The puzzle of profit sharing (not)

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.”

   

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?

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Rewriting the economics textbooks

This week I received a notification of a new economics textbook, What Every Economics Student Needs to Know (and doesn’t get in the usual principles text) by John Komlos. There’s no table of contents available online but the website lists topics such as behavioural economics, signaling, regulatory capture. All good stuff, although plenty of the material on the list is available in other textbooks.

Clearly the timetable of the academic writing and publishing world is delivering a batch of post-crisis texts. Recently I reviewed here Macroeconomics: Institutions, Instability and the Financial System by Wendy Carlin and David Soskice. Wendy is also the co-ordinator of the free online textbook from the CORE project. I have also looked at the two very good texts from Peter Dorman, Macroeconomics and Microeconomics.

   

No doubt there will be more soon as this is a good market to have a share in. I do note that while most of the Amazon reviews of John Komlos’s new book are five star, one points out that the standard Mankiw textbook covers all the same ground but in a less tendentious tone (albeit at a steep £50 for the new edition).

Coincidentally, this morning I saw someone on the Tube utterly absorbed in the standard text Economics by John Sloman and Alison Wride.

 

Shock tactics

Climate Shock: the economic consequences of a hotter planet by Gernot Wagner and Martin Weitzman is an impressive (and concise) book. It recognises that it’s a minority view that governments need to take significant steps now to reduce GHG emissions, as even people who are not climate change denialists would rather not have to bother with doing all that much about it. So the book aims to do two things: explain clearly the risks of the economic (and social) impacts if climate change is as bad as all the scientists expect; and persuade people that insurance against those risks is quite a good idea.

It’s actually a very sobering read. A one in ten chance of “catastrophic” sea level rise, anyone. And as the authors point out, “What we know is bad, what we don’t know is worse.” Having said that, the book tries to end on an upbeat note. We can make personal changes such as cycling more or recycling more. Better still, we have power as consumers and citizens to get businesses to do an environmental audit of their supply chains and start to de-carbonise them, and to get governments to take bolder decisions: yes, the price of energy will have to rise, to incentivise “green” technological innovation. Those of us who live in democracies will get what we deserve, so if you care, campaign and debate, the book says. It sums up the advised actions as : scream, cope and profit. Make sure businesses you buy from and politicians you might vote for know your views. Don’t build your house on a flood plain or by the ocean. And invest in businesses and innovations tackling the problem because it will prove financially beneficial.

Chapters in the book look at economic aspects of the problem of reducing emissions, including free riding, and co-ordination issues. It discuses financial aspects of changing energy technologies, and prospects of innovations such as geoengineering. Above all, the book explains the risks and the range of potential impacts associated with them. It gives very clear explanations of the economic issues – very useful for students as well as general readers.

The sense of urgency is palpable in the writing: “The debate around whether to act should be over. To some extent even the debate around how to act is over. … The ultimate goal is clear: for governments to set a mandatory price on carbon pollution. … Dare we say that anyone who pretends otherwise is wilfully blind?” There are those wilfully blind people around, of course. And hence the book goes on to what the clearer-minded people can do about insuring against the consequences of the risks posed by climate change. So now you know.

Too many enticing books

A round-up from the reviews this weekend, of books that appeal.

I have a review copy of Will Hutton’s How Good Can We Be? It came with firm instructions not to break the 12 Feb embargo, but it was reviewed in the FT this weekend, so I’ll read & review it soon. Also in the FT were reviews of the fabulous-sounding Stuff and Money in the Time of the French Revolution by Rebecca Spang and also Ghettoside: A True Story of Murder in America by Jill Leovy.

   

On which subject, the new (to the UK) book by Bryan Stevenson, Just Mercy, sounds from the profile of Stevenson in The Observer to be essential. There is an extract here. My eyes were first opened to this issue by a long Adam Gopnik essay in the New Yorker in 2012. But even that clear-eyed view underplays the racism of the American police and ‘justice’ system.

There have been a few reviews now – including this by John Naughton – of Andrew Keen’s The Internet Is Not the Answer, and I mustn’t let reading those be an excuse for not reading the book.

I’ve just ordered for my wannabe graphic artist son The Sculptor by Scott McCloud.

Listening to the radio, the hard way

I’m thoroughly enjoying Armchair Nation: an intimate history of Britain in front of the TV by Joe Moran, having picked up the paperback in the Blackwells at the University of Manchester. It’s an excellent social history of my life and times, and a reminder about the way shared cultural experience has shaped the nation.

There are lots of nuggets I could pick out, but I liked this one on TV masts:

“For a brief period the television mast was part of the industrial sublime, that awkward British genre that has emerged at various historical moments to get excited about railway bridges or electricity pylons. These high-guyed steel lattice masts… were like modern day cathedral spires, their sight and even their names evoking provincial pride and signalling the arrival of modernity.”

We certainly spoke of our local mast, Winter Hill, when I was growing up in the valleys of Lancashire, and it still has a romantic, evocative sound to my ears.

One of my best site visits as a BBC Trustee was a trip to the long wave mast at Droitwich near Birmingham (more here). There was something mysterious about being pointed to a cable and told, ‘That one’s carrying Radio 4,’ or putting one’s ear to the bars of the steel gate surrounding the transmitter and being able to hear The Archers. But then, I get excited about railway bridges, pylons, chimneys and mills as well. Sublime indeed.

Me listening to The Archers, the hard way

Me listening to The Archers, the hard way

A long wave valve - high tech of the post-war years

A long wave valve – high tech of the post-war years

Sheep grazing among the guy cables