Alternative Systems of Business Organization and of Workers' Renumeration

J.E. Meade

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781134561988
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Examining the relationship between employment and rates of pay, this book discusses how the choice between different forms of business organization may affect this relationship. For the purposes of the discussion a simple model of an imperfectly competitive economy is constructed and then examined in operation with different organizational forms for the competing firms. Chapters cover the following:
The Captialist Wage Economy; The Non-Discriminating Labour Co-operative; The Capitalist Sharing Economy; Discriminating Labour-Capital Partnerships.

CHAPTER V

The Capitalist Sharing Economy

(a) Two Forms of the Capitalist Sharing Economy

By a Capitalist Sharing firm we mean one in which some or all of the owners of the capital, either directly or through representative managers, take the decisions about output, prices, employment and investment; but in which some or all of the workers receive a part or the whole of their pay in the form of an agreed share of part or the whole of the value added of the firm.

The fund of which the workers receive a contractual share may take either of two forms. In what we will call the Capitalist Revenue–Sharing firm the inclusive rate of pay of the worker can be expressed as

V.a.1

where w' is the worker’s inclusive rate of pay and w is the fixed wage element in his pay, which is supplemented by a proportion, s, of the total revenue of the firm, xp, distributed between the workers, l.

The profit of the capitalist entrepreneurs can then be expressed as

V.a.2

where h" measures the outside market hire–charge for a unit of capital so that h"k represents the total cost of employing the firm’s capital equipment, a cost which takes the form either of a direct payment of interest on borrowed funds or the cost to the capitalist entrepreneurs due the the lost opportunity of earning interest in the market on the funds which they have instead risked in their business.

This is not the only possible form of share–economy arrangement. The arrangement may be to pay to the workers a share, s, of what we may call the ‘accounting profit’ of the firm. In this case q_a measures the accounting profit where

q_a = xp – wl – hk,

V.a.3

where w is the fixed–wage element in the worker’s pay and h is the fixed–interest element in the return to the capitalists.

The profit of the capitalist entrepreneurs is then

V.a.4

They receive (1 – s)q_a as their share of the accounting profit plus the fixed interest paid to them (hk), but from this they must deduct the outside market hire–charge for their capital funds (h"k). We will call this a Capitalist Profit–Sharing firm.

The difference in principle between the two forms of sharing arrangement is as follows. In the revenue–sharing firm the workers are paid their fixed wage and a share of the whole revenue. In the profit–sharing arrangement the workers are paid their fixed wage and the capitalists their fixed rate of return on the capital, and the workers then receive their share of the remainder of the firm’s revenue. As will be shown in what follows, these two different principles can lead to very different results.

It is interesting to note the extreme or pure forms of these two different arrangements. The pure revenue–sharing arrangement is one in which there are no fixed–wage or fixed–interest payments (w = h = 0), all incomes taking the form of a share of the revenue. In this case (V.a.2) becomes

q_k = (1 – s)xp – h"k.

V.a.5

It may be noted that the profit–sharing arrangement of (V.a.4) approaches the more nearly to this same result, the smaller are the fixed–pay elements w and h.

The pure profit–sharing arrangement may, however, best be defined as that in which the fixed–pay elements are set at the full market charges for the factors, (i.e. w = w" and h = h") in which case (V.a.4) becomes

q_k = (1 – s)(xp – w"l – h"k).

V.a.6

Labour and capital receive their full market costs in a fixed–payment form and simply share between them any pure profit or pure loss which remain.

(b) The Capitalist Sharing Economy with Rigid Pay Parameters and Unemployment

We will start our analysis of sharing arrangements with the assumption that the two pay parameters, namely the workers’ share (s) and the fixed wage (w), are both rigidly fixed by an outside agency (e.g. a rigid national wage bargain or even by government edict.) Similarly, we start with the assumption that the fixed–interest element in the return on capital (h) is rigidly fixed. Whether or not this corresponds to any realistic situation it enables us to analyse some basic relationships which may remain important in so far as these parameters are slow and sticky in their adjustments.

In the case of a revenue–sharing firm with s, w and h" constant differentiation of the value for an individual firm of its

_k given by the second expression for q_k in (V.a.2) results in

d

_k = {(1 + s)

– h"} d

+ {(1 – s)λ – w} d

,

V.b.1

where, ...

Table of contents

• Cover
• Title page
• Copyright page
• Contents
• Preface
• I Introduction
• II The Structure of the Model
• III The Capitalist Wage Economy
• IV The Non–Discriminating Labour Co–operative
• V The Capitalist Sharing Economy
• VI Discriminating Labour–Capital Partnerships
• Select Bibliography
• Index