Bernie Sanders’s most socialist idea yet, explained
He wants to mandate employee ownership of big companies.
By Dylan Matthews
Vox.com
Bernie Sanders wants to help workers own a portion of the companies at which they are employed.
Per a report from the Washington Post’s Jeff Stein, Sanders is preparing a plan that would mandate corporations “regularly contribute a portion of their stocks to a fund controlled by employees, which would pay out a regular dividend to the workers.”
There aren’t many details on this plan yet, so it’s hard to compare it with much specificity to Elizabeth Warren’s plan that mandates 40 percent of corporate board members be elected by workers, or even to Hillary Clinton’s 2016 proposal to offer a tax break for profit-sharing payments made by corporations to their workers.
But Sanders’s most ardent socialist backers are already comparing it to the fabled Meidner plan, a 1970s initiative in which the social democratic government of Sweden sought to set up “wage earner funds” where workers would pay in payroll taxes and then gradually buy up majority stakes in all Swedish corporations. Eventually, right-leaning parties in Sweden (and the scared Social Democrats who tacked right to win back power) forced the proposal’s defeat. That said, a version of the idea has recently been taken up again by party leader Jeremy Corbyn and shadow chancellor John McDonnell in the British Labour Party, sparking hopes that Sanders, Corbyn’s American equivalent, will embrace it as well.
In its strongest form, Sanders’s plan could amount to a Meidner-esque attempt to achieve real democratic socialism — democratic ownership and control over the means of production. In its weakest form, the plan could be mostly vestigial, a symbolic effort to boost worker power that barely changes material conditions on the ground.
However, The Next System Project, a policy research group in DC, conducted polling on the idea with some increased specificity. They asked Americans if they would “support or oppose a policy requiring companies with over 250 employees to put 2 percent of their shares into a workers fund each year, up to a maximum of 50 percent, which would pay dividends out to the company’s employees.”
Fifty-five percent of respondents supported the idea and only 20 percent opposed it:
This isn’t an issue — like abortion or gun control — that Americans have a lot of familiarity in debating, so I wouldn’t take this polling result as definitive. But it’s certainly a sign that Americans don’t reject the idea out of hand.
A plan to gradually build up 50 percent worker ownership of all large firms would go beyond the “Inclusive Ownership Funds” plan of Corbyn and McDonnell in the UK, which maxes out employee ownership at 10 percent. But both the polled policy and the British policy have a focus on firm-level reforms in common: Workers would gain ownership of their firms, not of a chunk of the economy overall.
These plans go substantially farther than Democratic politicians, including Sanders, have gone so far. Democrats have traditionally backed ideas like employee stock ownership plans (ESOPs), that encourage the distribution of shares to employees, often as part of retirement plans. In a more concrete statement of his priorities on Tuesday, Sanders and a group of other Democratic senators — including fellow presidential contenders Kirsten Gillibrand and Elizabeth Warren and Sens. Patrick Leahy, Maggie Hassan, Jeanne Shaheen, Richard Blumental, and Sherrod Brown — sponsored a bill creating a $500 million US Employee Ownership Bank and offering $45 million in subsidies to states to encourage the formation of employee-owned companies.
The most recent meta-analysis of studies on employee ownership suggests positive, but small, effects on company performance. Skeptics have long pointed to the fact that ESOPs are often structured as retirement plans — investing retirement funds in the company’s own stock as opposed to in index or mutual funds, say — as a reason for caution. Enron’s employee stock ownership plan left employees vulnerable after the company failed, for instance.
But whether a good idea or not, ESOPs fall short of actual employee ownership. There’s no guarantee the stocks they offer will amount to 50 percent, or even 10 percent, of total company shares. They also don’t offer direct dividends and profit-sharing. By contrast, Peter Gowan, a policy associate at the The Next System Project and a vocal employee ownership advocate, notes that the Corbyn proposal pays out as an annual dividend, rather than in retirement.
“Labour are proposing an asset-locked trust which workers would not cash out of upon retirement and instead would pay dividends over the course of their employment,” he told me in a Twitter DM. “This means that the workers can choose to either spend their dividend or put it in a diversified retirement plan, but either way a stock price fall before a worker’s retirement isn’t going to wipe out their retirement savings and they will know this in advance.”
There are more moderate proposals for profit sharing that fall short of actual distributed ownership, like Hillary Clinton’s 2016 campaign proposal to give a tax break to profits distributed to employees. Skeptics of that plan argued it would be easily gamed; companies could capture the tax break by reclassifying existing pay as profits distributed to workers, without benefiting workers or increasing ownership in a real, durable way. The Sanders approach of distributing actual shares would, instead, require companies to pay out the same dividends to employees that they pay to private investors they want to woo, which might reduce the odds of gaming.
But even actual ownership has its drawbacks. By enabling ownership on a firm level, a Corbyn-style plan would lock in inequalities between workers in different firms. A recent paper by labor economists Jae Song, David Price, Fatih Guvenen, Nicholas Bloom, and Till von Wachter found that two-thirds of earning inequality in the US has been generated by differences between high-paying and low-paying companies.
“Firms may have become increasingly unequal in the earnings they pay their workers above common market wages … because some firms had become economic ‘winners’ and are sharing the increased profits with their workers, whereas other ‘loser’ firms are not,” they write.
If that’s true, then a proposal that pools earnings within the “winner” firms, and within the “loser” firms, wouldn’t target a potent source of inequality.
A way to get around this would be to establish a sovereign wealth fund that holds stock in all large companies instead of individual funds for each company. That way, employees in lower-performing firms would get higher payouts, subsidized by employees in more successful firms. But that approach would sacrifice the connection to one’s own firm provided in the Corbyn plan. “I think there is a stronger intuition among people that they are entitled to share in control and ownership over the company they spend their time in than, for instance, 1 share in hundreds of millions of every company in America,” Gowan explained to me.
He wants to mandate employee ownership of big companies.
By Dylan Matthews
Vox.com
Bernie Sanders wants to help workers own a portion of the companies at which they are employed.
Per a report from the Washington Post’s Jeff Stein, Sanders is preparing a plan that would mandate corporations “regularly contribute a portion of their stocks to a fund controlled by employees, which would pay out a regular dividend to the workers.”
There aren’t many details on this plan yet, so it’s hard to compare it with much specificity to Elizabeth Warren’s plan that mandates 40 percent of corporate board members be elected by workers, or even to Hillary Clinton’s 2016 proposal to offer a tax break for profit-sharing payments made by corporations to their workers.
But Sanders’s most ardent socialist backers are already comparing it to the fabled Meidner plan, a 1970s initiative in which the social democratic government of Sweden sought to set up “wage earner funds” where workers would pay in payroll taxes and then gradually buy up majority stakes in all Swedish corporations. Eventually, right-leaning parties in Sweden (and the scared Social Democrats who tacked right to win back power) forced the proposal’s defeat. That said, a version of the idea has recently been taken up again by party leader Jeremy Corbyn and shadow chancellor John McDonnell in the British Labour Party, sparking hopes that Sanders, Corbyn’s American equivalent, will embrace it as well.
In its strongest form, Sanders’s plan could amount to a Meidner-esque attempt to achieve real democratic socialism — democratic ownership and control over the means of production. In its weakest form, the plan could be mostly vestigial, a symbolic effort to boost worker power that barely changes material conditions on the ground.
How employee ownership might work
Characterizing the Sanders plan, at this point, amounts to an exercise in reading tea leaves. We don’t know what percentage of shares it would require corporations to contribute, what the target percentage of shares owned by employees would be (40 percent? 50 percent? 60 percent?), whether these would be voting or non-voting shares, and so on.
However, The Next System Project, a policy research group in DC, conducted polling on the idea with some increased specificity. They asked Americans if they would “support or oppose a policy requiring companies with over 250 employees to put 2 percent of their shares into a workers fund each year, up to a maximum of 50 percent, which would pay dividends out to the company’s employees.”
Fifty-five percent of respondents supported the idea and only 20 percent opposed it:
This isn’t an issue — like abortion or gun control — that Americans have a lot of familiarity in debating, so I wouldn’t take this polling result as definitive. But it’s certainly a sign that Americans don’t reject the idea out of hand.
A plan to gradually build up 50 percent worker ownership of all large firms would go beyond the “Inclusive Ownership Funds” plan of Corbyn and McDonnell in the UK, which maxes out employee ownership at 10 percent. But both the polled policy and the British policy have a focus on firm-level reforms in common: Workers would gain ownership of their firms, not of a chunk of the economy overall.
These plans go substantially farther than Democratic politicians, including Sanders, have gone so far. Democrats have traditionally backed ideas like employee stock ownership plans (ESOPs), that encourage the distribution of shares to employees, often as part of retirement plans. In a more concrete statement of his priorities on Tuesday, Sanders and a group of other Democratic senators — including fellow presidential contenders Kirsten Gillibrand and Elizabeth Warren and Sens. Patrick Leahy, Maggie Hassan, Jeanne Shaheen, Richard Blumental, and Sherrod Brown — sponsored a bill creating a $500 million US Employee Ownership Bank and offering $45 million in subsidies to states to encourage the formation of employee-owned companies.
The most recent meta-analysis of studies on employee ownership suggests positive, but small, effects on company performance. Skeptics have long pointed to the fact that ESOPs are often structured as retirement plans — investing retirement funds in the company’s own stock as opposed to in index or mutual funds, say — as a reason for caution. Enron’s employee stock ownership plan left employees vulnerable after the company failed, for instance.
But whether a good idea or not, ESOPs fall short of actual employee ownership. There’s no guarantee the stocks they offer will amount to 50 percent, or even 10 percent, of total company shares. They also don’t offer direct dividends and profit-sharing. By contrast, Peter Gowan, a policy associate at the The Next System Project and a vocal employee ownership advocate, notes that the Corbyn proposal pays out as an annual dividend, rather than in retirement.
“Labour are proposing an asset-locked trust which workers would not cash out of upon retirement and instead would pay dividends over the course of their employment,” he told me in a Twitter DM. “This means that the workers can choose to either spend their dividend or put it in a diversified retirement plan, but either way a stock price fall before a worker’s retirement isn’t going to wipe out their retirement savings and they will know this in advance.”
There are more moderate proposals for profit sharing that fall short of actual distributed ownership, like Hillary Clinton’s 2016 campaign proposal to give a tax break to profits distributed to employees. Skeptics of that plan argued it would be easily gamed; companies could capture the tax break by reclassifying existing pay as profits distributed to workers, without benefiting workers or increasing ownership in a real, durable way. The Sanders approach of distributing actual shares would, instead, require companies to pay out the same dividends to employees that they pay to private investors they want to woo, which might reduce the odds of gaming.
But even actual ownership has its drawbacks. By enabling ownership on a firm level, a Corbyn-style plan would lock in inequalities between workers in different firms. A recent paper by labor economists Jae Song, David Price, Fatih Guvenen, Nicholas Bloom, and Till von Wachter found that two-thirds of earning inequality in the US has been generated by differences between high-paying and low-paying companies.
“Firms may have become increasingly unequal in the earnings they pay their workers above common market wages … because some firms had become economic ‘winners’ and are sharing the increased profits with their workers, whereas other ‘loser’ firms are not,” they write.
If that’s true, then a proposal that pools earnings within the “winner” firms, and within the “loser” firms, wouldn’t target a potent source of inequality.
A way to get around this would be to establish a sovereign wealth fund that holds stock in all large companies instead of individual funds for each company. That way, employees in lower-performing firms would get higher payouts, subsidized by employees in more successful firms. But that approach would sacrifice the connection to one’s own firm provided in the Corbyn plan. “I think there is a stronger intuition among people that they are entitled to share in control and ownership over the company they spend their time in than, for instance, 1 share in hundreds of millions of every company in America,” Gowan explained to me.
Yes Supreme Comrade, seize the means of production for all!
