Economic Insanity: Chapter 7 (part 1)

A Nation of Owners (Part 1)

Employees are being paid to produce, not to make themselves into better people.

Corporations are purchasing employee time to make a return on it,

not investing in employees to enrich their lives.

Employees are human capital, and when capital is hired or leased

the objective is not to embellish it for its own sake but to use it for financial advantage.

But somewhere in this philosophy there is an inconsistency

with the notion of a society of self-governing individuals.

The large corporation has become an organizer of people,

a user of people, a molder of identities, according to criteria that it has evolved,

without regard to the effect on those people except as this is registered on the balance sheet.

—Neil W. Chamberlain,

The Limits of Corporate Responsibility

The first step we must take, if we wish to design an economic system independent of growth and progress and more tuned to serving the real needs of society, is to reconsider the most fundamental principle of capitalism—namely, the license to accumulate unlimited capital. Limitless ownership. This is the grand key that turns the lock on Pandora’s box and unleashes the demons of relentless, interminable growth in our economy. Consequently, a change in our ability to own things is the most fundamental change we must make, a change that will affect us not only economically, but socially and politically also, for it will serve as a first and pivotal step in bringing the ideals that compose the American Dream back into harmony.

      As mentioned earlier, a fundamental philosophical incongruity separates the founding principles of our nation from the economic tenets that govern modern capitalism. This disparity would be of little consequence if its impact were limited to the esoteric arguments of scholars. Unfortunately, this is not the case. The incompatibility between our political ideals and our economic realities affects each individual in society at a very personal level. Indeed, the authoritarian nature of our economic institutions effectively prevents most American citizens from achieving their innate potential as they seek a fulfilling life, an equal share of liberty within the bounds of democracy, and a true and independent sense of happiness.

      Some may choose to discount this argument, insisting that most workers prefer to be employed from eight to five each day by someone else and are fully satisfied with their work. This argument, however, runs counter to both common sense about human nature and the cold, hard facts. A recent Roper poll, for instance, found that only 18 percent of American workers consider their careers personally and financially rewarding.¹ Eighteen percent. Apparently, spending forty hours or more each week performing tasks that someone else tells them to perform is not so enjoyable to most Americans—especially when they are paid the bare minimum while those who own their time live in comparative opulence. If the rebellion in the former Soviet Bloc should have taught us anything, it is that people do not enjoy being subject to unaccountable power.

Building a House of Happiness

One idea we often overlook in both politics and economics is the notion that our nation’s founding was the beginning of a process, not the end. It was the planting of a seed, not the harvesting of ripened fruit. The Founders changed many things, but they did not change everything. Indeed, what they changed more than anything was direction. There was not total agreement among the Founders on all issues and, in some ways, more than moving toward a specific goal, they were moving away from certain evils, establishing a system that would prevent them from cropping up again. Unfortunately, they had no way of predicting some evils, such as the concentration of power in large economic institutions (that in many ways resemble the vessels of arbitrary power they so vehemently opposed). Had they foreseen our day, they likely would have included in the Constitution specific limitations to the accumulation of economic and not just political power.

Perhaps the Founders didn’t totally understand the forces of societal change their Revolution had set in motion, but they did understand one thing. They knew that the new nation would reach its ultimate destination not in one giant leap, but in countless stages over time. The Founders were bound by the reality that some things must change gradually, that some ideals are beyond our present reach. This does not mean, however, that those ideals are not worthy, or that we shouldn’t strive toward them.

The Founders, if you will, drew up the blueprint and laid the foundation. Later generations would then follow that blueprint and build on that foundation, perhaps changing a few features as circumstances warranted (this is why they provided a means for amending the Constitution). Whether they actually got so specific as to designate what sort of roof or veneer the structure would eventually have is both debatable and irrelevant. They knew what kind of edifice they wanted: a free one to which each citizen would have equal access and in which every American could reach his or her human potential. Some of the details, they knew, an informed and moral citizenry would have to put in place.

Unfortunately, in some ways we are not changing in the right direction. We have tossed the Founders’ blueprint aside and are building a sprawling prison on the foundation that was to have supported a beautiful mansion. In our economic institutions, we have not followed the blueprint, which included such values and principles as democracy, equality, the sanctity of each human life, individual liberty, and the pursuit of happiness. Instead, we have built up authoritarian economic institutions that operate in direct conflict with the values and principles of our founding. The industrialists and the professional executive class would have us believe that those values and principles do not apply to economic matters, or that we should apply them only in a token or metaphorical sense, but that is nonsense.

“As free agents,” David K. Hart maintains, “individuals can magnify or squander the possibilities of their lives, but those lives are sacred. Therefore, no organization, public or private, has any right to deny, or even trivialize, the possibilities of individual lives with organizational requirements.”² We must remember that the American Revolution was fought to protect individuals from the exercise of unaccountable power in their lives. If authoritarian institutions—be they political, social, or economic—oppress us, we can never achieve true democracy, equality, freedom, or happiness.

As suggested in an earlier chapter, our current belief in the idea of progress, in unbridled technological advance and economic growth, has no overriding purpose, no end objective, no destination. But our society, as defined by the founding values, does have an overarching purpose: to empower each individual to achieve true happiness. We are to arrive somewhere as American citizens, and that destination is a happy and healthy society.

“Happiness [is] the aim of life,” wrote Jefferson. “The happiness of society is the end of government,” John Adams concurred. And the pursuit of happiness, which Jefferson categorized as an unalienable right, just happens to be inseparably connected to the right to hold property. As noted in chapter 5, the historian Paul Johnson asserts that happiness is only achievable if people, by honest effort, can acquire property. “Without widely dispersed property,” he adds, “true individual independence, and so a sound Republic, [is] impossible.”³

Widely dispersed property, not the concentration of property (and therefore power) that we see in modern capitalism, is the precondition to happiness and a sound Republic. If our society is to reach its true destination, if our government is to achieve its proper end, we must address this question of ownership.

Limited Ownership

A pivotal question, if we are concerned with achieving personal happiness, preserving the sanctity of each individual life, and creating a sound Republic, is the question of ownership—and not just ownership of property and capital, but the ownership of human time and energy, which has been labeled “human capital,” a callous and demeaning term.

The fallacy we too often fall into is assuming that we can correct basic inequities by either transforming the American workplace or taking money from the wealthy and giving it to the poor. Corporate restructuring, flattening, or reengineering; team building; employee empowerment; and all the other buzzwords we have dreamed up to give workers the illusion of ownership (and thus motivate them) quietly bypass the real issue, as do all the liberal social redistribution programs. Not one of the currently popular approaches to achieving greater equality and democracy in the workplace addresses the fundamental obstacle to universal human happiness: lack of true ownership. We must transform our thinking on that issue.

To put it bluntly, we must prevent the three basic sources of authoritarian organizational control in our lives: unlimited capital concentration, absentee ownership, and state ownership (or state control, which is the aim of many liberal programs).

This is not a difficult problem to solve. Using a simple process of elimination, if we refuse to allow individuals to control large quantities of capital (and thus control the lives of hundreds or thousands of employees), if we disallow absentee ownership (which has created America’s new ruling class, the professional executives), and if we don’t permit state ownership or control of industry (a fraud perpetrated by the power hungry who insist that state ownership is really ownership by the people), then only one alternative remains: widespread, limited, direct ownership by the people, individually, not collectively.

Limited ownership is not a new idea. Thomas Paine, for instance, declared in The Rights of Man (1792) that “commerce is capable of taking care of itself,” but he also condemned “all accumulation . . . of property, beyond what a man’s own hands produce.” This idea of limited, universal ownership persisted well into the nineteenth century. A mid-century labor leader named Robert MacFarlane declared that “small but universal ownership” was the “true foundation of a stable and firm republic.”⁴

Three Levels of Ownership

Limited, universal ownership of property and the means of production is the only form of ownership that is consistent with the founding values of the American nation. Specifically, under a system of limited ownership, an individual would be allowed to own only as much property as he or she could make productive use of. This is the basic principle. It prevents an individual or group of individuals from accumulating more property than they themselves can effectively use, which in turn prevents them from buying time and talent and energy from the unpropertied or disfranchised (who have nothing else to sell) to work their fields or staff their offices or man their factories. It permits individuals, however, to prosper to the full extent of their intelligence, talent, diligence, and ingenuity. Above all, this principle allows every individual to own his or her personal labor and not be required to sell it. Only the fruit of that labor, which each individual owns, is for sale.

Although ownership based on ability to make productive use of the thing owned is the fundamental principle at work here, we must distinguish between different levels of use, different levels of ownership. The Indian philosopher P. R. Sarkar suggested a three-tiered economic system, an idea that makes good sense. The following description is my own extrapolation from Sarkar’s basic formula.

The first level of this three-tiered economy 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 perhaps two or three, and maybe a few “partners” who come on board somewhere downstream. To be consistent with the guiding principle of ownership limited by contribution, each new addition to the business would receive a share of ownership.

If a doctor needs to hire a receptionist or a bookkeeper to make his or her practice more efficient, if a restauranteur needs to enlist the help of waiters and waitresses, if a CPA requires the services of a secretary or a clerk, then the new member of the team would be given a share of ownership. Why? Because without that new member’s contribution, the business would be less effective and a portion of the work wouldn’t get done. But how much ownership should each new member of the business have? An equal share? Probably not. That would not be just, particularly in the case of a doctor or dentist or CPA who must invest much more time to be trained than, say, a receptionist or a bookkeeper. Ownership must also reflect seniority and other factors such as personal sacrifice, start-up funding, and risk. Perhaps my own business can serve as an illustration.

When a partner and I formed a small enterprise to design and market a humorous calendar system, we determined that we would not hire any employees, although we could very well have done that. We agreed, simply, that if we needed help, we would bring in new partners. But these new partners, although they would add value to our business, wouldn’t have been there at the start. We, the two original partners, worked and scraped and worried and sacrificed and risked bankruptcy to get the company to the point where we would need more hands to do all the work. For that we felt we deserved a proportionally larger share. So we developed an ownership formula based on seniority. If you’ve put in ten years to make the tree grow, you should own more of the fruits than someone who has put in just two years. This formula doesn’t guarantee us twice as much ownership as new partners, or even one and a half times as much, just a fraction more, based on years of association. And as more partners are added, equality increases, until, if the company ever becomes large, there will really not be much distance between the founders and new owners.

An economic system based on this philosophy does four things: First, it gives you incentive to find the right outlet for your talents and energy and to stay there, because if you keep jumping from company to company you never build equity in an enterprise, never own a significant portion of your work. Second, it prevents you from using people, from hiring them to do unpleasant tasks for you and paying them as little as possible. When you’re giving a share of your company away, you don’t do it with the intention of using someone to further your ends, because, third, it causes you carefully to select individuals of excellent character and ability who are willing, as it were, to jump in and get their hands dirty and take over responsibilities you can’t handle. Consequently, fourth, it provides a natural disincentive for companies to grow larger than they need to. We don’t want deadwood in our company. We can’t afford it. We also don’t want to jump into fifteen new markets with three hundred new and diverse products. We know what we do well, and learning our own well-defined market is sufficient challenge. If all companies had this philosophy, imagine the incentive it would create for children in our society, who would know that if they didn’t prepare themselves well—educationally, socially, and morally—to contribute something of value, they wouldn’t ever find a place to make a living.

As a precaution in our business, so that we won’t bring in a new partner who is merely putting on a good show in the short term but would be a bad fit in the long run, we have adopted a mandatory one-year probation period, during which any prospective partner is guaranteed near full compensation but must prove his or her worth. If, in that time, there arise personality conflicts or indications of moral defects or a mismatch of skills, we can terminate the association. Or the prospective partner can do the same if he or she doesn’t feel comfortable or happy in our company.

Under such an arrangement, your work colleagues become just like family. There’s more holding you together than self-interest. You depend on one another, and you’re very careful about whom you adopt. You also discover that you yourself can accomplish more actual productive work than you would if you were merely somebody else’s employee (or a manager who gets paid primarily to see that others get their work done), because you own your work and the fruits of your labors. This type of organization virtually eliminates dependence and replaces it with interdependence. And it totally abolishes the tyranny that often prevails in the world of small business.

The second level of economic activity would consist of larger enterprises owned collectively by the “employees.” But of course they would no longer be employees. They would now be owners. No shares of ownership would be held by “absentee owners”—outside individuals who do not give their time and talents and energy to the creation, marketing, or distribution of the company’s products. This level would encompass basically the bulk of what we now call corporate America, organizations producing products whose efficient creation and distribution require the efforts of many people.

Because these are large organizations, a form of management different from that found in level-one businesses would be necessary. Whereas level-one enterprises could operate quite easily as true democracies, level-two organizations are often too large for this. Pure democracy in organizations of more than, say, fifty people would turn quickly into chaos. Rather, these organizations would have a republican form of management, patterned after our political system. Later in this chapter I’ll discuss this “federal model” of management in detail; for now suffice it to say that managers would be elected by the owners.

The third level of this economic system would consist of basic industries that benefit everyone in the community: transportation, communication, education, defense, utilities, and so on. These industries, more or less, belong to everyone. They are too large to be managed effectively by cooperatives and are too important to be driven by the profit motive. Many of them must, of necessity, be monopolies. Therefore, they must fall in the public realm. Public boards or local governments would be the logical bodies to manage these entities. The people who would work in these organizations would be owners, of course, along with all other members of the community, but they would also be public servants in the truest sense of the word.

Let’s now take a look at an alternative to the form of authoritarian management that at present prevails in our economic institutions, large and small. This management model, as suggested above, would apply primarily to the second tier of organizations in a new, more equal system of ownership.

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1. Andrew Leckey, “Only 18% Regard Jobs as Rewarding,” Deseret News, December 5, 1993, M, 6.

2. David K. Hart, “Life, Liberty, and the Pursuit of Happiness: Organizational Ethics and the Founding Values,” Exchange (BYU School of Management, Spring 1988): 5.

3. Paul Johnson, “An Awakened Conscience.” Forbes, September 14, 1992, 183.

4. Christopher Lasch, The True and Only Heaven (New York: Norton, 1991), 205.