A robust and relatively wealthy middle-class has long been a trademark of the United States. This is still the case, although in recent years we have seen the middle class, as well as the poorest of Americans, lose a portion of their share of the economic pie.
A recent New York Times study shows that America’s middle class has been surpassed in wealth by the middle class in Canada, and countries across Europe are close on our heels. From 1980 to 2010, the wealth of the middle class in America has grown at a slower rate than the middle classes in countries such as Norway, the Netherlands, Great Britain and several others. The U.S. continues to be one of the wealthiest countries as measured by GDP per capita, but as we continue to grow we see that the wealthy enjoy an ever-increasing portion of all resources.
However, “enjoy” may not be the right word for this trend. Joseph Blasi, a professor at Rutgers University, recently penned an article for Time in which he explains that many of the wealthiest businessmen see the increasing concentration of wealth at the top of the pyramid as a threat to the economic stability of the country and thus for the businesses they own and run.
Bill Gross, founder of PIMCO, recently discussed the issue in his op-ed in USA Today titled “Economic Inequality Threatens Capitalism.” Gross, a billionaire, mentions several statistics, which illustrate the current imbalance in our economy. After-tax corporate profits are at record levels equaling 10 percent of GDP, “even exceeding levels in the Roaring Twenties.” Additionally, American wages make up 42.5 percent of GDP, down from 57.4 percent in 1970.
Adding his voice to that of Gross, Nick Hanauer, the first nonfamily investor in amazon.com and founder of an Internet company that was sold to Microsoft for $6.4 billion, went so far as to categorize our society as rapidly becoming “less a capitalist society and a more feudal society.” He goes on to comment that no society can sustain the rising income inequality, which he predicts will only continue to grow.
Other outspoken critics of the current disparity include Bill Gates, Warren Buffet and others. These are the very people who stand to financially benefit, at least in the short term, from the middle class losing their share of the wealth. The topic of inequality is an issue yet to be dealt with, and it is evident that our current economic system is not self-correcting for the growing trend.
So what should we do to help everyone outside of the 1 percent of wealthiest Americans recapture their share of wealth while continually growing the overall size of the economic pie?
A proven method for increasing wealth is to grant a clear path to employee ownership in successful companies. Ownership can come in various forms, including restricted stock, stock options, ESOPs (Employee Stock Ownership Plans) and profit-sharing.
Professor Blasi, as well as Hanauer, remind us of the profit-sharing model used by Henry Ford to distribute a portion of the profits of Ford Motor Company to employees at every level of the organization. Ford used this model together with higher than average wages to build a strong, stable, empowered and loyal workforce. Ford remembered that his employees could also be his customers if they could reasonably afford his Model-T.
Although not every employee will purchase the goods or services provided by his or her employer, it is important for business owners to remember that as the financial health of the 99 percent improves, their purchasing power will also go up. Therefore, providing opportunities for financial upward mobility for employees and moving toward more income equality may be a good way to improve the bottom line.
John Hoffmire is director of the Impact Bond Fund at Saïd Business School at Oxford University and directs the Center on Business and Poverty at the Wisconsin School of Business at UW-Madison. He runsProgress Through Business, a nonprofit group promoting economic development. Adam Turville, Hoffmire’s colleague at Progress Through Business, did the research for this article.