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Codetermination: A way to rebalance the economy?
Codetermination is one of the most interesting ideas you've never heard of.
- Codetermination is the name for corporate governance systems that place workers on the executive board.
- It is very popular in Europe but has long lost its popularity in the United States.
- It offers a variety of benefits, but it would change many aspects of the American economy.
We are living in an age where the questioning of major institutions occurs regularly. Large numbers of Americans support changing to a new economic system, and even many who recommend keeping capitalism think it needs a bit of an overhaul.
One idea, common in Europe but less so in America, that does the latter is called codetermination and maintains capitalism and the private ownership of property while giving workers a say in how their workplaces are managed. We'll look at what it is, how it works, and the proposal to bring it to America.
What is codetermination?
Codetermination can be broadly defined as workers' participation in decision-making in business affairs. This can take many forms, from workers' councils that offer advice on how to improve productivity in exchange for bonuses to having workers' representatives on executive boards. The basic idea is to give workers a way to protect their interests and help advance the organization in a formalized way. It has the added benefit of treating workers as people rather than as objects for productivity.
How does it work in the places that have it?
Codetermination is much more common in Europe than in the United States. Of the European countries, Germany is far and away the most invested in the concept. In Germany, all companies over a certain size are required to have some kind of it, with worker and union representatives occupying anywhere from a third to half of the boards of some major firms.
Most Western European companies have two boards, one that manages the day to day affairs of the company and one that supervises them. In the European firms with codetermination, employee representatives are placed on the supervisory board. They vote, deliberate, and otherwise help to run the company in the same way as any other board member but with a different set of values than mere profit.
Other countries in Europe also have codetermination, though we won't look into them here. The Germans also have workers councils that introduce an element of democracy to the shop floor in addition to the boardroom that is also worth digging into.
In the United States, a different kind of codetermination was common during parts of the 20th century. The Scanlon plan, a type of codetermination, was designed in the United States and was widely adopted in many industries. Based on the idea that workers did better when they were participating, the plan creates committees of workers and management that propose solutions to problems and develop ideas to improve productivity. In many cases, improved productivity translates into bonuses.
The plan was designed for failing enterprises but was later adopted by successful ones when they realized its advantages. During WWII, many companies adopted this system as a way to improve both productivity and morale. Interest in this program tanked after the war ended, and today the idea is entirely foreign to most Americans.
What effect does this have?
Studies have shown that codetermined businesses operate with long-term thinking rather than pursuing short-term profit and see improvements to their productivity. Another study found that codetermination can keep income inequality low across an entire country, presumably by keeping executive pay at reasonable levels and putting that money either in the hands of workers or back into the company. Countries with more codetermination also see fewer strikes.
Another study that cast doubt on the productivity benefits did find the system increased the bargaining power of the workers.
It also isn't too horrible for the economy overall to have large firms run this way, given how the German economy is one of the best in Europe. Over the last few decades, their economy has grown a tiny bit faster than America's. Fears that codetermination would turn Germany into Tito's Yugoslavia as the 20th century came to a close have proven laughably inaccurate.
All of the famous Teutonic companies you've heard of have workers on the board of directors. All things considered, they do pretty well. This is in part because there is a culture of pragmatism on these boards. Just because the workers have voting rights doesn't mean that they immediately run the company into the ground; it seems like the people who work at a place understand how to run it.
Elizabeth Warren’s plan to bring it to America
As part of her marvelously wonky campaign for president, Elizabeth Warren has introduced a plan to bring Germanic codetermination to the United States in a big way.
Her plan for codetermination is part of her larger Accountable Capitalism Act bill. The portion that focuses on worker participation is ambitious. Her plan would require some corporations, a few thousand of the largest firms in the country, to allow workers to elect a full 40% of the membership of their executive boards.
The idea is popular, with a majority of voters in every single congressional district supporting more codetermination in American business.
The plan also would require corporations to consider other interest groups than just their shareholders in decision-making, regulate the sale of stocks earned as executive payment more tightly, require near consensus on corporate boards before they could make donations to political organizations, and make the largest corporations seek federal charters rather than state ones.
What might it look like if we had it here?
Codetermination in the United States would have a variety of effects.
As mentioned above, codetermination at even a few of the largest firms would likely improve the condition of American workers a great deal given the decline in their bargaining power over the last few decades. Even if this is the only benefit to workers to be expected, which is a dubious stance, we would expect some increases in pay as a result of this plan. The other mentioned factors can also be expected to increase employee pay.
We might also expect codetermined companies to be less inclined to ship jobs overseas or layoff workers to raise profits as those very workers would have a say on the executive board, a point that has been raised in studies on the subject.
There would also be a variety of effects relating to the sudden inclusion of a new interest group in the C-suites. Rather than just focusing on the needs of shareholders, large corporations would also have to include their worker's interests in decision-making. This could not only change the choices they make, but alter the way our economic decision-makers think of workers, stockholders, managers, and how they can and should interact with each other.
On the other hand, the changes would likely cause the stock market to fall a bit as stock values returned to the actual values of companies for a number of reasons.
This wouldn't be a problem for most people since 80 percent of the stock market is owned by a mere 10 percent of Americans. It will, however, still be a bit of a shock. One estimate suggests the fall would be as much as a 25 percent drop, although that estimate assumed the adoption of a plan much more extensive than Elizabeth Warren's, more like the current German system, and should be considered just outside the scope of probability.
Discussions about how the economy should be structured are taking place ever more frequently and are increasingly focusing on ideas that have long been on the fringes of American thought. Codetermination may soon return to the American workplace as a way to help alleviate our economic concerns. While it isn't a silver bullet that cures all societal aliments by any means, it could prove an effective method to rebalance the economic scales.
Andy Samberg and Cristin Milioti get stuck in an infinite wedding time loop.
- Two wedding guests discover they're trapped in an infinite time loop, waking up in Palm Springs over and over and over.
- As the reality of their situation sets in, Nyles and Sarah decide to enjoy the repetitive awakenings.
- The film is perfectly timed for a world sheltering at home during a pandemic.
Richard Feynman once asked a silly question. Two MIT students just answered it.
Here's a fun experiment to try. Go to your pantry and see if you have a box of spaghetti. If you do, take out a noodle. Grab both ends of it and bend it until it breaks in half. How many pieces did it break into? If you got two large pieces and at least one small piece you're not alone.
But science loves a good challenge<p>The mystery remained unsolved until 2005, when French scientists <a href="http://www.lmm.jussieu.fr/~audoly/" target="_blank">Basile Audoly</a> and <a href="http://www.lmm.jussieu.fr/~neukirch/" target="_blank">Sebastien Neukirch </a>won an <a href="https://www.improbable.com/ig/" target="_blank">Ig Nobel Prize</a>, an award given to scientists for real work which is of a less serious nature than the discoveries that win Nobel prizes, for finally determining why this happens. <a href="http://www.lmm.jussieu.fr/spaghetti/audoly_neukirch_fragmentation.pdf" target="_blank">Their paper describing the effect is wonderfully funny to read</a>, as it takes such a banal issue so seriously. </p><p>They demonstrated that when a rod is bent past a certain point, such as when spaghetti is snapped in half by bending it at the ends, a "snapback effect" is created. This causes energy to reverberate from the initial break to other parts of the rod, often leading to a second break elsewhere.</p><p>While this settled the issue of <em>why </em>spaghetti noodles break into three or more pieces, it didn't establish if they always had to break this way. The question of if the snapback could be regulated remained unsettled.</p>
Physicists, being themselves, immediately wanted to try and break pasta into two pieces using this info<p><a href="https://roheiss.wordpress.com/fun/" target="_blank">Ronald Heisser</a> and <a href="https://math.mit.edu/directory/profile.php?pid=1787" target="_blank">Vishal Patil</a>, two graduate students currently at Cornell and MIT respectively, read about Feynman's night of noodle snapping in class and were inspired to try and find what could be done to make sure the pasta always broke in two.</p><p><a href="http://news.mit.edu/2018/mit-mathematicians-solve-age-old-spaghetti-mystery-0813" target="_blank">By placing the noodles in a special machine</a> built for the task and recording the bending with a high-powered camera, the young scientists were able to observe in extreme detail exactly what each change in their snapping method did to the pasta. After breaking more than 500 noodles, they found the solution.</p>
The apparatus the MIT researchers built specifically for the task of snapping hundreds of spaghetti sticks.
(Courtesy of the researchers)
What possible application could this have?<p>The snapback effect is not limited to uncooked pasta noodles and can be applied to rods of all sorts. The discovery of how to cleanly break them in two could be applied to future engineering projects.</p><p>Likewise, knowing how things fragment and fail is always handy to know when you're trying to build things. Carbon Nanotubes, <a href="https://bigthink.com/ideafeed/carbon-nanotube-space-elevator" target="_self">super strong cylinders often hailed as the building material of the future</a>, are also rods which can be better understood thanks to this odd experiment.</p><p>Sometimes big discoveries can be inspired by silly questions. If it hadn't been for Richard Feynman bending noodles seventy years ago, we wouldn't know what we know now about how energy is dispersed through rods and how to control their fracturing. While not all silly questions will lead to such a significant discovery, they can all help us learn.</p>
What happens if we consider welfare programs as investments?
- A recently published study suggests that some welfare programs more than pay for themselves.
- It is one of the first major reviews of welfare programs to measure so many by a single metric.
- The findings will likely inform future welfare reform and encourage debate on how to grade success.
Welfare as an investment<p>The <a href="https://scholar.harvard.edu/files/hendren/files/welfare_vnber.pdf" target="_blank">study</a>, carried out by Nathaniel Hendren and Ben Sprung-Keyser of Harvard University, reviews 133 welfare programs through a single lens. The authors measured these programs' "Marginal Value of Public Funds" (MVPF), which is defined as the ratio of the recipients' willingness to pay for a program over its cost.</p><p>A program with an MVPF of one provides precisely as much in net benefits as it costs to deliver those benefits. For an illustration, imagine a program that hands someone a dollar. If getting that dollar doesn't alter their behavior, then the MVPF of that program is one. If it discourages them from working, then the program's cost goes up, as the program causes government tax revenues to fall in addition to costing money upfront. The MVPF goes below one in this case. <br> <br> Lastly, it is possible that getting the dollar causes the recipient to further their education and get a job that pays more taxes in the future, lowering the cost of the program in the long run and raising the MVPF. The value ratio can even hit infinity when a program fully "pays for itself."</p><p> While these are only a few examples, many others exist, and they do work to show you that a high MVPF means that a program "pays for itself," a value of one indicates a program "breaks even," and a value below one shows a program costs more money than the direct cost of the benefits would suggest.</p> After determining the programs' costs using existing literature and the willingness to pay through statistical analysis, 133 programs focusing on social insurance, education and job training, tax and cash transfers, and in-kind transfers were analyzed. The results show that some programs turn a "profit" for the government, mainly when they are focused on children:
This figure shows the MVPF for a variety of polices alongside the typical age of the beneficiaries. Clearly, programs targeted at children have a higher payoff.
Nathaniel Hendren and Ben Sprung-Keyser<p>Programs like child health services and K-12 education spending have infinite MVPF values. The authors argue this is because the programs allow children to live healthier, more productive lives and earn more money, which enables them to pay more taxes later. Programs like the preschool initiatives examined don't manage to do this as well and have a lower "profit" rate despite having decent MVPF ratios.</p><p>On the other hand, things like tuition deductions for older adults don't make back the money they cost. This is likely for several reasons, not the least of which is that there is less time for the benefactor to pay the government back in taxes. Disability insurance was likewise "unprofitable," as those collecting it have a reduced need to work and pay less back in taxes. </p>
What are the implications of all this?<div class="rm-shortcode" data-media_id="ceXv4XLv" data-player_id="FvQKszTI" data-rm-shortcode-id="3b407f5aa043eeb84f2b7ff82f97dc35"> <div id="botr_ceXv4XLv_FvQKszTI_div" class="jwplayer-media" data-jwplayer-video-src="https://content.jwplatform.com/players/ceXv4XLv-FvQKszTI.js"> <img src="https://cdn.jwplayer.com/thumbs/ceXv4XLv-1920.jpg" class="jwplayer-media-preview" /> </div> <script src="https://content.jwplatform.com/players/ceXv4XLv-FvQKszTI.js"></script> </div> <p>Firstly, it shows that direct investments in children in a variety of areas generate very high MVPFs. Likewise, the above chart shows that a large number of the programs considered pay for themselves, particularly ones that "invest in human capital" by promoting education, health, or similar things. While programs that focus on adults tend to have lower MVPF values, this isn't a hard and fast rule.</p><p>It also shows us that very many programs don't "pay for themselves" or even go below an MVPF of one. However, this study and its authors do not suggest that we abolish programs like disability payments just because they don't turn a profit.</p><p>Different motivations exist behind various programs, and just because something doesn't pay for itself isn't a definitive reason to abolish it. The returns on investment for a welfare program are diverse and often challenging to reckon in terms of money gained or lost. The point of this study was merely to provide a comprehensive review of a wide range of programs from a single perspective, one of dollars and cents. </p><p>The authors suggest that this study can be used as a starting point for further analysis of other programs not necessarily related to welfare. </p><p>It can be difficult to measure the success or failure of a government program with how many metrics you have to choose from and how many different stakeholders there are fighting for their metric to be used. This study provides us a comprehensive look through one possible lens at how some of our largest welfare programs are doing. </p><p>As America debates whether we should expand or contract our welfare state, the findings of this study offer an essential insight into how much we spend and how much we gain from these programs. </p>
Finding a balance between job satisfaction, money, and lifestyle is not easy.
- When most of your life is spent doing one thing, it matters if that thing is unfulfilling or if it makes you unhappy. According to research, most people are not thrilled with their jobs. However, there are ways to find purpose in your work and to reduce the negative impact that the daily grind has on your mental health.
- "The evidence is that about 70 percent of people are not engaged in what they do all day long, and about 18 percent of people are repulsed," London Business School professor Dan Cable says, calling the current state of work unhappiness an epidemic. In this video, he and other big thinkers consider what it means to find meaning in your work, discuss the parts of the brain that fuel creativity, and share strategies for reassessing your relationship to your job.
- Author James Citrin offers a career triangle model that sees work as a balance of three forces: job satisfaction, money, and lifestyle. While it is possible to have all three, Citrin says that they are not always possible at the same time, especially not early on in your career.