The Insignificance Of Labour’s Worker Equity Fund Proposal


Would be socialists and redistributionists are just clapping their hands with glee at this idea from John McDonnell. Companies with more than 250 employees should be putting 10% of equity into a fund that would go to the workers. Who could then receive up to £500 a year each in dividends, the balance above that going to the State.

The problem with this is that upon the one side it’s entirely trivial while on the other it very much ain’t. Given that this is a proposal from McDonnell it’s the benefits which are trivial, the costs which ain’t. And then, for of course we do, we’ve Aditya Chakrabortty showing his detailed knowledge of all things economic:

The sums involved are massive: Labour calculates that 10.7 million workers covered by the scheme will get about £4bn a year in share dividends by the end of Jeremy Corbyn’s first term in government, while the public sector will receive an annual £2bn.

Well, no, the sums to be collected are trivial. Think it through for a moment.

The labour share of the economy is about 60% – the labour share, not the wages share. This won’t be wages after all. 60% of a £1.8 trillion economy is some £1,100 billion close enough. So, this will raise the labour share, after all those dividends are collected, by about 0.4%. Once. That is, we get a once off rise in the workers’ incomes of about the same that even today’s lacklustre growth in wages provides as a rise in real incomes in one year. And if we look at the longer time spans we see that real wages grow, under this capitalism and free market mix, by a percent or two a year. The normal functioning of the system vastly outweighs that is the effects of this little scheme.

On government revenue the same is roughly true. We’re talking £2 billion on a £700 billion number. A 0.3% rise in revenue. Piddly, isn’t it?

The costs, well, they’re rather likely to be greater. An additional tax of 10% of equity on any successful business – for that’s what this is, grow a business to 250 people or more and you then lose 10% of the equity – is going to have a certain cramping effect upon economic growth, isn’t it? We see this rather clearly in France, certain worker protections and costs only kick in over 50 employees. It’s really remarkable the number of 49 people companies in the country.

Like so many of these clever political schemes we’re killing that golden goose of economic growth in favour of some trivially tiny reordering of the distribution of the outcomes.

There is one amusement here. The entire idea is predicated on the idea that the capitalists are hogging all the income, all the growth, leaving the workers wi’ nowt. So now we’re going to take 10% of every large company in the country, 10% of all those commanding heights of the economy. This increases the workers’ incomes by 0.4%. Those capitalists aren’t doing very much in the way of exploitation and expropriation at present, are they? If we took 100% of those commanding heights we’d presumably raise the workers’ incomes by 4%. Plus gain those non-capitalist growth rates of roughly nothing to less than zero.

Somewhere between trivial and disastrous therefore – but then it is an economic policy from John McDonnell, isn’t it.

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