Whose risk is it anyway (part 1)?

Who takes more risk: capital or labor?

Usually, we assume that contributors of capital – capitalists – take more risk, which is why they get compensated with the capital return, whether in the forms of interest, profit, or rent. People who contribute time, effort, and skills to the production of useful resources – labor – get paid wages or salary. Because workers produce the resources, they have initial possession of them. Suppose Alice’s capital is an axe, which she makes available to Brian in return for some of the wood he chops. Brian chops the wood, and then has possession of both the wood and the means to produce it. Alice relies on Brian returning the axe and relinquishing the agreed share of the production. He may not be able to – the axe might have broken or he might not have found enough good wood to cut – or he may simply choose not to. That is why Alice faces more risk than Brian: She faces the wood-cutting risk he faces plus the risk that Brian may cut and run. That is the basis of her claim on a share of the produce over and above the return of the axe.

The arrangement in which someone – a “capitalist” – provides stored up resources to someone else – a “worker” – in return for compensation is the keystone in how we structure resource-sharing. What ultimately supports the structure is our collective belief that labor ought to compensate capital because of the risk capital takes. This structure allows us to collaborate and share resources far beyond reciprocal kinship boundaries.

Or so the story goes. But let’s take seriously the underlying moral claim of capitalism: that it is right and proper to be compensated for risk-taking. If risk-taking itself – besides contribution of time, effort, and skill – is something that ought to be compensated, then we should look closely at who takes what risks. Hence the axe example: Tree-felling and wood-cutting are relatively dangerous activities. Brian, by using the axe, takes physical risks that Alice completely avoids. By the very logic underlying capitalism, Brian ought to be compensated for the risk he takes, namely of getting maimed or killed in the process of axe-wielding, over and above the share he gets for deploying his time, effort, and skills.

That is why I don’t think you can make a moral argument for capitalism without simultaneously acknowledging the moral claim workers have on health and disability insurance: These are not benefits that owners can generously provide once society is productive enough. They are necessarily implied by the social contract in which risk-taking deserves compensation.

To me, this is an overlooked point: Social security benefits of various forms are often characterized as patches to a capitalist system, things that we can use to soften capitalism as long as we can afford the luxury. But that is the wrong frame through which to look at them: Instead, they are claims whose legitimacy rests on the same grounds as capital’s claims to a return.

The next Ruminathans will look at other dimensions of capital’s and labor’s risk-sharing arrangements.