(click Chapters to expand footnotes)
- Henderson was an early supporter of the American Revolution, a lawyer, a judge, and a militia officer with an interest in the development of Western lands who was involved with the regions now encompassing North Carolina, Kentucky, and Tennessee. After several controversial attempts involving the Transylvania Company, his group eventually developed 400,000 acres, part of which is in the current state of Tennessee. See Federal Writers Project, Henderson: A Guide to Audubon’s Home Town in Kentucky. New York: Bacon, Percy & Daggett, 1941: 78-79. As a surveyor of Western lands, a major landholder himself, and an inveterate buyer and seller and manager of lands in his own right, one biographer provides much detail on how Washington was preoccupied with land ownership and also not beyond some “sharp dealings”. See Ron Chernow, Washington: A Life. New York: Penguin Press, 2010: 148.
- The story is employed to illustrate the role that the share idea played in early economic policy. However, we do not mean to gloss over the fact that a compensation system based entirely on profit shares was clearly overly risky to workers. Having no fixed wage shifted risk from the ship owners or the shareholders in the ship entirely to workers. For example, the profit sharing model was also used on whaling vessels entirely to the exclusion of fixed wages. In whaling, because of the increased danger and length of the voyages, the system was exceedingly risky and there are stories of the sailors having no say in the management system and incurring so many expenses at the ship store during the voyage that some sailors essentially came home empty handed. Larger whaling ships required more outside investment than the smaller and medium-sized cod ships. On this issue in whaling see, Elmo P. Hohman, “Wages, Risk, and Profits in the Whaling Industry,” Quarterly Journal of Economics, Volume 40, Issue 4 (August, 1926): 644-671 and Elmo P. Hohman, The American Whaleman: A Study of Life and Labor in the Whaling Industry. New York: Longman, Green and Co., 1928.
- Washington visited Marblehead by taking a side trip added from his itinerary on his way to Salem in Massachusetts on October 29, 1789, having begun the Presidency on April 30, 1789. The record indicates that the town was in decay with much poverty and the citizens discussed the revival of the fishery with him. He responded to them in his letter of November 2, 1789. On the same trip through Connecticut he made yet another observation about broad property ownership: “There is great equality in the People of this State–Few or no opulent Men and no poor–great similitude in the buildings.” See Washington, The Papers…Digital Edition, 5: 470. (Original Source: Diaries (11 March 1748- 13 December 1799), Volume 5 (1 July 1786- 31 December 1789), Diary Entry of October 21, 1789.
- Jefferson’s report includes detailed appendices and statistical notes pulling together a lot of research. As Secretary of State Jefferson had been involved in negotiations on U.S. rights to Atlantic fisheries and both the whale and cod fisheries came up frequently in his correspondence. For a lengthy discussion by the editors of the Jefferson papers at the University of Virginia, see 140-172, noting that the request to consider the fisheries came to Jefferson from the Massachusetts General Court (legislature) in August of 1790 and that “no one in America had devoted so much study…to the history of the cod and whale fisheries.” (156). Washington presented an “emphatic positive recommendation” on the fisheries to the third session of Congress (159).
- As this working paper notes, Cabot, a Federalist, had been exchanging very detailed personal letters with Alexander Hamilton about the cod fishery in October 1791, months before the legislation come to the Senate. The fact that he specifically pushed the bill including the profit sharing idea suggests that at least some of the shippers and their allies were aware of its importance, but more research is needed on this question. Henry Cabot Lodge, later the Republican Majority Leader of the U.S. Senate, was the great-great grandson of Senator Cabot.
- Washington’s letters contain many cases where he defends the right of veterans serving both the British Colonial Government and the American Revolutionary Forces to have access to public lands as a bounty for their service. For example, he wrote to the land registrar for North Carolina whose job it was to convert war service patent rights into land grants describing the citizenry as being “in a country like this were equal liberty is enjoyed, where every man may reap his own harvest, which by proper attention will afford him much more than is necessary for his own consumption.” See Washington, The Papers of…Digital Edition, 6:224-227. (Original Source: Confederation Series (1 January 1784-23 September 1788), Volume 6 (1 January 1788- 23 September 1788), Letter to John Armstrong, Mt. Vernon, April 25, 1788. See also, Washington, The Papers of…Digital Edition, 8: 300-303. (Original Source: Colonial Series (7 July 1748-15 June 1775), Volume 8 (24 June 1767-25 December 1771), Letter to Charles Washington, Mt. Vernon, January 31, 1770 and his dinner with and defense of an orphaned son to his Secretary of War in order to gain access to Revolutionary officer father’s bounty land. See Washington, The Papers of…Digital Edition, 2:1 and 6: 276. (Original Source: Diaries (11 March 1748-13 December 1799), Volume 6 (1 January 1790-13 December 1799)), Diary Entry, January 1798 and (Original Source: Retirement Series (4 March 1798-13 December 1799), Volume 2 (2 January 1798-15 September 1798), Letter to Secretary of War James McHenry of January 2, 1798, Mt. Vernon.
- In the text of the Act on 216, see also Section IV which states: “No ship or vessel of twenty tons or upwards, employed asforsaid, shall be entitled to the allowance granted by this act, unless the skipper or master thereof shall, before he proceeds on any fishing voyage, make an agreement in writing or in print of any vessel of the burthen of twenty tons or upwards qualified according to law for carrying on the bank or other cod fisheries, bound from a port of the United States to be employed in any such fishery at sea, shall, before proceeding on such fishing voyage, make an agreement in writing or in print with every fisherman who may be employed therein, excepting only any apprentice or servant of himself or owner, and in addition to such terms of shipment as may be agreed on, shall in such agreement express whether the same is to continue for one voyage or for the fishing season, and shall also express that the fish or the proceeds of such fishing voyage or voyages which may appertain to the fishermen, shall be divided among them in proportion to the quantities or number of said fish which they may respectively have caught which agreement shall be endorsed or countersigned by the owner of such fishing vessel or his agent.” Joseph Blasi has identified copies of several of these fishing agreements in the U.S. Government’s National Archives in Washington, DC.
- This National Archives depository holds the General Records of the Office of the Secretary, 1787-1977 in Record Group 56. The inspection was conducted in the spring of 2012 by Joseph Blasi. See also Alexander Hamilton, Report of the Secretary of the Treasury of the United States on the Subject of Manufactures Made In His Capacity Of Secretary of the Treasury on the Fifth of December 1791 Presented to the House of Representatives, ed. Matthew Carey. Philadelphia: William Brown, 1827: 51-52. Commenting on the incentives, Hamilton wrote: “Premiums serve to reward some particular excellence or superiority, some extraordinary exertion or skill, and are dispensed only in a small number of cases. But their effect is to stimulate general effort. Contrived to be both honorary and lucrative, they address themselves to different passions; touching the chords as well of emulation and of interest. They are accordingly a very economical mean of exciting the enterprise of the whole community.” on 55. See Alexander Hamilton, The Papers of Alexander Hamilton Digital Edition, ed. Harold C. Syrett; Mary-Jo Kline, consulting editor for the Digital Edition. Charlottesville: University of Virginia Press, Rotunda, 2011, X: 298-305. (Original Source: Volume X: December 1791- January 1792). The entire report appears on 230-340.
- The Founders’ approach to this idea is analyzed in: James L. Huston, “The American Revolutionaries, the Political Economy of Aristocracy, and the American Concept of the Distribution of Wealth,” American Historical Review, Volume 98, Number 4 (October, 1993): 1079-1105.
- Many Founders were too conservative for Thomas Paine and other leaders who were more deeply influenced by the Radical Enlightenment.
- For an interactive chart on the share of income growth that went to the top 10% compared to the bottom 90% see: http://stateofworkingamerica.org/who-gains/#/?start=1978&end=2008 For the key findings on wage growth adjusted for inflation see: http://stateofworkingamerica.org/fact-sheets/wages/ For a comparison of median wages versus productivity see: http://stateofworkingamerica.org/chart/swa-wages-figure-4a-change-total-economy/ For the average family income growth of the middle class see: http://stateofworkingamerica.org/charts/real-annual-family-income-growth-by-quintile-1947-79-and-1979-2010/
- Thompson discusses date for 1790 on 513-514, and Lee Soltow, “The Distribution of Property Values in England and Wales in 1798,” Economic History Review, Volume 34, Number. 1, 1981: 60-70 with an estimate of the concentration of land ownership in the top 10% which may have been as high as 90%. Soltow analyzed 71,030 pages of land records in 121 volumes for his study. Gordon Wood’s comment on this issue: “The fact that the great bulk of Americans were landowners radically separated them from the rest of the world. Even England had very few freeholders left: most English farmers were tenants, cottagers, or landless laborers, not like “the yeomanry of this country,,” said Noah Webster, which “consist[ed] of substantial independent freeholders, masters of their own persons and lords of their own soil.” Americans were a society, in other words, ideally suited for republicanism.” See Wood, Empire of Liberty, 45 in footnote 111 quoting Noah Webster, Dissertations on the English Language. Boston, 1789: 288.
- Huston points out that at the time that “the top 10 percent of the population possessing roughly 50 percent of colonial net worth.” See Huston, 1993: 1093. Huston’s footnote 29 enumerates the evidence on this distribution as follows: Alice Hanson Jones, Wealth of a Nation To Be: The American Colonies on the Eve of the Revolution. New York: Columbia University Press, 1980 in table 6.1, 162-163; Jeffrey G. Williamson and Peter H. Lindert, American Inequality: A Macroeconomic History. New York: Academic Press, 1980,: 9, 28-30, 36-39; Lee Soltow, Distribution of Wealth and Income in the United States in 1798. Pittsburgh: University of Pittsburgh Press, 1989: 41-48, 81-82; and, Carole Shammas, “A New Look at Long-term Trends in Wealth Inequality in the United States,” American Historical Review, Volume 98, (April, 1993): 416-24.
- Evidence on 81.3% of stock ownership concentrated in the top 10% is from Sylvia Allegretto, The State of Working America’s Wealth, 2011, EPI (Economic Policy Institute) Briefing Paper Number. 292, March 23, 2011: 11 (Table 6). The table also shows that the top 10% own 84.2% of non-equity financial assets, namely, both direct and indirect ownership of financial securities such as mutual funds, trusts, and retirement accounts and the net equity in unincorporated businesses. Evidence on 73.1% of wealth going to the top 10% is from Allegretto, The State of Working America’s Wealth, 4 (Table 1). This table also shows that the top 10% also receive 47.2% of all household income. For the key findings on wealth, see: http://stateofworkingamerica.org/fact-sheets/wealth/
- Hamilton also believed that broad ownership made greater tax revenues spread over a wider base of the middle class rather than oppressing the poor: “Because of this, there is a circumstance in our favor, which puts it in the power of government to raise an equal proportion of revenue without bothering the lower Classes of the people in the same degree as in Europe. This circumstance is the much greater equality of fortunes, by which means men in this country may be made to contribute to the public exigencies in a much juster proportion to their property; and this is in fact the case. In France the rich have gaind so entire an ascendant that there is a constant sacrifice of the ease and happiness of the people to their avarice and luxury their burthens are in no proportion to those of the middle order and still less to those of the poor.” See Hamilton, The Papers of…Digital Edition, Volume II: 610. (Original Source: : Volume X: December 1791-January 1792), Letter to Robert Morris, April 30, 1781. While scholars have emphasized Assistant Secretary of the Treasury Tench Coxe’s sizable first draft of the Report on Manufactures, none of the statements attributed here to Hamilton appear in the available original Coxe draft although Coxe did continue to comment on Hamilton’s five drafts. Jacob Cooke makes the case that Hamilton actually did very little to aggressively push American manufacturing. Writing earlier in Federalist #12 in 1787 and 1788, Hamilton says that he expected manufacturing to benefit all sectors of society and even increase the value of the land that was held widely. See Alexander Hamilton, James Madison, and John Jay, The Federalist Papers, Charles R. Kesler and Clinton Rossiter, eds. New York: Penguin Group, 2003: 86 (Number 11). The wider context for Hamilton’s appreciation of broad property ownership was based mainly on his emphasis of the natural rights of man, his high estimation of the role of personal incentives in economic life, his view that the right of property and the right of liberty mutually protected each other, and his belief that self-interest and merit would play an important role in achieving a sound economy. The circumstances of his own life, as an orphan who came from the West Indies in his teens, who worked hard with the help of others to develop himself, and who probably wanted to see others have economic opportunity, may have played a role in developing this viewpoint. See Ron Chernow, Alexander Hamilton. New York: Penguin Books, 2005. There is no question that Hamilton clearly saw the American experiment as opposed to feudalism. In a discussion of European feudalism (as part of an unrelated analysis of his public credit proposals), Hamilton, while attached to the financial elite, spared no condemnation for feudalism as being “contrary to the social order, and to the permanent welfare of society” a system that “made absolute slaves of part of the community.” See Hamilton, The Papers of…Digital Edition, XI: 472. (Original Source: Volume XI: February 1792–June 1792). However, since he clearly identified with financial circles, Hamilton did not focus on specific plans to expand property ownership per se but thought that widespread economic growth would benefit the middle classes as his Report on Manufactures makes explicit. He also believed that broad ownership made greater tax revenues spread over a wider base of the middle class rather than oppressing the poor: “Because of this, there is a circumstance in our favor, which puts it in the power of government to raise an equal proportion of revenue without bothering the lower Classes of the people in the same degree as in Europe. This circumstance is the much greater equality of fortunes, by which means men in this country may be made to contribute to the public exigencies in a much juster proportion to their property; and this is in fact the case. In France the rich have gaind so entire an ascendant that there is a constant sacrifice of the ease and happiness of the people to their avarice and luxury their burthens are in no proportion to those of the middle order and still less to those of the poor.” See Hamilton, The Papers of…Digital Edition, Volume II: 610. (Original Source: : Volume X: December 1791-January 1792), Letter to Robert Morris, April 30, 1781.
- Two-thirds of households have stock holdings worth less than $6000 (Table 7,13). These studies are based on analysis of the U.S. Federal Reserve Board’s Flow of Funds Accounts, the Survey of Consumer Finances of the Federal Reserve, the U.S. Census, and Congressional Budget Office information. For the key findings on income see: http://stateofworkingamerica.org/fact-sheets/income/ For recent data on the concentration of capital income and capital ownership, see Lawrence Mishel, Josh Bivens, Elise Gould, and Heidi Shierholz, The State of Working America, 12th edition. Ithaca: Cornell University Press, 2012: 63-65, 94-102, 105,119-111, 115, 286-291.
- These findings are based on data from the Congressional Budget Office, “Whereas the top 1% received 34.2% of all capital income in 1979, their share rose to 58.6% by 2000 and rose further to 65.3% by 2005. Thus, the top 1% virtually doubled its share of capital income between 1979 and 2005, an astounding development. Correspondingly, all other income groups including remainder of the top 10th (the next 9%) received a much lower share of the economy’s capital income in 2005. For instance, the share of capital income going to the bottom 90% declined from 36.7% in 1970 to just 15.1% in 2005, a roughly 60% reduction in their receipt of capital income.” (85) See also, Allegretto, The State of Working America’s Wealth, 15 (Figure F) For the statistics from 1993-2010, see Table 1, Real Income Growth by Groups, 1993-2010, Tables and Figures Updated to 2010 in Excel Format, March 2012 at http://emlab.berkeley.edu/~saez/index.html See also, The World Top Incomes Database at : http://g-mond.parisschoolofeconomics.eu/topincomes/
- Chapter 1. The American Vision
- Smith expresses his doubts in this way, expressing his classic definition of the principal-agent problem of corporate governance: "The directors of such companies, however, being the managers rather of other people's money than of their own, it cannot well be expected that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own." 7. Young, Nash and Raphael note that Findley played a role in the "Whiskey Rebellion" in Western Pennsylvania by ultimately attempting to restrain the violence there. Findley later wrote a book on the subject himself. See William Findley, History of the Insurrection in the Four Western Counties of Pennsylvania. Philadelphia: Printed by Samuel Harrison Smith, no. 118, Chesnut Street, 1798. See also, General Assembly, Debates and, 7, 132.
- See especially p. 80 on the provision to limit the concentration of wealth that reads: "An enormous proportion of property vested in a few individuals is dangerous to the rights, and destructive of the common happiness of mankind; and therefore every free state hath a right by its laws to discourage the possession of such property." For a copy of the 1776 Pennsylvania Constitution, see the Avalon Project at the Yale Law School: http://avalon.law.yale.edu/18th_century/pa08.asp The constituents of the Western Pennsylvania group were an independent anti-government group who wanted little interference in "their business." Some of them were behind the Whiskey Rebellion against Federal taxes that was suppressed with a show of force marching to the western part of the state. Another rebellion, Shay's Rebellion which took place in Western and central Massachusetts at the same time in 1786 and 1787 also raised the redistribution of property fears. As an example of how these issues were on the minds of the Founders, we note that George Washington wrote about it on November 15, 1786 to James Madison while summarizing a report that he had received from Henry Knox, former Revolutionary War General: "Their creed is that the property of the United States, has been protected from confiscation of Britain by the joint exertions of all, and therefore ought to be the common property of all. And he that attempts opposition to this creed is an enemy to equity and justice and ought to be swept from the face of the Earth...they are determined to annihilate all debts, public and private, and have Agrarian (redistribution of land) Laws." In his report, former General Knox estimated that a fifth of populous counties in Massachusetts were supporters with others in Connecticut, Rhode Island, and New Hampshire, mainly, "the young and active part of the community." See Washington, The Papers of...Digital Edition, 4: 331-332. (Original Source: Confederation Series (1 January 1784- 23 September 1788), Volume 4 (April 1786-31 January 1787).
- For example, in the first permanent English colony in America at Jamestown, the Virginia Company initially tried to operate without individual ownership. Communal ownership limiting individual property failed because of low productivity and near starvation and rampant shirking. When each settler received individual ownership of plots, the work ethic and efficiency increased. (6). The Plymouth Colony in Massachusetts also tried communal farming that failed from low motivation and low yields until individual performance determined what people received. Governor William Bradford believed that individual ownership increased productivity and wrote, "Well understanding that one acre enclosed is much beneficial that [sic] 5 falling to his share in common." (12). Several New England villages had "open field" communal farming system that were all abandoned and failed. (13)
- See also, George David Rappaport. Stability and Change in Revolutionary Pennsylvania: Banking, Politics, and Social Order. University Park: Pennsylvania University Press, 1996. Tench Coxe, later Hamilton's Assistant Treasury Secretary attempted to start a bank to compete with the Bank of North America after apparently being excluded from the Bank. His effort was publicly opposed by the Bank's directors. This enhanced the perception that the Bank of North America was interested in a monopoly and this turned Coxe into an ardent opponent. See Eicholz, The Bank of, 174- 176, 180-181, 194-198, and 200-205 on Coxe's interesting proposed corporate governance reforms of the Bank. Ironically, Coxe's competing bank would have been more open to loaning to the "owners of America," namely, the independent farmers and artisans.
- Findley also echoed his remarks opposing the idea that the charter of a corporation would outlast the charter of the Pennsylvania Constitution itself. See General Assembly, Debates and, 123.
- Foner provides more detail about the debate on the bank and Pennsylvania economic policy. See also Tom Paine, Dissertation on Government, the Affairs of the Bank, and Paper Money. Philadelphia: Charles Cist, 1838. Reprint of the Original. See also, Eicholz, The Bank of North America, 106-107.
- Wilson provides evidence that the debate was not only about some vague concept of theoretical limited liability and political ideas. The lack of approval of the Pennsylvania charter created risk for the bank with its foreign investors and some felt the bank was in danger of collapse. In January 1786, as a sign of the political power of the bank and in order to develop an escape hatch to obtain any corporate charter in case the vote in Pennsylvania did not go well, the directors of the bank instructed their lawyers to ask the State of Delaware Assembly for a corporate charter. This was secured within the month after the lawyers informed Delaware that the bank would be open to loaning the state $50-70,000 at 6 percent interest. This is curious since the dividend rate the bank paid investors was 16 percent! On the loans to artisans and retailers in 1790, see Wright, Origins of Commercial, 191. See also, Eicholz, The Bank of North America, 39 (on the legal shield against populist interests that the directors believed incorporation constituted), 63-69 (on the conflict over the state constitution between the populists and the directors' faction), 100-106 (on the 1786 debate), 107-111 (on the 1787 debate) and 213-214, indicating that the bank's new charter included some of Tench Coxe's corporate governance reforms. This is one of the early cases of such corporate governance regulation in American history. On Washington's dinner with Thomas Willing, see George Washington and William Baker, "Washington After the Revolution, 1784-1799 (continued)," The Pennsylvania Magazine of History and Biography, Volume 19, Number 2, 1895: 170-196, especially, 176-178. Washington knew the Willing family well because he was a frequent visitor at the home of Mayor Samuel Powell who was married to Willing's sister Elizabeth and the home of Congressman and later Senator William Bingham of Pennsylvania who was married to Willing's daughter Anna. Washington would later appoint Willing as the first President of the Bank of the United States, the bank that Hamilton fought for and that Jefferson opposed.
- These notes from The Federalist Papers underline the fear of a redistributionist tendency at the time.
- Well before the Constitutional Convention convened, John Adams researched, wrote, published, and promoted a detailed book of several hundred pages on this empirical findings, A Defense of the Constitutions of Government of the United States of America, that went through a specific survey on ancient, medieval, and modern republics, government by government, and discussed how property, democracy, and inequality were approached. Other Founders, such as Jefferson and Madison and Hamilton were deeply familiar with this literature. Hamilton also opens Federalist No. 9 reviewing his reading of the "history of the petty republics of Greece and Italy." See Hamilton, Madison, and Jay, The Federalist Papers: 66. Jefferson collected boxes of books on the subject when he was in France and shipped them to Madison so Madison could read the literature. On this, see the Letter to Thomas Jefferson of April 27, 1785 of James Madison in Thomas Jefferson and James Madison in James Morton Smith, The Republic of Letters: The Correspondence Between Thomas Jefferson and James Madison. New York: W.W. Norton & Company, 1995: 367-368.
- For example, Madison and Franklin strongly agreed that the broad-based ownership of land was necessitated by "Westward expansion," represented "a haven for the landless poor of Europe" and required free trade and foreign commerce to be successful so farmers could export their agricultural goods (121-122). Franklin agreed that more land would resolve the population-to-land ratio problem of republican thought, allow citizens to be independent owners, and prevent citizens the young nation from becoming more dependent and less free. Franklin contrasted the opportunity to be independent farmers enjoying the income from assets they owned with the British system of landless laborers who worked in manufactures, and, with an exploding population, competed for low wages to support a system of low cost manufacturing exports of the mercantilist system. (52-53, 56, 62-63). Franklin wrote that citizens could be more "equal in wealth and power" in America (62). Paine believed that "the cause of America stands not on the will of a few but on the broad foundation of property and popularity." (Thomas Paine, The Writings of Thomas Paine, vol 1, Moncure Daniel Conway, ed. New York: G.P. Putnam's Sons, 1894 : 305 (The Crisis, June 9, 1780) He thought the government must first protect property, that inequality would emerge, that redistribution was wrong, but that free trade would allow wealth to expand. He saw land as the source of wealth, supported low taxes and small government, and was for strong laws against primogeniture. He developed an idea for citizen's trusts funded by a 10 percent tax on estates that would provide a minimum of assets to every baby at age 21. See Joseph Dorfman, "The Economic Philosophy of Thomas Paine," Political Science Quarterly, Volume 53, Number 3(September, 1938): 372-386. However, Paine was more optimistic about the role of finance and manufacturing in expanding the economy for everyone and he roundly rejected slavery and the exclusion of women. On his agreements and disagreements, see also, Foner, Tom Paine and Revolutionary America: 71-106.
- On a committee together with Benjamin Franklin, Adams was in favor of grants of land according to rank to foreign troops during the American Revolution in order to persuade them to come over to the other side, offering "the blessings of peace, liberty, prosperity and mild government." He pushed for and implemented the incentive of individual land ownership for public service repeatedly. See John Adams, The Adams Papers Digital Edition, ed. C. James Taylor. Charlottesville, VA: University of Virginia Press, Rotunda, 2008, 4: 16-17 and note 1. (Papers of John Adams, Volume 4, February- August 1776, X. Draft Preamble of Committee Report on Inducing Foreign Troops to Desert, [ante 27 August, 1776]).
- As these sources note, Adams had personal experience with common ownership in 1763 in which he personally confirmed, as noted in footnote 9 above, that communism did not work in America. In the 1760s he served as a freeholder (councilman) in his town and also surveyor of highways. He believed the common lands that the town held were unproductive and would be better managed under individual ownership, a change for which he pushed and accomplished. In his Defense of the Constitutions of the United States empirical study, he discussed the program of the Spartan lawgiver Lycurgus, who redistributed property mechanically rather than trying to broaden property ownership, in order to achieve political stability. Adams thought Lycurgus' programs to create a new model of man condemned people to an equality of poverty and violated peoples' inherent desires to improve their standard of living. On Sparta, see Stephen Hodkinson, Property and Wealth in Classical Sparta. Swansea: Classical Press of Wales, 2000.
- Adams tied the aristocracy's ability to corrupt elections to the lack of property of the average person writing, "Such is the Frailty of the human Heart, that very few Men, who have no Property, have any Judgment of their own. They talk and vote as they are directed by some Man of Prosperity, who has attached their minds to his Interest." See Adams, John Adams Digital Edition, 4:210. (Original Source: Papers of John Adams, Volume 4, February-August 1776). He reiterated this point in discussing North Carolina with Abigail Adams, "The Genrty are very Rich, and the common People very poor. This Inequality of Property, gives an Aristocratical Turn to all their proceedings, and occasions a strong Aversion in their Patricians to Common Sense." See Adams, John Adams Digital Edition, 1:381. (Original Source: Adams Family Correspondence, Volume 1, December 1761-May 1776). In the end, Adams worried more about the influence of an "aristocracy of merit" than one based on birth and heredity. On this, see Thompson, John Adams, 180.
- His darkest statement in 1807 is this: "No simple Government can possibly secure Men against the violence of Power. Simple Monarchy will soon mould itself into Despotism, and Democracy will soon degenerate onto an Anarchy, such an anarchy that every Man will do what is right in his own Eyes, and no Man's life or Property or Reputation or Liberty will be secure and every one of these will soon mould itself into a system of subordination of all the moral Virtues, and Intellectual Abilities, all the Powers of Wealth, Beauty, Wit, and Science, to the Wanton Pleasures, the capricious Will and the excrable Cruelty of one or a very few." He added that "This last paragraph has been the creed of my Whole Life and is now March 27, 1807 as much approved as it was when it was written." See Adams, Adams Papers Digital Edition, 1: 76-68, 83. (Original Source: Papers of John Adams, Volume 1, September 1755- October 1773), Essay on Self-deceit. He refers to his earlier article of "Self-Deceit" that appeared in The Boston Gazette on August 29, 1763. Ironically, he hoped by giving lots of public honors to the new "aristocracy of merit" that they would work for the public good. On this, see Thompson, John Adams, 222-226. On equal laws for the general interest, see also 190. On "the greatest happiness of the greatest number," statement see Adams, Adams Papers Digital Edition, 12: 48. (Original Source: Papers of John Adams, Volume 12, October 1781- April 1782), Letter to the President of Congress, October 25, 1781, Amsterdam. Note that Adams employed this construction although he does not cite Jeremy Bentham who famously used this phrase, among Others. See Amnon Goldworth, "The Meaning of Bentham's Greatest Happiness Principle," Journal of the History of Philosophy, Volume 7, Number 3 (July 1969): 315-321 on uses and meanings of the term.
- The constitution and the Virginia Declaration of Rights were drafted by Founder George Mason at the Virginia Convention in Williamsburg 1776 while Jefferson was attending the Continental Congress in Philadelphia that adopted Jefferson's Declaration of Independence on July 4, 1776. On the fate of the suggestions Jefferson sent by messenger to the Virginia Convention see footnote 68 below.
- Jefferson's intriguing 1787 financing idea to use leverage to create capital ownership in land involved the U.S. borrowing money on a ten year loan in Europe and paying the principal in land upfront and possibly the interest in land. It is similar to the twentieth century Employee Stock Ownership Plan of Louis O. Kelso because that plan provides stock in the capital of a corporation-not land - in return for an upfront debt transaction that often involves unique ways of structuring and deducting the principal and the interest. The purpose of both is to put capital ownership in the hands of the buyer using leverage without using the buyers savings. A twist involved French investors purchasing Dutch U.S. Revolutionary War debt at a discount and using it to finance their own acquisition of lands for distribution to settlers. [11: 18-20, (Original source: Main Series, Volume 11 (1 January-6 August 1787), Letter to Samuel Osgood, January 5, 1787]. On his 1788 financing idea, again, similar to an Employee Share Purchase Plan, where Dutch lenders would finance the immigration travel and future capital ownership of land for European emigrants to America, who would agree to work as tenants or sharecroppers or indentured servants for several years before receiving 50 acres of land for an individual or 100 acres for a married couple, see [13:8-35, especially, 10, (Original source: Main Series, Volume 13 (March-7 October 1788)]. In this case, workers are using their sweat equity to pay for shares just as workers use cash from wages to buy shares slowly in corporations today. Osgood, a merchant representing Massachusetts in the Continental Congress, was Commissioner of the Treasury for the Confederation Government. On Jefferson's openness to land corporations, see [7:501-502, (Original source: Main Series, Volume 7 (2 March 1784-25 February 1785), Letter to Elbridge Gerry, November 11, 1784, Paris]. Gerry was Massachusetts delegate to the Continental Congress and later Massachusetts Governor.
- The same argument was made to the French nobleman and philosopher Comte Volney in 1795, "Our citizens are divided into two political sects. One which fears the people most, the other the government. You will readily judge in which of these the people themselves are. For my part I have no fear of a people, well-informed, easy in their circumstances, dispersed over their farms, and occupied on them. I say over their farms, because these constitute the body of our citizens. The inhabitants of towns are but zero in the scale. But I leave all these things to those who will have a longer interest in them, and wish to hear nothing connected with politics" See Jefferson, The Papers of...Digital Edition, 28: 550. (Original Source: Main Series, Volume 28 (1 January 1794- 29 February 1796). On Indians, see David E. Watkins and K. Tsianina Lomawaima, Uneven Ground: America Indian Sovereignty and Federal Law. Norman: University of Oklahoma Press, 2002.
- The two bills were: the Distributive Pre-emption Act of 1841 and the Donation Land Act of 1850.
For the of the first text, see:
- http://www.minnesotalegalhistoryproject.org/assets/Microsoft%20Word%20-%20Preemption%20Act%20of%201841.pdf (accessed September 18, 2012)
- http://www.ccrh.org/comm/cottage/primary/claim.htm (accessed September 18, 2012)
- On Gienapp's view of the traditional defense of "republicanism," anti-aristocratic tendencies, property independence, and the importance of the middle class for Republican party support, see 4, 191, 438. See also, Ohio Congressman Timothy C. Day on the free labor ideal on 355 and the statement of the Springfield Republican newspaper on 356. On the role of members of the Free Soil Party in the formation of the national party organization, see 239-271. On Gienapp's view that the actual Fremont campaign- in spite of the motto, "Free Soil, Free Labor, Free Speech, Free Men, Fremont"- was more about opposition to the 1% slaveholder aristocracy than the Homestead idea, see 361-365, 373. However, Fremont was later dismissed from the Army for attempting to implement a Homestead plan for blacks. On this, see footnote 50.
- On the National Reform Association-not to be confused with a similarly named organization that desired to insert explicit Christian language into the U.S. Constitution- and Bovay, see Lause, Young America, 9. Bovay was considered suspect by more radical members of the organization. On Fremont, see Tom Chaffin, Pathfinder: John Charles Fremont and the Course of American Empire. New York: Macmillan, 2002. Fremont placed second in the 1856 Presidential election. On the overall role of the homestead and free soil ideas in the foundation of the Republican party, see Gienapp, The Origins of.
- Consistent with the policy emphasis on "persons of moderate capital" as Washington articulated it in the beginning of the Introduction to this book, Senator Andrew Johnson (who would later hypocritically veto homesteading for blacks) said: "Our true policy is to build up the middle class; to sustain the villages; to populate the rural districts; and let the power of this government remain with the middle class. I want no miserable city rabble on one hand. I want no pampered, bloated, corrupted aristocracy on the other. " (81).
- See also Paul Wallace Gates, "The Homestead Law in an Incongruous Land System,"
The American Historical Review, Volume 41, Number 4 (1936): 652-681, especially,
657 and Fred A. Shannon, "The Homestead Act and the Labor Surplus," The American
Historical Review, Volume 41, Number 1 (1936):637-651, especially 638. The
government kept updating the Homestead concept to fit with the capital needs of different
kinds of farming. For example, in 1909, the Enlarged Homestead Act gave settlers 320
acres of land where dry farming was necessary. In 1916, the Stock Raising Homestead
Act gave settlers 640 acres where they would be doing ranching. Successor acts, such as
The Desert Land Act, the Timber Culture Act, and the Timber and Stone Act, allowed
settlers in different regions to increase the acreage in order to make a viable farm
more probable. For a specific analysis of abuse, see C. Barron McIntosh, "Use and
Abuse of the Timber Culture Act," Annals of the Association of American Geographers,
Volume 65, Number 3 (1975): 347-362. For general background on the evolution of
related land policies, see John Bell Sanborn, "Some Political Aspects of Homestead
Legislation," The American Historical Review, Volume 6, Number 1 (1900): 19-37, Paul
Wallace Gates, The Jeffersonian Dream: Studies in the History of American Land Policy
and Development. Albuquerque: University of New Mexico Press, 1996, Paul Wallace
Gates and Robert W. Swenson, History of Public Land Law Development. New York:
Wm. W. Gaunt & Sons, 1979 and Harold M. Hyman, American Singularity: The 1787
Northwest Ordinance, The 1862 Homestead And Morrill Acts, and the 1944 G.I. Bill.
Athens: University of Georgia Press, 2008). For a study on one state, see Paul Wallace
Gates, Fifty Million Acres: Conflicts Over Kansas Land Policy, 1854-1890. Norman,
Oklahoma: Ayer Publishing, 1997. A Resolution of the House of Representatives in
1870 argued for an end of land grants to railroads. For the railroad numbers, see
Shannon, The Homestead, 638. On this Congressional Resolution on the railroads and
continuing debates, see Gates, The Homestead Law, especially, 658. For a detailed
narrative on the process of homesteading, see H.W. Brands, American Colossus: The
Triumph of Capitalism. New York: Random House, 2011: 215-224. The Act did
not discriminate on the basis of gender. On women homesteaders see, Barbara Handy-
Marchello, Women of the Northern Plains: Gender and Settlement on the Homestead
Frontier. St. Paul: Minnesota Historical Society, 2007 and Marcia Meredith Hensley,
Staking Her Claim. Glendo, Wyoming: High Plains Press, 2008. The National Park
Service maintains the Adeline Hornbeck Homestead as part of the Florissant Fossil Beds
National Monument to feature women homesteaders. See, for example:
- http://www.nps.gov/home/index.htm (accessed September 18, 2012).
- On the Georgia Sea Island experiment by General William T. Sherman during the Civil War, see Richard T. Abbott, Cotton and Capital: Boston Businessmen and Anti-slavery Reform, 1864-1868. Amherst: University of Massachusetts Press, 1991: 84-94, 138-164, 190, 221. On the Georgia Sea Island land distribution story see:
- Sullivan was a Massachusetts judge in 1776, later attorney general for many years, and governor from 1807-1808. On Harrington, see also footnote 64.
- In this footnote the editors say that Harrington was so influential that "an unnamed delegate to the Massachusetts [State Constitutional] convention sought to honor Harrington even more directly when on November 9, he moved that Massachusetts rename itself the "Commonwealth of Oceana," after Harrington's great tract of that name." See James Harrington, The Oceana and Other Works of James Harrington With an Account of His Life by John Toland, ed. John Toland. London: T. Becket, T. Cadell, and T. Evans, 1771 and Hugh Francis Russell-Smith, Harrington and his Oceana; a Story of a 17th Century Utopia and its Influence in America. Cambridge: The University Press, 1914. Adams recommended the Harrington book to Madison for the U.S. Government's library. See his "Report on Books for Congress," in Madison, The Papers of...Digital Edition, 6: 62-115 (Congressional Series, January 1 1783 - April 30 1783). On June 3, 1809, Augustus B. Woodward wrote newly retired President Thomas Jefferson about a three-part study of government with a chapter on Harrington. See Letter of Augustus B. Woodward, June 30, 1809 in Jefferson, The Papers of... Digital Edition, 1: 253-254 (March 4, 1890-November 15, 1809). See also common themes between Harrington and John Locke in Scott, In Pursuit of Happiness, 24-35.
- The editors say in this draft that "Jefferson was engaged in a fresh composition, and a close study of the labored text reveals something of the effort that TJ devoted to the style of his first state paper." (198). For our purposes, the text reveals more of his thinking on the importance of the actual acquisition of property.
- The acreage allocation is contained both in the Fair Copy in Jefferson's handwriting and the First Draft which are side by side in the volume. See the note on 159-162 saying that Jefferson was in Philadelphia at the Constitutional Convention and wrote this draft with the land proposal and sent it to Virginia with George Wythe for Pendleton. However, it arrived the day the Virginia Convention was completing their constitution so that his land allocation proposal was not discussed. Yet Jefferson's preamble in the missive was tacked on at the last moment. See also Jack Lynch, "One of the most intriguing might-have-beens in American History: Jefferson's Tardy Constitution," Colonial Williamsburg Journal, Spring 2007.
- Jefferson enclosed extracts from his letter to Madison basically endorsing the proposed constitution being written in Philadelphia.
- Langdon served in the Continental Congress for New Hampshire and was later its Senator and Governor.
- Chapter 2. Examples
- The Global Equity Organization and their U.S. chapters in major American cities are at: http://www.globalequity.org/geo/home The group sponsors a regular online newsletter to update corporations on employee share plans. Their U.S. conference on employee plans for senior executives is at: http://www.globalequity.org/geo/node/3364 The financial service firms managing employee ownership plans are at: http://www.acspa.info/ The National Center for Employee Ownership has a monthly hard-copy and online Equity Compensation Report (http://www.nceo.org/Equity-Compensation-Report/id/43/ ) An association of staff dealing with equity plans is the National Association of Stock Plan Professionals at http://www.naspp.com/home/ For research see, Gary V. Engelhardt and Brigitte C. Madrian, "Employee Stock Purchase Plans," National Tax Journal, Volume 57, Number 2(2004): 385-406. A detailed history of governmental support is beyond the scope of this chapter. On broad-based stock options, see Alisa Baker and Pam Chernoff, The Stock Options Book. Oakland: National Center for Employee Ownership, 2012. The Federal government continually revises the regulations on these different plans. For current descriptions of these different forms and the related law, see: Corey Rosen, Pam Chernoff, Elizabeth Dodge, Daniel Janich, Scott Rodrick, and Dan Walter, The Decision-Maker's Guide to Equity Compensation, Second Edition. Oakland: National Center for Employee Ownership, 2011; Joseph S. Adams, Barbara Baksa, Daniel D. Coleman, Daniel Janich, David R. Johanson, Blair Jones, Kay Kemp, Scott Rodrick, Corey Rosen, Martin Staubus, Robin Struve, and Dan Walter. Beyond Stock Options: Phantom Stock, Restricted Stock, Restricted Stock Units, Stock Appreciation Rights, and Other Equity Alternatives, Ninth Edition. Oakland: National Center for Employee Ownership, 2011; and, Jon F. Doyle, Dean Fealk, Alan M. Levine, Christine McCarthy, Carine Schneider, Brian B. Snarr, Pamela G. Stout, and Doug Van Tornhout, Equity-Based Compensation for Multinational Corporations Tenth Edition. Oakland: National Center for Employee Ownership, 2008. A course on managing these plans and understanding current law is the Certified Equity Professional Institute at Santa Clara University: http://www.scu.edu/business/cepi/
- Chapter 3. Citizen Shares in the United States
- There are no expanded footnotes for this chapter.
- Chapter 4. How It Evolved
- Jones shows the formation and lifespan of the cooperatives by decade (Table 1, 343), industry including the Knights of Labor initiatives, (Table 2, 346), and the cooperatives as a percent of all establishments founded according to the Census of Manufacture (347) and demonstrates that very few were founded, that the Knights of Labor initiatives were a massive failure, although some of the firms were productive, were able to demonstrate efficiency and were able to survive for more than twenty years. The Minnesota barrel- making cooperatives were especially strong controlling 10-15 percent of their industry from 1880-1910 (346-351). Aldrich and Stern's study of historical sources reveals similar numbers (Table 1, 375; Table 2, 378). They provide a detailed case study on how three specific unions failed in these endeavors, often because of lack of capital, lack of management, and lack of interest (390-400).
- Robert Owen was a world-famous Scottish manufacturing tycoon who used humanistic treatment of workers and education to transform a mill he managed in New Lanark Scotland to a model workplace that received world-wide attention. He became persuaded that education could change human nature to make pure worker cooperatives and utopian cooperative communities with self-management (i.e. New Harmony) the alternative to the current trends in industrialization. He came to the United States in the 1820s. As McCoy notes, James Madison's son-in-law was Owen's disciple and brought Owen to meet the Founder, later recording the interaction. Owen's literature came to the Madison household during this period. Owen also got the attention of President James Monroe was invited to address Congress on February 25, 1825 and March 7, 1825 to lay out his plan. See Lloyd Jones, The Life, Times, and Labours of Robert Owen. New York: George Allen and Unwin, 1919: 225 and Rowland Hill Harvey, Robert Owen, Social Idealist. Berkeley: University of California Press:253. For the draft of his speeches, see Robert Owen, Two Discourses on a New System of Society. Farmington Hills, Michigan: Sabin Americiana, Gale Publishing, 2012. His initiatives failed in the United States because of poor management and disorganization.
- On the Procter-Wilson conflict, see an account on the Princeton University web site: http://etcweb.princeton.edu/CampusWWW/Companion/wilson_woodrow.html and http://www.princeton.edu/~gradcol/perm/hist.htm on Procter's role in the Graduate School. Wilson's nemesis at Princeton was the Dean of the faculty, Arthur Fleming West, who had been Procter's classics teacher in prep school earlier in Cincinnati. On the Plattsburg group, see John Gary Clifford, The Citizen Soldier: The Plattsburg Training Camp Movement, 1913-1920. Lexington: University Press of Kentucky, 1972. On Wood see Hermann Hagedorn, Leonard Wood. New York: Harper & Brothers, 1931; Jack C. Lane, Armed Progressive: General Leonard Wood. Lincoln: Bison Books, University of Nebraska Press, 2009; Jack Edward McCallum. Leonard Wood: Rough Rider, Surgeon, Architect of American Imperialism. New York: New York University Press, 2005. After Teddy Roosevelt died in 1919, the Roosevelt family supported the Leonard Wood candidacy. Wood was a highly praised U.S. Military Governor of Cuba and then U.S.-named Governor General of the Philippines where he was criticized for his oversight of the extensive killing of Muslim rebels in putting down a rebellion in the Moro Province. Wood was not firmly set against unions or strikes but said he was against violence. On Wood's candidacy upsetting the Republican old guard, see Elaine Landau, Warren G. Harding. Minneapolis: Lerner Publications, 2005: 67. As Miller notes, with the unnecessary attention, Procter was asked to step aside as campaign chair on the eve of the convention although he was there and played a key role. The reports of vote buying were later substantiated and widely reported but not in the Wood campaign run by Procter. She notes that Republicans opposed to Wood pushed to create the committee that went after Procter. Wood went into the convention requiring 493 votes for the nomination with 287 ½ votes to 211 ½ for Illinois Governor Frank Lowden, 133 for former California and leading progressive, Hiram Johnson (considered the titular leader of the Progressive Party after Teddy Roosevelt's death), and 65 ½ for Warren G. Harding (88). He was clearly in striking distance if he concluded a deal with Republican leaders.
- On welfare capitalism and Rockefeller, see also, Jacoby, Employing Bureaucracy, 180-182; Bruce E. Kaufman, Hired Hands or Human Resources: Case Studies in HRM Programs and Practices in Early American Industry. Ithaca: Cornell University Press, 2010: 14, 86, 105; Bruce E. Kaufman, Managing the Human Factor: The Early Years of Human Resource Management in American Industry. Ithaca: Cornell University Press/ILR Press, 2008: 45, 224-226; . William Domhoff and Michael J. Webber, Class and Power in the New Deal: Corporate Moderates, Southern Democrats, and the Liberal-Labor Coalition. Palo Alto: Stanford University Press, 2011: 128-135; James Weinstein, The Decline of Socialism in America, 1912-1925. New York: Monthly Review Press, 1968: 191-198; H.M. Gitelman, Legacy of the Ludlow Massacre. Philadelphia: University of Pennsylvania Press, 1988: 191-198; Colin Gordon, New Deals: Business, Labor, and Politics in America, 1920-1925. New York: Cambridge University Press, 1994: 152-155; Stuart D. Brandes, American Welfare Capitalism, 1880-1940. Chicago: University of Chicago Press, 1984; David Brody, "The Rise and Decline of Welfare Capitalism," in Workers in Industrial America: Essays on the Twentieth Century Struggle, David Brody, editor. New York: Oxford University Press, 1993: 48-81; Gerald Zahavi, Workers, Managers and Welfare Capitalism: The Shoeworkers and Tanners of Endicott Johnson, 1890-1950. Urbana: University of Illinois Press, 1988. On Mackenzie King, see R. Macgregor Dawson, William Lyon Mackenzie King, A Political Biography, 1874-1923. London: Methuen & Company, 1958; "The Director of a Great Investigation into Industrial Relations," The Independent, December 7, 1914.
- Carey is the founder of the Carey Center for Democratic Capitalism at: http://www.democratic-capitalism.com/raybio.htm
- The Industrial Homestead idea has been written about by Norman Kurland, President of the Center for Economic and Social Justice at http://www.cesj.org/index.html For discussion of the political context surrounding Kelso's meeting with Russell Long, see Norman G. Kurland, Dinner at the Madison: Louis Kelso Meets Russell Long at: http://www.cesj.org/thirdway/history3rd/kelsomeetslong.htm The quote from Senator Russell Long is from The Congressional Record, December 11, 1972. The quotes from President Ronald Reagan are from his Radio Commentary Sound Recording, "Tax Plan No. 1," Viewpoint with Ronald Reagan, February 1975 available at the Hoover Institution Archives, Stanford University and his speech on Project Economic Justice at: http://www.cesj.org/homestead/strategies/regional-global/pej-reagan.html See http://cdn.calisphere.org/data/13030/hf/tf7c6005hf/files/tf7c6005hf.pdf For the radio audio and other Reagan speeches on broadened ownership and ESOPs see youtube at: http://www.kelsoinstitute.org/quotes.html A number of Kelso's addresses and lectures are also available on: www.youtube.com For Kelso's other proposals, see Louis O. Kelso and Patricia Hetter Kelso, Democracy and Economic Power. New York: Ballinger Publishing Company, 1986 and University Press of America, 1990. On the various issues related to the operation of ESOPs, see The ESOP Association at: http://www.esopassociation.org/ and The National Center for Employee Ownership monthly Employee Ownership Report at http://www.nceo.org/Employee-Ownership-Report/id/46/ A smaller association, the Employee-Owned S Corporations of America (http://www.esca.us/) mainly does lobbying. Four regional centers provide support to companies and workers in this area: the Beyster Institute at the University of California at San Diego (http://rady.ucsd.edu/beyster/), the Ohio Employee Ownership Center (http://www.oeockent.org/), the Vermont Employee Ownership Center (http://www.veoc.org/), and the California Employee Ownership Center (http://ownershipcalifornia.org/ ) Most of these groups provide training on transitions to ESOPs and increasing worker participation in solving company problems. For a brief history of ESOP scams see http://www.nceo.org/main/articles.php/id/1 Based on the chart "Basic Characteristics of ESOPS,", as noted, 17 percent of ESOPs pass through full voting rights on all other issues. According to surveys, a quarter of majority employee-owned firms pass through full voting rights. Five percent of the members of The ESOP Association report they pass through voting rights on all issues. See ESOP Association, ESOP Survey, 19. ESOPs were criticized for their lack of participatory management in the 1980's. On this see, Blasi, Employee Ownership: Revolution or Ripoff. Now, however, a participative culture is widely promoted by the ESOP Association and the National Center for Employee Ownership in their conferences and workshops. See, also Corey Rosen and Loren Rodgers, Fundamentals of Ownership Culture. Oakland: National Center for Employee Ownership, 2011. The National Center for Employee Ownership sponsors a survey that evaluates company strengths and weaknesses in employee involvement. For case studies on how ESOP committees try to develop the corporate culture of the firms, see Jim Bado, Stephen Clifford, Dave Fitz-Gerald, Brian A. Inniger, Camille Kerr, Kellee Kroll, Linshuang Lu, Christopher Mackin, Liz McKeever, Alexander Moss, Tracey Myers, The Phelps County Bank ESOP Committee, Loren Rodgers, Corey Rosen, Virginia Vanderslice, and Jack Veale, The ESOP Committee Guide. Oakland: National Center for Employee Ownership, 2011. For a description of the sale of a family business to an ESOP, see Corey Rosen, Donald Davis, Ronald J. Gilbert, Joseph V. Rafferty, Scott Rodrick, David R. Johanson, Robert F. Schatz, Bruce F. Bickley, James G. Steiker, Douglas Jaques, Brian Snarr, James H. Willis, and Michael A. Coffey, Selling to an ESOP. Oakland: National Center for Employee Ownership, 2011. To explore research on who serves on the boards and employee directors on boards, see National Center for Employee Ownership, 2012 Corporate Governance Survey Results. Oakland: National Center for Employee Ownership, 2012 and Stephen P. Magowan, Scott Rodrick, Corey Rosen, John D. Schlichte, Cecil Ursprung, and Michael Wade, The ESOP Company Board Handbook. Oakland: National Center for Employee Ownership, 2009. On the corporate governance issue, see Merri Ash, Kelly Q. Driscoll, Michael Falk, Colleen Helmer, Brian Ippensen, Alex W. Kirby, Anthony Mathews, Helen Morrison, Corey Rosen, James Steiker, Cecil Ursprung, ESOPs and Corporate Governance. Oakland: National Center for Employee Ownership, 2009.
- Chapter 5. Evidence
Over 100 studies that use hard measures of productivity or profits demonstrate a positive association on average between shared capitalism programs and company performance, though with noteworthy dispersion in results. The studies are listed on the following pages. This list excludes studies examining the effect of shared capitalism on other productivity-related outcomes (e.g., turnover, absenteeism, grievances) or productivity-related attitudes (e.g., organizational citizenship behaviors, mutual monitoring). Findings from the combined studies show substantially more positive associations than one would expect if the null hypothesis of no relationship were true. Two recent reviews of the employee ownership literature concluded that "Two thirds of 129 studies [including both performance and attitude studies] on employee ownership and its consequences found favourable effects relating to employee ownership, while one tenth found negative effects" (Kaarsemaker, 2006), and "research on ESOPs and employee ownership is overwhelmingly positive and largely credible" (S. Freeman, 2007). Formal meta-analyses analyzing the combined results of studies have found strong evidence of a positive association between shared capitalism and performance (Doucialiagos, 1995; Kruse and Blasi, 1997; Weitzman and Kruse, 1990).
Of course correlation does not imply causation. To address selection effects based on unobservable variables, most of the studies cited below have used longitudinal data, comparing performance before and after the adoption of a plan, or examining other time-series variation (e.g. percent covered or size of stakes). The pre/post comparisons using fixed effects automatically control for any unobservable constant firm characteristics. These studies find average productivity increases of 4-5% after adoption of shared capitalism plans (reviewed in Kruse, 1993, and Kruse and Blasi, 1997). Apart from fixed unobservables, there may be time-varying unobservable variables that affect the firm's choice of when to adopt a shared capitalism plan, and that may be responsible for any performance changes. To address this many of the studies cited below have used selectivity corrections (e.g., instrumental variables, 2-stage least squares, Heckman corrections) and continued to find generally positive results. While it is possible that worker self-selection helps account for the higher performance of shared capitalism firms, pre/post evidence from two studies indicates that average worker quality did not change as compensation was changed from individual to group incentives (initially high- and low-productivity workers were equally likely to leave), while average worker performance improved under the group incentives (Weiss, 1987; Hansen, 1997).
These studies point strongly toward a causal effect of shared capitalism on performance when companies adopt these plans, but it is clearly possible that shared capitalism is adopted where it is likely to work well and the positive effects would not occur if it were adopted in other companies. This form of selection bias can only be fully addressed with a true experiment using random assignment. One field study implemented random assignment of profit sharing at 3 of 21 establishments within a firm, finding that the performance of those establishments improved relative to the control group (Peterson and Luthans, 2006); also, laboratory evidence using a true experiment found higher productivity among subjects organized into employee-owned "firms". (Frohlich, Godard, Oppenheimer, and Starke, 1998). This limited experimental evidence suggests positive effects even among those who have not chosen to take part in shared capitalism, but it nonetheless remains plausible that any positive results would be smaller in firms that have not yet adopted shared capitalism. For further discussion of selection bias in studying shared capitalism, see pages 29-33 in Shared Capitalism at Work by Douglas Kruse, Richard Freeman, and Joseph Blasi.
In sum, the evidence using hard measures of performance shows higher average performance under shared capitalism, with positive results maintained using a variety of methods to control for different forms of selection bias. There is nonetheless substantial dispersion within and among studies in estimated effects of shared capitalism, indicating that the effects depend upon how it is implemented. We shed light on this in our recent book Shared Capitalism at Work using two national surveys and over 41,000 employee surveys in shared capitalism companies. We find that these plans have the most positive effects on performance-related attitudes and behaviors when they are combined with low supervision, base wages at or above market, and high-performance policies (job security, training, and employee involvement in decisions). Without these policies these plans can have no or negative effects, indicating that the dispersion in results across the 100+ studies can be explained in part by the types of policies that do or do not accompany shared capitalism.
The studies are organized into the following three sections: A) employee ownership, B) profit and gain sharing, and C) broad-based stock options. Prior literature reviews are cited at the beginning of sections A and B.
- Employee ownership Reviews
- Doucouliagos, C. 1995. "Worker participation and productivity in labor-managed and participatory capitalist firms: a meta-analysis," Industrial and Labor Relations Review, 49(1), 58-77.
- Kruse, Douglas, and Joseph Blasi. 1997. "Employee Ownership, Employee Attitudes, and Firm Performance: A Review of the Evidence." In David Lewin, Daniel J.B. Mitchell, and Mahmood A. Zaidi, eds., Human Resources Management Handbook, Part 1. Greenwich, CT.: JAI Press.
- Freeman, Steven F. 2007. "Effects of ESOP Adoption and Employee Ownership: Thirty years of Research and Experience," Working Paper #07-01, Organizational Dynamics Programs, University of Pennsylvania.
- Kaarsemaker, Eric C.A. 2006. "Employee ownership and its consequences: Synthesis-generated evidence for the effects of employee ownership and gaps in the research literature." York, UK: University of York.
- Frohlich, N., J. Godard, J. A. Oppenheimer, and F. A. Starke. 1998. Employee versus conventionally- owned and controlled firms: An experimental analysis. Managerial and Decision Economics 19 (4/ 5): 311- 26.
- Bayo-Moriones, J.A., P.J. Galilea-Salvatierra, & J. Merino-Diaz de Cerio. (2003). Participation, cooperatives and performance: an analysis of Spanish manufacturing firms. In Kato, T. & J. Pliskin (Eds.), The determinants of the incidence and the effects of participatory organizations (Vol. 7, pp. 31-56). Amsterdam, etc.: JAI.
- Blasi, J., M. Conte, & D. Kruse. (1996). Employee stock ownership and corporate performance among public companies. Industrial and Labor Relations Review, 50(1), 60-79.
- Bloom, S.M. (1986). Employee ownership and firm performance. Doctoral Dissertation, Harvard University.
- Cable, J.R., & F.R. FitzRoy. (1980). Productive efficiency, incentives, and employee participation: some preliminary results for West-Germany. Kyklos, 33(Fasc. 1), 100-121.
- Cin, B., & S.C. Smith. (2002). Employee stock ownership and participation in South Korea: incidence, productivity effects, and prospects. Review of Development Economics, 6(2), 263-283.
- Cole, R.A., & H. Mehran. (1998). The effect of changes in ownership structure on performance: evidence from the thrift industry. Journal of Financial Economics, 50(3), 291-317.
- Conte, M., & A.S. Tannenbaum. (1978). Employee-owned companies: is the difference measurable? Monthly Labor Review, 101(7), 23-28.
- Conte, M.A., J. Blasi, D. Kruse, & R. Jampani. (1996). Financial returns of public ESOP companies: investor effects vs. manager effects. Financial Analysts Journal, 52(4), 51-61.
- Conte, M.A., & J. Svejnar. (1988). Productivity effects of worker participation in management, profit-sharing, worker ownership of assets and unionization in U.S. firms. International Journal of Industrial Organization, 6(1), 139-151.
- Craig, B., & J. Pencavel. (1995). Participation and productivity: a comparison of worker cooperatives and conventional firms in the plywood industry. Brookings Papers on Economic Activity(Special Issue Microeconomics), 121-174.
- Davidson III, W.N., & D.L. Worrell. (1994). ESOP's fables: the influence of employee stock ownership plans on corporate stock prices and subsequent operating performance. Human Resource Planning, 17(4), 69-87.
- Defourney, J., S. Estrin, & D.C. Jones. (1985). The effects of worker participation on enterprise performance: evidence from French cooperatives. International Journal of Industrial Organization, 3(2), 197-217.
- Dunbar, A.E., & S.C. Kumbhakar. (1992). An empirical investigation of the association of productivity with employee stock ownership plans. Journal of the American Taxation Association, 14(1), 22-38.
- Estrin, S., & D.C. Jones. (1995). Workers' participation, employee ownership and productivity: results from French producer cooperatives. In Jones, D.C. & J. Svejnar (Eds.), Advances in the economic analysis of participatory and self-managed firms (Vol. 5, pp. 3-24). Greenwich, CN: JAI Press.
- Estrin, S., D.C. Jones, & J. Svejnar. (1987). The productivity effects of worker participation: producer cooperatives in western economies. Journal of Comparative Economics, 11(1), 40-61.
- Faleye, O., V. Mehrotra, & R. Morck. (2004/5). When labor has a voice in corporate governance. Cambridge, MA: NBER.
- FitzRoy, F.R., & K. Kraft. (1986). Profitability and profit-sharing. Journal of Industrial Economics, 35(2), 113-130.
- Florkowski, G.W., K.A. Shastri, & K. Shastri. (1995). Employee stock ownership plans and financial performance in American firms. Pittsburgh, PA: H. John Heinz III School of Public Policy & Management, Carnegie Mellon University.
- Frye, M.B. (2004). Equity-based compensation for employees: firm performance and determinants. Journal of Financial Research, 27(1), 31-54.
- Gamble, J.E. (1998). ESOPS: financial performance and federal tax incentives. Journal of Labor Research, 19(3), 529-541.
- Iqbal, Z., & S.A. Hamid. (2000). Stock price and operating performance of ESOP firms: a time-series analysis. Quarterly Journal of Business & Economics, 39(3), 25-47.
- Jones, D.C. (1987). The productivity effects of worker directors and financial participation by employees in the firm: the case of British retail cooperatives. Industrial and Labor Relations Review, 41(1), 79-92.
- Jones, D.C. (1993). The productivity effects of employee ownership within command economies: evidence from Poland. Managerial and Decision Economics, 14(5), 475-485.
- Jones, D.C., & T. Kato. (1993a). Employee stock ownership plans and productivity in Japanese manufacturing firms. British Journal of Industrial Relations, 31(3), 331-346.
- Jones, D.C., & T. Kato. (1993b). The scope, nature, and effects of employee stock ownership plans in Japan. Industrial and Labor Relations Review, 46(2), 352-367.
- Jones, D.C., & T. Kato. (1995). The productivity effects of employee stock ownership plans and bonuses: evidence from Japanese panel data. American Economic Review, 85(3), 391-415.
- Jones, D.C., & J. Svejnar. (1985). Participation, profit sharing, worker ownership and efficiency in Italian producer cooperatives. Economica, 52(208), 449-465.
- Kalmi, P., A. Pendleton, & E. Poutsma. (2005). Financial participation and performance in Europe. Human Resource Management Journal, 15(4), 54-67.
- Kato, T., & M. Morishima. (2002). The productivity effects of participatory employment practices: evidence from new Japanese panel data. Industrial Relations, 41(4), 487-520.
- Kruse, D.L. (1992). Profit sharing and productivity: microeconomic evidence from the United States. Economic Journal, 102(410), 24-36.
- Kruse, D.L. (1993). Profit sharing: does it make a difference? The productivity and stability effects of employee profit-sharing plans. Kalamazoo, MI: W.E. Upjohn Institute for Employment Research.
- Kumar B, R. (2004). Effect of ESOPs on performance, productivity and risk. IIMB Management Review, 16(1), 9-20.
- Kumbhakar, S.C., & A.E. Dunbar. (1993). The elusive ESOP-productivity link: evidence from U.S. firm-level data. Journal of Public Economics, 52(2), 273-283.
- Lee, Y.-T. (2003). The productivity effects of employee stock-ownership plans: evidence from panel data of Taiwan electronic companies. International Journal of Management, 20(4), 479-489.
- Livingston, D.T., & J.B. Henry. (1980). The effect of employee stock ownership plans on corporate profits. Journal of Risk and Insurance, 47(3), 491-505.
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- Broad-based Stock Options Empirical studies using hard performance measures
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- For example, see Kim, E.H. and Ouimet, Paige. 2013. "Broad-based Employee Stock Ownership: Motives and Outcomes," Journal of Finance, forthcoming. See also, Blasi, Joseph R., Michael Conte, and Douglas Kruse. 1996. "Employee Stock Ownership and Corporate Performance among Public Companies," Industrial and Labor Relations Review, Vol. 50, No. 1, pps. 60-79, especially p. 66.
- Chapter 6. The Road to Increasing the Citizen's Share
- See the Deputy Prime Minister's speech launching the initiative in January 2012 at: http://www.dpm.cabinetoffice.gov.uk/news/deputy-prime-minister-s-speech-mansion-house In March 2012, the Deputy Prime Minister also spoke to the British Chambers of Commerce about employee ownership at: http://www.dpm.cabinetoffice.gov.uk/news/deputy-prime-minister-s-speech-british-chambers-commerce-annual-conference The Deputy Prime Minister's response to the Nuttall Report at a July 2012 conference to chart a course for Britain is at: http://www.dpm.cabinetoffice.gov.uk/news/responding-nuttall-next-steps-john-lewis-economy The Nuttall Report can be downloaded from the Government's web site at: http://news.bis.gov.uk/imagelibrary/downloadmedia.ashx?MediaDetailsID=5659&SizeId=-1 See also Phillip Blond, "John Lewis Economy Talk is Never Knowingly Undersold," The Financial Times, January 18, 2012; Peter Conliffe, "Millions of Shop Workers...", The Daily Express, March 8, 2012; and, Employee Benefits, "Shared Ideals," Employee Benefits, March 1, 2012. We thank Mr. Graeme Nuttall for information on the UK effort.
- The experiences of these Offices, both positive and negative, offer valuable guidance to any future Office of Broad-based Capitalism. See: http://www.esquire.com/features/dilulio
- See also Robert C. Hockett, "Whose Ownership? Which Society?" Cardozo Law Review, Volume 27(2005): 1-103; Robert C. Hockett, "What Kinds of Stock Ownership Plans Should There Be? ESOPs, Other SOPs, and "Ownership Societies," Cornell Law Review, Volume 92(2007): 865-952; Robert C. Hockett, "Why (Only) ESOPs?" Stanford Journal of Law Business and Finance, Volume 84(2006): 84-120; Robert C. Hockett, "Insource the Shareholding of Outsourced Employees: A Global Stock Ownership Plan," Virginia Law & Business Review, Volume 3, Number 2(Fall 2008): 357-426; Robert C. Hockett, "Towards a Global Shareholder Society," University of Pennsylvania Journal of International Law, Volume 30(2008):101-181. Various related proposals have been suggested across the political spectrum. For example, see, Norman G,. Kurland, Michael D. Greaney, and Dawn L. Brohawn, Capital Homesteading for Every Citizen. Washington, D.C.: Center for Economic and Social Justice, 2004; Bruce Ackerman, Ann Alstott and Philippe van Parijs, with contributions by Barbara Bergmann, Irv Garfinkle, Chien-Chung Huang , Wendy Naidich, Julian LeGrand, Carole Pateman, Guy Standing, Stuart White, and Erik Olin Wright. Redesigning Distribution: Basic Income and Stakeholder Grants As Cornerstones of a More Egalitarian Capitalism, Volume 5. London: Verso, 2005. See also, Erik Olin Wright, Envisioning Real Utopias. London: Verso, 2010 which lays out an agenda for the left on redesigning capitalism.
- Certain forms of profit sharing and gain sharing which are called by various names such as Long Term Incentive Plans and so forth are deductible from profits along with grants of stock. In the case of stock options, the corporate deduction takes place after the stock option is exercised by the employee and it is equal to the gain realized on the stock option, that is, net of the exercise price. For the preceding decade the U.S. Treasury's Office of Tax Analysis estimates that the profits from stock options exercised for all employees in the economy was $126. Billion in 2000, up from less than $60 billion in 1997, and amounted to $78 billion even after the 2000 stock market. The exact deduction for any particular corporation depends on that corporation's tax rate. In this discussion, we refer to the typical situation, which may vary. The detail of this part of the Internal Revenue Code is at 26 C.F.R. 1.162-27 and Treas. Reg. 1.162-27 and is 23 pages in length. The source is Thompson Reuters Westlaw accessed December 2010. The document says: "A performance goal need not, however, be based upon an increase or positive result under a business criterion and could include, for example, maintaining the status quo or limiting economic losses (measured, in each case, by reference to a specific business criterion.)" on 4, Section e, paragraph 2, section (i). The calculations of profits on stock option exercises (which are referred to as "Total Spread Income" in the Office of Tax Analysis working paper in footnote v are based on Standard and Poor's Execucomp, using the method of Mihir Desai, The Corporate Profit Base, Tax Sheltering Activity, and the Changing Nature of Employee Compensation. Cambridge: National Bureau of Economic Research Working Paper 8866, 2002. This method uses Standard & Poors Execucomp's data on stock option profits to the top five in order to establish an estimate of all stock option profits in Execucomp corporations. There has recently been a large increase in another component of equity compensation, namely, restricted stock grants, which these numbers do not include. For the U.S. Internal Revenue Service records that shed light on these deductions, see, United States Treasury, Internal Revenue Service, Statistics of Income: Corporation Income Tax Returns, 2005. Washington, D.C.: U.S. Government Printing Office, 2008. Apparently, neither the Internal Revenue Service's Statistics of Income Division nor the Congress's Joint Committee on Taxation break out the corporate tax deductions for these different nonqualified equity and profit sharing plans in their various reports. There is no question that a detailed government study is necessary in order to come up with an exact accounting of this tax expenditure in order to improve on these best estimates by the authors and others. The specific policy proposal to reform 162(m) is that, in order to continue to receive the unlimited deduction, at the minimum what is spent on sharing profits or stock with the top five percent of the corporation's workers would be available to the bottom eighty percent of the workers, in order for the corporation to receive any tax deduction for any of its employees. "Broad-based plans" mean plans that grant workers equity or profit sharing shares and not plans that require workers to buy company stock such as purchases of company stock through a 401k plan, mandatory purchases of company stock up to a certain percent of salary, and voluntary Employee Share Purchase Plans. The guideline be flexible enough so that individual companies retain the ability to share different amounts with their employees as they see fit but also clear enough so that most of the benefits of the tax incentive do not accrue to highly compensated employees. A corporation can choose not to get the deduction and pay executives whatever wants or it can choose to get deductions for the broad-based plan and still compensate a group of its highly paid employees without a deduction. We seek a guideline that will be flexible enough to encourage more broad-based equity and profit sharing plans but not rigid enough to make corporations not want to get tax deductions. For the detailed policy proposal, see Richard Freeman, Joseph Blasi, and Douglas Kruse, Inclusive Capitalism for the American Workforce. Washington, D.C.: Center for American Progress, 2011.
- Indeed, this tax principle follows closely the anti-aristocratic principle articulated by some of the Founders. The principle that a firm can deduct the cost of employee benefits for tax purposes only if it offers the benefits in a nondiscriminatory way to all workers has precedent in U.S. tax treatment of employee retirement and health plans. Congress first legislated requirements for nondiscrimination pension coverage of a firm's employees in 1942 as noted in the GAO report. The U.S. Treasury statement on the issue in the report by Secretary of the Treasury Lawrence Summers Benefits Tax Counsel to the General Accounting Office in August 2000 that remains germane today states the goal behind giving "tax-qualified status" to such plans: "The aim of national policy in this area should be to insure an equitable distribution of pension benefits to all Americans in order to enhance their retirement security...To the extent that employers adopt new plans...it is important that moderate and lower wage workers participating in the plans receive and vest in a meaningful proportion of the benefits."
- The principle underlying this proposal is consistent with the views of the Founders expressed in Chapter 1 and over two centuries of government support for broadening ownership opportunities. Accelerated depreciation allows corporations to deduct the value of capital equipment to deliver products and services to customers in fewer years thus reducing taxes ; the R&D tax credit allows firms to take a tax credit for incurring R&D expenses in the US. The policy suggestion is meant to encourage plans "not financed by worker savings," meaning "Broad-based plans" that grant workers equity or profit sharing shares and not plans that require workers to buy company stock such as purchases of company stock through a 401k plan, mandatory purchases of company stock up to a certain percent of salary, and voluntary Employee Share Purchase Plans. The goal is to incent the forms of employee ownership executives have created for themselves, namely, those that provide less risky forms of corporate equity.
- There are no expanded footnotes for this chapter.