Democracy and Economic Power: EXTENDING THE...

These ESOPS have nothing to do with the fox and the grapes. They’re Employee Stock Ownership Plans. Dull topic, I would have agreed, but the Kelsos’ book delivers a lot more than it promises. Under their ESOP banner, the authors take on Keynesians, Calvinists, Marxists, Republicans, Democrats, the union movement, standard loan applications, bankers, Friedmanites and conventional bookkeeping. While they’re battling all these culprits in the economic mess, they’re also showing us a way out of the mess, which makes this a positive as well as a provocative read.

Here’s an attention-getter right from the start: Rich people don’t spend enough money. Everybody knows that the rich get richer, but I never realized the trouble with it until I picked up the Kelsos’ book. The trouble is that the rich are poor consumers. Not lousy consumers, just inadequate to the task at hand. “The rich are often so rich that they cannot consume what their capital produces,” explain the Kelsos. The rich do the best they can up to a point, but you can only buy so many chalets and Rolls-Royces, and after that there’s nothing to spend for, and the rest of the money becomes “morbid capital.” Morbid capital is invested to make more money, which creates double-morbid capital. More and more wealth rushes upstream toward the wealthy, while less and less trickles down.

The rest of us, meanwhile, struggle along on the wages of our labor. Here’s another surprise: Labor isn’t going to get us anywhere as a group. So often we’re exhorted to work harder, take fewer vacations, imitate the Japanese, but in general, the Kelsos doubt that this will help us. Everything we’ve heard about modernization, advances in productivity, more output per hour, etc., is a giant smoke screen that hides a pathetic little Oz of person-power. The Kelsos view labor as a terminally use commodity, especially as compared to capital. “The myth of the rising productivity of labor,” they write, “is used to conceal the productiveness of capital.”

What else could explain the fact that in spite of our humanitarian advances, higher wages, increases in productivity, stronger labor laws etc., the working classes have fallen farther and farther behind? If labor has such value, the Kelsos wonder, then why do 1% of the people control 50% of the assets, the greatest discrepancy in ownership of wealth since the imperial plutocracy of the Roman empire? “Why,” they continue on, “are we still pretending to believe that labor is more productive? That technology creates jobs?”

Maybe it’s the Puritan ethic. That our country was founded by Puritans, the Kelsos figure, is one reason we’ve held onto the labor theory of value long after its practical demise. Lately, we’ve tried to resuscitate the notion by turning it upside down. “Instead of toiling to live, we increasingly live to toil,” the authors observe. “Toil is no longer a practical necessity so we perversely elevate it to a moral and social duty.” The glorification of labor for its own sake blinds us to its uselessness as a means of getting ahead.

For decades, we’ve been on this national campaign for higher wages fought out in union-management skirmishes and propped up by various government incentives, while driving ourselves into economic ruin as the rich get richer and capital turns morbid. Morbid capital begets more morbid capital until economic stagnation sets in. The result mocks all good intentions and “is rendering the economy unworkable.”

What then is the answer? More welfare and more charity? The Kelsos are particularly disgusted with charity: “Overearning to engage in charitable redistribution is in conflict with the democratic ideal and goal of personal autonomy.” Socialism? Not for these authors. Socialism is no cure for capitalism--in fact, there’s nothing the matter with capitalism. Here the Kelsos build up to their ultimate contrary opinion: Against the common cries of reformers who bemoan capitalist excess, they argue that the only problem with capitalism is a lack of capitalists.

How do you make more capitalists? By giving shares to the workers, of course. While we’ve been preoccupied with spreading the wealth through wages and benefits, we should have been spreading it through stock. If every wage-earner had become a stockholder in some company, by now we’d have created millions of semi-capitalists living less off wages and more off their dividends and interest, or as the Kelsos call it, “the wages of capital.” There would be further spending, further consumption, further construction on a scale as yet unimagined, as money would be passed around and once-morbid capital brought back to life. That living off capital is better than working for a living any rich person can already attest.

This brings us to ESOPs. Apparently, Kelso, a San Francisco investment banker and philosopher of economics, has spent 20 years fighting for the ESOP revolution. It began in 1956 when he advised employees of a Palo Alto newspaper how to buy out the business from the retiring owner. He realized he was onto something big, and later joined forces with then-Sen. Russell Long of Arkansas to pass legislation to encourage other morbid capitalists to turn over their companies to workers.

In the process, Kelso discovered the impediments to broad-based ownership--the incidental clauses and the corporate fine print that supports the wealthy few. He found what really shapes our political and economic destiny even beyond the Constitution are methods of bookkeeping and rules of lending that enable those with money to borrow more while the have-nots are blocked from getting ahead. These rules and methods, the Kelsos say, must be altered or eliminated before wealth can be spread. Partly thanks to them, an estimated 8,000 companies now offer some form of equity and profit sharing, through ESOPs, CSOPs, ICOPs, COMCOPs, PUBCORPs or other variations.

Have these actual ESOPs lived up to the great expectations the Kelsos attach to them? The second book listed above attempts to address this issue, but suffers from having been written by a gaggle of academic grant-gobblers, who’ve done their best to make the ESOPs sound as boring as possible.

The case studies of “Taking Stock” create more questions than they answer, especially at a time when so many companies are restructuring, splitting their stock, and/or going bankrupt. Haven’t we already become a nation of shareholders, with more people owning stocks than ever before? What good has it done for the economy? What difference could it make whether 30,000 Ford employees or 30 Ford relatives own that company, unless the 30,000 spend more money at Sears than the 30 would have spent at Tiffany’s? And if all these new owners spend their dividends, etc., aren’t they diminishing their wealth? Won’t that start the whole morbid process all over again? Under the guise of employee ownership, haven’t we seen too many recent examples of companies trying to substitute worthless paper for wages, in a sort of cynical ESOPian let-them-eat-stock?

Moreover, does it really help corporate output, as ESOPians contend, if employees have a stake in things? If labor is worthless in the first place, then who cares? A friend of mine who works in an ESOP shop tells me the only obvious change is that workers who used to stare at the ceiling now call their brokers several times a day to find out what their shares are worth.

The third book listed above is a grim reminder of what the ESOPs are up against. “Who Owns the Corporation?” is not a book, really, but a sort of term paper sponsored by the Twentieth-Century Fund. The author, Edward Jay Epstein, once famous for doubting in print that a lone assassin killed President Kennedy, here argues that shareholder democracy is also a myth. Against the cheery assumption that broad-based corporate ownership leads to something good, Epstein shows how it may create the entrenched, self-serving, and unresponsive managements we often see today. He describes how one-share, one-vote is a fiction, how managers once beholden to powerful family interests now operate companies more or less by and for themselves. Unless something is done about this, Epstein predicts the corporate bureaucrats will move us closer and closer to a dreaded form of socialism the Kelsos would oppose, and nothing like the great Golconda of ESOPs.

But give the Kelsos a break. There’s hasn’t been enough sharing of the wealth to have made much difference yet. They aren’t looking for this to end at 8,000 companies but at hundreds of thousands. They see an entire nation not of laborers but of investors, living off capital, sharing in the spoils of technology, playing golf, taking long vacations, waiting by the mailbox for dividend checks, getting and spending with glee. I don’t know if it will ever happen, but I hope it does, and the Kelsos’ argument deserves a full and careful hearing. It’s a lot more realistic than trying to out-sweat the Koreans or outwork the Japanese. Putting it another way: “If you can’t fight ‘em, then own a share of ‘em.”