Let’s cut right to the chase: the reality of being an employee is not actually what it’s made out to seem like. Even the inclusion of the idea itself into any business model is the application of shackles to the company’s accounting and financial reporting, their distribution of earnings, the labor contributions from and benefits given to the employee, and the flexibility of the company to adapt to future uncertainty. Since this painful reality afflicts about 90% of working people in the U.S.1, we present this section first with an alternative look at how people can contribute their labor in a business structured as a LOPSIII.
LOPSIII enterprises operate without the conventional form of employees, and instead are organized so that each person “working for” a LOPSIII is either a Member or a Manager. This structure both creates and requires increased responsibility from everyone. Many individuals may need to expand their knowledge of basic business mechanics in order to participate, but this is a reasonable measure considering the access to that elementary knowledge is free at the public library. Rather than in the typical case of the employee working and earning according to the distributed business preparations of the owner or employer (aka: “the script”,) LOPSIII Members’ relatively greater autonomy promotes continual learning and retains greater control over their financial earnings through their operational contributions. In other words, inside of a LOPSIII-structured enterprise, Members, Managers, and Owners all participate in a shared financial understanding of the business, the collective literacy of which benefits everyone with additional positive externalities.
This employee-less design feature of the LOPSIII structure serves several important purposes as an alternative to capitalism-as-usual. In capitalism-as-usual, a business budgets a fixed income for an employee, usually either through a set hourly wage or a set yearly salary. The employee never needs to understand anything about the internal cash flow dynamics of her earnings; neither her understanding, work, nor influence has any measurable effect on her earnings without a contractual update. As such, the employee is never compelled to build upon her financial literacy, and the business is obligated to pay out a fixed income for her labor regardless of the magnitude of her contribution to its earnings. Both parties are trapped in a fixed-payment system.
The business must pay the employee if it expects to retain her, but it is only obligated to pay her the agreed upon fixed rate, even if profits are booming due to her direct contribution (and she also does not receive less pay in thin times; most often, she’s simply fired). Thusly, the wage-paid employee is trapped in a positive feedback loop that reinforces economic self-subjugation by divorcing the employee’s real-time productive contributions to the firm from the employee’s real-time actual earnings. She gets what she’s given, which doesn’t accurately correlate to what she produces, and nothing more.
The good news is that there is no universal law that states that a firm must economically disenfranchise its employees, so let’s just say that there is a fair bit of wiggle room in terms of constructing ethical earnings agreements when trading human labor and intellect for productive employment. Human workers who help a business function without the fixed bloat of fixed wages allow the business to help those same human workers by providing returns that are truer (as in, variable and correlated to revenue/profits) to the business environment within which said returns were generated.
For example, in a LOPSIII business weathering tightened economic circumstances or whenever more liquidity is desired, the Members implicitly agree to accept a lower income so as to maintain the business’ sustainability, position, and/or opportunities. Yes, this means an increase in income volatility—LOPSIII Members’ earnings will likely vary each and every pay cycle due to the fact that a Member’s “income” is directly calculated off of the business’ profits. This allows for periods of lower-than-usual income when times are tough. All LOPSIII Members must fully comprehend the ramifications of this dynamic. Yes, this also means that LOPSIII Members must possess a slightly higher level of financial literacy. This is not an exorbitant demand, and there is no harm in establishing a sector of the economy with a reliably more-financially competent workforce. The significant increase in financial literacy acquired through continued experience in LOPSIII membership will empower LOPSIII Members to manage their personal financial circumstances and variable earnings with greater skill and less loss from poor financial decision making.
Removing the expense of payments to employee wages in pursuit of the LOPSIII profit sharing (PS) structure significantly reduces the overall operating expenses a business incurs during each reporting period. This reorganization of the accounting of wages increases the flexibility of a firm to make more sustainable decisions for continuing business’ operations. The collective Membership makes financial flexibility available by default in order to more smoothly adapt to dramatic disruptions to commercial circumstances, and, theoretically, make a business more antifragile.
Linking the LOPSIII Members’ financial benefits to the business’ operations introduces a more intelligent and responsible workforce. Again, we don’t seek to abolish capitalism-as-usual. The LOPSIII model is an additional method of engaging in commercial capitalism; it is a new species being introduced into the economic environment. For many, LOPSIII Membership will present incredible opportunities for them to improve their financial literacy, establish financial sustainability, and reduce irrational exuberance.2
From a grand, global view, capitalism-as-usual has accomplished phenomenal feats. Revel in the cosmopolitan society you see around you; see what it has built. But remember, it has also produced an apparatus that has been honed, sharpened and constantly refined over centuries to prioritize profits over all other things, even the life of the planet itself. In so doing, it has manufactured a global state of affairs wherein r > g3 and wealth distributes itself unevenly and with well-funded insurances. The world in which we currently exist is what wealth inequality looks like. The world today is what the success of capitalism-as-usual has bred. And remember, this was all by the capitalists’ design, because it certainly wasn’t selected by non-capitalists with no power.
The problem is not that capitalism-as-usual exists. Indeed, for most employees, capitalism-as-usual is the only option they have for income. Their only choice is the one that is designed to disadvantage and exploit them economically. Is this the ideal state of existence for a free and open market?
The undeniable technological progress that progressive society has attained is a testament to the transformative powers of capitalism-as-usual, and the fear of losing this rapid advancement is one underlying reason why the current system is so difficult to shed. Nevertheless, all of this progress was critically leveraged by the exploited human labor systems that made it possible. Capitalism-as-usual has historically devalued human labor through slavery, and now it does so through unlivable wages. Setting aside for a moment the effects of psychological price anchoring, the lack of consensus about what constitutes a minimum livable wage IS the gray area within which human exploitation thrives. Without other income-earning options, people are trapped as economic servants. The LOPSIII model offers another map, at least for those who believe learning and growing is important.
1 Data courtesy of the U.S. Bureau of Labor and Statistics. We estimate the 90% figure from a total workforce of about 150M less roughly 10% for those who are self-employed or only earn capital gains. A special thanks goes to COVID-19 for its contribution in making these numbers impossible to determine with greater accuracy.
2 Irrational Exuberance refers to the psychological effects among investors that contribute to irrational market behaviors, such as stock market bubbles. The term, borrowed from then-Fed Chair Alan Greenspan in 1996 when he was describing the ridiculousness of the 90’s dot-com bubble, has broad applications to current investor behavior and is thoroughly laid out in Robert J. Shiller‘s book Irrational Exuberance.
3 In the equation: r > g, r = the rate of return on capital (ie: investment gains), and g = the rate of growth in an economy (ie: GDP). This equation was introduced by Thomas Piketty in his extensive work Capital in the Twenty-First Century, and we strongly encourage the reader to consider the strength of the notion. If money grows faster than the economy, wealth inequality broadens. Of course, nobody knows the future for certain, but like the power of compounding interest, r > g has profound effects on the global behavior of capital flows.