November 15, 2013


What the Founding Fathers Believed: Stock Ownership for All (Paul Solman, Richard B. Freeman and Joseph R. Blasi, 11/15/13, PBS)

Citizen ownership, often demonized as "socialist," has a pedigree dating to the American Revolution. "Scene at the Signing of the Constitution of the United States," oil on canvas by Howard Chandler Christy, 1940, via Wikipedia Commons.

Paul Solman: "Using tech playbook, oil drillers shower employees with stock." So read a recent article in Reuters.

But as Joseph Blasi of Rutgers and Richard Freeman of Harvard emphasize in Friday's post, worker ownership is as new as fracking, but as old as America itself. George Washington, a slave owner, remember, believed that broad-based worker ownership would ensure "the happiness of the lowest class of people because of the equal distribution of property."

John D. Rockefeller encouraged worker ownership. George Eastman (of Eastman Kodak) helped invent stock options.

These and other rather surprising facts are in Blasi, Freeman and co-author Doug Kruse's new book, "The Citizens Share," which Freeman told me about recently when I interviewed him for the NewsHour.

"The Alternative American Dream: Inclusive Capitalism." That was the headline of an extremely popular post on our Making Sen$e Business Desk by long-time worker ownership activist Chris Mackin this summer. Now, Freeman and Blasi, in a sense, follow up.

Richard B. Freeman and Joseph R. Blasi: The fact is indisputable: productivity -- output per worker -- nearly doubled over the past 30 years. Yet the real pay of most workers increased much more slowly, and the hourly pay of many groups of non-supervisory workers barely budged at all. So what happened to the gains of higher productivity?

They showed up in an increased share of income accruing to owners of capital and in the pay of top earners, whose compensation consists disproportionately of -- guess what? -- stock options and stock grants that give them a share of the increased growth and income that comes from capital. [...]

Reading through the original arguments for a United States of America suggests that this level of inequality threatens not only our economy -- who will buy what the wealthy produce? -- but the health of our democracy as well. One does not have to be a modern radical to worry. Back in the 1770s, the Founding Fathers worried deeply about the dangers to the new democracy of concentration of wealth.

James Madison warned that inequality in property ownership would subvert liberty, either through opposition to wealth (a war of labor against capital) or "by an oligarchy founded on corruption" through which the wealthy dominate political decision-making (a war of capital against labor). John Adams favored distribution of public lands to the landless to create broad-based ownership of property, then the critical component of business capital in the largely agricultural U.S. Current levels and trends in inequality would almost certainly have terrified the founders, who believed that broad-based property ownership was essential to the sustenance of a republic.

If increasing inequality is indeed as dire a problem as the Founding Fathers imagined, what, if anything, can the U.S. do to reverse the pattern and to assure that in the next three decades, all of us share in the benefits of modern technology and economic progress? What is the best way to avoid Madison's dark scenarios?

The standard economic solutions from the right and left are either to raise or lower taxes; to increase or decrease social welfare expenditures; to invest more or less in education or infrastructure; to clamp down or loosen up on business. But none of them addresses the essence of the problem: the huge concentration of capital ownership and capital income.

We propose a new strategy: to expand capital ownership and capital income for normal workers through programs that encourage broad-based employee stock ownership of firms, widely available profit-sharing, and all-employee stock options and stock grants in firms that now restrict ownership, stock options and bonuses to only the highest-level executives. (More active pension fund investments, more active institutional investors economy-wide and reforms in corporate governance are also needed to address what we could call the ownership gap, but we'll save them for another day.)

The economic benefit of increasing workers' shares of the income earned by their employers jumps out in the data. On average, workers produce more in those firms in which they have a stake and in which they participate in workplace decision-making than in those in which they are merely hired hands. To be sure, worker ownership of shares and of the stream of returns through profit-sharing or gain-sharing or other forms of shared capitalism does not always produce better outcomes, any more than medicines cure all diseases. But empirical evidence reviewed in chapter five of our new book shows that on average, ownership and decision-making based on all employees owning a stake in performance beats out hierarchical economic structures dominated by the few.

And, of course, your SS, HSA and unemployment accounts should all be made up of stocks too.
Posted by at November 15, 2013 1:36 PM

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