Book Review
A CEO on the Theory and Practice of Employee
Ownership
David Binns, The Beyster Institute
Ray Carey, Democratic Capitalism: The Way to a World of Peace and
Plenty. 2004. AuthorHouse
Press, 543 pp, $33.50
Over a 33-year career in corporate management,
including 18 years as CEO of ADT, the largest home and business security
systems company in the country, Ray Carey became a "self-taught democratic
capitalist." In order to change the work culture and to create a more
cooperative environment between managers and wage earners at ADT, he
implemented a profit-sharing and stock purchase plan for all company
associates. That successful experience convinced him of the merits of
broad-based participation in ownership and led to his search for a means of promoting
a more democratic version of free enterprise through the theory and practice of
democratic capitalism.
Starting with a review of economic theories from Adam
Smith to Karl Marx, Carey notes that the antecedents of democratic capitalism
and worker participation have been around practically from the advent of the
development of capitalist thought. John Stuart Mill's effort to promote
employee ownership at the turn of the 20th century was the first
attempt to incorporate democratic capitalism as a systemic reform, although
other prominent business leaders advocated similar ideas. A select few
companies, such as Proctor & Gamble, have provided their employees with
profit sharing and company stock incentives for well over half a century, and
the first half of the 20th century included several efforts to
promote broad-based stock ownership.
Despite the evidence of the practical effectiveness of
democratic capitalism, companies implementing such a strategy have proved the
exception to the rule. The dominant business culture has instead trended
towards what Carey calls "ultra-capitalism," the modern system of
finance-driven capitalism that Carey believes places too great an emphasis on
speculation, individual greed and excess. This has led to a disconnect between
ownership and control, a widening gap between the super-rich and the common
working person, a shifting of the tax burden from capital to labor, and a
deterioration of regulatory safeguards to protect workers and their companies.
In Carey's view, the lack of a strategic focus on
integrating workers into the capital structure of the company makes it
increasingly difficult to provide them with access to the wealth-creating power
of private enterprise. Ultra-capitalism, with its inexorable logic of squeezing
wage and labor costs, runs the risk of further accelerating economic
dislocation and damaging efforts to provide stable jobs and productive
workplace environments unless means are found to provide workers with
compensatory access to capital income. Carey believes that a "synergistic
coupling of democracy and capitalism" offers a superior vision of global
commerce that will more effectively spread the economic benefits of the free
enterprise system by ensuring more workers have direct access, through ownership,
to the wealth-creating capacity of the corporation. His vision of democratic
capitalism advocates a systemic application of ideas involving broad-based
ownership, profit sharing, and employee involvement. He sees democratic
capitalism as combining the free-market energies of competition and private
property with the enormous productivity and innovation released in an
environment of trust and cooperation.
Widespread worker ownership of capital could facilitate
the use of a "second income" through dividends as advocated by Louis
Kelso, and provide companies and workers greater flexibility in modulating
profit-related pay over the course of the business cycle as suggested by
economist Martin Weitzman. Given that employee pensions and mutual funds own a majority
of the shares of companies on the public stock exchanges, Carey suggests that
institutional investors could be the vanguard of efforts to advocate for a
transition from ultra-capitalism to democratic capitalism. Pension fund
investors can help promote greater economic stability and ultimately better
investment returns by investing in companies that adopt the practices of
democratic capitalism to support a rising standard of living and a sense of
economic common purpose that will fuel greater long-term corporate
productivity.
Carey points to positive evidence of a trend towards
greater worker participation in ownership and profit-related pay, as well as
greater involvement in the day-to-day decisions affecting their work life and
ultimately their ability to improve company operations. Yet the
"ultra-capitalism" model most often associated with the free-wheeling
version of U.S.-style capitalism is still very much dominant in global
commerce. Whether democratic capitalism can address the
excesses of modern capital markets remains to be seen. But Democratic
Capitalism offers a vision for practical benefits at the level of the
enterprise as well as a means of reshaping economic policies to ensure that
capitalism directly benefits as many people as possible.
Democratic Capitalism: The Way
to a World of Peace and Plenty can be ordered from the
Reprinted with permission from the Beyster Institute (www.beysterinstitute.org). OAW