Downsizing and Stakeholder Capitalism

by Dr. Meir Tamari

It would seem that what is at issue is the conflict between the property rights of the owners of wealth-the corporation and its shareholders-on the one hand and the unemployed, the affected communities and the national welfare on the other.

The shareholders claim the right to do with their property whatever is necessary to earn the best rate of return within a preferred choice of risk. Provided this is done without fraud, coercion or dishonesty, Judaism would uphold this right. Therefore, they can scale down their operations or even close down their factories or businesses when these are no longer profitable. The workers do not, unless other arrangements are made, own the corporation. They have rights as workers but not as owners or stakeholders; to rule otherwise would unfairly transfer property from the owners to those who are being paid for their work but never bought the assets. Furthermore, men are born free in the Divine Image so care has to be taken to preserve the freedom both of the employer and employee alike. Labor arrangements are made between free men. Just as the worker cannot, unless there are legal or contractual obligations to the contrary, be morally prevented from leaving if he can earn higher wages elsewhere, so too the employer does not have a moral obligation to provide lifelong employment or to create jobs under uneconomic conditions. To insist only on the latter’s obligation would be a theft of a property right while to require perpetual worker loyalty is to introduce a form of indentured service or economic feudalism.

However, there is nothing unlimited in Judaism so there cannot be unlimited property rights. There are also no rights without obligations so that wealth creation and economic efficiency are limited by the requirements of the charity and mercy that Judaism imposes on the owners of wealth. Firms when faced with declining profits due to competition or outdated equipment etc., are required to assist the workers affected by downsizing. They are required to absorb the costs of training, counseling, job-sharing and all the other forms of assistance that can be provided for the unemployed. However, the obligation to give charity is also limited. One is not required to make oneself poor in order to give charity. There must be a balance between the obligation to give to charity and one’s ability to do so. Work sharing arrangements, wage reduction in order to prevent unemployment, and early retirement have traditional sanction when done with the agreement of the workers.

Community and Society

Shareholders and workers are members of society and society in Judaism has obligations to provide for the weak, the poor, the addicted and even the lazy. Judaism also gives society the right to tax its citizens in order to fund these obligations. Workers displaced by downsizing, those unable to find employment because of changed technologies or tastes, and those who suffer as a result of the movement of corporations, all have to be assisted by the state or community in which they live. Shareholders and other owners of wealth will be forced by society to fund such assistance. This obligation has been included in the Noachide Laws for non-Jews, and so will apply to Jewish and non-Jewish societies alike.

The assistance may be in the form of direct grants, macroeconomic policy aimed at full employment, or provision of vocational training or education. Subsidies, government-owned firms or public works may also be used. Society is free to choose any number of methods or mix of methods. Society, however, is not free to avoid proving safety nets or assisting people to break out of the poverty cycle. All citizens are morally obligated to bear their just share of the costs involved; obligations that can be enforced by the courts. However, a word of caution is needed. The experience of the past 100 years has shown that government intervention in the economy can also lead to corruption, suffering and immorality, that can be greater than that caused by unrestricted free markets. Judaism insists on limiting the right of the state or community to the economic assets of the citizens and provides measures for doing just this without invalidating the social obligations of society.
For more on this subject, see Some Thoughts on Business Responsibility in Downsizing by Professor Lawrence Klein

Dr. Tamari is the former chief economist of the Office of the Governor at the Bank of Israel, and the founder of the JCT Center for Business Ethics and Social Responsibility.