Tuesday, June 30, 2015
Economic Equality (Part 4: Transforming Our System of Ownership)
Around the turn of the twentieth century, Latter-day Saints formally abandoned not just polygamy and theocracy but also their last attempts at communitarian economics. Admittedly, many of these communitarian efforts had limited success at establishing economic equality,1 but they at least represented an official attempt to implement principles the Lord had given in revelations to Joseph Smith. With the abandonment of the various United Orders, however, the Saints also came to discard the ideals that drove the communitarian effort.
Perhaps, however, the day has come for Latter-day Saints to look to their collective past for solutions to the economy’s present predicament. There are many reasons to do so—among them the Lord’s stated desires for economic equality, the ever-advancing inequality in the United States today, the negative consequences of this inequality, and the need to prepare ourselves for the anticipated and eventual Second Coming of Jesus Christ, which we believe will usher in a thousand-year epoch that will undoubtedly feature a different sort of economy than our current arrangement. The deteriorating state of the U.S. economy is a reminder that Mormons need to begin questioning their support of the corporate system of concentrated, limitless ownership and seek instead paths to greater economic equality.
Some Latter-day Saints have argued that since a key principle of the law of consecration is that it is voluntary, it would be inappropriate for government to take and redistribute capital. This would be stealing. This reasoning is easy to dismantle on several levels. It is obvious to even conservatives, for instance, that without taxes and government, our society would rapidly dissolve into chaos and violence. If we want any sort of civilized society, we need a government to provide some sort of order. The only question is what level of order and social well-being we desire. Interestingly, the argument against redistribution also ignores both Alma’s command to his people to redistribute their property and the fact that even in Zion there will be a government, a government that will require economic equality of all those who desire the benefits of living within the system. Justification for creating a more equitable economic order in the United States can follow a similar line of reasoning, particularly if our national well-being is dependent on leveling the economic playing field. But for those who still insist this is stealing, we might well ask who is really stealing from whom and what we must do to rectify this injustice. As Michael Ventura puts it:
As a worker, I am not an “operating cost.” I am how the job gets done. I am the job. I am the company. . . . I’m willing to take my lumps in a world in which little is certain, but I deserve a say. Not just some cosmetic “input,” but significant power in good times or bad. A place at the table where the decisions are made. Nothing less is fair. So nothing less is moral. . . . It takes more than investment and management to make a company live. It takes the labor, skill, and talent of the people who do the company’s work. Isn’t that an investment? Doesn’t it deserve a fair return, a voice, a share of the power? . . . If the people who do the work don’t own some part of the product, and don’t have any power over what happens to their enterprise—they are being robbed. You are being robbed. And don’t think for a minute that those who are robbing you don’t know they are robbing you. They know how much they get from you and how little they give back. They are thieves. They are stealing your life.2
The corporate system of ownership is a strange thing indeed and is a remnant from our aristocratic past. We speak of stock market transactions as investing, but Marjorie Kelly reminds us that “there is only the smallest bit of direct investment in companies going on. What is at work is speculation, the trading of shares from one speculator to another. Another word for it is gambling.”3 In reality, most companies have not sold any new common stock for decades, and new stock offerings in the market are generally exceeded by the amount of stock corporations buy back and retire. In this sense, as Ralph Estes observes, the stock market works very much like the used car market.4 When you buy a used Ford Taurus, none of the money goes to Ford. Similarly, when you buy Ford stock on the New York Stock Exchange, that money does not change Ford’s balance sheet by so much as a penny.
But the stock market is very different from the used car market in a crucial way. Because a company’s workers are both ingenious and productive, the value of the company generally increases over time, whereas the value of a used car decreases. The effect this produces is that a company’s initial stock offering usually represents a very small fraction of a company’s current worth. But that enormous increase in value was not created either by those who purchased the stock initially or by those who acquired it later on the stock exchange. It was created by the productivity of the workers. And yet the corporation’s number one priority is to maximize shareholder wealth, not employee wealth. Thus, people who have nothing to do with the day-to-day operations of the business, and who didn’t even provide capital directly to the business, are the ultimate insiders, while the workers, who are there every day creating the wealth, are not even corporate citizens (citizens have a vote); they are subjects or even commodities, a cost to be minimized. They are treated as outsiders. This doesn’t make any sense, but it’s the way we have traditionally done things in the corporate world. In fact, if workers in a corporation increase their wealth (their pay), this is viewed by the corporation not as a success but as a failure. Success occurs only when shareholder wealth increases.5
Conventional reasoning about capital distribution ignores the fact that corporations are not only chartered by government, but also that they were originally established to serve public purposes. They were originally tightly regulated for the same reason. Businesses exist at the pleasure of the people. Even a sole proprietorship must file for a business license with government before it can legally engage in commerce. It is certainly within the rights of the people and their representatives in government to regulate business, including, I would argue, more carefully defining ownership requirements and reversing faulty legislation and judicial blunders.
Even though the debate over who ought to own corporate assets and products is both contentious and legally labyrinthine, capital redistribution doesn’t need to involve what William Greider calls “the expropriation of anyone’s existing wealth.” He points out a fundamental paradox of capitalism: “People do not usually get rich by saving money but by borrowing it. . . . The problem, in other words, is not debt per se, as people are led to suppose. After all, the capitalist process relies on debt, continuous lending and borrowing for its creativity and progress. The problem is that most people cannot get into debt—not the kind of debt that will enable them to become capital owners.”6 While consumer debt is a drag on the economy, debt that facilitates capital ownership has the opposite effect. Greider proposes the solution that investment banker Louis O. Kelso conceived more than fifty years ago: the employee stock ownership plan, or ESOP. Kelso’s financial innovation enabled ordinary workers to borrow money to buy stock shares in the companies where they worked, using the companies’ productive assets as collateral. As stock owners, they received dividends and could use their share of the profits to pay off the loans. This arrangement may sound vaguely familiar because it is the same principle corporate raiders employ to orchestrate leveraged buyouts (LBOs), a financial strategy used and often abused during the 1980s—and one very familiar to Mitt Romney.
The Transition to Three-Tiered Economic Equality
Moving from our current system of ownership to a more equitable system ought not to happen abruptly barring some drastic crisis, but government at both the state and federal level can do much to begin the necessary transformation. For instance, by increasing taxes on traditional corporations and other businesses owned by one person or a closed group, and by simultaneously offering tax breaks to worker-owned businesses, government can create attractive incentives for businesses to begin this shift willingly and immediately. Government should also move toward reinstating a top marginal tax rate of at least 70 percent, to prevent the continued accumulation of wealth in a small minority of hands and to help pay down the immense national debt we have accumulated over the years. Increasing the capital gains tax should also occur.
Latter-day Saints can promote such changes by first rethinking their political ideology. But perhaps the most important step Mormons could take would be for those among us who own or manage corporations and other businesses to lead out in the transition to a new sort of economy by sharing ownership with their employees, which might include using profits to buy back stock from absentee owners (another topic altogether) and offer it through compensation programs to workers within the business.
A detailed description of how worker-owned businesses should be structured is beyond the scope of this post, but I will offer a few general guidelines.7 Some economic thinkers, including Indian philosopher Prabhat Ranjan Sarkar, have proposed a three-tiered economy.8 Following is a simplified outline of such a system.
• The first level would consist of small enterprises that produce mainly nonessential goods and services and perhaps a few essentials. These enterprises would generally have a single founder or a few partners, who would welcome on board new associates and offer them a share of ownership. These organizations could operate as small democracies.
• The second level of economic activity would consist of larger enterprises owned collectively by the workers. No shares of ownership would be held by absentee stockholders. This level would encompass the bulk of what we now call corporate America. Whereas level-one businesses could operate quite easily as true democracies, level-two enterprises would generally be too large for this. These organizations would have a republican form of leadership, patterned after our political system in which workers would be able to elect the leaders.
• The third level would consist of basic industries that benefit everyone in the community, such as transportation, communication, education, defense, health care, sanitation, and utilities. These industries are too large to be managed effectively as cooperatives and too important to be driven by the profit motive. Of necessity, many of them must be monopolies. They must therefore exist in the public realm. Public boards or local governments would be the logical bodies to manage most of these entities, and they would be supported by taxation.
• Equality in most worker-owned businesses would need to be carefully defined. Since it would not be just to give an eighteen-year-old high-school graduate an ownership share equal to that of a founder with a PhD in mechanical engineering and thirty years’ experience, the ownership equation would need to incorporate such factors as age, experience, education, seniority, and financial investment. But the differential between the workers with the largest and smallest portion of ownership would be dictated by a factor of, say, five to ten, rather than what we see in today’s corporate world, where owners and professional executives earn hundreds of times as much as some of their employees.
• Economic enterprises should be free to hire some workers part time (because some people do not desire or cannot manage full-time work) or to create an apprenticeship program in which new workers can be trained and carefully evaluated before being given full ownership rights and responsibilities.
These and other parameters for an economy based on worker ownership would have to be thoroughly weighed and discussed in public forums before being implemented. But regardless of how change begins, common sense suggests it should occur gradually—unless, of course, the current system collapses and we are forced to deal with a different set of realities.
1. See, for instance, “The United Orders of Brigham City and Orderville: Opposite Ends of the Spectrum,” Elkym’s Weblog, http://elkym.wordpress.com/2009/04/22/the-united-orders-of-brigham-city-and-orderville-opposite-ends-of-the-spectrum.
2. Michael Ventura, “Someone Is Stealing Your Life,” Utne Reader, July/August 1991, 78, 80, reprinted from L.A. Weekly.
3. Marjorie Kelly, The Divine Right of Capital: Dethroning the Corporate Aristocracy (San Francisco: Berrett-Koehler, 2001), 33.
4. Ralph Estes, Tyranny of the Bottom Line: Why Corporations Make Good People Do Bad Things (San Francisco: Berrett-Koehler, 1996), 50.
5. Kelly, The Divine Right of Capital, 3.
6. William Greider, One World, Ready or Not: The Manic Logic of Global Capitalism (New York: Simon & Schuster, 1997), 418.
7. For a more detailed discussion of how we might transition from corporate capitalism to a system based on worker ownership, see my book Economic Insanity: How Growth-Driven Capitalism Is Devouring the American Dream (San Francisco: Berrett-Koehler, 1995).
8. For a more detailed discussion of Sarkar’s ideas, see Michael Towsey, “The Three-Tier Enterprise System,” in Understanding Prout—Essays on Sustainability and Transformation, Volume 1 (Australia: Proutist Universal Publications, 2009), http://www.pia.org.au/UnderstandingProut/Volume1/UP_v1_Essays.htm.