Redressing the balance between labour and capital

Can companies be persuaded to pay their workers more? In the perpetual struggle between labour and capital, it is no secret which side has the upper hand. The share of the national income that goes to wages has been in decline in the developed world since the 1980s, and precipitously so over the past 15 years.

Union-led protests outside fast-food chains last year, with people waving placards demanding a $15-an-hour living wage, did not seem to get heard in the C-suite.

Maybe what it takes is a billionaire hedge fund manager with a madcap scheme to bend the capital markets in the service of improving wages. Or maybe one of the US’s wealthiest politicians, with a dream of rewriting the tax code to favour labour over capital.

Such are the ambitious plans being hatched as inequality rises — and with it the political temperature.

The hedge fund manager in question is Paul Tudor Jones, whose successful bets on currencies and interest rates have added up to a $4.7bn personal fortune. Back in 1988, he created the Robin Hood Foundation, which takes money from rich financiers and gives it to charities helping the poor in New York City. Now he has co-founded Just Capital, a non-profit organisation that plans to rank US companies according to how well they treat their workers and to launch a “Just 100” index of the best.

The theory is that if enough investors switch to following the Just 100 instead of the S&P 500 or the Dow Jones Industrial Average, that will make it cheaper for those companies to raise money, giving chief executives an incentive to do the right thing by their employees. Even if that seems fanciful, there might be enough cachet in the “Just 100” seal of approval that employers want to get on the list, improving pay and benefits to do so.

What marks Just Capital out from the hundreds of ESG (environmental, social and governance) indices already available is the amount of marketing money behind the project, almost all of it coming out of Tudor Jones’s pocket.

Its index will reflect the priorities revealed in a survey of 43,000 Americans unveiled at a glitzy ceremony last month, a stone’s throw from the United Nations headquarters in New York. Those priorities rank employee pay and benefits, and fair hiring practices, above a company’s human rights record or environmental impact.

The consequences of failing to tackle inequality will be “higher taxes, revolution or war”, Tudor Jones says.

If Just Capital is taking a circuitous route to change corporate behaviour, via trying to influence capital flows, one of the wealthiest men in the US Senate is thinking of something a little more direct: tax incentives.

Mark Warner, a former venture capitalist in the telecoms industry, has been a Democrat senator for Virginia since 2009. Recently, he has wrestled with how the federal government might update regulations to reflect the sharing economy and shift the tax code to deal with what he calls the “imbalance” between labour and capital. Tax incentives largely favour capital, such as lower levies on capital gains than on income, and a host of tax breaks for investment.

But what if there were a way to favour companies that pay workers higher wages, offer larger benefits and do better training?

In depth

Ambitious Wealth

This “second gilded age” is defined not only by the scale of private wealth, but by the ambition of those who hold it.

Further reading

Congress has permitted new kinds of corporate tax structures in the past, to encourage particular kinds of economic behaviour. Real estate investment trusts exist to boost property investment, for example, and business development companies were created to provide financing to small businesses.

Some states have recently permitted benefit corporation, or “B corps”, companies that do not have to prioritise shareholder interests but can also act for a wider social benefit. The idea of a new structure to favour employee-friendly behaviour specifically is an intriguing one, if Warner can get it off the ground.

So, yes, Tudor Jones and Warner both think companies can be persuaded to pay their workers more. Financial incentives, positive returns, everyone’s a winner.

The question is whether this ought to be a matter of persuasion at all. The same unions that were protesting last year are now pulling political levers to and campaigning to gain a big increase in minimum wages at the state and federal level. This would be a much quicker fix than bending the capital markets or conjuring new corporate forms into law.

Can companies be persuaded to pay their workers more? Maybe. But they can certainly be compelled to.