(Examiner Exclusive © Peter Kelton)
Just one small element of an aging economic theory continues to prosper as more workers who own part of their company keep their jobs while others join the unemployment lines, according to recent testimony in Congress.
Congress was told that during the recession of 2008-09 workers for conventionally owned companies were laid off at a rate of slightly more than 12 percent. At employee-owned companies, the layoff rate was only 3 percent, according to the usually reliable General Social Survey conducted by researchers working out of the University of Chicago’s at the National Opinion Research Center.
J. Michael Keeling told the House Committee on Ways and Means that employee-owned companies are less susceptible to recessions than most firms. Keeling is president of The ESOP Association. It represents about 1,500 U.S. corporations that sponsor employee stock ownership plans, or ESOPs.
The benefits of employee ownership plans were originally invented by Louis O. Kelso in 1956 with the first such ESOP and promoted in his theory of binary economics published 1958 as The Capitalist Manifesto (Random House), co-authored with Mortimer J. Adler.
Kelso’s conservative laissez-faire thinking seems to resurfaces during every economic downturn, including the most recent recession, and finds new adherents each time capitalism shows its cyclically fragile nature.
Congress has become accustomed to an endless parade of testimonials about ESOPs and their benefits. For example, in 2002 Karen York, staff accountant, Scot Forge Company, Spring Grove, Ill., testified before the subcommittee on oversight of the House Committee on Ways and Means. They were looking at the stability of retirement plans. York appeared for The ESOP Association. Scot Forge is 100 percent owned by employees, she said, having formed an ESOP in 1978 and acquired full ownership by 1997.
“If you wonder if our ESOP is providing a secure retirement system for our employees, I will quote some account balances for you: Lathe operator, $783,818; machine operator, $478.576; maintenance mechanic $881,073; forge shop supervisor $814,716; electrical engineer, $660,489; final inspector, $603,303; press operator $563,665; machine operator $597,207; and sales and customer service, $574.826.” She also pointed out that Scot Forge started by making horseshoes for blacksmiths 110 years earlier and today makes parts for space rockets.
“So, what does employee stock ownership through an ESOP mean to me, someone who represents the vast majority of Americans, who goes to work each day, puts in a good strong 8 hours, pulls in a paycheck, but who devotes much time and attention to my home and community?” she asked the committee. “At Scot Forge, it means a great deal. It means many employees understand what our business is all about. How we make money, how we might not make the money we had targeted in our budget, and why these results came about.
“We understand how each of us, doing our job, tie into the entire company, and how each of us should feel ownership, and most of all responsibility for what we do, and responsibility for our actions impacting our fellow owners.”
Examiner asked Kelso’s widow, Patricia Hetter Kelso, who helped Kelso write and lecture for decades about his theory of how to equalize wealth distribution among those who create wealth, if she thought ESOPs were resurging. “Perhaps they are becoming better known and more rapidly propagating!” she said. “They have never really ‘desurged.’” She helps perpetuate Kelso’s theory of binary economics through The Kelso Institute in San Francisco.
Would any of this help improve unemployment figures, even by the 3 percent layoff versus the 12 percent layoff figures given to Congress? After all, the difference of 9 percent is a heck of a lot of people keeping their jobs. Those who believe in the Kelso theory and its three-layered interactive components often advocate many changes in the way the capitalist system operates, including more employee ownership. But reading The Capitalist Manifesto isn’t easy. In fact, a follow-up book written by the couple drew a droll critique in 1986. An economist named Harry Frumerman, formerly with Economics Dept., Hunter College unit of City University of New York, wrote for the Library Journal that the Kelso couple’s follow-up book to The Capitalist Manifesto was a disaster. He described the book as “turgid.” He wrote: “They believe that broadly-based ESOPs would democratize capitalism, invigorate labor unions, raise productivity, and enhance industry’s competitiveness, while also alleviating poverty, unemployment, and inflation. These sweeping claims, however, are based more on assertion and faith than on economic analysis. The writing is prolix and turgid. Not recommended.” The next year, 1987, the Avis’ Employee Stock Ownership Plan (ESOP) purchased Avis for $750 million, plus the assumption of debt. Avis was then considered a model ESOP company and was one of the largest employee-owned companies in the United States.
Examiner has read the manuscript-in-progress by a graduate of the London School of Accounting. It extends the Kelso theory even further, insisting that “moral” management of the economics of capitalism will end the idea that full employment is necessary. But his work entitled Economic Freedom – Your Future is also based “more on assertion and faith than on economic analysis.”
Nonetheless, when unemployment rises, so do the advocates of changing the current way things are done, according to “Kelsonian” followers.
(Examiner Exclusive © Peter Kelton)