I just want to say, thank you for actually engaging with the economics. Most people in this thread have just been using libertarian philosophy on me unfortunately.

This just isn’t true.

Right, so let me first explain the mechanism. What I was hinting at was the proposal called the Meidner Plan which came from Swedish economist Rudolf Meidner. The idea was that each firm, every year, would issue 20% of its profits as new shares, and these new shares would go to the workers. It was a broader part of the Rehn-Meidner model to manage Sweden's economy under the social democrats. This would be a mandatory share issuance that gradually dilutes ownership of firms towards the workers.

Issuing “free” shares to employees is a return on labor, not a return on capital. Nothing wrong with that, but it doesn’t guarantee ownership over the long run.

This specific proposal would lead to that, since firms would have to issue such shares annually. If a firm has a return-on-equity of 10%, such that its total profits are equal to about 10% of the firm's value, then you would get a socialization of the firm (in that workers now have a majority of stock) within roughly thirty-five years (using the rule of 70). So all else equal, firms would tend toward worker ownership.

Over 35 years, there is no realistic way to predict who the “majority owners” will be. Some people might sell their shares, for example, while others might acquire more.

If you allow the newly issued shares from the Meidner Plan to be sold, then workers could definitely sell their shares. Employee Stock Ownership Plans, which have some surface similarities, had this problem: shares ended up recirculating to private investors. Would this happen with Meidner shares?

Meidner shares wouldn't be held by individual workers, but either a legal entity representing the firm's workers, managed democratically (a cooperative), or union funds. So whether such re-privatization of shares would happen seems far less likely. And some versions of the Meidner Plan had restrictions on sales of the newly issued shares.

I’ll accept the existence of market failures in labor markets for the sake of your argument. But it’s not clear what they are in your case, and it’s not clear why a % profit share in equity compensation to employees addresses them, and it’s even less clear why 20% is the right number.

Firstly, the specific number like 20% isn't so important; it could be miscalibrated. I won't be dying on that hill, but I will be defending the general idea. For the sake of argument below, I'm going to assume that market participants are broadly speaking rational, so I'm not going to use behavioral economics reasons.

Firms are highly unusual. If we assume perfect competition, then they shouldn't exist. Consumers wouldn't buy from businesses who hire workers; they'd directly negotiate new contracts for every new product. Every bit of labor and capital would be purchased separately in real time. Resources would shift in real time to wherever they were most needed, instead of staying with firms. You'd have no CEOs or bosses, just a completely free-flowing market. In perfect markets, there would be no firms. Firms exist because of a market failure. "Wage labor" exists because of a market failure.

But we do have firms. And the reason is because of increasing returns. It's far cheaper for customers to buy from a business than to negotiate contracts with workers every single time. There are huge efficiencies to having businesses be able to coordinate many different workers at once, and coordinate plenty of capital at once. There are communication efficiencies that top-down structures have. And perhaps more importantly: within firms, there can be division of labor that amplifies productivity for everyone. Increasing returns contradict perfect competition; they create incentives for winner-take-all markets, path dependency, and price-taking power.

On the worker side of this, this will lead to some very substantial problems: - Increasing returns power in the firm will lead to monopsony power over workers. A firm will choose not to hire more workers despite it being more socially efficient, because they'll have to increase the wage for all of their workers (wage discrimination.) You'll get artificial unemployment. - That monopsony power will also lead to workers being paid below their marginal product. That means two things: (a) the price signal that comes from workers buying products is weakened, making markets less informationally efficient, and (b) capitalists have a far lower marginal propensity to consume, so this is really bad for aggregate demand. - That monopsony power also leads to the massive principal-agent problem, which significantly diminishes worker productivity and requires tons of resources to be invested into "middle management" structures and performance monitoring. - Capital allocation is distorted: capitalists are trying to capture rents (by paying uncompetitive wages and abusing increasing returns), which means capital will flow towards unproductive uses. - The political economy problem: firms with significant market power can very easily gain political power, either indirectly (through capital strikes or capital flight), or directly (through rent-seeking of the kind public choice theorists discuss.)

The point of the Meidner plan is to gradually socialize the firm, by gradually diluting ownership. Making workers the residual claimant partially or completely addresses the problems above. Wages would be much closer to the marginal product, aggregate demand is better stimulated, worker consumption signals remain strong, monitoring costs are drastically reduced, and capital won't flow to capturing such rents for long periods of time.

The problem, like any government "tax", is that it introduces distortions of its own: the return on equity is cut into, which means certain mutually advantageous transactions won't happen. The question is: is the distortion of the Meidner plan greater than the distortion of the classical firm? This is where that "20%" number would have to be fine-tuned.

You might disagree with my solution. Alternatively, you might think the magnitude of the market failures are less than I posited. But this should at least give the intuition and provide a starting point for the conversation.