Joseph Blasi: “The Citizen’s Share: Putting Ownership Back into Democracy” | Talks at Google

Joseph Blasi: “The Citizen’s Share: Putting Ownership Back into Democracy” | Talks at Google

very much for inviting me, and I’ll just note that
the book is co-authored with my colleague Richard
Freeman, in the Economics Department at Harvard, and
Douglas Kruse, my colleague in the School of Management
and Labor Relations at Rutgers. So after he was elected
President of the United States, George Washington faced a
very interesting dilemma. The cod fishing industry was
the fourth largest export of the colonies before
the American Revolution, and you may not realize this,
but dried cod in barrels was a world commodity at
the time with a world price, and the colonies
here exported that. It was their fourth largest
export, mainly to Europe, because the Pope said the
Christians shouldn’t eat meat on Friday. So they had a huge
market and as you know, there’s huge cod
fisheries off the coast of Newfoundland and New England. The British, in order to conduct
not just a military warfare but economic warfare,
did everything they could to destroy the cod
fishery during the revolution. They arrested sailors
from the ships. They destroyed the ships. They burned the ports. They burned the
storage facilities, and they really intended
to destroy the industry. And they were pretty successful. So when Washington
became President he realized that one
of the things he needed to do for an almost
bankrupt group that had just won the Revolution was get
that industry back on its feet. So he turned to the Secretary
of State– you know, at the time there was
just a Secretary of War, Secretary of State, and a
Secretary of the Treasury, so it was not a
very big government. So we turn to Thomas
Jefferson– just returned from France–
Secretary of State, and Jefferson was negotiating
cod fishing rights with the British as part of the
resolution of the revolution and he asked
Jefferson to see what he could do to help
bring the industry back. Jefferson– and you can
Google Jefferson’s report on the American fisheries–
Jefferson wrote it all with his own hand. He had a research assistant–
Secretary of the Treasury, Thomas Alexander Hamilton’s
assistant secretary of the treasury– [INAUDIBLE],
famous political economist at the time, was Jefferson’s
research assistant. And Jefferson did a huge period
of research on the cod fishery and at the time he asked
his research assistant to find out everything you
can about this fishery. And so they went to a
gentleman, Mr. Josephs, who was at the time
the biggest shipper– the biggest in our day
would be the biggest billionaire of shipping
in Philadelphia– and said what do you know
about the cod fishery. And Mr. Josephs
said– and you’ll see his letter to Thomas
Jefferson in the report– he said well, they send
out ships to get cod. Sometimes they pay
workers on a fixed wage no matter what they
catch, but oftentimes they pay them a share of the
performance of the ship and when they pay them
a share the productivity and performance of the
ship is always better. Jefferson stored
that in his brain. Subsequently,
President Washington decided that they would provide
what we would consider today to be tax credits or tax
incentives to any ship that went out. Well, they then
received a letter from the owners of cod ships,
and they said in this letter basically, “send
the check to us, just give us these tax credits,
will take care of the rest.” However, there had been a
custom for over 15 years of broad-based profit
sharing on the catch, as you have heard
from Mr. Josephs. And so there were a lot
of objections about this and the senator
from Massachusetts at the time, Senator
Cabot, he introduced a piece of legislation which
said that the shippers could receive tax credits
only if they signed a document before the ship went
out saying that there would be broad-based profit sharing
for all sailors on the ship on the entire catch,
and not only that, the tax credits would
be distributed over 60% to the crew and 40%
to the shippers. So this was the first
time in American history that inclusive capitalism–
whatever you want to call it, broad-based employee equity,
broad-based profit sharing– was included in a law
and made a condition for receiving tax credits. And we’ll come back
to this story later, but it’s a really
interesting story. I discovered it
in the seven years I spent writing
this book, it now has its own little piece in the
Oxford American encyclopedia of American history and it’s
really my favorite story. This book is really a book of
American historical stories. I did the research on
the American history at The Institute
for Advanced Study School of Historical Studies
seven years ago this spring. So I’m going to make
four points today. First point is that democracy
requires broad-based ownership. In chapter one of
the book I show that the founders of
the American Republic believed that the best
plan for the Republic was to have broad-based
property ownership. They actually believed
that you couldn’t have a democratic republic exist
without a broad-base property ownership because that would
give you feudalism, which they had just rebelled against. Their main policy to deal with
economic and wealth inequality was in fact broadening
property ownership. It wasn’t redistribution. They were obviously not
socialists or communists, such things didn’t exist. My second point is that US
wealth inequality is in fact from the concentration of
capital ownership and capital income. I’m going to demonstrate the
current wealth and income inequality we have
is mainly driven by lack of diffuse and
broad-based property ownership, not mainly by the inequality
in wages, which is obviously an issue. My point today is that therefore
a critical solution to this, makes sense. If the cause is concentrated
capital ownership and capital income than one solution
we should consider is ways to broaden capital
ownership and capital income in the economy. And I’m going to talk about
broad-based employee equity, forms of employee ownership,
broad-based stock option, grants of restricted stock,
broad-based gain sharing, profit sharing as a way
to do this in the economy. But I’m also going to talk about
the notion that a lot of people don’t actually
work in workplaces for for-profit corporations
in our economy– mainly they are teachers,
they work in non-profits, they work with little children,
they’re in the military, and so forth. So we need to figure out
a way for citizen trusts to have dividend income
to receive supplements to their wages. My last point is going to be
that the internet can perhaps be a useful, disruptive
informational tool dealing with this issue of
wealth inequality. Now chapter one of the
book talks about the fact that broad-based ownership
is necessary for a republic and I’m going to read you just
a little quote from George Washington that opens the book. “In the first
place it is a point conceded that America, under
an efficient government, will be the most favorable
country of any kind in the world for persons
of industry and frugality, possessed of moderate
capital,” he’s referring to the middle
class, “to inhabit. It is also believed
that it will not be less advantageous to
the happiness of the lowest class of people because
of the equal distribution of property.” What was Washington
talking about? He was talking about
the notion that there would be sufficient
land for every family to be economically
independent by having a farm. Not every family to
be rich, but to have a certain level of economic
liberty and independence. President John Adams pushed
broad-base property ownership when he was in Massachusetts. And he wrote, “the
only possible way of preserving equal liberty is
to make the acquisition of land easy to every
member of society.” In fact, you might
not know this, but after the
American Revolution when John Adams was drafting the
Constitution of the new state of Massachusetts a
number of his colleagues suggested changing the name of
the state of Massachusetts– of the Commonwealth
of Massachusetts– to Oceania after British
political theorist piece, political treatise,
by James Harrington called “Oceania,” which was a Utopian
society where there was broad-based property ownership
to help preserve liberty. That’s how much they were
thinking about this issue. President Thomas
Jefferson made it a major theme of his writings. He said that legislators
cannot invent too many ways to subdivide property. And he didn’t mean
redistribution– taking your property
and giving it to me– what he meant was opportunities
to acquire property to every citizen. When Jefferson drafted the
Virginia Constitution he wanted there to be a part
where every citizen– and unfortunately we have to
mention that at this time there was a constricted
definition of citizenship– the evil of slavery, and
that also terrible evil of the social exclusion of women
from civil society had not been addressed, and one can’t
escape from these terrible, terrible evils– But even though
these other founders disagreed on these
issues, they all did agree that broad-base
property ownership was necessary for economic liberty. James Madison, later president–
he developed some criteria for laws to maintain
broad-based property ownership. And he wrote, “the US
have a precious advantage also in the actual
distribution of property and in the universal hope
of acquiring property.” So let’s be clear,
their view was that land was the major
capital of the time and in order to have a republic
you had to have broad-based– although not completely
equal or egalitarian ownership– ownership of land. Madison– we’re
going to come back to this later– he expected
that it was possible that the country would
run out of land to make every person, every
citizen, every household economically independent. So he had some ideas
to how to address that, and we’ll talk about this
again at the end of the talk. He said the federal
government should withhold unnecessary opportunities
from the few, which would increase
inequality of property. He said without violating
the laws of property, in other words without
redistribution, reduce extreme wealth
towards mediocrity– he means the middle class–
and raise extreme indigence to a state of
comfort, and abstain from measures that
favor one interest. I’m going to show you
at the end of this talk that the federal
government violates virtually every one
of Madison’s criteria, and how we can apply his
criteria to some reform. This just wasn’t some kind
of a political ideology. They took very strong
steps, very quickly and they were maintained
over about 100 years to implement this broad-based
property ownership. They quickly outlawed
primogeniture– those who’ve watch Downton Abbey
know what I’m talking about. Jefferson drafted a liberal
policy for land shares as Secretary of
State for Washington, which allowed sales of
land– sales of public land– that could be provided to
families and households at reasonable prices. I should also point out that at
the Constitutional Convention, they forced many
of the states that were holding large
amounts of public land to yield that land to
the federal government so it could be made
available to citizens. In the Northwest
Ordinance of 1787, they abolished
slavery and servitude in that entire area
of what later became Ohio, Indiana Minnesota,
Wisconsin, and Michigan and one third of Minnesota,
and they said that that land would be
available for citizen farmers. Jefferson did the Louisiana
Purchase from Napoleon in 1803. Mainly to, as he said, affect
an “empire of liberty,” to allow a lot of
land to be available for independent farms. And we’re talking about
here 6 million acres, so you can see the
actions that they took to effectuate
this policy were really significant and big actions. Until 1862, almost 75 years
later, liberal land policies were a major part of US policy. There was constantly a debate
between the Treasury Department and the rest of the
federal government over should we sell land to the
highest bidder– people are rich, they can buy
land at high prices– or should would make it
available at installments, at low interest rates, at low
prices to the middle class and that second part
of the argument always, always won out. And it was very
much like the ESOP that I’m going to talk
about later, where today workers in the company
can set up a workers trust, borrow money, and through
installments from the company’s profits and revenues, pay off
the stock that the trust buys and the workers become owners. Citizens continuously favored
shares– property shares– over selling land to deal
with the budget deficit. So if the Tea Party has
any question about where initial Americans
landed on that issue, it is very clear from
historical record. Land shares were central,
as I show in chapter one, to the founding of
the Republican Party– founding of the
Republican Party– which ran on an
anti-slavery platform. John Fremont. “Free Soil, Free Labor,
and Fremont” was his model. President Lincoln
spoke very strongly in terms of this notion of
broad-based property ownership and he attempted to right the
wrong of the evil of slavery with the Homestead Act, which
provided initially 160 acres to a family that did
some sweat-equity– built a structure. Later on there were a
variety of homestead acts in different states and in
parts of the United States where it took say,
64 acres to support a family with
economic independence, the acreage was increased. However, and the
homestead act again was an example of
really big, actual attempts to implement this
policy– a broad-based property ownership. The Homestead Act dealt
with 20% of all public land and 10% of the land mass
of the United States. Imagine if with these
kinds of property resources we were to implement
their policy today. And you’re going to see
some very comprehensive recommendations at the end
of my talk to do just that. However in 1829, James
Madison after his presidency, was at the Virginia
Constitutional Convention and he said, you know what,
can we really sustain this? So he took out– I
say an envelope– he took out a piece of
paper and he projected how much land there would be by
1930, what the population would be, he divided one
into the other, and he said you know
what, we can’t do it. There won’t be enough
land to sustain a homestead for every
family, and then he wrote that this is the
most serious problem that we have to
solve in the future and we have to figure out
new ways of ownership. Well, the Speaker of the
House of Representatives, Galusha Grow– who
was often called the Father of the
Republican Party, an anti-slavery Republican
congressperson from Lancaster, Pennsylvania– he wrote after
he managed the Homestead Act for President Lincoln
through the Congress that we are out of land
and the future this idea is profit shares and equity
shares in corporations because corporations
have unlimited assets, and this idea was picked up. So in the late 1800s, a number
of very rich businesspeople, who were also impacted by
the Christian social gospel and by ethics and morality
from their own religious backgrounds, they came
forward with the Grow idea. And leading figures worked
very hard to figure out ways to create
broad-based property ownership in the
context of corporations. And this book, as I said,
is mainly a book of stories. In chapter one, I tell the
story about the founders. In chapter four,
we tell the story about all these businesspeople. I’ll just comment
on a few of them. So George Pillsbury, he had the
largest grain mill for flour in the entire world. And actually at one point
his mill burned down and he remembered that. He said, “you know what? I want every worker walking
the floors of the mill to worry about flour
dust in grain “mills,” if there’s a spark
you know what happens. And so he introduced profit
sharing– really interesting, Pillsbury– became
world-renowned for his profit sharing plan. William Cooper Procter
was sent by his daddy here to Princeton University
to study in the early 1880s and Procter went back
home after hearing in his political economy
lecture about broad-based profit sharing, broad-based
employee stock ownership, and how that was a continuation
of the founders idea. And he implemented it
in Procter and Gamble, which by the way today is
about 20% to 25% worker-owned. So you can remember that if
you brush with Crest toothpaste and use Bounty paper towels. And then we have
Andrew Carnegie, who made terrible errors in his
fights with steel unions by trying to tap
down their wages, but at the end of his
life wrote a book saying that this idea was a
continuation of the founders broad-based property ownership
is necessary for democracy idea, and he envisioned
federal tax incentives to encourage employee stock
ownership and profit sharing. And George Eastman,
by the way, I think very important to Google,
because he probably invented the broad-based stock option
that many Googlers have received, as you know. Eastman Kodak was the high-tech
go-go company of its day. And when I was up
in Rochester going through the archives
of Mr. Eastman I came upon a really great
letter, which I could imagine could be written to one
of the Google founders. The letter said,
Dear Mr. Eastman, I’m a holder of a lot
of Kodak stock, and it really bothers
me because– Eastman, when he had a
shareholder meeting he would talk about
the broad-based stock option, and the employee
ownership, and the profit sharing plan, he had all three
of them– it really bothers me how much equity you’re
granting to workers. You’re giving them my money. And Eastman, I found his letter,
on that onion paper that they used in the late 1800s and
early 1900’s, his carbon copy that his secretary saved,
and Eastman wrote him back and I’m going to kind
of paraphrase it. He said, Dear x, I remember you. You are one of the initial
investors in Kodak. You’re sitting on
your 600 acre horse farm in New England because
of all the money made by the innovations
and the knowledge and the technical insights
of Kodak employees, and we provided them
a share the ownership so they would be so innovative. You know what, go to hell. That basically is the
response that he sent. OK. Interesting issue that happened
is in the 1920 election, William Cooper Procter decided
to run a presidential candidate actually on a platform
to save capitalism by introducing these ideas. You can read the
story in the book there’s a lot of scandal
involved in that story. Not on the side of
Mr. Proctor, who was a pretty pure, pure soul. There was a lot of
research at the time on these ideas suggesting
that they were leading to higher productivity and
higher employee engagement. Not going to go into
them in a lot of detail. Now I’ve talked already
about the kinds of shares that we’re discussing. We’re discussing
grants of equity shares as in restricted stock grants,
employee stock ownership plans, which by the way workers do
not buy with their savings, and company matching grants
to 401(k) contributions. I am against, and the
co-authors of the book are against, the middle
class worker buying huge amount of shares in their
own company with their savings because it’s too
risky, but grants of shares, grants of equity
is something that we’re for. As you know, they’re lower risk. Grants of stock
options are lower risk, if you don’t buy them
with your savings, and certainly cash or deferred
profit sharing and cash gainsharing for team or
departmental performance is also very, very low risk. How many shares are there
in the United States? Well, as part of the
extensive empirical research we did on the book– it
was historical research, but it also involved
contracting with the University of Chicago’s National
Opinion Research Center to do a nationwide
survey, actually six nationwide surveys. This is the center that does
research for the US Census on contract– and we find that
about 17% of adult workers own stock in their
firm, about 19 million. But 9% hold stock options, so
that’s more than executives, right. There’s only 5,000
stock market companies with 20,000 top five executives. So stock options as you
have, and have had in Google, are pretty ubiquitous,
at least among 9%. About one third
receive profit shares, and every year about 6% of
the US working population does receive stock options. We found that about 50%, exactly
about 48%, of all adult workers receive some
combination of these, and in tech companies
often they receive a combination of all of them. Now the problem is
that the average dollar value of many of these plans is
pretty modest and pretty small, except in the most
generous companies. But the good part
of this is, if you were to say that broad-based
equity and profit shares would be a possible solution
to solve inequality, the mechanisms to do
that are already there. Companies are familiar
with these mechanisms and they’re pretty common
in the United States. By the way, more
common than in Europe and more common than in Asia. Now I’m going to skip
through this slide. What are the share sectors? Basically among the 5,000 stock
market companies, about 20% of the Fortune 100, and
you see their fortune 500 ranking there, have either
broad-based equity or profit sharing. Recently, Southwest Airlines,
just to give an example, distributed 30% of all
of its cash profits from the floor sweeper up
to the CEO of the company. And you see Googles
name up there. About half of the companies
that win the 100 best company to work for in America contest
competition by Fortune magazine have inclusive capitalism. Among leading high
tech companies– well, I have a book on this with
my colleague Doug Kruse and Business Week former
Associate Editor, Aaron Bernstein, called “In
the Company of Owners” about how this plays
out in tech companies. Among the 100 largest privately
held companies like Cargill, Fidelity, Bloomberg,
Wegmans here in New York, which has
cache profit sharing, we see a lot of these
kinds of things. And for example,
those of you who have been to Florida and
Georgia and the south, Publix supermarkets– 100%
owned by its employees. So in chapter two
of the book we show that the idea that
you could have a lot of broad-based
profit sharing and broad-based employee
stock ownership and options in the economy is demonstrated
by many of these cases. Many that we don’t hear
about because they’re not in the newspaper a lot,
are closely held companies in the privately held sector. There about 10 million
workers in about 10,000 ESOPs. As I mentioned, an ESOP is
Employee Stock Ownership Plan where a company sets up a
trust, the trust borrows money to buy stock for
workers, and then the trust distributes
the stock to workers. Workers do not have to put
up their house as collateral and they receive the
stock as a grant. You might ask yourself where do
10 million workers, a trillion in market value, and
10,000 ESOP’s come from. Well, if any of you like I
am, had a family business in your family you know that
the worst thing with the family business is when there isn’t a
son or daughter to take over. And so what happens
is family businesses are now selling the business
to the workers and managers who built the business. The entrepreneur
takes the cash, goes buy their condo in Southern
California or Boca Raton. And we have this among
entrepreneurial start-ups. And in the United States
the purest version of this– only about
400 worker co-ops with three to 7,000
persons nationwide. OK, now I’m going to go
on for a few more minutes and then we’ll
stop for questions. Certainly employee ownership
has failed in American history. In the 1800’s a
lot of trade unions tried to set up
pure worker co-ops and they were against hiring
professional management and many of them
failed for that reason. Although some of
them did succeed. Some unions, when
they were faced with the closure of a
factory or a company, they gave concessions- salary,
benefit, work rule concessions for stock. They implemented the
idea in a company on its last breath, that
was not a good idea. United Airlines you’ve
heard, had an ESOP. Well, actually it
wasn’t really an ESOP it was a union
concessions situation. The workers of United
traded reduced wages, reduced benefits,
increased work hours, and more changes in
work rules for stock. It was implemented in a company
where labor and management just hated each other. It was an important failure. It was not an ESOP
where workers receive grants of stock
financed with credit. Heavy concentration of workers
being pushed and manipulated to buy stock in their companies. Enron, WorldCom,
Lehman Brothers- we know where that went. Some tech start-ups and
non-tech start-ups fail. Entrepreneurial companies
have a high rate of failure. You’re one that succeeded. Now I’m just going to talk about
this briefly- one of the things that we do in the book,
even though it’s mainly a book of historical stories and
a history– an American history of shares, is we talk about
a review of about 100 years of hard-nosed empirical
research using major data sets on this question. I just want to comment on two. At the National Bureau
of Economic research we received about
a million dollars from the Russell Sage of
the Rockefeller Foundations to study intensively
how workers respond to inclusive capitalism,
with about 41,000 workers in 14 firms, including large and
small tech and non-tech stock market and privately held firms. And we generally found that the
workers with more share plans and above the median percent
of their pay in shares exhibited lower turnover,
greater loyalty, made more suggestions, were
more willing to work hard and innovate, and they were
more willing to co-monitor their fellow workers. This worked best when
there was a combination with high performance
work practices, such as high training of
workers, low supervision- not too close supervision,
teams and job security. When you have this combination,
absenteeism went down. So I’m going to ask, if you
could pass around this chart, and you can see
how much turnover decreased in this research. Now when we did
this research, we had to ask ourselves
under what conditions does broad-based capitalism
really just bomb. OK. And we know what
those conditions are. You can see them in bold
at the bottom there. When workers are paid
below market wages there’s not enough
equity and profit share you can throw at them
to motivate them. It just washes out all
the positive effects. When workers have
too much risk in their personal economic
situation, same thing. And when you have high
and too close supervision, right, you try to do
this kind of a workplace and you have the
kind of supervision that Henry Ford had in his
factories in the 1920s- not going to work. Now a second study I want
to comment on briefly- our first study was kind of
challenged because obviously we were looking at 41,000
workers in 14 companies, it was not a random sample,
although I should mention that we commissioned a national
survey of all the adult workers again from the
University of Chicago in the general
social survey and we were able to replicate our
regression analysis with that. But Eric Maskin who as you know,
later received the Nobel Prize in Economics, was the
respondent on this paper. And he said, you know what,
I would believe these results if you gave me many, many
more workers, many, many more companies, and
other than a worker supplied report measure
on expected turn over. So I asked myself, “where can
we find such a huge data set in the United States?” And it is, in fact, the
data set of the great place to work Institute
that puts together the scoring for Fortune magazine
for the 100 best companies to work for contest. Using the data set of
305,000 random worker surveys at the applicants-
both the winners and losers from 2005 to 2007, and over
13,000 applicant corporations, we were able to replicate
the finding from the earlier National Bureau of
Economic Research study. This was funded by
the Sloan Foundation. And now I’m going to conclude
in the next five minutes and then we’ll stop
for questions– by the way bless you. I am not going to read
through this slide other than to say that the big
sector of pure worker ownership in the United
States is in fact ESOPs. As I said, about 10,000 ESOPs,
about 10 million workers, about one trillion in
market value- mostly in companies with
under 500 employees. In general, we find
higher productivity when you have this
proper corporate culture of high training teams,
not low supervision. We also found that these
companies where a worker trust is set up that buys
stock and then pays off that stock from the revenues
of the company- they have on those loans a very,
very low default rate. And we found workers
in these companies generally are paid above market
because you wouldn’t want to develop inclusive capitalism
if workers wages were cut so they could receive
stock and profit sharing. It would be a bad idea. So why should we care
about wealth shares? And if you could pass
around the next two handouts I would appreciate that. The reason to care about
shares is wealth inequality. As you know, it’s the main
economic and domestic policy issue today. Inequality is mainly about
capital income and capital ownership being concentrated. So inflation adjusted wages
have been relatively flat since 1880. Globalization, the
decline of unions, many things have
contributed to this. The top 1% of households
control one of all wealth. The top 10% controls 75% of
all wealth, and more than 80% of financial assets. And you can see from this
chart in front of you called “Capital Income
Highly Concentrated” from the Brookings
Institution Tax Policy Center, that the top 20% of
households receive 86% of all capital gains
and all capital income. I’ve passed out another
chart showing, adjusted for inflation, how the income
after tax income when you take into account the poor who
receive transfer payments and the rich who paid more
taxes when you take everything into account. I’ve passed out
another chart showing– it says “summary figure one”–
how incomes grew between 1979 and 2007. It’s been updated to 2010,
and the top 1% income growth has been something on
the range of around 250% and you could see for the
quintiles of the middle classes it’s just been pretty
bad– really horrible. Capital income to
the top 1% recently went from one third
of all capital income in 1979 to 3/5 in 2005. Now the federal government
has in recent times– unlike those really
comprehensive policies at the beginning
of our history– always got this wrong. OK? What is the main way that the
federal government encourages workers to have employee stock
ownership in their companies? Buying company stock in
401(k) plans with their wages. OK. That’s too risky. It’s too risky and
the middle class doesn’t have enough extra money
to buy enough capital, capital ownership. Why would we have a system,
as the federal government now has designed for
us, where those who have capability for the
lowest amount to risk and have more wealth–
in other words top executives in
companies, right– they have access to the lowest
risk forms of employees ownership, grants of restricted
stock and stock options. Where the middle class that has
less wealth and less appetite for risk is encouraged
through the 401(k) laws to buy more risk
with their wages. The first George Bush and
the Clinton administration, without going into detail,
eliminated a large number of tax incentives for
stock market companies to do big employee
stock ownership plans. Every major financial
services, Wall Street bank in New York in the late
’80s and the early 1990s, had a employee
ownership division– you may not want
to believe this, but it’s true– to try to
develop this in companies until Bush and Clinton
destroyed these tax incentives. The last President
Bush, through a series of policies
eliminated incentives for broad-based stock options. An interesting story is
the Clinton-Gore reform on executive pay, which said
that companies could only deduct one million dollars,
up to one million dollars in fixed pay for the
top five executives. What do they do as it
went through Congress? They added that the deductions
for top five executives for employee stock
ownership equity and profit share related
pay would be unlimited. Just for the top five, OK? You know how much that costs? It costs you, the taxpayer, five
to 10 billion dollars a year in tax incentives. In other words, you are
subsidizing executive pay in all 5,000 public companies,
$5 to $10 billion a year. You know what the
total tax incentives for broad-based employee
stock ownership plans are in the United States? One billion. So federal policy is all
messed up, all messed up here. To conclude, what we would
like to see to move more towards broad-based capitalism,
is follow the founders principles– those
points of James Madison I mentioned in the beginning. Public corporations can
only deduct executive equity and profit sharing plans if
they have a broad-based share plan for all their employees. By the way, Google
would qualify. All businesses can only
receive the trillion dollars in corporate tax incentives that
get given out every five years if they have a broad-based share
plan for all their employees. To fix the Bush mistake, there
would be a special tax credit for firms that have broad-based
stock option and stock granting plans, as you have here. There would be a special
tax credit for these firms. For workers in
not-for-profit companies we have to figure out
a way to deal with that and I would recommend that we
look to the Alaska Permanent Corporation. The Alaska Permanent
Corporation gets money from leasing oil and
natural resources fields and access to oil
and resource companies, puts it in a fund and
invests it and pays a dividend to every
citizen of Alaska. What I’d like to see is the
federal government set up a piece of legislation
to encourage in states and localities in cities
around the country there to be similar kinds of
corporations that would use various kinds of assets–
the wireless spectrum, these corporations would own
solar energy and wind energy farms, they might take
ownership of various parts of the electromagnetic
spectrum as I said, and other kinds of assets. They would get lower interest
loans and tax incentives and they would provide
dividend payments to citizens because as I’ve established
and as the evidence’s has established,
the middle class is going to decline because
their wages adjusted for inflation are
flat or going down. Unless we directly
address the concentration of capital ownership
and capital income we’re not going to be able
to deal with this issue. Finally, can the internet
disrupt wealth inequality? Remember it was supposed
to strengthen democracy, but the internet has
had very little impact on the concentration of capital
ownership and capital income. The concentration of capital
ownership and capital gains and capital income. Wealth and income inequality,
during the same period the internet has grown,
have gotten worse every year in the United States. The internet has failed
to deal with this issue. One possibility would
be Shares app that could pull data from SEC filings
on the extent of stock market company share plans,
department of labor filings on the extent of ESOP’s,
and employee surveys on the extent of their
equity profit sharing plans that every
citizen could get to. We should brainstorm others. If you want to read
chapter one you could go to our website
site,, or you could follow my
comments on Twitter. Delighted to be with you today. Thank you very much. I’ll be happy to take your
questions and discussion. Yes? AUDIENCE: These days, whenever
the subject of inequality comes up, everyone
pretty much automatically has to talk about Piketty. You see, to be talking about
methods for essentially getting more capital flow to the
people at the low end. Piketty’s solution seems to be
to add friction to the ability, through taxes and such, to
add friction to the ability to accumulate large
quantities of capital. Can you talk at all about
sort of the difference between your approach and
Piketty’s and what you think of Piketty and what Piketty
might think of you– or not you, but I mean the work. JOSEPH BLASI: Well, if you–
don’t worry about that– if you see the paperback,
Thomas Pikkety’s opinion about the book is on the
top of the front cover, so I’ll let him
speak for himself. We met in Paris last
February just before he came to the United States, but
I will comment on his work. First of all, I think that
Thomas Piketty’s work has created a big focus on
wealth and income inequality like there has never been,
and despite the debate– and by the way I
think that he is on solid ground
with his results– the census, the
Congressional Budget Office, and many other
sources support his results for the United
States concentration of wealth and income inequality. As to his solution,
yes, his solution would be called a
redistribution because what he would like to do is
have high income tax taxes for the wealthy,
in the 60%, 70%, 80% range plus a modest
tax on all wealth assets. So high tax on annual
income and a modest 1% to 2% tax on all wealth. The rich would have to file
a report on their wealth. I will make two comments. First of all, if one applied the
broad-based property ownership approach of the founders
of the American Revolution and some of the suggestions
that we’re talking about one could address this
in a different way by broadening
property ownership. And I think the
stark choice that we have is between redistribution,
broad-based property ownership attempts that we’re talking
about, and feudalism. Right? At the time of the
American Revolution, the British aristocracy
controlled 80% of all land in England and you can see
the numbers that I showed you, those are US government
numbers — census, Congressional Budget Office–
we’re approaching or surpassing that. James Madison and others of the
founders at the Constitutional Convention worried about
this, and for those who have spent their
time attacking Piketty I will say, go and read the
Constitutional Convention book and you will see that they
said if we can’t continue to maintain broad-based property
ownership there will be calls through redistribution in a
democratic system, the majority that will be disenfranchised
will vote for higher taxes. So I think that that’s a
problem and probably we’re going to see a lot more conflict
over this issue in the future, unless the Republican and the
Democratic Party, both of which seem to be bereft of any
real ideas other than lies on this issue. Right? The Republicans want you think
that every few years then give you a $1500
tax cut and it’s going to solve wealth
inequality and the Democrats want you to think that they
can give you the minimum wage and health care and it will
solve wealth inequality. Both are just stark, stark lies. If we don’t deal with
broad-based property ownership, I think there will be calls
for greater taxes on wealth and income. Although these things will be
very, very hard to implement. OK. Did I answer your question? AUDIENCE: Sort of. JOSEPH BLASI: OK. Well, come back to me. AUDIENCE: Maybe if I could
just add a mechanical problem. If the top 20% already
have 86% how are you get it away from them? Without doing redistribution. JOSEPH BLASI: Well, the policies
we talk about in the book don’t involve
redistribution, they involve broadening
ownership opportunities. And if there are more
people that have capital than that number will go down. If you have broader capital
ownership, so for example, let’s imagine Google was
built on the internet. Let’s imagine the next 20
technological breakthroughs. OK, let’s imagine an
economy with robots. These items, these
capital resources, I think should be largely owned by these
citizen trust private market economy corporations
to pay dividends. If you can envision the roll
out of what we’re talking about, you will see that the
capital income and capital gains going to the
top would go down. Not because their property
was taken but because, as the founders
talked about, there were broader opportunities
for acquisition of property to everyone else. However I do want to be
very clear about this. I do not think that simply
broadening ownership in workplaces through profit
sharing and employee equity is enough, I think you have
to have things like the Alaska Permanent Corporation
in addition. But we owe it to our
political traditions to at least try these things. That’s the best I
can answer right now. I’m happy to talk with
you more afterwards. Yes? AUDIENCE: You just
mentioned that you don’t think that just
employing things like, employee stock options,
things like that, would be enough to solve
the wealth inequality gap. Have you guys done any
quantitative modeling to see if, let’s say what would
happen if 100% of the top 5,000 companies adopted
this, like what would be the impact
on wealth inequality? Or like, how much would it
take to actually solve the gap? JOSEPH BLASI: Well, the
analysis that we’ve done has to do with who are the
employees of these companies, and the problem is that there’s
a large amount of the US population in the nonprofit
government sector. And the second thing is that
our tax incentive policies would encourage companies,
but not force them, to implement these plans. So it’s likely the people at
the lower end of the spectrum might still get lower payments
in profit shares and employee ownership. The thing I want to emphasize is
that the US government spends, as I said, trillions of
dollars every five years, over a trillion dollars,
on tax incentives and many of these
incentives incent concentrated capital ownership. We simply want to switch
that– switch that around and then we’ll see what happens. I will say one thing
that is encouraging, in tech for example, managers
with some government support early in the ’70s and the ’80s,
spread throughout the tech economy broad-based employee
ownership and profit sharing. The Bush administration
came in and did some things with the expensing
of stock options and not creating a tax
incentive for companies like– that have broad-based
stock options after that, kind of destroyed that. OK. Employee ownership has fallen
about 75% in tech companies, just so that you know. The Bush administration really
hit tech companies hard. So I think we have
to see what happens, but we’re certainly going to
need things like the Alaska Permanent Corporation
to deal with this. Yes? AUDIENCE: [INAUDIBLE]
and you don’t really talk about that very much. How do you propose to get
the political [INAUDIBLE] to actually make this happen? JOSEPH BLASI: Well,
in three ways. First of all, what
is new about our book is that we demonstrate to both
conservatives and progressives that there is a strong
bipartisan American tradition for broad-based
property ownership. For those in the
Tea Party, and I’ve spoken to Tea Party audiences,
I will speak to you again and say that yes low taxes
and small government is right there in the founders
writings when you read it. But I also will say the Tea
Party, many of the tea parties advocates, forget the third
thing in the founders writings. Broad-based property ownership
is necessary for a public to exist. In fact, the founders believed,
if you read them closely, that it was broad-based
property ownership that caused low taxes and
small government, because households had
enough economic liberty they didn’t need the
government enough and taxes were not needed
for transfer payments. So it’s a direct
challenge to, I would say, a dishonest Tea Party
reading of American history. Having said that
though, there is an honest Republican
conservative Tea Party reading of broad-based
property ownership that I think will help them
support these ideas. And there is an honest approach
where broad-based property ownership fits with
the social justice interest of conservatives–
of progressives. The second approach
is that, as I said and as we show in
chapter three, there are a lot of companies in
all parts of the economy that do this and we can
demonstrate that this is something that could
function acceptably. But the third thing really
goes back to your question. There really is no
other alternative, other than a redistribution or
broadening property ownership. And I think that we
have to really get those are the two
alternatives or simply moving more towards feudalism. If people realize, if our
political leaders realize, that’s the stark
choice than I think we might get some
political will. I certainly hope. If we don’t, I think
we’re going to have a big public fight about this
issue every year going forward. Yes? AUDIENCE: So I’m in the middle
of a book on [INAUDIBLE] and it’s sort of
interesting the scale that’s unleashed
in combinations. So, if you propose, kind
of reallocating capital buy, creating stock plans for
those individual companies, things like that. How do you ensure that
allocation survives big mergers and acquisitions and those sort
of transactions [INAUDIBLE]. JOSEPH BLASI: Well
I will say this, a lot of the companies that have
broad-based ownership or profit sharing have gone
through big mergers. For example, Southwest
recently bought AirTran and they’re rolling
this out with AirTran. I know Google is constantly
acquiring companies and including them in this. Procter and Gamble has
spin offs and acquisitions. But specifically focused
on private equity, consistent with our
ideas, the special tax incentive for
special capital gains treatment of the profits
for private equity partners in my view should
only be available if they have broad-based
share plans in their portfolio companies. That’s an example
of a tax incentive which violates each of
those principles of James Madison laid it out. And it has to be
turned on its head. There are ways for
private equity firms to use broad-based employee
ownership and profit sharing when they acquire
a portfolio company and then four to six years
later when they spin it off they could use an ESOP. So I think this could be
relevant to private equity. You are correct that if you
look at the stock market the NASDAQ and NYSE
I think probably about 17 trillion
dollars today– private equity is already
several trillion dollars, so you can’t deal
with this issue unless you have approach
to private equity. You’re absolutely
on the button there. Yes? AUDIENCE: [INAUDIBLE] what
would happen if this actually went through in the end? So [INAUDIBLE]
Contract employees to get around this [INAUDIBLE]? JOSEPH BLASI: No, I
understand and as you know, Microsoft’s part-time
employees had a major lawsuit with Microsoft over this issue. It’s very clear that in
what Professor of Economics at Harvard, Martin
Weitzman, called a share economy that there would be
some changes in laws and laws necessary and employees,
even part-time employees and contract employees would be
more cognizant of their rights. I want to go back at
the beginning just for 10 seconds to the
cod fishing story. Remember, Washington’s
legislation said that every
ship that went out had to have a signed contract
between the captain on the ship and all the sailors that
the capital would obey, a broad-based profit
sharing contract. If you go and look at the
local courts in New England you will see that fights
over that contract were a common thing between
sailors and shippers at the day. In other words, some kind of
legal enforcement mechanism had to emerge. For example, if a
sailor got on in Boston and didn’t get off at
the end of the voyage, but got off Bangor, Maine how
much of the profit share should he or she get? So I would expect there
would be some legal uptake to deal with the changes
that we would have. Other questions? Yes? AUDIENCE: How’s the share–
either in stock or the Alaska Permanent Corporation– how’s
the share superior to just a raw amount of money. there How is it better than
say, just a 20% bump in salary? JOSEPH BLASI: Well, the
problem with bumps in salary is that we had a
bump-in-salary economy. I grew up in the mining region
in Northeastern Pennsylvania– by the way thank you for coming. I know many of you have
to get back to work and I’ll conclude
soon– and we used to call it working
for the post office. Working for the
post office meant that every year your
union got you a 3% to 5% real wage increase and you
had a defined benefit pension plan that paid you 70% to 80% of
your average of your last five income for life. Under the protected
economy after World War I, where the United States
destroyed all of its enemies and was the dominant
power and we had trade protections
around our economy, you remember those days right? The union workers from
AT&T wanted a raise, the union would
threaten to strike, AT&T would go to the
FCC and get the money, and increase your
telephone bill. OK. That was before globalization
and before deregulation and all of these things. With globalization and
deregulation and heightened competition, there isn’t
as much give in the system to build all wealth
through wage increases. So that’s one objection. And we have a different
context now, we have as I said, we have globalization. But there’s sort
of a second reason. The structure of the
economy has now changed, so as I’ve demonstrated
with these statistics, most of the wealth is coming–
so the households that are doing best in the economy
are getting that from capital gains and grants of
capital ownership. If you own the
robots in the future, you’re going to get some wealth. And the amount of
wage increases, of wealth increases
coming from labor income is going down, whether you look
at the Congressional Budget Office or the Bureau
of Labor Statistics, the percent of labor income
in the entire economy is going down and it
keeps dropping every year and this is another
thing that keeps dropping as the
internet keeps going. Something is wrong. So that’s my response to that. Labor income won’t do it alone. Although sure, there
clearly are some situations where labor income
is unfair, there should be a minimum
wage I think. I disagree with
conservatives on this, and I also think there are some
industries where unions have a role to play In terms of
getting fair labor income, but in general only
focusing on labor income is not going to solve the
middle classes decline. Are we at 1 o’clock? OK. Well I want to
thank you for coming and I’ll stay around
for a few minutes. Thank you so much.


  1. Post
    Robert Stark

    Thank you for bringing in the wisdom of our founding fathers! Unfortunately that kind of wisdom is in extremely short supply today!

  2. Post
    Veny Musum

    An absolute MUST SEE!  The most intelligent presentation I have seen on the economy and income inequality within a brilliant and fascinating historical context.

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