The workers owning the means of production

Via Mark Thoma, there's a great column by Nancy Folbre in the New York Times arguing that shared capitalism--finding ways to share more of the benefits of a company's profitability with employees--produces more successful businesses and happier workers.

This seems so obvious to me that I'm surprised anyone could think otherwise. People don't like to feel exploited, and companies that don't invest in good staff don't tend to do well. Shared capitalism is an obvious way to solve both problems.

I've long had a pet idea about this which goes a bit further than Folbre's idea. Basically, say 40% of equity in all companies--or holding companies when they're part of a group--should be owned by an employees' trust. I don't know if 40% is the exact level, but I'm thinking somewhere in that ballpark.

The trust manages a staff pension fund and acts as fiduciary for current employees. It appoints directors to the board, in proportion to its own shareholding. If the company is making profits and paying dividends, it receives those dividends as income and can decide whether to add them to the pension fund, or return them direct to employees as bonuses.

The reason for this is to align the incentives of shareholders, employees and management. One of the reasons we've had decades of median wage stagnation in the West is that managers are ultimately answerable to shareholders alone, and an easy way to make shareholders happy is to give them all the economic rewards from improved productivity, when at least part of that belongs to employees. Equally, this era of labour-bashing seems to be a backlash against the age when managers were most fearful of industrial action, and made employees happy by giving them all the economic reward when at least part of it belonged to capital providers.

Making employees shareholders seems a good way to square that circle. Managers can't enrich one side at the expense of the other--they're all in it together.
Employees would come to view the dividend bonus as a part of their income, and would have to weigh up losing it if they made unreasonable pay demands. Likewise, if shareholders made demands detrimental to employee welfare, they'd have to have a very strong case if they wanted the managers to get it past board members, 40% of whom would be appointed by the employee trust.

I don't see how this would get in the way of other corporate functions. The trust would have access to the pension funds and likely some of its own capital, so it shouldn't have a problem taking part in equity raisings if they were genuinely in the long-term interests of the company. Acquisitions and demergers wouldn't be hampered, as acquirers would just be looking for 60% control; the trust's assets and rights could be split and reassigned according to which businesses are spun off.

Obviously you'd need to bring such a system in over a span of years to avoid chaos from the sudden change; and obviously the whole thing is my pie-in-the-sky musings anyway since managers, shareholders and the political and financial classes have far too much invested in the status quo to want any such change. But I can think of lots of problems that a system of this sort would solve, and I'm struggling to think of any concrete insurmountable problems it would introduce. Can anyone suggest one?