Seizing The Means of Production: Capitalist Style
Can workers can take a share of company profits without a revolution in company structure?
The phrase “seize the means of production” is obviously synonymous with Karl Marx and communism in general, but it’s now often used as a mocking detractor of the left by those on the right who want to make the idea seem crazy. It may seem surprising then, that the premise and intent around this theory is one that companies already use on a smaller scale, and that should organised action take place, it would not be entirely impossible to “seize the means of production” entirely within our current system and without a hint of revolt.
Firstly, you have to understand how shares work. If you’re in possession of a share of a company — sometimes referred to as a “stock” — then you are essentially in possession of a portion of that company. The proportion of that possession is the number of shares you currently hold, divided by the number of shares the company has issues. Things can be complicated a little more by the proportions of shares available on the market as well as voting rights and share classes, but that’s a basic explanation.
When you own a share with voting rights, you are given a vote in company board elections, mergers and acquisitions, executive compensation, and other administrative issues. You could either cast that vote personally at the companies meetings, or you can assign a proxy voting group to represent you, along with numerous other shareholders. One such group for example, is the ISS (Institutional Shareholder Services), who represent shareholders best interests at a number of large companies and hold significant sway in the results of company votes.
Keeping all this in mind, lets take a look at a large publicly owned company. McDonald’s Corporation has 763.49 million shares issued from the company at a value of $194.91 each. According to Indeed.com figures, the average US McDonald's Crew Member makes $17,721/year. We will make the assumption for simplification that all of McDonald’s 210,000 employees make this amount. This neglects localised pay, margin of error on self-reported pay scales, and regional differences in job type distribution, but its the closest we can get to workable numbers for this example. If every employee took 5% of their pay ($886) and invested it in McDonald’s shares, the workforce would invest a total of $186 million in the company every year, or just under 1 million shares, making up 0.125% of the outstanding shares.
This may seem like an impossible small scratch on the surface of McDonald’s corporate influence. Given that the company has a market capitalisation of $148 billion, you’d need financially equivalent to almost double the US federal education budget. But what’s important is that each of these shares represents a vote and a share in the corporations profits. At the time of writing, McDonald’s Corporation has an annual dividend of $4.64/share. This means that each year, in our hypothetical employee investment scenario, workers would not only be tying up $886 in capital every year, but securing $21.09 in a yearly bonus as a proportion of profits, either straight into their wallet or reinvested in more shares in the company.
All this compounds, while McDonald’s is popular among part-time short-term workers, this principle works better in companies favouring long-term employment, but imagine how this principle works over time. In your first year you secured a $21.09 yearly bonus and around 4 voting shares in the company, but on the grand scale, workers secured 0.125% of the shares. The next year a $42.18 bonus and 0.25% of the shares, then $63.27 bonus and 0.375% of the shares and so on and so on…
This would translate to $632.80 in yearly dividend payments from McDonald’s that would keep coming into your account until you sold your shares or died, at which point, unlike an annuity or pension, they could be inherited.
The point of all this is that at the end of a 30-year career, you’d be in possession of 136 McDonald’s shares, assuming a very two dimensional world where share price only moved with inflation and you received no raise throughout your career.
You may see $632.80 in yearly dividends as a pittance at the end of a 30-year career, but bear in mind that’s assuming the company never prospers beyond it’s current point, and I think that the psychological impact of the entire workforce receiving a share of the companies profits could have an immense effect.
If you think the dividend size is far too small to impact the behaviour of employees, consider cashback credit cards. Thrifty shoppers have flocked to cashback credit cards which reward shoppers for using their credit cards as well as shopping at certain partner stores. At their very best, cashback credit cards can pay you around 5% of your purchase value annually, that means $50 for every $1,000 of credit purchases. Considering this 5% is enough to sway consumer habits, the McDonald’s dividend of 2.44% of the investment price isn’t completely outside of this ballpark, and the numbers become infinitely more attractive when your consider after all that you still own the stock.
Ultimately, through this process it would take a long time until a proxy organisation representing McDonald’s employees had controlling interest in the company as a whole. You would also begin to encounter a liquidity problem. As McDonald’s employees bought up shares, supply and demand would shift such that the share price grew. While this would be a very gradual effect taking place over a long time, the rise in share value from original purchase could instigate selling by long-time share holders or those not wishing to pass on their shares through inheritance. This could in turn lead to a decrease in price as the initial investors/workers reach the end of their career, which could lead the second-wave of workers to see the value of their investments fall and subsequently cause distrust in this system on the whole, causing it to fail before it reaches the ultimate goal.
The other danger is that through this system, the market of McDonald’s shares because far to derivative from the actual value of the company. If a massive number of investors are buying in not because of confidence in the company’s future earnings, but in the hopes of gaining a controlling interest, prices could be inflated far beyond fair price and be ripe for a massive downfall if investor confidence wavers for even a moment.
Positions within the proxy group could also become a derivative of the McDonald’s board. If such a group were to eventually find itself in possession of a controlling interest (over 50% of the shares), then positions in the group could become just as, if not more, sought after than a position on the McDonald’s board. This could lead employees into a situation that feels like nothing has changed. Political power structures in the upper echelon of the proxy group’s governance while they put in the hard work, except this time they’re paying for the privilege.
While all this seems bleak in the frame of McDonald’s, it’s important to consider how this would look in the context of an early stage startup. With a significantly lower price target for controlling interest in the company, employees could see the success of their company reflected in their investment returns for decades to come should the business take off. The vital thing to remember is that Wall Street isn’t the only place in town for taking a cut of a company’s earnings. While the fat cats will inevitably take the bulk of it, buying into the success of your company is easy if it happens to be publicly listed, the earlier you do it the better the results.
