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Prosperity doesn’t trickle down, it comes from the middle-out (Part 3): 21st century social contract

By News Express on 18/12/2017

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Of course, business does require a degree of certainty to operate. For example, you’re not likely to see American corporations invest in Somalia right now, because they can’t be sure the Somali government will enforce the rule of law. Without the protection of laws, assets could be seized, workers could be imperiled, and profits could disappear. But the demand for this heightened certainty is somewhat odd: it seems to fly in the face of the hyper-competitive laws of capitalism that the modern market was built upon and the risk-taking that is theoretically the source of reward for investors. It is, at least, ironic to hear CEOs who fancy themselves “risk-takers” when defending their own astronomical pay demand certainty as a prerequisite for making new business investments. But that is apparently the new contract they want between government and business. What few business leaders seem willing to concede is that 99 per cent of the certainty they seek comes from a confident and thriving customer-base and rising consumer demand. It’s not a lack of profits or capital that is holding back our recovery, but a lack of demand. And middle-class consumers will resume their discretionary spending only when they once again feel certain of their economic future.

If our captains of industry are so certain that certainty is necessary for industry, then it surely must be true that their customer base, the American middle-class, needs some of that certainty as well. For without the certainty that they will remain in the middle-class, middle-class Americans simply cannot fulfill their crucial economic role.

The middle-class uncertainty that started creeping up on us in the 1980s came to a head as the bottom fell out of the housing bubble in 2008. Consumer demand collapsed and, seven years later, it has yet to return to pre-recession levels. Much of our crisis of weak demand stems from four decades of stagnant incomes: a 6-per cent-of-GDP, trillion-dollar-a-year transfer of wealth from wages to corporate profits that has sapped American consumers of their prior strength. But much of it also comes from the way the changing nature of employment is stripping away the labour standards and benefits that are prerequisites for sustaining an economically secure middle-class.

The labour standards that created the middle-class are being balkanised by a mishmash of federal and local laws, deteriorating union protections, and convoluted new business and ownership models that often are intentionally designed to dis-empower workers. The truth is that Zoe doesn’t work for a hotel; she works for the local subsidiary of a national company that manages front desks at hundreds of hotels nationwide. The rest of the hotel is staffed by an equally complex ecosystem of contractors and subcontractors: Housekeeping is farmed out to one contractor, the restaurant to another contractor, and security to yet another. One company owns the land and the building, while a hotel management firm leases it. The only thing that’s “Hilton” or “Marriott” or “Sheraton” about a hotel might be the franchised brand: the sign hanging above the front door and the logo on the towels.

There is nothing inherently wrong with this arrangement. Our highly complex economy requires and rewards heightened specialisation. But each of those contractors has likely won a cutthroat bidding war to earn its contract, in which it has offered the most services in exchange for the least amount of money; and the least empowered workers, like Zoe, are the ones who end up paying the highest price. Even if Zoe and her co-workers wanted to organise, against whom would they strike? And if the front-desk management company were to raise prices in order to give Zoe full-time work and the benefits that go with it, the hotel management company could always just switch to a cheaper contractor.

This is the new “you’re on your own, benefit-free, race-to-the-bottom reality for millions of American workers. And as more new innovative businesses and business models are invented, this process will only accelerate. As the sharing economy kicks into high gear, more and more Americans will become independent contractors activated at the touch of a button on an app, working for a fleet of employers. According to a 2015 Bureau of Labour Statistics report, Americans born in the late Baby Boom period have held around 12 jobs in adulthood. It’s possible 30 years from now, the average American might well work for four or five or even more different employers in a single week. This hyper-nimble form of employment means the economy will likely be even more efficient in years to come, as workers are hired for very specific tasks of a highly limited duration. But a nation of independent contractors is a nation of workers without any of the benefits that defined the decent and dignified life that gave one reason to be optimistic about the future: a gross violation of the social contract that helped create the greatest economic expansion, the most dramatic increase in living standards, and the largest, most prosperous, most productive, and most secure middle-class in human history.

And even if trickle-down’s low-tax, low-regulation, benefit-free policies could grow GDP as fast or faster than “middle-out” – and they can’t – why would Americans choose that? Why would we choose an America in which just 10 per cent of Americans enjoy 100 per cent of the rewards of economic growth (as they have since 1980), while the vast majority of middle-class families struggle to remain middle-class? For a nation full of Zoes is a nation of people who simply do not have the time or energy to help their children with their homework, to be good neighbours, or to participate in the civic life of their communities. And a nation full of Zoes simply cannot provide the massive input of innovation and consumer demand that our economy requires of the middle-class.

 It is important to state that this is not an argument against innovation. We welcome the efficiencies and flexibility that companies like TaskRabbit and Uber bring to the market. But innovation also brings with it disruption and, if we want to preserve the economic security of the American middle class, then we need to respond with an equally innovative set of labour policies.

21st century social contract

An economy based on micro-employment requires the accrual of micro-benefits, and a 21stcentury sharing economy requires a 21st century social contract that assures shared economic security and broad prosperity.

We propose a new Shared Security System that endows every American worker with, first, a “Shared Security Account” in which to accrue the basic employment benefits necessary for a thriving middle-class and, second, a new set of “Shared Security Standards” that complement and reinforce that account.

One can think of the Shared Security Account as analogous to social security, but encompassing all of the employment benefits traditionally provided by a full-time salaried job. Shared security benefits would be earned and accrued via automatic payroll deductions, regardless of the employment relationship; and, like Social Security, these benefits would be fully prorated, portable, and universal.

Proration: The obvious solution to the explosion of part-time work – voluntary or otherwise - is to prorate the accrual of benefits on an hourly or equivalent basis. For example, if Zoe works 30 hours a week at the hotel, she should earn three-quarters of the benefits offered by a full-time 40-hour-a-week job; if she works 20 hours a week, she should earn half the benefits. There is no doubt that many employers push their employees into part-time work in order to avoid the added cost of paying any benefits at all. Proration would eliminate this perverse incentive and the economic distortions and inefficiencies that come with it.

We would be continuing this discourse in the next article.

•Lawrence Chukwuemeka Nwaodu is a small business expert and enterprise consultant, trained in the United Kingdom and the Netherlands, with an MBA in Entrepreneurship from The Management School, University of Liverpool, United Kingdom, and MSc in Finance and Financial Management Services from Rotterdam School of Management, Erasmus University Netherlands. Mr. Nwaodu is the Lead Consultant at IDEAS Exchange Consulting, Lagos. He can be reached via nwaodu.lawrence@hotmail.co.uk (07066375847).

Source News Express

Posted 18/12/2017 4:58:44 PM

 

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