It has become a common cultural reference that the Chinese character for ‘crisis’ combines the characters for ‘danger’ and ‘opportunity’. While the dangers of the ongoing crisis are increasingly clear, the opportunities have not been sufficiently explored yet.
Governments and central banks around the world are preparing huge fiscal and monetary packages to address the current liquidity crisis. These massive interventions should raise a policy question: how should we organize the post-corona economy so that it works for all of us, not only the 1%?
It is the responsibility of the governments to use what is in effect a tax-payers money to promote inclusive economic models. The interventions after the Great Recessions were at least an opportunity missed, bur more probably an opportunity abused.
This time, it can be different. Nationalization options are on the “European table”. And this is not all that bad. The current crisis emphasized, again, the importance of a strong public sector when it comes to strategic infrastructure and public goods and services. However, very few would agree that state ownership is similarly desirable for more conventional enterprises; for the small and medium-sized enterprises (SME), and for the corporations.
The ongoing crisis warrants a significant new initiative that will result in systemic and broad-based employee ownership in firms receiving government aid. This would represent a step to a more responsible ownership structure with a great number of positive externalities:
- Employee ownership is a reward for employees and managers, who will, with the help of state aid, work through the crisis to get the company re-started (and, collectively, the economy as a whole).
- Employee ownership provides an incentive for workers; it gives employees a direct interest in their company, and an increased incentive to take it out of the crisis.
- Employee-owned enterprises are more resilient than conventional companies in times of economic crises; both in terms of survival rates and employment stability.
- Employee ownership typically increases productivity in a company.
- Employee ownership is a way of broadening and deepening the forms of democracy and democratic culture with spillover effects.
- Employee ownership is a perfect “exit strategy” for owners of SMEs. The US Congress designated ESOPs as “the most cost-effective means for both owners and companies to provide for business transition”. This is specially relevant for Europe, where every year around 450,000 SMEs employing 2 million people find themselves in a difficult situation due to ownership succession problem.
- Finally, employee ownership leads to a decentralization of capital ownership; it lowers economic inequality without government redistribution.
We propose that government aid is channeled to establish employee ownership according to the American Employee Stock Ownership Plan (ESOP). ESOPs are already well-functioning in the US (7000 companies in the US, 14 million employees or 10% of the private workforce) and may easily be adopted in other private property market economies (for example in Europe).
In a nutshell, ESOP is a form of employee ownership that makes use of a dedicated trust-like structure associated with a company, which functions as an internal market for shares. These trust-like entities maintain ownership among the current employees even through generational transitions of workers in a company.
Governments are providing help in different forms and shapes, like direct subsidies, debt abatements, purchasing bad receivables and tax breaks, while the government and developmental banks are providing accessible loans.
ESOPs provides a way to structure government loans to achieve long-term EO. Part of the loan provided by a developmental or state-bank to a company can be channeled through an ESOP trust, which can then use the loan money to buy newly issued or treasury shares from the company.
Direct subsidies, tax breaks, purchased receivables and debt abatements by governments may be similarly translated into ESOP ownership. The value of the aid should be matched by newly issued shares or treasury shares, which are transferred to ESOP trusts.
Each crisis presents a unique opportunity for structural change, but very few of those are used to promote public good. Naomi Klein reasonably fears that coronavirus crisis, like the earlier ones, would yet again direct government aid to serve the interest of the wealthiest.
This time, we need a better and constructive strategy. Governments around the world should, by promoting broad-based employee ownership, give primacy to all the frontline managers and workers whose efforts will restart the real productive economy. The ownership aspect would strengthen cooperation and joint responsibility among employees, two necessary and interrelated features to restore economic vitality in the face of a potential global catastrophe.
* Izvorno objavljeno v Medium