Debates about models of political economy typically polarize between advocates of laissez-faire capitalism and full-on socialism. It’s as if the only choices were (a) “every man for himself” in the free market, with little or no social safety net, or (b) government owning or running the most vital sectors of the economy, for the sake of equality and justice.
But that’s unrealistic. For good reason, not many people (including millennials) coalesce around either pole—which is mainly why we don’t and won’t have either one, at least in America.
So what’s the alternative?
The alternative needn’t be some transitional hybrid—such as “social democracy”—that strives for the virtues of each but is ultimately unsustainable. Social democracy has more-or-less worked only in countries like Sweden with a certain demographic profile: an ethnically homogeneous population, and a preponderance of younger people and workers over pensioners and others living on the dole.
Instead, in an article published at Huffpost Politics earlier this week, former Treasury Secretary Robert Reich, now Chancellor’s Professor of Public Policy at the University of California at Berkeley, advocates a model long-known in America but surprisingly rare: full or partial employee ownership of their companies, sometimes known as the “ESOP”—short for “employee stock-ownership plan.”
His case rests on two points. First, the ESOP model would mean every worker is a capitalist who can profit from their company’s success, instead of the present system in which there’s “no-lose socialism” for the top tier and “hyper-capitalism” for everybody else. No-lose socialism is the system for Melissa Mayer of Yahoo and many other CEOs of valuable corporations. They get huge pay packages regardless of their companies’ performance; if fired, they get “golden parachutes” instead of paying a significant price for failure. (Some would argue government is becoming like that, too.) For everybody not so fortunate:
“Theirs is cutthroat hyper-capitalism — in which wages are shrinking, median household income continues to drop, workers are fired without warning, two-thirds are living paycheck to paycheck, and employees are being classified as ‘independent contractors’ without any labor protections at all.”
That’s because “the rules of the game” are written by “those at the top,” who naturally tilt the system in their own favor at everybody else’s expense. What is to be done?
Well, the second main point supporting Reich’s advocacy of the ESOP is that the model actually works when adopted. He discusses the case of Chobani, the Greek-yogurt company, in which it’s working well.
The CEO of Chobani, a Turkish-American named Hamdi Ulukaya, encountered much skepticism on Wall Street for announcing his company’s ESOP. Apparently, investors generally think of ESOPs as “charity.” But Reich cites research showing they’re actually good business: ESOPs tend to “out-perform the competition.”
And Chobani isn’t the only one doing this:
“Apple decided last October it would award shares not just to executives or engineers but to hourly paid workers as well. Twitter CEO Jack Dorsey is giving a third of his Twitter stock (about 1 percent of the company) “to our employee equity pool to reinvest directly in our people.” Employee stock ownership plans, which have been around for years, are lately seeing a bit of a comeback.”
Wall Street is still resistant to the ESOP model because the majority of American business leaders still see workers more as a cost to be cut whenever possible than as an asset to be cultivated whenever possible. Successful ESOPs would go a long way to changing that attitude. That in turn could help reverse the current, toxic trend of increasing economic inequality and growing working-class anger.