A psychotherapy practice’s year-long experiment with paying every employee an equal salary has disproved the central economic thesis of socialism.
Calvin Benton co-founded Spill, a British firm that offers psychological counseling via online technology like Zoom. He met another of his company’s founders a decade earlier while taking an economics class together. It’s not known whether the failure of their company’s compensation model came in spite of, or because of, their economics instructors.
As Benton and his four co-workers got Spill off the ground, they opted to take part in a revolutionary trial: Each one of them would receive the same annual salary of £36,000 (approximately $49,240 U.S.). At first, “there were five people, and everyone was pretty much contributing the same,” Benton told the BBC.
The initial returns were promising. Even as the 2020 pandemic closed thousands of small shops, Benton’s business boomed. COVID-19 demanded remote work, which caused burnout among some employees. For others, the lockdown orders themselves created unbearable stress.
The limits of the UK’s National Health Service (NHS) also padded Benton’s bottom line. “More and more firms are paying for their staff to get therapy for their problems, because it’s getting harder to get therapy on the NHS,” he told the BBC. The coronavirus outbreak forced the always-stressed NHS to pause even more “elective” services than usual. Advocates of single-payer healthcare, take note.
Spill’s cup runneth over. Soon, it had to add more staff. That’s when things began to fall apart.
The young startup had a hard time retaining staff members whose expertise yielded greater productivity (like software developers, who make far more than £36,000 annually in London). On the other hand, it received a glut of applications for clerical positions (which pay an average of £10.71 an hour, or £22,276 annually). Salespeople also wanted a more traditional commission based on the percentage of their sales, which rewards their efforts and ingenuity.
Benton realized the laws of economics had asserted themselves. He said:
“When we grew the team, we started to have some people who contributed more than others. You had some people who worked longer hours than others. The question started to arise: should this person be paid the same amount as me?
“That caused a conflict in the team and a conversation in the team about whether this experiment was right to continue.”
After a year, Calvin’s staff revolted, and he instituted a more typical pay scale based on value creation and seniority.
Benton said his experiment in leveling economic inequities proved a “disappointment.”
“We wanted to do something which was democratic and egalitarian,” Benton said. “But sometimes traditional practices are there for a reason. Sometimes you don’t have to reinvent the mould on everything.”
Ultimately, Benton and his colleagues verified a well-known fact of human nature: People reject socialism, because it is inherently unfair. Why should the most diligent and productive worker receive the same pay as the laziest and least productive? The notion violates our natural sense of justice.
Researchers have explained the psychological and moral forces work here. An April 2017 study published in Nature Human Behavior found “that when fairness and equality clash, people prefer fair inequality over unfair equality.” Unequal work merits unequal rewards. “[W]hen one recipient has done more work, six-year-olds believe that he or she should receive more resources, even if equal pay is an option,” it stated.
Economics takes the reality of human behavior as its starting point. Friedrich von Hayek noted the tension between economic equality and equality of outcome in The Constitution of Liberty. Unequal outcomes result from unequal effort, he said. “Equality before the law and material equality are therefore not only different but are in conflict with each other; and we can achieve either one or the other, but not both at the same time,” he wrote. “The equality before the law which freedom requires leads to material inequality.”
The Spill experiment disproved the supply aspect of socialism. Despite Benton’s best intentions, paying people the same amount of money for different outcomes could not – and cannot – work. Panera’s failed line of pay-what-you-can bistros, known as “Panera Cares,” disproved the demand aspect of socialism. Together, they underscore that people are neither willing to produce more than others for the same pay nor consume less than others if they believe it comes at someone else’s expense.
Neither a company nor a nation can long endure if it expects people to violate the laws of economics and human nature.