What is the future of employee ownership in America?

We posed this question to a panel of four national employee-ownership leaders at the 10^th Ohio Employee Ownership Conference in April. In an exciting discussion, they mapped very different, diverging possible futures driven variously by tax law changes, by competitive pressures, and by popular discontent with the growth in inequality in America.

Tax law is not enough. Malon Wilkus (American Capital Strategies) and Corey Rosen (National Center for Employee Ownership) traced one road that threatens a dead end for employee ownership. Since the majority of employee ownership deals are presently driven by tax incentives (primarily deductions for principal payments and the 1042 rollover for selling owners), if these are eliminated by a deficit-conscious, budget-cutting congress, the growth of employee ownership would be drastically reduced or halted. Though there are many people who believe in employee ownership, Wilkus contended, it is a limited constituency when contrasted to other tax incentives that have enormous support and are highly organized. Moreover, Rosen added, even if we could maintain the present tax incentives and "achieve an economy in which employee ownership was driven entirely by tax incentives and that extended employee ownership to many more areas than you currently have, it would be so expensive [because of lost tax revenues] that Congress would limit it."

Competitiveness. One reason for the limited constituency for employee ownership, Wilkus pointed out, is that the word has not spread sufficiently that companies which combine employee ownership with employee participation outperform their competitors. Should the advantages of employee ownership become well known, Wilkus speculated,

While Rosen agreed that employee ownership has a dramatic impact on the competitiveness of firms, he argued that even if this were widely known companies would not necessarily adopt employee ownership strategies. Employee ownership coupled with a participatory company structure requires work and patience and is usually a long-term strategy for growth and success; short-term strategies like downsizing offer more immediate and bigger gains to managers with stock options. "As long as it is individuals and not collectives making decisions about the future of firms, there is no reason to think that firms will necessarily act rationally in the market place. So, this means that it is still the case that employee ownership and other kinds of enlightened management strategies are still adopted by the few and not the many."

Kelso and inequality. Rosen noted the growing discussion on a national basis of several of the issues that had led Louis Kelso to the ESOP concept originally. "We have seen in the last couple of years people talking about the disparity of wealth in this country as a political issue. Both liberals and conservatives are talking about it. Even when you count stock ownership through retirement plans, one percent of the population owns 47% of the stock in the United States and 80% of the population owns only 2% of the stock."

Stan Lundine (Chairman of the Worker Ownership Institute and former Lt. Governor of New York) offered a vision of employee ownership that foresaw "a moderate increase in employee ownership during the rest of the nineties and then in the first quarter of the 21st century you will see an explosion, a significant increase at the very least in employee ownership in America." The primary "macro-reason" for this prediction is the growing income gap.

Lundine offered graphic evidence of the dramatic changes in the growth of real family income. During what he called the "golden era," which lasted from the end of World War II until about 1973, real family income grew across the board for all families in line with increases in productivity. Families in the lowest fifth in terms of income saw their incomes rise by 136%, the second fifth rose by 98%, the middle fifth by 106%, the fourth fifth by 111%, and the top fifth by 99%. But, after 1973 a drastic change occurred in the growth of real family income. Rather than an across the board increase for families in all income groups, there is a growing polarization. There is decline at the bottom (down 17%) and growth at the top (up 18%). (Figure 1) And, continued Lundine,

While incomes have declined or stagnated for the majority of American families, productivity, profits, and stock prices have all soared, benefitting the few. Add in the explosive growth in CEO salaries to more than 100 times the wage of the average worker and you have the preconditions for a grass-roots movement for change and reform. This movement will see employee ownership as a strategy for strengthening the declining or stagnating wages of workers, for a more equitable distribution of productivity gains, and for reinvestment to insure future employment.

Jeff Swogger, former union local president and now CEO of Sharpsville Quality Products, is part of that grass-roots movement. Swogger was both the most radical and the most conservative of the panel. "There will be an uprising in the next century," Swogger said bluntly. "All people want is an opportunity to go to work and provide for their families. We don't have to have the big fancy homes or big fancy cars; just give us an opportunity and let us do what we have always done, what our forefathers did, and let us pass that on to the next generation."

Most companies are owned by people who have never set foot inside of the company. Not surprisingly, decisions concerning those companies and the people who work there are made from a narrow economic perspective, and that narrow economic reasoning often dictates shutting plants like the Shenango ingot mold foundry that the employees bought after a six week sit-in to avert liquidation. (For the Sharpsville story, see Owners at Work, Summer 1994.)

Swogger appealed for a broader perspective that includes the community. "That is why employee ownership makes sense: the people who work in that factory, who go to work everyday, pay taxes to that community, whose children attend those schools, who patronize local businesses, the people that make things happen in that community, all depend on that company, so it makes sense for these same people to make the vital decisions about that company."