We often categorize things in finance and economics in a binary manner for ease of understanding. Reality is never that simple though and the truth is rarely black or white and usually somewhat gray. This is especially true in the economic debates about capital vs labor. Economists often use this distinction to depict a class difference where capitalists own all the assets and merely use labor as a commodity input to maximize profits. Politicians then love to take this binary narrative to divide and conquer typically thru fear mongering narratives that pit these two sides against one another. The reality is that there is no clear distinction between capital and labor and the two are very much symbiotic as opposed to being adversaries.
A recent study from Rutgers shows just how gray this distinction is becoming. They find:
- 19% of all US workers owned some share in their employer.
- Over 33% of employees participate in a profit-sharing plan nationally.
- Over 50% of all employees in companies with stock participate in some form of a profit-sharing plan or stock option plan.
Another Rutgers study explained that annual sales growth, employment growth and growth in sales per employees was 2.4% greater at companies with an employee stock-ownership plan. In other words, turning labor into capital makes labor AND capital operate more efficiently.
Good capitalists serve themselves best by serving others. This means solving problems for your customers as well as your employees. The best companies in the world don’t treat their workers like commodities. They incentivize them to become capitalists and invested in the company. They are on the same team, not in some class warfare against one another.
I know reality isn’t always so clean and that there’s a lot of work to be done to get us to a point where more and more employees operate more like capital, but this data clearly shows that there isn’t some simple black/white distinction and that the best companies try to eliminate this distinction as best as possible by incentivizing the labor to become capital.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.