Do Corporations Increase Inequality?

Do corporations increase inequality? Corporate governance and labour rights have been highlighted as affecting the historic rises in income and wealth inequality. This is particularly seen in work by Thomas Piketty, Joseph Stiglitz, and Kate Pickett and Richard Wilkinson. However closer legal and historical analysis is still developing. Which rules affect the income of executives and directors, employees, shareholding intermediaries and retirement savers the most? This article tracks those legal changes in corporations since 1900, and traces this onto changes in the top 1% of income earners in the UK, Germany and the US. The evidence shows, first, executive pay began rising when institutional shareholders could effectively monopolise the ‘say on pay’. Second, the loss of voice at work for employees and their unions from 1980 drove inequality dramatically. However, ‘single channel’ systems of labour-management relations appeared far more vulnerable than when employees could vote for company boards and bind specific management decisions in work councils. Third, over the late 20^thcentury asset managers and banks came to appropriate shareholder voting rights with ‘other people’s money’ (mostly from retirement savings). They were able to use those votes to make corporations buy their own financial products, subsidising financial intermediaries’ share of GDP, and inflating the income of the financial sector. This all suggests corporations are probably the most important ‘pre-tax’ cause of increasing inequality.