A Patriotic Solution To The Middle Class Economic Crisis
A single idea – one that has enjoyed strong support from both political parties in this country – has the potential to help solve the retirement savings crisis, to narrow the income-and-wealth gap, and to lift the growth rate of productivity and the overall U.S. economy.
The idea, known as employee ownership, is already in practice at thousands of companies large and small, where tools ranging from stock options and stock grants to more formalized vehicles like Employee Stock Ownership Plans, or ESOPs, are turning workers into owners.
In workplaces where employees are significant owners, the general result has been improved corporate performance and job growth, and a workforce that retires with far larger nest eggs than at other companies. Put simply, ESOPs turn capitalism into a team sport. I’ve spent more than 25 years helping companies to structure and finance ESOPs, and then have watched as the incentive of ownership leads employees to reduce waste, to self-police slacking co-workers and to offer up useful ideas for improving operations.
There’s just one problem: ESOPs cover maybe 11 million U.S. workers. Other forms of significant employee ownership are also small when compared to companies with publicly traded stock, those owned by private equity funds and those still owned by families and founding entrepreneurs. Thus, we’ve only begun to enjoy the broader economic benefits of employee ownership. Given the potential, shouldn’t the U.S. try to expand employee ownership? I spent some time this week with Joseph R. Blasi, a Rutgers University professor, and author of The Citizen’s Share: Reducing Inequality in the Twenty First Century (Yale University Press) with Richard Freeman and Douglas Kruse, trying to find out how we could accelerate the growth of the concept. The conversation – excerpts printed below – turned out to be just the jolt of optimism and patriotism I needed heading into July 4th.
Mary Josephs: Your book traces the notion of employee ownership back to the Founders of the American Revolution. How did that surface?
Joseph Blasi: Seven years ago, on vacation with my family in Maine, I picked up a book on maritime history. It talked about President George Washington working with the cod fishing industry to bring it back. Washington signed a law that gave tax cuts to the cod fishery on the condition that the shippers and captains continued broad-based profit sharing with workers on the entire catch of fish. The Founders favored broad-based property ownership. Washington, Jefferson and Madison all wrote of its benefits.
Josephs: You were a staffer in the House of Representatives during the 1970s when the original ESOP laws were enacted, but they haven’t turned out to be enough. Your book advocates a broader set of tax incentives. Why?
Blasi: The existing set of laws cannot take us far enough. They only provide incentives for closely held companies to consider ESOPs. There are no incentives for publicly traded companies, and none for high-tech growth companies. Our proposals would provide tax incentives for corporations to offer broad-based ownership plans to all workers. And they would also make the availability of other tax incentives – accelerated depreciation, deductibility of executive compensation, R&D tax credits – dependent on a company offering a broad-based employee ownership plan.
Josephs: Explain your hope for some legislative success in today’s Washington, where gridlock seems to prevail.
Blasi: Once Democrats and Republicans look at the views of the Founders, it will not be difficult to implement the modest tax incentives required to increase employee ownership. The current tax system is out of sync with the original thinking of the Founders on broad-based property ownership. The current system is unpatriotic. Republicans will realize that employee ownership would help strengthen personal responsibility and entrepreneurship. Democrats realize we can’t tax out way out of income inequality.
Josephs: We’ve seen increased productivity at individual companies owned by an ESOP, where the founder/entrepreneur/CEO has chosen an ESOP as anexit strategy. Could more widespread employee ownership move the needle on productivity and economic growth generally?
Blasi: The evidence suggests a modest productivity gain from widespread adoption of employee ownership. And wage stagnation over the last 30 years has meant the middle class doesn’t have income to spend. And that holds back economic growth. Having access to capital income from employee ownership means there would be a second source of income to drive spending.