The founders’ path to
shared prosperity, less inequality
By Gerald E. Scorse, Progressive Charlestown
George W. Bush talked the talk of an “ownership society,” but the laws he passed shifted income upward into the hands of the few. Three professors would rather see income flowing into the hands of the many, and they’ve written a book to point the way. The authors are Joseph R. Blasi and Douglas L. Kruse, both of Rutgers, and Richard B. Freeman of Harvard. The book is The Citizen’s Share: Putting Ownership Backinto Democracy.
The nation’s founders
wanted workers to have a piece of the pie, wanted widespread sharing of
America’s bounty. The challenge of restoring the cod industry, laid low by the
Revolutionary War, gave them the chance to set the national tone. George
Washington, Thomas Jefferson and Alexander Hamilton played key roles in shaping
legislation that split tax credits between ship owners (a three-eighths share)
and crews (a five-eighths share).
Further, owners could collect only if they had “a written, profit-sharing contract with all the sailors…covering the entire catch.” The law helped turn the industry around and remained in effect for nearly 20 years.
That was on the sea. On
land, the government parceled out pieces of America itself to tens of thousands
of early settlers. Starting with the Northwest Ordinance in 1787 (covering an
area that became the states of Ohio, Indiana, Michigan, Illinois, Wisconsin,
and part of Minnesota), Congress followed Jefferson’s lead: “distributing
public lands to landless citizens, to give them a direct capital stake in
society.”
The land commonly went for bargain-basement prices with easy credit terms. The capstone was the Homestead Act of 1862, which turned over 160-acre plots west of the Mississippi. In Alaska, a law similar to the Homestead Act was on the books until 1986.
The land commonly went for bargain-basement prices with easy credit terms. The capstone was the Homestead Act of 1862, which turned over 160-acre plots west of the Mississippi. In Alaska, a law similar to the Homestead Act was on the books until 1986.
Today, of course, capital
has replaced land as the primary source of wealth. For the authors, the
nation’s beginning holds a lesson going forward: just as America itself was
once divided up and shared, so capital (and the income it generates) should
also be shared.
A template already exists
in the form of employee stock ownership plans (ESOPs), pioneered by the
financier Louis Kelso. ESOPs were included in the omnibus retirement bill
passed by Congress in 1974. It offered tax incentives to companies to establish
ESOPs, and to banks to lend set-up funds. Both incentives were later stricken.
Today, with income inequality “the defining issue of our time” (President
Obama’s words), there’s powerful reason to restore them. Corporations are awash
in record profits; Congress should again encourage a cut for workers.
It’s surprising to discover
how many already get one: “[T]here are an estimated 10,300 corporations with
ESOPs and similar plans, with about 10 million workers and almost a trillion
dollars in total market value….about 3,000 closely held companies are majority
or 100% owned by their employees, about 3,000 are 30% to 51% owned, and the
rest have ownership ranging from about 5% to 30%.”
Employee equity is part of the
culture at companies of all sizes, including roughly a tenth of the Fortune
500. Equity stakes and start-ups were made for each other. Annually,
nobody shares equity better than Google: “Each year a stock pie is cut up…Less
than one percent goes to the top executives. The other 99 percent goes to the
broad group of workers.”
Equity takes various forms:
stock ownership, profit-sharing, gain-sharing (e.g., setting goals and reaping
rewards for meeting them), stock grants, and stock options. The key is that all
boats rise, not just the yachts.
“The outstanding faults of
the economic society in which we live are its failure to provide for full
employment and its arbitrary and inequitable distribution of wealth and
incomes.” Keynes wrote those words about England in 1936. To deal with the same
faults, America needs more “citizen’s shares” in 2014.
Gerald E. Scorse helped pass the bill requiring basis
reporting for capital gains. He writes articles on tax policy.