The Cooperativist Manifesto

CHAPTER 4: COOPERATIVE DISTRIBUTION OF RESIDUAL PROFITS

Each person who participates in the production of wealth should receive a fair share of such wealth. In order to distribute the wealth created by an enterprise equitably we must determine the roles of the participants in the economic venture. The capital owner does not have any automatic entitlement to residual profits. Gains arising from the productive process need to be allocated to contributors in accordance with their distinctive contributions of value.

It is frequently declared that "money makes money". We can infer from this truism that our existing economic system bestows lucrative rewards upon capital ownership. Why the marketplace treats capital generously is not always as evident as the fact that it does.

In the earlier sections of this book, it was demonstrated how traditional capitalist treaty allows everyone the right to appropriate collective benefits, referred to as infrastructure, without conceptually attributing the corresponding right to society to insist upon payment for such appropriation. Most people and businesses would agree that legal norms, macroeconomic policies, the environment and other elements of the "collective" strongly influence the profitability of commercial enterprises. Therefore, it is logical to view taxation as the entitlement of governments to compensation for the value of the contribution of infrastructure to the production of wealth.

Labour, capital and infrastructure are interdependent elements in the production process and, accordingly, each factor should be entitled to corresponding compensation for its economic contributions. The distribution of wealth in modern societies often distinguishes between ownership of the means of production and entitlement to the residual profits of the process of production. The term "residual profits" refers to the difference between the value of produced outputs and the value of the inputs used during the production process. Some capitalists argue that profit is little more than the excess wealth created by capital instruments. Despite its conceptual failings, this position has allowed capital owners to effectively usurp the role of claimant of residual profits. Capitalism rewards owners of capital assets.

Ownership is an inherent right of property. Entitlement to the residual profits of production is a matter of contractual agreement. The two roles - owner and residual claimant- can often be readily separated. Even though the distinction between the capital owner and the residual claimant may be difficult to determine in some instances, there is no conceptual basis for allowing capital owners to rightfully claim full entitlement to the residuals of economic exchanges. Indeed, if we accept that taxation represents a rough approximation of the contribution of infrastructure to the creation of income, then it makes sense to treat the remaining balance of the economic profits (or losses) of an enterprise as an entitlement due to labour (particularly entrepreneurial labour) and to capital.

Ownership of capital does not contribute, by itself, to the production process. Labour services can only be rented, not owned by an employer. The reality remains that labour constitutes an integral component of the wealth creation process, but the reward of residual gains is rarely bestowed upon labour. The increase in employee profit sharing plans in modern economies has pacified the injustice of capital hijacking the role of residual claimant for its own benefit. Economic justice requires that labour receive most or all of the residual profits of production.