The Cooperativist Manifesto

CHAPTER 8: ECONOMIC JUSTICE AND THE NEED FOR FINANCE AND TAX REFORMS

The State has a positive duty to its citizens to promote capital acquisition by poor individuals and households. The State should encourage acquisition of new capital through the promotion of alternative financing arrangements. The State should also take steps to ensure that all increases in wealth, whether in the form of wages, dividends or realized appreciations of capital, are taxed in a uniform and neutral manner.

The Capitalist Manifesto argued that broad ownership of capital was an essential requirement for the operation and success of capital markets. The State has an obligation to its citizens to foster an efficient economic environment. Capital resources are a necessary and fundamentally important aspect of an effective market economy. However, the concentration of capital adversely affects the operation of markets by placing downward pressure on the purchasing power of the masses. It follows that aggregate benefits to society increase in accordance with improved returns to capital as long as there is broad ownership of capital instruments.

Economic justice is predicated on the notion that labour receive an equitable return for its contribution to the production of wealth. Every person has proprietorship in his or her own labour. By allowing workers to receive a share of the residual profits of a commercial enterprise, society is promoting broad ownership of productive economic resources.

Many workers lack the financial means to make any significant contribution to the productive process. Asset-based financing, as conventionally practiced, is one of the most significant barriers to the fresh participation of individuals and households in the creation of wealth. As technological changes affect the production process itself, it will become essential for non-asset-based financing to be utilized in order to diffuse capital formation. Laws and norms that encourage cooperatives and other profit sharing arrangements with labour will lead to greater economic productivity. Markets will adapt dynamically to rules that encourage broad ownership of productive resources.

Taxation represents an important tool for improving the financial independence of workers. Empirical evidence demonstrates that tax rules were primarily responsible for the widespread development of hugely successful Employee Share Ownership Plans (ESOPs) in the United States. When properly designed and used, ESOPs represent a capital credit device that permits a company to finance its own growth and asset acquisition while also enabling the company's employees to become stockholders. ESOPs permit workers to become owners of capital instruments by pledging their newly acquired capital as security for future payment.

Economic justice also requires that the tax system not discriminate in its taxation of workers who receive a share of productive wealth in addition to wages. Most societies allow enterprises to fully deduct the costs of wages paid to labour. The distribution of the residual profits of a commercial enterprise should be deductible in a similar manner. Labour's unique contribution to the production process must be encouraged by providing full deductibility of dividends, employee compensation payments, and other financial distributions to workers.