The left-wing leader of the UK Labour Party has set out a pair of proposed reguations for British limited liability corporations that will challenge their ability to sponge off the tax-payer and enrich themselves and their shareholders in so doing.
Limited liability corporations are creatures of government, a bargain in which the state agrees to immunize the company's owners from the company's debts — regardless of its wrongdoing — in exchange for the company's adherence to various regulations.
Corbyn's new policies challenge that in two modest, but important ways. First, any company that didn't pay its employees a living wage would be prohibited from dispersing payments to its shareholders in the form of dividends. A company that relies on a workforce that isn't paid enough to live on is effectively relying on a state subsidy, because those employees will inevitably end up bridging their economic gap through welfare programs of some kind (Walmart is a poster child for this practice, as is McDonald's — whose HR department offers advice to employees on how to sign on for benefits to keep from starving while working in its restaurants).
Corbyn's no-dividends policy effectively bans companies from declaring a profit that is attained through a direct public subsidy to its workforce. If you can't afford to pay your workers enough to live on, you can't afford to pay dividends.
In addition, Corbyn has proposed a cap on the multiple between a limited liability company's highest-paid, and average-paid employees. The UK has the second-most unequal economy in the G7 (after the USA). In 1998, the gap between the CEO's pay and the average wage in the FTSE 100 was 47:1; today it is 150:1.
Companies would not have to obey these regulations, of course, if they opted not to form as limited liability firms. Their owners could simply assume all the risk for their commercial activity, without the public subsidy of limited liability, and run their companies as they please. But under Corbyn's proposal, companies that wanted the state to give them the privilege of limited liability would bear the responsibility of paying living wages and helping to fight income inequality.
"Another proposal would be to bar or restrict companies from distributing dividends until they pay all their workers the living wage. Only profitable employers will be paying dividends, if they depend on cheap labour for those profits then I think there is a question over whether that is a business model to which we should be turning a blind eye."
Jeremy Corbyn to confront big business over living wage
[Rowena Mason/The Guardian]