The ownership solution

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Capitalism now reigns triumphant—but in the process has created dramatic inequalities of wealth and left many individuals feeling disconnected. Backed by enthusiastic support from a wide array of legislators, corporate leaders, Nobel laureates, environmentalists, and social and political activists, The Ownership Solution shows how to humanize and localize free enterprise by using ownership as a means for engaging more people in its design.

Jeff Gates was counsel to the US Senate Finance Committee when a number of the tax laws that lie behind ESOPs were written. His new book, The Ownership Solution, urges a quantum jump forward in worker ownership. It is best understood not simply as proposing a new idea, but as part and parcel of the evolving historical trajectory of past, present, and possible future development of worker ownership theory and practice.

Gates enthusiastically reviews the experience we now have in connection with various ESOP issues, offers suggestions for new supportive policies, and proposes other possible areas where an "ownership solution" might apply. (Among the latter are consumer ownership in connection with utilities and general citizen ownership in connection with natural resources in several states.)

Three aspects of this general development are particularly important: First, wealth in the United States and elsewhere is far, far more unequally distributed than income: The top 1 percent of America's families owns almost half of the household financial wealth of the nation; Bill Gates alone owns more wealth than the bottom 100 million Americans. Worker ownership is one way to begin to "democratize" and reorder the distribution of wealth.

Second, whereas some very large national firms are worker-owned – United Airlines is an example – most are small and medium size local firms. Unlike subsidiaries of multinational corporations, worker-owned firms do not easily pick up and leave town when economic conditions change: The term "rooted capital" is applied to such firms because they help stabilize the economies of local communities. (Often a multinational will move even when it is making a profit if it sees a chance to make a still larger profit elsewhere. Worker-owned firms can accept a lower rate of profit, since staying put offers worker-owners other economic and noneconomic advantages.)

Third, there is increasing evidence that worker-owned firms – again, not surprisingly – are often more productive and efficient than other firms. Furthermore, the more participatory they are, the better the record.

Gates demonstrates that worker-ownership not only has interesting economic and social possibilities, but that the idea has very broad political appeal. His book has been endorsed by dozens of well-known people –left, right, and center. The Reverend Jesse Jackson, Jr. and Senator Jesse Helms have both drawn on his knowledge; Ronald Reagan, on the one hand, and Mario Cuomo, on the other – and many, many others – have backed the general concept.

A particularly interesting aspect of this book is the Senate insider's view we are given of how tax laws have been manipulated to build wealth at the top. Gates shows, for instance, the specific ways in which tax breaks for new investment end up overwhelmingly benefiting the top 1 percent – to the tune of $1 trillion in five years in depreciation allowances alone during the Reagan era.

Gates also reminds us that contrary to popular myth, investing in stocks has almost nothing to do with how corporations actually finance building new factories, buying new equipment, and expanding and improving operations: A mere 3-5 percent of funds for such purposes come from new stock investment; most investment funds are generated from internal profits and borrowing.

What is critical about all this is the developmental trajectory: There are certain to be problems – but also solutions – as we go forward. Although Gates occasionally oversells ownership as the solution to every societal ill, his book is an excellent way to get a handle on the current state of the world of worker ownership – and it is a major contribution to what could well become a powerful force for the democratization of capital and the nurturing of more stable and healthier communities in the new century.

Reviewed by Gar Alperovitz, author of The Decision to Use the Atomic Bomb, Rebuilding America(with Jeff Faux) and President of the National Center for Economic and Security Alternatives. He is also a member of the Positive Futures Network board. Preston Quesenberry assisted with this review.