Wage-earners' investment funds : theory, simulation and policy

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E U R O P E A N U N I V E R S I T Y I N S T I T U T E , F L O R E N C E DEPARTMENT O F ECONOMICS

EUI WO R K I N G PAPER No. 86/225 x ' •

WAGE-EARNERS’ INVESTMENT FUNDS:

* University o f Edinburgh.

This paper was prepared while the author was visiting the European University Institute, to work on the project “The Effects o f Workers’ Participation Schemes in Western Europe”.

Donald AR. George

BADIA FIESOIANA, SAN DOMENICO (F I )

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permission of the author.

(C) Donald A.R. George Printed in Italy in June 1986 European University Institute

Badia Fiesolana - 50016 San Domenico (Fi) -

Italy © The Author(s). European University Institute. Digitised version produced by the EUI Library in 2020. Available Open Access on Cadmus, European University Institute Research Repository.

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1

.

I n t r o d u c t i o n

A wage-ea r n e r s ' i n vestment fund is a f o r m of

c o l l e c t i v e o w n e r s h i p of capital w h i c h r a i s e s income f r o m t a x a t i o n and uses it to a c q u i r e sha r e s on b e h a l f of wa g e - earners. Such funds have been d i s c u s s e d in W e s t e r n Eur o p e d u r i n g the 1970's and 1980 ' s (Denmark (1973, 1979), W e s t G e r m a n y (1974), H o l l a n d (1976), S w e d e n (1974, 1983), U n i t e d K i n g d o m (1974)). The S w e d i s h 1983 p l a n was i m p l e m e n t e d in Decem b e r 1983.

For a d i s c u s s i o n of the v a r i o u s i n s t i t u t i o n a l a r r a n g e me n t s see G e o r g e ( 1 9 8 5 b ) . The t h e o r y of s u c h funds is d i s c u s s e d in Geo r g e (1985a), B r e m s (1975a,b,c) and K r i s t o f f e r s o n (1981) wh i l e M e i d n e r (1978) p r o v i d e s an e x c e l l e n t a c c o u n t of the S w e d i s h d e b a t e u p to 1975.

D i s c u s s i o n s of w a ge-earners' i n v e s t m e n t funds have n o r m a l l y b e e n sti m u l a t e d by the p r o b l e m s of e n s u r i n g e f f i c i e n t c a p i t a l a c c u m u l a t i o n in h i g h l y u n i o n i s e d e c o n o m i e s o p e r a t i n g near f u l l - e m p l o y m e n t . In such an e c o n o m y w a g e - p r e s s u r e can d a m a g e p r o f i t a b i l i t y a n d he n c e accumulation,or can be i n f l a t i o n a r y , o r both. D e f l a t i o n a r y p o l i c i e s are h i g h l y cost l y in t e r m s of lost o u t p u t and "unio n - b u s t i n g " p o l icies are l i k e l y to be u n w o r k a b l e in p r a c t i c e and u n a c c e p t a b l e in p r i n c i p l e . U n i o n s m a y p e r c e i v e the n e e d for w a g e - r e s t r a i n t but a r g u e t h a t the b e n e f i t s of such r e s t r a i n t should accrue, at l e a s t p a r t i a l l y to t h e m a n d n o t solely to owners of c a p i t a l . Wage-ea r n e r s ' i n v e s t m e n t funds provide a me a n s by w h i c h u n i o n w a g e - r e s t r a i n t can g e n erate an i n c r e a s e d m e a s u r e of w o r k e r © The Author(s). European University Institute. Digitised version produced by the EUI Library in 2020. Available Open Access on Cadmus, European University Institute Research Repository.

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influence over the a c c u m u l a t i o n process, as a q u i d pro quo for that restraint.

Such i n f luence m a y well lead to i n c r e a s i n g wor k e r influence on the p r o d u c t i o n p r o c e s s itself. This could take the form of c o d e t e r m i n a t i o n w i t h i n o t h e r w i s e

conven t i o n a l firms or of the d i r e c t i o n of resourcestowards p a rticipatory firms such as workers' coopera t i v e s . It is a theme of the lit e r a t u r e that a c c u m u l a t i o n in self- m a n a g e d firms should be e x t e r n a l l y f i n a n c e d (see e.g. Vanek (1975)) and succ e s s f u l s e l f - m a n a g e d systems, such as the M o n d r a g o n c o o p e r a t i v e s in Spain, t y p i c a l l y do have an external funding agency. (In M o n d r a g o n it is a bank, the Caja L a b oral Popular.) For a d i s c u s s i o n of the

relevance of wage-earners' funds to B r i t i s h econo m i c policy see George ( 1 9 8 5 b ) .

W a g e - e a r n e r s 'i n v e s t m e n t funds t h e n p r o v i d e a form of c o l lective c a p ital o w n e r s h i p in a d d i t i o n to o r t hodox nationalisation. Such a fund m a y p r o v i d e a me a n s to extend and develop a 's e l f - m a n a g e d ' s e c t o r w i t h i n the economy and to p r o m o t e w o r k e r - p a r t i c i p a t i o n w i t h i n conventional enterprises.

The k i n d of fund a n a l y s e d in this p a p e r is the kind d e s cribed in the D a n i s h 1973 p r o p o s a l (Danish Gove r n m e n t

(1973)). This p r o posal form e d the basis of the scheme suggested for the U.K. in the L a b o u r Party's report "Capital and Equality" p u b l i s h e d in 1974

(Labour Party (1974)). U n d e r the D a n i s h 1973 proposal, the fund co n t r i b u t i o n s are d e r i v e d f r o m a tax on the wage

2 © The Author(s). European University Institute. Digitised version produced by the EUI Library in 2020. Available Open Access on Cadmus, European University Institute Research Repository.

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bill. It is levied at a rate a(t) (the c o n t r i b u t i o n fraction) in y e a r t, w i t h a(t) r i s i n g l i n e a r l y in the first T yea r s of the fund's life and t h e r e a f t e r r e m a i n i n g

constant. Indiv i d u a l s w o u l d hold n o n - n e g o t i a b l e fund c e r t i f i c a t e s w h i c h could be r e d e e m e d a f t e r a m i n i m u m p e r i o d of T years (the r e d e m p t i o n period) at t h e i r fu l l y a c c u m u l a t e d value. In the D a n i s h 1973 p r o p o s a l the c o n t r i b u t i o n f r a c t i o n rose by }% p e r y e a r to r e a c h a m a x i m u m of 5% after ten years, t h e r e a f t e r r e m a i n i n g constant. The r e d e m p t i o n p e r i o d w a s s e v e n years. Of cour s e wage-earners' w o u l d be free to c o n t i n u e h o l d i n g the i r c e r t i f i c a t e s b e y o n d the r e d e m p t i o n p e r i o d and c o n t i n u e e a r n i n g the go i n g rate of return. T h r o u g h o u t this pa p e r however, it will be a s s u m e d t h a t all r e d e m p t i o n s are m a d e as soon as possible.

H o w successful a wage-ea r n e r s ' i n v e s t m e n t f u n d w i l l be in a c h i e v i n g its p o l i c y o b j e c t i v e s w i l l d e p e n d , in t e r alia, on h o w m u c h of the c a p ital stock it owns. T h i s p a p e r p r o v i d e s an a n a lysis of this q u e s t i o n b a s e d on s i m u l a t i o n methods. It also a n a lyses the e f f e c t s of v a r y i n g the two key p o l i c y parameters, a (the c o n t r i b u t i o n fraction) and T (the r e d e m p t i o n p e r i o d ) .

2: A Simp l e Gro w t h Model

The u n d e r l y i n g theory of this p a p e r is b a s e d on G e o r g e ( 1 9 8 5 a ) . It involves a simple P a s i n e t t i - t y p e m o d e l (Pasinetti 1962, 1974) of c a p i t a l a c c u m u l a t i o n and growth. The model refle c t s a w o r l d in w h i c h a d e q u a t e i n v e s t m e n t is u n d e r t a k e n to fully e m p l o y a l a b o u r force 3 © The Author(s). European University Institute. Digitised version produced by the EUI Library in 2020. Available Open Access on Cadmus, European University Institute Research Repository.

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growing e x o g e n o u s l y at a c o n s t a n t - e x p o n e n t i a l rate (g). A n y t e c h n i c a l p r o g r e s s is H a r r o d - n e u t r a l and can t h e r e f o r e be s u b s u m e d in g r o w t h of the labo u r force. T h e c a p i t a l stock (K) is o w n e d e i t h e r by business

c o r p o r a t i o n s (K ) or by the fund ( K , ) . A l t h o u g h workers

c 1

are a s s u m e d to save a sm a l l p r o p o r t i o n of their incomes, this saving is t r e a t e d as a t t r a c t i n g a z e r o real rate of return. T h i s r e f l e c t s a s i t u a t i o n in w h i c h workers' individual s a v ings are m a d e in forms w h i c h d o n o t a t t r a c t a rate of ret u r n above the rate of inflation. D u r i n g the late 1970's, for example, m a n y B r i t i s h b u i l d i n g society d e p o s i t s e a r n e d a n e g a t i v e real rate of return. The idea of a wa g e - e a r n e r s ' i n v e s t m e n t f u n d has been

s u p p o r t e d by ar g u m e n t s w h i c h tiirn o n a k i n d of "economy of scald' in savings. A r r a n g e m e n t s for workers' c o l lective

saving sho u l d g e n e r a t e a h i g h e r real rate of return than w o r k e r s c o u l d s e c u r e in d i v i d u a l l y . T h r o u g h o u t the p a p e r the fund is a s s u m e d to m a k e the same real rate of r e t u r n on its c a p i t a l as c o r p o r a t i o n s do on theirs. W o r k e r s are a s s u m e d to m a k e a- zero real rate of return on th e i r s a v i n g s w h i c h are a s s u m e d to lead to the a u g m e n t i n g of corpora t i o n s ' capi t a l (K,).

N o c o n s u m p t i o n o c c u r s o u t of b u s i n e s s income and, f o l l o w i n g Pasinetti, the d i s t r i b u t i o n of income is a s s u m e d to adju s t so as to e n s u r e macroeconomic equilibrium. The capi t a l stock is a s s u m e d to d e p r e c i a t e at a constant rate (6).

N a t i o n a l income (Y) e i t h e r takes the form of wa g e s (W)

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or p r o f i t s (P) :

Y = W + P = wL + rK (1)

(w = real w a g e rate, r = real p r o f i t rate)

T e c h n o l o g y is of the fi x e d p r o p o r t i o n s variety:

Y = m i n (aK, bL) (2)

In the P a s i n e t t i - w o r l d d e s c r i b e d above, labour,, c a p ital and tt b

outp u t all g r o w ^ t h e exponential rate g and the capital labour r a t i o t h e r e f o r e rema i n s constant:

K / L = b / a = p (3) E q u a t i o n s (1), (2) and (3) imply: aK = wL + rK => w = (a-r) P (4) E q u a t i o n (4) is a factor p r i c e f r o n t i e r a n d m a c r o e c o n o m i c e q u i l i b r i u m is e n s u r e d by m o v e m e n t s al o n g this frontier. Clearly: O i w S b , O S r S a (5) It w i l l be a s s u m e d t h a t w o r k e r s have a c o n stant a v e r a g e p r o p e n s i t y to c o n s u m e (cw ) wh i c h is the same for w a g e as for r e d e m p t i o n income. It can easily be seen t h a t this a s s u m p t i o n w i l l ens u r e that the workers' share in n a t i o n a l income is u n a f f e c t e d by the p r e s e n c e of the fund. Let Y , Y, and Y be the incomes of

w r c

w o r kers, the fund and c o r p o r a t i o n s respectively.

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(Income shares w i l l be d e n o t e d in l o w e r c a s e letters: T h e n m a c r o e c o n o m i c e q u i l i b r i u m r e q u i r e s that i n v e s t m e n t equ a l s savings: (g + 6) K Y (6) = > (g + 6)K = > y •'w a - g - 5 ac w (7)

Thus the workers' share in n a t i o n a l inco m e is determined by p a r a m e t e r s i n d e p e n d e n t of the c e n t r a l fund. M o r eover it is c l e a r f r o m e q u a t i o n (7) that, for v i ability, we r e q u i r e :

In m o s t p r o p o s a l s a c t u a l l y a d v a n c e d the c o ntribution f r a c t i o n (a) w o u l d i n c rease l i n e a r l y o v e r the first few (T) y e a r s of the fund's life to a m a x i m u m (a*). It will be a s s u m e d t h r o u g h o u t this p a p e r t h a t all redemptions oc c u r a f t e r the (minimum) r e d e m p t i o n p e r i o d of T years. Thus it is not un t i l time T + T t h a t c o n t r i b u t i o n s and r e d e m p t i o n s are b a s e d on the same f r a c t i o n (see fig. 1). T h r o u g h o u t this paper, p e r i o d s in exce s s of T + T will be r e f e r r e d to as the "long-run". (Note- that in the Danish 1973 p r o p o s a l T = 10, a* - 5%, T = 7). a £ g + 6 (8) 6 © The Author(s). European University Institute. Digitised version produced by the EUI Library in 2020. Available Open Access on Cadmus, European University Institute Research Repository.

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Fig. 1 n e a r h e r e

3: E q u i l i b r i u m Paths

An e q u i l i b r i u m path is one alo n g w h i c h the fact o r price frontier e q u ation (equation (4)) a n d the m a c r o e c o n o m i c e q u i l i b r i u m c o n d i t i o n (equation (6)) are s i m u l t a n e o u s l y satisfied. W i t h a fund o p e r a t i n g in the economy, e q u a t i o n (6) becomes

(g + 6) K = Y - cw (W + R - B) (9)

(where R = r e d e m p t i o n i n c o m e B = fund contribu t i o n s ) . L e t a (t) = c o n t r i b u t i o n f r a c t i o n , t h e n o n the

a s s u m p t i o n s of section 2, e q u a t i o n (9) gives:

(g + 6) K (t) = Y(t) - cw (i- a(t))w(t) L(t) + R(t)) (10)

The p r o b l e m then is to d e r i v e an e x p r e s s i o n for R(t). O b v i o u s l y for t < T, R(t) = 0. On the a s s u m p t i o n s of sect i o n 2 (for t £ T) R(t) is the c o n t r i b u t i o n m a d e to the fund at time t-T, fully a c c u m u l a t e d at the g o i n g rate of profit, d e f i n e d net of the rate of de p r e c i a t i o n .

T h a t is to say, for t S T , R(t) = a(t-T) w (t-T) L (t-T) e _6T e A(t) (11) t w h e r e A(t) = I r(s) d s (12) t-T E q u a t i o n (11) gives R (t) = a(t-T) w (t-T) L(t) e -(g + 6)T eA(t) (13) 7 © The Author(s). European University Institute. Digitised version produced by the EUI Library in 2020. Available Open Access on Cadmus, European University Institute Research Repository.

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since the labour force is g r o w i n g e x p o n e n t i a l l y at a rate g. Us i n g the factor p r i c e f r o n t i e r (4) and s u b s t i t u t i n g (13) into (10) we obtain:

(g + fi)K(t) = Y (t) — c w ((l — a(t)) (a - r(t))P L(t) +

a(t-T) (a-r (t-T)) PL (t) e ” (g+lS) T eA (t) ) (14)

D i v i d i n g t h r ough by L(t) and using the p r o d u c t i o n function (equation (2)), this gives:

(g + 6) = a - c ((a-r(t)) (1 - a(t)) +

W '

a (t-T) (a-r (t-T) ) e ” <g+lS) T eA (t)) (15)

E q u a t i o n (15) gives a general e q u a t i o n for s o l ution paths in r(t) (and hen c e in w(t), via the fac t o r pr i c e f r o n t i e r ). Unfortun a t e l y , it is impossible to solve b e c a u s e of the

A (t )

p r e s e n c e of the term in e on the R.H.S. It is possible h o w e v e r to e s t a b l i s h a s u fficient c o n d i t i o n un d e r w h i c h a c o n s t a n t pr i c e path exists in the long r u n .

In the long run (t 2 T + T) c o n t r i b u t i o n and r e d emption fractions are equal and c o n s t a n t o v e r time:

a (t) = a (t-T) = a for all t > T + T (16)

A c o n s t a n t price path is one along w h i c h b o t h w a g e rate and pro f i t rate are constant o v e r time:

r(t) = r ,w (t ) = w = (a-r)P for all t 2 T + T (17)

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S u b s t i t u t i n g (16) and (17) into the gene r a l e x p ression (15) we obtain:

g + <$ = a- (a-r) cw ( l - a + a e ^ r ( ^ T ) (18)

To find s u f ficient c o n d i t i o n s for (18) to have a solution, d e f i n e 0(r) by:

0(r) = g+6- a + (a - r) (1- a + a e ^ r ^ g *T (19)

C l e a r l y 0 is c o n tinuous in r and moreover:

0(a) = g + 6 - a < 0 (20)

f r o m (8). Note also that 0 £ r £ a, f r o m (5).

T h e n if 0(0) > 0, the e q u a t i o n 0(r) = 0 m u s t have a solution .(0 £ r É a). Vè have from (19) :

0(0) = g + 6 - a + a <?w (1 - a + a e ~ (6 +g) T } (21)

Thus a sufficient c o n d i t i o n for 0(0) > 0 and hence for the e x i s t e n c e of a c o n s t a n t p r i c e path is

g + 6 + <c w (1 - a) - l)a > 0 (22)

V a r i o u s long run p r o p e r t i e s of c o n s t a n t pr i c e paths are 2 d i s c u s s e d in George (1985a) and will n o t be d u p l i c a t e d here . A m a j o r purpose of the p r e s e n t paper is to deal w i t h the short run (t £ T + T) w h e n b o t h c o n t r i b u t i o n and redemption fr a c t i o n s are v a r ying (see figure 1). In this case, in

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general, c o n s t a n t price pat h s do n o t ex i s t and recourse m u s t be m a d e to simulation m e t h o d s in ord e r to deal with the e q u i l i b r i u m c o n d i t i o n (equation (15)). The s e m e t hods and the s i m u l a t i o n results are d e s c r i b e d in the following sections. The si m u l a t e d paths exhibit, in the long run, h e a v i l y d a m p e d oscillations a r o u n d the c o r r e s p o n d i n g constant p r i c e p a t h s d e f i n e d by e q u a t i o n (18) . A l l the quali t a t i v e r e s u l t s of Geor g e ( 1 3 8 5 a ) , w h i c h relate to c o n s t a n t price paths, r e - a p p e a r for the si m u l a t e d paths.

4: S i m u l a t i o n

S i m u l a t i o n s w e r e c a r r i e d out usi n g a very simple F o r t r a n programme. Fi r s t the model m u s t be r e - e x p r e s s e d in d i s c r e t e time form. Let:

R(t) = r e d e m p t i o n income p a i d at the b e g i n n i n g of y e a r t K f (t) = fund capi t a l at b e g i n n i n g of y e a r t net of R(t)

H e n c e :

R (t) = 0 t S T

R(t) = (l*(t-l)- &) (1+r(t-2)- 6 ) . . . (1+r(t-T)-6) a (t-T) w (t-T) L (t-T) t > T (23)

F o r e a c h time p e r i o d the p r o gramme solves for

e q u i l i b r i u m w(t) using an e q u a t i o n similar to (9) and then c a l c u l a t e s r(t) f r o m the factor p r i c e .frontier

(equation (4)). It then calc u l a t e s red e m p t i o n payments for the n e x t time p e r i o d (R(t+1)) from w h i c h it can obtain the income of the fund in y e a r t. At each stage the fun d ' s sh a r e in the c a p ital stock (K^(t)/K(t)) is printed out a l o n g w i t h the w a g e and pro f i t rates and the

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c o n t r i b u t i o n fraction. U s i n g the fund ' s inc o m e in p e r i o d t, the pr o g r a m m e c a l culates ( K ^ ( t + 1 ) , i n c r e a s e s K, L and Y by the ex o g e n o u s growth rate (g) and then, repe a t s the w h o l e proc e s s o v e r again. This c o n t i n u e s for 99 p e r iods. The c o n t r i b u t i o n function rises by an a m o u n t a for e a c h of the first T years and then r e m ains c o n s t a n t at a.T. The s t r ucture of the programme is set out in Figu r e 2.

Figure 2 near here.

Some of the p a r ameter v a l u e s w e r e k e p t c o n s t a n t for all the sim u l a t i o n runs. T h e y were:

g 3% c = w 0.95 a = 0.3 b 50.0 T 10

The oth e r para m e t e r s were v a r i e d b e t w e e n runs as f o l lows :

T 7, 10, 15

a = 0.5%, 1.0% (giving m a x i m u m

c o n t r i b u t i o n f r a ctions of 5% a n d 10%)

6 2% , 4%

Thus twelve runs are r e p o r t e d a l t o g e t h e r all of w h i c h satisfy the sufficient c o n d i t i o n (equation (22)) for the ex i s t e n c e of a constant pr i c e p a t h in the long run. Note that

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T = 7, a = 0.5% c o r r e s p o n d s to the D a n i s h 1973 proposal.

The results of this run (for 6 = 2%) are d e p i c t e d in figure 3 and, qua l i t a t i v e l y , are t y p i c a l of all the runs.

The fund's share in the c a p i t a l stock p e a k s at or just after time T + T and then d e c l i n e s g r a d u a l l y to its long run value. The pro f i t rate falls to a m i n i m u m at time T, then rises and exhibits h e a v i l y d a m p e d o s c i l l a t e s about its long run value. The (pre-tax) w a g e r a t e is simply

Fig. 3 n e a r here

dete r m i n e d via the factor p r i c e f r o n t i e r and c o n s e q u e n t l y always mo v e s in the o p p o s i t e d i r e c t i o n to the pro f i t rate.The (pre-tax) wage rate rises in the first T years as the c o n t r i b u t i o n tax rate rises, s h o w i n g that the bur d e n of this tax is initially s h i f t e d to p r o f i t s , t h o u g h by

time T + T the bur d e n is s h i f t e d back to wages. The workers' share in income of cou r s e r e m a i n s c o n s t a n t w i t h changes in

(after-tax) w a g e income b e i n g m a t c h e d by o p p o s i t e changes in r e d emption income.

Tables 1 and 2 show maxima, minima, and long-run values for four key e c o nomic var i a b l e s , the c o n t r i b u t i o n fraction (a), the fund's share in the to t a l c a p ital stock

(kf ) the prof i t rate (r) and the w a g e r a t e (w). The runs in table 1 have 6 = 2 % w h i l e those of table 2 have 6 = 4 % . It is clear that high d e p r e c i a t i o n rates eff e c t the fund adversely, slightly l o w e r i n g its share in the c a p i t a l stock

(cet. par.). Both tables d e p i c t s u b s t a n t i a l l y lower fund

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shares than w e r e su g g e s t e d in Danish G o v e r n m e n t c a l c u l a t i o n s (Danish G o v e r n m e n t 1973). These suggest that af t e r eight ye a r s the fund's share w o u l d be 10% and af t e r 15 years, 35%. The first runs in tables 1 and 2 c o r r e s p o n d to the p a r a m e t e r values of the Dan i s h 1973 proposal. They

indicate m a x i m u m fund - s h a r e s of 7.48% and 6.89% r e s p e c t i v e l y and long run fund shares of 6.53% and 5.91% r e s p e c t i v e l y .

Tabl e s 1, 2 near here

It is cl e a r from both tables that r a i s i n g the

c o n t r i b u t i o n -fraction and lengthening the r e d e m p t i o n per i o d in c r e a s e s the fund-share, b o t h m a x i m u m and long-run. This is c o n s i s t e n t w i t h the a n a lysis of c o n s t a n t pr i c e paths in G e o r g e ( 1 9 8 5 a ) . A red e m p t i o n p e r i o d of 15 yea r s and a m a x i m u m c o n t r i b u t i o n f r a ction of 10% gi v e s values, of

c l o s e r to D a n i s h o f f i c i a l estimates. In this case kF reaches 7.12% af t e r ei g h t ye a r s and 22.21% after ten years; it

peaks at 32.64% after 34 ye a r s and d e c l i n e s to a long-run va l u e of 31.77%

5: C o n c l u s i o n

The impact of a wage-earners' i n v e s t m e n t fund on the e c o n o m y w i l l d e p e n d crucially on h o w large a share of the c a p ital stock it controls. The results of the s i m ulation a n a l y s i s r e p o r t e d here suggest fund-shares s u b s t a n t i a l l y lower than those i n d icated in o f f icial e s t i m a t e s _ The fund shares can be i n c reased by l e n g t h e n i n g the r e d e m p t i o n p e r i o d or r a i s i n g the contr i b u t i o n fraction. Both measures,

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p a r t i c u l a r l y the latter, w o u l d s h a r p l y r e d u c e the real pro f i t rate in the short run, w h i c h m a y p r e s e n t p r o blems of its own. I n c r e a s i n g the r e d e m p t i o n p e r i o d w o u l d p o s s i b l y be r e s i s t e d by the trade unions. In D e n m a r k they o r i g i n a l l y w a n t e d a five year r a t h e r t h a n a seven year red e m p t i o n period, t h o u g h the p r e s e n t S w e dish a r r a n g e m e n t s all o w r e d e m p t i o n s o n l y in the f o r m of p e n s i o n s .

The p o s s i b i l i t y of the fund t a k i n g o v e r the entire capital stock is a remote one. Indeed, governments wo u l d have to c o n t e m p l a t e s u b s t a n t i a l l y h i g h e r c o n t r i b u t i o n f r a ctions and longer r e d e m p t i o n p e r i o d s t h a n has h i t h e r t o been the case if a wage-ea r n e r s ' i n v e s t m e n t fund is to achi e v e a share in the c a p i t a l stock s u b s t a n t i a l l y greater than that of a mjjaium-sized p r i v a t e p e n s i o n fund.

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FO O T N O T E S

1. A n e a r l i e r v e r s i o n of this pap e r was given at seminars at L.S.E. and the E u r o p e a n U n i v e r s i t y Institute, Florence, Italy. I am g r a t e f u l for the c o n s t r u c t i v e comments m a d e at those s e m i n a r s .

I w o u l d p a r t i c u l a r l y a c k n o w l e d g e the helpful adv i c e and comments of Saul Estrin, S t a n i s l a w Gomulka, Ma r i o N u t i and Will Bartlett. The usu a l d i s c l a i m e r applies.

2. In i n t e r p r e t i n g r e s u l t s f r o m G e o r g e (1985a) in terms of the p r e s e n t paper, the natural g r o w t h rate n in the former p a p e r m u s t be r e p l a c e d by the g r o w t h rate gross of depreci a t i o n , g + 6.

©

The

Author(s).

European

University

Institute.

Digitised

version

produced

by

the

EUI

Library

in

2020.

Available

Open

Access

on

Cadmus,

European

University

Institute

Research

Repository.

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a T + T t i m e © The Author(s). European University Institute. Digitised version produced by the EUI Library in 2020. Available Open Access on Cadmus, European University Institute Research Repository.

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Fig.2; Flow Diagram for the Simulation Progamme © The Author(s). European University Institute. Digitised version produced by the EUI Library in 2020. Available Open Access on Cadmus, European University Institute Research Repository.

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.

■ © The Author(s). European University Institute. Digitised version produced by the EUI Library in 2020. Available Open Access on Cadmus, European University Institute Research Repository.

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a( %) k f (%) r (%) w Max 5 7.48 3.56 45.56 T = 7, a = 0.5% Min 0 0 . 0 2.66 4 4.07 6 = 2 % LR 5 6.53 3.56 44.07 Max 10 15.25 3.42 47.50 T = 7, a = 1.0% Min 0 0.0 1.50 44.30 6 = 2% LR 10 13.41 3.41 44.32 <#> in o ii 13 O i — 4 II _Max ₅ _10.96 _3.55 _46.17 6 = 2 % Min 0 0 . 0 2.30 44.08 LR 5 10.14 3.50 44.16 Max 10 22.20 3.42 48.73 T = 10, 5 = 1.0% Min 0 0 . 0 0.76 44.30 6= 2% LR 10 20.70 3.27 44.56 Max 5 16.35 3.55 46.17 T = 15, n= o.5% Min 0 0.0 2.30 44.08 6= 2% LR 5 15.75 3.41 44.32 Max 10 32.64 3.42 48.73 T = 15, a= 1.0% Min 0 0 . 0 0.76 44.30 6= 2% LR 10 31.77 2.99 45.01

Table 1: Summary of s i m u l a t i o n runs for 6 2%

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0 (%) k f (%) r (%) w Max 5 6.89 5.68 41.91 T = 7, 5 = 0.5% Min 0 0.0 4.86 40.53 6 = 4 % LR 5 5.91 5.68 40.53 Max 10 14.07 5.56 43.68 T = 7, a= 1.0% Min 0 0.0 3.79 40.73 6 = 4 % LR 10 12.12 5.56 40.75 Max 5 10.14 5.67 42.47 T = 10, a = 0.5% Min 0 0.0 4.52 40.55 6 = 4 % LR 5 9.26 5.64 40.60 T = 10, a = 1.0% Max 10 20.54 5.54 44.83 6 = 4 % Min 0 0.0 3.10 40.76 LR 10 18.90 5.44 40.93 T = 1 5 , a = 0.5% Max 5 15.17 5.67 42.47 6 = 4 % Min 0 0.0 4.52 40.55 LR 5 14.51 5.56 40.74 T = 15, a= 1.0% Mak 10 30.37 5.54 44.83 6 = 4% Min 0 0.0 3.10 40.76 LR 10 29.32 5.22 41.30

Table 2 ; S u m m a r y of simu l t a t i o n runs for 6 = 4%

t © The Author(s). European University Institute. Digitised version produced by the EUI Library in 2020. Available Open Access on Cadmus, European University Institute Research Repository.

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R e f e r e n c e s

Brems., H (1975a) A W a g e - E a r n e r s ' I n v e s t m e n t Fund-Forms and E c o n o m i c E f f e c t s , Stockholm.

Brems, H (1975b) "Profit S h a r i n g and a Wage-Earners' I n v e s t m e n t Fund u n d e r Stea d y State Growth" K y k l o s , vol 28 pp 94-116.

Brems, H (1975c) "An I n v e s t m e n t W a g e and a Wage-Earners' I n v e s t m e n t F u n d u n d e r Stea d y State Growth" S w e d i s h Journal of E c o n o m i c s vol 77 pp 13-30. Danish G o v e r n m e n t (1973) " F o rslag til lov Qtn lsz(n?nodtag-

ernes m e d e j e n d o m s r e t " (Lovforslag nr. 168) A r b e j d s m i n i s t e r i e t , Copenhagen.

George, D.A.R. (1985a) " W age-earners' inve s t m e n t funds in the long-run" E c o n o m i c A n a l y s i s vol XIX no. 1. George, D.A.R. ( 1985b) " C o l l e c t i v e capital formation':

I m p l i c a t i o n s of t h e S c a n d i n a v i a n Debate" E c o n o m i c A n a l y s i s , vol XIX, no. 3.

M

Krist o f f e r s s o n , A. (1981) L o n t a g a r n a och K a p i t a l t i l l v a x t e n 7 Sou (1981: 79), Stockholm.

Labour Par t y (1974) "Capital and E q u a l i t y Report of a Lab o u r Pa r t y St u d y Group", London.

Meidner, R. (1978) E m p l o y e e I n v e s t m e n t Funds: An A p p r o a c h to Capital F o r m a t i o n . G e o r g e A l l a n and Unwin, L o n d o n .

Pasinetti, L.L. (1962) "Rate of Prof i t and Income

D i s t r i b u t i o n in R e l a t i o n to the Rate of E c o nomic 1 Growth" R e v i e w of E c o n o m i c S t u d i e s .

Pasinetti, L.L. (1974) G r o w t h and Income Distri b u t i o n C a m b r i d g e U n i v e r s i t y Press.

Vanek, J. (1975) "The b a s i c t h e o r y of f i n ancing of p a r t i c i p a t o r y firms" in PME R e a d i n g s in S e l f - M a n agement, (j. Vanek, ed.), Penguin.

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WORKING PAPERS ECONOMICS DEPARTMENT No. 1: Jacques PELKMANS

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Kumaraswamy VELUPILLAI

The European Community and the Newly Industrialized Countries

Seasonality in Eurodollar Interest Rates

Information Processing in Futures Markets. An Essay on the Adequacy of an Abstraction

When Workers Save and Invest: Some Kaldorian Dynamics

A Neo-Cambridge Model of Income Distribution and Unemployment On Lindahl's Theory of Distribution

Paul A. Samuelson on Monetary Theory Inflation and Structural Change in the Euro-Dollar Market

The Vicious/Virtuous Circle Debate in the '20s and the '70s

Modelling, Managing and Monitoring Futures Trading: Frontiers of Analytical Inquiry

Economic Crisis in Eastern Europe: Prospects and Repercussions

Modern Macroeconomic Theory: An Overview

Economic Systems and their Regulation

Is the Bargaining Theory Still an Effective Framework of Analysis for Strike Patterns in Europe? Schumpeter: The Man I Knew

Politique de l'Emploi et Réduction de la Durée du Travail

Preferences in Policy Optimization and Optimal Economie Policy

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No. 60: Jean-Paul FITOUSSI Adjusting to Competitive Depression. The Case of the Reduction in Working Time

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No. 68: Saul ESTRIN Derek C. JONES

The Effects of Worker Participation upon Productivity in French

Producer Cooperatives No. 69: Bere RUSTEM

On the Formalization of Political Preferences: A Contribution to the Frischian Scheme

No. 72: Wolfgang GEBAUER Inflation and Interest: the Fisher Theorem Revisited

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Paul A. GEROSKI Alexis JACQUEMIN

Inter-Industry and Inter-Temporal Variations in the Effect of Trade on Industry Performance

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A Non-Linear Model of Fluctuations in Output in a Mixed Economy

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84/114: Saul ESTRIN Jan SVEJNAR 84/116: Reinhard JOHN

84/118: Pierre DEHEZ

84/119: Domenico Mario NUTI

84/120: Marcello DE CECCO 84/121: Marcello DE CECCO 84/122: Marcello DE CECCO • 84/123: Lionello PUNZO Kumaraswamy VELUPILLAI 84/126: John CABLE 84/127: Jesper JESPERSEN 84/128: Ugo PAGANO 85/155: François DUCHENE 85/156: Domenico Mario NUTI

85/157: Christophe DEISSENBERG

85/161: Domenico Mario NUTI

85/162: Hill BARTLETT

85/169: Jean JASKOLD GABSZEWICZ Paolo GARELLA

Explanations of Earnings in Yugoslavia: the Capital and Labor Schools Compared On the Weak Axiom of Revealed Preference without Demand Continuity Assumptions Monopolistic Equilibrium and Involuntary Unemployment

Economic and Financial Evaluation of Investment Projects: General Principles and E.C. Procedures

Monetary Theory and Roman History International and Transnational Financial Relations

Modes of Financial Development: American Banking Dynamics and World Financial Crises

Multisectoral Models and Joint Production

Employee Participation and Firm Perfor mance: a Prisoners' Dilemma Framework Financial Model Building and Financial Multipliers of the Danish Economy

Welfare, Productivity and Self-Management Beyond the First C.A.P.

Political and Economic Fluctuations in the Socialist System

On the Determination of Macroeconomic Policies with Robust Outcome

A Critique of Orwell's Oligarchic Collectivism as an Economic System Optimal Employment and Investment Policies in Self-Financed Producer Cooperatives

Asymmetric International Trade

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4 -85/170: 85/173: 85/178: 85/179: 85/180: 85/181: 85/186: 85/187: 85/188: 85/194: 85/195: 85/196: 85/198: 85/200: 85/201: 86/206:

Jean JASKOLD GABSZEWICZ Paolo GARELLA

Berc RUSTEM

Kumaraswamy VELUPILLAI Dwight M. JAFFEE

Gerd WEINRICH

Domenico Mario NUTI

Will BARTLETT

Will BARTLETT Gerd WEINRICH

Jesper JESPERSEN

Jean JASKOLD GABSZEWICZ Paolo GARELLA

Domenico Mario NUTI

Pierre DEHEZ Jean-Paul FITOUSSI Werner HILDENBRAND

Will BARTLETT Milica UVALIC Domenico Mario NUTI

Ernesto SCREPANTI

Volker DEVILLE

Subjective Price Search and Price Competition

On Rationalizing Expectations

Term Structure Intermediation by Depository Institutions

Price and Wage Dynamics in a Simple Macroeconomic Model with Stochastic Rationing

Economic Planning in Market Economies: Scope, Instruments, Institutions Enterprise Investment and Public Consumption in a Self-Managed Economy Instability and Indexation in a Labour- Managed Economy - A General Equilibrium Quantity Rationing Approach

Some Reflexions on the Longer Term Con sequences of a Mounting Public Debt Scattered Sellers and Ill-Informed Buyers A Model of Price Dispersion

The Share Economy: Plausibility and Viability of Weitzman's Model Wage Indexation and Macroeconomic Fluctuations

A Problem in Demand Aggregation: Per Capita Demand as a Function of Per Capita Expenditure

Bibliography on Labour-Managed Firms and Employee Participation

Hidden and Repressed Inflation in Soviet- Type Economies: Definitions, Measurements and Stabilisation

A Model of the Political-Economic Cycle in Centrally Planned Economies

Bibliography on The European Monetary System and the European Currency Unit.

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-86/212: Emil CLAASSEN Melvyn KRAUS

Budget Deficits and the Exchange Rate

86/214: Alberto CHILOSI The Right to Employment Principle and Self-Managed Market Socialism: A Historical Account and an Analytical Appraisal of some Old Ideas

86/218: Emil CLAASSEN The Optimum Monetary Constitution: Monetary Integration and Monetary Stability

86/222: Edmund S. PHELPS Economic Equilibrium and Other Economic Concepts: A "New Palgrave" Quartet 86/223: Giuliano FERRARI BRAVO Economic Diplomacy. The Keynes-Cuno

Affair

86/224: Jean-Michel GRANDMONT Stabilizing Competitive Business Cycles 86/225: Donald A.R. GEORGE Wage-earners' Investment Funds: theory,

simulation and policy

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85/175:Michela NACCI Tra America e Russia: Viaggiatori

francesi degli anni trenta *

8 5 / 1 7 6 :J.LOUGHLIN The Corsican Statut Particulier: A Response to the Problem Corse*

85/177:Alain DIECKHOFF L'Europe Politique et le Conflit Israelo-Arabe *

85/178:Dwight J. JAFFEE Term Structure Intermediation by Depository Institutions *

8 5 / 1 7 9 :Gerd WEINRICH Price and Wage Dynamics in a Simple Macroeconomic Model with Stochastic Rationing

85/180:Domenico Mario NUTI Economic Planning in Market Economies

85/181:Will BARTLETT

Scope, Instruments, Institutions*

Enterprise Investment and Public Consumption in a Self-Managed Economy*

85/182:Alain SUPIOT Groupes de Societes et Paradigme de l'Entreprise *

85/183:Susan Senior Nello East European Economic Relations: Cooperation Agreements at Government and Firm Level *

85/184 : Wolfgang VESSELS Alternative Strategies for Institutional Reform *

85/185:Ulrich BAELZ Groups o f Companies - the German Approach: "Unternehmen" versus "Konzern" *

85/186:Will BARTLETT and Gerd WEINRICH

Instability and Indexation in a Labour-managed Economy *

8 5 / 1 8 7 :Jesper JESPERSEN Some Reflections on the Longer Term Consequences of a Mounting Public Debt

85/188:Jean GABSZEWICZ and Paolo GARELLA

Scattered Sellers and Ill-informed Buyers: A Model for Price Dispersion

85/189:Carlo TRIGILIA Small-firm Development, Political

Subcultures and Neo-localism in Italy *

85/190:Bernd MARIN Generalized Political Exchange.

Preliminary Considerations *

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PUBLICATIONS OF THE EUROPEAN UNIVERSITY INSTITUTE April 1986

85/191:Patrick KENIS Industrial Restructuring

The Case o f the Chemical Fibre Industry in Europe *

85/192:Lucia FERRANTE La Sessualità come Ricorsa. Donne

Davanti al Foro Arcivescovile di Bologna (sec. XVII) *

85/193:Federico ROMERO Postwar Reconversion Strategies of American and Western European Labor *

85/194:Domenico Mario NUTI The Share Economy :Plausibility and Viability o f Weitzman's Model *

85/195:Pierre DEHEZ and Jean-Paul FITOUSSI

Wage Indexation and Macroeconomic Fluctuations

85/196:Werner HILDENBRAND A Problem in Demand Aggregation : Per Capita Demand as a Function of Per Capita expenditure

85/197:Thomas RAISER The Theory of Enterprise Law and the Harmonization of the Rules on the Annual Accounts and on Consolidated Accounts in the European Communities*

85/198:Will BARTLETT/ Milica UVALIC

Bibliography on Labour-Managed Firms and Employee participation

85/199:Richard T. GRIFFITHS Alan S. MILWARD

The Beyen Plan and the European Political Community

85/200:Domenico Mario NUTI Hidden and Repressed Inflation in Soviet-type Economies: Definitions, Measurements and Stabilisation

85/201:Ernesto SCREPANTI A model of the political-economic cycle in centrally planned economies

8 5 / 2 0 2 :Joseph H.H. WEILER The Evolution of Mechanisms and Institutions for a European Foreign Policy: Reflections on the Interaction of Law and Politics *

85/203:Joseph H.H. WEILER The European Court, National Courts and References for Preliminary Rulings - The Paradox of Success: A

Revisionist View of Article 177 EEC. *

86/204:Bruno P. F. WANROOIJ Progress without Change

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86/205:Antonio M U T T I , Nicolò ADDARIO, Paolo SEGATTI

The Ambiguities of Modernization in Fascist Italy *

THE ORGANISATION OF BUSINESS INTERESTS The Case of the Italian Textile and Clothing Industry *

86 / 2 0 6 :Volker DEVILLE Bibliography on The European Monetary System and the European Currency Unit

86/207:Gunther TEUBNER Gesellschaftsordnung durch

Geset zgebungslarm?

Autopoietische Geschlossenheit als Problem fur die Rechtssetzung *

86/208 : P . Nikiforos DIAMANDOUROS/ Pilar RIVILLA/

Joaquin LOPEZ NOVO/ Huri TURSAN/

Philippe C. SCHMITTER

A Bibliographical Essay on Southern Europe and its recent Transition to Political Democracy

86 / 2 0 9 -.Renaud DEHOUSSE E Pluribus Unum?

Eléments de confédéralisme dans les relations extérieures des Etats fédéraux

86/210:Pauline JACKSON Industrialisation and Reproductive Rights *

86/211:Gunther TEUBNER Hyperzyklus in Recht und

Organisation: zum Verhaltnis von Selbstbeobachtung, Selbstkonstitution und Autopoiese *

86/212:Emil CLAASSEN and Melvyn KRAUSS

Budget Deficits and the Exchange Rate

86/213:Gunther TEUBNER Autopoiese im Recht:

Zum Verhaltnis von Evolution und Steuerung im Rechtssystem *

86/214:Albert CHILOSI The Right to Employment Principle and Self-Market Socialism: A Historical Account and an Analytical Appraisal of some Old Ideas by Alberto Chilosi

86/215:Ruggero RANIERI Italy and the Schuman Plan Negotiations

86/216:Diana PINTO The Presence of an Absence:

:Working Paper out of print

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16

-PUBLICATIONS OF THE EUROPEAN UNIVERSITY INSTITUTE June 1986

The Ambiguity of the American Reference in the French and Italian Intellectual Renewal of the Late 1950’s

86/217: Michela NACCI Un'Immagine della modernità:

L'America in Francia negli Anni Trenta

86/218: Emil-Maria CLAASSEN The Optimum Monetary Constitution: Monetary Integration and Monetary Stability

86/219:Stuart WOOLF The Domestic Economy of the Poor of

Florence in the Early Nineteenth Century

86/220:Raul MERZARIO Il Capitalismo nelle Montagne L ’evoluzione delle strutture famigliari nel comasco durante la prima fase di industrializzazione (1746-1811)

86/221:Alain DROUARD Relations et Reactions des Sciences Sociales ’’Françaises" Face Aux Sciences Sociales "Américaines"

86/222:Edmund PHELPS Economie Equilibrium and Other

Economic Concepts : A "New Paigrave" Quartet

86/223:Giuliano FERRARI BRAVO Economic Diplomacy: The Keynes-Cuno Affair

86/224:Jean-Michel GRANDMONT Stabilising Competitive Business Cycles

86/225:Donald GEORGE Wage-Earners’ Investment Funds:

Theory, Simulation and Policy

* : Working Paper out of print

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v f © The Author(s). European University Institute. Digitised version produced by the EUI Library in 2020. Available Open Access on Cadmus, European University Institute Research Repository.

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ì © The Author(s). European University Institute. Digitised version produced by the EUI Library in 2020. Available Open Access on Cadmus, European University Institute Research Repository.