The inequality is too damn high. In the United States today, the richest 0.1 percent of the population owns as much wealth as the bottom 90 percent combined. And the chasm between our aristocracy’s fortunes — and those of the average Joe and Joanna — is only growing. Since 1980, the real annual earnings of the top 0.1 percent have grown by 343 percent; the poorest nine-tenths of the country, meanwhile, have seen their earnings grow by a mere 22 percent in that time span. Absent drastic reforms of our political economy, there’s every reason to think that this income polarization will continue apace in the decades to come.
And drastic reforms ain’t easy. In fact, even modestly reducing inequality (and/or ameliorating its most troubling effects) through tax and transfer programs poses major political challenges. For example, while raising taxes on the rich is very popular, transferring income away from the upper reaches of the middle class is less so. Even when broad-based tax hikes are pegged to overwhelmingly popular forms of redistribution, such as universal health care, voters often have trouble swallowing them. A recent Kaiser Family Foundation survey found that 56 percent of Americans favored Medicare for All — until they were told the policy would “require most Americans to pay more in taxes,” at which point support plummeted to 37 percent. The credibility of this finding is buttressed by the failure of movements for single-payer health care in Vermont and Colorado, where aversion to tax increases fueled opposition. And the unpopularity of tax hikes on the non-rich can also be seen in the reluctance of even the leftmost Democrats to present detailed plans for how they intend to finance their most ambitious redistributive programs.
Bernie Sanders appears to understand all this. Which is why the 2020 candidate is preparing to shift the focus of his economic message away from divisive “tax and spend” liberalism and toward more broadly popular approaches to reducing inequality — like, say, worker ownership of the means of production. As the Washington Post’s Jeff Stein reports:
“We can move to an economy where workers feel that they’re not just a cog in the machine — one where they have power over their jobs and can make decisions,” Sanders said in an interview. “Democracy isn’t just the opportunity to vote. What democracy really means is having control over your life.”
“Sanders said his campaign is working on a plan to require large businesses to regularly contribute a portion of their stocks to a fund controlled by employees, which would pay out a regular dividend to the workers. Some models of this fund increase employees’ ownership stake in the company, making the workers a powerful voting shareholder. The idea is in its formative stages and a spokesman did not share further details.
“Sanders also said he will introduce a plan to force corporations to give workers a share of the seats on their boards of directors. Sen. Elizabeth Warren (D-Mass.), another 2020 presidential candidate, proposed a similar idea last year.”
Sanders’s plan for giving workers at major corporations an ownership stake in their firms is by far the most “socialist” policy he has ever endorsed as a national politician. The idea is, in essence, a scaled-down version of the late Swedish economist Rudolf Meidner’s plan for gradually socializing ownership of industry by requiring employers to funnel a fixed percentage of their annual profits into collectively owned, trade-union-managed “wage-earner funds.” Meidner’s plan, and all other blueprints for “funds socialism,” is derived from a simple observation, deftly summarized by Matt Bruenig of the People’s Policy Project:
“[C]apital ownership no longer takes the form of an individual business owner presiding over an empire, but instead takes the form of affluent families owning diversified portfolios of real estate and financial assets like stocks and bonds. The socialization of those assets into funds owned and controlled by workers or society would thus provide a relatively simple glide path into a kind of market socialism.”
Sanders’s wealth-fund plan would do far more than any of his other policies to reduce the vast disparities of wealth and income that he’s made his name decrying. The fundamental challenge in combating inequality is that wealth begets more wealth. Those who can afford to invest in bonds get to collect annual interest payments; those who invest in stocks or real estate typically see their capital assets annually appreciate. Thus, most years, our nation’s collective capital stock directs loads of passive income to America’s wealthiest citizens. Which means that, even if wage growth hadn’t been tepid for the past four decades, the rich still would have pulled ahead of everyone else, buoyed by the rising tide of compound interest. To put a serious dent in inequality, then, you need to equalize the distribution of capital income (or, ya know, launch a world war).
And yet if Sanders’s plan for worker wealth funds is his most radical and socialistic, moderate voters may actually find it more palatable than his conventional redistributive policies. As mentioned above, raising taxes on the non-rich isn’t superpopular in the contemporary United States. Over the past half-century, conservative Republicans (and, to a lesser extent, neoliberal Democrats) have given Americans plenty of cause for doubting that Uncle Sam will be a faithful steward of their tax dollars. Asking voters to believe that the federal government knows how to invest their income better than they do can be tough. But asking them to believe that they know how to invest their employer’s income better than their bosses? That’s usually an easier sell.
We have few details about Sanders’s wealth-fund plan, let alone polling data. But in March, YouGov and the Democracy Collaborative found plurality support for a similar policy. Asked whether large companies should be required to “put 2 percent of their shares into a workers fund each year, up to a maximum of 50 percent,” 46 percent of respondents said yes, while just 29 percent opposed the idea.
And the other component of Sanders’s forthcoming proposal — forcing corporations to give their workers representation on corporate boards, a policy known as “worker co-determination” — is extremely popular. Like a worker wealth fund, co-determination can redistribute significant amounts of income without raising taxes by helping workers secure a higher share of their employers’ profits. Last year, Wisconsin senator Tammy Baldwin introduced a bill requiring large companies to dedicate one-third of board seats to worker-elected representatives. Elizabeth Warren’s co-determination plan sets that minimum at two-fifths.
Shortly after Baldwin unveiled her proposal last year, the data-science firm Civis Analytics teamed up with the progressive think tank Data for Progressto poll the idea — and found that “mandating that large companies allow employees to elect representatives to their board of directors” had a positive approval rating in 100 percent of the nation’s states and congressional districts. Remarkably, this result held even when the pollster informed respondents that Republicans opposed the plan because they believed it “makes companies less efficient and would be bad for the economy.”
With the public as a whole, the policy boasted net support with likely voters who are Asian-American (+40), black (+38), college educated (+31), Latino (+32), white (+28),and not college educated (+28). No demographic group registered a net-negative opinion of the idea. And in many critical regions of the country, a majority of Trump voters endorsed it.
In many instances, the American public’s suspicion of centralized authority creates problems for economic egalitarianism. But when the question ceases to be, “Should the government have more control over the distribution of income?”and becomes “Should bosses have less?” that latent antipathy for authority starts to work in progressives’ favor.
To be sure, once conservative media gets to work on co-determination and worker wealth funds, support for the ideas will likely decline. Further, at the end of the day, combating inequality through post-tax redistribution may be more politically tenable than shifting the balance of power within firms — even if the latter is more popular with voters — because co-determination and worker wealth funds would likely inspire the impassioned, unifiedopposition of all major employers (who have more powerful lobbies than ordinary voters do). Meanwhile, on a substantive level, care would need to be taken to structure these policies in a manner that didn’t encourage firms to contract out more of their labor needs, so as to evade sharing profits and control with their “employees.”
But the core premise of Sanders’s proposal — that true democracy requires giving ordinary Americans some power over the institutions where they spend the bulk of their waking hours — has real political promise. And if we’re serious about reducing inequality, there’s no (desirable) alternative to confronting it at its source.
https://gritpost.com/bernie-sanders-stock-workers-boards/?fbclid=IwAR01sRGKfjKvkUYONFBBYbWIQKuJ3BxRjXnKg-S0Hc-ZQeX4BPN_ice_WY0
Gary Reber Comments:
With a bit of tweaking, Bernie Sanders can get his message about empowering employees of corporations to become owners with full voting rights on the right track and not let it be framed as a “socialist” proposal.
If private property rights are the hallmarks of conservative thinking, then broadening private property ownership in the means of production, without taking from those who already own, cannot be attacked as a “socialist” proposal. Only forms of redistribution can be attached as “socialist” proposals.
Bernie Sanders appears to haves put a limit on broadening productive capital assets (represented by stock issues) to employees of for-profit corporations. What about the millions of Americans that do not work for a for-profit corporation or are not in the workforce? No opportunity to own wealth-creating, income-producing capital assets?
As for voting democracy within a for-profit corporation where employees have power over their jobs and can make decisions, stock ownership provides representation to elect a board of directors, who subsequently retain a CEO to oversee the day-to-day operations of the corporation. Without ownership participation, what justifies non-owning employees making decisions as to the composition of boards, a CEO and operations?
Rather than require “large businesses to regularly contribute a portion of their stocks to a fund controlled by employees, which would pay out a regular dividend to the workers,” why not empower employees, as individuals, to acquire full-voting, full-earning dividend payout ownership stakes in the future growth of the for-profit corporations they are employed by?
Corporate tax attorney, investment banker, and binary economist Louis O. Kelso’s invention of the leveraged Employee Stock Ownership Plan (ESOP) was a first step away from the injustices of both monopoly capitalism and all forms of collectivism. He offered a JUST, third WAY in which everyone controls his or her life, and safeguards liberty, by having private property in capital. Sanders has been a proponent of ESOPs ever since it was first enacted into law in the . Yet there is no mention in this article of Sanders support for ESOP.
Kelso was the architect and pioneer of the Employee Stock Ownership Plan (ESOP), which Kelso invented to enable working people without savings to buy stock in their employer company and pay for it out of its future dividend yield — on the promise of the capital investment’s future income.
Kelso created the ESOP as a credit mechanism, which, with the support of Senator Russell Long (Democrat, Louisiana), was included in the employee benefits sections of the Internal Revenue Code (Employee Retirement Income Security Act of 1974 [ERISA], also known as the Pension Reform Act) as legislation not to look like something new and different.
The ESOP provides access by employees to capital credit to buy company stock and pay for it in pre-tax dollars out of what the assets underneath that stock yield. Bank loans are made to the ESOP trust that represents employees, instead of to the company (current owners). The trust gives the lender a note and with the borrowed monies makes the investment in the company stock. The company then issues stock to the ESOP trust. The company now has the money, which otherwise could have been borrowed directly without the ESOP (benefiting current owners), to make the planned investment and repay the loan from pre-tax forecasted future capital earnings. The company promises the bank to make pre-tax full-dividend payments to the ESOP trust to enable the trust to replay the lender. Assuming that it would take five years for that capital investment to pay for itself, at the end of five years the employees now own the full stock value in the expanded company.
Companies who are incorporated can use the ESOP as the credit mechanism to create employee ownership in ratios up to a 100 percent leverage buyout. Nothing has been taken away from the existing owners. However, using the ESOP, the existing owners, unless also an employee, will surrender the exclusive right to acquire more ownership in the company and have a smaller percentage of ownership in the total company, but they have not been prevented from making a fair rate of return on their thus-far accumulated ownership shares because the company earns a rate of return throughout the process. After the loan has been paid off with pre-tax earnings, the employees will have more earnings from capital and they will have more consumer power to purchase goods, products and services. Multiply this by tens of thousands of employee-owned companies and the economy revs up to grow dramatically.
There are now more than 7,000 profitable ESOP corporations, of which 1,500 of those corporations are reportedly worker majority owned, with workers paying for their stock shares out of future corporate profits, not by reducing their take-home labor worker incomes.
ESOPs work as designed and optimized when the workers receive the full property rights as owners, including full-voting rights, not simply treated as beneficial owners with power concentrated at the top of the company, without any accountability or transparency. Unfortunately, some ESOPs have been structured so that the rights, powers, and benefits of ownership remain concentrated in a small non-accountable elite controlling corporate and financial governance. When all of the employees are owners, dependent on their income from the company’s bottom line rather than through ordinary labor wages, salaries and benefits, the workers’ economic interests are more invested to see that their company succeeds. In this way, each person in the company is empowered as a labor worker and as a capital “worker” (owner) and inspired to work together as a team to make better operational decisions to serve and maximize value to their customers.
Under our current financial system, the security (collateral) necessary to secure an ESOP loan must come from the company, and therein the current owners are providing the security to broaden employee capital ownership with the benefit that expanded capital ownership drives expanded consumer power to purchase products and services. (This is somewhat akin to Henry Ford’s reported policy to pay workers sufficient wages to enable them to purchase the automobiles they manufacture.) Under this scenario the company owners are “insuring” the risk without a benefit, which can be re-compensated by paying the employees less labor wages, reduced pension benefits, and receiving government tax forgiveness benefits, which are written into the Internal Revenue Code.
With the ESOP, employees can acquire capital ownership with the earnings of capital. ESOPs have thus far only provided part of the solution, and the stock acquisition is limited to the employer-company and to those employed by a for-profit business corporation.
Robert Ashford, Professor of Law at the Syracuse University College of Law (New York) and a former lawyer in Kelso’s San Francisco law firm, specializes in the teaching of binary economics. He has also written a book entitled Binary Economics: The New Paradigm with Rodney Shakespeare. Ashford has expanded the ESOP trust into what he terms the “Super ESOP,” which includes multiple company diversification facilitated with private capital credit insurance or a government reinsurance agency (ala the Federal Housing Administration mortgage insurance concept). Under Ashford’s plan, the promissory note can be offset to the government’s central Federal Reserve Bank in return for the cash equivalent of the amount of the loan, less an administrative fee. The only cost to the direct lending bank in making a loan to the corporation would be the administrative fee, or about 2 percent of the loan’s principal and then another 2 percent for capital credit insurance, with an additional quarter of a percent paid to the Federal Reserve Bank to monetize the loan and give the lender the same cash as it would have had if it had actually loaned money to the corporation. The lender’s cash loaned to the ESOP trust is replenished with the Federal Reserve Bank cash. When the company pays the ESOP trust enough money to enable the trust to repay the lender, the lender has to retrieve the note and pay back the Federal Reserve Bank. Thus, the loan cost would be essentially not more than 5 percent to allow ownership-broadening financial capital to be invested in ownership-broadening ESOP trusts to create new capital owners. Thus, national capital credit insurance replaces the requirement for the current corporate owners to pledge security.
ESOPs and other Kelsonian plans avoid the gambling trade and Wall Street firms that play with your money. The ESOP circumvents that. According to Kelso: “In a single transaction, you finance tools for the employer and ownership for the employees. The pre-tax yield of corporate assets of prosperous companies varies from 25 to 60 percent. The yield on secondhand securities [previously owned] is around five or six percent. Sure, with capital gains, you can get a little more, but don’t forget, that’s a zero-sum game; for every gainer, there’s a loser. Wall Street doesn’t fly any airplanes or raise any corn or do anything else in the way of producing products and services. It just plays games with your dough. And when you take it out in pensions, you’re going to get less than the company put in for you. You have to; that’s the dynamics of it.”
But what about everyone else who does not work for a for-profit corporation that can structured with ESOP ownership for every employee of the corporation?
That greater solution to empower EVERY child, woman, and man, whether working or not, requires monetary reform and the enactment of the proposed Capital Homestead Act (aka Economic Democracy Act and Economic Empowerment Act), which Sanders should author and introduce in the Senate for passage.
The Capital Homestead Act, which takes its lead from President Lincoln’s Homestead Act of 1862, is a JUST Third WAY free-market system that economically empowers all individuals and families through direct and effective ownership of the means of production. The Homestead Act offered the landless white citizens of America part-ownership of the country by giving them 160 acres of frontier land, free, if they produced on it income for themselves and their families for a period of five years. Of course, the finite free land divided up fast and not EVERY citizen became a landowner at a time when owning land was the most valued capital asset. Also it required the aspiring landowners to labor and work the land to make it productive.
In Lincoln’s America of 157 years ago, the problem confronting the vast majority of the citizens of our nation was that most people owned no land that they could work to sustain their livelihood. Today, the major problem for the vast majority of the people of our nation and of our world, for that matter, is that 99 percent of the people own no wealth-creating, income-producing capital (or a viable share) in a high-tech, capital-intensive economy. The Capital Homestead Act would make it possible for every American to become a viable owner of productive capital, without taking from the tiny elite who now own our corporations. The CHA is primarily a tax-sheltered vehicle for the democratization of capital credit through local banks. It would enable every child, woman, and man to accumulate wealth and receive dividend incomes from newly issued shares (representing growth investment) in new viable and growing corporations, both established and start-ups, without being taxed on the accumulations (including property and shares gained through inheritance, savings, and arrangements like ESOPs, etc).
In addition to serving as a source of capital credit for corporate workers, the Act provides for Capital Homestead Accounts. CHAs would provide an ownership-building account for individuals who do not work for profit-making enterprises (or in place of), such as school teachers, civil servants, military personnel, police, and health workers, and for individuals who have no remunerative employment, such as the disabled, the unemployed homemakers and children.
For implementation, the Federal Reserve would begin creating an asset-backed currency that could enable every child, woman, and man to establish a Capital Homestead Account or “CHA” (a super-IRA or asset tax-shelter for citizens) at their local bank to purposely acquire a growing full-earnings, dividend-bearing stock portfolio to supplement their incomes from work and all other sources of income. The CHAs would process annually an equal allocation of productive credit to every citizen exclusively for purchasing full-earnings, full-dividend payout shares in qualified corporations needing funds for growing the economy through viable self-liquidating capital formation projects and private sector jobs for local, national and global markets.
The shares would be purchased using interest-free capital credit wholly backed by projected “future savings” (earnings) in the form of new productive capital assets as well as the future marketable goods, products and services produced by the added technology, renewable and “green” energy systems, manufactories, rentable space for entrepreneurial endeavor and infrastructure, both repaired and new, added to the economy.
Risk of default on each stock acquisition loan would be covered by private sector capital credit risk insurance and reinsurance, but would not require citizens to reduce their funds for consumption (savings) to purchase shares, nor would there be any other requirement other than being a citizen.
The end result would be that citizens would become empowered as owners to meet their own consumption needs with control participation in the operations of the corporations in their individual stock portfolios and government would become more dependent on economically independent citizens, thus reversing current global trends where all citizens will eventually become dependent for their economic well-being on the State and whatever elites control the coercive powers of government, using job dependency, the police, courts of law, prisons, the tax system and so on as their means to control.
Broadening ownership, with the aim of universal individual citizen ownership of productive, wealth-creating, income-producing capital assets, is the ONLY way to reduce the vast disparities of wealth and income that upholds the principles of private property our country was founded on. As the author of the article states: “the fundamental challenge in combating inequality is that wealth begets more wealth. Those who can afford to invest in bonds get to collect annual interest payments; those who invest in stocks or real estate typically see their capital assets annually appreciate. Thus, most years, our nation’s collective capital stock directs loads of passive income to America’s wealthiest citizens.” In other words, the ONLY people who can benefit from today’s system are those who are able to save, and thus deny themselves consumption. They are the rich and their heirs, the few who reap money from inventing technologies and developing products, those with high incomes who are able to successfully “speculate” on the stock exchanges, or those who become celebrities in sports, acting, etc., and of course, politicians who are privileged to insider tips they become aware of through lobbying or government project developments. In the meantime, the American masses are left to struggle to meet ends meet on a daily or monthly basis and have no ability to save to “speculate” and put their money at risk.
For a far more in-depth overview of ownership-creating solutions, see my article “Economic Democracy And Binary Economics: Solutions For A Troubled Nation and Economy” at http://www.foreconomicjustice.org/?p=11
Support the Agenda of The JUST Third WAY Movement (also known as “Economic Personalism”) at http://foreconomicjustice.org/?p=5797, http://www.cesj.org/resources/articles-index/the-just-third-way-basic-principles-of-economic-and-social-justice-by-norman-g-kurland/ and http://www.cesj.org/resources/articles-index/the-just-third-way-a-new-vision-for-providing-hope-justice-and-economic-empowerment/.
Support Monetary Justice at http://capitalhomestead.org/page/monetary-justice.
Support the enactment of the proposed Capital Homestead Act (aka Economic Democracy Act and Economic Empowerment Act) at http://www.cesj.org/learn/capital-homesteading/, http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/, http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-summary/ and http://www.cesj.org/learn/capital-homesteading/ch-vehicles/. And The Capital Homestead Act brochure, pdf print version at http://www.cesj.org/wp-content/uploads/2014/11/C-CHAflyer_1018101.pdf and Capital Homestead Accounts (CHAs) at http://www.cesj.org/learn/capital-homesteading/ch-vehicles/capital-homestead-accounts-chas/
Support the Unite America Party Platform, published by The Huffington Post at http://www.huffingtonpost.com/gary-reber/platform-of-the-unite-ame_b_5474077.html.
