After I posted recently about the new book, Climate Shock, by Gernot Wagner and Martin Weitzman, Frank Koller (author of the excellent book Spark: How Old-Fashioned Values Drive a 21st Century Corporation about Lincoln Electric) alerted me to an earlier (1986) book by Martin Weitzman, The Share Economy. This argues for linking wages to the success of the business – profit sharing. Frank wrote to me that recovering from prolonged slow growth: “[I]s only possible in an environment where employees can trust that over the long term, as they share with management in the firm’s ups and downs, everyone will bear the risk and rewards equally. That kind of trust is pretty rare, of course. It’s at the heart of the system I explored in my book about Lincoln Electric and others with no layoff policies.”
Climate Shock: The Economic Consequences of a Hotter Planet Spark: How Old-Fashioned Values Drive a Twenty-First-Century Corporation: Lessons from Lincoln Electric’s U The Share Economy : Conquering Stagflation / Martin L. Weitzman
Many others have noted that this was of course Henry Ford’s great insight when he doubled the pay of (some of) his workforce – although he had to battle a lawsuit from his minority shareholder Dodge, as they argued it was damaging to shareholders’ interests to pay workers more and invest more in the business. (Ford lost the case, but bought them out.)
It’s interesting in political economy terms that profit sharing is so rare, despite the reasonable amount of economic evidence that it does increase productivity and profitability. The one UK example always given is John Lewis, a hugely successful business, but I can’t think of any others of large scale. Does anybody have an explanation other than short-sighted greed?