by Christopher Mackin

[This article first appeared in The New Republic and is reprinted here by permission of the author.]

The most fundamental tragedy of the coronavirus crisis is human. It is lives being lost. Somewhere close behind is the feeling of desperation shared by working people. In an economy where it is estimated that 50 percent of the labor force survives from paycheck to paycheck, we are facing an economic crisis of unprecedented proportions that exposes a fundamental flaw in our widely accepted idea of the relationship between working people and their places of work.  

That fundamental flaw is a long-standing acceptance across the ideological spectrum of a division between wage earners and the owners of capital assets. While owners of businesses are able to fall back on accumulated wealth and assets in a crisis, it has become abundantly clear that a majority of workers are prisoners of wage income. As long as that divide persists, the threat of economic breakdown will loom both in the coming months and into the next crisis. That divide is the heart of economic inequality. Near-term measures that maintain or increase wage income should be implemented. But it is time to think more deeply about the causes of inequality, and it is time to introduce remedies that serve as conditions for the provision of federal government assistance.

As Mark Cuban, owner of the NBA’s Dallas Mavericks, has wisely counseled, no governmental interventions now being considered should be entered into without consideration of how that intervention will address inequality.

A prominent test case­­­—the airline industry—can help lead the way. Any federal funds loaned to the airlines should be repaid in two steps. The first dollar repaid should be directed to newly established Employee Stock Ownership Plans, or ESOPs, at each company whose beneficiaries are the more than 500,000 airline workers, from luggage handlers and flight attendants to mechanics and pilots. The second dollar repaid should return directly to the federal government. Using that formula, over a short period of time, employees will accrue a substantial stake in these companies. They or their selected professional representatives should serve prominently on company boards of directors to give voice to the employees that make the business work.

As Columbia law professor Tim Wu points out, the American public also deserves corporate governance representation to help steer the airlines back to responsible stewardship. Narrowly focused stock buybacks in public companies that have enriched a small set of the corporation’s stakeholders, senior management, and quick-flipping, short-term shareholders should end. If management balks, they should be educated on how this arrangement is a superior corporate model for workers, shareholders, and the public. There is abundant empirical evidence that it is. It simply requires more of management.

A second mechanism to use with the airlines and with any other private-sector company receiving governmental support can also speed up the process toward greater wealth participation by ordinary working people. Business taxes should be rethought. They should be paid in full if they perpetuate status quo arrangements that keep workers on the outside of ownership. A necessary reform would simplify existing rules by crediting a company’s tax payments dollar for dollar against its federal tax obligations. Payments that would ordinarily be directed to the federal government should instead be directed to purchase company stock that would be held by trusts for company employees. Over time, working people would become substantial owners of the companies they work for and enjoy a voice and a share in the wealth they have helped create. 

The idea of restructuring our economy so that capital is a resource that works for labor and not just for itself is not a new one. Workers didn’t always work solely for wages. They used to work in small shops and on farms. In the middle of the nineteenth century, as industrialization was taking hold, some labor leaders warned that an employer-employee relationship where the first group owned and the second group was expected to survive on wages was a trap that would result in dependence and servility. They argued for employee ownership of the newly emerging industrial economy as an alternative where labor should work for both wages and capital ownership. 

Strangely enough, so did a smattering of legendary industrialists, including Robert Brookings, Leland Stanford, and, early in the twentieth century, the chairman of the General Electric Corporation, Owen D. Young. On July 4, 1927, Young took the podium on the newly installed granite steps of the Baker Library at the Harvard Business School. He was the guest speaker for the opening of that grand building, and he had a surprise vision to share with the audience. He asked his audience to consider whether American capitalism, then barely a century old in its industrial form, had been launched on the right foot. 

Into these [larger-scale businesses] we have brought together larger amounts of capital and larger numbers of workers than existed in cities once thought great. We have been put to it, however, to discover the true principles which should govern their relations. From one point of view, they were partners in a common enterprise.  From another they were enemies fighting for the spoils of their common achievement.

He spoke hopefully that the Harvard Business School might be a place where his alternative vision could be fleshed out and made to work.

Perhaps someday we may be able to organize human beings engaged in a particular undertaking so that they truly will be the employer buying capital as a commodity in the market at the lowest price.… I hope the day may come when these great business organizations will truly belong to the men who are giving their lives and their efforts to them, I care not in what capacity.… Then we shall dispose once and for all, of the charge that in industry organizations are autocratic and not democratic.… Then, in a word, men will be as free in cooperative undertakings and subject only to the same limitations and chances as men in individual businesses. Then we shall have no hired men. That objective may be a long way off, but it is worthy to engage the research and efforts of the Harvard School of Business.

It takes a crisis of the magnitude of the coronavirus to reveal to us how poorly designed the dominant U.S. corporate economic arrangements are from the point of view of sharing the common wealth all workers help create. There are alternative wealth-sharing arrangements to the dominant U.S. corporate structure that are within reach. Some of them, like the 7,000 companies across the U.S. that are owned by their employees through ESOPs, have survived and prospered on the margins of this dominant structure. It is time to expand the reach of these ideas to the commanding heights of the American economy in order to design an inclusive form of capitalism that ends the utter dependence of most working people on their weekly paycheck.

The wealthy in America are disturbed by the coronavirus crisis, but they can sleep at night knowing that they have reserves that can get them through these difficult times. It is now painfully evident at this moment that that same comfort of having stored up wealth through your life’s work must be an opportunity extended to the rest of working America. 

Finally, we need to appreciate that this is a root-and-branch moment. Owen Young is not the only neglected prophet whose stock is rising. Visionaries and critics who have warned about the dangers of unchecked economic growth, industrial agriculture, and remote supply chains must get a new hearing. Private patents on life-saving technologies should be terminated. Stock buybacks limited to grasping senior managements should be officially over. 

But an economy where workplaces are comprised of fellow owners, where there are “no hired men,” can still sound, at this acute moment of crisis, like a special pleading. What about all of those outside the reach of the workplace? How are these ideas going to help them?

The best answers to that challenge are partial. And while there are concrete advances that should follow from reengineering the ownership and governance of the modern workplace, the responses on offer are also necessarily abstract. Perhaps the broadest claim that can be made in favor of these reforms is that the vitality and the moral responsibility of an economy is the single best guarantee that society can extend to all of its members. The economy is what will make and deliver their resources, food, shelter, health, and technology. It is where our problems will be solved or allowed to fester. 

The reigning, now staggering, modern structures of economic life have arguably delivered on something we can narrowly describe as vitality. Technology has achieved wonders. Increases in productivity have reduced poverty. But modern economic life has also become significantly unmoored from responsibility to people and the planet. There is not only a coronavirus loose upon the land. When inequality is allowed to reach the unprecedented heights that prevail today, we are also confronting a historic responsibility deficit that traces back to a lack of accountability, a lack of democracy, in our economic institutions.

Unless we are going to fall for an even more romantic and already historically discredited idea of government ownership, a “do-over” for the socialism of the twentieth century, we can hope and reasonably expect that workplaces that are governed from within, not by the state but by their workers, engineers, and managers, will lead to a more responsible economy. That is economic democracy, the long-neglected complement to political democracy. It is not socialism. 

And what standards of social responsibility might we expect from firms that are owned and governed democratically? Workers are also citizens. They drink the same water that consumers in their communities drink. They are not absentee investors, buying and selling their stock in nanoseconds. It seems reasonable to bet that if given the chance, they and their counterparts in management can be counted upon to arrive at answers about how best to carry out our economic life far better than the impersonal stewards of modern finance. The regulatory power of the state would not disappear under economic democracy.  It would remain as the vigilant protector of the public interest. But for democracy to live up to its potential in society at large, the realms of the polity and the economy must remain distinct and in constructive tension. 

Exactly 20 years ago, in a neglected book called Democracy at Risk, attorney Jeff Gates coined a metaphor that aptly described the “maximizing shareholder value” framework that has served as the conceptual North Star for elite opinion and for our business and law schools across the land. Ralph Nader was one of Gates’s most prominent supporters. Gates referred to the prevailing economic regime as “money on autopilot.” It is time that we design an economy where we confront our responsibility deficit, where we disable the autopilot machinery and replace it with an “eyes wide open” ethos and regime of law and corporate governance that manages consciously, ethically, and with responsibility.

Christopher Mackin is a Ray Carey and a Louis Kelso Fellow at the Rutgers University School of Management and Labor Relations. He also serves as a strategic adviser to companies, employee groups, and governments on the topic of broad-based employee ownership. @ChrisMackin48

The post Toward an Economic Democracy appeared first on Employee Owned America.

[Editor’s note: The Washington think tank Center for American Progress (CAP) recently released a report advocating extensive state and local support for employee ownership. What are the best methods? The excerpt published here lists several policies that, if widely implemented, would substantially increase the number of employee owners. This material was published by the Center for American Progress, copyright © 2020. Sources can be found in the original.]

Policymakers in cities and states across the country are taking action to expand support for employee ownership. While the renewed interest in these sorts of policies is encouraging and will likely be expanded to more jurisdictions, there is far more that policymakers can do to support the growth of employee ownership and broad-based profit-sharing both in terms of expanding the public’s understanding of the benefits of profit-sharing and ensuring that government spending programs are deployed in ways that facilitate the expansion of these sorts of programs.

Specifically, CAP recommends that cities and states:

• Establish an office of employee ownership and broad-based profit-sharing
• Use public financing to facilitate ownership conversions
• Encourage government contractors to share ownership and profits with their workers
• Require government-supported tech startups to share equity, profits, or ownership with their workers

Establish an office of employee ownership and broad-based profit-sharing

Cities and states can encourage more companies to adopt well-designed sharing programs by creating an office of employee ownership and broad-based profit-sharing. Housed in a jurisdiction’s commerce department or economic development authority, this office would provide outreach and technical assistance to private sector businesses and workers and serve to improve government knowledge and support for all types of broad-based sharing.

Successful sharing programs are not always well understood by the business community or workers. The benefits and mechanisms for sharing capital broadly with workers are largely absent from higher education curricula, and companies often report that they are unaware of the benefits of sharing capital income and ownership broadly. They thus lack the technical knowledge to evaluate whether to adopt these programs or how to do so.

However, employee ownership and broad-based profit-sharing could provide important benefits to privately held businesses. Recent analysis by Project Equity—a nonprofit advocacy organization and consultant for companies interested in selling to their employees—estimates that Baby Boomers nearing retirement own more than 2.3 million businesses, employing nearly 25 million workers nationwide. Selling to employees—rather than to a competitor, larger company, or private equity fund—is one way for these owners to ensure that local jobs and the legacy of their company are preserved. But few owners know that employee ownership is a viable option. Additionally, companies are often unaware of how employee involvement in programs paired with profit-sharing or gain-sharing can improve business performance.

An office of employee ownership and broad-based profit-sharing should award grants—at a maximum value of $500,000 per year—to a university, nonprofit, or a partnership between these entities. The goal should be to create a center of employee ownership and broad-based profit-sharing as well as to promote these sorts of programs among existing business owners and develop this knowledge among future leaders. To the extent that a similar center already exists in the state, it would also be eligible for support.

These centers would promote employee ownership and profit-sharing as well as democratic workplace culture that allows workers a stronger voice on the job by providing education and outreach, technical assistance, training, and even modest grants to small businesses to conduct feasibility studies. Grants would also fund the development of various levels and types of curricula and courses on the topic as well as academic research looking at the effects of profit-sharing broadly and its effects on women, workers of color, and low-income workers. These efforts should prioritize recipients that target assistance to support the retention and creation of businesses in low-income communities.

In order to build knowledge of sharing programs and the impact of outreach, the office would also track various measures—including growth in the number of businesses and workers participating in these sorts of programs, participant demographics, and the effect of sharing programs on the state’s economy.

This concept builds on a successful model for increasing one type of sharing. As discussed above, employee ownership centers in Vermont and Ohio have successfully increased awareness and facilitated the conversion of small- and medium-sized businesses to an employee ownership structure. For example, a 2013 report found that the Ohio Employee Ownership Center has assisted about 15,000 employees in the purchase of all or part of their respective companies, adding an average of $40,000 to their individual wealth.

While several cities and states have recently funded new centers focused on ESOPs and worker cooperatives, state and local officials should also promote the benefits of stock ownership and profit-sharing in order to ensure that workers at larger companies enjoy the benefits of broad-based sharing programs. They should also support low-cost options such as employee ownership trusts that make sense for smaller companies.

Finally, the office of employee ownership and broad-based profit-sharing should help improve governmentwide support for employee ownership and profit-sharing programs. The office should serve as an advocate for improving government knowledge and support for well-designed, broad-based sharing. It should also increase awareness of how agency programs affect companies with sharing programs and promote the legislative or regulatory changes necessary to ensure that government policies encourage the adoption of existing and emerging sharing programs.

For example, these offices should evaluate the effects and total cost of providing additional tax incentives to business owners selling to an ESOP as well as how the government should promote and potentially regulate new forms of sharing—such as employee ownership trusts (EOTs)—and make recommendations on whether to pursue new policy in these areas.

Use public financing to facilitate ownership conversions

Employee ownership structures—including worker cooperatives, ESOPs, and now EOTs—are most frequently adopted by small businesses. According to the National Center for Employee Ownership, nearly 60 percent of ESOPs nationwide include 100 or fewer employees. Moreover, the ongoing wave of Baby Boomer retirements provides a significant opportunity to convert thousands of businesses.

Several cities and states help fund feasibility studies and transition plans for existing businesses, but policymakers should also ensure that businesses have access to sufficient capital to sell to their employees. For example, at the federal level, Congress recently enacted Sen. Kirsten Gillibrand’s (D-NY) Main Street Employee Ownership Act to ensure that small businesses selling to an ESOP or worker cooperative are able to access a U.S. Small Business Administration loan guarantee program.

Additionally, as discussed above, the city of Newark and the Newark CEDC are going further to target local business owners who are nearing retirement. The CEDC will finance not only the cost of hiring an independent trustee and appraiser, but also—in partnership with commercial lenders and private investors—the acquisition of the business by the ESOP trust.

The program should allow the CEDC as well as partnering investors to secure a moderate return on the investment while delivering cash at sale to selling owners and allowing them to avoid business broker fees. After a sale, the company will be required to train workers on their new roles as owners as well as the benefits of ownership. While the program is in its earliest stages, it is working with a handful of midsize companies on executing a sale to an ESOP.

Cities and states should ensure that all existing loan guarantee and loan programs aimed at supporting small businesses and economic development in the jurisdiction are available to firms transitioning to an employee-owned structure. In addition, cities and states—in partnership with the state or local economic development authority—should consider adopting Newark’s more active investment model.

Encourage government contractors to share ownership and profits with their workers

State and local governments finance millions of jobs across the U.S. economy with the hundreds of billions of dollars that they spend each year to purchase goods and services. Yet, jobs created through government contracting are often substandard, paying very low wages and involving poor working conditions.

Some governments have developed ways in the contractor selection process to give extra consideration to employers that create good jobs. Basing bidders’ scores in part on the quality of workplace practices, as well as other comprehensive criteria, can increase the likelihood that companies with better practices will win contracts and help motivate companies to improve their working conditions.

Government agencies frequently evaluate bidders’ proposals based on the strength of their technical ability and past performance record as they seek contractors that will provide the best value for the taxpayers—not simply the lowest price. They should use the same type of system to evaluate contractors on the quality of their workplace practices. Government agencies should give significant weight to those employers that provide decent jobs, including those that pay market wages, provide benefits, and share profits with their employees.

Incentives can potentially play a useful role in improving job standards beyond the contracted workforce and can reward employers that successfully create quality jobs.

Cities and states can encourage employers to improve job standards broadly by evaluating job quality across a bidder’s entire workforce that is located within the jurisdiction rather than evaluating only standards for contracted workers. While this sort of evaluation is not without precedent, state and local policymakers should nonetheless carefully consider the criteria for measuring work quality.

As discussed above, 36 states have adopted benefits corporation laws that require third party evaluations of qualifying companies’ workplace practices. Cities including El Paso, Texas, and San Jose, California, already consider the quality of jobs provided by a contractor when determining a winning bidder. Similarly, California and Texas are debating legislation that would provide a contracting preference for companies that workers own through an ESOP.

Finally, policymakers should ensure that a firm’s status as an ESOP does not preclude it from qualifying for contracting set-aside programs. Rules governing contracting set-asides for minority-, women-, and veteran-owned businesses should ensure that employee-owned companies are able to access these programs by counting each stock trustee and plan member as an owner.

Require government-supported tech startups to provide their employees equity

State and local governments frequently promote entrepreneurship and the growth of innovative startups through various types of economic development subsidies and assistance. These incentives can include grants, direct loans, support for private venture capital companies, and tax benefits for companies and investors.

For example, New York’s START-UP NY program allows growing businesses to partner with eligible university or college campuses and to operate tax free for 10 years. And Massachusetts’ MassVentures was formed in 1978 as a quasi-public venture capital firm to provide early-stage funding as well as grants to startups working to commercialize a product.

This early-stage seed funding often represents a relatively high-risk venture and is granted in cases when obtaining government support is essential to a firm’s survival. Many of today’s leading technology and biotechnology firms—such as Google, Apple, Tesla, Symantec, and MedImmuneC—were recipients of government support in their early years.

Tech startups pioneered the use of stock ownership programs in the mid-20th century as a way to reward all employees upon a company’s sale, but companies such as Intel, Hewlett-Packard, Science Applications International Corporation, Apple, Microsoft, and Google broadened the application of these programs over the next three decades to ensure that all employees were oriented toward the success of the company.

Yet, many tech companies have abandoned this practice in recent years, offering stock ownership to a much smaller sliver of top talent. For example, one study found that from 2002 to 2010, the portion of workers in the computer services industry benefiting from employee stock options fell by nearly 70 percent.

In order to help reverse this trend, whenever a government provides at least $1 million in assistance to a company, the recipient should be required to share profits or ownership with its workers when the company goes public or is sold to another firm. Companies should be required to demonstrate that the value expended on the top 5 percent of employees is equal to the amount spent on the bottom 80 percent of workers at the time of sale or public offering.

Recipients could comply with this requirement by setting up broad-based incentive programs with an ongoing awards system through grants of restricted stock unions, stock options, or an employee stock ownership plan. Alternatively, they could fulfill these requirements at the point of going public or a private sale, with the award of unrestricted stock with full voting rights or cash profit-sharing.

Government assistance can include grants, loans, loan guarantees, access to government-developed technology, and even tax incentives. Support would be measured cumulatively; a company receiving $1 million in assistance from multiple programs or at different phases of development would be required to meet these profit-sharing requirements.

While attaching a profit-sharing requirement to economic development subsidies would break new ground, many tech companies embrace broad-based equity programs and would likely already comply under this policy.

Conclusion

Employee ownership and broad-based profit-sharing programs can help to ensure that workers are rewarded for the wealth they help create, close racial wealth disparities, and strengthen local economies. While less than half of working Americans benefit from these sorts of sharing plans, state and local policymakers are increasingly interested in supporting their growth. In order to do so, cities and states should adopt policies to ensure that companies know about the benefits of sharing and that government spending programs are deployed in ways that facilitate the expansion of these sorts of programs.

Karla Walter is the director of Employment Policy at the Center for American Progress.

The post Center for American Progress: New EO Policies appeared first on Employee Owned America.

[The following article was written for a general readership–people who are apt to be unfamiliar with ESOPs. We are reprinting it here because the history and issues it discusses are relevant to the future of employee ownership.]

On November 27, 1973, 46 years ago this month, Louis Kelso and Senator Russell Long, along with two aides, had dinner together in the Montpelier Room of the Madison Hotel in Washington, D.C. By one aide’s account, the meal lasted four hours. Long picked up the tab.[i]

Kelso, then 60 years old, earned his living as a lawyer and investment banker. He favored well-tailored suits and bow ties. He regularly attended gatherings of the elite, all-male Bohemian Grove club near his San Francisco home. But he viewed himself as an economic big thinker, even a revolutionary. He had written several books, including one (with the philosopher Mortimer Adler) bearing the Cold War–inspired title The Capitalist Manifesto. He had given countless speeches and met with numerous political leaders. Though he lived and worked many decades ago, the concerns he expressed sound eerily familiar. He fretted about the gap between the rich and everyone else. He worried that automation would soon put large numbers of people out of work. He had devised several solutions to these problems, and he described them in detail to anyone willing to listen or read. He had arranged the dinner with Long in hopes that the senator would support legislation to implement at least one of his ideas.

Long, who had recently turned 55, was heir to a Louisiana political dynasty. He was the son of Huey Long, the legendary Kingfish, governor of Louisiana from 1928 to 1932, a populist demagogue who promised to make every man a king. Huey later became a U.S. senator, as did Russell’s mother, Rose. In 1948, the year his uncle Earl became the state’s governor, Russell himself was elected to the senate, sworn in just eight weeks and two days after his thirtieth birthday. Unlike his father, Russell wasn’t a soak-the-rich radical. A specialist in tax law who would become chairman of the senate finance committee, he was a powerful southern Democrat in the mold of Lyndon Johnson (who was also elected to the senate in 1948). Measures that Russell Long favored tended to become law, and vice versa.

That night at the Madison, Kelso pitched his ideas to Long, and Long shared his own philosophy. By the end of the evening the senator seemed convinced that Kelso was on to something, and asked him what he was doing to implement his proposals. Kelso’s aide, Norman Kurland, explained that they had helped put several bills before Congress, but the bills were going nowhere. “We need the right person,” said Kurland, “…someone with the courage and the power to take our proposal and convert it into law.” Long, he recalls, looked at him and said, “You bring me something tomorrow morning.”

Thus was conceived, that night, a social invention that is uniquely American, that has proliferated and evolved over the past 45 years, that offers the possibility of a different, more egalitarian form of capitalism, and that appeals (for different reasons) to liberals and conservatives alike. And yet it is an invention that remains obscure, that is often ignored or misunderstood, and—partly because of how it was conceived—that generates only modest interest among many of the policy wonks and political leaders who might be expected to support it. The present moment in American politics hasn’t been conducive to bold economic initiatives, particularly from liberals. But when policy ideas once again become important, here is one that is already working, and waits only to be expanded.

I.

Economic reformers typically tinker around the edges of capitalism. They advocate a higher minimum wage, tighter regulation of business behavior, and fiscal policies that foster a more equitable distribution of income. These are all worthy objectives. But the measures have nothing to say about the most fundamental element of a free-enterprise economy: who owns and controls the companies that make it up.

The socialists of the past did not make this mistake. They understood that ownership matters. People who own companies, or who run them on the owners’ behalf, decide where and how much to invest. They decide how many people to hire, what sort of working conditions to provide, and—within broad limits—how much to pay those employees. All such decisions greatly affect how well an economy serves its various participants. Socialists also saw that ownership structures have a sizable effect on the distribution of wealth and income. They hoped that abolishing capitalist ownership would lead to a more egalitarian society. But socialism is currently comatose, and with good reason. Its preferred alternative, state ownership of most enterprise combined with central planning, turned out to be grossly inefficient. When tried on a large scale, it invariably was accompanied by an authoritarian political system.

In his books, Kelso proposed a variety of plans to put stock into the hands of people who would not otherwise be likely to own it. Nearly all had the unmistakable aura of impracticality, and many influential people figured that Kelso must be harebrained. (“Kelso: Nut or Newton?” was the title of one magazine profile; the economist Paul Samuelson, on 60 Minutes, called him an “amateur crank.”) As an investment banker and lawyer, however, Kelso was a practical man. One day in 1956, a friend who worked for a small California newspaper company came to him with a question. The owner of the company was retiring, the friend said, and he and his coworkers wanted to buy the business. But none of them had the kind of money that would be required. Did Kelso have any ideas? Kelso did. He proposed to set up a trust to own the company. The trust would borrow the money to buy out the owner, and then repay the debt with the (tax-deductible) earnings of the business. This was essentially the tactic that, a couple of decades later, would come to be known as a leveraged buyout, though conventional LBOs did not get the tax deduction. The difference was that Kelso’s trust then assigned shares to individual employees as it paid off the debt. When the debt was gone, the employees would own the firm.

Kelso believed firmly in capitalism, but he focused on what he viewed as capitalism’s tragic flaw: too few people owned capital. Capital, Kelso saw, was in no danger of being put out of work by automation. It generated income no matter where its owners lived. The returns to capital tended to increase over time, and those who owned some capital usually accumulated more. The lopsided distribution of capital was fundamentally unfair, in Kelso’s view, and it made for a lopsided society. “The Roman arena was technically a level playing field,” he famously wrote. “But on one side were the lions with all the weapons, and on the other the Christians with all the blood. That’s not a level playing field. That’s a slaughter. And so is putting people into the economy without equipping them with capital, while equipping a tiny handful of people with hundreds and thousands of times more than they can use.” A latter-day Kelso would find a similar kind of lopsidedness today, despite the proliferation of mutual funds and 401(k) accounts over the last four decades. The richest tenth of American households currently own 84 percent of all US-owned stock, including shares held in 401(k)s and pension funds. About half of Americans own no stock at all.

The idea worked, and in the years that followed Kelso helped to engineer several such plans. Each transaction, however, had to be custom designed, individually approved by the IRS, and financed by often-skeptical lenders. Kelso tried hard to persuade political leaders that this form of ownership by employees should somehow be written into law, thus giving it the government’s imprimatur. For a while he had no luck. Then, in 1973, he arranged for that dinner with Russell Long, and made his sale. Soon the senator was exploring legislative possibilities. Eventually Long was able to insert provisions establishing employee stock ownership plans, or ESOPs, into the Employee Retirement and Income Security Act (ERISA), the landmark legislation that has governed company-sponsored retirement plans ever since its passage in 1974.[ii]

An ESOP works much like Kelso’s first effort, at the newspaper. A company owner who wants to sell part or all of a business establishes a trust. Typically, the trust borrows money to buy the owner’s shares and commits to paying the debt out of the company’s earnings. Company assets may serve as collateral for these loans. As the trust pays down the debt with pretax dollars, it allocates shares to individual employees’ retirement accounts according to a formula. When an employee retires or leaves the company, the trust buys back his or her shares at a value established by an independent appraiser. Subsequent legislation, generally supported by senators and representatives from both parties, has provided additional tax benefits both to the selling owners and to the ESOP itself. Most companies that are 100% owned by their ESOP, for example, pay no corporate taxes.

The legal details of an ESOP, and the regulations that govern them, can be eye-glazing. And the phrase “employee stock ownership plan” neither trips easily off the tongue nor immediately excites those who are new to the concept. But the effects are easy to understand. When a company owner sells stock to an ESOP, the trust nearly always becomes a significant shareholder in the business. In many cases it owns a majority or all of the shares. A successful business generates considerable wealth for its owners over time, and in an ESOP company much of this wealth redounds to the employees. A Boise-based company called Winco Foods, for instance, operates more than 100 discount supermarkets in eight western states. It is majority owned by its ESOP, and a couple of years ago a reporter spoke with Cathy Burch, a veteran hourly employee. Burch reported that she had accumulated close to $1 million worth of stock in her retirement plan. This number is an outlier, but it doesn’t lie as far out as you might think. Some years ago I visited an Illinois company called Scot Forge, which was 100% employee owned through an ESOP, and spoke with a lathe operator named Leo Szlembarski. Szlembarski, who had then been with the company for 34 years, said it was not uncommon for blue-collar workers to retire with $700,000 or $800,000 in their stock accounts. He himself, he confided, had “a little more.” Scot Forge also paid its employees both profit sharing and dividends on their stock. Employees with at least five years’ seniority averaged 10 percent of salary in profit sharing, or about five additional weeks of pay. A 15-year employee, with more time to accumulate shares, averaged another 12 percent of salary in dividends.

Today, close to 7,000 US companies have established ESOPs. These companies employ roughly 11 million people, or about one in every eleven private-sector workers. In some—mostly large publicly traded companies—the ESOP owns only a small fraction of the stock. More typically, it owns a sizable share, and in an estimated 2,000 companies it is the sole owner. Most of the companies where the ESOP owns a substantial stake are midsize, though some are quite large. (The biggest majority-owned ESOP company, the Florida-based Publix supermarket chain, has 188,000 employees.) They can be found in every state and virtually every industry. W. L. Gore & Associates, the Delaware-based maker of world-famous Gore-Tex fabrics, is a $3 billion high-tech manufacturer. The Davey Tree Expert Company, headquartered in Ohio, is a $900 million tree-care service firm. Both are wholly owned by the people on the payroll. So are many defense contractors, engineering and construction firms, and consumer-products companies, the latter group including King Arthur Flour (in Vermont) and New Belgium Brewing (in Colorado). The National Center for Employee Ownership offers an interactive map that allows you to identify ESOP companies in your state, color-coded by industry group.

A variety of academic studies have found that companies with ESOPs typically outperform similar enterprises with no ESOPs, and that installing an ESOP actually improves corporate results.[iii] This should come as no surprise. Virtually all ESOP companies begin their ESOP lives as healthy businesses. If they were unhealthy, they would not have the cash required to set up what is after all a rather cumbersome legal structure, and banks would be unlikely to finance the deal. Once an ESOP is established, some companies benefit from tax advantages. Some benefit from a new level of commitment and enthusiasm on the part of the workforce—the application of discretionary energy, as management consultants like to say. ESOP companies overall are more likely than others to involve their employees in day-to-day decision making—and employees, because they have an ownership stake, are more likely to invest time and effort in helping the company succeed. Of course, an ESOP is hardly a magic bullet. United Airlines instituted a controversial ESOP in 1995 and filed for bankruptcy five years later.[iv] An ESOP will not protect a company from mismanagement, inadequate capitalization, or many of the other ills that can lead to corporate collapse.

II

The proliferation of ESOPs over the past few decades raises at least three questions. One is why they have become more numerous and more successful than other unconventional forms of ownership, such as co-ops. A second—the opposite side of the coin—is why, given their tax advantages and their record of high performance, they haven’t made a bigger dent than they have in the ownership structure of the US economy. In other words, why are there only 7,000—and why haven’t more people heard of them? A third question is why anyone should care about ESOPs other than company owners looking to sell their businesses. If ESOPs were to spread, what benefits could we reasonably expect to see?

The first question, about relative success, is easily answered. Think about the process of starting a co-op, for example. Co-ops by definition involve a measure of democracy. So a successful launch requires a group of individuals to agree on the nature of the business, the division of labor, pay scales, and other potentially contentious matters. If the business does get off the ground, it is likely to find that banks are reluctant to finance its expansion. A handful of workers’ co-ops, such as New York City’s 900-member Cooperative Home Care Associates, have been able to thrive and to grow. Their success doesn’t indicate that starting and managing such a co-op is easy; it indicates only that, once in a while, a remarkably dedicated group is able to overcome the obstacles and build a successful business. Overall, there are no more than a few hundred workers’ co-ops in the United States. Nearly all are quite small.

An ESOP does not face the same problems as a co-op. Almost nobody starts a company that has an ESOP from the very beginning. The corporate form is typically too costly and cumbersome for companies with fewer than about 20 employees, so a company that does have an ESOP has a head start—it has already gotten off the ground. Nor does ESOP law mandate a democratic structure like a co-op. While there are exceptions, ESOP companies typically have a self-perpetuating board of directors, a chief executive officer, and (usually) a conventional organization chart. Some ESOPs “pass through” the vote to plan participants on major issues, such as whether to sell the company. Others do not. (Either approach is OK under the law.) The ESOP trustee is typically appointed by the board. He or she is responsible for safeguarding the interests of plan participants but has no other mandate.

So a company with an ESOP is essentially a conventional business enterprise with an unusual ownership structure. The lack of formal democracy in corporate governance seems like a bug to some reformers, who dream of a fully democratic workplace. To me it seems like a feature. Though a government may derive its legitimacy from the consent of the governed, a company derives its legitimacy from the consent of the marketplace.[v] Conventional corporate structures have proven themselves resilient and effective in running businesses. ESOP companies succeed, in part, because they do not aim too high and do not try to change too much. By the same token, the ESOP structure is flexible. If a company wants to move in the direction of more participatory governance or management, it is free to do so, and many ESOP companies thrive with some degree of democracy.

ESOPs have benefited not only from their tax advantages but also from a kind of network effect. They have been around for a while now, and a community of ESOP specialists has sprung up. This community includes attorneys, lenders, investment bankers, valuation experts, consultants, and other specialists. Company owners considering selling their business to an ESOP will find plenty of people willing and able to help with the transaction itself and with the transition to employee ownership. Corresponding networks for other unconventional forms of ownership are much smaller. (They are larger in parts of Italy and Spain, both of which have a thriving co-op sector.)

That raises the second question: why aren’t there more ESOP companies? ESOPs are sort of America’s best-kept secret. Despite the tax breaks, despite the record of  outperformance, despite the specialists, despite advocacy groups and active trade associations, despite periodic (and almost always favorable) articles in the press about ESOP companies, the number of ESOPs seems to have plateaued over the past several years.[vi]

In part, the plateau reflects the logic of the marketplace. Most ESOPs today are created when a company owner decides to sell the business, or in anticipation of that time. But plenty of company owners don’t want to sell to an ESOP. Some can’t get their mind around the idea. Some want to pass the business on to their children. Some prefer to sell to a longtime executive at the company, or to another individual. Business advisors, many of whom remain poorly informed about ESOPs, often recommend those options, which may generate higher fees for the advisors. They also may encourage owners to seek out a so-called strategic buyer, typically a larger company in the same industry that can capitalize on the acquired company’s capabilities or customers, in hopes of realizing a higher price than other buyers might pay. The tax advantages of selling to an ESOP aren’t negligible—an owner selling at least 30% of the business to an ESOP can defer capital-gains levies—but in some cases they are insufficient to make up for the price differential. By law, the ESOP must pay a price determined by a third-party appraiser, and the Department of Labor watches pretty carefully to be sure that it isn’t inflated. All that said, of course, the potential for creating ESOPs by this route has hardly been exhausted. Advocates point to the “silver tsunami” of baby-boom company owners who are soon to retire, and who presumably might be interested in selling to an ESOP.

ESOPs also suffer from an incentive problem. Individual owners do have an incentive to consider an ESOP because of the tax advantages, and because it may offer the best chance for the company they have built to survive intact, perhaps with the founder’s name on the door. But think of all the other sellers of businesses. Large corporations divest themselves of thousands of smaller companies every year, typically selling them to strategic buyers, management groups, or private equity firms. Private equity firms themselves do the same, selling their portfolio companies or taking them public. These sellers may ensure that the buyer’s management team—the people at the top—own shares, because such an arrangement is thought to produce better corporate performance. But none has an incentive to consider an ESOP, and virtually none does. The situation is similar with publicly traded companies. Any company’s management is free to set up an ESOP as a retirement plan if it so chooses. An estimated 700 public companies have done so, for a variety of historical reasons. But what’s the incentive for a company to set one up today? If it assigns new shares to the ESOP, it dilutes existing stockholders. If the ESOP borrows money to buy shares, the company must divert some of its revenue to repay the loan. To be sure, the ESOP might contribute to greater commitment and loyalty on the part of employees, and thus to better business performance. But conventional bonus or profit sharing plans might have the same effect, and would be a good deal easier to establish. Spreading the ownership of capital is not high on most corporate executives’ agendas.

So it seems unlikely that ESOPs will realize their potential without additional incentives or other forms of government support. This brings us to the third question: why should anyone care?

The answer goes back to what Louis Kelso saw so clearly: the pressing need for a more inclusive form of capitalism. If 7,000 ESOPs are now spreading a bit of the wealth, 20,000 or 50,000 could spread a great deal more. (The US has about 620,000 firms with 20 or more employees.) Unlike profit sharing or stock option plans, ESOPs hold stock in employees’ names for the duration of their time with a company. They are a semi-permanent form of distributing the benefits of capital ownership to broad groups of the population. Imagine a situation in which the pay system at Scot Forge was common. So long as the company was moderately successful—and most established companies are—employees at every level would build up sizable nest eggs, and would receive dividends on their shares along the way. This is a powerful step toward greater equality.[vii] It puts both money and stock in the hands of people who have otherwise seen their incomes stagnate and their retirement security jeopardized.

ESOPs also tend to alter a company’s priorities in ways that are socially beneficial. A series of studies have shown that pay scales are generally higher than at non-ESOP companies, and benefits more generous. Layoffs rates are substantially lower. More ESOP companies pursue what has become known as a “good jobs” strategy. The difference shows up in the fact that ESOP companies are represented in vastly disproportionate numbers on the various “best places to work” lists that appear regularly in the business press. They often transform work in other ways as well. Many corporations these days have discovered the benefits of participatory management, in which employees at all levels have a say in decisions that affect their work areas, or in decisions where they have relevant expertise. The tools of this approach—self-managing teams, frequent communication about business issues, quick feedback about results, and so on—are well developed and effective.[viii] An ESOP company has a built-in incentive to move farther and faster in this direction than a conventional company, since both managers and employees are likely to expect it to do so. They all have more of a reason to engage with the business and to care about the outcomes of their work. After all, the company (or a big chunk of it) belongs to them, not to some rich family or absentee investors.[ix]

Finally, and perhaps more controversially, an ESOP might help rein in the salaries of CEOs and other top executives, thus lessening inequality on that front as well. The recent explosion in executive pay has many sources, but it partly reflects the decline of the labor movement. No 1960s-era corporate chieftain whose staff had to negotiate with union leaders could pay himself tens of millions of dollars a year with impunity. The presence of a large employee-oriented shareholder right on the premises—the ESOP—might have the same effect as the collective-bargaining table. We don’t have much recent data on relative pay rates at ESOP and non-ESOP companies, but it’s not hard to imagine that an ESOP would place at least some restraint on today’s skyrocketing salaries. 

Given all these benefits, why have political leaders not made this form of employee ownership their own? ESOPs do garner bipartisan support in Congress and state legislatures, but the support is usually limited to tweaking tax legislation. Where is the politician who is prepared to make this form of people’s capitalism a centerpiece of his or her economic policy, proposing incentives and support for companies and company-sellers of all sorts to consider establishing an ESOP? Given employee ownership’s track record, there seems so much to gain and so little to lose.

This is the point at which many ESOP advocates shake their heads in dismay. But of course there are reasons for the reluctance, which in this case turn on the history and politics of the idea.

Historically, Kelso and Long may have overreached, spawning a variety of ESOPs and ESOP-like entities before legal practice and governmental supervision had evolved to oversee them. A 1975 law gave employers a tax credit on certain capital investments if they contributed a corresponding amount of stock to an ESOP. A 1981 law provided tax credits for any stock given to employees. An act passed in 1986 provided incentives for banks to lend to ESOPs. (“When Louis Kelso burps, Russell Long puts it in the Internal Revenue code,” complained one congressman.) These provisions were subsequently reversed, in part because ESOPs had garnered some bad press. Several large companies, including Simmons Mattress, Burlington Mills, and Charter Medical, used ESOPs as a means of transitioning from public ownership to private. “Some of these did not work out very well,” remembers Corey Rosen, who is one of the nation’s leading experts in employee ownership. “Some, like Simmons, took on too much debt and then the economy turned down. At others, like Burlington and Charter, the deal makers used egregious financing techniques that led to lawsuits. Things could be much better structured today, but I think people may look back and say that ESOPs are trouble.” Other large-scale ESOP-related debacles—United Airlines, Enron, the Chicago Tribune—didn’t help the cause, either, though each failed for reasons that have little to do with the kind of well-structured ESOPs that are common today.[x]

Christopher Mackin, an employee ownership expert who teaches at Rutgers, has analyzed the politics of ESOP support and points out that the idea also has a pedigree problem. Brainchild of the iconoclastic Kelso, offspring of a conversation between Kelso and one unusually powerful senator, ESOPs emerged “outside the orbit of accepted policy conversation.” Liberals in particular initially regarded them with suspicion, as did some union activists. “ESOPs appeared to be a labor idea, ostensibly benefiting workers, that was hatched outside the labor movement by people friendly to and wishing to provide incentives to ‘capitalists.’” Senator Long’s decision not to make ESOPs more democratic “fueled additional suspicions that ESOPs represented faux ownership.” Mackin believes that these concerns are fading in policy circles, pointing to the recent sponsorship of major—and favorable—studies by Washington think tanks.[xi] Unions, too, are less opposed than they once were. And many conservatives support ESOPs because, in effect, they create more capitalists. So the political support for the idea may be growing.

III.

Louis Kelso died in 1991, Russell Long in 2003. Since their time, no national political leader has made employee ownership his or her priority. Yet it’s not hard to imagine that one could do so. As I have written elsewhere (in the New Republic and the Atlantic), a visionary politician could rescue the idea from the murk of tax legislation and put it on a whole new plane. Imagine a major policy initiative, perhaps dubbed Capitalism for People or a true Ownership Society (unlike George W. Bush’s half-baked version). The program’s purpose is to increase the number of ESOP companies. Administration officials celebrate exemplars like W.L. Gore and Scot Forge. The government provides financing guarantees for ESOP transitions, and incentives for corporate sellers to consider an ESOP. It extends preference in its purchasing to employee-owned companies, just as it does now for small businesses owned by minorities, women, and disabled veterans. An Office of Employee Ownership in the Commerce Department develops programs to stimulate more ownership, and funds state-level centers of research and advocacy (which already exist in Ohio, Vermont, and a handful of other states).

And why stop there? Universities could do more research on employee ownership and egalitarian capitalism. (Some, such as Rutgers University and the University of California at San Diego, already are deeply involved in these subjects.) A public-private marketing partnership could help consumers identify employee-owned companies to buy from. (An organization called Certified EO has already taken steps in this direction.) Rutgers professor Joseph Blasi and his coauthors, in their book The Citizen’s Share, advocate setting benchmarks and targets for employee ownership, symbolizing a long-term national commitment to the idea; they also propose a host of other measures that would help an incoming president get started. Right now, of course, the specifics matter less than the idea itself. Visionary politicians, like visionary CEOs, need big, bold ambitions to get people excited and mobilized. “Employee ownership” may not get anybody excited, but Capitalism for People or The Ownership Society might. Maybe we would even reach a point where employees could vote on whether they wanted an ESOP, much as they can now vote on whether they want a union.

As a tool of economic reform, ESOPs have their limitations. They do nothing for people who don’t have jobs, or who work for very small companies. They don’t affect public-sector workers or employees of companies that choose not to have an ESOP. So they are a complement to other methods of building a more egalitarian capitalism, not a replacement for them. The advantage they offer is that they could affect the economic lives of tens of millions of employees—and that very little stands in the way of expanding the ESOP sector. ESOPs have proven their worth as ownership vehicles for successful businesses, and their very presence in the economy tends to expand the sense of what is possible. Because they “make haves out of the have-nots without taking it away from the haves,” as Russell Long once put it, they are one thing that liberals and conservatives can agree on.

There’s an irony in all this, of course. It was Marx who originally focused on restructuring ownership and control of the means of production, and it was mostly socialists who carried the idea forward. An ESOP is a form of capitalism, not socialism; that’s why Louis Kelso called his first book The Capitalist Manifesto. But capitalism is what we have, and the challenge is to make it work for everyone, not just for the few. Employee ownership through ESOPs—capitalism for people—is a practical way to do exactly that.

John Case, editor of Employee-Owned America, is author or coauthor of six books on business and economics. His articles have appeared in Harvard Business Review, Inc., The New Republic, and numerous other periodicals.

[i] See “Norman G. Kurland, “Dinner at the Madison: Louis Kelso Meets Russell Long,” Owners at Work, Winter 1997-1998.

[ii] A longer account of this history appears in Corey Rosen, John Case, and Martin Staubus, Equity: Why Employee Ownership Is Good for Business (Harvard Business School Press, 2005)).

[iii] The nonprofit National Center for Employee Ownership summarizes the data on corporate performance here. See also Joseph Blasi, Douglas Kruse, and Richard Freeman, “Having a Stake: Evidence and Implications for Broad-based Employee Stock Ownership and Profit Sharing,” published in 2017 by Third Way and available here.

[iv] For a full account of the UAL debacle, see Equity, chapter 4, and Christopher Mackin’s excellent paper “United It Was Not,” available here.

[v] I owe this turn of phrase to Jack Stack, CEO of a large and thriving employee-owned company in Springfield, Missouri.

[vi] The number of participants continues to grow, in part because many ESOP companies, flush with cash, have acquired other businesses and incorporated those companies’ employees into their ESOPs.

[vii] A common critique of ESOPs is that employees have all their eggs in one basket: both wages and retirement funds are dependent on the health of the company, and if the company goes belly-up the employee loses everything. That’s essentially what happened at Enron. Today, most ESOP companies address this risk by establishing diversified 401(k) plans in addition to the ESOP. By law, moreover, employees with 10 years or more in an ESOP who are at at least 55 can diversify up to 25% of their company stock; five years later, they can diversify up to 50%.

[viii] See Dennis Campbell, John Case, and Bill Fotsch, “More Than a Paycheck: How to Create Good Blue-Collar Jobs in the Knowledge Economy,” Harvard Business Review, January-February 2018.

[ix] Some ESOP companies take participation to its logical conclusion, essentially treating employees like partners in the business. They systematically share full financial information and feedback from customers, and they expect employees to take full responsibility for their work, including coming up with ideas for improvement. Managers at these companies act more like player-coaches than like supervisors. They do typically retain the power to fire people who do not fit in, though they may solicit the advice and consent of the individual’s coworkers before they do so.

[x] For an analysis of each one, see Chris Mackin, “Property not Pay: Restoring the Middle through Ownership,” unpublished paper prepared for the Institute for Work and the Economy Conference, The Many Futures of Work: Possibilities and Perils, Chicago, October 5-6, 2017.

[xi] Ibid.

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Andrew Carnegie observed that the way to make money is to “put all your eggs in one basket, and watch that basket.” This strategy is embedded in the investment policy of all ESOPs: they are required by law to invest their assets primarily in the stock of the company sponsoring the plan.

The strategy often works. It is a good way to make money, especially if you have plenty of other assets, a bit of luck, or, preferably, both. But it’s only half the story. The strategy has a dark side—it’s also a good way to lose money.

That’s because there’s substantial risk involved in having an investment portfolio consisting of the stock of only one company. No matter how good the company, something bad can happen to any company at any time. One of America’s most successful businesses is Boeing Co., but its stock price dropped 5% in one day after the second fatal crash of its best-selling airplane resulted in a world-wide grounding of the aircraft. Investors call the risk involved in putting all your eggs in one basket “single-stock concentration risk.”

The antidote for single-stock concentration risk is diversification. Boeing’s stock appreciated by 9.36 % in 2018, the year before the crashes. If an investor had assembled a portfolio of equal proportions of ten stocks generating similar returns, including Boeing, her portfolio’s loss on Boeing’s bad day might have been only one-half of 1% instead of 5%, but her expected returns would have been unaffected. This is why diversification is widely recognized as a best practice for investors.

But diversification doesn’t work for ESOPs, because they’re required to keep their assets primarily invested in employer stock. So every ESOP has excessive risk, in the sense that a prudent investor would use diversification to manage single-stock concentration risk. The ESOP can’t use that mechanism and therefore is stuck with extra risk.

In 1974, when Congress enacted ERISA—the law embodying ESOPs and setting the rules for retirement plans generally—it had to deal with this issue. One of the provisions of ERISA requires retirement plans in general to be invested prudently, and to use diversification to avoid single-stock concentration risk. Since these requirements conflict with the rule that ESOPs have to invest primarily in employer stock, Congress included in the law a special exemption for ESOPs. In view of the importance of the exemption language, it’s worth quoting verbatim. It reads, in relevant part, as follows:

“ In the case of an [ESOP or similar plan], the diversification requirement …. and the prudence requirement (only to the extent that it requires diversification) ….is not violated by acquisition or holding of …. qualifying employer securities ….”

In other words, ESOPs are exempt from ERISA’s requirement of diversification. In addition, recognizing that prudence requires diversification, ESOP fiduciaries are exempt from that aspect of prudence but are still required to be prudent in all other respects. This wording is especially important because the standard of prudence for a fiduciary is very high. In ERISA, it requires the fiduciary to observe the same level of care that an expert investor would observe in dealing with his own investments.

As a practical matter, what is an ESOP fiduciary to do? He is really stuck with excessive risk, because the law requires investment primarily in employer stock. The law says he’s still supposed to act otherwise prudently, but how exactly is he expected to comply with that duty?

Although some fiduciaries and their advisers might conclude that the exemption from diversification permits them to simply hold employer stock and forget about it, that seems insufficient in light of the exemption’s language. Bear in mind that the exemption doesn’t make single-stock concentration risk go away; it just says that a fiduciary can’t be successfully sued for not using diversification to mitigate it. Prudence still requires that the fiduciary do what he can to protect and enhance the value of the ESOP’s assets. As an example, many ESOPs hold substantial assets other than employer stock, usually designated as an “other investments” account or the like. Is the fiduciary’s responsibility satisfied by investing the assets in that account prudently, without regard to the existence of the employer stock account? Or should the “other investments” account be invested more conservatively to offset the excessive risk unavoidably present in the employer stock account?

Looking beyond investment policy, shouldn’t fiduciaries seek other ways to deal with the excessive risk of their single-stock portfolios? Before the enactment of ERISA, Louis Kelso, widely considered to be the inventor of the ESOP concept, envisioned that ESOP accounts would be protected by a government-sponsored insurance arrangement similar to the Pension Benefit Guaranty Corporation. Ultimately, ESOPs found their way into ERISA, but PBGC insurance was limited to defined benefit plans.

In recent years, some proposals have been advanced for insuring ESOP benefits through public or private insurance arrangements, but no such insurance is currently available. There is an available mechanism using risk-pooling, which has been successfully employed by individual investors, but it has attracted only limited interest among ESOP fiduciaries and sponsors. An unresolved question is the extent to which the residual prudence duty of the exemption language requires fiduciaries to explore these and possibly other alternatives for mitigating risk. It can be hoped that this question will be resolved by fiduciaries, plan sponsors and their advisers. Otherwise, it may be resolved for them by regulation, litigation, or legislation.

Jared Kaplan is the CEO of Delaware Place Advisory Services, LLC, a consulting firm he founded after his retirement in 2017 from the law firm of McDermott Will & Emery, where he headed the ESOP Practice Group. He is the co-author of Bloomberg Bureau of National Affairs (BNA) Tax Management Portfolio 354-9^th, ESOPs (2017) and BNA Corporate Practice Portfolio 62-4^th, ESOPs in Corporate Transactions (2018).

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The 2020 Democratic field now teems with proposals to mitigate rampaging wealth and income inequality, from Kamala Harris’s plan to increase tax credits for low- and moderate-income families to Elizabeth Warren’s wealth tax.  Such plans overlook, however, the principal set of relations that skew American capitalism upward: the ownership and operational control of business enterprises.

[This article is available from The New Republic. To read more, click here.]

The post An Economy in Waiting appeared first on Employee Owned America.

(This article appeared originally in the Financial Times. It is reprinted here by permission of the author.)

Sovereign wealth funds, with a combined $8tn in assets, are in the news. China Investment Corporation recently teamed up with France’s largest bank to create a €1bn-plus fund to back  European companies. Norway’s oil fund cut back its investment in oil and gas stocks, and Abu Dhabi’s Mubadala set up a tech hub with SoftBank.

But a reckoning awaits this key financial constituency—can their wealth be deployed in a manner that respects the sovereignty of the recipient countries? And can funds earn market returns without being economically extractive or politically divisive? Norway’s fund has sought to address these issues by pushing for governance improvements in investee companies.

There is an established investment structure that performs economically while also respecting concerns about foreign investment.

Sovereign wealth funds should invest in employee-owned companies. In Europe, the Mondragon Group of co-operative firms in Spain boast the most impressive statistics. With €12bn of revenue spread across 266 firms employing more than 80,000 people, Mondragon has, since 1956, demonstrated that democratic structures and technological sophistication can coexist. The UK’s John Lewis Partnership has 85,000 employees across 400 eponymous and Waitrose stores and £10.2bn in revenue. And in the US, nearly 7,000 companies employing more than 14m workers participate in employee stock ownership plans, from Publix supermarkets with $34bn of revenue to Harpoon Brewery with just $60m.

In US cases where owners sold out to employee trusts, studies show that these transactions have had a positive impact on sales and employment growth. This is particularly true when the company remains in private hands, rather than listing on the stock market. In the past such deals have relied on ordinary bank debt, but more funding is needed.

Not only do existing successful employee-owned firms need capital to grow, but there is a much larger potential market of companies currently owned by baby boomers seeking exits from companies they have successfully founded.

Sovereign wealth funds can supplement conventional debt through the use of synthetic equity structures that track traditional equity holdings without diluting employee control. These sorts of investments could be made directly into individual companies or through specialised funds knowledgeable about this niche.

At present, the US has very favourable tax and legal structures to launch this investment strategy. Over time, the practice will spread worldwide, as rules are harmonised across international borders.

Supporting employee ownership would do more than insulate sovereign wealth funds from complaints that they undermine local economies and nation-states. The target companies would reap the demonstrated benefits of employee ownership. Research points to increased retirement security and more robust job growth in addition to a significant sharing of wealth.

At a time when concerns about economic inequality are rising, some politicians are pushing redistributive, after-the-fact taxation as the only possible solution. We should consider more innovative and inclusive options that share wealth as it is being created.

Sovereign wealth funds are part of the contemporary economic conversation. If they continue to rely on traditional investment practices, they will become increasingly vulnerable to charges that they are opportunistically extracting value across borders. It is time for them to explore a different path that shares value with corporate managers, engineers and workers within the nation-states where these funds invest. All that is required is the will to act.

The writer is a partner at American Working Capital and a contributing editor of Employee-Owned America. Cornell University professor Robert Hockett also contributed.

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Rebuilding the American Dream

A White Paper

Revised March 2020

Press contact: Jack Moriarty, Executive Director, Employee Owned America jmoriarty14@gmail.com

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EXECUTIVE SUMMARY

The Challenge. Even prior to the COVID-19 outbreak, the US economy has not been serving its citizens well. Despite years of low unemployment, most Americans have seen their incomes stagnate. Most have little economic cushion. Opportunities for good jobs and advancement have declined, particularly for the two-thirds of the adult population without a college degree. Many Americans’ sons and daughters will fare no better economically than their parents.

The Solution. Find ways to broaden and deepen employee ownership. When employees own a significant stake in the companies they work for, policies that promote corporate growth also promote economic fairness.

Employee ownership is now firmly established in the US economy and has a proven track record of performance. Companies with significant employee ownership:

• Offer better pay and benefits
• Grow faster, innovate more, and enjoy higher productivity
• Survive longer, and are less likely to lay people off in a downturn
• Provide greater opportunity for young workers
• Provide an ownership stake that significantly supplements other retirement income

Since the first enabling legislation in 1974, employee ownership has grown steadily to include 9% of the private-sector workforce. The opportunity now is to expand it to 20%, 30%, or more.

How to get there. Employee ownership is a big idea, capable of transforming the US economy. Since 1974, Congress has passed many provisions to encourage it, all with widespread bipartisan support. Today’s leaders have an opportunity to broaden and deepen that support through education, advocacy, and new policies. For example, Congress could:

• Level the playing field for corporate divestitures and sales of companies by private equity firms, so that many more employees have an opportunity to buy the company they work for through an employee stock ownership plan (ESOP).
• Employee Ownership Investment Corporations, modeled after Small Business Investment Corporations, could help provide capital for sales to an ESOP.
• An Employee Equity Loan Program could guarantee loans for ESOP transactions. Both measures would have no budgetary impact.
• Tax incentives would encourage corporate and private-equity sales to an ESOP.
• Opportunity-zone regulations can ensure that employee-owned companies are eligible for the full benefit of recent Opportunity Zone legislation.
• Encourage publicly traded companies to offer stock to employees at a discount.
• Require companies that receive various forms of special treatment from the government to establish employee stock-ownership plans or programs.

The private sector, too, can continue to launch initiatives aimed at spreading employee ownership. One innovative move would be to establish a revolving fund that buys healthy companies and sells them over time to an ESOP, using the proceeds to buy more companies, and so on.

All such measures would go far toward revitalizing the middle class and assuring good jobs and opportunity for millions of American working people.

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Turning Employees into Owners:

Rebuilding the American Dream

We Americans believe that ours is the land of opportunity. We celebrate business pioneers, from Thomas Edison to Steve Jobs. We admire men and women who rise from poverty through enterprise and diligence. Over the years, this has made America the preferred destination for millions of immigrants whose ambition and talents find their fullest expression here. Our high rates of entrepreneurship reflect this dynamism.

Today, however, our engine of opportunity is sputtering. New-business formations are flat or declining. For many, our economy isn’t delivering the income growth, job security, and middle-class standard of living that were once the reward for a lifetime of hard work. The American dream once promised that children would do better than their parents. But despite our booming stock market and low unemployment, we are experiencing the opposite. We are moving from a fluid land of opportunity into a stratified society characterized by growing disparities of wealth and income.

Among our concerns are the following:

1. A lack of good jobs. About two-thirds of Americans still do not have a college degree. With the decline in manufacturing jobs, people without college educations or special skills have difficulty finding rewarding employment. Even in today’s low-unemployment economy, millions of jobs pay less than $15 an hour, provide few benefits, and offer little or no security. Walmart, the country’s biggest private employer, raised its starting wage in 2018 to just $11 and now pays its hourly employees an average of $13.79, or not quite $29,000 a year for full-time work.

• Little or no economic cushion. The median wealth of American families in 2016 was about $78,000. But wealth ownership is highly concentrated. The top 0.1% of households own as many assets as the bottom 90%. The top tenth own 84% of all US-owned stock, including shares held in 401(k) accounts and pension funds. About half of Americans own no stock. A Federal Reserve survey in 2018 found that four in ten US adults would have trouble coming up with $400 in an emergency. About half of Americans 55 and older have no retirement savings. Among those who do, the median amount is enough to generate only about $400 a month. Bureau of Labor Statistics data show that just over half of full-time workers participate in any kind of retirement plan; the proportion decreases as you go down the wage scale.

• Stagnant incomes. Between 1979 and 2015, the US economy grew nearly 160% in real terms, and GDP per capita was up about 80%. According to the Congressional Budget Office’s conservative figures, people at the very top of the income scale—the famous one percent—increased their pretax income 233%. Meanwhile the lower four-fifths of the income distribution gained 32%. In short, the incomes of most American households rose less than half as much as GDP per capita.

• High returns to capital, low returns to labor. Another set of figures illustrates a similar discrepancy: from 1973 to 2018, inflation-adjusted wages for nonsupervisory workers were essentially flat. Meanwhile, a dollar’s worth of stock grew (in real terms) to $14.09. So those working for a living have seen their incomes stagnate, while those with significant income from capital ownership have done very well. This is a recipe for widespread discontent and frustration. Regardless of the recent stock market losses due to COVID-19, this asymmetry of returns is unlikely to change without intervention.

• Declining opportunities. Migration from lower-income groups toward higher-income groups is becoming increasingly difficult, even for talented young people. Rates of social mobility, which regularly increased until around 1980, are now declining. More of the children of the poor are staying poor, while more of the offspring of the well-to-do are remaining well-to-do. Again, a recipe for discontent.

• Distant and disconnected ownership. Too many companies—notably those controlled by financial owners such as private equity firms—are treated like pawns on a financial chessboard, not as pillars of local communities. They are acquired, divested, and moved from one absentee owner to another. They may be shut down even when profitable—if, for example, relocating their assets or brands to offshore production promises more profit. These are the companies that should be the economic bedrock of communities and the source of employment for millions of Americans, especially in rural and small-town America.

• Declining innovation. In 2018, the United States dropped out of Bloomberg’s list of the world’s ten most innovative economies. Increasing market dominance by supersized companies, especially in technology, has led to a broad slowdown in spending on innovation throughout the economy.

These are familiar indictments, and there is no lack of proposed solutions from both true-blue liberals and bright-red conservatives. Unfortunately, our political system seems to be in perpetual stalemate; both federal and state public policy measures have had little effect. Existing elements of the social safety net—including food stamps, subsidized housing, and Medicaid—help many low-income people, but by themselves are wholly inadequate to take care of the estimated 80% of the population who live from paycheck to paycheck.

But the authors of this white paper are convinced from experience that there is an enterprise-friendly, nongovernmental solution to many of these ills—one that enjoys bipartisan support. It’s called employee ownership.

Revitalizing the middle class

At the moment, close to 7,000 US companies have an employee stock ownership plan, or ESOP, that owns anywhere from a small minority to 100% of the firm’s shares. An estimated 2,000 of these companies are wholly owned by their employees. The ESOP world includes giants such as Publix Super Markets (190,000 employees), midsize companies such as W.L. Gore & Associates (9,500 employees), and smaller firms such as King Arthur Flour (300 employees). Many other companies do not have an ESOP but provide their employees with significant numbers of shares through stock or option awards. A few hundred enterprises are wholly owned by their workers through a co-op structure.

Academics and other researchers have studied the effects of ESOP ownership over many years, and their findings are remarkably consistent. Employee ownership companies outperform similar companies with conventional ownership. They put more money in the hands of their workers. For example:

• Better corporate performance. Adjusting for changes in overall industry growth, ESOP companies grow about 2.5 percentage points per year faster in sales, employment, and productivity after they set up an ESOP than would have been expected if they had not set up an ESOP. Other studies have found productivity increases of up to 4-5%, on average, in the year an ESOP is adopted.  
• Higher survival rates. A study tracking the entire population of ESOP companies over ten years found that privately held ESOP companies were only half as likely as non-ESOP firms to go bankrupt or close, and three-fifths as likely to disappear for any reason.
• Fewer layoffs. Nationally representative surveys consistently show employee-owners less likely to report being laid off in the previous year. In 2014, the layoff figure was 9.5% for all working adults compared to 1.3% for employee-owners.
• Better employee compensation and benefits. One study found employee-owners earning between 5% and 12% more in median wages compared to employees in matching non-ESOP companies. The same study found that ESOP participants have 2.5 times as much in retirement plans and 20% more financial assets overall than employees of the comparison group of non-ESOP companies. Higher compensation and retirement benefits mean fewer demands on public social services.
• Greater opportunity for young workers. A recent survey, which looked at workers’ economic circumstances over time, compared people age 28 to 34 with employee ownership to their peers without. The study found that those with employee ownership enjoyed 92% higher median household wealth, 33% higher income from wages, and 53% longer median job tenure.
• Higher levels of innovation. Companies with broad-based employee-ownership programs are more likely than others to introduce high-engagement, team-based management practices. These practices create more opportunities for idea generation and internal entrepreneurship than conventional top-down management.

Since the first ESOP legislation in 1974, employee ownership has grown steadily to include 9% of the private sector workforce. What if the proportion could grow to 20%, 30%, or more? That would be a big step toward boosting productivity, overcoming the stagnant-wage problem, building stronger communities, and revitalizing the middle class.

The challenge—and the opportunities

Employee ownership is a big, bold idea, a market-tested concept that is capable of transforming the American economy. Political leaders who espouse it have a range of options. They can visit and celebrate employee-owned companies and the employee-owners who work there. They can use their bully pulpits to educate voters about all the ways in which our economy is failing its citizens, and all the ways in which employee ownership can remedy the situation. Where policy is concerned, they have several choices: new regulations, new agencies, new investment institutions, and new tax incentives, all designed to foster and support this form of ownership. In what follows, we will explore just a few of these possibilities. We will look at how companies currently become employee owned, how many more could become so, and the obstacles that get in the way of these transitions. We will also propose some specific legal structures and incentives that could overcome these obstacles and thereby lead to a substantial increase in the number and influence of employee-owned firms.

Sale of a company to an ESOP. In the United States, ESOPs are by far the most common form of employee ownership. Legally, they are government-regulated retirement plans, and they have enjoyed broad bipartisan support in Congress. Thanks to previous legislation, individual company owners who sell their businesses to the employees through an ESOP gain certain tax advantages on the proceeds. An S corporation that is partly or wholly owned by an ESOP pays no current federal income tax on the corresponding portion of its earnings.

Most existing ESOPs were established when individual owners decided to sell part or all of their businesses to employees through this mechanism. Contrary to a common belief, employees almost always pay nothing for the stock they receive in their ESOP account. The transactions are typically funded by company cash or bank loans; often, the seller takes back a note for part of the selling price. If there are loans or notes, the debt is paid off from the future earnings of the company, as in an ordinary leveraged buyout. ESOPs without leverage are funded by annual contributions from the company.

As baby-boom entrepreneurs begin to retire in large numbers, more individually owned companies will come up for sale. According to estimates, at least 150,000 of these companies are candidates for ESOPs. But not all companies that are offered for sale are owned by individuals. Two other categories of sellers account for a large number of transactions and a great deal of economic value:

• Corporate divestitures. In 2016, public companies in the United States divested more than $75 billion worth of subsidiary divisions, most of that total bought by domestic acquirers. As far as we know, none of these companies were sold to employees. This shouldn’t be surprising: corporate divestiture teams are unlikely to be familiar with ESOPs, and there are no specific incentives that might induce them to consider this option.

• Private equity sales. U.S. private equity firms today actively manage more than $3 trillion in corporate assets. The usual goal of such firms is to turn over 100% of their assets every 5 to 7 years through the sale of portfolio companies to new owners. Few of these sales have resulted in employee ownership.

These numbers are a reminder: every business that doesn’t close its doors will eventually be sold. It will be sold to public investors, to an investment firm, to another company, to a group of individuals such as a management team, or to its employees. The numbers are also a reminder that employee ownership could be scaled up quickly if the right institutions and incentives were in place.

The obstacles, and how to overcome them. There is a significant disparity between a prospective ESOP buyer and other buyers, such as private equity funds and corporate acquirers. For example:

• Corporate and other buyers typically have ready cash available for the purchase—an appealing factor for sellers. ESOPs, by contrast, must usually borrow much of the necessary capital from a bank. Because it is difficult to finance 100% of a deal, ESOPs typically must find other sources of capital, such as seller financing, or they must buy out an owner over time. Neither of these approaches is attractive to a corporate seller.
• Corporate and other buyers may have synergies that allow them to pay a relatively high price; ESOPs face legal constraints that may make it impossible for them to pay the same amount.
• Corporate and other buyers may be able to provide the management and functional resources that enable the new company to operate independently; ESOPs spinning off from a corporate parent may find that task more difficult.

New institutions, along with new tax and regulatory policies, could level this playing field. For example:

****Proposal: Employee Ownership Investment Corporations (EOICs). Like existing Small Business Investment Corporations, or SBICs, EOICs would be privately funded. They would be designed to address the gaps in capital required for employee ownership transactions, especially those involving corporate divestitures. EOICs would provide subordinated “first dollars in” to a deal—funds that serve the same function as equity in the eyes of other lenders. Where the resulting ESOP owns at least 30% of the company’s stock, such financing would be eligible for federal guarantees, strengthening the EOIC’s borrowing capacity to finance the remainder of the deal.  

The EOIC proposal above is budget-neutral to the federal government, and the idea stands on its own without further incentives. To incentivize private investment in EOICs and accelerate the growth of employee ownership, however, Congress could also provide EOIC investors with a 50% reduction in taxable interest income from such investments. This incentive is analogous to that provided in prior legislation, repealed in 1992, that gave banks a 50% exclusion of interest income from loans to ESOPs. That provision dramatically raised the profile of ESOP lending in the banking community. The current proposal, however, focuses specifically on subordinated debt, thereby addressing a key obstacle to establishing ESOPs in divestitures and private equity transactions.

****Proposal: The Employee Equity Loan Act. A new Employee Equity Loan Program (EELP), housed within an appropriate branch of the federal government such as the Economic Development Administration of the Commerce Department, could also provide such guarantees, again at no net cost to the federal government. Qualifying loans supported by this program would be sized and priced to compete with private equity buyout funds.

EELP loans could be sourced through the existing network of financial institutions that have staffs trained in administering government loan guarantee programs. Unlike existing programs, however, these loans would specifically target middle-market businesses ($50 million to $500 million in revenue). They would also require that the proceeds be used to purchase stock either from the selling owner or from the company making the loan application. The purchased stock would have to be contributed to a legal trust, such as an ESOP, formed for the benefit of the company’s management and employees. (A download of this proposal, described in greater detail, can be found here.)

Tax policy has also been widely used to achieve certain social objectives, including existing support for ESOP transactions and ESOP-owned companies. Additional tax incentives could have a significant effect on the behavior of corporations and private equity firms that are selling operating businesses. The impact of trillions of dollars in employee-owner equity after a decade or more of corporations and private equity firms selling to ESOPs would be enormous.

****Proposal: divestiture incentives. Grant an exemption in taxable gains, up to responsible fiscal limits per transaction, for corporations that divest operating units into employee ownership. Include provisions to ensure that employees receive a meaningful share of ownership in the ESOP, and regulations to prevent governance and financial abuse by market manipulators. Add a minimum holding period for the sold shares or assets and a clawback of avoided gains by the seller if the acquiring firm fails to retain a significant percentage of employee ownership over a meaningful period. Such measures would help compensate the seller for potentially lower sale prices. The welfare of employees is often a consideration in corporate divestitures, and many large companies might divest to ESOPs if appropriate incentives were in place.

****Proposal: private equity incentives. Grant an exemption in taxable gains, up to responsible fiscal limits per transaction, for private equity and investment companies that sell portfolio companies to ESOPs. Include provisions to ensure that employees receive a meaningful share of ownership in the ESOP and to prevent governance and financial abuse. Add a minimum holding period for the sold shares or assets and a clawback of avoided gains by the seller if the new firm fails to retain a significant percentage of employee ownership over a meaningful period.Include a clawback provision if initial performance under the ESOP falters.

****Proposal: ESOPs in Opportunity Zones. Opportunity Zones are a new policy designed to promote economic growth in distressed communities through tax incentives. Provisions implementing the idea were included in the Tax Cuts and Jobs Act of 2017. A conventional opportunity-zone investment involves acquiring equity in a business or building located in such a zone; an investor who holds the property for at least ten years and then sells it enjoys significant tax relief on the proceeds. Private equity firms and other investors specializing in ESOPs have designed transactions where an employee stock ownership trust purchases a company in conjunction with private equity capital, typically reorganizing the company into a 100% ESOP-owned S corporation and structuring the investor’s interest as (for example) subordinated debt or warrants. We believe that the currently proposed Opportunity Zone regulations, when finalized, should make clear that such investments qualify for the full benefits of the legislation.

Employee ownership in publicly traded companies. The case of publicly traded companies is different. Some smaller ones could be sold to their employees through a buyout. But most will continue to be publicly traded, and many of these have already created a variety of methods to get shares into the hands of their employees. Procter & Gamble’s employees own an estimated 15% of the company’s shares. Southwest Airlines’ employees own a significant chunk of theirs. Many high-tech companies, including Google and Microsoft, distribute shares, stock options, or both to a broad base of employees. Simple changes to the tax laws could encourage more companies to spread the wealth in this manner.

****Proposal: Support for employee stock purchase plans. Many public companies currently offer stock to employees at significantly discounted rates. Employees specify a payroll deduction over an offering period of three months to two years, at which point they can use that money to buy shares at a discount (normally 10% but sometimes considerably more). Because of the programs’ structure, employees have an opportunity to build significant equity stakes in addition to their pension or 401(k) benefits. Yet only about a third of eligible employees participate. Some may live paycheck to paycheck. Many may not understand the program. If companies seeded the first two years of participation in the fund by giving everyone a $1,000 grant to buy shares, employees would likely see the “guaranteed win” nature of the offering and participate at much higher rates. To encourage this, the government could provide a tax deduction for these grants. 

Employee ownership in companies enjoying government-funded privileges–including any bailout related to COVID-19. Every year, the U.S. government and the governments of the nation’s 50 states take measures that affect the American economy. They pass tax laws and regulations. They provide tax credits, incentives, and subsidies of various sorts. Every one of these measures can be used to encourage employee ownership and contribute to the public goods of building a stronger, more equitable economy. Consider the 2018 corporate tax cut, for example. Suppose that the reduction in corporate taxes had been linked to the creation of an ESOP or another broad-based plan to encourage ownership. That would have provided the same boost to business investment and economic growth, while sharing the benefits beyond current shareholders to millions of employees.

As Rutgers professor Joseph Blasi and his coauthors put it in a recent paper, “A Congress or Administration that wants to support broader employee share ownership and profit sharing in economic rewards could develop a checklist on any major program or legislation that is proposed to examine its likely effects on, and capacity to increase, financial participation and capital ownership and access to income on capital of employees and citizens in our economy.” That is the most reliable route to a stronger economy.

****Proposal: employee ownership requirements. Companies enjoying “corporate welfare” benefits should be required to adopt employee ownership programs through ESOPs, broad-based stock grants, options, or similar mechanisms so that over time a meaningful percentage of their equity is held by their employees.

Private sector initiatives. Today, a wide variety of companies and nonprofit organizations have created a fertile ground for employee ownership initiatives. The National Center for Employee Ownership, the ESOP Association, and Employee-Owned S Corporations of America have built networks of employee ownership practitioners and advocates. State-level organizations in Ohio, Vermont, Pennsylvania, and other states educate local business leaders and policymakers about employee ownership opportunities. The Institute for the Study of Employee Ownership and Profit Sharing (Rutgers University) and the Beyster Institute (University of California at San Diego) lead academic research and analysis in the field. Many financial institutions specialize in ESOP-related transactions. A large group of attorneys, bankers, consultants, and other experts help company owners establish and maintain successful ESOPs.

But there is much more that could be done by business leaders and philanthropists. They could help establish more state centers. They could finance marketing campaigns to broaden public awareness of employee ownership. Most dramatically, they could act directly to increase the number of large, successful employee-owned companies.

****Proposal: Private revolving fund(s) to create ESOPs. Private philanthropy is a longstanding tradition in America; those who have benefited most from the system give back in ways that promote the general welfare. We can think of no more effective way to leverage the power of capitalism to spread prosperity than to create more employee ownership. Wealthy individuals, for example, could establish a revolving fund whose sole purpose is to buy companies from private owners, corporations, or private equity firms and then sell these companies to the employees over time using an ESOP. The fund can use the proceeds from its sales to buy more companies and sell those, too, to an ESOP, and so on. This effort requires no act of government. It might work through a charitable trust set up for this purpose, thereby providing additional incentives for the funders.

A note on risk.  All stock ownership involves some risk. ESOPs are often thought to increase the risk because employees have “all their eggs in one basket.” When employees hold shares in the company where they work, the risk does not go away, but they are usually well placed to make sure that the basket is in good shape. Indeed, many rank-and-file employees at successful ESOP companies have already acquired a surprising degree of financial security, some with more than a million dollars in their retirement accounts.

To be sure, a lack of diversification in an investment portfolio does entail risk. This risk is moderated with ESOPs when, as is nearly always the case, employees are granted the shares and do not purchase them with wage cuts, savings, or retirement-plan funds. Moreover, employees in an ESOP company may actually face less overall risk than employees of a non-ESOP company. The proper comparison is between employees with ESOP accounts and employees with either a conventional retirement plan, such as a 401(k), or no plan at all (a group that includes about 60% of US private-sector workers). Consider the following facts from the nonprofit National Center for Employee Ownership:

• Based on Department of Labor filings, companies on average contribute 50% to 100% more to ESOPs annually than non-ESOP companies do to 401(k) plans.
• Most of the money in the typical 401(k) plan comes from the employee. With few exceptions, all the assets in an ESOP come from the company. The employees do not have their own money at risk.
• Research by the Department of Labor shows that ESOPs not only have higher rates of return than 401(k) plans, but are also less volatile.
• ESOP companies lay people off less frequently than non-ESOP companies.
• ESOPs cover more employees, especially younger and lower income employees, than 401(k) plans.
• ESOP companies are somewhat more likely to offer secondary retirement plans than conventional companies are to offer any plan.

To mitigate the remaining risk of ESOPs, future proposals can incorporate measures to reduce that risk without materially sacrificing the potential returns on the ESOP’s investment in employer stock. These measures could include public or private insurance, hedging arrangements, or other risk-pooling mechanisms.

In conclusion, we invite you to join us, and to imagine a new land of opportunity—an America transformed by more and more employee ownership. This would be a country where policies to promote corporate growth are automatically good for working people, because working people would own an ever-greater share of corporate stock. The solution to our problems is not less capitalism. It is more capitalists.

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CHECKLIST OF PROPOSALS IN THIS WHITE PAPER:

Policies that level the playing field for sales of companies to ESOPs by corporations or private equity firms, including:

___Creating Employee Ownership Investment Corporations (EOICs),  preferably with tax incentives for investors, to provide “first dollars in” to an ESOP-related transaction

­­­­­­­­­­___Providing government-guaranteed loans for ESOP transactions through a new Employee Equity Loan Program

Tax policies that encourage employee ownership, including:

___Capital gains tax relief for corporate divestitures to an ESOP or similar structure

___Capital gains tax relief for sale by private equity firms to an ESOP or similar structure

___Clarification that ESOP-related transactions in an Opportunity Zone qualify for the full benefit of Opportunity Zone legislation

___In publicly traded companies, support for employee stock purchase plans, possibly through a tax deduction for companies that “seed” the programs

___Requirements for minimum levels of employee ownership in companies that enjoy government-funded privileges

___Private-sector initiatives, including the creation of revolving funds to buy companies and convert them to employee ownership

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Employee Owned America is a non-profit advocacy organization building a grassroots movement for the expansion of employee ownership. Contributors to this white paper include the following individuals:

John Case, Editor, Employee-Owned America
Gellert Dornay, Founder and Director, Axia Home Loans
Jared Kaplan, Founder and CEO, Delaware Place Advisory Services
Christopher Mackin, President, Ownership Associates
Michael Quarrey, Vice-President, Operations, Web Industries
Stephen Ringlee, Managing Director, Centesimus Capital
Loren Rodgers, Executive Director, National Center for Employee Ownership
Corey Rosen, Co-founder, National Center for Employee Ownership 

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Should more publicly traded companies have an ESOP, and should employee-ownership advocates spend time and resources figuring out ways to make that happen?

At first glance, the answer to both questions is, “Of course they should.” But the issue is murkier than it might appear.

Let’s look first at top-of-the-head reasons for the “of course” answer. The 3,600 public companies in the US employ about one-third of the nonfarm private-sector workforce. Most of these companies are sizable. Thanks to their products’ ubiquity and to widespread coverage of the stock market, they are the most prominent part of the US economy.

The lure of stock-market ownership, moreover, shapes the operation of many privately held businesses. Founders of growth companies dream of an initial public offering, or IPO. Private equity firms act as farm teams for the public markets, grooming their portfolio companies for an IPO or acquisition by a publicly traded corporation.

Widespread use of ESOPs in stock-market companies might make employee ownership far more visible than it is now, easier to refer to in conversations and policy debates and hence more influential. It would also spread more of the wealth, though no more than an equivalent amount of employee ownership in privately held companies.

A second reason for favoring ESOPs in this context is the short-term bias that pervades the public markets. Executives of stock-market companies feel constant pressure to boost quarterly earnings. If the share price flatlines or falls, after all, analysts may sour on the stock, and corporate raiders—sorry, activist investors—may begin circling. (Executive compensation may decline, too—hardly a trivial factor in encouraging the short-term mentality.)

Short termism of this sort arguably has deleterious effects on innovations and business strategies that require long-term investments. It thereby harms the US economy. A sizable ESOP—by definition an owner with a long time horizon—might act as a source of patient capital, discouraging activist takeovers and encouraging management to develop longer-term strategies for profitable growth.

As to other effects, who knows? Executives who feel themselves partially accountable to employee owners might not jump quite so quickly to layoffs and plant closures when the bottom line needs a boost. They might be more receptive to “good jobs” strategies like those described by MIT’s Zeynep Ton and Harvard Business School’s Dennis Campbell and his coauthors. They might seek to create employee-centric ownership cultures like those at Southwest Airlines and Herman Miller. Research has already revealed that public companies with ESOPs hire more slowly and fire more slowly, creating a more stable—and presumably more loyal—workforce. (This article reviews the research on ESOPs in public companies; the relevant section begins about halfway down.)

Maybe an ESOP would even have a dampening effect on executive pay. Once upon a time, unionized companies felt constrained as to how much they could pay their CEOs and other top executives, knowing that some of those same execs would have to sit across the table from labor in collective bargaining negotiations. The presence of a good-sized ESOP might act as a similar restraint.

Publicly traded companies do have plenty of other mechanisms for getting shares into employees’ hands. They can hand out equity grants and stock options. They can sponsor employee stock purchase plans, which offer shares at a discount. But there is nothing quite like an ESOP. ESOPs are designed to include everyone, not just a small group at the top (as is often the case with stock grants and options). They force employees to accumulate shares rather than simply cashing them in on receipt, so they lead to a long-term shift in the distribution of corporate wealth. They act as that source of patient capital. And unlike employees who sign up for a stock-purchase plan, ESOP participants get their shares for nothing.  

But then, on the other side of the ledger, there’s the remarkable history of public-company ESOPs. It raises some thorny questions.

Louis Kelso sold Louisiana senator Russell Long on the idea of ESOPs at a famous dinner (page 5 of the pdf) in late 1973. In 1974 Long wrote ESOPs into ERISA, the law that has governed corporate retirement programs ever since. But that turned out to be just the beginning. In 1975, 1983, and again in 1984, Long and his congressional allies provided companies with various tax advantages for setting up and contributing to ESOPs. Under the 1984 law—known as Section 133 of the tax code—lenders to ESOPs also got tax breaks on a portion of the interest they earned. Banks promptly set up ESOP desks and began selling ESOP-related loans to their customers, passing along part of the savings.

By 1986 ESOPs were fast becoming an accepted part of public companies’ financial toolkit. Five years later, Joseph Blasi and Douglas Kruse of Rutgers University published a comprehensive account of the phenomenon in a book called The New Owners. It had a telling subtitle: The Mass Emergence of Employee Ownership in Public Companies and What It Means to American Business. “Today,” they wrote, “there are over 1000 publicly traded corporations in which the employees own substantial stock in the company.” A large fraction of this ownership was in the form of an ESOP. The authors expected the trends toward more and more ESOPs—and more and more employee ownership—to continue.

Instead, the trends came to a crashing halt. In 1989, even as Blasi and Kruse were working on their book, Congress amended Section 133. The move came partly in response to perceived abuses, though there weren’t really very many, and partly in response to budget-cutting pressure. Once the law took effect, the tax breaks would apply only to plans that held at least 50% of a company’s shares and offered full voting rights. Around the same time, accounting rules changed, with the effect that operating an ESOP could hurt a company’s reported earnings. Beginning in 1990, the number of new ESOPs in public companies plunged. In 1996, Section 133 was abolished completely.

So what did we learn?

One obvious lesson is that incentives are essential. This lesson holds for privately held companies as well; without the so-called 1042 rollover, there would be many fewer ESOPs in the US than there are today. But it applies with particular force to publicly traded companies, because without incentives they have no reason to pursue an ESOP. ESOPs are cumbersome. Companies must observe the relevant government regulations. Depending on how an ESOP is funded, it may raise issues of shareholder dilution or breach of fiduciary responsibility, and thus invite lawsuits. If a company wants employees to “think like owners” and therefore offers long-term incentive compensation tied to corporate performance, a profit-sharing plan or a program of equity grants is far easier to administer—though these, too, may run into objections from Wall Street.

A second lesson: given sufficient incentives, however, public companies will indeed establish ESOPs. The trick here is to figure out what incentives might actually work. Section 133 was a powerful incentive in its time: interest rates were sky high, borrowers had good reason to pursue lower-cost loans, and lenders had good reason to sell them. In today’s low-interest-rate environment, the incentive might still work. But it wouldn’t be as strong.

Finally, we learned that ESOPs will spread ownership—a good thing in itself—but in many cases won’t lead to any further changes in the workplace. Most ESOP companies in the 1980s didn’t take many steps to inculcate a culture of ownership or participation. Possibly that would have changed over time, but we can’t be sure.

One hopeful sign: a few years ago, Blasi and his coauthors studied a set of 780 companies, most of them public, that had applied for listing on Fortune’s annual list of the 100 Best Companies to Work For. (The resulting paper is available in typescript here; publication information is here.) About one-sixth of these companies had an ESOP, and many more had profit-sharing or stock-option plans. On average, these companies “allow greater employee participation in decisions and greater information sharing than other firms.” They also have “a more positive workplace culture.” The combination of group incentive pay, participation, and a positive culture “increases employee intent to stay with a firm, lowers voluntary turnover, and raises return on equity.”

That conclusion contains a recipe for a successful publicly traded business, and for spreading at least some of the nation’s corporate wealth. The recipe doesn’t necessarily include an ESOP, though it must include some sort of shared-capitalism compensation system. Unless and until Congress passes a new set of ESOP incentives, the number of plans is unlikely to expand. Designing the right incentives is a compelling job for the policy mavens among us.

In the long run, the idea of public ownership—like the idea of any kind of financial or absentee ownership—may run its course. As David Ellerman has pointed out, it makes no sense to have ownership separate and disconnected from the business for which the owners are legally responsible. Legal ownership should reside in the people who are in fact responsible—that is, the executives and employees who actually work in the company. Until that day comes, however, we will have to contend with publicly traded entities, and we will have to figure how best to encourage them to share their wealth.

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By Elizabeth Anderson, University of Michigan

(Editor’s note: The following is an excerpt from Elizabeth Anderson’s remarkable book Private Government: How Employers Rule Our Lives (and Why We Don’t Talk about It, published in 2017 by Princeton University Press. It’s headlined “communist dictatorships in our midst.” )

Imagine a government that assigns almost everyone a superior whom they must obey. Although superiors give most inferiors a routine to follow, there is no rule of law. Orders may be arbitrary and can change at any time, without prior notice or opportunity to appeal. Superiors are unaccountable to those they order around. They are neither elected nor removable by their inferiors. Inferiors have no right to complain in court about how they are being treated, except in a few narrowly defined cases. They also have no right to be consulted about the orders they are given.

There are multiple ranks in the society ruled by this government. The content of the orders people receive varies, depending on their rank. Higher-ranked individuals may be granted considerable freedom in deciding how to carry out their orders, and may issue some orders to some inferiors. The most highly ranked individual takes no orders but issues many. The lowest-ranked may have their bodily movements and speech minutely regulated for most of the day.

This government does not recognize a personal or private sphere of autonomy free from sanction. It may prescribe a dress code and forbid certain hairstyles. Everyone lives under surveillance, to ensure that they are complying with orders. Superiors may snoop into inferiors’ e-mail and record their phone conversations. Suspicionless searches of their bodies and personal effects may be routine. They can be ordered to submit to medical testing. The government may dictate the language spoken and forbid communication in any other language. It may forbid certain topics of discussion. People can be sanctioned for their consensual sexual activity or for their choice of spouse or life partner. They can be sanctioned for their political activity and required to engage in political activity they do not agree with.

The economic system of the society run by this government is communist. The government owns all the nonlabor means of production in the society it governs. It organizes production by means of central planning. The form of the government is a dictatorship. In some cases, the dictator is appointed by an oligarchy. In other cases, the dictator is self-appointed.

Although the control that this government exercises over its members is pervasive, its sanctioning powers are limited. It cannot execute or imprison anyone for violating orders. It can demote people to lower ranks. The most common sanction is exile. Individuals are also free to emigrate, although if they do, there is usually no going back. Exile or emigration can have severe collateral consequences. The vast majority have no realistic option but to try to immigrate to another communist dictatorship, although there are many to choose from. A few manage to escape into the anarchic hinterland, or set up their own dictatorships.

This government mostly secures compliance with carrots. Because it controls all the income in the society, it pays more to people who follow orders particularly well and promotes them to higher rank. Because it controls communication, it also has a propaganda apparatus that often persuades many to support the regime. This need not amount to brainwashing. In many cases, people willingly support the regime and comply with its orders because they identify with and profit from it. Others support the regime because, although they are subordinate to some superior, they get to exercise dominion over inferiors. It should not be surprising that support for the regime for these reasons tends to increase, the more highly ranked a person is.

Would people subject to such a government be free? I expect that most people in the United States would think not. Yet most work under just such a government: it is the modern workplace, as it exists for most establishments in the United States. The dictator is the chief executive officer (CEO), superiors are managers, subordinates are workers. The oligarchy that appoints the CEO exists for publicly owned corporations: it is the board of directors. The punishment of exile is being fired. The economic system of the modern workplace is communist, because the government—that is, the establishment—owns all the assets, and the top of the establishment hierarchy designs the production plan, which subordinates execute. There are no internal markets in the modern workplace. Indeed, the boundary of the firm is defined as the point at which markets end and authoritarian centralized planning and direction begin.

Elizabeth Anderson is professor of philosophy and women’s studies at the University of Michigan. Copyright © 2017 by Princeton University Press. Reprinted by permission of the author.

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In late 2018, a University of Iowa professor named Colin Gordon published an article reciting what were by then some familiar but dismal statistics. Wages and incomes for most Americans were stagnant, even though unemployment was low. Labor’s share of the nation’s output was down. The middle class was struggling. Good jobs were hard to come by, especially if you didn’t have a college education. Virtually all of the economic growth over the previous 45 years had gone to those at the top.

Today, three decades later, those trends have been reversed: incomes and wealth for average Americans have been climbing steadily. Though several factors have contributed to this reversal, most economists believe that the prime mover has been the remarkable growth of employee ownership. Employee-owners typically earn more than those who work only for a wage. They have higher household income and higher net worth. At the moment, roughly three out of every five private-sector workers hold more than a token amount of stock in their employer, and companies have begun paying greater attention to the employees who are often their largest (or only) group of shareholders. So it is hardly surprising that those employees are benefiting financially.

The surprise lies in how this came to be. Though employee ownership was well established by 2018, it was limited to a several thousand companies. Most of those enterprises were prospering and growing, but the concept itself wasn’t spreading rapidly. Then, quite suddenly by historical standards, things began to change: employee ownership seemed to reach a sort of tipping point. Political leaders all over the country began supporting it. More and more companies started ownership programs. More and more enterprises were sold to their employees through one legal device or another. By the early 2030s—as subsequent years have demonstrated—this was an idea whose time had arrived.

Modern historians argue about the timing and the sources of this tipping point. But nearly all agree that the years from 2019 to 2024 were critical. That’s when advocates and activists were first able to break through the barriers that had constrained them and bring their message to a large constituency—a constituency, as things turned out, that was ready and waiting for it.

How They Did It

The key strategies naturally involved plenty of the diligent, day-to-day work of social activism. The National Center for Employee Ownership, for example—now one of the nation’s leading nonprofits—continued the essential tasks of spreading the word, offering information and assistance to companies and their owners, and connecting the employee-ownership world through conferences and meetings. Other organizations continued to publicize and to advocate for the idea, and to build support. Employee-ownership scholars kept up their research and publication, providing the still-small movement with the data that showed the concept’s value.

But the strategies also involved several extraordinarily bold moves. Here we will look at just three.

Purple policy development. As activists and advocates in the field always recognized, their work depended on political leadership and supportive governmental policies. Without the enabling legislation spearheaded in the 1970s by Senator Russell Long, for example, ESOPs might have been relegated to a tiny corner of the marketplace. But most new policies don’t emerge in a vacuum. Promising ideas are discussed and developed over time, notably by Washington-based think tanks and their academic colleagues, and by the legislative aides with whom the think tanks interact. One obstacle ESOPs had to overcome in the early days was the fact that the idea had emerged full blown (so to speak) from the head of Louis Kelso and was written into law by Sen. Long’s office and a handful of congressional supporters. The ESOP concept hadn’t run the gauntlet of think tanks and academic debate, nor did it enjoy wide support from any of the established Washington interest groups. And so it was mistrusted.

During the 2019-2024 period, however, groups of employee ownership supporters began developing new policy ideas, including the now-familiar provisions that any sale of a company to an ESOP or similar structure triggers a host of tax incentives to the seller, and provides the newly employee-owned company with a variety of preferences, tax benefits, and access to funding sources. This time around, the advocates didn’t stint on building support. They took their ideas to the DC policy community and to similar groups in and around the nation’s statehouses. They wrote white papers and articles. They held meetings and made presentations.

They also made it a point to avoid the trap that had ensnared so many other promising policy ideas: partisanship.

Early 21^st-century Washington, as many will remember, was plagued by a fierce and bitter partisanship. The partisanship reflected the well-known red vs. blue divide among voters, but it was more virulent and more toxic in the capital than anywhere else in the country. If one party supported something, the other was automatically against it. The think tanks, of course, mirrored this divide, and most supported only the proposals that would find favor with their preferred side of the aisle. But the employee ownership supporters took their proposals to both sides. They refused to color their ideas either red or blue; indeed, they made a point of staying purple, adopting language and specifics that would appeal both to liberals (spread the wealth, help average Americans) and to conservatives (create more owners without any handouts or big government program). That’s why they were able to get so many proposals passed.

Such bipartisanship had always been a part of employee ownership’s pedigree, but it was an unusual and daring approach in 2020s Washington. It did, of course, come with a cost. The advocates had to refrain from pushing their proposals on 2020’s two presidential candidates for fear that the ideas would thereby take on a partisan flavor. Only when the Unity ticket emerged in 2024 did a national candidate make employee ownership a centerpiece of a party platform.

Model states. In 2017, a couple of consultants specializing in nonprofits published an article in Harvard  Business Review called “Audacious Philanthropy.” It traced the history of several major social changes, including the long-term effort to discourage smoking and the movement to spread the use of infant car seats. One key to bringing about such a change, the authors argued, was to “drive (rather than assume) demand.” In other words, advocates needed a sales force. They needed boots on the ground.

A lot of employee ownership’s “sales reps” at that point were associated with state-level centers, of which there were then fewer than a dozen. The staffs of these centers helped market the idea locally. They organized peer-to-peer events at which company owners could discuss the pros and cons of selling to an ESOP. The granddaddy of centers, in Ohio, had facilitated scores of such sales. In 2018, a group calling itself the Employee Ownership Expansion Network set out to create many more of these organizations, and thus many more boots on the ground. Its staff worked for a couple of years to raise money and identify likely possibilities for new centers.

But then, in 2022, something unusual happened, and the network blossomed. Almost simultaneously, aides to incoming governors in Pennsylvania and Colorado contacted the centers in those states to express interest in employee ownership. Thanks to the network, these discussions led to others, and before long gubernatorial staff members from each state were talking to each other—even though one governor-elect was a Republican and the other was a Democrat. The centers’ staff and board members in the two states provided technical advice and ideas about legislation. They brought in experts from the NCEO and elsewhere. They helped to run interference with key legislators. Soon, with only a little prodding, the two governors declared that Pennsylvania and Colorado, which were still recovering from the sharp recession of 2021, would be Model States for a new kind of free enterprise, namely employee ownership.  

Needless to say, the joint blue-red declaration made headlines around the country. The states really were laboratories of democracy, the journalists gushed, using Justice Louis Brandeis’s famous phrase. Other states began sending representatives to Harrisburg and Denver to learn more. By the end of 2023, the network was booming: there were centers in formation in over a dozen new states. Employee ownership’s sales reps had a firm foothold.

“I love my job!” The third strategy that made a difference—and it was a big one—was the campaign that by now has found a place in marketing’s hall of fame, and that will surely be remembered by anyone born before about 2010. It began in January 2023 and lasted a full year. Those who want to can still find the videos and other materials on the internet.

The origins of the campaign are obscure. Apparently a handful of employee ownership advocates had come up with the basic idea and had been scouting around for backers. The identity of the backers they found has never been revealed; we do not even know whether it was one individual, a family, or a small group. But whoever it was left his-her-or-their anonymous mark etched into the cornerstones of history. Estimates of the campaign’s cost vary wildly, but few historians of the era believe that it was less than $80 million.

It began slowly. Short videos started appearing on key TV shows and on websites, along with a scattering of print ads. Each ad focused on a single individual, showing that person at work, describing what he or she did for a living. “I love my job!” was the tagline. What made them so powerful was the range of people profiled: office employees, technicians, truck drivers, kitchen workers in a restaurant, accountants, computer programmers, machine operators, on and on. Each ad highlighted something different. One might emphasize pay and retirement security, another the employee’s feeling of belonging, still another how the employee had come to understand business. They were by turns poignant, inspiring, and smack-on-the-head commonsensical.

The ads also raised a question that added to the drama: who was behind the campaign?

Pretty soon, the answer began to be apparent. Under the usual tagline came the phrase, “Sponsored by America’s Employee-Owned Companies.” A year or so before, the Washington-based organizations that represented the employee ownership community had decided to merge. They rechristened their new organization, and they opened themselves up to any business with substantial employee ownership, from co-op food stores to giant stock-market companies with broad-based ownership programs. The marketing campaign, it turned out, was being carried out under this organization’s aegis, though of course it was conceived and executed by the professional marketing firm that had won the competition for the job.

After a few months, the campaign took a new tack. The new tagline was, “I wish I loved my job!” Now the videos and ad copy profiled people who had lost their jobs because a plant or store closed, or who worked long hours at minimum wages, or who had been mistreated by their bosses. Where once viewers had been inspired by the ads, now they were outraged.

And then, in the last third of the year, the campaign began drawing the connections. Some of the earlier workers appeared again, drawing the connection between “I love my job!” and employee ownership. (Sample: “It’s like a family business—only now you’re part of the family!”) Talking heads appeared, giving quick sound bites about the virtues of employee ownership. Pennsylvania’s and Colorado’s governors joined the chorus, touting their Model States. In December, the advertising wound up with a now-forgotten-but-then-popular celebrity looking straight at the camera, saying “Let’s give America a holiday present: employee ownership.” Everyone knew what she was talking about.

Like any good marketing campaign, the effort went well beyond conventional advertising. Social-media experts tweeted and posted, helping to make several of the videos go viral. Public-relations specialists watched for news pegs like plant closings or business relocations and helped reporters draw the connections with ownership. Coincidentally, a popular book appeared lambasting conventional ownership structures and describing how employee ownership worked.

The outcome

The rest, as they say, is history, well known to most of us today. Support for employee ownership spread. Politicians of both parties made it a part of their talking points and legislative proposals. Several high-profile entrepreneurs created comprehensive employee ownership structures, selling large amounts of stock to their workers instead of, or sometimes in addition to, taking their companies public. Many consumers and business-to-business purchasers began looking for the “Certified EO” marker before they bought. Prospective employees began inquiring about companies’ ownership programs during job interviews—and companies began advertising their programs to potential hirees. From an economic perspective, the results were remarkable. People in 2018 knew that employee ownership typically boosted productivity, but only after its spread could the effects be seen in the statistics. Product and service quality improved as well, because—as polls showed—large numbers of employees began to take more pride in their work.

There were bumps in the road, to be sure. Just as in the early days of ESOPs, some financiers and company owners were quick to take advantage of legislative oversights and poor regulatory enforcement, enriching themselves under the guise of establishing employee ownership programs. Reporters, ever on the lookout for negative stories, found companies where groups of dissatisfied employees charged that ownership was an illusion. A couple of unions led strikes demanding an end to ownership and a return to adversarial collective bargaining—even though labor as a whole had come to be supportive of employee ownership.

No doubt all that was to be expected. What matters from the historian’s point of view is the bigger picture: the fact that all those sorry economic trends of the early 21^st century have finally and firmly been reversed, and that the United States is once again a nation where people of all sorts can prosper because they have good jobs—including ownership.

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