Sharing the burden of a crisis – businesses vs workers?

Covid-19 and other novel viruses appear due to random mutation so that blame cannot be directed to any single actor. Millions of mutation happen randomly every year. It is said that the Spanish flu originated at an American military base, the swine flu in Mexico and covid-19 in China. When a kid ruins a chair and his parents berate him for it, then this will hopefully prevent him from doing so again. However, the inherent randomness of mutation means that directing blame to any single entity will not likely prevent the appearance of viruses again (although it may improve our response to it).

Human societies are generally built around the principle that whomever caused harm must pay the cost to fix it. When no clear actor is to be blamed, the public sector steps in to assume the costs similar to an insurance company but on larger scale and for very low probability, high damage, events. The public sector steps in during financial crises and ecological crises alike.

The public sector will not assume all the costs so other actors in society must do so. We can simply divide ‘other actors’ into workers and businesses. Given that none of the two can really be blamed for natural disasters, pandemics or a general recession induced by a financial crisis (except the companies engaged in the speculative bubble in high-risk financial instruments), we must seek other principles for dividing the costs of such events.

The reason businesses should carry a larger burden of the cost than workers is two-fold. First, profit is partially justified on the basis of the risk that an investor takes when he invests in a company. Many service companies today like Uber but also staffing companies are effectively shifting the ‘market risk’ (when demand falls rapidly) to the workers. Workers are not compensated with higher wages for this larger risk. This is not fair game.

Second, more of than not, company-owners are in a better position to “take the hit”. Consider the thought experiment wherein a company can choose to either immediately lay-off all their workers without paying them anything or to have the company take the hit whilst ensuring that the workers get a stable income for, say, 3 months. In the first case, workers will be severely harmed. They need money for basic necessities such as food and housing. Even before the crisis, 40% of american households would struggle to come up with $400 for an unexpected expense. In the latter case, the company itself may even go bankrupt, in the worst case – causing a massive financial hit to its owners. But the ownership of companies is generally quite concentrated to the hands of a few: the top 10% of American households (by wealth) own 84% of all stocks in 2016 (Wolff, 2017) but these households will generally be okay even if they lose a portion of their wealth.


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