A Program for a Major Social Advancement
Why Most Businesses Must Be Worker-Owned and Controlled
Conventional Corporations are Generating Massive Inequalities
The top 1% own more public company value than the rest of us combined and 16 times the public company value 80% of Americans own. Since the early 1990s, American companies, on average, have given almost 30% of stock options to their top five executives. Nearly all the rest go to about the top 2% of company employees. S&P 500 CEOs have incomes nearly 300 times the typical worker, and other top managers also receive exorbitant incomes. These conditions are contrary to the desires of most Americans. A 2016 poll found 68% “support the concept of companies being owned by their employees so that all workers share in their success.”
The vast majority of people never become the principal owners or top managers of corporations who are the main beneficiaries of the value produced by employees they are not allowed to keep; instead, it is directed to external shareholders and upper managers. For five days per week, employed adults devote most of their waking hours (including commute time) to enterprises owned primarily by other people, organized as private dictatorships, and that direct much of the value they produce to the major owners and top managers. The value the major owners receive that workers create has resulted in vast wealth in this small elite.
Our dysfunctional political system facilitates translating a corporate elite’s economic power into political power in a vicious cycle directing increasing wealth and power to them. The cycle cannot continue if the country is to survive.
Conventional Corporations Are Anti-Democratic
Many people have struggled, fought, and died for the right to have democratic public governments. But over 100 million Americans accept subordination within private dictatorships—corporate governments where the chief executive officer and a small clique around him or her have absolute rule. They set the agenda for and conditions of everyone else. They can impose sanctions, including job loss, demotion, pay cuts, worse hours, worse conditions, and harassment. Workers have no recourse except to quit unless these actions can be proven to be based on discrimination against a social group defined by race, religion, sex, or sexual orientation.
In some of our private dictatorships, the lowest-ranked have their bodily movements and speech minutely regulated most of the day. Private dictators control millions of human lives to a degree Stalin never dreamed of.
Like other tyrannical structures, corporations have a command center where the executive, legislative, and judicial functions are concentrated, and one person dominates it. CEO’s dominance of corporations, so largely our economy and political system, is more extreme than when Woodrow Wilson made this statement: “a very different America from the old [exists now]… [America is] no longer a scene of individual enterprise … individual opportunity and individual achievement,” instead “Comparatively small groups of men,” [corporate managers,] “wield a power and control over the wealth and the business operations of the country,” becoming “rivals of the government itself.” Since recent Supreme Court decisions allowing a flood of corporate money into our political system, they are no longer rivals; they are our government’s masters.
Corporations began their robust assault on democracy when the industrial system began in the 19th century. Many people left self-employment on their farms to be employees in factories, and it was a common view that the process was establishing a new kind of feudalism. John Dewey, one of the most important social philosophers in American history, called it “industrial feudalism,” and argued that democracy has little substance when “the life of the country”—production, commerce, media—is ruled by private tyrannies in which working people are subordinated to managerial control, and politics becomes “the shadow cast by big business over society.” He called for the replacement of industrial feudalism by self-managed industrial democracy.
In democracies, people participate in decisions that affect their lives, either directly or through their representatives. Considering the time devoted to our workplaces, making them democratic is necessary if we are to live in a genuinely democratic country.
Conventional Corporations Are Corrupting Our Political System
Our economic system is better described as crony capitalism than capitalism. Large tyrannical corporations extract money and privileges from the government through lobbying, political donations, and the revolving door between high political office and high-paid corporate lobbying and managerial jobs. In 2020, corporations spent $3 billion lobbying and billions more on election campaigns to have our government’s policies serve their interests. We are past due for revolutionary economic and political system advancements. These advancements must be founded on the widespread sharing of the ownership and control of productive capital. Shared ownership of most businesses by their workers and democracy at work will be the foundation of a true political democracy.
Work Conditions to Maximize Happiness
Worker-owned and self-directed enterprise (WSDE or worker cooperative) workers are empowered to influence decision-making processes that determine what they do, when they do it, and their compensation for it. This results in higher life satisfaction relative to employees in conventional corporations.
By a three-to-one ratio, employees express a desire for a representative organization that gives them a say in the policies of the businesses in which they work, and a large majority want some independent authority. Unions are representative organizations that can negotiate for better working conditions and wages with a corporate elite. But a compromise between opposing interests cannot result in the same degree of worker justice and worker satisfaction as in a WSDE, where the dichotomy between employer and employee does not exist.
Gallop polls have shown the percentage of “engaged” workers in the U.S.—those who are involved in, enthusiastic about and committed to their work and workplace – averaged about 30% from 2000 to 2018. A 2016 Gallup poll found only 15% of the world’s one billion full-time workers feel engaged with their work. The poll included an “actively disengaged” category, defined as workers who are resentful that their needs aren’t being met and are acting out their unhappiness. Every day, these workers potentially undermine what everyone else can accomplish. In the U.S., 17%, and worldwide, 18% of workers are “actively disengaged.” Many people in the world hate their job and especially their boss.
25% of American workers in a Zogby poll described their employer as a dictator. However, most of the remaining 75% are conditioned to accept a system ruled by a relatively benevolent one as acceptable. The poll also found that only half of Americans feel motivated at work, mainly due to a lack of control over their work. This lack of control is strongly associated with adverse health consequences. One study found serious heart disease is about twice as likely in people that have little compared to high job control. This effect was independent of job demands, social support at work, or employment status. So, if WSDEs were widely established, it would significantly improve the health of tens of millions of people in our nation both for psychological reasons and their improved economic status.
Even in relatively benign conventional corporation work environments, workers know they are cogs in someone else’s profit-making machine. Someone above them ensures they serve the interest of owners or external shareholders.
The Relationship between Income and Happiness
Like all social systems, an economic system’s essential purpose is to maximize life satisfaction or happiness in society in ways that don’t deprive anyone of their fundamental rights. It seems reasonable that societies with higher average happiness would have longer average lifespans, which only rises with national income per person until it reaches about $30,000 per person per year. Above $30,000, reducing inequality increases average lifespan.
However, an extensive study more directly measured income’s effect on happiness. Over 450,000 responses to the Gallup-Healthways Well-Being Index revealed that people’s emotional well-being or happiness increases only up to but not above a household income of about $75,000 per year. Their data only refer to differences between people with stable incomes; they do not imply that people will not be happy with a raise from $100,000 to $150,000 or that they will be indifferent to an equivalent drop in income. However, public policies should be designed to maximize stable conditions of happiness. The researchers also reported a possible association between higher incomes and a reduced ability to savor small pleasures, so happiness may decrease above some maximum income.
An economic system that diminishes happiness for the majority of people for far higher incomes than are necessary to maximize happiness in a small elite is dysfunctional and requires radical reforms. Although redistributive policies are urgently needed, far more important is beginning the process of creating an economic system that does not create massively unjust inequalities requiring redistribution.
Through their intrinsic qualities, WSDEs will more justly distribute our nation’s income and wealth to the degree of their involvement in our economy. In this way, among others, widely establishing WSDEs will increase societal happiness.
Conditions that Maximize Both Productivity and Happiness
WSDE workers higher life satisfaction also results from the same qualities that motivate more productive work: autonomy, mastery, and purpose. Autonomy means to be self-directed, to direct our own lives. We are more likely to do things well if we choose, rather than are told, to do them. The motivating power of the desire for mastery is demonstrated by the many hours people spend improving their skills playing an instrument despite having no interest in the skill resulting in money or any other extrinsic reward. People enjoy challenging tasks that they believe they will perform more skillfully with time and effort. Also, when we understand the significance of what we do, we are motivated to do it. Within each one of us, there is a longing to make a significant contribution, to make a difference.
In WSDEs, directives, manipulative financial incentives, or threats from a “boss” are replaced by motivators that enhance happiness and better motivate productive work, autonomy, mastery, and purpose.
Even for tasks that are uninteresting or would under other conditions be considered undesirable to perform, in a WSDE environment designed to create a sense of relatedness and common purpose, if the need is clear, some will likely freely do it. If a boss orders someone to do it, it would be less likely to be performed well.
Relatedness or supportive relationships with other people research has shown also must be satisfied for a sense of well-being. This fourth need, besides competence, autonomy, purpose, is also more likely to be met in WSDEs than in conventional business enterprises.
When needs for self-actualization, purpose, and relatedness are met, people are less likely to suffer from depression and anxiety. Globally, over 300 million people suffer from depression, which is the leading cause of disability worldwide. Work in tyrannical profit-maximizing business enterprises likely plays a significant role.
Although the desire for competence, autonomy, purpose, and relatedness is not apparent in all people, these are natural desires that only can end in destructive environments. Most people who are apathetic, alienated, and irresponsible, in the right environment will be motivated to behave constructively. Such an environment is far more likely to exist in a WSDE than a conventionally organized business.
When a hierarchical structure is needed in large WSDEs, workers democratically determine who is at the higher levels. A board of directors is elected, and committees provide feedback on policies workers do not create. However, the goal is to minimize hierarchy and perform work in cooperative groups.
Cooperative groups want, and most effectively create the conditions for, all members to satisfy their desire for autonomy, mastery, and purpose because it serves their mutual interests in maximizing performance and well-being.
An Economy Mainly Composed of WSDEs Will Require Less Government Regulation Against Socially Harmful Business Behavior
If most businesses were WSDEs, it would reduce or eliminate the need for minimum wage, labor and other regulations, and redistributive policies. In conventional corporations, workers suffer the consequences of CEOs and a non-worker board of directors’ decisions, so they need regulatory protections and remedies. CEOs and non-worker board of directors inevitably serve their interests above those of their workers. When workers make the decisions about their work and compensation for it, they choose the working conditions and maximum wage disparity they consider the most just and beneficial.
Some Benefits of Transforming Apple Inc. to a WSDE
In 2018, Apple had earnings before tax of $70.9 billion and 132,000 employees. If Apple were worker-owned and controlled, its workers could have chosen to distribute these earnings among themselves. If they did, they would have had an average income $537,000 higher in 2018 than it was. A WSDE Apple’s workers would not have an income increase this large, though, because its workers would keep some earnings in the corporation for investment purposes and downtimes, and profits likely would not have reached $70.9 billion because they would not have outsourced labor to low-wage, low-regulation countries. However, their average income would have been far larger than it was.
Most WSDEs would not distribute earnings equally, but far more equitably than conventional corporations do. No income would go to external shareholders, and upper managers would not receive anywhere close to the grotesque multiple of worker’s pay common in conventional corporations. In 2018, the median Apple worker’s compensation was $55,426, while CEO Tim Cook’s was 283 times higher, $15.7 million.
If Apple’s WSDE transformation occurred during Steve Jobs tenure as CEO, the advantages to workers would have been more than financial. Steve Jobs has been described as a cruel and manipulative manager who, as Forbes reported, “periodically reduces subordinates to tears, and fires employees in angry tantrums.” Its current CEO may be as tyrannical.
More than 500 current and former Apple employees submitted accounts of verbal abuse, sexual harassment, retaliation, and discrimination, among other issues at Apple to an employee-activist group. These over 500 people spoke out despite a corporate environment that represses workers’ dissent. An Apple software engineer who has worked at eight other companies said she has “Never .. met people more terrified to speak out against their employer.”
Apple is known for its long-standing, top-down, hierarchical structure, which not only disadvantages workers, it can harm corporate performance, as the following shows:
Apple received a lot of negative publicity about the iPhone 4’s antenna reception problems following the device’s launch. However, Apple engineers were aware of the risks associated with the antenna’s design as early as a year before the launch. But Jobs liked the design so much that Apple went ahead with its development. Problems known within an organization but not solved because employees fear or are intimidated by the CEO would not occur in democratically-run companies.
More Equitably Sharing Ownership of Productive Capital Will End a Centuries Long Inequality Generating Dynamic
An analysis of over two centuries of data on the distribution of wealth between and within countries worldwide revealed that returns to capital rise at a higher rate than wages. Inequality continued to grow until a catastrophic event, such as a world war, disrupted the returns-to-capital rising at a higher rate than wages dynamic.
The growth in inequality does not occur if the conditions for it are radically altered, and the alteration can be the opposite of catastrophic. With the public policies I detail in my books, productive capital will no longer remain concentrated in an economic elite. When most workers own and control the enterprises in which they work, it will substantially diminish the inequality generating dynamic because both business capital and income will be more equitably distributed. We will significantly reduce the need for redistributive public policies.
Other Forms of Social Harm Conventional Corporations Create that WSDEs Will Not
Regulations can control corporations’ socially harmful behavior, but they are not the best way to do so. Among the reasons are both the regulations and their enforcement mechanisms tend to be degraded over time by corporate elites’ political system influence. Without government regulations, if workers made the decisions, highly significant negative externalities of conventional businesses would not exist because they would have to live with the consequences.
For example, remote corporate boards have chosen policies that had their factories pollute the environment to save pollution mitigation costs. Other people have then paid most or all of the associated cleanup, health care, and other costs rather than members of the board or the business. Also, corporate directors may choose to move their factory elsewhere for lower labor or regulatory expenses, or tax or subsidy advantages. Directors of conventionally organized businesses ignore the abandoned community’s economic and social costs, and the community pays. If workers were in control, they would be far less likely to pollute their community, or abandon it.
Supreme Court Justice William O. Douglas warned on another significant consequence of the transfer of power and resources from local communities to the remote headquarters of multinational or national elite-controlled corporations and their owners: “The effect on the community when independents are swallowed up by the trusts and entrepreneurs become employees of absentee owners…is a serious loss in citizenship. Local leadership is diluted. He who was a leader in the village becomes dependent on outsiders for his action and policy. Clerks responsible to a superior in a distant place take the place of resident proprietors beholden to no one.” Franklin D. Roosevelt expressed a similar view. He warned of a “definition of liberty under which … a free people [are] gradually regimented into the service of the privileged few” The “outsiders” and “privileged few” will always serve their interests at the expense of everyone else. (Democratic worker-owned businesses can be national in scale, but its workers throughout the nation share in its control.)
The environmental and social benefits of WSDEs include a reduced imperative to grow. Conventional corporations’ relentless pursuit of growth results from the need to maximize returns to shareholders and from top managers’ compensation systems. So we have a trend toward monopolies, concentrations of wealth and power in an elite, and $241 billion worth of advertising in 2019—some that created consumption that would otherwise not have existed. Although worker-owned and self-directed businesses would advertise, they would do so less aggressively and manipulatively since their more prosocial behavior involves a diminished motive for growth.
WSDEs Socio-Moral Climate
Democratically run businesses’ superior “socio-moral climate” makes unethical behavior much less likely—and the pro-social behavior will extend outside the enterprise to the community. Widespread worker ownership and control of business enterprises creates a sense of community within businesses and helps to develop a more extensive community consciousness, so it will improve the democratic functioning of our political system.
When WSDEs are widely established, extreme income, wealth, and power disparities will end, and so will their resulting destructive economic, political, personal, and social consequences. The mutual caring, trust, and cooperation that worker democracy helps create will have pervasive beneficial effects.
Decency and Stability are Theatened for a Rarely Considered Reason
The motives to be at the top of the conventional corporate hierarchy and the requirements the get and be there result in a higher than average concentration of extraordinarily immoral people in our economy’s, and so our society’s, most powerful positions. Top managers, in their efforts to profit maximize, have: corrupted our political system to gain advantage; abused monopoly power; colluded with other semi-monopolists on abusive prices and wages; marketed deceptively; destroyed of the livelihood of millions of Americans by sending their jobs to low wage, low regulation countries; disregarded the health and safety of their fellow citizens; committed fraud and other crimes. And they commonly profit-maximize personally by abusing their power to take a grotesquely extreme portion of corporate income for themselves. A profound immorality can contribute to their drive and ability to serve their institutional imperative to profit-maximize regardless of social consequences. Much of the dysfunction and injustices in our society directly or indirectly results from corporate managers’ actions. A society with systems that result in some of its most immoral members with unprecedented power and resources to express their immorally will not be stable or decent for as long as it lasts.
If Most Businesses Were WSDEs, It Would Increase National Prosperity
Many studies have shown that participatory ownership, when combined with participatory work practices, results in substantially higher sales and sales growth per worker. In the US, the most extensive of the studies have been performed on “ESOPs” or “employee stock ownership plan” companies, since we have 6,500 ESOPs and only a few hundred worker coops. ESOP workers have some ownership share in the company in which they work. One study found that ESOPs had sales growth rates 3.4% per year higher and employment growth rates 3.8% per year higher in the post-ESOP period than would have been expected based on pre-ESOP performance. The researchers then divided the companies into three groups based on the degree of participative management. The most participative companies showed a gain of 8% to 11% per year faster than they would have been expected to grow. Other studies have shown similar results.
Studies comparing square-foot output have repeatedly shown higher physical volume of output per hour, and others show higher quality of product and also economy of material use.[iii]
Workers in firms with participatory ownership and participatory work practices are more motivated to perform well, and they are more willing to co-monitor each other’s performance. Co-monitoring reduces the need for supervisors, further enhancing productivity.
WSDEs Are More Stable
Since worker cooperatives have superior labor productivity, they tend to last longer than conventional businesses. And their egalitarian character is advantageous when facing a competitive threat with a rival. Hierarchical firms commonly struggle with infighting while more egalitarian firms cooperated on their work and better met the challenge. As one researcher put it, “Egalitarian teams were more focused on the group because they felt like ‘we’re in the same boat, we have a common fate.’ They were able to work together, while the hierarchical team members felt a need to fend for themselves at the expense of others.” Hierarchical organizations are, to varying degrees, ignorant and cruel.
A study conducted by Quebec’s Ministry of Industry and Commerce in 1999 also found hierarchically structured conventional companies have a higher failure rate than worker cooperatives. Their study report states, “Co-op startups are twice as likely to celebrate their 10th birthday as conventionally owned private businesses.” [i]
About one-quarter of Fortune’s top 100 corporations would not exist without government bailouts at some point, and most of the rest were also advantaged from public subsidies.[ii] If conventional businesses’ organizational form were economically efficient, they would not commonly be going into crisis and needing to run to the government for help.
Using data from Europe, the U.S., and Latin America, the most extensive study of its kind also found that worker-owned and run businesses are more productive and enduring than conventional businesses. WSDE staff works “better and smarter,” and production is organized more efficiently. Furthermore, in downturns, the study found that worker cooperatives adjust wages and keep employment more stable. When business picks up, they are ready to respond more quickly than conventional firms and can make up for lost pay because employees enjoy a share of the profits.
[i] Governing the Firm: Workers’ Control in Theory and Practice, 2003, Gregory K. Dow, Cambridge University Press, pgs. 226, 227
[ii] Requiem for the American Dream, Noam Chomsky, 2017, pg. 86
[iii] Katrina Berman, “A Cooperative Model for Worker Management,” in The Performance of Labour- Managed Firms, ed. Frank Stephens (New York: St. Martin’s Press, 1982), pg. 80.
Lower Wage Inequality Improves Business Performance
A common misconception is that co-ops are impractical due to their inability to attract good managers because they require massive compensations. But the above facts show this claim to be false. And so-called “super managers” more often harm owners of conventional corporations than benefit them. A study of 1,500 companies’ performance compared to other companies in the same field from 1994 to 2011 found, “The [stock value] returns are almost three times lower for the high paying firms than the low paying firms.” And the longer the highly paid CEOs were in office, the more their firms underperformed.
A study involving 4,735 firms in Portugal, with a total of 1,389,328 workers, sought to discover any detrimental effect of wage inequality more broadly on corporate performance. The researchers controlled for all other variables relevant to performance and found that the more inequality in the corporation, the poorer it performed. The perception of fairness is among the reasons for the higher performance in lower inequality firms.
Portugal may be the best country in the world to perform this analysis because its annual census of all firms employing at least one worker requires each to provide all information associated with pay and more. Besides detailed firm-level data, their census includes comprehensive worker-level information: schooling; age; gender; tenure; occupation; wages and other forms of compensation; hours worked; and other data.
The lower inequality intrinsic to worker-owned and controlled business enterprises is among the many reasons they are superior performers.
Maximizing Social Benefits from A.I. and Automation
If worker-owned businesses were widespread, the growing sophistication of artificial intelligence and automation would be transformed from a problem creating unemployment and more inequality to the enormous benefit to humanity it should be. Workers’ work hours will be replaced by machine work hours, freeing up people’s time for leisure and more creative activities. Just as monetary rewards will be more equitably shared in WSDEs, so will the rewards of freed up time resulting from the growing ability to perform functions with less labor.
Unions Are Helpful, But Increasing the Unionization Rate Is Not a Sufficient Solution to Our Nation’s Economic Inequality and Abuse of Workers Problems
The decline of unionization played a significant role in our trends toward greater inequality. Between 1979 and 2019, a period when inequality increased substantially, the share of workers covered by union collective bargaining agreements dropped from 27 percent to 11.6 percent or by more than half. When workers can collectively bargain with employers that get better incomes and working conditions. However, if workers own and control their business, it would result in far superior outcomes than those resulting from more power in their negotiations with a corporate elite. And even if we could substantially increase the percentage of workers in unions, a corporate elite’s influence on the political system will likely again reverse the gains. To the degree possible, it’s time to end the dichotomy between employer and employee.
Why Are Worker Cooperatives Relatively Uncommon?
Many people erroneously conclude worker cooperatives are a small percentage of all businesses due to poor performance. However, difficulty in securing capital and lack of knowledge are the reasons they are relatively uncommon. Workers generally have too little money to buy a business of the value of the one in which they work. 40% of Americans can’t even come up with $400 for an emergency without selling something or borrowing money. So banks are unlikely to see this 40% and most other Americans as qualified for the size of the loan they would typically need.
A 2019 independent business survey found that most loan applications for new businesses were evaluated not based on their business’s financials, but rather on their personal finances. Most applicants were required to put up personal collateral. Student debt was a common cause of loan application rejections. Cooperatives were particularly difficult to finance because of banks’ lack of familiarity or comfort with their business models.
Moving From First Steps Gradually to a Revolutionary Advancement
If instituted, my public policy proposal will result in an economy where worker-owned and self-directed business enterprises will perform most economic activity after a 20-year transition period. When worker-owned and self-directed businesses are predominant, we will not just have greatly reduce economic disparities and more meaningful democracy; we will have higher life satisfaction and a more prosperous nation.
Employee-owned and controlled businesses exist with conventional businesses, which facilitates societal transformation to one where worker-owned and self-directed enterprises are the predominant kind of business. The new society can evolve within the old. Worker-owned and self-directed enterprises are in all sectors of our economy, from banking, finance, and insurance to education, manufacturing, retail, and agriculture. Nationwide, 300 worker cooperatives having 7,000 worker-owners now exist, with total annual revenue of over $400 million.
Some First Steps Already Taken
"Employee Stock Ownership Plan" Corporations
In the United States, 14.3 million worker-owners are in ESOP corporations. Some ESOPs have participatory management practices, but even in those that do, workers do not have complete control, and most ESOPs are not 100% worker-owned. Though ESOP corporations are an advancement from conventional corporations, they are an insufficient one mainly due to their undemocratic management design. As noted earlier though, the ones with a higher degree of worker control tend to perform better.
W.L. Gore & Associates is a 90% worker-owned ESOP with a highly participative work culture. Its workers are encouraged to join self-directed groups based on their skills and interests. With over $2.5 billion in annual sales and 8,000 employees in over 50 facilities worldwide, Gore is a leading manufacturer of thousands of advanced technology products for the electronics, industrial, fabrics and medical markets. Gore’s non-hierarchical, participative culture was a key enabler of its explosive growth and market leadership over the past several decades. Gore is one of only 12 companies that have been on the Fortune 100 Best Places to Work list since it began.
To Create a More Just and Prosperous Nation, We Can Improve on Many Successful Models
The efficient, innovative, worker-owned and managed Mondragon Corporation is one of the most successful corporations in Europe. It employs 81,000 people in 96 separate, self-governing cooperatives, and more than 14 R&D centers. Mondragon operates throughout the world, with 141 production plants in 37 countries, commercial business in 53, and sales in more than 150 totaling $13.7 billion.
Within any one Mondragon cooperative, the highest-paid worker cannot have an income more than about six times the lowest-paid worker. The top executive’s pay among all the cooperatives is limited to 38% above the pay of lowest-paid CEO, so throughout the entire conglomerate, the maximum pay ratio is about 8.3 to 1. The average CEO of an S&P 500 Index company made $13.94 million in 2017—361 times more than the $38,613 the average production and non-supervisory worker earned. For the S&P 500 companies that paid some workers the minimum wage, the average CEO pay to lowest paid worker pay ratio was 961—116 times that in Mondragon.
Despite Significant Disadvantages, Mondragon Corporation Succeeds
Since Mondragon exists in an environment with extreme inequality, its pay disparities are larger than they would otherwise be. It must compete for some workers in, or who could be in, very highly paid positions outside Mondragon. The fact it has had as little influence on compensation inequality as it has is a testament to its superior work environment. Highly qualified managers can get far more compensation outside of Mondragon but choose to stay. Also, highly trained engineers prefer to work in Mondragon despite somewhat lower pay. Although Mondragon’s pay inequality is relatively low, in a more just environment, it would be much lower.
Mondragon is disadvantaged relative to conventional corporations not just because of lower pay at the high end, but also higher pay at the low end. Conventional corporations commonly pay a significant fraction of their workforce below a living wage, and their outsourced workers have been obscenely abused with working conditions and extremely low pay, which enables them to outcompete equitably structured businesses on price.
Mondragon has overcome the disadvantages of competing in an unjust environment. It has grown from a small company in 1956 to a corporation with $13.7 billion in revenues in 2020.
Here is a video of economist Richard Wolff’s 2014 presentation on the Mondragon cooperatives based on his tour of them and interviews with some members.
Emilia-Romagna Region of Northern Italy
An excellent example of a thriving cooperative economy is in the Emilia-Romagna region of northern Italy. One-third of the region’s GDP is derived from cooperative enterprises. The region of 4.5 million people, rose from poverty only a few decades ago based on its development of a cooperative economy and now is among the highest in per capita GDP in Europe. The region is based on a network of 385,000 small and medium-sized firms. Manufacturing plays the leading role in the region’s economy.
Cooperative Home Care Associates
The largest worker cooperative in the U.S. is Cooperative Home Care Associates (CHCA). CHCA started with 12 home health aides in 1985 and now has a staff of about 2,200 providing reliable, high-quality home health care services for the elderly, chronically ill, or disabled. With a nonprofit CHCA founded, it also provides free training for over 600 low-income and unemployed women annually. CHCA serves as a significant driver of employment in the Bronx.
Our Transformation to an Equitable and Democratic Economy
With education and well-designed systems for qualifying workers for the required capital based on the value of and prospects for the business they want to own and control, we can have economic democracy. We can use the experiences of successful cooperatives to help guide us in our economic system transformation.
If most people knew the above facts, in a one-person, one-vote political system, support would motivate policymakers to institute the following or similar public policies that fundamentally reform our economic system. Alternative (including social) media, public forums, personal conversations, and books can overcome the institutional barriers that are obstructing dissemination of the information in this book needed for our advancement to a just and well-functioning society based on a just economy.
My proposal does not reject the role of markets. Instead, it tempers the profit maximization motive that drives how businesses engage with the market with a greater emphasis on worker and community interests.
Below is a summary of policies I detail in The New Enlightenment and add to in Amazon as Metaphor that would, if instituted, transform our economy to one where worker-owned and self-directed businesses perform most economic activity after a 20-year transition period.
Financing the Transformation
Diversified, Low-Risk Ways to Supply Capital for the Transformation to a Just, Democratic, and More Prosperous Economy
Since securing capital and lack of knowledge are the primary barriers to the widespread establishment of WSDEs, the following public policies will provide the necessary capital and training. Transforming our economy’s fundamental character in the 20-year time frame will require several hundreds of billions of dollars of public and private funds per year. Most of the funds are in the form of government loans (in partnership with private lending institutions), not expenditures, which will generate revenues through interest payments. The non-loan federal spending in my proposal to support the widespread establishment of worker-owned and worker self-directed enterprises totals $143 billion per year. $143 billion is just 0.66% of GDP, insignificant relative to the resulting incalculably immense social benefits, including economic ones that will likely increase government revenues by more than $143 billion.
I summarize the policy proposals for the 20-year transition below. The thoroughly detailed policies with itemized costs resulting in this $143 billion total are on pages 116-177 of my book The New Enlightenment. Amazon as Metaphor’s additional policy proposals in the WSDE transformation program adds little to this cost.
Government Partnerships with Private Banks and Credit Unions
To guard against cronyism and incompetence wasting a significant fraction of the federal funds necessary for system transformation, we will incentivize local credit unions or banks with a loan fee to participate. Also incentivizing them will be the dissemination of information on the superior productivity and survival rates of WSDEs. One or more of these institutions will do an initial evaluation of the viability of any proposed WSDE. If they provide loans totaling at least 20% of its funding needs, the remaining portion we will provide with federal funds, mainly in the form of loans.
Many qualified local credit union or bank loan officers existing nationwide. They are a valuable and widely dispersed business evaluation resource for WSDE establishment programs. Current credit union regulations that limit their scope and power we will reform for this purpose.
Federal Government Partnerships with Local Governments
City governments will be loan partners within another system that support $410 billion per year in WSDE formation funding needs, mostly as loans, for both transferring ownership of established conventional businesses to WSDEs and creating new WSDEs. City governments, with support from the states, must provide 10% of this amount for federal funds eligibility.
Using local financial institution and local government partnerships to widely establish WSDEs will reduce the big national banks’ power, which also provides substantial social benefits.
Direct Citizen Support With Bond Purchases and Worker Investments
Citizen bond purchases will also support WSDE establishment. We will incentivize them by tax exempting up to $2,000 per year of bond interest from each WSDE from the income of investors. The maximum interest payment per WSDE that is tax-free will motivate wealthy investors to buy bonds of many WSDEs.
In addition to the loan partnerships, the superior performance of WSDEs relative to conventional enterprises will ensure a low risk for the federal loans. And funds required from the worker participants will also decrease loan risk. Federal grants, adjusted based on need, will ensure all workers can meet the requirement to contribute $14,700 or their equal share of the capital to establish their WSDE, whichever is less, from their preexisting or granted funds.
The WSDE Financing System Will Advantage WSDEs Over “Public” Companies, Facilitating Their Widespread Establishment
The public and private loans as a financing source will advantage WSDEs over conventional public companies, which raise funds for their establishment in what is often a very costly way: issuing stock at an “initial public offering, (IPO).” In recent years, public corporations have paid out far more money to shareholders than they raised in their initial public offering of stock. (Public company shareholders who purchase shares on stock exchanges do not contribute capital or assets to corporations. The share price is paid to the selling shareholder.)
For example, in 2018, all public companies paid out $1.31 trillion in dividends. And the value of stock buybacks hit a record of $806 billion. The average amount all companies raised per year in public company IPOs between 1994 and 2018 was $28.7 billion (inflation-adjusted). So public companies in just in 2018 paid out about 45.6 times in dividends and 28 times in stock buybacks, totaling 73.6 times the average amount received in IPOs between 1994 and 2018. Obviously, all public companies did not have their IPO in these years, and some issued stock after their IPOs. However, adjusting for these factors while accounting for the dividend payments and stock buybacks in other years, will not change the conclusion that public company stock offerings are commonly an expensive way for companies to raise funds. The competitive advantage provided by financing WSDEs with low-cost loans will help ensure their success.
If we provided financing to establish WSDEs within the following programs, within 20 years, WSDEs will perform most of our nation’s economic activity.
Who Will Receive Financing
Diverse Routes to the Revolutionary Economic System Advancement
Creating WSDEs with Ten or more Workers
We will offer the federal loan partnership system with local financial institutions or local governments for establishing their WSDEs. (For details see my book The New Enlightenment, Policy 3)
Assistance for Workers to Buy Their Business from Retiring Owners
The owners of over 70% of American middle-market business owners anticipate selling their businesses on retirement because there is no family successor. The estimated business wealth transfer for these owners per year over the next seven years is $1.7 trillion.[i] Under current law, tax advantages motivate owners to transfer their businesses to their workers using the ESOP corporate structure. We will provide these and additional tax advantages so owners will sell to their workers using the WSDE instead of the ESOP structure. (For details see my book The New Enlightenment, Policy 3.)
We will support the ownership transfer with federal loans without requiring local financial institutions’ participation because it is not likely to be advantageous. The default rate on bank loans to ESOP companies during 2009-2013, most of which originated during the transfer process from retiring owners, was only 0.2% annually. Mid-market companies in the U.S. typically default on comparable loans at an annual rate of 2.0% to 3.75%. Also, we will ensure that financial institutions and local governments know of the low risk, so many will offer loans for this purpose without federal involvement.
[i] Ensuring a sustainable future: Making progress on environment and equity, Magda Barrera, Jody Heymann, 10/13, pg. 20. The wealth transfer projection referenced is $4.8 trillion over the 20-year period from 2006 to 2026 or $240 billion/year
Workers with Buyers’ Rights of First Refusal
When a business is put up for sale, we will require by law that the workers have the right of first refusal to buy it if they qualify using the loan partnership systems. If workers offer a price lower than the asking price, we will require that if owners refuse, they cannot sell at the offered price or lower to any other buyer until at least nine months after the offer. This restriction will motivate owners to take workers’ offers that are reasonable.
Enterprise Transformation in the Bankruptcy Reorganization Process
We will require worker ownership and self-direction for reorganized companies resulting from Chapter 11 bankruptcy if the workers want to own the business and have a willing loan partner within the federal partnership systems. A loan partner will generally be found because the reorganization’s intent is to create conditions for a viable business, and the superior performance of WSDEs will increase the likelihood of success. With large national or multinational company bankruptcies, the national banks can be federal partners within the system. On average, 2% of public companies were reorganized per year from 1980 to 2016.
Assuming businesses will continue to be reorganized at a rate of 2% per year and that WSDEs will be among some of them, in 20 years, about one-third would be converted to WSDEs just based on this policy alone. Private companies likely have similar bankruptcy rates, so they will be transformed to WSDEs at a similar rate. (For details see my book The New Enlightenment, Policy 3.)
WSDE Transformations of Publicly Owned Companies
We will institute a worker buyout system when the market capitalization of a public company is sufficiently low that after a $14,700 investment from each worker, projected profits could support the loan payments on the remaining balance to buy out the shareholders.[i] As in all WSDE establishment systems, all workers will be able to make the $14,700 investment based on grants or preexisting personal wealth.
[i] I detail the public company buyout system with examples on pgs 135-150 of The New Enlightenment
Using the Profit Boom to Advance Systemic Transformation
Corporate profits are at historic highs and commonly not used for productive investments. Instead, corporations are using much of them for share buybacks to boost stock prices and dividend payments, mainly benefiting the wealthy, and massive upper management compensations. So, this is an ideal time to require a far more productive use of corporate profits: buy shares for workers with them.
We will require corporations to buy their shares with 7% of corporate earnings each year to distribute the shares to all workers in proportion to the number of hours worked over the prior year. That workers are mainly responsible for corporate profits justifies this requirement. The process will reduce economic inequality in advance of the eventual WSDE transformation’s more significant reduction. When the percentage of the company owned by workers passes 50%, workers would have the power to require a WSDE structure. Government regulations and programs will support this WSDE transformation at the 50% threshold.
Further Ensuring Businesses Maximize Social Value and Minimize Social Harm
Although worker-owned and self-directed businesses’ intrinsic qualities result in more social benefits and less social harm than conventional ones, federal, state, and local regulations of businesses will continue to be necessary. A market system will remain where the private profits can motivate social harm. To further advance the character of WSDEs and minimize the need for regulations, the following policy will institutionalize some direct community involvement with them.
For WSDEs that have 200 or more workers, we will require two board of director or oversight committee members be non-worker members of the community in which the WSDE is located, one with and one without voting rights. The non-voting board member will have the same rights to express a judgment on any issue as other board members, except for the right to register a vote on it. Two community members with intimate knowledge of the WSDE’s policies and some influence on them will help maximize the social benefits and minimize any social harm from those policies.
When a WSDE approaches the 200-worker threshold, interested candidates for community board member positions will send their qualifying information to a community agency, which will include verified information on a public website. Community members can vote for their board representatives on an election day at the end of eight weeks after a company reaches the 200-worker threshold. In addition to interested members of the WSDE’s community occasionally monitoring a website that includes businesses approaching the 200-worker threshold and corporate board member elections in progress, community media will make these elections and upcoming elections known.
A website message board will allow community members to communicate publicly with their WSDE board member representatives. Also, all board members of WSDEs with 200 or more workers will hold annual public hearings open to anyone in the community for feedback on their WSDE’s policies. These meetings will often result in product or service improvements.
The Training Needed for WSDE Success
Besides through WSDE media, the skills and information needed for cooperative business enterprise management and direction will be provided by two and four-year colleges’ core curriculum. With education, capital, technical support, and other policy changes—all of which have been important for the success of conventional capitalist businesses—we can transform our economy over about two decades to one where worker-owned and worker self-directed enterprises are the predominant business enterprise structure in the country. This revolutionary advance is within reach if a mass movement develops to support it. (I detail my recommended structure of WSDEs and their support institutions on pages 161-167 of The New Enlightenment)
Media Corporation Transformation to WSDEs Will Be Particularly Beneficial
The more robust supports for media businesses’ transformations to WSDEs that I detail in my book, The New Enlightenment on pages 322 to 371 will be particularly beneficial. Media owned, managed, and controlled by a small and privileged elite is poorly serving or disserving our nation. Among the benefits of WSDE media will be their prominent demonstration of the superiority of the WSDE structure, which will facilitate the more widespread transformation.WSDE media will also likely play a significant educational role in the systemic transformation through content on the process of forming WSDEs, their management, and their structure and its benefits.
Elite Opposition to Widely Establishing WSDEs Will Be Extreme
As in the 19th-century, when economic elites opposed the Homestead Acts and slavery’s abolition, a 21st-century economic elite dominating our economic and political systems are entrenched, powerful, and will not welcome widespread productive capital ownership policies and the ending of their domination. They will be powerful obstacles.
Between 1862 and 1934, several Homestead Acts granted, 10% of all land in the United States. Anyone, including freed slaves and women, 21 or older, or the head of a family, could apply to claim a federal land grant.
The Homestead Acts distributed land stolen from Native Americans. In my system, much of the resources required for a just sharing of productive capital will be sourced from taxes on an unjustly wealthy elite.
If you agree that the public policies I describe will create a just, prosperous, and truly democratic society, it’s up to you to demand they be instituted. Our political system requires a mass movement for major social advancement.