are fully owned and controlled by its workers. The workers in a coop each have equal ownership over the business, and vote democratically on questions such as what to produce, how to produce, where to produce, how to distribute the revenue produced, etc. The most notable example I can think of is Mondragon, which is the seventh largest company in all of Spain.

These forms of public ownership are not mutually exclusive. You don’t have to choose one or another model of public ownership, and base your entire economy around that model. You could have, for instance, some sectors run as general government services, some sectors run as state owned enterprises, some sectors run via social wealth funds, etc.

Beyond this, you can even mix and match different kinds of public ownership for particular businesses. You could have, for instance, a socially owned enterprise-worker coop hybrid business where the board is partially selected by the government and partially selected by the workers.

I believe that these different forms of public ownership each have their place, and a well functioning egalitarian economy will involve a healthy mix of all of them. There are many contextual variables which determine which forms of public ownership are appropriate for which businesses or sectors.

For instance, if you want some sector to have a mostly social mission (for instance, providing everyone mail or healthcare or education), then you probably want to organize it along the lines of more hands on government ownership through either a general government service or a socially owned enterprise (and which of these models you pick will in turn depend on whether you think it’s best for people to have to pay a fee to access the service in question or not).

In contrast, if you want some sector to be organized along more traditional commercial/market lines, then you probably want that sector to consist of a bunch of competing worker coops, and/or businesses owned through social wealth funds. Coops might be a particularly attractive option when we are talking about a sector where complete government control sounds less appealing (a paradigm example being media- we probably don’t want to eliminate the existence of any and all non state owned media).

So, as you may have gathered, the call for public ownership is flexible, and fully consistent with the existence of things like markets, whose necessity is often considered a nail in the coffin for socialists. Which models of public ownership are appropriate for which sectors is a matter of debate and empirical investigation- what matters is that some combination of these models comes to hold all, or almost all of the capital in society, such that there is really no room left for private capitalists.

Sectoral Unions

The final institutional ingredient for an economically egalitarian society is unionization. Strong unionization serves to counterbalance the economic and political power of the state in an egalitarian socialist society (and of capital in a capitalist society), ensure that the interests of the workers are represented in the functioning of the firms that they work at, and compress wage inequalities between different groups of workers.

Unions generally take one of two forms:

• Firm level unions. A firm level union is one which which consists of the workers at a particular firm, and serves to represent the interests of those workers. Currently, unions in the US are generally organized as firm level unions.

• Sector level unions. It should come as no surprise what sector level unions are. A sector level union is one which consists of the workers in a particular sector, and serves to represent the interests of those workers. Currently, unions in places like the Nordic countries are generally organized as sector level unions.

Of these different ways of organizing unions, it is clear which to prefer. Firm level unions, while improving the pay and benefits of the workers, can harm the unionized companies in various ways which make it harder for rates of unionization to flourish. For instance, investors are less likely to invest in companies where unions will eat up some of their expected profit. Additionally, by increasing labor costs, unions make it harder for their firms to hire more workers.

By contrast, this is not the case if unionization is done at the sectoral level. Since all companies included in the sector level agreements must follow the same pay and benefit regulations, regardless of the number of employees who are union members, these companies are less motivated to discourage union participation among their workforce. Firms with a higher number of union members do not experience any competitive disadvantage compared to those with fewer members, as they are all providing equal wages and benefits. Additionally, the growth of employment does not necessarily differ based on the number of workers in unions. As a result, there is no reason for union membership to decline as firms with more union members perform less favorably.

To be clear, I still support firm level unionization over nothing, but it is not the ideal way of structuring unions. Other countries have shown a path towards robust rates of unionization which are more stable and have less negative consequences, and we in the US would be wise to follow their lead.