 Capitalism in its rawest form creates wealth for investors, but cares little for the welfare of workers. Driving down wages might look like a way to increase profits, but that does not help people fulfill their true potential and is no way to prepare for a rapidly transforming jobs market. As the world faces its biggest and fastest technological changes, don't workers need to be at the heart of decision making? Is it time to re-evaluate not only how workers get their voices heard, but also how their interests are addressed? In this episode we ask, how can we make an economy that works for those vital stakeholders, the workers? Welcome to Stakeholder Capitalism, a show from the World Economic Forum exploring how economies can be made to work for progress, people and the planet. I'm Natalie Pierce and with me is the co-author of the book, Stakeholder Capitalism, Peter Venom. Hi Peter. Hey Natalie, good to be with you. I'm excited for episode two, Let's Jump In. In today's episode we'll be exploring the social contract that many people believe has been broken between governments, business and workers. The theme of today's episode is an economy that works. Traditionally workers have had their voices heard and advocated for their rights through collective bargaining and unions. However, both the membership and power of unions seems to be on the decline around the world with some pretty serious consequences. Peter, can you present the problem to us in a nutshell? Yeah, let's have a look at what happened with union membership over time and let's look at the United States in the last 60 or 70 years. Here we see that in the 1950s, 1970s, this was the golden era of capitalism. Well, it coincided with the golden era, you could say, of unions. More than 30% of people were members of unions. But then it started to trail off and particularly in the 1980s, 90s and 2000s. This was when there was a strong political movement against unions and you could see that going down in today, only 10% of US workers are members of a union. That coincided, as you can see here, with a declining share of income going to the middle class, the middle 60% of income earners. At first, they earned well above 50% of US income. But then when union membership started to fall off a cliff, well, the same thing happened although less dramatically with the middle income share. And of course, the mirror image of that, as you can see here, is the top 10% income share. The richest income earners, they at first had an income share of about 30%. And then as that golden era of capitalism was over, union membership started to drop. You could see the rising share of income for the top 10%. So we see a decline in the income of the middle class and we also see a decline in union participation. But correlation does not always mean causation. Of course, around the world over the last four decades, we've seen a significant decline in middle income. Well, of course, we know that the top 1%, the top 10%, their incomes have skyrocketed. That's right, you do see that global trend indeed of the rising incomes of the top 10% and the top 1% of the declining income of the middle class. But where it gets really interesting, Natalie, is that in some countries we do observe also a positive correlation between where union membership remains high and also middle class incomes remains much higher than elsewhere in the world. In one case, in point, is Denmark in the Scandinavian countries. Before we look at that example from Denmark, of course, let's go first to the United States and explore what this means for workers there. Our first expert guest is Heather Long. She is an economics correspondent at the Washington Post and she reports regularly on economic policy and travels across the country to explore its impacts in factories and other workplaces. Hi, Heather. Welcome to today's show. We're so happy that you could be with us. Thank you. Great to be here. Heather, we just heard from Peter who showed us a graph indicating a decline in middle class incomes. Can you tell us in your visits on the ground, what does this look like in practice? It's a huge issue across the United States when the unions go away, usually because an auto factory or some other manufacturing hub closes. People go from earning on average a pretty middle class income, around $30 is average in a lot of the union areas. And what replaces those jobs is usually something like warehouse work, which pays okay, pays better than a fast food or retail, but it generally means an income cut. Imagine losing 50% or more of your income, all of us would suffer. It's a huge lifestyle change. People go from being able to afford that car to afford a house and affords to send their children to college to living paycheck to paycheck lifestyle. That's really worrying. And what do you think, Heather, are some of these structural trends that explain this? What explains what happened? Unfortunately, in the United States, we've tended to see that companies will just get rid of their current workers or try to find ways to get rid of the current workforce and bring in different people by moving the factory either overseas for lower cost or even to other parts of the United States. There's been this big migration from, say, the upper Midwest, sort of the Wisconsin, Ohio, Michigan area down to states like South Carolina, where it's easier to avoid unionization, the wages can be lower, and they get, in some cases, a younger workforce in that part of the country. What you found I thought was interesting was that even when these people that are unemployed or lost their job were offered retraining, that very often they didn't sign up for it or they sign up for the very basic courses. What explains that? The United States does offer some fairly substantial worker retraining opportunities where someone can basically get up to two years of college pain to do a lot of retraining. I've spent a lot of time in a town called Lordstown, Ohio, where a General Motors plant famously closed in 2019. And it was really striking to me that what I found is workers under 45 tended to do well. Like one woman, she was like, I'm almost glad I got laid off. I'm now, I got my nursing degree paid for and now I have a new profession. But anybody I spoke to who was sort of 45 and over, I just remember a heartbreaking discussion with a man who was very smart, and I'm talking to him over his dinner table. And he said, I used to do engineering and type jobs at the plant, but I have spent a week in this community college class and I had to drop out because I didn't even know things like where the thumb drive was. And they just haven't been in the classroom for such a long time. It was too big of a leap. And also in the United States, people are hesitant to move. So I also noticed that General Motors would, for instance, ask people if they wanted to move to a different state to perhaps work in a plant in Texas. And that's really hard. Again, it was a generational divide where people who were young in their 20s didn't have kids. They were generally willing to try something new, maybe even thought solid as an adventure. But anybody who was sort of in that mid 30s and certainly by the time you got to 40s and it was just really hard to snap and change their life. What are we missing here then? Because I mean, we saw in a graph that showed sort of a correlation between declining middle class incomes and the declining membership of unions. But what you seem to suggest is that even when unions are present and even when the retraining is present, you still see that sort of negative spiral that people get into. I mean, are we are we looking in the wrong place to look at the role of unions? In my own industry and journalism and media, we've actually seen a resurgence of unions in the past few years. So I think some people certainly still buy into unions and the importance of unions. But it has just diminished over time. I think we're at that point where we're almost it's only like one in 10 workers are unionized these days. And I think this new generation that's coming up of people in their 20s and 30s while they would agree with you and your premise that we could use more unions in the United States, and it's hard to start them. It's still and we just saw that with the case in the Amazon warehouse, that vote down in the South. A lot of people were stunned that the workers did not vote to unionize. And it was almost two to one voting against unionization. Why do you think, Heather, that unions are so polarizing in the United States right now? Right or wrong, unions over time had become very associated with the Democratic Party, and they tended to tell their members to vote for Democratic candidates at both the state and local level, as well as for President of the United States. So unfortunately, unions sort of got lumped in. I will say what was fascinating to a lot of people was in the 2016 election of Donald Trump and he did way better than most Republican candidates with unions. He talked about unions. He visited several unionized warehouses on the campaign trail and really made a lot of inroads with the population we're talking about of people who felt that their livelihood was at stake, whether they were a union member or someone who had seen that company move out of their town. Another thing that you touched on was this notion that we have also new jobs. I mean, we're seeing now a gig economy. It seems much harder for people to sort of represent themselves if they're not physically in the same workplace as everyone else. This was the case in factories. How do you see the future there for the economy and its workers? Yeah, there was a huge case and vote in California. It's called Proposition 51, I believe. It was basically around the ride share. What benefits should ride share drivers have for the Ubers and Lyfts and other types of these services? So the companies really didn't want these workers to even be classified as their workers. They wanted them to still be considered independent contractors who are just using the brand of an Uber or Lyft, but are basically running their own business out of their own car. And they sort of made this small compromise where there was an opportunity if you drove a lot. So if you drive over, say, 30 hours a week, you could potentially get certain types of benefits, maybe an access to a health care plan or access to various other retirement type savings plans. But it's pretty far from what you're describing, from looking like anything like a workforce or just a relationship with your company that many of us are used to. Something that surprises me, at least in the United States, we all think that the gig economy is growing so large. In actuality, certainly the government data in the United States indicates that gig economy actually has not grown as much as many of us perceive and is still a very small share, you know, sort of 10% or less share of the labor force right now. It's not just the factory jobs and those blue collar jobs that have declined substantially in the United States. It's also your sort of low to middle skill office jobs. So when we talk about women, women who often worked as filing clerks, paralegals, administrative assistants, those also used to be those sort of middle class jobs in the US that would pay sort of 40 to $60,000, come with good benefits. And those have dramatically gone away from the automation trend. And so basically we've seen this hollowing out of jobs in the US that pay between 30 and $60,000, that middle class pay and they're being replaced by a lot of jobs. The top of the top 10 fastest growing jobs, seven, pay less than about 27,000 a year, certainly under 30,000. So you're sort of left when you get when you lose one of these jobs, you're left, you know, do I have to go back and get a college degree and try to get in the white color economy, which is a big leap, scary leap for a lot of people. Or do I take, you know, your best option is usually a warehouse job right now. So interesting, Heather. Obviously, in today's episode, we're talking about making economies work better for workers, whether it's the gig economy or manufacturing. What solutions are you seeing or policies, recommendations that leave you optimistic? I think a couple of things. Number one that I hands down think has been the best program in the United States. It's two years of free community college. People knowing that they can go back and do two years pretty much at any point in their life is a huge game changer. But a number of states, this is one of those bipartisan policies. So blue states like Red Island, red states like Kentucky have tried this and it's been hugely successful because people know it's there. You can literally just drive to your nearby community college or go online and talk to them. And often those community colleges, it's not just the two year degree. Same thing with high skilled manufacturing. And those courses are about a year long. It can be a game changer. But a lot, you know, that's that barrier to entry you're just trying to lower. And when people know it's open to everyone, it does seem to increase enrollment and increase people finishing these projects. Do you think that the missing LinkedIn is not just that the policies are there and that the educational opportunities are there, but also that there's sort of this culture in which workers feel confident to go and pursue those opportunities and is that then perhaps the new role of unions or whatever the equivalent of that is in the new economy? It has to be more than the educational opportunity. That's always the easy solution. And I will say whether it's done through a union or we're starting to see this proposal in the United States from the Biden administration for a big expansion of the role of government. And what they're talking about is more of the European style role of the government, where they're not just helping you educationally, but they're also helping provide childcare, helping provide universal care for three and four year olds. The other thing they bring up is transportation. And it's been interesting to see that cities, you know, where there's a real discussion about where the bus route should be, whether to subsidize and how that could change where people can go and what their job options are. So I think this holistic thinking about work and what work looks like and what workers need to get back into the workforce is key. And the last point I threw out for the U.S. is mobility, not just mobility of job or mobility of income, but Americans don't move a lot. And we used to be this country known for all immigration, for people being willing to uproot their lives and come to the United States. But in the past sort of 50 years, people are really hesitant to move more than about 30 miles. And with the whole rise of cities, with the sort of changing types of jobs you can do, there's been a big debate in the U.S. Do you try to save some of these cities that are not near that ecosystem or do you try to move the people to where you see the future and where you see a lot of these, you know, these newer job opportunities? And that's a really hard debate. Super insightful. Thank you so much for being with us, Heather. Up next, we're going to welcome our second expert witness who comes from Denmark. Peter, before we get to it, I'm curious, why is Denmark such an interesting example for today's conversation? Well, it's a country where the union membership has remained very high and at the same time, incomes of the middle class have remained very high. And finally, also, it's remained a very competitive and open economy. To tell us more, we have Thomas Sobi, who is the chief economist of the Danish Metalworkers Union. Hi, Thomas. Thank you for being with us. Hi, Natalie. And thank you for having me. To get started, I have a first question. And there was a quote in the stakeholder capitalism book that I really enjoyed and it said, you should not be afraid of new technology. Instead, you should be afraid of old technology. And it was said by the president of the Danish Workers Union. What do you think of this quote? And do you agree with it? I absolutely agree. Not just because it was my president who said it, but also because I think it's true. Denmark is a small open economy. We are very exposed to global competition. So without new technology, we would lack the ability to compete on the global markets. So productivity and competitiveness is one part of it. And the other part of it is, of course, that it improves the working conditions. We have new technology can help us to get rid of heavy lifting and stuff like that. So it's pretty much a win-win. It's good for the companies. And it's very good for our members that we have new technology that improves productivity and working conditions. I want to maybe follow up on that, Thomas, because when you speak, I mean, it really sounds like you're speaking as if you could also be the chief executive of a company. You talked about win-win and a win for workers and a win for companies. Could you tell us a little bit more about, let's say, the social pact that exists in Denmark between companies or workers and government? I don't know if I could go as far as calling to get a pact. But I think there's a mutual understanding that we are dependent on each other. It is very easy for companies to hire and fire people. So that's the flexibility part of the system. But there's a great means of social security as well, the security part of it. And it makes it better for the workers when they are laid off to get education, retraining, and also some of money in order to kind of keep up with their living standards. And then we have the Third Lake, if you could say, and that is the public financed educational system creating an educated workforce, pretty much able to step right into a specific company and do the jobs they are asked to do. And that makes it the flexibility system known as also the Danish or the Scandinavian model. And that makes you embrace also technological progress because you know that if something goes wrong, if you might lose your job temporarily, you will be receiving help and you will be receiving training. Now, previously when we talked to Heather Long in the U.S., she said that there were places where training was offered, where education was offered, but workers didn't even sign up for it. She said because they had been out of the classroom for way too long, what makes a Danish model different? Why are workers so much more encouraged and enthusiastic to participate in the education? Well, we do have some kind of problems as well with workers more reluctant to participate in education. But I think the general rule is that they are pretty eager because also they know that new technology makes you need new skills. And if you are to keep your job, you just need to kind of improve your knowledge and improve your skills. You know, maybe another follow-up question because you really see that that's a difference. In Denmark, I suppose people get retrained continuously, maybe every year, every couple of years, where in the U.S. there's often a much bigger lag in terms of that education taking place. But also wages are much lower, we heard from Heather in the U.S. What do you think went wrong in the U.S. that they don't have that model anymore? Of course, I'm not a specialist in the American economy, but I think there's a couple of things that went wrong in the U.S. I'm afraid that the degree of the workforce who are members of the union is just about 10% today. I think it's at least 70% in Denmark. So the unions don't have the force to kind of make it available for the workers to get more education. Instead, they have kind of used their abilities to try to compete in low-wage systems, where we're in Denmark trying to kind of compete with high quality, high productivity. And Denmark is a high salary country. It is expensive to have a business in Denmark. And of course, we have disagreements with the employees on that topic. But on the other hand, we also have a very, very, very skilled, a very, very educated workforce with a very, very high level of productivity that makes it possible to compete even when the wages are pretty high. And I think that the combination of education, high taxes, and of course, high productivity and new technology makes us a more competitive economy than at least the manufacturing industry in the U.S. It sounds like when it comes to education, it's not only about access, but how do you create a culture of continuous learning? So that's very interesting. Thomas, you also mentioned competitiveness. And so I was curious, what do you say to critics who think that unions are an inhibitor to a free and open market? Yeah, I heard that point of view. And I kind of sometimes also understand where it comes from. I think that what we have agreed upon in Denmark is that we have a rule-based labor market. So the employees, the employers, both sides know that it is to mutual benefit that we have created a system with negotiations. Of course, we have the right to strike. And sometimes there is strikes, but the very huge general strikes are very, very rare because usually we get things solved in the local company or on a local level. Or if it's necessary on an organizational level, well, the union meets with the employees. It sounds like creating space for open dialogue between stakeholders, government, business, workers, unions is absolutely critical in your case. Absolutely. And we have three-part negotiations as well. And especially during the COVID-19 pandemic, we have had a lot, I think, 15 or 16 free-partite agreements about how to mitigate the very serious implications of the COVID-19. And I think when we look at the results so far, we've done pretty good. Very low rise in unemployment. And when it comes to the manufacturing, increased exports now, increased employment again. And also a very, very low level of unemployment in the Danish economy as such. Thomas, it seems that in Denmark, there's a very high sense of ownership among employees over the purpose of the company and the direction of the company. They want to contribute to that. In other places, we've seen that feeling of ownership is much less, it's absent. What do you think are some best practices for employees to feel more connected to their company? I think you're right. Huge amount of loyalty from the workforce to the specific company they work in. And I think dialogue between the company and the shop stewards and the workers are very, very key in this issue. Show interest in the workforce, help them educate themselves, talk to them about new investments, talk to them about how the company are going to evolve. I think you get a lot in return in terms of loyalty, flexibility, willingness to educate, willingness to do better. Invite the workers inside the decision of the company. Of course, the leadership of the company will ultimately be the deciders. But the dialogue, the discussions, the conversation about themes of importance to the company is extremely important to have with the workforce. Thank you so much, Thomas, for being with us today. We are now going to move to the last part of our episode, the post-match analysis. Peter, you presented the problem to us around the world. We see that workers are losing their seat at the table. What did you hear from today's conversation that makes you optimistic? Well, I think in the first case, we heard from Heather who said, well, even if you have no longer unions per se, you can still have, for example, governments step in and play the role that unions used to play. She talked, for example, about the need for this continuous education and for education not to be held out or reskilling to be held out until somebody gets fired. So I think that whether unions, government, or company, the important point is that the interests of the workers are taken into account. I heard that so clearly from Thomas who said, we need new alliances, we need new coalitions between government, business, and workers. And this is the only way that we'll ensure that we don't see an unstoppable race to the bottom when it comes to labor workers' rights. Yeah, that's right. And the nice thing about the Danish example, of course, also, is that it shows that you can have that third seat at the table for unions, for workers, that they can be responsible, as Thomas said, there can be a civilized conversation and dialogue between workers and companies, and if needed, the government. You can actually have people that all work towards that common goal and that benefits everyone in the end. Absolutely. We don't let anyone off the hook. Policy makers ensure that workers have capacity to organize and business leaders prioritize workers, their most important asset. Yeah, so that's something that remains, I think, valid throughout time and throughout, let's say, technological revolutions. Now, we have heard also from Heather that you have, of course, this rise of the new economy, of gig economy to a certain extent, but also things such as warehouse jobs and other types of new jobs emerging. And of course, where you can then not organize labor in a traditional way, you have to look for new ways of getting together and organizing your interests. Thank you, Peter, and thank you to all of our viewers who tuned in for another episode of Stakeholder Capitalism. To learn more, visit weforum.org. We'll see you next time.