Tuesday, March 08, 2005

Worse than I thought

In my post supporting the CTU's 5% in '05 campaign, I noted that the wage share of the economy had dropped, from 55% in the early 90's, to 50% now. It's actually far worse than I thought. According to Bernard Hickey's opinion piece in the Domion-Post on saturday, in 2004 wages made up only 43% of gross national income. And the difference has gone straight into corporate profits, which are now up to 44.5% of GNI. This is a massive transfer of wealth from the pockets of workers into the pockets of shareholders - and one that workers have every right to be upset about. In fact, what's surprising is that they haven't got upset about it earlier...

In the same column, Hickey suggests two solutions, one from the left and one from the right. The first is for the government to engage in greater redistribution through the tax system, by hiking the corporate tax rate to 35%. Looking at how much ordinary working New Zealanders have lost, that would seem to be justified. Hickey's second suggestion is for the government to encourage an ownership society by publically floating the state-owned energy companies. But this doesn't encourage an "ownership society" - it encourages an owned society, and one owned by exactly the same people who own most of it now. At the moment, those assets return money to the government, which uses it on behalf of the taxpayer. Hickey's suggestion would simply result in a greater transfer of wealth to the already-wealthy, via the power bills of the poor (it's no accident that he is suggesting privatising monopolies).

But it doesn't have to be that way. If privatising state assets is the way to create an ownership society, then there's an obvious way to ensure that that ownership is widely distributed, rather than simply being confined to the currently wealthy: distribute the stock equally to all New Zealanders. But strangely, that's not something the right seems keen on. I wonder why?


being a shareholder could be considered a job in theory (an intelectual job involving the allocation of funding rather like a bank manager) - besides many average workers are shareholders.
In addition self employment is presumably a preferable situation to employment by wages (all else being equal)for the worker and less favourable from the perspective of the evil corporate empire.
I sugest if you have a problem it would be the distribution of wealth and posibly a shift to larger companies which could be delt with by high top tax rate and a zero bottom tax rate (am I sounding socialist here?). Presumably one should set ones tax rate in order to have a stable income distribution because one presumbly should have a position on an optimal distribution (provides incentives without causing suffering) and if so then one should try to maintain that position once it is achieved if it is growing it implies your tax system is wrong or you are in period of adjsutment. But I dont see much reason for that to be a corporate tax rate rise since I dont see why you want to tax a worker with a small share in their own business as opposed to a CEO with a massive "wage".

As to hickeys other suggestion I agree it doesnt make sense. it would make the difference ever so slightly greater.

> distribute the stock equally to all New Zealanders.

wouldn't that cause some sort of instantanious inflation when half the people sold their shares? rather like an inefficient way of floating the company and handing out a hundred dollar note to everyone.

Posted by Genius : 3/08/2005 09:52:00 PM

I would question what the point is of giving everybody 20 Air NZ shares, or 20 Vector shares, or 20 NZ Post shares. Trading them (i.e. selling) incurs transaction costs that may be higher than their market value, but which, naturally, would not be opposed by sharebrokers salivating at the commissions. (And selling them immediately all at the same time may cause their price to collapse!)
Why not sell the companies to the market entirely and use the proceeds to allocate everybody a trust fund (for superannuation, for instance, or for education) invested in the market here and overseas and with a mixture of shares, bonds, cash, according to your personal investor profile, i.e. cautious when you're nearing retirement, a bit more aggressive when you're young.
The government should definitely ensure that it doesn't sell any monopolies by creating a level playing field for new entrants, unlike the sale of Telecom and others that just ensured a massive transfer of profits to private monopoly shareholders and with restrictions on new entrants. It's no surprise a larger slice of GNP is going to shareholders and higher income earners: prices had to go up constantly to satisfy dividend demands.

Posted by Hans Versluys : 3/09/2005 10:32:00 AM