‘Inclusive Capitalism’: Bridging business-labor divide

By Nathan Milikowsky and Andrew Stern
April 2, 2013

Economic policy debates often focus on areas of division and discord. On the minimum wage, you’ll see some businesses fighting labor. On regulation, you have government versus the free market.

There are plenty of areas where American workers and companies agree, however, such as the need for public investments in infrastructure and education.

There is another worker-business alignment, explored in a new Center for American Progress report, that has us — a corporate chief executive and a labor leader — excited about its potential to boost innovation and workers’ wages when we desperately need both.

“Inclusive capitalism” is based on the simple idea that when a company does well, its workers should also do well. Mechanisms to promote inclusive capitalism include everything from broad-based profit-sharing and stock options to worker cooperatives and employee stock ownership plans.

This can lead to innovations that help U.S. companies compete in the global economy. Ideas for new products and efficiency improvements don’t just come from the top; often, they come from less senior workers. Yet we are largely ignoring a proven strategy for uncovering innovation: rewarding workers for the gains they help create by paying them a share of the profits.

Companies and workers have practiced inclusive capitalism since the nation’s founding, though it hasn’t been labeled that way. Labor leader Walter Reuther, head of the United Automobile Workers, included profit sharing as a major demand in his 1958 negotiations with the Detroit automakers. Leaders as diverse as future President Ronald Reagan and future Vice President Hubert Humphrey endorsed the concept.

Today, many companies, from small but growing innovators to unionized manufacturers such as U.S. Steel and Boeing to information-technology giants such as Intel and Microsoft practice inclusive capitalism.

At its best, this can align the interests and provide benefits to workers and employers. Not only do workers  feel respected and motivated to speak up to suggest positive changes but they can also earn higher wages and enjoy greater job security and wealth creation. Companies can benefit from increased worker productivity, profitability and the likelihood of the firm’s long-term survival.

We have seen this firsthand. At C/G Electrodes, which makes ultra-high-power graphite electrodes for the steel industry, profit-sharing and employee stock ownership were embedded in the company culture. Workers developed the procedural changes that reduced bottlenecks and increased output by more than 50 percent with a minimal investment. Employees in other parts of the production process improved their ability to keep up with this higher volume.

The win-win result: Profit-sharing for all employees far exceeded standard compensation. Dramatic efficiency increases created by world-class levels of productivity also boosted company profits.

When the Great Recession struck, significantly curtailing demand and production rates, reduced profit-sharing enabled the company and its workforce to weather the economic storm together, while retaining the profit-sharing program, which rebounded as the economy recovered.

Unfortunately, more than half of all workers do not enjoy any type of broad-based sharing programs, and most companies that have adopted these programs do so in a limited manner. All too often, U.S. companies do little to foster an environment where all employees feel invested in the success of their company.

All too often, only top executives are compensated when their companies do well, and workers are not free to speak up with innovative ideas on how to improve corporate performance.

More needs to be done to significantly increase the number of workers and businesses participating in broad-based sharing programs. Government support for inclusive capitalism is inconsistent — some methods of sharing receive virtually no assistance. Worse yet, some government programs actively discourage sharing.

Democrats and Republicans can’t seem to agree on much of anything these days — particularly when it comes to how to get our struggling economy back on track. It is time for inclusive capitalism to rank high on the economic agenda of both parties. We encourage policymakers to start talking to businesses and workers that benefit from inclusive capitalism about how these arrangements help spark innovation and ensure sustainable, long-term growth.

PHOTO (Top): General Motors Head of Manufacturing Diana Tremblay (L) speaks with John Hartweck, carpet team leader, during a tour of the assembly plant in Wentzville, Missouri on February 7, 2012. REUTERS/Sarah Conard

PHOTO (Insert): President Harry S. Truman in the Oval Office, conferring with labor leader Walter Reuther, president of the Congress of Industrial Organizations, December 12, 1952.  REUTERS/National Archives/Harry S. Truman Library/Handout


3 comments

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Profit sharing and stock options are hardly new innovations. Unfortunately, most workers who’ve ever experienced them have seen them used to replace wage increases, even cost-of-living increases. They also really don’t work in large organizations where the disconnect between how one does one’s job and how much money the business makes is huge. And profit-sharing based on performance by an individual or a small group within an organization is also fraught, since productivity of such individuals and groups is pretty impossible to measure accurately.

With regard to the example of retrenchment during tough times, this is done in Germany quite successfully in the form of wage cuts (instead of lay-offs, wherein the enterprise gets hamstrung with fewer workers and so can’t recover). I’m not sure why this is not done in the US (and perhaps it is, but it’s rare if it is).

Co-operative ownership does seem promising though. Was just reading about Mondragon yesterday: http://en.wikipedia.org/wiki/Mondragon_C orporation

Posted by Sanity-Monger | Report as abusive

Who are those people that when it comes to discussions about labor want to downplay or even disrespect the contributions of the employee?. What does it benefit a company who disrespects the very source of its productivity? When is the time to ask for respect at work if not now? Why are American workers plagued by such a guilt trip when it comes to asking for compensation for their efforts?.Where do we spend the majority of our lives, work, why not then try to make it a reasonable place to be.

Posted by jimbojoker | Report as abusive

“inclusive capitalism” may be a short-term fix, but it will hardly address, let alone resolve, the issues that are deeply rooted at the heart of the free market system (namely, the fact that it is founded on cynicism, nihilism, and greed). When the company realizes that it can save money by automation (ie. replacing workers with ever more sophisticated machines) it will do so in a heartbeat. The worker will have very little say in this, because that’s just how the system is structured. The problem there is that disruptive technologies and automation, over the next few decades, will replace workers at a much faster rate than new jobs can be created in the economy. Which can easily lead to a total economic collapse. A new business model such as “inclusive capitalism” is simply incapable of addressing such structural problems. What we need therefore is a new economic paradigm. I suggest the Flow Economy (see here: http://www.geopolitics.us/?p=1645 )

Posted by ExLibertas | Report as abusive