February 2021Strategy

Advancing Worker Ownership Through ESOPs

We — the Left — are all action and no long-term strategy. In my 20 years as a machinist and mechanical designer and 50 years as an activist, I have come to some conclusions about where we need to go.

From my workplace experiences, I have come across two companies that stood out: Maryland Brush Company and Amsted Industries. In the 1960s, Maryland Brush, formerly known as Pittsburgh Plate Glass, was shutting down. The union, the state and the employees decided to organize, take out a bank loan and buy the company, changing its name to the Maryland Brush Company. Two trustees were established — one for management and one for the steelworkers union. I was the trustee for the union and worked there for three years. After just barely paying off the bank loan, we managed to operate the plant for 29 years.

Seven years later, I was hired as a mechanical designer at Baltimore Aircoil, which was purchased by Amsted Industries, which offered an employee stock ownership plan (ESOP) and became employee owned. We received stock for every hour we worked. For the three years I worked there, I had a good wage, good benefits and a 401(k). To my surprise, when I retired, the stock I received when I left was worth $267,000. 

A few years ago, I held a study group on America Beyond Capitalism by Gar Alperovitz and it only reinforced my opinion about the important role of ESOPs in our future. 

At a time in our history when so many companies are going out of business, there is an unprecedented opportunity to save many jobs and bolster democratic socialism. We missed our chance in the 1980s; let’s not make the same mistake now.   

The ESOP Association (TEA) and the National Center for Employee Ownership are clearing houses for existing ESOPs and provide all resources necessary to convert these companies to worker ownership. There are currently two bills that have been introduced in Congress which would advance the spread of ESOPs nationally:

Both promote new ESOPs and make it easier to operate existing arrangements, but both still need to pass in both the House and Senate.

What will replace capitalism?

When those in power speak of democracy and say it has flaws but that there is no better system, they are referring to the political system and using it to gloss over the inequalities of our economic system - capitalism. But these are really two distinct systems that can exist separately. 

Consider that while most countries operate under a capitalist system, not every country is democratic. Karl Marx wrote about the kernel of capitalism existing within the feudal system, stating that it would replace feudalism as a natural process of human evolution. This is what happened. Under feudalism the monarch owned everything. Capitalism was more democratic, less top-heavy way of organizing resources; individuals could accumulate wealth and that new mode of economic organization couldn't be stopped. And so, capitalism eventually enabled  democratic political systems to form in response.

A democratic political system and a dictatorial economic system coexist in the US. The principal issue most have with US-style capitalism system is in the disparity between the owners and the workers. In turn, the stock market is the means of perpetuating this condition. Without using their own money, corporate raiders can buy a company, break it up and make huge profits, while multitudes of people lose their jobs. 

Under this system, we not only lose our jobs but our retirement income, which we were forced to move to 401(k)s that make it compulsory to invest in companies we know little about and likely work against our direct interest. Traders can also gamble with our livelihoods to pursue increased wealth. And when they fail, the taxpayers bail them out.

While many have identified this problem, protested, made calls, signed petitions and raised money to combat the capitalist economy, substantive end goals are still lacking.

A few years ago, I went to RootsCamp training in DC. I was expecting at least some people to discuss strategy, but all the workshops focused on the nuts and bolts of organizing for young professionals and not on the end game. Instead, goals seemed to be focused on how to make corporate capitalism more digestible.  

We should consider looking at ESOPs as a way to show workers what the replacement for corporate capitalism might look like. Under these plans, all company stock is owned by the company employees and previous employees, while the stock market is completely excluded. All decisions are voted on and all officers are elected. This means employees can protect jobs from being outsourced from corporate raiders like Republicans and centrist Democrats. The employees would have to vote to sell their stock, their jobs, and their communities -- which would rarely happen. 

Using ESOPs to breach Republican strongholds

Most of my life I've assumed Republicans held ground in rural areas based on support for single issues like gun rights, opposition to abortion, religion and racism. But after looking at TEA's website, I suspect that Republicans are also using democratic socialism, specifically by way of ESOPs, to maintain their grip over rural communities.

When one company goes out of business in a big city, workers just go out and get another job. The local businesses are not badly impacted and life goes on. Rural areas, however, face a very different reality. Generally, there are one or two places to work and the whole economy is dependent on those workplaces. Representatives in Congress know that to keep their jobs they need to preserve employment within their districts, and they use ESOPs to do this. Employee-owned firms have a main goal of preserving their jobs, not maximizing profits, as suggested by this excerpt from TEA: 

“Employee ownership and ESOPs hold one of the highest levels of truly bi-partisan support of any issue imaginable before the U.S. Congress. As of December 2019, 147 current members of the U.S. House of Representatives (68 Democrats and 79 Republicans), and 55 U.S. Senators (23 Democrats, 33 Republicans, and one Independent) had taken documented action to support ESOPs.”

Why do Republicans use this strategy if they are so anti-socialist? Because, like us, they think of state socialism, not democratic socialism. State socialism is top-down, even when elected. Anti-socialists are not threatened because they see an ESOP as an isolated situation. They do not understand how giving workers greater control over the means of production might enable an embrace of socialism across the country; but we should.

Using ESOPs to expand unions and counter conservative privatization schemes

ESOPs can also be a strategy for spurring on union organizing. Often when a union advances a vote, the company will threaten to move south or shut down if you vote for the union. If the union is recognized, companies typically run to the government demanding tax breaks or infrastructure support anyway. But with a law requiring the company to offer ownership sale to its employees first, that threat can no longer be used as leverage against calls for unionization. This means businesses either foster better working conditions for their workers, accept (rather than fight) unionizations in their workplaces, or risk turning over their businesses to the people and communities that sustain and support them.

We can even think about using ESOPs as a way to counter Republican calls for privatization.

The Trump administration consistently attacked the USPS , threatening privatization. This is nothing new – Republicans have been plotting to do this for some time, with dreams of  furnishing their stock market coconspirators with maximum profits by eliminating unprofitable routes in rural areas and raising rates. They also interfered in the USPS’ daily operations through Trump’s political appointments by wrecking sorting machines and changing drivers’ schedules while reducing overtime to attempt to slow down mail-in voting. 

To counter Republican calls for privatization, we might try proposing to turn them into an ESOP instead: rather than turn over control of the postal service to private firms, why not give control to it’s more than 500,000, working-class employees? The $72 billion retirement fund owed by the employees can help with financing and, as shown above, would be likely to attract bipartisan support. This will eliminate the threat from politicians and firmly place the workers in control. Instead of top-down, ownership will be reversed.

Using ESOPs to advance an understanding of socialism

ESOPS are a perfect opportunity to demonstrate what democratic socialism is all about: worker ownership and control of the means of production. We contrast this with other forms of socialism and capitalism; instead of arming the workers with guns, we arm them with information, resources and knowledge that a group like DSA can coordinate nationally.  And remember that ESOPs and employee ownership have a long history of attracting support from all sides. This gives democratic socialists an opportunity to negotiate and work with other mainstream political ideologies on the left, right and center. The Center for American Progress (a left-leaning think tank), Third Way (a centrist organization) and the US Chamber of Congress (traditionally more conservative) have all expressed strong approvals of ESOPs

Here's how we might go about explaining ESOPs:

  • ESOPs Board of Directors all have their jobs at stake and the workers elect 50% of board members, furthering workplace democracy.
  • The priority of ESOPs are not to maximize profits but to preserve jobs.
  • When employees receive stock for every hour worked, they have more incentive to produce.
  • For the company to be sold, a vote must be taken by all employees who are not likely to approve when keeping their job is on the line.
  • The business is not likely to be moved or shut down unless employees want it to.
  • ESOPs will be the catalyst for credit unions, community improvement associations, health care cooperatives and job creation.
  • Some ESOPs only have limited employee ownership and are little more than 401(k)s, but according to Alperovitz, “they are structured over time to become more and more employee controlled.”

In 2008, General Motors and Chrysler were going out of business, it would have been an opportune time to convert both to ESOPs. Instead of receiving tax-payer money to revive these privately-owned businesses, these companies could have been sold to their employees who would then be far more invested in saving them.

Globalization has led to manufacturing losses within the US and jobs moved overseas, allowing investors and CEOs to pocket more profits while laborers lost their jobs and have been unable to recoup those economic losses. Corporations have less and less interest in manufacturing products here in the USA. They search the world for cheaper and cheaper labor while the market becomes more and more competitive. Meanwhile, we are still expected to be the market for the products of the world while our incomes shrink. Even Republicans understand that this concept is not sustainable.

People need to take control of companies and start running the economy from the bottom up. We can start by advancing ESOPs.

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