Worker Ownership as inclusive capitalism

today there are over 19,000 companies that collectively employ over 25 million workers that fit under a broad definition of employee ownership. That figure comprises nearly 16 percent of the American workforce. A related statistic from the University of Chicago’s General Social Survey reports that about 18 percent of those who work for companies in this country own stock in their companies.

“Chris Mackin, of the consulting firm Ownership Associates, has been a key figure in the worker ownership movement … I asked him to tell me what has happened to the worker ownership dream.

Excerpted from Chris Mackin:

“In the classic 1967 film “The Graduate,” Dustin Hoffman gets a single word of advice about the secrets of prosperity: “Plastics.” Almost 50 years later, as economic inequality gallops, compounds and then gallops some more, we need a similarly pithy intervention to address matters of economic fairness.

One candidate that may be equal to that task is a homely sounding economic noun that separates the wealthy from the rest of us. “Assets” are a seemingly magical set of resources that work for anyone who owns them. In conversations about economic fairness, “assets” are a resource that has largely remained outside the policy tent. President Obama has recently raised expectations about how economic policy might attack the problem of inequality. But he likely won’t get that far unless he too is ready to step outside that tent.

Accounting textbooks teach us that there are different categories of assets, both tangible (e.g., land, buildings, housing, corporate stock, minerals) and intangible (e.g., patents, goodwill, copyrights). Wealthy people own lots of these assets. So many that they often forgo that more pedestrian instrument that makes possible the accumulation of income, the paycheck.

Unwealthy people own few, if any, assets. Theirs is wage-dependent, income based universe. They live from paycheck to paycheck. If assets are the key discriminant that sustains the wealthy, why is it that the most commonly invoked solutions to economic inequality tend to focus on income enhancing measures such as minimum wage campaigns, payroll tax credits and job training? That’s not where the real money is. One could be forgiven for suspecting a plot. If the general problem of economic inequality could be likened to an overly deep bowl of soup that should be more fairly consumed, income-based solutions attack the challenge with forks. We need spoons, asset spoons. Let’s examine a few.

Since 1982 every citizen of the state of Alaska has enjoyed an annual dividend as a return on their share of oil revenues through the Alaska Permanent Fund. Bipartisan support, including from former Republican Gov. Sarah Palin, has protected this asset sharing program for over 30 years. When legislators sought access to a share of Permanent Fund revenue to fund state deficits in 1999, they were rejected by 84 percent of voters. Annual dividend payments have ranged from $331 to $2,069 per Alaskan.

Similar natural resource-based ideas have been proposed but not yet implemented. One would provide all citizens an annual clean air dividend derived from taxing polluters. The “Sky Trust” concept developed by West coast entrepreneur Peter Barnes has also attracted bipartisan support in part because, like the Alaska Permanent Fund, it circumvents government capture and directs revenue immediately to citizens. Sky Trust dividends would be an asset shared by all. Natural resource-based asset sharing concepts have decided advantages: They can help address complex problems such as pollution, and they’re easily shared through the common status of citizenship.

For all its appeal (and its apparently successful implementation in Alaska), resource-based asset sharing remains more or less pie-in-the-sky. But another form of asset sharing is already ubiquitous and therefore more immediately relevant to most Americans. It also challenges many contemporary assumptions about the nature of capitalism. That category is broad-based ownership of jobs and workplaces by employees, a trend with more statistical heft than is generally imagined. It also happens to be this author’s lifelong professional specialty.

Most people don’t know it, but today there are over 19,000 companies that collectively employ over 25 million workers that fit under a broad definition of employee ownership. That figure comprises nearly 16 percent of the American workforce. A related statistic from the University of Chicago’s General Social Survey reports that about 18 percent of those who work for companies in this country own stock in their companies. This is progress of sufficient measure to qualify for a compelling new label put forward by the Washington, D.C.-based think tank, the Center for American Progress. In a recent policy paper called “Growing the Wealth,” they refer to these trends as constituting “inclusive capitalism.”

There are two primary structures for inclusive capitalism and a number of other structures worthy of mention. Firms owned significantly by Employee Stock Ownership Plans (ESOPs) comprise the first significant category. ESOPs are a specific form of legal trust that can borrow money while also serving as a retirement plan for employees. They are regulated by the federal government and are inclusive, covering all employees working in a company for more than 1,000 hours in a given year. They number over 11,000 companies, employing over 10 million employees. They exist primarily in small to medium size privately held firms with a median workforce of 125, though they also exist with companies as large as the Publix Supermarket chain, with 152,000 employees. Their governance practices vary widely but research indicates that ESOPs that make use of more inclusive, transparent and democratic practices enjoy decided performance advantages over their less democratic counterparts.

The second largest cohort of inclusive capitalism companies makes use of “stock options.” This category is a favorite of entrepreneurial start-ups, particularly in the tech sector. The motivational power of this method cannot be denied. Paul Solman demonstrated it on the NewsHour years ago. However, the act of “ownership” here is usually ephemeral, not unlike the love life of the praying mantis. Ownership “happens” at the moment the price of the stock rises above the option’s “call” price, at which time option holders typically end the affair by cashing in, after which ownership ends up where it started — with the venture capitalists or the public stock markets. More a form of compensation than of ownership with attendant corporate governance rights, stock option ownership does enjoy a large footprint. In 2009, the Bureau of Labor Statistics estimated that 9 percent of private sector employees — somewhere north of 11 million employees — held one or more forms of stock options.

Other forms of inclusive capitalism include partnerships in law, accounting, architecture and other professions. Partnerships have a venerable history but constraints on raising external capital and legal liability issues have lead to a decline in their implementation.

Cooperatives are the most democratic and historically authentic inclusive capitalism structure reaching back to the 18th century. They exist in a variety of forms including consumer ownership, credit unions and ownership by franchisees pursuing common purchasing efforts. The most relevant segment to this conversation, worker cooperatives, dates back to the 19th century. Their footprint here is small, consisting of approximately 350 companies with collective employment of about 3,500 people. Challenged about whether their ideas can ever get to scale, enthusiasts frequently point overseas to the Basque country of Spain where the Mondragon group of industrial and service cooperatives employ over 80,000 people in over 200 companies. Unlike other forms of inclusive capitalism that generally rely on conversions of established and usually successful firms, cooperatives typically focus on start-ups — a constraint the cooperative sector will need to confront.”

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