Making work pay

One of the most fundamental public policy challenges over the past 30-40 years has been the further distancing between the so-called working class and the middle class and what can or should be done by governments in response. The tired socialist response of wealth redistribution, either through government programs or direct monetary transfers, is both counterproductive and ineffectual. So, what is the popular capitalist response to this challenge?

First things first – we must acknowledge that there are many definitions of these terms, the key distinction between working and middle class in this column is that the middle class have some degree of capital or equity available to them (often in their home), while the working class does not.

Accordingly, a large part of the popular capitalist response to this issue should be geared towards encouraging capital formation for those who don’t have much (or any).

A challenge this big will not be solved by one policy alone, and many bold responses should be considered. We will look at one of the biggest potential solutions – improving working conditions for the working class to provide more after-tax income, job and income stability, and opportunities to build wealth.

Many workers today, particularly working-class and young people with precarious job security (for example, in the gig economy) face inferior work conditions to the last generation. The popular capitalist response to this isn’t to ignore vastly unfair outcomes and say things like “it’s still better than the Victorian era” or “tough luck, the market decided”, but instead to find ways to improve their situation in line with free-market principles.

It’s not good enough (morally or politically) to simply resign ourselves to a permanent underclass of people who lack the wealth and opportunity to participate in the economic growth of society. The answer isn’t the redistribution of wealth at the source, but about equipping every worker with the opportunity to build wealth on their own.

Let’s not forget the stakes in all of this as well. Policymakers need to improve conditions for workers to prevent an even worse outcome – socialist redistribution, pitting parts of society against each other, and the unfettered expansion of the state.

The political reality is that where workers cannot afford a reasonable quality of life while working full time, the inevitable political consequence will be that the political balance of power shifts to politicians calling for more wealth redistribution. If too many people fall behind, they will vote for redistribution and other socialist schemes. Preventing this worse outcome was, in fact, the political rationale for FDR’s New Deal.

The elephant in the room is, of course, union leadership. We’ll explore labour market and legislative reforms in the future, but today we’ll look at other ways of empowering workers regardless of whether they are, or would like to be, in a union.

So how do we improve worker conditions without redistribution and without giving in to labour union leadership which is disconnected from the actual needs of their members? It can start by giving workers a direct say in how the companies they work for are run.

While this might seem a novel concept in the North American context, the concept of a “works council” is common in Europe and worth exploring. A works council is a group of workers elected from amongst their peers to represent their fellow employees in an official capacity. Depending on the jurisdiction, works councils have different rights and responsibilities.

For example, rights of consultation on certain issues, clear outlining of what information employees will receive, and a say in certain work policies. In Germany, the law clearly distinguishes between economic and financial issues (over which works councils and employees largely just get information and management quite rightly retains nearly complete control) and workplace issues (over which they receive much more of a say in day-to-day management).

Unions, on the other hand, tend to lead towards adversarial conflict and votes on all-or-nothing propositions. They have the power to hear grievances and bargain collectively, but rarely is it done collaboratively like a works council discussing workplace issues.

In most cases, a works council is entirely distinct from any union (and heavily opposed by them as a result). Importantly, workers don’t have to be a union member to be elected to a works council, even in a union shop. (Which interestingly has made “right to work” an easier sell in those countries.) In some cases, works council members are given seats on the board of directors of their companies.

A key feature to note as well is that rights are given to individual workers, not the collective union. This is about empowering workers, and in practice, working to prevent union leadership that is disconnected from their workers.

From the European experience, here’s what we know about the effects of properly functioning works councils:

·       vastly improved labour relations and a much lower strike rate;

·       higher productivity and productivity growth;

·       more collaborative decision-making; and

·       higher employee satisfaction.

They often also lead to higher wages, but in ways that are tied to productivity gains that economically justify the higher wages. This is the backbone of what we’re looking for in a popular capitalist model – empowering workers to create wealth that they have fairly earned and that companies are happy to pay for.

Which elements of this concept fit within the Canadian legal framework, with provinces getting much of the legislative power around work environments, is hard to say. Successful implementation will require experimentation and good faith efforts from workers, companies and unions. But the ideas have merit and need to be explored as part of the solution to this public policy challenge.

In conclusion, a well-functioning works council concept should be explored in the North American labour market. It would help work around the inherent challenges of ideological union leadership, create productivity gains with the resultant wage gains that go with it, and ultimately allow more workers to get the full value of their labour, build capital, and allow them to participate more fully in the free market economy.