Can Employee-Owned Companies Reboot the Economy?

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The American worker isn’t doing so well. The median wage earner’s pay hasn’t grown in years, while most economic growth is being captured only by the already wealthy. While these problems are well-documented, finding a solution for the average wage-earner’s plight has been more difficult.

In a new book out this month, The Citizen’s Shareauthors Joseph Blasi, Douglas L. Kruse, and Richard B. Freeman (a sociologist and two economists, respectively) offer a novel solution: If owners of businesses are reaping the rewards of economic growth at the expense of workers, then why not just try to increase the number of workers who also own a piece of the firms that employ them?

The impulse toward broadly extending property ownership is a one that has a long history in America. The authors recount how the founding fathers were staunchly opposed to European traditions which required property to be passed down to first born sons. Some of the first federal programs ever instituted were efforts to support property ownership among the working class. One such scheme was a cod fishing subsidy that was aimed at helping the then-integral industry recover from the Revolutionary War, but which required any businesses that took the benefit to pass along their subsidies to their workers in the form of profit sharing.

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The propensity towards widespread property ownership culminated in the the Homestead Acts, which between 1862 and its repeal more than 100 years later was a powerful force for helping the landless masses obtain a stake in American society’s success. The authors write:

“Between 1862 and 1938, 10 percent of the landmass of the United States–nearly the area of Texas and California combined–was claimed and settled by 1.6 million homesteads under the different Homestead Acts. This represents about 20 percent of all public land and is comparable to all the land granted to states and sold or awarded to corporations and land grant colleges.”

America has long since run out of empty land, but luckily for us, we no longer live in an agricultural economy where land is the prime ingredient in economic output. The most productive resources are companies, and unlike land, there’s technically no limit to the amount of corporate property that can be created and owned. We really can all have a piece of the pie.

As Blasi, Kruse, and Freeman note, there are plenty examples of companies practicing what they call “broad-based capitalism,” or a management style that promotes employees participating in generous profit sharing or employee ownership programs. They point out that some of the most dynamic and successful technology companies today like Google and Microsoft, encourage widespread employee ownership of stock.

But it’s not just big tech firms with highly skilled workers that successfully incorporate employee ownership into their business models. In fact, some of the most notable firms practicing a pure form of employee ownership — meaning that workers own a controlling interest in the firm — are actually privately-held grocers.

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That’s right, the largest employee-owned firm in America is the Florida-based grocer Publix. According to Forbes Magazine, the retailer is the seventh largest private firm in America with $27.5 billion in sales, yet it manages to run a smooth and growing operation with an employee-owned fund controlling 80% of the company.

Another high-profile employee owned grocer is the Idaho-based WinCo which supermarket analyst Burt Flickinger III has called “WalMart’s worst nightmare.” WinCo is owned wholly by an employee stock ownership fund, and has quiely been making inroads in the western United States with its no-frills approach to retailing and very competitive prices.

Other notable firms with cultures of employee participation include Proctor & Gamble, Southwest Airlines, and Hyvee, just to name a few. And despite high-profile failures of employee-owned firms, like United Airlines, the authors’ research shows that on average, firms which give their employees an ownership stake are more productive, more innovative, and are more desirable workplaces for employees. As the authors put it, “[employee ownership] pays off, at least for those firms and workers that choose it.”

And the successes of these companies, combined with the unique troubles the average American worker is suffering, make it plausible that expanding employee ownership could be a solution to the problems of stagnating worker compensation and rising income inequality. The authors suggest a number of steps to encourage Corporate America to rely more on employee ownership in their structures, including tax incentives and the liberalization of state-based restrictions on the type of companies that can be incorporated.

But what is most important is most likely spurring a broad commitment to increasing property ownership. This concept is unfashionable in the hangover from the real estate bubble, when we can clearly see that the government erred in its efforts to extend homeownership to every American. But there are obvious differences between owning a home — which isn’t an income producing asset for most Americans — and owning a small slice of where you work. Even the indigent need a place to live, though they might not be able to handle the responsibilities of homeownership. But every working American — and the American economy in general — could benefit from having a greater stake in their company’s success than hoping it survives long enough to keep cutting them paychecks.