MyDD :: An Opportunity Society IV

An Opportunity Society IV

by Gary Boatwright, Mon Feb 21, 2005 at 11:27:32 AM EST

This is the good stuff everybody has been waiting for. Links to all three previous diaries can be found in An Opportunity Society. So far Alperovitz has laid the political groundwork. Now he gets into the nuts and bolts of economic inequality. Today I will pick up a chapter from Part I that I omitted, because my diary was already getting lengthy and it was a good lead in to Part II: The Democratization of Wealth.

Democracy: Inequality and Giant Corporations

A second line of attack on what many now call the "democratic deficit" seroes in on the multiple ways the organization of the larger economy impacts democratic life.

One form of the question focuses on the challenge economic inequality poses to democratic practice - and the degree to which different institutions do or do not foster equality. "If income, wealth, and economic position are also political resources, and if they are distributed unequally, then how can citizens be political equals?" asks political scientist Robert Dahl. "And if citizens cannot be political equals, how is democracy to exist?"

We are all familiar with the wide variety of ways that corporations and the privileged wealthy elite game the political system. Alperovitz joins the issue of political inequality and economic inequality at the hip:

The deeper issue is thus profoundly challenging: even the most far-reaching reforms are unlikely to succeed, it appears, given the underlying pattern of inequality.

More in Extended Entry

Put another way: until the foundational question of whether some other way to reduce inequality is confronted and resolved, it is unlikely that the democratic question of how to curb the influence of money in politics can be effectively dealt with. And given the failure of traditional approaches, for better or worse this again brings the problem of democratic renewal back to asset-based strategies and new institutional approaches to altering wealth ownership.

Alperovitz is covering familiar ground for those of us at MyDD, but key points bear repeating:

Large corporations [are] incompatible in various ways with democratic practice.

. . .

A host of studies have documented some of the most obvious realities. The large corporation regularly

(1)    Influences legislation and agenda setting through lobbying
(2)    Influences regulatory behavior through direct and indirect pressure
(3)    Influences elections via large-scale campaign contributions
(4)    Influences public attitudes through massive media campaigns
(5)    Influences local government choices through all of the above - and adds the implicit or explicit threat of withdrawing its plants, equipment, and jobs from specific locations.
(6)    Influences choices at all levels by virtue of the simple fact that in the absence of an alternative, the economy as a whole depends on the viability and success of its most important economic actor - a reality that commonly forces citizen and politician alike to respond to corporate demands.

Alperovitz presents a truisim, that ultraworld will certainly approve of, and even conservatives will be compelled to accept. Corporations only have the rights that Congress and the Supreme Court grant them:

The large for-profit corporation is a creation of society. It has no independent right to exist absent a public charter that spells out its rights and obligatioins.

The key point is that economic equality enhancing strategies and democracy enhancing strategies are two sides of the same coin.

Part II: The Democratization of Wealth

A Direct Stake in Econmic Life: Worker-Owned Firms

This chapter chronicles the dramatic sub-rosa expansion of ESOPs since Kelso created the concept in the early 70's.

That individuals work harder, better, and with a greater enthusiasm when they have a direct interest in the outcome is self-evident to most people. The obvious question is: why aren't large numbers of businesses organized on this principle?

The answer is: in fact, thousands and thousands of them are. Indeed, more Americans now work in firms that are partly or wholly owned by the employees than are members of unions in the private sector!

I've done a little reading about ESOPs and wondered why the idea hadn't caught on. It turns out that ESOPs have been incredibly successful.

The Appleton Company . . . was bought out by 2,500 employees and is now one of the ESOP 100.

The ESOP at Reflexite is a recruiting tool and their sales and growth rate have been extraordinary.

Science Applications International Corporation in San Diego is the second largest company in the ESOP 100.

W.L. Gore, the maker of Gore-Tex apparel, is one of the most impressive modern ESOPs.The company, owned since 1974 by (currently 6,000) worker-owners in forty-five locations around the world, has no bosses or formal titles. To ensure communication and innovation, those working at any one site number no more than 200. Depending on their particular skills, workers may lead one task one week and follow other leaders the next week; teams disband after projects are completed, with team members moving on to other teams. W. L. Gore revenues totaled $1.33 billionn in 2003; the firm regularly ranks on the Fortune "Best Companies to Work For" list.

W.L. Gore is also one of thirty companies profiled in a report, The Emerging New Society: The Best in American Innovation from The Democracy Collaborative. The PDF download is 145 pages (that I have only skimmed) and has a nine page list of resources at the end. There is a whole lot of economic shakin' goin' on at the grassroots level.

This seems like a good time to introduce the history of ESOPs.

A major boost to employee-ownership came from passage in 1974 (and thereafter) of federal legislation providing special tax benefits to Employee Stock Ownership Programs (ESOPs) - the legal structure that most such firms now utilize. Technically an ESOP involves a trust that receives and holds stock in a given corporation on behalf of its employees.

At the heart of the ESOP idea is the basic financing concept urged by Louis Kelso for broadening the ownership of wealth - namely, if some form of guarantee or collateral can be arranged to provide loans for productive investment, new wealth ownership by diverse groups (in this case employees of a firm) can be developed and paid for by the profits that the investment itself generates.

. . .
There are approximately 11,000 ESOPs now operating in communities in all regions of the United States. Asset holdings total more than $400 billion. The National Center for Employee Ownership (NCEO) estimates that total worker holdings (of all forms of stock ownership and stock options) reached approximately $800 billion in 2002 - that is, roughly 8 percent of all U.S. corporate stock.

Another impressive ESOP, Weston Solutions, Inc., is the second largest environmental firm in the country. Its highly specialized services range from forestry and urban planning to high-hazard nuclear and chemical waste cleanups. The company has helped rehabilitate "sick" (asbestos, lead paint) school buildings from new York and Chicago to Decatur, Alabama. It was the lead information technology contractor in recovery operations after the space shuttle Columbia disaster. The company is 100 percent owned by its 1,800 employees.

ESOP firms are also common in nonspecialized areas: Fetter Printing Company in Louisville, Kentucky, is 100 percent owned by its 200-plus workers. The firm has annual revenues of $17.5 million and was recently ranked as one of the top twenty-five printers in the United States.

Fastener Industries in Berea, Ohio, is owned by more than 100 owrker-owners. Machinists who have participated in the ESOP since 1980 commonly receive the equivalent of an additional three months' pay in dividends each year and retire with personal shareholding accounts of up to $350,000.

Parametrix -- 100 percent owned by over 350 employees - is an environmental engineering firm headquartered in Summner,, Washington.

ComSonics -- 100 percent owned by 160 employees - makes cable television (CATV) test and analysis devices and boasts the largest CATV repair facility in the United States.

Specialized software has been written to help evaluate purchase obligations in an ESOP buyout. ESOPs pay 12 percent higher wages and almost three times the retirement benefits. ESOPs have broad political appeal on the right and the left. There are state and federal programs to helf finance and provide technical assistance to ESOP buyouts. One problem has been the bias of ESOPs towards higher paid employees. This is not a necessary requirement of ESOPs. There have been a number of proposals for next-stage development of ESOPs.

During the Clinton administration one expert, Joseph Blasi, developed a comprehensive package that included tax and other benefits, along with substantial support for state-based technical assistance efforts. The Blasi plan also proposed restructuring tax benefits to redress the greater concentration of ownership among higher-paid employees as a result of awarding stock in amounts related to salary and wage level.

I couldn't find details to The Blasi Plan. In lieu of that, I made this suggestion for how a progressive ESOP structure might look. There is no economic law that mandates more favorable benefits for those at the top who don't need them because they are already very well compensated.

[Dana]Rohrbacher has introduced legislation -the Employee Ownership Act of 2001 -- the goal of which is to have "30 percent of all United States corporations . . . owned and controlled by employees of the corporations" by 2010. The proposed legislation would define a new entity, the Employee Owned and Controlled Corporation, (which Rohrbacher calls "ESOP-plus-plus"), in which over 50 percent of stock is held by employees, 90 percent of regular employees are enrolled in the plan, and all employees vote their stock on a one-person, one-vote basis. Various tax benefits wold encourage adoption of the ESOP-plus-plus form.

There is a vast range of new ideas in the public domain if Democrats have the courage to embrace them. The biggest hurdle to seizing the moral budgetary and ethical high ground is the DNC timidity and fear or criticism from Limbaugh and Hannity that grips the Democratic party. Alperovitz's vision is going to be criticized, but his vision is far better politically and economically grounded than privatizing Social Security.

Let's stop being afraid of our shadow and boldly venture where no Dem has gone before in recent memory; into the arena of bold visions for the American people.

Tags: (all tags)

Permalink :: 10 Comments :: Post a Comment

I invited Alperovitz to join us (none / 0)

I emailed Gar Alperovitz from his website yesterday and mentioned by diaries. . I invited Alperovitz to stop by and pitch his book and ideas. I've heard the term fair use and suspect I may be getting close to crossing the line. Unless someone can convince me differently this is my last diary on the subject.

If you want to learn about his ideas for a Twenty Five Hour Work Week and learn about all of the local, city, community activist, state and regional programs that are generating equality of wealth, and a genuine Ownership Society. Buy The Book!

I suspect that any problems Alperovitz has with my diaries can be addressed with simple etiquette. I'm certain if Alperovitz has any reservations, Jerome and Chris would gladly oblige him and take down my diaries. On the other hand, MyDD could be a better marketing tool than a book tour and tedious book signings.

I have been overly detailed in using direct quotes and additional links because the vision in Alperovtiz's book challenges the economic orthodoxy of Lawrence Kudlow and various supply side economists. The additional ideas Alperovitz provides in the rest of his book are just as well supported, both economically and politically, as the ideas I have already covered. In fact, his book is extensively footnoted with additional source material. None of his ideas are nearly as politically or economically out of the mainstream as privatizing Social Security.

Additional chapters:

Enterprising Cities
Building Community: Neighborhoods and Nonprofits with a Mission
State and Regional Innovators
Is Local Democracy Possible in a Global Era?
Community, the Environment and the "Nonsexist City"
Regional Restructuring
Long Term Political Refocusing
Social Security, Retirement and Health Care
A Twenty-Five-Hour Week?
Beyond Super Elites and Conspicuous Consumption: Real Ecological Sustainability in the Twenty-First Century
Twenty First Century Populism
The Challenge of the Era of Technological Abundance

Stop by Alperovitz's site and Buy the Book!

by Gary Boatwright on Mon Feb 21, 2005 at 11:33:15 AM EST

Excellent series of diaries (none / 0)

I think you have put your finger on the whole issue of "where does the left go from here."

If socialism was about socializing the means of production, and social democracy is largely about democratizing income through the welfare state, then maybe the next step after that is to democratize wealth.

In fact, I think I remember Robert Kuttner once said that one of the fundamental problems with American liberalism and European social democracy is that they try to socialize income without socializing wealth.

Trying to equalize the income distribution is thwarted in the long run by rising wealth inequality.

by tgeraghty on Mon Feb 21, 2005 at 06:45:43 PM EST
[ Parent ]

Social Control of Investment (none / 0)

Does Alperovitz say anything about using employee owned pension funds to make economically targeted investments?

William Greider has a recent article in The Nation on this topic. I forget if you linked to this before.

In a long-term debate about Social Security, we could think about partially or fully funding the program, and using the trust fund for making social investments. Robin Blackburn has a proposal in which corporations would be required to issue stock to the SS trust fund (another sort of wealth tax), which could then use these resources for social investing.

The main idea is, in terms of democratizing wealth, another long-term priority of the left has to be to gain some degree of social control over investment, through government fiscal policy, financial market regulation, and using the wealth stored up in pension funds.

The old liberalism was about influencing the amount of investment through fiscal and monetary policy. This was the Americanized version of Keynesian economics (some of Keynes students called it "bastard Keynesianism").

A new liberalism will also have to be about influencing the quality of investment and directing capital to social priorities.

In terms of an economic justification for this. John Quiggin has an interesting post on the social-democratic implications of an "Inefficient" Markets Hypothesis.

Social investment is also closer to Keynes' original vision, as stated in the General Theory (1936):

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.

In his short essay "The End of Laissez Faire," (1926) he more clearly spells out what he has in mind -- traditional fiscal policy, but also capital controls and public investment planning:

I believe that some coordinated act of intelligent judgement is required as to the scale on which it is desirable that the community as a whole should save, the scale on which these savings should go abroad in the form of foreign investments, and whether the present organisation of the investment market distributes savings along the most nationally productive channels. I do not think that these matters should be left entirely to the chances of private judgement and private profits, as they are at present.

So I would add this to Alperovitz's ideas on employee ownership as part of a future left economic policy.

by tgeraghty on Mon Feb 21, 2005 at 07:24:10 PM EST
[ Parent ]

Open Politics (none / 0)

Then, let's combine these ideas with descrates' Open Politics ideas for augmenting representative democracy with more participatory or deliberative institutions, and we pretty much have the New Liberalism that everybody seems to be looking for.

by tgeraghty on Mon Feb 21, 2005 at 08:13:27 PM EST
[ Parent ]

Eliminate Corporate Personhood! (none / 0)

This is a very good idea, but the bottom line is that the employees in most businesses will not have the money they would need to buy out the stockholders.

The biggest problem we face is that we have given corporations a dangerous and unreasonable amount of power. And they are abusing it just as the founders of this nation feared they would, if given the chance.

We need to abolish corporate personhood and go back to the old system of chartering corporations for a specific purpose and a specific length of time only.

Seriously..

Corporate personhood, in the form of Santa Clara (SCOTUS) was a falsified legal 'precedent' and its invalid for that reason (read Thom Hartmann's Unequal Opportunity)

If we want to remain free (or return to being free) we need to eliminate their unfair and irresponsible advantage over 'real' persons..

They do not deserve free speech as people have.. they abuse it..

They do not deserve the lack of accountability..they abuse it...

by ultraworld on Mon Feb 21, 2005 at 12:38:42 PM EST

Re: Eliminate Corporate Personhood! (none / 0)

Granted, but that was a judicial decision and there is not much hope of judicial relief. Congress can and should set new boundaries on the rights of corporations. The fundamental problem is that corporations control the lobbyists and the campaign war chests of both parties.

The problem is not 527s and millions of small contributors. The problem is corporate lobbying and massive corporate contributions. Lobbying is the most pernicious problem and that is why Congress ignores it. Lobbyists never die, they just come back next year with better revolving door jobs and bigger campaign contributions.

Dems should immediately forget about Campaign Finance Reform and focus on untraditional reforms like the ones Alperovitz focuses on.

by Gary Boatwright on Mon Feb 21, 2005 at 02:40:43 PM EST
[ Parent ]

This looks like an interesting book.. (none / 0)

I will definitely check it out..

I definitely do beleive in the idea of employee ownership.. and I think employee owned corporations need to be STRONGLY encouraged through disincentives to not having them.. (corporations that are not employee owned should be taxed enough to make them quickly become so! Seriously. This would also cure the offshoring problem. It's a GREAT solution..)

Otherwise, we will kill ourselves by working ourselves into the grave... our current path is unsustainable on so many levels.. we are totally in denial on so many big problems.. healthcare, energy, lack of access to education and lack of incentive for the sciences..

I read an article in ACM's Queue magazine recently that basically warned that the US would lose its position as a leader in technology in just two or three years if things continue the way they are now..

The GOP doesnt realize just how incredibly fragile our prosperity is and they are just falling over themselves trying to find ways to break the social contracts that are the 'glue' that keep this country together. Do they WANT America to fail? I just don't understand how they can export jobs, try to suppress science, ruin our nations health through stress, and then expect us to shine as we did when people cared about more than just making a dishonest buck...

Their greed is absolutely unbelievable..

They just don't get it. You can't get a horse to win races by shrinking the carrot and enlarging the stick.. sooner or later, the horse just dies...

by ultraworld on Mon Feb 21, 2005 at 12:50:05 PM EST

Re: This looks like an interesting book.. (none / 0)

While you are at it, also pick up William Greider's The Soul of Capitalism. I'm just starting on it, but I guarantee that it addresses your concerns and how we put the soul back in capitalism.

by Gary Boatwright on Mon Feb 21, 2005 at 02:44:13 PM EST
[ Parent ]

where will the money come from? (none / 0)

American families are already pushed to the brink.

So a solution would have to be found that would not make them pay money they don't have and would not get.. Also, in many places, these corporate ownership schemes have turned out to be scams allowing the (now ex-owners) to extract a final jolt of equity and then leave bankrupt and asset free shells to the workers....often with crippling debts on top of that..

my point.. don't count on the right to give us any gifts...quite the opposite.. its typically the old switcheroo on top of the old switcheroo...on top of the screw...

when they are 'nice' to you, thats when they are getting ready to really fuck you.. (excuse my language, but this time, I thought I needed to use the full four letter word)

I think America is heading for a cliff and we are not thinking enough to turn before we go over it..

all because of greed..

by ultraworld on Mon Feb 21, 2005 at 01:54:45 PM EST

Re: where will the money come from? (none / 0)

A 2% tax on wealth is where we get the money. Corporations and the top 5% are paying a lower tax rate than at any time in the last one hundred years. We won't get it from the Republicans. We will only get it when we convince the American people that the filthy rich are not entitled to welfare.

Corporations and the wealthy elite are not paying their fair share of the economic burden of making America work. Until Democrats start saying plain and simple that rich people and corporations do not pay their fair share of taxes, they never will.

Until the Democratic party rejects the economic and socially destructive ideology of Lawrence Kudlow and Milton Friedman, we will never be able to compete on the economic playing field.

by Gary Boatwright on Mon Feb 21, 2005 at 02:35:37 PM EST
[ Parent ]

You are not logged in.

In order to post a comment, you must be logged in. If you have a member account, please log in to comment.

If not, you can make an account right here. It's quick and free.