James Meade's Proposals for Labor–Capital Partnership

Discussion

Cui Zhiyuan:

"In Meade’s design, outside shareholders own capital share certificates and inside workers own labor share certificates. The operational mechanism of the program is roughly as follows:

• the Labour–Capital Partnership, whereby the workers and those who provide

risk capital jointly manage the concern as partners. The capitalists own Capital Shares in the business, which are comparable to Ordinary Shares in a Capitalist Company. The worker partners own Labour Shares in the partnership; these Labour Shares are entitled to the same rate of dividend as the Capital Shares, but they are attached to each individual worker partner and are cancelled when he or she leaves the partnership. If any part of the partnership’s income is not distributed in dividends but is used to develop the business, new Capital Shares, equal in value to their sacrificed dividends, are issued to all existing holders of Labour as well as of Capital Shares. These partnership arrangements greatly reduce the areas of conflict of interest between workers and capitalists, since any decision which will improve the situation of one group by raising the rate of dividend on its shares will automatically raise the rate of dividend on the shares of the other group. (Meade 1993, 85–86)

In addition to this benefit of aligning interests of outside shareholders and insider workers, Meade’s labor–capital partnership has an added main advantage of introducing flexibility into the labor market. The current social democracy in the Western European style suffers from a major problem: the high wage of workers on the job is maintained at the cost of rigidity of the labor market, thus implying an inefficient reduction of output and a level of employment below the potential full employment. When the labour–capital partnership uses a labor share certificate to replace a fixed wage arrangement, a degree of flexibility is introduced into the labor market which is formerly characterized by downward rigidity of wages.

It is important for the “progressive” forces in China and other post-communist countries not to imitate social-democratic policies pursued in Western Europe.

There, the social-democratic parties had long lost their radical inspiration. Instead of challenging and reforming the institutions of the existing forms of market economy and representative democracy, the social-democratic program merely seeks to moderate the social consequences of structural divisions and hierarchies. We need more radical institutional innovations like the labor–capital partnership to make up for the deficiencies of conventional social-democratic policies. The flexibility in the labor market is just one case which illustrates this general point."

• Essay/Chapter: Liberal socialism and the future of China. A petty bourgeoisie manifesto. Cui Zhiyuan. Chapter 9 of: The Chinese Model of Modern Development. Edited by Tian Yu Cao. [1]