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An equitable economy requires a socialist economy of public enterprises and cooperatives
By Howie Hawkins
The mounting climate crisis is an existential threat that should concern us all. But millions of working-class New Yorkers are in crisis every day struggling to pay their bills and stay in their homes.
New York is the most unequal state in the nation. The top 1% took home 12% of all income in 1980. By 2015, the top 1% took home 33% of all income in the state and 41% of all income in the New York City.
Meanwhile, over these same four decades, inflation-adjusted wages declined while rent, property taxes, health dare, day care, and college costs increased far faster than the general rate of inflation. It’s a crisis right now for working people in New York.
Economists at the centrist think tank Third Way came out with a study earlier this week documenting that 62% of jobs in America’s metropolitan cities cannot support a middle-class lifestyle that enables a person to pay their living expenses, save 5%, and spend $1000 on a yearly vacation. Adjusting for living costs in each metro region, it found that 30% of jobs (<$26,452 on average) cannot support a basic standard of living for a single adult living on their own. Another 32% of jobs ($26,452-$44,820 on average) can support a basic standard of living for a single adult living alone, but not enough for modest savings and a vacation. Even for the next highest 23% of jobs ($44,820-$80,462 on average), it takes two such jobs to support a middle-class life for a family of four. Only the highest-paid 15% (>80,462 on average) of professional/managerial class jobs can support a middle-class life for a family of four.
In New York’s metropolitan regions, it is worse than the national average of 62% of jobs not supporting a middle-class life: New York City, 67%; Nassau/Suffolk, 76%; Albany, 63%; Syracuse, 64%; Utica, 66%; Binghamton, 68%; Rochester, 64%; and Buffalo, 63%.
Over these same four decades, income taxes rates for the highest income bracket has been nearly halved while the lowest income bracket was doubled. The stock transfer tax, which overwhelmingly affects the wealthy, has been 100% rebated since 1981.
Less progressive taxation is part of the reason for growing income inequality. But the biggest reason by far is growing inequality at work. Top professional and managerial salaries have risen substantially in both the private and public sectors. But the share of net income in private firms going to owners has risen dramatically, especially in the FIRE (finance, insurance, real estate) sector, which has increased its share of all profits from 10%-20% in the post World War II period to 30-40% since financial deregulation began in the mid-1980s. In New York, that means Wall Street and the big real estate firms have captured a much bigger share of the state’s income over the last four decades.
Progressive taxation can only partially mitigate this growing inequality. We need more progressive taxation to responsibly finance public programs like health, education, and environmental protection and public infrastructure, which is crumbling due to decades of underinvestment.
To really reverse growing inequality, however, we need to change the way income is distributed in the first place at work. That means worker cooperatives in the private sector and public enterprises in the public sector.
In a worker cooperative, net income is distributed to the workers who produced it in proportion to the labor they contributed instead of it being siphoned away to absentee owners as profits. Workers get the full fruits of their labor, instead of a fixed wage with all of the surplus income going as profits to a few owners.
Managers are paid salaries and a share of the net income like workers, but as a democratically-managed business, employees generally agree to a more equitable range of salaries. Managers get decent salaries commensurate with their responsibilities and skills, but not the ridiculously high salaries managers get in today’s capitalist firms. For example, in the successful Mondragon cooperatives network based in the Basque region of Spain, the difference between the lowest and highest paid employees is never more that 6 to 1. The ratio of CEO pay to the average (not lowest) wage worker in US corporations last year was 361 to 1.
Consumer cooperatives in the private sector also contribute to an equitable economy by delivering goods and services to the members at cost for member benefit, not for private profits to absentee owners.
Public enterprise is needed for those goods and services that should be accessible to all (e.g., education, health care, day care, retirement pensions), for those those good and services that are natural monopolies (e.g., power, broadband, mass transit, roads, bridges, water and sewer systems), and for those goods and services where public enterprise is needed to set good cost and quality standards for their markets (e.g., public banking, public housing).
Since public enterprises operate at cost for public benefit instead of to maximize net income (worker cooperatives) or profits (capitalist firms), workers in public enterprises do not get a share of net income at the end of the year. Public employee incomes should be set at levels equal to comparable work in workers cooperatives. Today, public employees tend to have lower wages but better health and pension benefits than comparable workers in the private sector. But if health and pension benefits are socialized and equal, then incomes for workers in the public sector can be set at the same level as they are in the worker cooperatives for comparable work.
This more equitable distribution of income according to work performed, not asset ownership, is a democratic socialist principle. If we stick with a capitalist economy, the rich are going to keep getting richer and the rest of us are going to struggle. Progressive tax and transfer programs can provide a safety net at the bottom. But if we are to have an equitable distribution of income and wealth and power, where everybody can enjoy what we call a middle-class lifestyle, we must democratize our economy through social ownership of the major means of production in democratic public enterprises in the public sector and cooperatives in the private sector.