Editorial

share this segment by right‑clicking icon to copy linkWho Was Louis Kelso?

People are hungering for property — for a secure, permanent and independent link with spaceship earth that ownership represents and which only ownership can protect or defend. It is humiliating to possess nothing, to own nothing, and hence to produce nothing and to count for nothing.— Louis O. Kelso and Patricia Hetter, Washington Post, June 18, 1972

We want to change the system and yet we know that change has to occur at scale — large scale. Looking at history, projects like rural electrification, agricultural cooperatives, or credit unions brought change through both broad grassroots membership as well as governmental enabling via legislation.

Perhaps the last such broad-gauge victory for the cause of shared ownership was the Employee Stock Ownership Plan (ESOP), the brainchild of a bow-tied Republican attorney named Louis Kelso. His good idea has grown to scale, with some 6,000 ESOPs in operation, benefiting around 10 million participants.

A native Coloradan and graduate of the University of Colorado (Boulder) law school, Kelso’s legal practice led him to notice something about how rich people made money: they almost never risked their own. Overcoming our two different economic systems, he learned early, would require widening access to capital.

Kelso, a man in the grip of an idea (or several, actually), knew that he needed a champion on the floor of the U.S. Congress, someone who also feared this country becoming (as Kelso put it) “a nation of industrial sharecroppers.”

That person turned out to be Sen. Russell Long, a centrist Louisiana Democrat with a populist streak, who bought into Kelso’s vision. (Long was the son of the famous Louisiana governor, Huey P. Long, assassinated in 1935.)

Moreover, Long shepherded the ESOP idea into legislation via the ERISA Act (1974), a tax and labor law that established minimum standards for corporate pension and employee benefit plans. Thus jobs and wages alone would become less critical to workers because their ownership stakes would supply additional capital.

Kelso’s goal was to help bring the capitalist economy down to human scale, as he put it, giving every worker a capital stake, not just a wage or salary.

Interestingly, Kelso believed in financial innovation as part of his larger campaign to restructure democratic capitalism generally. Another building block in his proposals was a CSOP — a consumer stock ownership plan — which he tested in California with an agricultural purchasing co-op’s membership.

Then there was his idea for the Capital Diffusion Reinsurance Corp, a kind of Freddie Mac / Fannie Mae entity which would help create a market for this kind of mass lending. His EOTs (employee ownership trusts) would offer more flexibility than ESOPs.

I echo here Nathan Schneider’s question: how do we develop post-ESOP structures which can learn from the co-op experience? ESOPs are moving toward practices like open book management, as he has noted, a more participatory form of governance, even though there’s no legal requirement.

Can the co-op and the ESOP model converge? How can companies go deeper in their commitment to employee ownership, even encoding social purpose in their ESOPs? This line of inquiry isn’t new. (Of possible interest: The Journal of Participation and Employee Ownership.) That the big tech platform companies, perhaps surprisingly, are talking lately to the SEC about user ownership schemes is new, however. Let’s hope Louis Kelso’s ideas are about to catch a second wind. 

share this segment by right‑clicking icon to copy linkDaniel Fireside on Funding the Revolution

Daniel Fireside is the founder of Uncommon Capital Solutions, a board director at Namaste Solar, an advisor to the Main Street Phoenix Project, and Fundraising Coordinator for Downtown Crenshaw. He was the Capital Coordinator for Equal Exchange for just under eleven years, beginning in 2010.

share this segment by right‑clicking icon to copy linkFund Profile: LEAF Fund

This conversation was with LEAF Fund’s Josh Glickenhaus, Director of Lending and Operations.

Boston-based LEAF Fund, a subordinate organization under the ICA Group, is one of only three CDFIs nationally with a specific focus on worker cooperatives, including community-owned natural food cooperatives that create high quality jobs and provide access to healthy food in urban and rural communities; low-income cooperative housing developments; and worker-owned firms and other community-based businesses and social enterprises.

Since its founding over 30 years ago, LEAF (Local Enterprise Assistance Fund) has invested and leveraged over $122 million, resulting in the creation or retention of more than 10,300 jobs.

In addition, LEAF provides capital advisory services and other technical assistance to small businesses in the Greater Boston Area.

Books

share this segment by right‑clicking icon to copy linkFour Reasons to Read Mariana Mazzucato

If you want to understand the new economy we so badly need, then you’ll want to read people like Elinor Ostrom on the commons, Silvia Federici on the history of women’s work, Esther Duflo on the importance of empirical trials in poverty-fighting, Kate Raworth on the “doughnut model” of planetary sustainability, Carlota Perez on the ills of financialization, Hilary Cottam on the need for social design — and Mariana Mazzucato. Notice anything about this list?

Although women reportedly make up about one-quarter of the economics profession, it’s striking how many are thought leaders in the work of building up the solidarity economy. Which brings us to Mazzucato.

An Italian-American with dual citizenship, Mazzucato has degrees from Tufts and the New School and has taught at NYU, the University of Denver, the London Business School, and is now a professor at The Open University. A specialist in the economics of innovation, she has advised the EU, the British Labour Party, and the OECD and is a member of the UN’s Sustainable Development Solutions Network Leadership Council.

The first reason to read Mazzucato — I’ll focus here mostly on her 2018 book, The Value of Everything — is for her critique of our extractive economy, particularly the way it confuses value creation (the transformative research from Xerox Parc in the early 1970s) with value extraction (cash-heavy corporations buying back their own stock in order to reward stockholders and execs instead of investing in innovation or other value creation).

A second reason: her revisionist history of our changing ideas about the nature of value of economic “rent” (unearned income) — which is the principal means by which value is extracted. (Adam Smith believed a genuinely free market was one free of rent, while David Ricardo considered landowners who merely collected rents without improving the productivity of the land to be “parasites.”)

Reason number three: her stunning analysis of the scope and impact of the financialization of the real economy over the last several decades. Starting with Milton Friedman’s famous 1970 NY Times Magazine article on shareholder value, Mazzucato unpacks the damage that the MSV (maximizing shareholder value) movement has wreaked: “short-termism” and its speculative dimensions, the retreat of patient capital, rapacious financial engineering extending now to social providers and public utilities such as water companies, and a distortion of incentives around investment generally.

And finally, reason number four: her eye-opening analysis of our compulsive undervaluing of the contributions of the public sector. In addition to their recent history of mismeasuring value, economists and now the public, in Mazzucato’s view, have disastrously failed to appreciate the role of government as innovator.

She cites the iPhone as an example of a product whose success depended much less on our notions of heroic, usually male, risk-takers and much more on public funding via the Defense Advanced Research Projects Agency (for the Internet, SIRI), the U.S. Navy (GPS systems), the CIA (touchscreen technology), and Xerox PARC (the GUI itself).

(Although Mazzucato doesn’t comment on the fact, the Cold War / Defense Department origins of Silicon Valley as the foundation of its stunning ascent as a global center of power are now becoming more evident with the rise of surveillance capitalism.)

Mazzucato’s latest book, Mission Economy, takes up this theme of authentic public-private collaboration to argue for restructuring capitalism, not solely in a program of redistribution but in the spirit of a NASA program driven by innovation. Let’s hope her ideas — and those of the other women mentioned above — not only get a hearing but bring action.