The Stakeholder Economy

17 Dec 2016 8:43 AM | Mike Lillich (Administrator)

First published online in the Yonkers Tribune.

By Oren Levin-Waldman

It used to be that those who worked could claim that they were truly independent. Today with wages declining and middle class job opportunities drying up, it may no longer be the case that one who works is truly independent. A low-wage worker often needs government subsidies just to make ends meet. And yet even those who earn livable wages may no longer be truly independent, as increasingly workers work at the whim and mercy of their employers.

In today’s economy we all work in a wage-labor economy. What that means is that we work for the wages we are paid and the employer owes us little more than the actual wages paid. In the older feudalistic economies of centuries past, the lords of the manors had a moral obligation to take care of their serfs. In today’s wage-labor economy, once wages have been paid to workers for their actual labor, employers have no further obligations.

Although many employers offer health insurance and pension contributions as part of their benefits packages, they technically are not obligated to. That they do means that these benefits are merely part of the wages they pay. Again, beyond those wages, there is no further obligation. And yet, one might think that there would be a moral obligation for transparency, especially when it comes to managerial decisions that could profoundly affect the lives of their workers.

Let’s start with the basic assumption that the value and profitability of any firm is affected by the labor that went into it. It is a fallacy to think that a company like General Motors is profitable because of smart decisions made by managers. The decisions they make with regards to investment, strategy and marketing may contribute to the company’s profitability. But if not for the labor of those workers assembling cars in plant, there are no cars to sell, and the company has no value.

Workers’ labor, then, should entitle them to more than their wages. Should they not be entitled to share in the profits? And yet, it is the manager and shareholder who shares the profit. And in today’s limited liability corporation, when the manager makes a reckless decision that could result in the loss of profits and mass layoffs, it is the worker who first pays the price.

Prior to limited liability corporations a factory owner who made a bad decision stood to lose all. Because the owner assumed the risk associated with investment decisions, s/he was entitled to reap to profits when those decisions turned out to be good ones. Now the manager, who really doesn’t own anything except shares, does not lose all. On the contrary, on the advice of investment banks, the manager following a reckless decision merely cuts through retrenchment. Of course retrenchment is a nice euphemism for laying workers off.

When a manager really makes reckless decisions and is even fired by the board for losing money, that manager all too often gets a nice golden parachute. Not the worker who is paying the price for decisions made by others. One might think that by virtue of the time and effort that workers invest into their labor to collectively make the company profitable, they would be entitled to some voice in those decisions that profoundly affect them. Of course, that would be the essence of economic democracy.

Arguably true democracy would require that individuals have a voice in all decisions that profoundly affect their lives; not just the political ones. But to give workers a voice in the decisions of their companies is contrary to the essence of the capitalist market place. After all, managerial decisions are guided by the twin axioms of maximizing profits and minimizing costs. This is, after all, the very meaning of efficiency.

A company that opts to disinvest in the U.S. and set up operations where labor costs are a fraction of what they are in the U.S. is said to be making a sound and efficient economic decision. Carrier’s decision to keep its plant open in Indiana and maintain over a thousand jobs in the U.S. has been criticized for being economically inefficient. In a global economy capital moves to where it can get the best return on investment. And to allow workers a voice in those decisions would simply be inefficient. After all, if workers could vote on matters of capital mobility, how many would vote to effectively lay themselves off?

Still, what is good for an individual company is not necessarily good for a national economy. What is good for the financial managers who move money around in search of growth, even if that entails massive layoffs, is not good for those working on Main Street dependent on economic development. Lest we forget, that is in part what the 2016 election was about.

It may be impossible to “restore” the economy to its greatness, whatever that means. But what is clear is that the nature of the typical labor contract needs to be redefined. The wage labor economy that has characterized most of the world’s economies since the Industrial Revolution may now be obsolete.

We no longer live in a world where one farming one’s plot of land has no impact on others. Everything is interdependent. Investment decisions and other managerial decisions have profound impacts on the lives of many, including workers and the communities they live in. To live in a democratic society but claim that those rules don’t apply to the private marketplace is unconscionable. When management makes decisions that affect others, then there needs to be some type of accountability. Why? Because the independence and autonomy of others is at stake.

Ideally, we would attach some form of property rights to workers’ labor because it is their labor that ultimately adds value to their companies. Workers should have some voice that corresponds to the time and effort they invest in their countries. Managers shouldn’t only be held accountable by their corporate boards of directors, but by their workers who are also stakeholders. We really need to get away from the shareholder economy and think more in terms of the stakeholder economy.

Perhaps the future of unions isn’t just the back and forth over wages, benefits and work rules, but worker voice and management transparency. A stakeholder economy would also remove many of the controls that employers already have over their workers. Many pension plans are already portable through 401Ks. We also need portability in health insurance. If we are not ready for a single-payer system, then employers should provide health benefits in the form of vouchers that allow workers to purchase their own insurance on the open market. After all, movement towards a stakeholder economy would be aimed at achieving greater independence, or developing what Amartya Sen has referred to our capabilities.


Prof. Oren M. Levin-Waldman will engage in a discussion of this very subject matter on the Wednesday, December 14, 2016th broadcast of Westchester On the Level with Narog and Aris at 10am EST by accessing the following hyperlink…… to hear the program “Live” or “On Demand”. Listeners are welcome to ask a question or share their perspective with respect to this subject.

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