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Profit Sharing Now

Recent proposals to grant workers equity in the economy have been met with skepticism by those who fear that radical intervention in the market inevitably paves the road to serfdom. But profit-sharing schemes, if designed properly, could be an ideal response to today's dangerously high levels of inequality.

NEW YORK – At the British Labour Party’s annual conference in Liverpool this month, the shadow chancellor of the exchequer, John McDonnell, proposed a profit-sharing scheme that would grant workers equity in the firms where they are employed. McDonnell raised this idea in what was decidedly a political speech; and policy experts and economists have reacted skeptically. While a poorly executed profit-sharing program could do serious damage, that is no reason to reject the idea altogether. It is in fact a good sign that the idea is being publicly defended by a political leader.

Many mainstream economists, from Martin Weitzman and Richard B. Freeman to Joseph E. Stiglitz, Debraj Ray, and Kalle Moene have proposed variants of the concept. And with many advanced economies at a critical juncture, with unconscionable levels of inequality threatening to shred the very fabric of democratic politics, “equity for the poor” is an economic principle whose time has come.

As this month marks the tenth anniversary of the collapse of Lehman Brothers, it may help to go back a decade and pick up the story from there. The post-2008 Great Recession affected all sections of society, including the rich. In fact, it was a rare period when the number of millionaires in the world actually declined. But fret not for the wealthy. They have recovered well: whereas the world’s richest 1% of households owned 42.5% of all wealth in 2008, they own 50.1% today.

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