Who owns it? The democratic socialist debate Canada should be having this election
We live in an era of extreme inequality of wealth and power across much of the developed world, and Canada is no exception. Public confidence in political institutions and “political classes” in the West is in long-running decline. The failure of established institutions to grapple adequately with the crises we face is giving way to an environment of growing instability and unease, providing fertile ground for the rise of the far right and delivering the likes of Donald Trump and Boris Johnson into the highest offices.
Yet there is also reason for optimism. The left, too, is in many places also reinvigorated—and quite suddenly bursting with big, bold new policy agendas. This includes, perhaps most visibly, a push for a Green New Deal, crucial in the face of the ticking clock of the climate crisis. But another set of developing policy proposals, relating to the ownership and control of our economy, also deserve our attention.
In the UK and US, transformative policy ideas for economic justice are emerging and starting to move quietly into the political mainstream. These include policies to promote worker ownership and control of companies, breaking up large monopolistic corporations, and an annual wealth tax on the super-rich.
These ideas are being advanced not only by activists and think-tanks, but now also by major political parties and candidates, including the UK’s Labour Party and US Democratic presidential candidates Bernie Sanders and Elizabeth Warren.
These policies are not exclusive to any single ideology, but they could reasonably be called “socialist,” since they centre matters of who owns and controls core economic institutions and wealth. And they could be described as “democratic” because they take a bottom-up approach that would reshape and significantly equalize economic ownership and control. These policies are also, in many cases, extremely popular among voters across the political spectrum.
In short, the policy debate is rapidly being populated with innovative and far-reaching economic proposals of a kind that we should be considering much more seriously in Canada. To that end, let’s take a look at a selection of big policy ideas now on the table south of the border and across the Atlantic, which represent potential starting points for important debates here at home.
Putting power and ownership in workers’ hands
We generally take for granted, at least in principle, that everyone has the right to a say—and certainly a vote—in what our governments do. But the expectation of democracy stops quite abruptly at the door of the workplace. When it comes to some of the most powerful institutions in our society and our daily lives—corporations and workplaces—there is little practice or pretence of democratic control.
But why shouldn’t working people have more of a say over the institutions that govern their working lives? And indeed, why shouldn’t people have more ownership over the firms we work for?
Why shouldn’t working people have more of a say over the institutions that govern their working lives? And indeed, why shouldn’t people have more ownership over the firms we work for?
These are major economic and political questions with a long history, and they are starting to make a comeback. Concrete policy proposals to address them are now emerging in the UK and US in particular.
Inclusive ownership funds
Perhaps one of the boldest ideas currently on offer, the “inclusive ownership fund” is an ambitious plan to transfer part of the equity ownership of large corporations to a trust held by their workers. Proposed by the New Economics Foundation, a British think-tank, this policy was adopted by the UK Labour Party last year, and Bernie Sanders recently announced plans to adopt a similar policy.
In the Labour version, corporations with over 250 employees would be mandated to transfer 1% of equity per year to worker-owned trusts. (To avoid raising too many alarm bells by big capital owners, the transfer would be capped at 10% of equity.) The dividends earned from this equity would be paid out annually to the company’s workers. To ensure equity between firms and sectors, the dividends would be capped at £500 (just over $800), with any additional funds allocated to broader social investments at a national level. The worker ownership stake would also come with a seat at the table of the corporation’s board of directors proportionate to the ownership share.
Strikingly, there appears to be a strong public appetite for this type of policy. In a recent poll of Americans, 55% supported (and 21% opposed) a version of this policy that would go even further, transferring up to half of corporations’ equity to their workers. Even 50% of Republicans polled supported the plan, demonstrating that this is an issue that doesn’t break down along simple left-right lines.
Worker representation on corporate boards
Another set of new proposals would require corporations to give their workers elected representation on their boards of directors, even absent a transfer of equity. For example, Democratic presidential candidate Elizabeth Warren’s version of this policy would require 40% of corporate board seats to be reserved for representatives of the company’s workers.
Such a shift in corporate governance could substantially shift the balance of priorities toward the interests of workers and away from a single-minded focus on maximizing value for shareholders. Evidence suggests that having workers at the board table could result in less inequality, lower CEO pay, and fewer layoffs during economic downturns, while tending to put a lid on stock prices. Because stock ownership is so concentrated among the rich, this would also amount to a non-tax-based form of redistribution (a potential complement to other taxation and spending-based progressive policies). Germany and many other European countries have long required worker representation on corporate boards.
Evidence suggests that having workers on corporate boards could result in less inequality, lower CEO pay, and fewer layoffs during economic downturns.
Warren’s proposal would also put new restrictions on corporate influence in politics and elections by requiring a vote of 75% of the board to authorize any political spending, which would mean worker representatives would have to back it. Additionally, Warren’s policy would curb the ability of directors to engage in short-term share selloffs of their company’s stock, and federal corporate charters would be amended to require directors of large corporations “to consider the interests of all corporate stakeholders.” These provisions would be backed up by the threat of the federal government revoking a company’s corporate charter in the case of repeated violations.
Bernie Sanders has also come out in support of worker representation on boards, as has the UK Labour Party. Like the inclusive ownership fund policy, worker representation on boards polls very strongly in the US, with 52% of likely voters in support compared to only 23% opposed.
“Right to own” and worker-owned enterprises
Beyond the partial ownership of large firms created by an inclusive ownership fund, another proposal to democratize the economy is to promote full worker ownership of more firms. One elegant but potentially far-reaching policy measure would be to give workers in a company the legal right of first refusal to buy their business if it’s being sold or shut down.
Such a “right to own” has recently been advocated by the Labour Party in the UK, and detailed proposals along these lines have been developed by the New Economics Foundation and Institute for Public Policy Research (IPPR) in the UK, as well as the Democracy Collaborative in the US. Each of these proposals includes mechanisms to assist workers in financing the upfront costs of purchase.
A “right to own” law has long existed in Italy, where the Emilia Romagna region has one of the highest levels of co-operative ownership of the economy in the world (about one-third of GDP). While there is no “right to own” in Canada, its potential can be seen in examples such as the Harmac Mill on Vancouver Island. Slated to be shuttered a decade ago but successfully bought out by its employees (with the help of their union, the Public and Private Workers of Canada), the mill is thriving today (shuttered West Fraser Timber and Canfor workers take note). Like the other policies mentioned so far, US-based polling suggests that a “right to own” is very popular, with 69% support versus only 10% opposed in that country.
Thousands of worker-owned enterprises and co-operatives already exist in the US, UK and Canada. The economic evidence, much of it summarized in Tom Malleson’s 2014 book, After Occupy: Economic Democracy for the 21st Century (Oxford University Press), suggests that productivity in worker-owned co-operatives is as good as or better than in conventional firms. Thus, there doesn’t appear to be any sharp efficiency trade-off with worker ownership. In fact, this model of firm can provide many benefits, including better working conditions, far fewer job losses during economic downturns, and a genuine sense of control for employees over their working lives.
Important barriers do exist to the sector’s expansion, though, and the reports referenced above propose a range of further policies to help this sector to thrive. These include improving access to financing, reforming legal frameworks to protect and grow co-ops’ capital assets, and enhancing training and support, since business schools typically aren’t set up to teach the development of co-operatives.
Taking on big banks and powerful tech monopolies
Two of the most powerful sectors in today’s economy are big finance and big tech. Both make large profits, wield political influence, and consistently recruit some of the brightest minds to help them make even more money. Taming these sectors and reshaping them for the public good is another area in which bold, innovative policy ideas are pushing their way into the political mainstream.
Financial transactions tax
One far-reaching policy to help rein in the financial sector is a financial transactions tax. This is a small tax on short-term financial flows such as stock trades, with the purpose of both discouraging unproductive speculative activity and raising revenue for important social or other investments. When applied internationally, this is often known as the Tobin Tax (after economist James Tobin) or the Robin Hood Tax. Because ownership of financial wealth is so highly concentrated, a financial transactions tax would have highly progressive effects on inequality.
In its most recent incarnation, Bernie Sanders recently introduced legislation that would implement a 0.5% tax on stock trades, 0.1% on bonds and 0.005% on derivatives in the United States. The law’s backers estimate the tax could generate $2.4 trillion in revenue over 10 years, which is broadly consistent with the estimates for other variations of a financial transactions tax in the US.
Bernie Sanders recently introduced legislation that would implement a 0.5% tax on stock trades, 0.1% on bonds and 0.005% on derivatives. His campaign has pledged to use the revenue to cancel all student loan debt in the United States.
The Sanders campaign has pledged to use the revenue in part to fund a mass cancellation of all student loan debt in the United States. More generally, a financial transactions tax has the potential to redistribute from the financial industry and the wealthy, unleashing an enormous amount of revenue that could be invested in important social, economic and environmental priorities.
Publicly owned banks
Another set of policies relate to creating publicly owned alternatives to large private financial corporations. In terms of consumer banking, this includes growing proposals to use the existing national network of post offices to create new retail bank options, which would help serve smaller communities and underserved neighbourhoods often neglected by private banks. Public postal banks would also provide an alternative to the mounting fees and service charges imposed by corporate banks, and an alternative to predatory payday lenders.
Public postal banks already exist across several European countries, and once existed decades ago in the US and Canada. Recent public postal banking proposals have been developed by Alexandria Ocasio-Cortez and Bernie Sanders in the US, the Labour Party in the UK, and the CCPA and postal workers in Canada.
Distinct from consumer banking, public investment banks are another policy option to help spur and shape economic development toward a range of important societal goals. These goals could include accelerating climate action, revitalizing economically depressed and deprived regions, and serving co-operative and worker-owned enterprises, among many others.
Finance and investment are so central to shaping our societies and economies that there is a strong case there should be substantially more democratic control over investment decisions, rather than leaving them almost entirely to powerful and unaccountable financial corporations. The IPPR and Labour Party in the UK have each outlined detailed proposals for public investment banks. (These should not be confused with the privatization-promoting Canada Infrastructure Bank, a matter that CCPA research and analysis has discussed.)
Breaking up powerful tech monopolies
Digital technology is another increasingly powerful economic sector, which includes large corporations like Amazon, Facebook, Google, Apple and Microsoft. These firms dominate much of our day-to-day digital lives and have control over—and profit massively from—our personal data. Concern has been mounting about how big and powerful these firms have become, and yet they remain largely unaccountable to their users and society more broadly.
In the US, where most big tech companies are based, Elizabeth Warren has released a set of aggressive antitrust and merger policies (see Here’s how we can break up Big Tech in the May/June 2019 issue of the Monitor) that would see them broken up. For example, Amazon’s takeover of Whole Foods in 2017 would be reversed, Facebook would be required to spin off competitors it has bought up (like Instagram and WhatsApp), and Google would have to do much the same.
Warren’s proposals would have the US government designate large digital platforms as “platform utilities,” which would be “required to meet the standard fair, reasonable and non-discriminatory dealing with users” and would not be allowed “to transfer or share data with third parties.” Tech billionaire and Facebook investor Peter Thiel has admitted he is “scared” by Warren’s proposals.
Warren’s proposals would have the US government require large digital platforms “to meet the standard fair, reasonable and non-discriminatory dealing with users.”
The US-based Roosevelt Institute recently published a detailed report on overhauling antitrust standards. It suggests a dramatic expansion of the mandate of these laws beyond the narrow bounds they’ve worked within for the past few decades, including by adding the sweeping goal of “dispersing and de-concentrating private power.”
Bernie Sanders recently joined Warren in pledging to break up the tech giants, and the UK Labour Party says it would create a new regulator empowered to do the same. Beyond breaking up these corporations, there is also an emerging “platform co-operative” movement for replacing tech giants with co-operative enterprises accountable to their workers and users. CCPA analysis has discussed how this could work in the case of a co-operative ride-hailing alternative to Uber (see my article, What’s missing from the Uber debate? Market power, congestion, pollution, and even deaths).
Getting serious about taxing the rich and corporations
Taxes on high incomes have made a modest comeback in Canada and some provinces in recent years. But top tax rates remain low by historical standards and taxes on the rich have focused too narrowly on income, largely overlooking ballooning wealth inequality. Discussions of corporate taxes, in turn, have focused too narrowly on moving the headline rate up or down. Bold new proposals are broadening the menu of policy options for how to tax the wealthy and corporations.
Wealth taxes on the super-rich
In his monumental work, Capital in the Twenty-First Century, French economist Thomas Piketty raised alarm bells about the growing wealth and power of the super-rich globally. He argues that profits from capital ownership are outstripping economic growth itself. In other words, those who make money from their existing wealth—rather than those who make money from their labour—are amassing a growing share of global wealth. As a key remedy to this self-perpetuating wealth concentration, Piketty proposed a comprehensive annual global wealth tax.
Following his lead, Elizabeth Warren recently announced a wealth tax policy for the world’s biggest economy, the United States. Warren’s plan would apply a 2% annual wealth tax on household wealth levels over $50 million, and a 3% tax on wealth over $1 billion. The proposal would raise a breathtaking $2.75 trillion in revenue over 10 years, based on analysis by UC Berkeley economists Emmanuel Saez and Gabriel Zucman. An annual wealth tax of this kind would begin to put a serious dent in wealth inequality, and it would make possible massive increases in social and environmental investments.
While I have suggested that Canada is behind the curve on many of these emerging economic policy debates, a wealth tax is one area that has recently received some attention here at home. The CD Howe Institute sought to head off the idea in June, arguing that it would be “unnecessary” in Canada. This came shortly after the federal New Democratic Party added a wealth tax of 1% on fortunes over $20 million to its suite of policies.
Another approach to taxing large pools of private wealth is via targeted inheritance and gifts taxes. For example, the CCPA has previously called for a Canadian inheritance tax of 45% on estates over $5 million. Bernie Sanders recently proposed an inheritance tax of 45% on estates over $3.5 million, with the tax rate rising as high as 77% on estates over $1 billion. Taking a slightly different tack, the IPPR think-tank in the UK has proposed an aggressive tax on wealth transfers, but with thresholds focused on the size of windfalls a recipient receives. The UK Labour Party is considering adopting a policy along these lines.
Each of these proposals has the potential to seriously tackle the huge disparities in wealth across the Western world—while creating a large pool of revenue available to be invested in public goods.
Ending special tax breaks on capital income
Though not quite on the scale of a direct wealth tax, another important policy idea aimed at tackling wealth inequality is to begin taxing capital income on equal footing with labour income. Currently, in Canada and many countries, income gained from owning capital is taxed much more favourably than income earned from working. For example, in Canada only 50% of income realized from capital gains is considered taxable.
The CCPA has long advocated ending this special tax treatment and similar proposals have been put forward by the IPPR in the UK. This ought to be a subject of increasing discussion in Canada, where equalizing the treatment of capital and labour income could raise billions of dollars in additional revenue.
Taxing corporations like we mean it
In an era of enormously wealthy, tax-shifting global corporations, there are some new policy ideas to ensure these giants pay their fair share of tax. One proposal to stop perpetual corporate profit-shifting is to levy corporate tax based on the share of sales to customers taking place in a given country (as a portion of global profits).
Footloose corporations like Amazon and Netflix can threaten to move their headquarters all they want, but they can’t easily shift the location of their customers, making this type of corporate tax much more difficult to avoid. Known as “destination-based” corporate taxation, this idea has been outlined by economists in a report for the UK’s Institute for Fiscal Studies, with a similar sales-based tax structure outlined by the IPPR think-tank.
Equalizing the tax treatment of capital and labour income could raise billions of dollars in additional government revenue.
Another intriguing approach comes (once again) from Elizabeth Warren in a policy backed by Berkeley economists Saez and Zucman. Warren’s proposal would leave the existing corporate tax infrastructure in place but layer on an additional “real corporate tax” of 7% on companies with over $100 million in profit.
What makes it a “real” corporate tax? Instead of basing the tax on the profits these companies report for tax purposes, which are subject to a whole swath of deductions and loopholes, it would be levied based on the profits they report in financial statements to their own investors. Saez and Zucman estimate this policy would raise over $1 trillion in public revenues over 10 years.
Canada needs to think big. Let the debate begin.
This round-up of burgeoning economic policy ideas is far from comprehensive, and these particular proposals are not the final word. What they do represent is a window on an impressive proliferation of bold, left-wing economic thinking that should inform our discourse and debate in Canada. This debate should include other emerging big ideas like a Green New Deal, four-day work week, universal basic income, universal basic services, land value capture and maximum wages, among many others.
In a time of growing global instability, we should be prepared to develop new ideas and solutions. We can learn from the past but need not limit ourselves to it. When it comes to policies for economic justice, in addition to redistributing income and reducing poverty, we should be looking at ways to fundamentally reshape who holds economic power in this country, putting working people in the driver’s seat.