The Ownership Solution: Toward a Shared Capitalism for the 21st, Century.

Smith, Stephen C.

Jeff Gates. 1998. The Ownership Solution: Toward a Shared Capitalism for the 21st, Century. Addison-Wesley, ISBN 0-201-32808-9.

Markets have triumphed over central planning, capitalism over socialism. But does capitalism have to mean that there is nothing in life save markets and incentives? Must it inevitably produce staggering inequalities, growing ever wider, and undermining the social fabric on which an economy must rest? Does it mean the end of all job security, of the idea that the firm is a place where people fully invest their talents and energies, participate rather than merely submit to authority, and indeed live as well as work? Is capitalism inconsistent with a deepening commitment to personal and community moral development, to the enhancement of inclusive community, to environmental protection that anticipates rather than reacts because of genuine shared concern, to checks on untrammeled greed that makes ordinary ethical citizens feel like chumps?

There is a widely felt need for an alternative third way that accepts the best of markets and of the capitalist system but does not allow it to lead to the degeneration of society and of the human soul. That emerging alternative vision increasingly has a name: "shared capitalism." For example, in May 1998 the National Bureau of Economic Research held a "Conference on Shared Capitalism" in Washington. But the idea has been awaiting a fuller expression of the vision and a rough roadmap to getting there.

This is the long-awaited major statement by one of the handful of trailblazing pioneers of the ESOP movement. Among other roles he has played, Gates was counsel to the Senate Finance Committee in the early 1980s when he was a central figure in drafting the ESOP legislation. His book is meant to be a tour-de-force, and that it is. The book could have been entitled the Shared Capitalism Manifesto. Gates takes an incredibly wide sweep in his vision, including (though with not always consistent effectiveness) classical political economy, international finance, philosophy, ethics, sociology, economic development, public policy analysis, politics in numerous countries in Africa, Asia, Latin America and Europe as well as the U.S., several major religions, several natural sciences, management theories, and strategies and anecdotes of numerous corporations, both with and without employee ownership.

This is a distinctly American writing about the about shared capitalism idea. I think James Markham was the first to suggest, two decades ago, that while participation inherently meant ownership plus voice, the US would move toward the voice dimension only after starting from ownership, because of America's individualistic cultural background, and that Europe would move from voice, included in which were works councils and codetermination, towards employee ownership only later, because of Europe's corporatist cultural background. I think that time has been good to this idea, and wonder whether, if this book had been written by a European, it would not have been called "The Participation Solution." But this book does embody the best of what constitutes the specially American contribution to the concept of shared capitalism.

The book gives prominence to the ethical dimension, featuring Adam Smith's Theory of Moral Sentiments at least as often as his Wealth of Nations. Certainly, Gates' vision of a good society, that fosters self-realization of all its members, and takes stewardship for community and environment seriously, cannot be realized with employee ownership alone. Here, Gates is part of perhaps the greatest of American traditions, in a line from the founding Puritans, to the Transcendentalists such as Emerson, Fuller, and Thoreau, to idealistic counter-culturalists of the 1960s, to the character-building movement of the 1990s. Unlike Marxists who saw the ethical New Socialist Man emerging from the environment of the new socialist economy, the American tradition, perhaps best exemplified by Emerson, has generally held that no genuine, lasting, meaningful social improvements can be realized without first reforming the individual human being. This view was often vilified by the "realistic" materialist left as hopelessly naive and therefore ultimately dangerous to workers' true interests. While the New Socialist Man utterly failed, an old-fashioned American movement to reform the individual is re-emerging, stronger than ever, and in many forms. In essence, Gates argues that this process is our only hope as environmental and other challenges threaten to overwhelm us. But he argues in effect that certain kinds of policy can nonetheless assist and reinforce this moral evolution, and that first and foremost among these would be a strategy which gives people an ownership stake-a real stake, not a "sense" of ownership--in the companies that employ them and the institutions that most shape their lives.

Thus, what is perhaps most interesting and powerful about the book is the way it ties widespread property ownership participation in the firm and broader economy with the moral renewal of the individual and progressive reform of society. Narrow private ownership of assets is a force that encourages greed, envy and moral degeneration generally; and indeed, as Gates reminds us that Toynbee concluded, is along with social inflexibility the major cause of the collapse of civilizations. In earlier years, the left might be forgiven for assuming that public ownership of productive assets was the answer. The systems of yeoman farming did not look sustainable and it was not easy to see how to make industrial capitalism, with its economies of scale, into its equivalent. So public ownership of the means of production was tried almost everywhere, and has long come to a dead end. What has not been tried is explicit, active public policy to ensure that private property ownership is as widespread and egalitarian and as close to those affected by it as possible. The book promises to bring together what is best on the left and the right, and this is where it does fulfill that promise.

Despite the relatively small percentage of space devoted to policy proposals to implement this grand vision, in just three of the book's 21 chapters, Gates manages to introduce an enormous range of strategies and tactics toward realizing his ownership solution. Here are just a few of the more interesting ones.

--Conduct regular polls to see if people want policy to encourage widespread employee ownership. The results would inevitably influence public policy, as did the polls asking whether people wanted a policy for full employment and other established social goals.

--Establish an "Office of Asset Ownership," to annually survey concentration and distribution of assets and the extent of spread of employee ownership, to be summarized in the Economic Report of the President, inevitably influencing the policy debate.

--Require Ownership Impact Reports just as we do environmental impact reports, that would make people aware of how much, in so many cases, government policy has the effect of concentrating ownership, and would also report on the potential of secondary effects of government expenditures to expand employee ownership.

--Explicitly utilize government contracts and other spending to promote very widespread employee ownership.

--Make employee ownership a factor in government licensing decisions.

--Make employee ownership a centerpiece of privatization of municipal and other government services (as it already has been in many cases).

--Make employee ownership a factor in deciding public policy issues such as anti-trust suits.

--Provide special consideration for employee ownership in any new tax benefits including capital gains tax reductions, estate taxes, and so on.

--Create a modest wealth tax and use the proceeds to finance expanded employee ownership.

--Create a version of agricultural extension services to teach ordinary workers in industry and service sectors about the ins and outs of finance, and strategies for how they can establish a viable ownership stake.

--In addition to ESOPs, Gates discusses proposals for CSOPs (C for customers), VSOPs (TV viewers), DSOPs (depositors), RESOPs (related enterprises, such as small suppliers for large firms), and other forms based on other types of affinity, such as enterprises in a local area.

It should be noted that there are already several substantial tax breaks for ESOPs. The public will need to debate explicitly how much it is willing to spend on "up-close capitalism," or on realizing more widespread distribution of property ownership. The new incentives suggested by Gates could easily add up to a great deal of implicit government expenditure, in that they represent foregone tax receipts that must be made up elsewhere with other taxation or with program cutbacks. Productivity may grow faster under shared capitalism, but it is unlikely to grow faster enough so that these policies pay for themselves. It might of course turn out that on net these programs are comparatively inexpensive; but a full accounting needs to be made. There might also be ways to operate such incentives as loans, or at least to structure them so that those who end up benefitting most must ultimately pay an appropriate share of the social costs, once their wealth has increased enough to do so. The book does not address such concerns, but these are perhaps the most important next steps.

For a book at least as critical of the left as of the right, Gates' inventory of shared capitalism policies were strongly reminiscent of the branch of the New Left that went into local policy in the mid 1970s. An example: the "Dreams and Schemes" of the Community Ownership Organizing Project (COOP).

Also, Gates is very critical of the left when it comes to traditional statist policies, but is deeply sympathetic to many of the projects dear to the heart of the grass-roots activist left, from the radical theories of Ivan Illich, to the Ithaca Hour alternative "time bank" money scheme and other types of community scrip, and to international experiences such as Mondragon in Spain. What he brings from the right is a recognition that private property ownership can make people better stewards. It is a powerful combination.

This unique fusion makes for many original perspectives. For example, Gates' description of the Ithaca Hour project may stimulate different thinking about the potentially socially constructive contribution of private money, not, as some on the right would have it, as a replacement for fiat money, or on the left as a way of dropping out of the mainstream economy, but as a worthy supplement to the continued existence of fiat money, and of a national monetary authority needed to perform the roles of stabilization.

The book should thus lead the left to think very differently about the potential value of ideas that are too often associated in political discourse with the reactionary right, such as the potential of private property, widely dispersed throughout the society as Jefferson envisioned, to reduce alienation and engender a spirit of local civic concern and involvement. It should also lead those on the libertarian right to recognize an affinity with the decentralist and empowerment left.

Proposals for developing countries are also interesting. Gates roots proposals for Cuba and other parts of Latin America in Catholic Church social teachings, proposals for countries in the Muslim world in Islam, proposals for China in the theory of socialism with Chinese characteristics. A developing country official was heard to complain about IMF and World Bank economists who "give advice as they get off the plane," meaning without first acquainting themselves with the vital details of that particular economy. Gates shows he has a capacity to ask questions, and to listen to the answers.

Of course, no book with such ambitions is without significant flaws, and this book is no exception. Gates is a lawyer and investment banker, not an economist, and some of the weaknesses of the book are found in its incompleteness in addressing difficult economic issues. In particular, there is no real acknowledgment that many of his policy proposals, including tax breaks, could turn out to be enormously expensive, and that there are alternative uses for public resources besides building broad based ownership; certainly there is no apparent interest in estimating these costs. But these limitations just suggests useful follow up research for the economics profession. The fact that Gates is not an economist makes it easier to overlook his failure to see the logical problems as well as the insights of Louis Kelso's work. But the flaws in the economic arguments do not make any easier reading of the unnecessary jibes at the economics profession. Also problematic are some dubious interpretations of implications of quantum mechanics, and some questionable applications of complexity theory, neither of which are very helpful in making the important arguments anyway.

There are also limitations to the ideas for each region. Consider, for example, the chapter on China. Given the current problems in Japan, it is something of an irony to hear keiretsu organization praised as a model for reform in China. And there is far too little emphasis on the potential of employee ownership in the huge and dynamic Chinese township and village enterprise sector compared with state owned enterprises.

But, as the author says, "the ownership solution is not a panacea." And improvements may yet be made on the suggestions for each issue, and each country and region. The book has material that could easily stimulate policy debates for years to come. Despite its flaws, this is a great book, and one that deserves to become a classic.

Though the book features employee stock ownership, and an incredibly wide range of variants on the ESOP concept, widespread ownership is certainly not the only or most important type of participation called for in the book. Instead, what Gates calls for is "connectedness," not just to the firm, but to community, to the natural world, to the spiritual dimension of life. Thus, Gates proposes universal and more egalitarian private property also as a way to engage people in workplaces, communities, natural environments, and encouraged in their spiritual development. In effect, Gates proposes universal private property that is connected to peoples' daily lives as the means to end alienation, and that is indeed an ironic and intriguing statement to be published on the 150th anniversary of The Communist Manifesto.

Stephen C. Smith George Washington University Washington DC 20052