The Three Types of Populist Economic Policy

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Gross domestic product rose to $20.7 trillion in the third quarter of 2018. After removing consumption of fixed capital and taxes on production and imports, there was $16 trillion left to pay out as factor income. Around $10.9 trillion of that money went to employees while the remaining $5.1 trillion (net operating surplus) went to owners of capital.

One of the goals of progressive policy is to shift some of the $5.1 trillion of operating surplus towards the compensation of workers, i.e. to reduce capital’s share and increase labor’s share of the net national income. This goal is rarely articulated so bloodlessly, but it is nonetheless what basically all of the current populist policy ideas are aiming to accomplish.

Although all of these policy ideas are aiming at the same basic goal, they attempt to achieve it through different means. In general, I think you can group the current crop of populist economic policy proposals into three buckets: external power, internal power, and ownership. Before describing what these labels mean, here is a table slotting the various policy ideas of the moment into this taxonomy.

External Power Internal Power Ownership
Anti-Monopsony Unions Social Wealth Fund
Job Guarantee Codetermination Cooperatives

External power policies are those that attempt to improve the bargaining position of workers by increasing their ability to quit and change jobs. Anti-monopsony policies such as banning non-compete clauses, banning non-poaching agreements, and increasing the number of firms in each labor market all rely upon this sort of external power as their mechanism for increasing labor’s share. Some advocates of the job guarantee say it does something similar by giving workers the ability to quit and get employment in a job guarantee program (though other advocates like Wray reject this claim).

Internal power policies are those that improve the bargaining position of workers by increasing their power inside the firms they work in. Unions do this because they engage in collective bargaining with employers, among other things. Codetermination, meaning putting workers on corporate boards, does this by giving workers some voting power in corporate decisions. In both cases, it is hoped that unions and worker board representatives will strike a deal that increases labor’s share.

Ownership policies are those that seek to own the equity of companies in order to capture some or all of capital’s share for workers or society. A social wealth fund is an ownership policy insofar as it seeks to gradually snap up all of the corporate debt and equity in the economy and own it publicly. Cooperatives work similarly except they administrate the collective ownership of corporate equity on the firm level, meaning the workers in each firm own the equity of that firm.

Because rhetorical posturing is a big part of politics, people will obviously fight over what the true, radical policy approach is. But in general, in my experience, external power policies tend to be the easiest to sell to moderates, especially the anti-monopsony policies, probably because they tell a very straightforward story about creating functional markets that work the way they are supposed to.

Internal power policies are more difficult to sell to moderates than external power policies. A lot of Democratic politicians have a cold relationship with unions. And codetermination bills like those put forward by Baldwin and Warren don’t seem to attract much support from other politicians. I’d guess this is because disrupting the power relationships inside US firms is something “corporate Democrats” are not too keen on.

Ownership policies tend to be a mixed bag. Bernie Sanders has been one of the main champions of employee-owned companies — a nebulous phrase describing a variety of arrangements from conventional coops to ESOPs — over the years. But this is an idea that even some Republicans get behind. Public ownership of equity, on the other hand, has no political champions at the moment. Some Democrats even seem to want to cut down on what little public ownership the US does have, such as Obama’s effort throughout his presidency to privatize the TVA.

In my ideal construction, corporations are owned publicly through a social wealth fund and workers have power inside each firm via sector-level unions and firm-level codetermination. Once fully realized, this arrangement would capture all of capital’s share one way or another and hopefully strike the appropriate balance between compensating the workers in each firm and ensuring society as a whole benefits from the nation’s collective capital stock.