John Forstmeier

Build well 🛠️

Applied Modern Distributism

Posted at — Oct 15, 2019

Within the spectrum of philosophical positions, distributism presents itself as an incredibly valuable economic theory - one in which both the fundamental value and rights of individual humans are focused on as primary tenets. It is this focus, an elevation of the individual among the many, that puts it in direct contrast with the more commonly argued capitalism and socialism.

Capitalism maintains free markets and privately-held productive resources while socialism holds resources centrally via the state and regulates market systems. The former fails when monopolistic or abusive features arise and the latter is unable to accurately gauge mechanics of supply and demand - both lead to the degradation of the individual.

Distributism largely avoids these pitfalls and presents a series of concepts that are particularly interesting, and fitting, when deployed in our contemporary context.

These core principles comfortably meet with modern perspectives on what makes a desirable work environment.

Distributed ownership

The driving distinction between distributism and its economic alternatives is the goal of placing the ownership of productive resources directly into the hands of as many individuals as is practical while continuing to operate a free and open market. This would be a direct ownership of the tools by individuals used in their work. In practice, how this is executed depends on the industry and even the individual companies within the industry.

One common solution that can, in many cases be widely applied, is “sweat equity” where shares are earned for contributions made. Using the software industry as an example, as work is performed by individual contributors to a given project they would receive ownership shares of that project in proportion to the work completed and software written - there are tools that currently exist that would potentially facilitate these transactions.[1] Also in this specific scenario, the contributor would physically own the computer on which the software was written.

Something similar to “sweat equity” programs could likely be applied to a wide range of other industries from factory production to consumer services as this solution accounts for the practical difficulty of actually owning the tools used in these situations. A worker couldn’t own a conveyor belt but they could own a share of the company that owns the conveyor belt. A worker couldn’t own a kitchen stove but they could own a share in the franchise that owns the kitchen stove.

There are likely many challenges that would be faced implementing this solution, but there are numerous benefits available if successful.

First is that this system creates an actual ownership position for productive workers. In doing so, the program reunites the positions of shareholder and stakeholder to provide a direct say in business operations; it encourages pride in one’s work and in the business overall. This reunification also helps to avoid modern issues of equity distribution like vesting periods or unequal voting rights in share classes which skew power dynamics drastically. Traditional external investors are not excluded in this pattern and can still be issued shares but alternatives to the venture capital approach do exist.[2]

Additionally, since equity is only issued for work completed, it naturally incentivizes active participation from company employees. It also does allow the worker a great deal of freedom to step back from work when needed, encouraging a self-directed work-life balance.

Lastly, it begins to free participants from the “salary drug” and derive additional, separate value from their business. While salaries would still be a substantial consideration for all workers, they would hold a steadily increasing equity position that can serve as personal collateral or even reserve funds when liquidated.

Shifting the approach to encourage ownership distribution turns the focus to the individual workers and aligns companies around their people.

Market system

Distributism also operates within a free market and encourages an increase of smaller producers in it which is the second tenant listed earlier.

While there is nothing inherently wrong with larger producers, and economies of scale that these operations bring often benefit the market, there is potential for a decline of the valuation of the individual in the productive process. Basically, there is a risk that employees could disappear and become dehumanized as “cogs in the machine.”

Distributed equity elevates individuals to a direct involvement in a company’s endeavors and within small companies the greatest feedback on that influence is felt. You make decisions and you see the results immediately.

One of the major benefits of a larger collection of small market participants is that there is a decreased ability for monopolization to enter the scene. Also, private entities who adopt this posture truly begin to turn their focus from being entirely to dominate marketshare back to their own employees. This creates an interesting feedback loop where companies are focusing on their supporting their employees and the employees are focusing on optimizing their companies.

Additionally, this pattern of small producers spreads the systemic risk away from a handful of large players into a wide array of small entities with less overall market impact or control. As a result, the entire market and supply chain pipeline distributes the risk - multiple options would exist for any one entity both for its upstream suppliers and downstream consumers. This begins to resemble something of a “microservice architecture” but within the context of economics. Some difficulties would likely still arise in this situation, particularly around the increased complexity of coordinating inter-company operations as well as preventing companies conspiring to fix prices.

Another benefit of this approach is that it allows the reentry of “craftsmanship” into the market - it creates individuals who are proud of the work that they own and that they do. No one producer would be able to hold the entire production process. They would scale down production to become “craftsmen” and work with the rest of the supply chain to build a completed product.

It is worth noting that a concept of “smaller producers” could also potentially be applied to large producers. In breaking down their internal structures into functionally independent entities, and granting these entities increased autonomy and employee ownership, a similar smaller producer network result could be brought about from within existing large enterprises.

All of this would take place in the existing free marketplace with companies only adopting the smaller producer approach of their own accord.

Local participation

The third major concept that distributism brings to the modern perspective is its interest in local market growth.

Integrating a business with its physical surroundings can humanize a company and help foster worker ties to their communities even through their daily work. In a lot of ways this can be seen as a humanizing effect on work itself.

Goodwill, while an intangible benefit, is something companies seriously track in their financial reporting. And a great deal of goodwill could be generated by providing local jobs, sourcing local supplies, sustainable construction practices, and generally acting as responsible stewards within their community. Taking advantages of locally sourced resources, whenever economically feasible or perhaps at the direction of the worker owners, would help to stimulate regional economies.

As an added bonus, the smaller, likely distributed companies, further freed from physical locations due to the rise of remote work, would reduce the stress currently placed on high-population metropolitan centers.

Dispersing these distrbutist enterprises is an increasingly feasible option.

In closing, what is interesting about the proposition of distributism in the modern situation is that it is possible to inject the philosophy into a free society with free marketplace operations without conflict. Distributism operates on the acuquiecense of individual decision makers and cannot be introduced by top-down reorganization. Individuals must freely choose to pursue these market formations themselves, rather than have them handed down by regulatory edict.

What takes place is up to the individual decision makers. Creating more cohesive integrations between companies, employees, and local communities is the goal of a modern application of distributism and is, as can be seen in the points laid out above, in no way contrary towards the prevailing social demands around work.

In summary distributism in the modern world:

A resilient environment consisting of active, open marketplaces self-regulated by the distributist companies participating within it is the primary goal of this philosophic approach.

While the entity owners would lose potential to capitalize and control all of the value created by their organizations, the value that they would create by aligning their projects with their workers and communities would far outweigh their loss. Value creation increases and value capture is dispersed among a greater number of individuals.

A move towards distributism is a move towards a true system of social justice.

[2] Earnest Capital
[3] Microservices