The recent bailout of the financial industry and the debate swirling around the bailout of the auto industry raises a very interesting question about the meaning of risk in a market economy. One of the central tenets of competitive free markets is that investors are entitled to reap the rewards of their investments, and exorbitant ones too, because they assumed risk. Of course, the argument that because they understood that there was a risk means that they have no right to request governmental immunization from risk when those investments go sour is a very compelling one. After all, they can’t have it both ways. Lost in these debates, however, is the risk that workers assume when they simply take a job.

The current wage labor system assumes that workers receive wages, and perhaps other negotiated benefits, in exchange for their labor. Moreover, it is assumed that they are entitled to no more. That their labor contributed to the success — the profitability — of a firm might have a moral point, is generally taken to be no more. Let’s consider the automakers for a moment. Were it not for the efforts of workers, these companies would not be what they have become, their current need for a bailout notwithstanding. The human capital investment of workers has never been likened to the property rights that are enjoyed by the liquid capital investment of shareholders and investors. Many companies seeking bailouts have also been beneficiaries of community investment in the form of tax abatements intended to maintain plants. One of the most famous cases involving a public/private partnership between General Motors in the late 1970s and the City of Detroit is particularly instructive.

GM had made it known to public officials that they would open two new Cadillac plants and create 6000 new jobs in Detroit if the city would undertake to acquire the land, clear it through the laws of eminent domain, and prepare it for construction. GM specifically wanted to locate its new plants in the Poletown section of the city, an ethnic neighborhood, and GM was also expecting tax abatements. Public officials feeling compelled to create jobs jumped at the chance, secured funding from Michigan and the federal government, and in the end bulldozed an entire community in the name of a public/private partnership aimed at achieving growth, or in the case of Detroit basic economic revitalization. This, of course, raised the question of whether such partnerships were tantamount to contracts whereby the company owed the community more than job creation. This very issue came to a fore in a Michigan state court when the community of Ypsilanti sued GM for breach of contract following a restructuring plan that would close 21 plants in the U.S. and Canada, including in Ypsilanti. The state court initially held in favor of the community on the grounds that a contract of sorts existed, especially given that the community offered financial assistance. The Appellate court in Michigan did not recognize this new type of public/private partnership as akin to a binding contract, that it would effectively trump GM’s property rights to dispose of its property as it would see fit.

There appeared, however, to be another implication as well; that the workers made a human capital investment that perhaps was akin to a property right, and that the company would not be what it was were it not for that human capital investment. This only seemed to echo a case during the late 1970s when community groups in Youngstown, Ohio sought an injunction against U.S. Steel to remain open. Although the injunction was never granted, the remarks of then Federal Judge Lambrose were all too prescient. The free enterprise system, he observed, could no longer be viewed, “albeit we desire to view it, in terms of rugged individualism.” Rather as the system evolved, it only acquired “an interdependence, a greater interdependence than ever before.” Moreover, this interdependence was in many ways similar to the old feudalistic order in which the lord provided work for serfs and in exchange for their labor, the serfs were “take care of, provided for and given assurance, didn’t have to worry.” As steel was virtually the reason for Youngstown’s existence, the community had acquired a property right to the extent of “being permitted to preserve the institution of steel in that community.” (1) In other words, U.S. Steel would not have been what it was had it not been for the efforts of the workers and the community working together in order to achieve a common purpose.

The point of this tale is that the current structure and arrangements of the free market economy would appear to be insufficient given the new global realities. We live in an integrated economy where the decisions of some affect the livelihoods of many. Workers never assumed the type of risk that investors did; after all, they would only be out of their jobs. But as the poor investment decisions of the automakers illustrates, should the workers be made to suffer because of the decisions of their employers? If they are to assume that level of risk when they accept a job, should they not also reap some of the profits as well? In his classic An Inquiry into the Nature of The Wealth of Nations, Adam Smith observed that the wages of labor are higher for those engaged in unusually dirty work or in particularly dangerous work. Of course, Smith was referring to the type of work that nobody else would do precisely because it was dangerous. But in making this observation, Smith clearly alluded to the concept of risk; that the one who assumes risk is entitled to more. But given the changing nature of the economy, and particularly our evolving conceptions of what constitutes property, one wonders if it isn’t dangerous these days to accept a job, especially in the absence of knowledge about the financial health of, and decisions made by, that employer. Workers, in the end, are making a human capital investment and assuming a measure of risk.

This, of course, is not to say that bailouts should not occur when in the public interest, but that the public interest, especially when taking into account the social wage and other aspects of social responsibility, should be the criterion. During the 1930s, various public programs and public works projects, along with an array of regulations, were promulgated in order to immunize us for risk. Indeed, the precedent created meant that it would be easier for those in need, including corporations, to request assistance. But now it is time to go further. The workers contribution must be recognized as being integral to the growth of his/her company. While liquid capital investment and limited liability are still hallmarks of a free market economy, human capital investment is just as essential for companies to prosper. Ultimately that means that workers in what might emerge as a new form of capitalism will need to have a measure of voice. To trust in corporate leadership as we have for so long is really to assume too much risk, because they aren’t only gambling with their own fortunes, but the fortunes of others. The new capitalism cannot simply be the government as bank of last resort, but must ultimately entail a measure of economic democracy. That is, labor has to have a seat at the table, rather than being viewed as the problem.

1. Judge Lambrose quoted in Staughton Lynd, The Fight Against Shutdowns: Youngstown’s Steel Mill Closings (San Pedro, Singlejack Books, 1983), p. 164