What is a human worth? Bold commitments from business needed

jamesEconomics, Inequality, Private sector

Business has a key role to play in tackling inequality, but the evidence suggests this isn’t happening. Erinch Sahan, Global Adviser on Business and Markets, proposes corporate targets that would ensure workers get a fairer proportion of profits.

Extreme inequality is rising and business is key to tackling it. We need companies that are geared to channel much more of their profits to workers rather than to investors, but as the figures below demonstrate the world economy is currently increasingly channelling its fruits to capital rather than wages.

My proposed silver bullet solution is to set corporate targets for the proportion of the value of consumer products which go to workers. To explore this let’s first unpack the problem of wages and inequality, considering also the consequences of the rise of the robots.

1. The fruits of the economy increasingly go to capital


 In fact, according to data from the Penn World Table, the average labour share of income across 127 countries had fallen from 55 percent in 1990 to 51 percent by 2011. This is a core driver of inequality and a sign of a world economy working for the few, not the many.

2. The rise of mechanisation (robots) will only further fuel this trend.
“be careful in pushing for higher wages for tea-pickers, it’s already almost cheaper to replace them with machines”
There is now a rising chorus of research telling us that the robots are coming to take many more of our jobs (McKinsey, Oxford University, Deloitte, and Martin Ford all say so). As
computers take over knowledge-intensive tasks, such as analysing consumers’ credit ratings and financial advice, up to $9 trillion in wages will be cut.

A senior corporate executive once warned me, “be careful in pushing for higher wages for tea-pickers, it’s already almost cheaper to replace them with machines” (note the tea-pickers were already on poverty wages). We can’t be complacent about this as the technological revolution is different to all prior revolutions. Industry will need fewer workers to deliver what consumers want and need. If we can’t reverse the trend of capital swallowing up more and more of our economy today, workers will have no chance when the robots arrive.

3. Companies can’t ignore this – they’re driving it


 Businesses are the economic actors that generate and distribute profits. They decide what to pay their staff, the workers in their supply chains and the farmers who grow their ingredients. In agriculture the trends are alarming. In the 1980s a cocoa farmer would get 18 per cent of the value of a chocolate bar. By 2009 it was below 6 per cent. In Europe, farming (the more labour-intensive part of a value chain) got 31 per cent of the value of food products in 1995. By 2011 this had dropped to 21 percent. Capital intensive parts of the value chain, like processing and transport are capturing that same value.

Businesses are putting the squeeze on workers and it’s not getting better. Reversing this trend is critical to achieving Sustainable Development Goal (SDG) 10. Despite business-led enthusiasm on these SDGs, inequality seems to be the hardest nut for business to crack. Business leaders need to come to grips with the trade-offs that drive inequality, i.e. value to workers (wages) vs investors (capital).
CEOs aren’t motivated to take on the inequality challenge as they are under immense pressure to produce profits (CEOs get fired if profits are below market expectations). And sure, sometimes ordinary people do have pensions that soak up the value going to investors. But investors winning is by-and-large the richest 1 per cent winning. If we are to tackle extreme inequality businesses must find a way to get more value (money) to workers and farmers.
The reaction of the business world has been to talk about Creating Shared Value. It’s the ultimate win-win solution, that gets us focusing only where there aren’t any trade-offs. But this ignores the trend of workers getting squeezed over time. We cannot let the comfort of win-win anecdotes distract us away from the challenges of inequality. And we must demand that business gets specific about how value will be shared predominantly with workers.
4. Proposing a silver bullet for business: commitment that workers receive a minimum value  

with mechanization coming our way to destroy jobs and wages, bold and immediate action may be the only way
Clever colleagues already have strong suggestions for companies to help tackle inequality through tax and living wages. I have a further idea. Imagine a brand that sells chocolate or shampoos or some other consumer product . They employ workers, buy from companies who employ workers, and buy a range of agricultural
products, from sugar to palm oil to cocoa. Now imagine they put their hands on their hearts and say to their consumers:

“We hereby promise that at least 50 per cent of the money you’re giving us, will go into the wages and incomes of the people who made the thing you’re about to consume.”

Or if you don’t like absolute targets, how about a directional commitment: “We commit to increasing the share of value that goes to workers each year”.

What will come of a company that’s prepared to lead on how it tackles inequality? Honesty about the trade-offs that underpin inequality are likely to shock the business world. But an approach that sets out to redirect value to workers may also resonate with the public and consumers, the very people who are increasingly feeling the squeeze.

Investors may wobble and fire the CEO, fearing their dividends will be increasingly redirected to the pockets of workers. But with mechanization coming our way to destroy jobs and wages, bold and immediate action may be the only way. There are many questions to be answered, but the most important one is whether there’s a CEO courageous enough to lead the business world in the fight against inequality.

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Author: Erinch Sahan
Archive blog. Originally posted on Oxfam Policy & Practice.