An Appeal to Capital: Why These Reforms Benefit Investors

The Problem With Current Capitalism: Instability

You understand something that most people don't: capital flows to stability. A predictable 7% return is worth more than an unpredictable 12% return with high volatility. You want certainty. You want to know that the system will be functional 20 years from now so your investments are worth something.

The current system is not stable. It is structurally unstable.

McKinsey's analysis of corporate risk estimates that one-third of corporate profits are at risk from government intervention. Why? Because the legitimacy of the current system is eroding. When inequality reaches extreme levels, when workers cannot afford housing, when entire communities are left behind, pressure builds for regulatory backlash.

Recent economic research confirms something intuitive: extreme inequality creates financial fragility. A 2022 study from NC State University examining wealth inequality and financial instability found that inequality amplifies the risk of banking crises and systemic financial collapse. Why? Because when most people have nothing to lose, they run first. When wealth is concentrated, even a small shock can trigger cascading failures.

The 2008 financial crisis was not an accident. It was a product of decades of inequality creation—wage stagnation for workers, wealth concentration for investors, regulatory capture enabling riskier and riskier financial instruments. When the system destabilized, who lost money? Everyone. But the wealthy recovered. The workers still haven't.

If you want your capital to be safe, you need a stable system. The current trajectory is not stable.

The Second Problem: Demand Destruction

Let me ask you a fundamental question: who buys the things your companies produce?

Workers. Consumers. The bottom 80% of the income distribution.

When you suppress their wages, you suppress demand for your products. When you reduce their purchasing power, you reduce the market size for your goods and services.

Look at the data: while GDP per capita has tripled since 1975, real wage growth has been essentially flat. Corporate profit margins have expanded massively. This means: consumers are buying less. Companies are producing more goods that fewer people can afford. Margins are maintained only through increasing extraction—higher prices, lower wages, worse service.

This is not sustainable growth. This is demand destruction masquerading as efficiency.

An investor from 40 years ago would recognize: a stable economy has healthy consumer demand. Workers earning good wages buy products. Buy homes. Start businesses. Create new demand. When workers are impoverished, market size shrinks, growth slows, companies struggle.

The 1950s-1960s proved this: high wages, strong labor bargaining power, high tax rates on corporate profits—and what happened? The strongest business profitability in American history. The strongest stock market returns (8-10% annually). The strongest economic growth (3.9-4.8% annually). The strongest job creation.

Companies that pay workers well have better returns. This is not ideology. This is empirics.

What The Research Shows About Alternative Models

Employee-Owned Companies Outperform

SRC Holdings is an employee stock ownership plan (ESOP). Founded in 1983, its stock has appreciated 1,000,000% in 42 years. One million percent. The founder, Jack Stack, is a multimillionaire. His employees are millionaires. The company is enormously successful.

SRC Holdings is not unique. It is typical.

Why do employee-owned companies outperform? Because employees who own the company work harder, take fewer sick days, innovate more, care about long-term success instead of quarterly earnings, stay longer (reducing turnover costs), and make better decisions (because they understand consequences).

A Fortune 100 company with ESOP: Costco. Pays $19.50/hour (vs. Walmart's $11). Has lower turnover. Has higher per-employee sales. Is more profitable. Stock has appreciated more. Shareholders are happier.

The best-kept secret in investing: employee-owned companies are safer, more stable, and more profitable than shareholder-maximized companies.

Stakeholder Companies Build Long-Term Value

Patagonia, Ben & Jerry's, the 3,500+ certified B Corporations—these are companies that explicitly consider workers, communities, and environment alongside profits. What is the result?

Strong margins. Industry-leading wages. Industry-leading brand loyalty. Ability to weather economic downturns. Ability to attract top talent.

McKinsey research: stakeholder-focused companies have stronger long-term value creation. Why? Because they are not optimizing for the next quarter's stock price. They are optimizing for the next 10-20 years of sustainable profit.

Family-owned companies are the ultimate example. They take multigenerational view. Their growth may be slower, but their financial results are less volatile. Their risk of bankruptcy is lower. Their reputation is higher. Their employees stay longer. They are, by every measure of long-term stability, superior investments.

The paradox: Companies that prioritize profit above all else are actually worse at generating profit long-term. Companies that balance profit with other considerations are better at generating profit long-term.

The Systemic Risk You Should Actually Fear

A recent article in Responsible Investor, written for institutional investors, stated plainly: "Individual companies' actions—bearing down on wages, squeezing suppliers or outsourcing labour to the gig economy—can be economically rational for them and entirely legal. But these effects, aggregated at the system level, drive inequalities that erode consumer demand, reduce corporate profitability, and risk social and political instability."

Translation: your competitors are creating systemic risk by extracting value. That extraction reduces the overall market size. It creates political backlash. It threatens to destabilize the entire system.

Large pension funds, sovereign wealth funds, insurance companies—universal investors who cannot hedge macroeconomic exposure—are increasingly worried about this. They are invested across entire economies. If the system destabilizes, they lose.

Political Instability From Inequality Crashes Markets: IMF research on social unrest examined 156 unrest events in 72 countries. Finding: stock market returns drop 1.4% on average after major unrest. In authoritarian regimes (weak institutions), the effect is much worse: 2% immediately, 4% over the following month.

The U.S. has strong institutions. But inequality is eroding institutional legitimacy. Political polarization has its roots in economic inequality. If legitimacy erodes enough, the institutional protections evaporate. And then market returns can look like the authoritarian countries—severely negative.

You cannot hedge systemic risk. If the system collapses, all stocks fall. All bonds become risky. All real estate becomes uncertain. Your diversification only works if the system functions. Extreme inequality threatens system functionality.

From a pure risk management perspective, you should support policies that reduce systemic risk. These proposals reduce systemic risk.

What These Proposals Actually Mean For Returns

Higher Corporate Taxes: More Stable Returns, Lower Volatility

The proposal is to return to 1950s tax rates: roughly 50-55% top marginal rate on income, 35-40% corporate rate (vs. current 21%), higher capital gains taxation.

Your response: "That will destroy profits!"

The evidence: it will not. Companies in the 1950s with 50%+ tax rates were enormously profitable. Stock returns were 8-10% annually. Growth was strong.

Why did this work? Because higher tax rates funded infrastructure, education, research, healthcare—things that benefit business. A worker with good health, good education, safe roads, reliable power, and strong public research has higher productivity. A company operating in a country with stable institutions, educated workforce, and healthy consumers is more profitable.

Moreover, when the government takes a larger share of profits, companies are incentivized to reinvest in business improvement rather than financial engineering. More capital expenditure. More R&D. More training. More durable competitive advantage.

What is destroyed is not profitability but extraction. Leveraged buyouts funded by tax-free bonds. Stock buybacks. Dividends disconnected from underlying business value. Financial engineering that extracts value instead of creating value.

You would prefer stable 7% returns to unstable 12% returns. Higher taxes deliver that by reducing financial engineering and incentivizing real business improvement.

Higher Wages: More Demand, Larger Markets, Better Returns

The proposal is to raise median wages from $57K to $75K (31% increase). This creates higher demand for goods and services.

How does this affect returns?

Revenue increases. More people buying = more sales = higher revenue. This is straightforward.

Cost per unit decreases. Higher volume means fixed costs (buildings, equipment, infrastructure) spread over more units. Per-unit cost falls. Margins improve despite higher wages per hour.

Productivity increases. Better-paid workers are more productive, stay longer, innovate more. Output per hour increases. Per-unit labor cost may fall even as per-hour wage rises.

Reduces inflation risk. Wages rising slowly while costs inflate is the current model. That erodes margins. Wages rising with productivity prevents margin erosion.

Real example: Costco vs. Walmart. Costco pays nearly 2x what Walmart pays. Yet Costco is more profitable, has stronger margins, has higher per-employee sales, treats suppliers better, maintains better inventory, and has superior stock appreciation. Higher wages did not destroy returns—they improved them.

Cooperatives and Worker Ownership: Reduce Risk

As an investor, you know: concentrated ownership is risky. When a single leader leaves, or makes bad decisions, the company suffers. Diffused ownership through employee ownership distributes risk. Decisions are made with broader input. Institutional knowledge is preserved when people leave (because ownership incentivizes knowledge transfer).

Financial history is littered with companies that failed because of leadership concentration. Family feuds destroyed companies. Genius founders made catastrophic bets. One bad CEO sank everything. Companies with distributed ownership—including employee ownership—are more resilient.

What The Proposals Do NOT Do

I want to be clear about what is not being proposed, because there is much misinformation:

These are not proposals to eliminate profit. Profit is essential. Profitable companies survive. Unprofitable companies fail. Nothing in this series proposes to eliminate profit. We propose to distribute it more fairly and invest in long-term stability rather than short-term extraction.

These are not proposals to eliminate capital returns. Shareholders in cooperatives and ESOPs earn returns. They earn dividends, capital appreciation, and benefit from long-term value creation. The return may be more stable and less extreme, but it is substantial.

These are not proposals to eliminate investor power. Investors would still own companies. They would still make money. They would still have incentive to improve business performance. The difference is that workers and communities would also have voice, and extraction would be constrained.

These are not proposals to eliminate efficiency. Competition would still exist. Inefficient companies would still fail. Efficient companies would still thrive. The difference is that efficiency would be measured differently—including factors like turnover, health, employee satisfaction, not just pure profit margin.

The Real Question: Is Profit the Only Metric?

Your industry thinks in metrics. Revenue. Margin. EBITDA. Return on equity. These are useful. But they are not the only useful metrics.

Ask yourself: if a company has high profit margin but zero legitimacy—workers hate it, communities oppose it, it faces constant regulatory scrutiny—is it a good investment? If a company has high stock price but faces existential political risk, is it safe?

Sophisticated investors already measure: brand strength, employee stability, community relationships, regulatory risk, supply chain resilience, management quality, institutional durability.

What we propose is to add one more metric: fairness. Does the company distribute value fairly among the stakeholders who created it? Is it sustainable long-term? Does it have legitimacy?

Companies with high fairness metrics have better employee retention, better customer loyalty, better supplier relationships, less regulatory risk, better ability to weather crises, better ability to adapt and innovate.

Companies with low fairness metrics face the opposite.

"The question is not whether profit matters. Profit is essential. The question is whether it is the ONLY thing that matters. Investors sophisticated enough to think long-term know the answer is no. Long-term returns require stability, legitimacy, and sustainability. These proposals enable all three."

What Needs to Happen

For these reforms to succeed, the investment class needs to move from opposition to acceptance to active support. This requires three things:

1. Recognize the Systemic Risk

The current trajectory—extreme inequality, worker impoverishment, community devastation, regulatory capture—is not sustainable. It creates systemic risk. Intelligent investors reduce systemic risk. These reforms reduce systemic risk. Supporting them is intelligent risk management.

2. Measure Long-Term Returns, Not Quarterly Extraction

Short-termism is destroying long-term value. A stock that rises 30% in one year but faces existential risk in ten years is not a good investment. Investors should demand long-term thinking from companies. These reforms incentivize long-term thinking.

3. Accept Reasonable Profit-Sharing

The current model concentrates returns: shareholders get most of the wealth. Employees get poverty wages. Communities get destruction. This is unstable. A more balanced distribution—where workers earn decent wages, companies earn solid profit, communities benefit—is more stable and more durable.

You do not need to own 100% of the value. You need to own a stable share of a healthy system. You would rather own 10% of a stable, growing $100B economy than 20% of a shrinking, destabilizing $50B economy.

The Bottom Line

I am not asking you to be altruistic. I am asking you to be intelligent. The proposals in this series benefit you. Not your short-term extraction. Your long-term wealth.

Employee-owned companies have superior returns. Stakeholder companies are more resilient. Higher wages create stronger demand and healthier markets. Progressive taxation enables infrastructure and education that improve productivity. Reduced inequality reduces systemic risk.

These are not sacrifices. These are optimizations.

The system that created the greatest wealth in human history—the 1950s-1970s American economy—was based on these principles. High wages. Strong labor voice. Progressive taxation. Employee voice in governance. Government investment in infrastructure and education. And what happened? Investors made extraordinary returns. Businesses thrived. The economy grew.

You can have both: investor profit and worker dignity. Both: business success and community health. Both: capital returns and systemic stability. You just cannot have extraction without limits, inequality without bounds, and expect the system to hold.

What is being proposed is not radical redistribution. It is a return to the model that worked. It is intelligent capitalism that creates long-term value instead of short-term extraction.

I ask for your support. Not because it is just (though it is). But because it is profitable. Because it is stable. Because it is intelligent.