Socialism/Who owns the Productivity dividend?

Are productivity improvements good or bad? Is automation welcomed or feared? Is efficiency good?[1] Getting more done with less effort seems good, but in our current economy, productivity increases often result in unemployment, which many people fear because they will lose essential income. People fear they will have to find work or starve.

Can we enjoy the benefits of increased productivity without suffering the economic dangers of unemployment? Introducing a productivity dividend fund may allow us to uncouple income decreases from productivity increases.

Consider this simple story.

Hans Schumacher is a kind man who has owned the family shoe business for many years. Shoe manufacturing technology continues to improve, and it is time to replace his obsolete Mark II shoe machine with a new Mark V model.

Before a productivity improvement, the business owner collects all the funds.

The Mark II shoe machine was able to manufacture 10,000 shoes each day requiring 10 people to operate it. The new Mark V machine is twice as fast. It can manufacture 20,000 shoes each day with 10 operators, or 10,000 shoes each day with only 5 operators.

The new machine is arriving, and Hans faces a difficult choice[2]. He can:

  1. Retain his 10 employees, manufacture 20,000 shoes each day and hope to find enough customers, perhaps by reducing prices, to sell all those shoes. Here the productivity dividend—the benefits resulting from increased productivity—is shared between Hans, who is selling more shoes, and the customers who are getting shoes at a lower price. Hans knows that the number of feet in the world remains relatively constant, so he is concerned that it may be difficult to sell so many more shoes.
  2. Layoff 5 employees, retain 5 employees, and manufacture 10,000 shoes each day with only half the number of employees. Here the productivity dividend goes to Hans, and the 5 employees laid off become unemployed. Hans would feel bad for the loyal employees he would layoff but sometimes that’s just business.
  3. Some blend of these options, such as 16,000 shoes each day with 8 employees.
  4. Retain all 10 employees, but have them work half-time, and continue to manufacture 10,000 shoes each day. He now has choices in how to pay the employees. Based on hours worked, it would be fair to pay them half what they were getting earlier. Based on productivity, he could afford to pay them the same as they were making earlier. He liked that idea.

This inspired him to create another option. He found 5 employees who volunteered to leave in return for receiving ongoing severance payments. With the money saved by this reduced work force he was able to create a productivity dividend fund. This fund is the direct result of the increased productivity. The resulting savings go into the fund, and the employees that volunteered to leave receive payments from the fund as their share of the productivity dividend.

After a productivity improvement, funds can be shared with the displaced workers.

One objection critics raised is that hard work itself is a virtue, and idleness is a vice. Certainly, many cultures value hard work, and we have heard the proverb “an idle mind is the devil's workshop”. The work ethic is the belief that work and diligence have moral benefit and an inherent ability to strengthen character and individual abilities. For example, the protestant work ethic emphasizes diligence, discipline, and frugality. The American Dream is described as being achieved through hard work. It is often claimed that Thomas A. Edison[3] said “The three great essentials to achieve anything worthwhile are, first, hard work; second, stick-to-itiveness; third, common sense”. These critics go on to argue that paying people not to work sets a bad example and undermines the values that have made our country great. Some ask, hyperbolically, “What if no one ever wants to work again?”

Let’s stop to consider, what really matters? Maslow’s hierarchy of needs provides a broader analysis of what matters. As it is often represented, the pyramid begins with physiological needs, and progresses through safety, belonging and love, esteem, cognitive and aesthetic needs, culminating with self-actualization.  If hard work matters, perhaps it is part of the esteem level of needs, and is not as essential as physiological needs.

Can we progress from toil to flourishing? Although good hard work—toil—has long been valued as a mark of good character, perhaps the productivity dividend will allow us to progress beyond that belief and value other needs more than toil. Certainly, there is work to be done, and someone has to do that work, however, is it still important that every able-bodied person spend most of their waking hours working? Can flourishing replace toil as a character virtue?

Economic systems similar to this productivity dividend fund have been working for some time. For example, the Alaska Permanent Fund was established in 1976. The Alaska Permanent Fund sets aside a certain share of oil revenues to continue benefiting current and all future generations of Alaskans. It is funded primarily from oil revenues that accrued when oil was extracted from Alaska’s North Slope and began flowing to market through the Trans-Alaska Pipeline System. The individual payout from the fund varies, but is approximately $1,000 annually to each adult Alaskan resident. Similar funds include the North Dakota Legacy Fund, the Government Pension Fund of Norway, and many other sovereign wealth funds.

Other critics object that creation of the productivity dividend fund puts us on to the path toward socialism or even communism, and the failures of those economic systems are well known. Perhaps it is time to begin another Red Scare?

Socialism is a political philosophy and movement encompassing a wide range of economic and social systems which are characterized by social ownership of the means of production, as opposed to private ownership. Since Hans continues to own the Mark V shoe machine, and Hans is a private citizen, establishment of the productivity dividend fund is not any form of socialism, it is simply a decision to share profits accrued by the private business with displaced workers.

Communism is a sociopolitical, philosophical, and economic ideology within the socialist movement, whose goal is the establishment of a communist society, a socioeconomic order centered around common ownership of the means of production, distribution, and exchange that allocates products to everyone in the society. Communist society also involves the absence of private property, social classes, money, and the state. But Hans is a private citizen who continues to own the means of production (the Mark V shoe machine) and each of the active and displaced workers continue to own the same private property they owned before the productivity dividend fund was established. Once again, establishment of the productivity dividend fund is not any form of socialism, it is simply a decision to share profits accrued by the private business with displaced workers.

Critics were concerned that many people would resort to crime as a way to spend their time. Of course, some did, but the majority of people found creative and productive ways to use their free time. People used their time to focus on what matters. Overall, crime rates decreased as poverty was reduced, income was more evenly distributed, and social justice increased.

Critics argued that people would no longer gain fulfillment from their work. What happened is that people who gained satisfaction from their work continued to work. People who disliked the drudgery of their work resigned. Working conditions were often improved to better attract and retain workers.

Another objection is that the system is unfair. Active workers are obligated to continue working, and displaced workers are being paid not to work. Recall that Hans gave all of the active workers a choice to keep their jobs and continue working, or to leave and receive payments from the productivity dividend fund. To achieve the needed balance of 5 workers staying and 5 workers leaving, Hans had to adjust the level of the fund payout to the displaced workers. Certainly, if the distribution to displaced workers was equal to their full salary, the offer would have been so generous that everyone would be likely to leave. Through a series of discussions with the workers, he determined that a payout of approximately 40% of full salary would result in 5 workers deciding to leave and 5 workers deciding to stay. This is a fair result, obtained through informed consent and agency of all the participants. The funds not distributed to the displaced workers were used to reduce shoe prices, increase worker benefits, and increase returns to Hans and other stakeholders in the company.

The idea of a productivity dividend fund became popular with other business owners as productivity increases in their business sectors also allowed them to produce more with fewer workers. Gradually the funds merged and unified. As time went on workers originally displaced from one business found other work and later may have been displaced from other sectors. Productivity dividends from many businesses are collected and shared among many displaced workers. The system looked like this:

Productivity dividends from many sectors can be pooled.

Eventually productivity dividend funds became mainstream. It became increasingly difficult to keep track of each individual’s employment history and it became difficult to determine what qualified any individual as having been employed. The system became simplified, and the funds were equally distributed to all adults. The people shared in the overall productivity increases. We learned to share the abundance.

Efficiencies emerged in unexpected places. The productivity dividend turned Parkinson’s law—the observation that work expands to fill the time available—upside down. Because people now share in productivity increases, many suggestions and innovations for simplifying and streamlining work were adopted.

Productivity increases can fund a universal basic income.

It was not long before some form of universal basic income became a typical feature of every good government. People’s needs are met, the people flourish, and we focus on what matters most. Poverty and crime rates decreased, as social justice improved. We recognize that machines should work so that people can live. Rather than fearing unemployment, we are happy to have fewer chores and we welcome the opportunity to spend our time creativity.

The people now own the productivity dividend, and it is good.

  1. This essay is adapted from the previously published essay Who owns the Productivity dividend? with permission from the author.
  2. I recognize this analysis neglects the purchase price of the Mark V machine, material costs, cost of sales, and other costs not related to manufacturing labor. Presenting this simple model as a thought experiment allows us to focus on alternatives for distributing the productivity dividend.
  3. See, for example Charles Edison Fund, Thomas Edison Quotes.