Workers should have no truck with new share ownership plan

In capitalism's long history of exploitation, few abuses have been as iniquitous as the truck system.

This was the practice adopted by many companies of paying their workers not in cash, but in scrip; worthless brass tokens that could be spent only at company-run stores to buy goods at vastly inflated prices.

Companies not only made a handsome profit by selling their employees overpriced goods. The workers soon ran up crippling debts to the store, which tied them to their employer, allowing the company to hold down wages and perpetuate the vicious cycle.

Today the truck system is remembered largely through the American folk song Sixteen tons, which describes the hardships endured by a Kentucky coal miner in the Depression of the 1930s.

'You load sixteen tons, and what do you get?

Another day older and deeper in debt.

Saint Peter don't you call me 'cos I can't go:

I owe my soul to the company store.'

So powerful is the chorus that the song has been recorded dozens of times, by artists ranging from Bo Diddley and Johnny Cash to the Dandy Warhols and the Red Army Choir. There are versions in both Cantonese and Putonghua, and the song is a perennial favourite in Taiwan.

The truck system was deemed so pernicious that in England it was banned by a series of laws culminating in the Truck Act of 1831, which decreed: 'The entire amount of the wages earned by or payable to any artificer ... shall be actually paid to such artificer in the current coin of this realm, and not otherwise.'

Nearly 200 years later, the China Securities Regulatory Commission is attempting to swim against the tide of history. On Sunday, the CSRC published a draft proposal that would allow listed companies to pay up to 30 per cent of their workers' salaries in scrip; in this case the company's own shares.

The regulator is presenting its plan as the sort of employee share ownership programme common across much of the world.

But reports that companies will be permitted to pay a portion of workers' regular salary in shares indicate that this proposal has more in common with an old-fashioned truck system than with a modern employee incentive programme.

The CSRC's motives are clear. Following a near 20 per cent fall in the A-share market over the past 12 months, the regulator is concerned that depressed stock prices make raising equity capital prohibitively expensive for state companies waiting in the pipeline to launch initial public offerings.

As a result, the CSRC is trying its best to boost the market by urging listed companies to launch share buy-backs.

Clearly, some bright spark at the regulator realised there is no better way to encourage companies to buy their own stock in the secondary market than to let them offset the cost against their wage bill by palming the shares off on their own workers. In that sense, the scheme is brilliant. Bosses get to pump up the value of their stock portfolios at the expense of their own staff.

But from the workers' point of view, the merit of the new proposal is highly questionable.

In theory, employees will be able to opt in. But in a system with few protections, it is not hard to imagine bosses putting pressure on workers to accept a chunk of their pay in shares rather than cash.

And for employees, that is unlikely to be an advantage. Getting a performance-linked bonus in the form of options you can exercise in a few years' time is one thing. But being paid almost a third of your current salary in company shares that you cannot sell for three years is a different matter altogether.

It is the equivalent of taking a 30 per cent pay cut today, while being tied to your employer with the promise of receiving a bonus of indeterminate value in three years' time.

That might be great for companies and short-term market performance. But for workers, it will feel uncomfortably close to the iniquities of the truck system.

Areader writes in to complain about the chart in last Thursday's Monitor column showing how average urban incomes in China have fallen relative to gross domestic product per capita. The fall, he says, is due to rising urbanisation, not growing inequality.

I understand what he means. If a poor peasant moves to the city to do a low-paid job, the peasant's income rises, but average urban incomes fall. But that doesn't explain what's going on in China. The chart above shows the weighted average of urban and rural incomes per head, shown as a proportion of GDP per capita.

As you can see, over the past 10 years, average income has fallen from 50 per cent of GDP per capita to 44 per cent. That's got nothing to do with urbanisation. It just means that ordinary people haven't been getting their fair share of China's astonishing growth.