Over the weekend, the Labour Party unveiled a policy that would require large corporations to gradually place 10 percent of their equity into Inclusive Ownership Funds (IOFs) owned by workers. Under the plan, the workers in each firm would exercise the ownership rights of their IOF shares and receive up to £500 of their shares’ dividends. Jim Pickard (Financial Times) and Nils Pratley (Guardian) have criticisms of the plan, which I address below.

1. The £500 dividend cap

Under the plan, dividends for workers are capped at £500 per worker per year, with any excess beyond that flowing to the state to be used for public services and welfare benefits. Pratley takes exception to this and says that more (or perhaps all) of the dividends should go to workers rather than flow to the state.

The problem with doing as Pratley suggests is that it would open up significant inequality between workers. Some firms pay high dividends while others pay low dividends (or no dividend at all). A dividend cap ensures that this difference in firm behavior does not result in workers at different firms getting much different dividend amounts. Directing the excess above the cap to society as a whole also serves the interests of fairness because it ensures nonworkers benefit as well.

2. Fake ownership

Pratley also argues that, because the shares in the IOF cannot be individually sold by the workers who own them, the share ownership is not real ownership. This is a silly argument that is just a disguised objection to the whole idea of collective ownership. In any collective ownership scheme, individuals are not allowed to sell out. You can, of course, dislike that and instead prefer all ownership to be individually administered, but it does the discourse no good to just assert that collective ownership isn’t ownership.

3. Capital flight

Pickard lists a number of things corporations might do to dodge the scheme. Publicly-listed companies might go private so that they could avoid paying dividends. UK companies might organize abroad since foreign companies are not subject to the scheme. Corporations might stay below 250 employees because only companies above that threshold are subject to the scheme. And so on.

These arguments are too speculative to really evaluate. Maybe companies will do this sort of stuff. Maybe they won’t. More realistically, some companies might do these things while most companies probably won’t. That was the experience of the version of the Meidner plan tried in Sweden.

4. Foreign companies

Pickard points out that, because foreign companies are excluded from the scheme, around one-third of the workers employed by large companies will not actually benefit from it, i.e. their firms would not have to set up an IOF.

This is a fair criticism. The existence of multi-national companies causes problems for all socialization schemes that operate on the firm level because a government has limited ability to regulate the ownership structures of firms domiciled in other countries. This is one of the arguments in favor of my proposed American Solidarity Fund, which is able to own stock in all sorts of companies, foreign and domestic.

5. Substitute for wages

Both Pickard and Pratley point out that corporations subject to the scheme may be able to simply reduce wages by an amount equal to the dividend payment. Because the dividends are tied to working for a particular firm, they become part of the pay package for working there. Thus an employer could decide that it will pay its workers the same overall compensation, but now made up of a dividend and slightly lower wages.

This too is a fair criticism, though it is important to note that the £500 dividend cap reduces the degree to which companies could substitute dividends for wages. This problem is yet another argument in favor of my proposed American Solidarity Fund, which pays out its dividends to everyone in society rather than pegging each person’s dividend to the firm they work for. Since everyone receives the dividend under the ASF proposal, including nonworkers, it should not be possible for employers to substitute the dividend for wages.