What to do about it

The method for reducing inequality in this book is through business. In particular through the business structure. In short, by paying employees as owners rather than as hired workers.

An employee receives shares in the company, and is paid in dividends rather than in wages. That’s the short version. But the nuts and bolts need more explanation, which comes later.

Why this promotes equality

This book’s idea is that the underlying, long term cause of inequality is the concentration of ownership and, therefore, of control. It puts the means of production, the source of wealth, into few hands.

This is the case because it is always the 51st share that counts. If you own 51% of the shares in a company, then the other 49% are at your mercy. A share is worth less if it is owned by a minority shareholder than if it is owned by a majority shareholder. So minority shareholders will have an incentive to sell to a majority shareholder, and the majority shareholder will have an incentive to buy.

Employees will have no interest in owning shares in the business, except on the understanding that the company will soon be sold to a buyer who will take every share equally. Employees will rarely have a long term interest in holding shares in an employer. They will not seek protection in the success of the business, but in the interventionist power of government, which further reduces their interest in the company.

This means that a profit stream will be concentrated in ever fewer hands. Entrepreneurship will temporarily spread ownership, but new businesses will be bought up by investors. And those investors will seek to buy out smaller investors, especially if economic stability reduces the cost of borrowing.

The key to spreading business ownership is to contain the power of the 51st share, to prevent the majority shareholder from harming the value of the other shares.

By this means, the aim is to make it attractive for employees to take shares in their employer company. By making a share more valuable in the hands of an employee than in the hands of a single owner.

This is because a company that is run by owners will tend to be more profitable than a company that is run by paid workers. Because of simple incentive, teamwork, and ownership (see below). A more profitable company is worth more, and each share in it is worth more.

This will tend to spread share ownership, particularly in smaller businesses. This in turn tends to reverse the concentration of ownership, which is one of the main causes of income inequality.

Companies that make this method work will tend to find lower wage differences between employees and management, because management will tend to be chosen, even elected, by employees.

There will still be differences in pay. But those differences in pay will tend to be smaller because directors will have to face, and answer to, employees rather than each other. And employees have no interest in overpaying a manager – especially if they’re the ones selecting the manager, and especially if employee owners have taken over most the day-to-day management anyway.

That’s the theory. How does it work?