Aside from education, the biggest fiscal challenge facing local governments is fixing our transportation infrastructure without increasing pollution. The President has proposed that we switch to hydrogen within ten years. This is nice, but does not solve all the problems of accidents and congestion we currently face. Accidents still kill too many people. Congestion is still too much of a problem. Forcing people to use more public transportation is not the answer, because people will never give up the freedom and convenience offered by owning your own car. An integrated solution provides for systematic traffic control, increased mass transit and individual or rented car ownership.
We currently have the technology to switch to an entirely electric system, with vehicles on major roads and highways drawing power from overhead cables in the same manner that passenger trains and electric buses do. A roof is put over these transmission lines, and grass grown on these roofs. In cities and new developments, roads with this feature are even put under street level. These transmission lines also double as an electric transmission system to houses.
Practical electric cars, with electric motors in the axels, are already under development. Automatic control technology is also improving. Extending a transmission line from a car to an overhead power and control system is only a baby step. Once this step is taken, interstate travel is revolutionized, as vacationers set their cars to their destinations and go, working, watching television or sleeping while the car does the driving.
Funding
A key advantage to this system is that it is either entirely private, or a mix between public and private funding. However it is funded initially, the driver provides a link to a debit or credit account to the system and the trip begins provided funds are available. Rental cars are even used, either for single trips or cross-country excursions, relying on the same premise. Of course, taxicabs as we know them are replaced by this technology.
Workers at employee-owned inter-independent firms get their car loans through their workplaces. Firms even include the stock of the evolving transportation companies in their retiree investment portfolios, so that travel expenses in retirement are covered by stock dividends.
Daily Travel
For daily travel, the system adjusts itself to limit congestion. When road congestion is high, rates for “downtown” trips are raised, while rates to public transportation facilities are lowered. If public transportation is overloaded, rates to drive downtown are decreased. Over the long term, fuel usage, auto production and road construction and maintenance are integrated and fees are set to optimize the system and remove gridlock. Since the system is largely under ground, it does so without tearing up the landscape. The solution to the parking problem is the best part, with empty vehicles returning home to park and coming back at the end of the day. Is this science fiction? Not any more.
Energy Sources
This solution to our transportation problems is an ideal way to increase the use of clean burning natural gas or hydrogen generators to power the electric grid, or even to harness long neglected nuclear power technology. Recent breakthroughs in developing fusion technology also show promise. Physicists are close to generating a sub critical reaction that is used to provide power generation. When this occurs, the system described here is ideal, provided the right industrial partners are brought on board to prevent obstruction. Cars also have reserve batteries, which charge while in the system for use on those streets that have not yet been improved.
Overcoming Resistance
Individual drivers are less likely to resist this system than mere appeals for more public transit, since privately owned vehicles are a component of this system. Another major selling point is that people are able to program their destinations and go, taking their minds off the road. Automobile accidents are a thing of the past, especially drunk driving. This system actually encourages travel, and the production of more comfortable vehicles to travel in - with television and Internet access. This development also lowers the price of airlines and hotels, given the realistic alternative of driving straight through.
Saturday, August 30, 2003
Monday, August 18, 2003
State and Local Goverment Finance
This essay covers two separate strategies to improve state and local finance, one based on the current system of taxes and the other based on the proposal for a Business Income Tax discussed above. Both of these proposals are related to the situation in Virginia. First, though, let us look at the fiscal situation generally.
Reforming Tax Structures
Two recent events in the early 2000s put most states, and their localities, into financial crisis. The first is the 2001 tax cut, which is exacerbated by the 2003 tax cuts. The new "Great Recession" has exacerbated these issues. Any state that ties its income tax structure to the federal structure loses money unless they increase tax rates. The second is the collapse of the Internet bubble. Prior to the collapse, revenues grew with income, which was overstated by the acquisition of paper millions. Most jurisdictions based their future revenue projections on this funny money and cut tax rates accordingly. These rate cuts have not been reversed, as it is easier to cut taxes than to raise them.
The current shortfalls also point to the lack of thought given to the mix of taxes at each level of government. Most state governments collect an income and/or sales tax on a statewide basis and property taxes at the local level, while funding education at the local level and welfare, social services, mental health and corrections at the state level. Roads are paid for at both the state and local levels. Additionally, most states give grants to localities, as they are more efficient tax collectors. Surveys show that the tax that is least resented is the state income tax, although that is certainly not true in all states – some of which have no state income tax at all. Currently, governments with unified budgets collect taxes from many sources and spend it on a variety of programs. There is a better way. Link revenue sources to the social purpose that the public agency is trying to accomplish. There are five kinds of revenue sources: income taxes, sales taxes, property taxes, permit fees and transportation taxes and fees.
Income taxes are redistributional in nature, so link them to the redistributional functions of government. The ultimate form of redistribution is public education, so fund all public education with state income taxes with the state distributing these funds to localities based on the needs of each jurisdiction. Money for schools is allocated based on student population and inversely related to student family income (disadvantaged areas get more money). State and local income taxes also support welfare programs, as well as mental health and family services. Property taxes are no longer used for education, as poor districts have little to draw on to fund education where it’s needed most. States which tie their income taxes to the federal system need to introduce an automatic rate increase or decrease in each bracket to compensate for changes in the federal tax code, so that federal tax cuts do not provoke a fiscal crisis in state government and tax increase do not doubly penalize state taxpayers.
Property taxes are the ideal way to fund and protect infrastructure, so they fund local streets, housing inspection and a portion of public safety. Fees collected for home building inspection, titles, etc. also support these activities. Debt service is also tied to this tax. A jurisdiction uses capital budgeting to redevelop blighted areas, with future tax collections paying off these investments. A portion of gasoline taxes also goes for local streets. Property taxes are administered at the lowest possible level, possibly even the neighborhood. Organizations like the Advisory Neighborhood Commissions in Washington, DC are given decision authority on street funding and service deployment, starting the evolution to a more direct form of democracy and service, shrinking the reach of government.
In metropolitan areas, there are often several jurisdictions responsible for the highway and mass-transit system. Washington, DC is a classic example, with a Federal District, two states, and multiple counties responsible for bus, highway, subway and commuter train systems. Competition within the system, such as price competition to minimize gas taxes, often causes other the whole system to break down with inefficient bus routes, gridlock, and deteriorating roads. For both single and multiple jurisdictions, regional authorities to pursue a common building and funding strategy for both major roads and public transportation are desirable. These authorities set gasoline taxes for the entire region, share the resulting revenue, recommend property tax rates for roads, set rail and bus fares and establish routes, establish toll roads and develop highways and rail lines. When congestion occurs on one part of the system, or to fight high levels of pollution, tolls or gasoline taxes are be increased or decreased or alternate service provided. Inefficient bus routes, which are a hold over from before light rail's reemergence, are rerouted to support the rail lines rather than compete with them. Such authorities also issue debt instruments tied to future revenue to upgrade the system.
Sales taxes fund commercial regulation, inspection, business services and public health, as well as the portion of public safety serving business interests. These funds are also distributed to jurisdictions that have greater infrastructure and public safety needs than their property tax base can meet. Sales taxes are especially useful to fund a more service oriented regulatory structure. Ombudsmen are assigned to each business or institution to coordinate all other government contact, a regulatory “cop on the beat” to handle all taxes, inspection and compliance activities at all levels of government, from the federal level to the local level. If a business needs a permit that involves coordination by more than two agencies, the Regulatory Specialist creates an electronic consolidated questionnaire that automatically files all paperwork.
Virginia’s Revenue Crisis
This menu of reforms is especially needed in the Commonwealth of Virginia, which is experiencing serious financial difficulty due to the end of the car tax and to population growth in Northern Virginia. Linking spending to revenue functions helps determine whether income taxes are adequate to fund such items as education, corrections and social services. If they are not, the obvious answer to is to raise the tax rate, which is lower than in nearby areas. Likewise, if gasoline and property taxes are inadequate to fund needed improvements, these are increased. The establishment of toll roads, especially on interstate routes between Washington and Virginia Beach also merit careful consideration. Nothing causes air pollution like idling traffic. Much of this traffic is from out-of-state travelers, so toll roads are most appropriate.
A key question raised in the 2002 tax referendum debates was whether to allow Northern Virginia to levy a higher rate for education and transportation. Central and southwest Virginia leaders stated that such a levy magnifies differences between the northern counties and the rest of the state. Whether these fears are justified or not, they must be taken into account, as well as the higher revenue needs of Northern Virginia. Most of these needs reflect the costs that go with being located in the Washington metropolitan area. Therefore, the only justification for higher income or gas tax rates is to fund regional education, social welfare, mental health, corrections or transportation partnerships, or as an offset to a much feared non-resident income tax in the District. I suspect that, given the record of mismanagement in the District government, most Northern Virginians favor the establishment of regional authorities to such a tax.
Business Income Taxes
If the federal government restructures its tax system as outlined above, and even if it does not, consider the abolition of the income tax and the sales tax and their replacement with a business income/value added tax along the lines discussed for the federal government. Such a tax includes the same credits and deductions as suggested on the federal level. Local jurisdictions with higher costs of living mandate high enough dependent tax credits so that the combination of the federal and state credits provides an adequate income. Some states where the cost of living is lower provide a lower credit, while high cost areas award a higher credit. Credits might even be set on a county-by-county basis to reflect the cost of living.
Additional deductions are established for social service contributions are also be adopted, allowing vast portions of state and local government to be replaced by faith-based organizations, includin education, mental health care, aid to needy families, workforce development and corrections.
Tax rates are set high enough to provide incentive to use these credits. If these are used the actual amount of taxes collected is very low indeed. As businesses shift to employee-ownership, which is discussed below, the need for regulation by the state will lessen. Employee-owned firms are more likely to provide safe products and workplaces (since the employees know their futures are directly on the line). As most regulation is handled by business and professional standard setting bodies, the role of government in this area diminishes.
Non-profit entities and governmental organizations also pay this tax, or an automatic contribution equivalent to the tax. Tax rates for organizations that do not rely on commercial sales are lower, although those organizations that do sell products pay an equal levy because they use the same level of government service in supporting commercial regulation. Governmental organizations make a contribution based on their total payroll, rather than their total budget, much the same way they collect state and local income taxes for their employees.
The key to understanding this tax proposal is to recall that employers collect most income taxes already. Shifting to a value added tax approach continues this, while shifting what is now a shared reporting liability by the employee and the employer totally to the employer. Such a proposal also allows most individuals to end reporting miscellaneous income from savings and investment (which are mostly taxed as part of the Business Income Tax anyway.).
In Virginia, if federal structural reform occurs first, no change is required to the Virginia Constitution to adopt this tax reform (in fact, in the event of a federal change, a constitutional amendment is required to maintain the status quo). If Virginia wishes to take the lead in tax reform, however, a constitutional amendment is necessary. Constitutional reform is also required to introduce a tax credit for faith-based schools and social services. This is needed to overturn the Blaine Amendment banning public support for religious schools. While a tax credit is not the same as direct public support, it is safer to pass an amendment, if only because some anti-Catholic bigot in civil libertarian’s clothing is likely to challenge the provision in court.
Reforming Tax Structures
Two recent events in the early 2000s put most states, and their localities, into financial crisis. The first is the 2001 tax cut, which is exacerbated by the 2003 tax cuts. The new "Great Recession" has exacerbated these issues. Any state that ties its income tax structure to the federal structure loses money unless they increase tax rates. The second is the collapse of the Internet bubble. Prior to the collapse, revenues grew with income, which was overstated by the acquisition of paper millions. Most jurisdictions based their future revenue projections on this funny money and cut tax rates accordingly. These rate cuts have not been reversed, as it is easier to cut taxes than to raise them.
The current shortfalls also point to the lack of thought given to the mix of taxes at each level of government. Most state governments collect an income and/or sales tax on a statewide basis and property taxes at the local level, while funding education at the local level and welfare, social services, mental health and corrections at the state level. Roads are paid for at both the state and local levels. Additionally, most states give grants to localities, as they are more efficient tax collectors. Surveys show that the tax that is least resented is the state income tax, although that is certainly not true in all states – some of which have no state income tax at all. Currently, governments with unified budgets collect taxes from many sources and spend it on a variety of programs. There is a better way. Link revenue sources to the social purpose that the public agency is trying to accomplish. There are five kinds of revenue sources: income taxes, sales taxes, property taxes, permit fees and transportation taxes and fees.
Income taxes are redistributional in nature, so link them to the redistributional functions of government. The ultimate form of redistribution is public education, so fund all public education with state income taxes with the state distributing these funds to localities based on the needs of each jurisdiction. Money for schools is allocated based on student population and inversely related to student family income (disadvantaged areas get more money). State and local income taxes also support welfare programs, as well as mental health and family services. Property taxes are no longer used for education, as poor districts have little to draw on to fund education where it’s needed most. States which tie their income taxes to the federal system need to introduce an automatic rate increase or decrease in each bracket to compensate for changes in the federal tax code, so that federal tax cuts do not provoke a fiscal crisis in state government and tax increase do not doubly penalize state taxpayers.
Property taxes are the ideal way to fund and protect infrastructure, so they fund local streets, housing inspection and a portion of public safety. Fees collected for home building inspection, titles, etc. also support these activities. Debt service is also tied to this tax. A jurisdiction uses capital budgeting to redevelop blighted areas, with future tax collections paying off these investments. A portion of gasoline taxes also goes for local streets. Property taxes are administered at the lowest possible level, possibly even the neighborhood. Organizations like the Advisory Neighborhood Commissions in Washington, DC are given decision authority on street funding and service deployment, starting the evolution to a more direct form of democracy and service, shrinking the reach of government.
In metropolitan areas, there are often several jurisdictions responsible for the highway and mass-transit system. Washington, DC is a classic example, with a Federal District, two states, and multiple counties responsible for bus, highway, subway and commuter train systems. Competition within the system, such as price competition to minimize gas taxes, often causes other the whole system to break down with inefficient bus routes, gridlock, and deteriorating roads. For both single and multiple jurisdictions, regional authorities to pursue a common building and funding strategy for both major roads and public transportation are desirable. These authorities set gasoline taxes for the entire region, share the resulting revenue, recommend property tax rates for roads, set rail and bus fares and establish routes, establish toll roads and develop highways and rail lines. When congestion occurs on one part of the system, or to fight high levels of pollution, tolls or gasoline taxes are be increased or decreased or alternate service provided. Inefficient bus routes, which are a hold over from before light rail's reemergence, are rerouted to support the rail lines rather than compete with them. Such authorities also issue debt instruments tied to future revenue to upgrade the system.
Sales taxes fund commercial regulation, inspection, business services and public health, as well as the portion of public safety serving business interests. These funds are also distributed to jurisdictions that have greater infrastructure and public safety needs than their property tax base can meet. Sales taxes are especially useful to fund a more service oriented regulatory structure. Ombudsmen are assigned to each business or institution to coordinate all other government contact, a regulatory “cop on the beat” to handle all taxes, inspection and compliance activities at all levels of government, from the federal level to the local level. If a business needs a permit that involves coordination by more than two agencies, the Regulatory Specialist creates an electronic consolidated questionnaire that automatically files all paperwork.
Virginia’s Revenue Crisis
This menu of reforms is especially needed in the Commonwealth of Virginia, which is experiencing serious financial difficulty due to the end of the car tax and to population growth in Northern Virginia. Linking spending to revenue functions helps determine whether income taxes are adequate to fund such items as education, corrections and social services. If they are not, the obvious answer to is to raise the tax rate, which is lower than in nearby areas. Likewise, if gasoline and property taxes are inadequate to fund needed improvements, these are increased. The establishment of toll roads, especially on interstate routes between Washington and Virginia Beach also merit careful consideration. Nothing causes air pollution like idling traffic. Much of this traffic is from out-of-state travelers, so toll roads are most appropriate.
A key question raised in the 2002 tax referendum debates was whether to allow Northern Virginia to levy a higher rate for education and transportation. Central and southwest Virginia leaders stated that such a levy magnifies differences between the northern counties and the rest of the state. Whether these fears are justified or not, they must be taken into account, as well as the higher revenue needs of Northern Virginia. Most of these needs reflect the costs that go with being located in the Washington metropolitan area. Therefore, the only justification for higher income or gas tax rates is to fund regional education, social welfare, mental health, corrections or transportation partnerships, or as an offset to a much feared non-resident income tax in the District. I suspect that, given the record of mismanagement in the District government, most Northern Virginians favor the establishment of regional authorities to such a tax.
Business Income Taxes
If the federal government restructures its tax system as outlined above, and even if it does not, consider the abolition of the income tax and the sales tax and their replacement with a business income/value added tax along the lines discussed for the federal government. Such a tax includes the same credits and deductions as suggested on the federal level. Local jurisdictions with higher costs of living mandate high enough dependent tax credits so that the combination of the federal and state credits provides an adequate income. Some states where the cost of living is lower provide a lower credit, while high cost areas award a higher credit. Credits might even be set on a county-by-county basis to reflect the cost of living.
Additional deductions are established for social service contributions are also be adopted, allowing vast portions of state and local government to be replaced by faith-based organizations, includin education, mental health care, aid to needy families, workforce development and corrections.
Tax rates are set high enough to provide incentive to use these credits. If these are used the actual amount of taxes collected is very low indeed. As businesses shift to employee-ownership, which is discussed below, the need for regulation by the state will lessen. Employee-owned firms are more likely to provide safe products and workplaces (since the employees know their futures are directly on the line). As most regulation is handled by business and professional standard setting bodies, the role of government in this area diminishes.
Non-profit entities and governmental organizations also pay this tax, or an automatic contribution equivalent to the tax. Tax rates for organizations that do not rely on commercial sales are lower, although those organizations that do sell products pay an equal levy because they use the same level of government service in supporting commercial regulation. Governmental organizations make a contribution based on their total payroll, rather than their total budget, much the same way they collect state and local income taxes for their employees.
The key to understanding this tax proposal is to recall that employers collect most income taxes already. Shifting to a value added tax approach continues this, while shifting what is now a shared reporting liability by the employee and the employer totally to the employer. Such a proposal also allows most individuals to end reporting miscellaneous income from savings and investment (which are mostly taxed as part of the Business Income Tax anyway.).
In Virginia, if federal structural reform occurs first, no change is required to the Virginia Constitution to adopt this tax reform (in fact, in the event of a federal change, a constitutional amendment is required to maintain the status quo). If Virginia wishes to take the lead in tax reform, however, a constitutional amendment is necessary. Constitutional reform is also required to introduce a tax credit for faith-based schools and social services. This is needed to overturn the Blaine Amendment banning public support for religious schools. While a tax credit is not the same as direct public support, it is safer to pass an amendment, if only because some anti-Catholic bigot in civil libertarian’s clothing is likely to challenge the provision in court.
Monday, August 11, 2003
Coopertative Trade
Union-owned multi-national corporations are an invaluable tool for modernizing the rest of the world. They have every incentive to do so. The extent to which foreign workers, especially workers in the same conglomerate, are under-paid, that is the extent to which American workers are at risk. When American workers adopt union-ownership, it is in their interest to extend the same system to each of their overseas factories. Likewise, when overseas worker learn of the good fortune of their fellows, they demand equal treatment.
Doing so dramatically alters the economies of the nations where union-owned firms have facilities. These facilities are quickly seen as the best place to work, so that American union-owned multi-nationals have the pick of the best workers and the best students. Firms establish universities in these nations or send their employees to the United States for school. Such firms also look to workers in the lower classes to find geniuses who have been ignored because of their color or class. As workers become owners and pay is increased, living standards rise and a middle class is formed. As living standards rise and elites have less economic influence, these nations become freer and more stable. Political reform sweeps the planet.
Trade, Currency Exchange and Conversion
As economies continue to integrate currency exchange rates become less exploitive of the third world, which in turn preserves the jobs of many American workers. Union-owned multi-nationals need to develop a better means of currency conversion for transfer pricing and trade. These methods rely on developing a common market basket of goods relevant to the needs of all of their workers. This market basket is then priced in both currencies, comparing the cost difference with the exchange rate difference. To be true to all of its employee-owners, it makes internal pricing decisions based on the single market basket, while capitalizing on these differences for other economic decisions.
Comparing the various market baskets cost differentials and the price differentials is also the measure of how much one economy exploits another. An examination of the effect of tariffs and subsidies is part of this analysis. Knowledge of these disparities is useful ammunition in defeating or modifying exploitive trade agreements, such as the North American Free Trade Agreement (NAFTA), as well as subsidies and tariffs. Publishing this information widely also has an effect, as the information itself affects the performance of trade and currency markets.
Using this information in these ways is as close as the world comes to the adoption of a single currency, although wide publication of this information is a first step in that direction. As tariffs and subsidies lessen and third world economies develop currency rates stabilize. When this happens, agreements on money supply growth targets are made between national reserve banks, controlling inflation and further stabilizing both prices and currencies, facilitating long-term growth and prosperity on a more global scale. These actions diminish the need for such institutions as the World Bank and the International Monetary Fund and their failed fiscally conservative policies. In fact, the spread of Cooperativism leads to a wide adoption of tax and social insurance policies suggested in this volume. Such policies are the antidote for the failed policies of the World Bank/IMF.
These metrics are also useful to accurately measure the health of developing economies and ease the transition to a free market system in the formerly Communist world.
Doing so dramatically alters the economies of the nations where union-owned firms have facilities. These facilities are quickly seen as the best place to work, so that American union-owned multi-nationals have the pick of the best workers and the best students. Firms establish universities in these nations or send their employees to the United States for school. Such firms also look to workers in the lower classes to find geniuses who have been ignored because of their color or class. As workers become owners and pay is increased, living standards rise and a middle class is formed. As living standards rise and elites have less economic influence, these nations become freer and more stable. Political reform sweeps the planet.
Trade, Currency Exchange and Conversion
As economies continue to integrate currency exchange rates become less exploitive of the third world, which in turn preserves the jobs of many American workers. Union-owned multi-nationals need to develop a better means of currency conversion for transfer pricing and trade. These methods rely on developing a common market basket of goods relevant to the needs of all of their workers. This market basket is then priced in both currencies, comparing the cost difference with the exchange rate difference. To be true to all of its employee-owners, it makes internal pricing decisions based on the single market basket, while capitalizing on these differences for other economic decisions.
Comparing the various market baskets cost differentials and the price differentials is also the measure of how much one economy exploits another. An examination of the effect of tariffs and subsidies is part of this analysis. Knowledge of these disparities is useful ammunition in defeating or modifying exploitive trade agreements, such as the North American Free Trade Agreement (NAFTA), as well as subsidies and tariffs. Publishing this information widely also has an effect, as the information itself affects the performance of trade and currency markets.
Using this information in these ways is as close as the world comes to the adoption of a single currency, although wide publication of this information is a first step in that direction. As tariffs and subsidies lessen and third world economies develop currency rates stabilize. When this happens, agreements on money supply growth targets are made between national reserve banks, controlling inflation and further stabilizing both prices and currencies, facilitating long-term growth and prosperity on a more global scale. These actions diminish the need for such institutions as the World Bank and the International Monetary Fund and their failed fiscally conservative policies. In fact, the spread of Cooperativism leads to a wide adoption of tax and social insurance policies suggested in this volume. Such policies are the antidote for the failed policies of the World Bank/IMF.
These metrics are also useful to accurately measure the health of developing economies and ease the transition to a free market system in the formerly Communist world.
Sunday, August 10, 2003
Aerospace Firm Management: Mature and Startup
Two types of firms apply here, consortia of existing firms and start-up firms. Consortia of established firms find suggestions here on how to adapt their operations for life in the new century. Start-ups find suggestions on how to use the principles set out in this volume to create new capital, both human and physical.
Total Quality Management
Quality is important in the development of aerospace equipment, since the effect of defects is catastrophic. It is not enough to have a TQM program, it must be central to the culture. For both established and start-up firms, responsibility is assigned to the lowest possible level. Of course, everyone who knows anything about TQM already knows this. What they don’t know is that pay and bonus structures have to mirror this change of responsibility. In traditional capitalist firms, responsibility was assigned to the highest level and delegated down, with pay structures reflecting the assignment of responsibility. TQM and Baldridge are looked at as merely management fads in most organizations because the failure to change compensation systems has signaled employees that management is not really serious about the program. When decision systems are flattened while compensation systems remain hierarchical, employees take the implicit hint that their efforts are not as valued as those are within the hierarchy, and ignore the system accordingly. In employee-owned aerospace firms, if responsibility is assigned more evenly in a TQM culture, pay mirrors that assignment or the TQM program is doomed, as are the people who depend upon the hardware and software developed by that culture.
Recruitment and Compensation
Recruiting the best possible people is essential in succeeding in this high stakes business. The suggestions offered in the essay on the 21st Century Career apply to both established firms and start-up firms, albeit in different ways.
Established firms have the financial wherewithal to attract the best employees by paying them bonuses for education already earned or by paying tuition, salary and living expenses for the best students in the country, thereby gaining competitive advantage. The downside is that they already have an established culture, so an education and pay audit is completed on every single employee to determine the extent their salaries have compensated them as well as they would have been compensated if they had been brought in under the new rules. Management then takes the difficult step of lowering the salaries of employees whose pay to date has been adequate compensation (which is better than the current practice of laying off senior workers and replacing them with two younger workers for the same price). Failure to do so results in two different pay systems, one for long term employees and one for new employees, leading to demands by the newer employees for higher salaries with time. For employees who have been under-compensated, cash bonuses and stock grants are awarded to make these employees whole. This benefit is also used to attract new, mid-level employees who have been under-compensated in prior jobs or who have outstanding educational debt. Firms purchase and pay off that debt and award stock to reflect the cost of going without while going to school.
New firms have a different problem and different opportunities. Unlike older firms, they have no existing culture that needs to be dealt with. However, they also are without existing funds in order to pay students to pursue their educations or the lines of credit to underwrite student debt. In order to compensate for this, venture capital is required for payment of student tuition and salaries as well as employee salaries. The extent to which venture capital funds, rather than revenue pay for these human assets is the extent to which venture capitalists own the product of their labor – a situation that employee-ownership was designed to overcome. If venture capital is used, agreements are made up front on the extent to which venture capitalists receive profit. As revenue is earned, there is a transition period during which the percentage awarded to workers gradually increases until it matches their costs relative to the total cost of the operation, leaving the venture capitalists with the profit for physical capital only. Why would a venture capitalist accede to such circumstances? Self-interest is the reason, as even with a mandated profit-sharing program, firms following this business model have the best employees and produce the best innovations, producing more profit than any competitor, as not only planned, but also unplanned innovations result.
21st Century Housing
Of all the industries on the planet, employee-owned aerospace is the most likely to offer long-term contracts to employees which contain home mortgage financing provisions for the purchase of an environmentally-efficient domicile. Any firm with designs on space colonization, whether it is a pre-existing consortium or a startup, should strongly consider offering whatever environmental system is built for space to their earth-bound employees. It goes without saying that employees who actually live and work in space or on lunar or Martian colonies also have this feature as part of their employment contracts. Newer firms are possibly in a better position to do this, since their usually younger employees do not already own homes. Existing firms also offer this benefit to those employees who wish to sell their existing home and sink these funds into a 21st Century Home with a smaller mortgage.
Employee-ownership
Companies are urged to adopt employee ownership structures along the lines described above, using either Employee Stock Ownership Programs (ESOPs) or cooperative forms of organization. Newer firms, which are in the process of creating wealth through sweat equity use stock grants in lieu of pay for both performance, innovation and to compensate for existing education with stock rather than payroll. ESOP plans are not necessary unless the firm uses venture capital financing, in which case using an ESOP is just the ticket to buy out the venture capitalist. Whatever the structure, employees must have their say, either as individuals or through their labor or professional organization, in the operations of the firm. While all employees are heard, using share ownership as a voting method gives more experienced employees a greater voice. This is wise, since lives are in the balance when some decisions are made. Employees who come to the firm from another firm convert their retirement equity to equity in the new firm, giving them a voice commensurate with their experience while putting them at stake. Providing greater control and ownership to older employees allows for the creation of a flatter wage structure. This also has the effect of decreasing expenses while rewarding loyalty. A caution is in order, however. While older employees gain greater shares each period as dividends are reinvested, basic share awards are equal. Nothing destroys motivation among junior employees like combining unequal ownership and unequal acquisition. Awarding the same number of basic shares prevents this perception, improving morale all around.
Total Quality Management
Quality is important in the development of aerospace equipment, since the effect of defects is catastrophic. It is not enough to have a TQM program, it must be central to the culture. For both established and start-up firms, responsibility is assigned to the lowest possible level. Of course, everyone who knows anything about TQM already knows this. What they don’t know is that pay and bonus structures have to mirror this change of responsibility. In traditional capitalist firms, responsibility was assigned to the highest level and delegated down, with pay structures reflecting the assignment of responsibility. TQM and Baldridge are looked at as merely management fads in most organizations because the failure to change compensation systems has signaled employees that management is not really serious about the program. When decision systems are flattened while compensation systems remain hierarchical, employees take the implicit hint that their efforts are not as valued as those are within the hierarchy, and ignore the system accordingly. In employee-owned aerospace firms, if responsibility is assigned more evenly in a TQM culture, pay mirrors that assignment or the TQM program is doomed, as are the people who depend upon the hardware and software developed by that culture.
Recruitment and Compensation
Recruiting the best possible people is essential in succeeding in this high stakes business. The suggestions offered in the essay on the 21st Century Career apply to both established firms and start-up firms, albeit in different ways.
Established firms have the financial wherewithal to attract the best employees by paying them bonuses for education already earned or by paying tuition, salary and living expenses for the best students in the country, thereby gaining competitive advantage. The downside is that they already have an established culture, so an education and pay audit is completed on every single employee to determine the extent their salaries have compensated them as well as they would have been compensated if they had been brought in under the new rules. Management then takes the difficult step of lowering the salaries of employees whose pay to date has been adequate compensation (which is better than the current practice of laying off senior workers and replacing them with two younger workers for the same price). Failure to do so results in two different pay systems, one for long term employees and one for new employees, leading to demands by the newer employees for higher salaries with time. For employees who have been under-compensated, cash bonuses and stock grants are awarded to make these employees whole. This benefit is also used to attract new, mid-level employees who have been under-compensated in prior jobs or who have outstanding educational debt. Firms purchase and pay off that debt and award stock to reflect the cost of going without while going to school.
New firms have a different problem and different opportunities. Unlike older firms, they have no existing culture that needs to be dealt with. However, they also are without existing funds in order to pay students to pursue their educations or the lines of credit to underwrite student debt. In order to compensate for this, venture capital is required for payment of student tuition and salaries as well as employee salaries. The extent to which venture capital funds, rather than revenue pay for these human assets is the extent to which venture capitalists own the product of their labor – a situation that employee-ownership was designed to overcome. If venture capital is used, agreements are made up front on the extent to which venture capitalists receive profit. As revenue is earned, there is a transition period during which the percentage awarded to workers gradually increases until it matches their costs relative to the total cost of the operation, leaving the venture capitalists with the profit for physical capital only. Why would a venture capitalist accede to such circumstances? Self-interest is the reason, as even with a mandated profit-sharing program, firms following this business model have the best employees and produce the best innovations, producing more profit than any competitor, as not only planned, but also unplanned innovations result.
21st Century Housing
Of all the industries on the planet, employee-owned aerospace is the most likely to offer long-term contracts to employees which contain home mortgage financing provisions for the purchase of an environmentally-efficient domicile. Any firm with designs on space colonization, whether it is a pre-existing consortium or a startup, should strongly consider offering whatever environmental system is built for space to their earth-bound employees. It goes without saying that employees who actually live and work in space or on lunar or Martian colonies also have this feature as part of their employment contracts. Newer firms are possibly in a better position to do this, since their usually younger employees do not already own homes. Existing firms also offer this benefit to those employees who wish to sell their existing home and sink these funds into a 21st Century Home with a smaller mortgage.
Employee-ownership
Companies are urged to adopt employee ownership structures along the lines described above, using either Employee Stock Ownership Programs (ESOPs) or cooperative forms of organization. Newer firms, which are in the process of creating wealth through sweat equity use stock grants in lieu of pay for both performance, innovation and to compensate for existing education with stock rather than payroll. ESOP plans are not necessary unless the firm uses venture capital financing, in which case using an ESOP is just the ticket to buy out the venture capitalist. Whatever the structure, employees must have their say, either as individuals or through their labor or professional organization, in the operations of the firm. While all employees are heard, using share ownership as a voting method gives more experienced employees a greater voice. This is wise, since lives are in the balance when some decisions are made. Employees who come to the firm from another firm convert their retirement equity to equity in the new firm, giving them a voice commensurate with their experience while putting them at stake. Providing greater control and ownership to older employees allows for the creation of a flatter wage structure. This also has the effect of decreasing expenses while rewarding loyalty. A caution is in order, however. While older employees gain greater shares each period as dividends are reinvested, basic share awards are equal. Nothing destroys motivation among junior employees like combining unequal ownership and unequal acquisition. Awarding the same number of basic shares prevents this perception, improving morale all around.
Thursday, July 10, 2003
Converting Emerging Economies to Cooperatives
As nations move toward democracy and a free market they find themselves in possession of state-controlled industries that are better run as private sector enterprises. This is easier said than done. In the former Soviet Union, shares were distributed to employees while the currency was collapsing. The Russian workers did not know that the stock price was not as important as the maintenance of control, so they sold their seemingly worthless shares to the agents of what are now the Oligarchs. It will now take decades to undo the damage of a badly implemented privatization. Had these shares been held in trust and voted by occupational group, the rise of the Oligarchs might not have happened.
To reverse this trend in Russia, both a progressive tax system and a Social Security system are necessary. A Social Security system is developed in the way I have outlined above, with an employee contribution based on income and an employer contribution based on the average income in the federation. The employer contribution is paid in stock with structures in place so that management does not control how that stock is voted. Employee committees organized by trade union or professional society controls his stock, which is not available for sale until retirement. When enough stock has been purchased, profit is distributed to workers based on the labor cost as a percentage of total costs, with a separate capital distribution to the owners of capital, including the worker-shareholders. If these steps are taken, the oligarchy is overcome, bit-by-bit.
We welcomed then-President Putin’s ongoing investigation into how the oligarchy concentrated power. To the extent that corruption was used, sanctions criminal sanctions are needed against the oligarchs and their assets seized and redistributed to the employees.
Russia is also in dire need of infrastructure repairs and the modernization of agriculture. Construction contractors are needed to build roads. Set these firms up along the lines of Cooperativism. Contractors are also required to share their profits equitably as a contract condition. Roads are financed either through direct budget funding or through a license to charge user tolls. A commodity market and system of food storage reserves is to be set up along the American model. The world does not need to provide food aid to Russia. It needs to buy food from Russia.
Most of what I have said about Russia is applicable to China, where the connected have by and large circumvented the workers right to control the means of production. The prospects in China are dimmer, however, absent a revolution overthrowing the Communist Party. With the rise of a middle class in China and the continued tendency by its government toward repression, some type of revolution is almost inevitable. When it occurs, those corrupt officials who have deprived Chinese workers of their ownership rights are likely to be held to account, and the ownership of factories returned to workers.
There are likely firms in Russia, the other Republics of the former Soviet Union, China, Vietnam, Cambodia and Laos that have not been looted by party members or other Oligarchs. These are easily privatized. To do so, first determine the initial share distribution. Add the total number of worker-months for the active employees and give each worker one share for every month they have worked at the enterprise. Form caucuses of each occupational group and have them elect members to the board of directors based on their relative number of shares held. Shares are restricted from sale until retirement, so as not to repeat the mistakes of the recent past. After this is done, bring in consultants to determine the capital requirements for modernization. If debt is required and credit available, incur it. If debt cannot be procured, value the existing company compared to its value after modernization and set the value of the shares to be sold accordingly. For example, if the workers hold 100,000 shares and modernization doubles the value of the company, then the amount of shares to be created is an additional 100,000 and the value of each share is 1/100,000 of the total financed in the capital markets.
With the development of third world multi-nationals, converting formerly communist enterprise to 21st Century Economics speeds the world to a new economy and a new polity.
To reverse this trend in Russia, both a progressive tax system and a Social Security system are necessary. A Social Security system is developed in the way I have outlined above, with an employee contribution based on income and an employer contribution based on the average income in the federation. The employer contribution is paid in stock with structures in place so that management does not control how that stock is voted. Employee committees organized by trade union or professional society controls his stock, which is not available for sale until retirement. When enough stock has been purchased, profit is distributed to workers based on the labor cost as a percentage of total costs, with a separate capital distribution to the owners of capital, including the worker-shareholders. If these steps are taken, the oligarchy is overcome, bit-by-bit.
We welcomed then-President Putin’s ongoing investigation into how the oligarchy concentrated power. To the extent that corruption was used, sanctions criminal sanctions are needed against the oligarchs and their assets seized and redistributed to the employees.
Russia is also in dire need of infrastructure repairs and the modernization of agriculture. Construction contractors are needed to build roads. Set these firms up along the lines of Cooperativism. Contractors are also required to share their profits equitably as a contract condition. Roads are financed either through direct budget funding or through a license to charge user tolls. A commodity market and system of food storage reserves is to be set up along the American model. The world does not need to provide food aid to Russia. It needs to buy food from Russia.
Most of what I have said about Russia is applicable to China, where the connected have by and large circumvented the workers right to control the means of production. The prospects in China are dimmer, however, absent a revolution overthrowing the Communist Party. With the rise of a middle class in China and the continued tendency by its government toward repression, some type of revolution is almost inevitable. When it occurs, those corrupt officials who have deprived Chinese workers of their ownership rights are likely to be held to account, and the ownership of factories returned to workers.
There are likely firms in Russia, the other Republics of the former Soviet Union, China, Vietnam, Cambodia and Laos that have not been looted by party members or other Oligarchs. These are easily privatized. To do so, first determine the initial share distribution. Add the total number of worker-months for the active employees and give each worker one share for every month they have worked at the enterprise. Form caucuses of each occupational group and have them elect members to the board of directors based on their relative number of shares held. Shares are restricted from sale until retirement, so as not to repeat the mistakes of the recent past. After this is done, bring in consultants to determine the capital requirements for modernization. If debt is required and credit available, incur it. If debt cannot be procured, value the existing company compared to its value after modernization and set the value of the shares to be sold accordingly. For example, if the workers hold 100,000 shares and modernization doubles the value of the company, then the amount of shares to be created is an additional 100,000 and the value of each share is 1/100,000 of the total financed in the capital markets.
With the development of third world multi-nationals, converting formerly communist enterprise to 21st Century Economics speeds the world to a new economy and a new polity.
Saturday, May 10, 2003
Cooperative Careers - Mutual Self Ownership
Younger Workers
Currently, younger workers begin their careers in high school doing menial labor for the minimum wage, often without regard to talent, unless they have parental connections, in which case their employment is still often without regard to talent. During this period, middle class youth get the best jobs and are supported partially or totally by their parents. Lower class and immigrant youth are forced into the worst jobs, perpetuating class divisions in society. Young women who get pregnant are encouraged to have an abortion, give their child up for adoption or go on welfare. Less than a century ago, pregnancy meant a wedding to the child’s father, who was able to find a job or was given or sold a farm to support his family. Perhaps it is time to learn from the past.
Young people between the ages of 16 and 20 on an academic track work in the home growing food for their families under the guidance of their parents. If their parents have paid for their homes and retired, they assist them in any home based business undertaken as a second career. Students attending a faith-based school work part of the time in the related institution’s social service activities, possibly assisting older retirees in growing their food in exchange for housing and a stipend or working in a medical, psychiatric or educational institution. Students also work in secular educational or social service agencies.
Young people on a non-academic track attend a vocational/technical institute under the sponsorship of their future employer and are paid by that employer, provided room and board and work a limited number of hours in their chosen trade. They also enter this track by joining a union as an apprentice.
Students in this age group who have less than a tenth grade level of literacy in the dominant language have as their primary duty the pursuit of their education and are provided tuition, room and board in a setting to facilitate this. No other work is required of them.
Young people with families are entitled to the child care tax credit through their employer or school, as described in the essay on structural reform of the tax code. At this age, young people marry if both individuals have the emotional maturity for that level of commitment. Whether parents or not, single or married, these individuals are treated like adults, including the right to vote and to serve in the military (if there is such a thing – see the essay on world peace). Treating young people with respect and providing them with opportunity has them make better choices, lessening promiscuity and drug abuse.
Students on the academic track earn given an associates degree when they have completed their educations. Students who advance to a skill level equal to the fourteenth grade level are allowed to graduate early, regardless of the number of credit hours accumulated. During this time they have sampled various disciplines and have some idea of their advanced educational needs, while others complete their general educations and enter the workforce. Students who wish to go on find an employer to sponsor their major course and graduate work. While pursing their educations they are provided room, board, a salary and practical work experience with the sponsoring employer. After graduation, they work for two years for every year of advanced education received. Workers who leave work or are terminated before their work requirement ends are responsible for repaying a portion of their tuition on a pro rata basis through a governmentally sponsored student loan.
Students seeking a legal education take accounting, politics and those courses that many individuals take privately to prepare for the LSAT test as the first year of a four-year legal curriculum. Students seeking a career teaching college receive courses in education, as well as the academic discipline that they profess. With other employers providing work upon graduation in other fields, universities best serve their own interests by limiting admissions for professorial candidates to the number of available positions at the other end.
Medical Education
The crisis in nursing is best remedied by changing how doctors are trained. Prior to attending medical school, students are required to earn a nursing credential and practice for two years as a Registered Nurse. This increases both the number of nurses and provides new doctors with an experience that they do not forget; changing forever the way nurses are treated. This training also provides the type of clinical experience that makes the long hours expected of medical residents less necessary. Students then attend medical school and complete their residency with much more practical knowledge and less of a need to work mind-numbing hours. As with other professions, students seek employment at the start of their training in nursing and are paid and housed throughout their early careers by the sponsoring health care system or hospital. At each stage of the training process, the wage rate is constant, from nursing school to the end of residency. Paying nurses and residents the same also increase camaraderie on the ward. Young doctors make less while in residency than they currently do, but they make more at the beginning and end their residencies debt free. Nurses who do not go on to advanced training in medicine begin to accumulate stock in their health system or hospital at an earlier age and are able to retire younger than their colleagues who continue in medicine. Those who do continue on into medicine are able to join a group practice, continue with the hospital or health system or work independently eight years after completing their medical degrees. Pay differentials in medicine decrease, as this system allows all who are capable to practice medicine at a just pay rate, increasing the number of doctors to what society needs. Under the laws of supply and demand, a plentiful supply of physicians lowers the price of medicine. However, doctors who provide innovative care, contributing to the state of the art in medicine, make more because of their innovation, whether inside or outside a sponsored system.
Mid-career Workers
After individuals have completed their service requirements (whatever their level of education), they continue on with the employing firm or find a position with a competitor. At this point they move out of company provided housing and purchase an environmentally efficient 21st century home, with or without food production facilities. Those who forgo growing their own food receive a higher salary, although their work day is correspondingly longer. Their employer, who may arrange for the building of the home, finances their home loan. At this stage, employees begin to accumulate stock in an Employee Stock Ownership Plan (ESOP). The loan maturity is timed to match the time when the ESOP shares provide enough of a return to pay in benefits what the worker makes as a salary, as well as additional accumulation of shares so that between dividends and share buy-back these shares last for the remainder of the individual’s and their spouse’s expected life span. This home is replaced with a larger dwelling as children are born, with adjustments for the state of upkeep and additional mortgage costs partially financed by the family size tax credit. When the family shrinks as children reach maturity, the home is replaced with a smaller dwelling, if so desired, with additional proceeds leading to a shorter work life as any profits are split between a decrease in the home loan debt and additional ESOP shares.
Worker salaries are fairly even, with payment for longevity reflected in a higher return on ESOP shares, some of which is taken in cash rather than reinvested. Workers also receive payments for innovation or sales that demonstrably increase the profitability of the firm. These payments are in both stock and cash to reflect both current and future higher earnings of the firm. On the other end of the performance spectrum, workers who do not do well are evaluated to determine the cause. If needed, employees are referred to employee assistance programs if drug or alcohol abuse or mental illness is the cause. Workers who require retraining are retrained, with a slight lengthening of the employment contract. If entire cohorts of employees are less productive because of the advance of technology, their home loans are forgiven and their retirement plans are made whole. Laying workers off as they near retirement eligibility as a cost avoidance measure is longer practiced by 21st Century employee-owned firms.
Retirement
After the mortgage is paid and adequate stock accumulated, the worker is eligible to retire. The stock benefit is approximately the same as the full salary. The worker can keep working at double salary, freelance in his profession, or teach younger workers. Even if the retiree does none of these, taking the food production option means continued activity growing food. When the individual is no longer able to farm, assistance is available through the firm or house of worship, which arranges for a young family to assist in the production of food and upkeep in exchange for housing and a stipend. When the retiree or spouse needs full time hospital care it is covered by the firm’s insurance plan. Retirees continue to vote their remaining shares in the ESOP, which need not be sold during their lifetimes. Their wisdom is useful in the deliberations of the firm. Spouses, however, sell back their shares upon the death of the retiree, in exchange for an annuity sponsored by either the company or the individual’s house of worship. Retirees and their spouses also purchase a negative mortgage from the company or their house of worship, so that the home then reverts to the firm or church upon their deaths. If a worker dies before retirement, the surviving spouse is made whole in terms of pension and mortgage forgiveness (provided there has been no foul play). Children do not expect to inherit a large estate. Instead, they inherit a system that provides them the opportunity to excel to the best of their ability and be rewarded for it.
Currently, younger workers begin their careers in high school doing menial labor for the minimum wage, often without regard to talent, unless they have parental connections, in which case their employment is still often without regard to talent. During this period, middle class youth get the best jobs and are supported partially or totally by their parents. Lower class and immigrant youth are forced into the worst jobs, perpetuating class divisions in society. Young women who get pregnant are encouraged to have an abortion, give their child up for adoption or go on welfare. Less than a century ago, pregnancy meant a wedding to the child’s father, who was able to find a job or was given or sold a farm to support his family. Perhaps it is time to learn from the past.
Young people between the ages of 16 and 20 on an academic track work in the home growing food for their families under the guidance of their parents. If their parents have paid for their homes and retired, they assist them in any home based business undertaken as a second career. Students attending a faith-based school work part of the time in the related institution’s social service activities, possibly assisting older retirees in growing their food in exchange for housing and a stipend or working in a medical, psychiatric or educational institution. Students also work in secular educational or social service agencies.
Young people on a non-academic track attend a vocational/technical institute under the sponsorship of their future employer and are paid by that employer, provided room and board and work a limited number of hours in their chosen trade. They also enter this track by joining a union as an apprentice.
Students in this age group who have less than a tenth grade level of literacy in the dominant language have as their primary duty the pursuit of their education and are provided tuition, room and board in a setting to facilitate this. No other work is required of them.
Young people with families are entitled to the child care tax credit through their employer or school, as described in the essay on structural reform of the tax code. At this age, young people marry if both individuals have the emotional maturity for that level of commitment. Whether parents or not, single or married, these individuals are treated like adults, including the right to vote and to serve in the military (if there is such a thing – see the essay on world peace). Treating young people with respect and providing them with opportunity has them make better choices, lessening promiscuity and drug abuse.
Students on the academic track earn given an associates degree when they have completed their educations. Students who advance to a skill level equal to the fourteenth grade level are allowed to graduate early, regardless of the number of credit hours accumulated. During this time they have sampled various disciplines and have some idea of their advanced educational needs, while others complete their general educations and enter the workforce. Students who wish to go on find an employer to sponsor their major course and graduate work. While pursing their educations they are provided room, board, a salary and practical work experience with the sponsoring employer. After graduation, they work for two years for every year of advanced education received. Workers who leave work or are terminated before their work requirement ends are responsible for repaying a portion of their tuition on a pro rata basis through a governmentally sponsored student loan.
Students seeking a legal education take accounting, politics and those courses that many individuals take privately to prepare for the LSAT test as the first year of a four-year legal curriculum. Students seeking a career teaching college receive courses in education, as well as the academic discipline that they profess. With other employers providing work upon graduation in other fields, universities best serve their own interests by limiting admissions for professorial candidates to the number of available positions at the other end.
Medical Education
The crisis in nursing is best remedied by changing how doctors are trained. Prior to attending medical school, students are required to earn a nursing credential and practice for two years as a Registered Nurse. This increases both the number of nurses and provides new doctors with an experience that they do not forget; changing forever the way nurses are treated. This training also provides the type of clinical experience that makes the long hours expected of medical residents less necessary. Students then attend medical school and complete their residency with much more practical knowledge and less of a need to work mind-numbing hours. As with other professions, students seek employment at the start of their training in nursing and are paid and housed throughout their early careers by the sponsoring health care system or hospital. At each stage of the training process, the wage rate is constant, from nursing school to the end of residency. Paying nurses and residents the same also increase camaraderie on the ward. Young doctors make less while in residency than they currently do, but they make more at the beginning and end their residencies debt free. Nurses who do not go on to advanced training in medicine begin to accumulate stock in their health system or hospital at an earlier age and are able to retire younger than their colleagues who continue in medicine. Those who do continue on into medicine are able to join a group practice, continue with the hospital or health system or work independently eight years after completing their medical degrees. Pay differentials in medicine decrease, as this system allows all who are capable to practice medicine at a just pay rate, increasing the number of doctors to what society needs. Under the laws of supply and demand, a plentiful supply of physicians lowers the price of medicine. However, doctors who provide innovative care, contributing to the state of the art in medicine, make more because of their innovation, whether inside or outside a sponsored system.
Mid-career Workers
After individuals have completed their service requirements (whatever their level of education), they continue on with the employing firm or find a position with a competitor. At this point they move out of company provided housing and purchase an environmentally efficient 21st century home, with or without food production facilities. Those who forgo growing their own food receive a higher salary, although their work day is correspondingly longer. Their employer, who may arrange for the building of the home, finances their home loan. At this stage, employees begin to accumulate stock in an Employee Stock Ownership Plan (ESOP). The loan maturity is timed to match the time when the ESOP shares provide enough of a return to pay in benefits what the worker makes as a salary, as well as additional accumulation of shares so that between dividends and share buy-back these shares last for the remainder of the individual’s and their spouse’s expected life span. This home is replaced with a larger dwelling as children are born, with adjustments for the state of upkeep and additional mortgage costs partially financed by the family size tax credit. When the family shrinks as children reach maturity, the home is replaced with a smaller dwelling, if so desired, with additional proceeds leading to a shorter work life as any profits are split between a decrease in the home loan debt and additional ESOP shares.
Worker salaries are fairly even, with payment for longevity reflected in a higher return on ESOP shares, some of which is taken in cash rather than reinvested. Workers also receive payments for innovation or sales that demonstrably increase the profitability of the firm. These payments are in both stock and cash to reflect both current and future higher earnings of the firm. On the other end of the performance spectrum, workers who do not do well are evaluated to determine the cause. If needed, employees are referred to employee assistance programs if drug or alcohol abuse or mental illness is the cause. Workers who require retraining are retrained, with a slight lengthening of the employment contract. If entire cohorts of employees are less productive because of the advance of technology, their home loans are forgiven and their retirement plans are made whole. Laying workers off as they near retirement eligibility as a cost avoidance measure is longer practiced by 21st Century employee-owned firms.
Retirement
After the mortgage is paid and adequate stock accumulated, the worker is eligible to retire. The stock benefit is approximately the same as the full salary. The worker can keep working at double salary, freelance in his profession, or teach younger workers. Even if the retiree does none of these, taking the food production option means continued activity growing food. When the individual is no longer able to farm, assistance is available through the firm or house of worship, which arranges for a young family to assist in the production of food and upkeep in exchange for housing and a stipend. When the retiree or spouse needs full time hospital care it is covered by the firm’s insurance plan. Retirees continue to vote their remaining shares in the ESOP, which need not be sold during their lifetimes. Their wisdom is useful in the deliberations of the firm. Spouses, however, sell back their shares upon the death of the retiree, in exchange for an annuity sponsored by either the company or the individual’s house of worship. Retirees and their spouses also purchase a negative mortgage from the company or their house of worship, so that the home then reverts to the firm or church upon their deaths. If a worker dies before retirement, the surviving spouse is made whole in terms of pension and mortgage forgiveness (provided there has been no foul play). Children do not expect to inherit a large estate. Instead, they inherit a system that provides them the opportunity to excel to the best of their ability and be rewarded for it.
Saturday, March 15, 2003
Pay Equity
For union and employee-ownership to realize their full potentials, pay is equalized to the greatest extent possible. To do this, firms account for the determinants of pay.
Management Pay and Selection
As long as there is a division of labor, some form of management hierarchy is required to operate the firm, even the union or employee-owned firm. The average worker, given no organization or command structure, does not work otherwise; or their work does not mean anything in relation to the work of others. However, there is no economic reason why those in positions of authority need to receive higher compensation (aside from an age premium). It is likely that the only real reason managers get paid more is that they control the money. If this is true it is an abuse of trust.
In a free market to give orders to someone else you pay them. The same should be true in an organization. Given a common pool of labor, for one worker to tell other workers what to do he should pay a price, possibly taking a salary reduction to be in charge of his fellows. His task is different than those of his fellows, but it is no more essential than the labor itself.
Retrain managers in the union or employee-owned workplace to cope with an ownership culture that emphasizes training and team building. Union shareholders insist upon management selection and salary determination structures based on competitive bidding for management positions within the firm by all qualified applicants and selection by those managed at the shop floor level and higher. Such structures go hand in hand with such technologies as Total Quality Management, whose flaw may be that they drive responsibility to the lowest possible level without at the same time adjusting salary structures to reflect this. Pay for supervisors is no longer set by higher-level employees, rather a free market for wages is created in the firm. The floor price in auctions for management positions is the average wage of the employees supervised. In the event more than one bidder proposes the average wage, an election is held among all of those supervised to pick the supervisor. First line supervisors have a relatively small electorate. The entire division or corporation elects corporate division heads or CEOs.
Innovation
Another determinant of pay is contribution. Union-owned firms inaugurate incentive systems to reward actual performance rather than conformity within a hierarchical structure. Currently, higher contributing employees tend to receive higher wages with the expectation that they will perform. Pay for contribution is a good thing, but can be awarded AFTER a demonstrable contribution to the firm is made, rather than before.
If salaries are equalized, patents and innovations are more handsomely rewarded, encouraging these activities. Incentive systems include the decision structures used to identify particular innovations or actions that resulted in short or long term profitability and to assign credit for these actions. Incentives are awarded on an individual or a group basis, depending upon the contribution. If an individual invents something, secures a long-term client, or in some way avoids a loss he or she is granted both a cash incentive and stock awards to reflect the makes to the long-term profitability of the firm. This reward is determined through democratic, rather than hierarchical means. Incentive systems are necessary to reward initiative and attract the best workers, which increases market share and lead other firms to adopt this type of structure.
Cooperativism is healthier psychologically, engendering self-actualizing behavior. In this system, all members of society, all things being equal, have the opportunity to rise to their full potential with limited sacrifice. When they achieve their potential (and no healthy person stops short, given the opportunity) they are giving their maximum effort to society. At their point of maximum fulfillment their contribution is equal to all others who are giving their maximum.
Education
Some employees are determined to be more valuable because of their level of education or training. Union-owned firms are able to develop an edge in recruitment and training systems by providing both tuition and pay during training and education. They recruit the best and brightest individuals prior to technical training or during their college careers. In exchange employees finance an equal share of their tuition through a student loan that the firm repays for the new employee over a period of years (two years of work for each year of education). The employer also provides off-campus living arrangements and paid work experience as a supplement to education. Such a system removes the financial risk from the employee and transfers it to the employer, which contributes to a culture of equality and flatter wage structures in the firm. The firm expects to pay a lower wage later on but gets the more talented workers sooner. Those who leave early reimburse the company for whatever portion of their educational debt remains unpaid at separation. As college costs go up and student debt mounts, such an arrangement seems inevitable, especially for those students who come from families who are less "credit worthy." Workers who have already self-financed their educations are awarded an up-front bonus in cash and stock to compensate them for their educations, rather than a higher salary. Pay differentials that reflect educational sacrifice no longer make sense when workers are educated to their full potential at company expense.
An economics that is overtly Christian makes other statements about pay differentials that secular economics cannot. Pay differentials due to ability are no longer justified, as abilities are gifts from God - not the property of the individual. Working in an area where one’s talents and interests do not lie not only does not make sense for the individual, but also is an abuse of what God has provided. Higher pay for doing something one does not love cannot compensate the psychic pain inherent in such a choice. It is better that all work using their God-given talents and be happy. In a system of equal base pay, working too hard is no longer necessary. Workers are able to earn a just wage, covering their supply cost of labor, while doing so.
The Supply Cost of Labor
Conventional economics holds that the supply curve for labor goes up with more wages offered,- the higher the wage the more willing the worker, all other things being equal. Of course, all other things are never equal. A more important determinant of supply cost is economic need. Labor and the wages gathered from it are the way the worker obtains all other economic goods. This means that the supply curve for labor has a negative curve - the lower the wage the more one works. The more the worker needs, the more he or she works at a given wage. If the wage is lowered, the worker works more. As wages rise, work goes down. Most do not work 60 to 80 hour weeks because they can afford not to. This is why poor people work such long hours while the rich take time off (though some dedicated professionals, especially doctors, do not. However, this has more to do with duty than economics).
The level of income a worker requires is relative to a "just wage." The just wage is the wage required to maintain the worker and the worker's dependents (who he cannot morally allow to go hungry). This wage covers, at minimum, shelter, food (energy for work), clothing, transportation to and from work, and a reasonable amount of leisure. Also within such a wage are all taxes and social insurance contributions, health care and insurance costs and religious tithes. If a worker's main job is not enough to cover these costs moonlighting occurs, workers organize and strike or welfare is sought - as it is more just to go on the dole than to work as a slave.
Family Support
In a more paternalistic era, employees received a higher salary when they had a child, meeting their supply cost of coming to work. Such a direct payment has been replaced by pay for seniority. Labor-owned firms include a compensation system that links pay to the number of dependents supported by the worker. This is an option that employee-owned firms find attractive that traditional firms do not attempt. Employee-ownership allows the payment of a lower base rate while meeting the supply costs of the employee.
Many workers are forced to accept the best job they can, or work more than one job, in order to meet their supply costs. If everyone knew their supply cost of labor they would not work for anything less, provided government assistance or funded education is available for not working. Put another way, it is not justified to force someone to work for under his or her supply cost of labor; it is in fact slavery.
If the entire union-owned sector adopts such a system, it can demand federal and state tax credits to fund this expenditure, which truly benefits society at large. Dependent allowances of this type are needed nationwide. Returning to the topic of the January 2003 PVS newsletter, the Social Security liquidity crisis is ultimately an aging crisis. The most reliable way to reverse this crisis is for society to explicitly reward childbirth. It is also a way to forever end the debate on abortion, as any pro-life politician who does not seize upon this solution as the way to end abortion has other agendas involving the domination of women, rather than the protection of children. Finally, many members of organized labor are uncomfortable with labor's association with the pro-choice movement. Labor's adoption of such a child-birth incentive only helps bring the traditional progressive coalition back together again.
Older Workers
Another component of the supply cost of labor is the perceived length of life. Older employees have a higher supply cost for their labor. Two factors account for this. The first is that they no longer feel immortal, so they consider their time to be more scarce and therefore more valuable. Younger workers work for less, because they perceive, quite intelligently, that they have time on their side. A way to compensate older workers for their higher supply cost is to transfer a portion of their compensation to stock dividends, which are reinvested for retirement or taken as a direct payment, or some combination of the two. Shifting compensation in this way removes the existing perverse incentive to fire older more productive employees and replace them with younger workers. If a worker arrives mid-career, the worker is given the option to invest a portion of any accumulated retirement funds in shares of the new firm or the Union ESOP Trust.
Expanded Benefits
Higher pay is also a retention tool to reward longevity. There are other ways to do this. In union-owned operations overseas, expanded benefit levels are a common feature, especially in the financial area. Possible options to be adopted include limited payroll line of credit accounts and low interest home mortgages in cooperation with employee credit unions. Such accounts are used as a retention incentive. The term of the home loan and the planned retirement date are matched so that at loan maturity the number of ESOP shares held provides for payment an amount equal to the base salary. Provisions are made to refinance loans of employees who terminate before maturity at a reasonable rate. Failure to provide such a refinancing option, especially in firms with mixed ownership, constitutes peonage.
Issuing credit to employees at no or very low interest makes good sense in firm entirely owned by its workers, as interest fees are simply rechanneled back to profit and then redistributed again to the employees as shareholders. Interest is only required to compensate non-employee shareholders. When outside investors are bought out, interest is eliminated. This takes credit unions to the next level by merging the employer and the credit union and accessing the capital accumulation of the firm to make home loans.
Efficiency and Social Justice
An equal pay/incentive based system is a better way to allocate positions. Perfectly competitive labor markets produce an average wage, once other factors have been compensated for (family size, education) or provided for through making education and training freely available. After such factors as age, education, position and family size are factored out or compensated for separately, a perfectly competitive base wage is achieved through supply and demand. In a perfectly competitive labor market, if one factor is less productive, less of that factor is purchased. If another factor is calling for a higher price, than means are undertaken to produce more of that factor (providing education to enough of the higher paid factor to decrease the price). Worker deployment follows productivity, as it does in any free market. If less janitors are needed, less are hired, so the demand for janitors and the wage they are paid reflects their utility to the company, not the prejudices of the ruling hierarchy. It is not economically efficient to have workers who, at a base level of effort and ability, are not as productive as other workers. All contribute equal effort to the final product, with only the innovators and superior performers receiving increased compensation.
In a free market, if janitors are paid less than line workers there are too many janitors. Efforts are made to overcome the effects of discrimination in the education and employment system, so that those janitors who are capable of other duties are trained and hired in order to maximize their natural abilities. Both basic justice and good sense demand that menial laborers be offered all the education they can use in a culturally sensitive manner. I have heard too many stories of foreign doctors driving cabs or engineers operating dry cleaning establishments. Under-utilizing these individuals is both inefficient and wrong.
The last determinant of pay is discrimination based on race, gender or immigration status. These are no longer dignified in an employee-owned firm. The system set out above eliminates these ugly features from employee compensation forever. Indeed, smarter firms out and train socially disadvantaged individuals, as the likelihood of finding untapped genius within them is greater than in the population of white males.
Management Pay and Selection
As long as there is a division of labor, some form of management hierarchy is required to operate the firm, even the union or employee-owned firm. The average worker, given no organization or command structure, does not work otherwise; or their work does not mean anything in relation to the work of others. However, there is no economic reason why those in positions of authority need to receive higher compensation (aside from an age premium). It is likely that the only real reason managers get paid more is that they control the money. If this is true it is an abuse of trust.
In a free market to give orders to someone else you pay them. The same should be true in an organization. Given a common pool of labor, for one worker to tell other workers what to do he should pay a price, possibly taking a salary reduction to be in charge of his fellows. His task is different than those of his fellows, but it is no more essential than the labor itself.
Retrain managers in the union or employee-owned workplace to cope with an ownership culture that emphasizes training and team building. Union shareholders insist upon management selection and salary determination structures based on competitive bidding for management positions within the firm by all qualified applicants and selection by those managed at the shop floor level and higher. Such structures go hand in hand with such technologies as Total Quality Management, whose flaw may be that they drive responsibility to the lowest possible level without at the same time adjusting salary structures to reflect this. Pay for supervisors is no longer set by higher-level employees, rather a free market for wages is created in the firm. The floor price in auctions for management positions is the average wage of the employees supervised. In the event more than one bidder proposes the average wage, an election is held among all of those supervised to pick the supervisor. First line supervisors have a relatively small electorate. The entire division or corporation elects corporate division heads or CEOs.
Innovation
Another determinant of pay is contribution. Union-owned firms inaugurate incentive systems to reward actual performance rather than conformity within a hierarchical structure. Currently, higher contributing employees tend to receive higher wages with the expectation that they will perform. Pay for contribution is a good thing, but can be awarded AFTER a demonstrable contribution to the firm is made, rather than before.
If salaries are equalized, patents and innovations are more handsomely rewarded, encouraging these activities. Incentive systems include the decision structures used to identify particular innovations or actions that resulted in short or long term profitability and to assign credit for these actions. Incentives are awarded on an individual or a group basis, depending upon the contribution. If an individual invents something, secures a long-term client, or in some way avoids a loss he or she is granted both a cash incentive and stock awards to reflect the makes to the long-term profitability of the firm. This reward is determined through democratic, rather than hierarchical means. Incentive systems are necessary to reward initiative and attract the best workers, which increases market share and lead other firms to adopt this type of structure.
Cooperativism is healthier psychologically, engendering self-actualizing behavior. In this system, all members of society, all things being equal, have the opportunity to rise to their full potential with limited sacrifice. When they achieve their potential (and no healthy person stops short, given the opportunity) they are giving their maximum effort to society. At their point of maximum fulfillment their contribution is equal to all others who are giving their maximum.
Education
Some employees are determined to be more valuable because of their level of education or training. Union-owned firms are able to develop an edge in recruitment and training systems by providing both tuition and pay during training and education. They recruit the best and brightest individuals prior to technical training or during their college careers. In exchange employees finance an equal share of their tuition through a student loan that the firm repays for the new employee over a period of years (two years of work for each year of education). The employer also provides off-campus living arrangements and paid work experience as a supplement to education. Such a system removes the financial risk from the employee and transfers it to the employer, which contributes to a culture of equality and flatter wage structures in the firm. The firm expects to pay a lower wage later on but gets the more talented workers sooner. Those who leave early reimburse the company for whatever portion of their educational debt remains unpaid at separation. As college costs go up and student debt mounts, such an arrangement seems inevitable, especially for those students who come from families who are less "credit worthy." Workers who have already self-financed their educations are awarded an up-front bonus in cash and stock to compensate them for their educations, rather than a higher salary. Pay differentials that reflect educational sacrifice no longer make sense when workers are educated to their full potential at company expense.
An economics that is overtly Christian makes other statements about pay differentials that secular economics cannot. Pay differentials due to ability are no longer justified, as abilities are gifts from God - not the property of the individual. Working in an area where one’s talents and interests do not lie not only does not make sense for the individual, but also is an abuse of what God has provided. Higher pay for doing something one does not love cannot compensate the psychic pain inherent in such a choice. It is better that all work using their God-given talents and be happy. In a system of equal base pay, working too hard is no longer necessary. Workers are able to earn a just wage, covering their supply cost of labor, while doing so.
The Supply Cost of Labor
Conventional economics holds that the supply curve for labor goes up with more wages offered,- the higher the wage the more willing the worker, all other things being equal. Of course, all other things are never equal. A more important determinant of supply cost is economic need. Labor and the wages gathered from it are the way the worker obtains all other economic goods. This means that the supply curve for labor has a negative curve - the lower the wage the more one works. The more the worker needs, the more he or she works at a given wage. If the wage is lowered, the worker works more. As wages rise, work goes down. Most do not work 60 to 80 hour weeks because they can afford not to. This is why poor people work such long hours while the rich take time off (though some dedicated professionals, especially doctors, do not. However, this has more to do with duty than economics).
The level of income a worker requires is relative to a "just wage." The just wage is the wage required to maintain the worker and the worker's dependents (who he cannot morally allow to go hungry). This wage covers, at minimum, shelter, food (energy for work), clothing, transportation to and from work, and a reasonable amount of leisure. Also within such a wage are all taxes and social insurance contributions, health care and insurance costs and religious tithes. If a worker's main job is not enough to cover these costs moonlighting occurs, workers organize and strike or welfare is sought - as it is more just to go on the dole than to work as a slave.
Family Support
In a more paternalistic era, employees received a higher salary when they had a child, meeting their supply cost of coming to work. Such a direct payment has been replaced by pay for seniority. Labor-owned firms include a compensation system that links pay to the number of dependents supported by the worker. This is an option that employee-owned firms find attractive that traditional firms do not attempt. Employee-ownership allows the payment of a lower base rate while meeting the supply costs of the employee.
Many workers are forced to accept the best job they can, or work more than one job, in order to meet their supply costs. If everyone knew their supply cost of labor they would not work for anything less, provided government assistance or funded education is available for not working. Put another way, it is not justified to force someone to work for under his or her supply cost of labor; it is in fact slavery.
If the entire union-owned sector adopts such a system, it can demand federal and state tax credits to fund this expenditure, which truly benefits society at large. Dependent allowances of this type are needed nationwide. Returning to the topic of the January 2003 PVS newsletter, the Social Security liquidity crisis is ultimately an aging crisis. The most reliable way to reverse this crisis is for society to explicitly reward childbirth. It is also a way to forever end the debate on abortion, as any pro-life politician who does not seize upon this solution as the way to end abortion has other agendas involving the domination of women, rather than the protection of children. Finally, many members of organized labor are uncomfortable with labor's association with the pro-choice movement. Labor's adoption of such a child-birth incentive only helps bring the traditional progressive coalition back together again.
Older Workers
Another component of the supply cost of labor is the perceived length of life. Older employees have a higher supply cost for their labor. Two factors account for this. The first is that they no longer feel immortal, so they consider their time to be more scarce and therefore more valuable. Younger workers work for less, because they perceive, quite intelligently, that they have time on their side. A way to compensate older workers for their higher supply cost is to transfer a portion of their compensation to stock dividends, which are reinvested for retirement or taken as a direct payment, or some combination of the two. Shifting compensation in this way removes the existing perverse incentive to fire older more productive employees and replace them with younger workers. If a worker arrives mid-career, the worker is given the option to invest a portion of any accumulated retirement funds in shares of the new firm or the Union ESOP Trust.
Expanded Benefits
Higher pay is also a retention tool to reward longevity. There are other ways to do this. In union-owned operations overseas, expanded benefit levels are a common feature, especially in the financial area. Possible options to be adopted include limited payroll line of credit accounts and low interest home mortgages in cooperation with employee credit unions. Such accounts are used as a retention incentive. The term of the home loan and the planned retirement date are matched so that at loan maturity the number of ESOP shares held provides for payment an amount equal to the base salary. Provisions are made to refinance loans of employees who terminate before maturity at a reasonable rate. Failure to provide such a refinancing option, especially in firms with mixed ownership, constitutes peonage.
Issuing credit to employees at no or very low interest makes good sense in firm entirely owned by its workers, as interest fees are simply rechanneled back to profit and then redistributed again to the employees as shareholders. Interest is only required to compensate non-employee shareholders. When outside investors are bought out, interest is eliminated. This takes credit unions to the next level by merging the employer and the credit union and accessing the capital accumulation of the firm to make home loans.
Efficiency and Social Justice
An equal pay/incentive based system is a better way to allocate positions. Perfectly competitive labor markets produce an average wage, once other factors have been compensated for (family size, education) or provided for through making education and training freely available. After such factors as age, education, position and family size are factored out or compensated for separately, a perfectly competitive base wage is achieved through supply and demand. In a perfectly competitive labor market, if one factor is less productive, less of that factor is purchased. If another factor is calling for a higher price, than means are undertaken to produce more of that factor (providing education to enough of the higher paid factor to decrease the price). Worker deployment follows productivity, as it does in any free market. If less janitors are needed, less are hired, so the demand for janitors and the wage they are paid reflects their utility to the company, not the prejudices of the ruling hierarchy. It is not economically efficient to have workers who, at a base level of effort and ability, are not as productive as other workers. All contribute equal effort to the final product, with only the innovators and superior performers receiving increased compensation.
In a free market, if janitors are paid less than line workers there are too many janitors. Efforts are made to overcome the effects of discrimination in the education and employment system, so that those janitors who are capable of other duties are trained and hired in order to maximize their natural abilities. Both basic justice and good sense demand that menial laborers be offered all the education they can use in a culturally sensitive manner. I have heard too many stories of foreign doctors driving cabs or engineers operating dry cleaning establishments. Under-utilizing these individuals is both inefficient and wrong.
The last determinant of pay is discrimination based on race, gender or immigration status. These are no longer dignified in an employee-owned firm. The system set out above eliminates these ugly features from employee compensation forever. Indeed, smarter firms out and train socially disadvantaged individuals, as the likelihood of finding untapped genius within them is greater than in the population of white males.
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