Employee Ownership: The Case for Metro Action

If there was ever a good moment to promote the idea of employee ownership, surely this is it. The economy is limping away from the Great Recession, median earnings are stuck in treacle, while top incomes soar.

Firms with a significant employee stake look to be more economically resilient as well as more equal in terms of wage distribution. In the 1930s, Robert Brookings himself described employee ownership as “America’s answer to socialism.”

A touch hyperbolic from our founder perhaps, but employee ownership may be part of the answer to some of the tensions in 21st century American capitalism, especially wage inequality and a shift in national income away from labor towards capital. Nor will this mean starting from scratch. Leading scholars in the field, Joseph R. Blasi and Douglas L. Kruse of Rutgers and Richard B. Freeman of Harvard, suggest that “the US is arguably the world leader in shared compensation and decision-making arrangements.”[1]

Since 1974, federal tax law has offered tax advantages to Employee Stock Ownership Plans, in particular as a contribution to retirement savings. The National Centre for Employee Ownership estimates that there are approximately 11,300 employee stock ownership plans for over 13 million employees in the United States, including Publix Supermarkets, the McCarthy Building Company, and craft brewery New Belgium Brewery.

But the action now, in terms of promoting employee ownership, is likely to be at a city or city-region level, rather than a national one. A report I have just written with the U.K. think tank The Centre for London draws on city and regional case studies—including Cleveland, Ohio—to suggest four key factors that lie behind sub-national cultivation of employee ownership, in both the United Kingdom and the United States:

1: Market-Making

Agencies in cities intent on promoting employee ownership can help by facilitating commitments from potential purchasers, or by helping to build a capital market through ‘revolving door’ funds.

2: Evangelising

In areas where employee ownership has captured the imagination, there has typically been an individual who provided much of the energy and inspiration: in the famed Mondragon worker-owned corporation, a Catholic priest, Don José María Arizmendiarrieta; in Cleveland, a political science professor, John Logue. 

3: Matchmaking

As with other forms of economic clustering, a key element in the cultivation of employee ownership is face-to-face contact. Supporting networks of potential and existing employee-owned firms is therefore a potentially important goal for city-based policymakers.

4: Anchor Institutions

Perhaps most important of all is an institution with the specific, narrow goal of promoting employee ownership, acting as a clearinghouse for knowledge, a matchmaking service and a technical adviser. These roles will likely be fulfilled by different organizations in each area, building on their particular institutional strengths and histories: a church school in Mondragon, a regional development agency in Emilia-Romagna, and, in the Cleveland metro area, the Ohio Employee Ownership Center based at Kent State University. 

While these four factors appear to be important, there is still much that we do not know about strategies for encouraging employee ownership at the metro level. It is worth finding out more. If not now, then when?

[1] Kruse, D, Freeman, R, & Blasi, J eds. (2010) Shared capitalism at work: Employee ownership, profit and gain sharing, and broad-based stock options. University of Chicago Press. p.206.