Leading Companies Online Magazine
A Real Ownership Society
By Tom Cobb
Reviewed by David Binns, Beyster Institute Staff
Remember the “Ownership Society”? Actively promoted as part of President Bush’s short-lived effort to privatize Social Security, the idea is to encourage policies to enable American citizens to own more assets directly as a means of weaning them from dependence on government support programs and empowering them to control their own health care, education and retirement savings. The central tenet of the ownership society is that people tend to take best care of the things they own, and property rights inspire people to act responsibly, to treat one another with dignity and respect, and to create wealth for themselves and others.
In “A Real Ownership Society” (Outskirts Press, 2006) Tom Cobb expands the argument for an ownership society in the context of corporate reform, specifically reforms to promote the growth of employee-owned companies. But while employee ownership is at the core of Cobb’s ideas for reforming corporate America, he outlines a larger agenda than just promoting employee buyouts. Noting the growth of ESOPs and other forms of employee ownership, Cobb emphasizes that he is not merely advocating more of the same but is “talking about full equity ownership, or at least the affect you get when corporate equity is fully owned [and controlled] by workers.”
Today, companies that are majority owned by their employees, most typically through an ESOP, are a growing minority of the contemporary employee ownership landscape, though the level of actual employee control varies widely from company to company. “A Real Ownership Society” envisions a reformed corporate landscape where even the largest public corporations can ultimately be converted into Employee-Owned Corporations (EOCs) as part of a larger process of creating what Cobb calls “arm's length capitalism” which is “a brand wholly distinct from the version currently practiced.”
There is fairly extensive literature promoting the idea of worker ownership and control as a means of reforming capitalism. It dates back to the beginning of the worker cooperative movement in the late 19th and early 20th centuries. Beginning in the 1950s Louis Kelso, the inventor of the ESOP concept, advocated broadened ownership of productive capital as the core of a reform program to connect workers and citizens at large to a “second income” to supplement their earnings from their labor. Others have seen worker ownership as a means to strengthen labor by enabling employees to control their own destiny and improve the quality of their work life.
Tom Cobb follows in that tradition by seeking to reinvigorate ownership rights in the context of comprehensive reforms that he proposes to correct what he sees as an imbalance in the rights of corporations that are unaccountable to the absentee “owners” in today’s public companies. He conceives of worker ownership offering a more efficient means of connecting ownership and production by removing a whole range of third-party agents including outside shareholders, Wall Street brokers and other players that distort the flow of information between workers and their companies and the products and services they produce.
“A Real Ownership Society” foresees a scenario in which CEOs are beholden to worker owners who control a majority of a company’s shares and have a mandate not for profit maximization but for creating wealth for the workforce. The problem with the current system, as Cobb sees it, is that “a CEO’s interests are in direct conflict with those of his workforce” since he has to answer to outside shareholders and their interest in a return on their investment, while employees look for current income and long-term wealth creation.
By connecting ownership more directly to those who produce the actual goods and services, a restructured system would weed out the inefficiencies caused by outside forces. Cobb outlines a variety of reforms and potential transaction scenarios whereby worker ownership rights would be secured through “total value added” shares, or TVA, which includes “compensation paid to workers, including payroll taxes and all benefits as well as dividends or profits distributed to the owners.” Once control of corporations is shifted to workers, Cobb suggests, other beneficial changes could also take place.
“The greatest promise held by the EOC reforms,” he suggests, “comes from the potential to eliminate the economic friction created by the agency arrangements upon which our present system is built.”
Whether it’s the Wall Street casino in which the ownership of a typical publicly traded corporation changes hands among absentee owners over the course of a year, or the cacophony of competing claims by marketers seeking more consumers for their products and services, “corporate capitalism creates information shortages and concentrations of power that adversely affect the quality of the corporate leadership we select,” and distorts the efficiencies of the more direct capitalism that widespread worker ownership promises.
Cobb is on strong ground in claiming that with the proposed reforms “the more heavily invested worker replaces the apathetic absentee shareholder as the arbiter of when, where and how corporate influence is sought.” He’s equally right that “more complete and accurate information translates to better decision-making,” a practice actively promoted by growing numbers of employee ownership companies. But his claims for the transformative powers of employee ownership are more sketchy when it comes to more grandiose claims for worker ownership to change the economy at large. Is it realistic to assume that “the critical reasoning skills required to act as corporate owners would sharpen their abilities as consumers,” or that workers would become “less receptive to the message of the corporate advertisers” that promote excessive consumption and that employee owners would “use their bargaining strength to drive deception out of the information provided to consumers by producers?” Would this even help them “better understand the complexities of tax, fiscal, and monetary policies?”
Perhaps “A Real Ownership Society” should be judged not in terms of the projected results that the proposed workers' ownership reforms might achieve, or whether the specific policies and reforms Cobb proposes would work in actual practice, but as a provocative challenge to the defenders of the status quo who see modern capitalism – with all its inefficiencies, scandals and economic dislocations – as the best of all possible worlds.
In concluding his argument Cobb quotes George Bernard Shaw, who said “You see things; and say, ‘Why?’ But I dream things that never were; and I say, “Why not?” A book that seeks to “produce a form of capitalism that more truly meets the definition of a free market” and which advocates employee ownership as the core component of those reforms is further evidence of the power of the idea of employee ownership to change modern capitalism for the better. This book offers some interesting ideas for how employee ownership could continue to exert a positive influence on how corporations are owned and operated.
©2006. The Beyster Institute and its authors and their entities. All rights reserved.
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