8
Emerging Property Rights

THE PRINCIPLE OF EQUALITY

Under market principles, wealth does not legitimately
belong only to stockholders. Corporate wealth belongs to
those who create it, and community wealth belongs to all.

If change begins in the mind, it consists not only of seeing differently but of conceiving of new rights—conceiving of ourselves as fully empowered. In this spirit, we might turn to a second principle of economic democracy: corporate wealth belongs to those who create it and community wealth belongs to all. As we thus enter the terrain of new economic rights, we might remember what Thomas Paine wrote upon entering the terrain of the common man’s new political rights:

Perhaps the sentiments contained in the following pages, are not yet sufficiently fashionable to procure them general favor; a long habit of not thinking a thing wrong, gives it a superficial appearance of being right, and raises at first a formidable outcry in defence of custom. But the tumult soon subsides. Time makes more converts than reason (italics in original).¹

Thus began Paine’s most famous pamphlet, Common Sense, which was widely credited with solidifying public resolve for American independence from the Crown. In those memorable pages, Paine wrote, “I offer nothing more than simple facts, plain arguments, and common sense.” And he asked of the reader only “that he will divest himself of prejudice and prepossession, and suffer his reason and his feelings to determine for themselves.”²

Like Paine, we might invoke plain arguments and common sense in the face of custom—the custom, for example, that public companies manage for profits, and that these profits (at least conceptually) belong to shareholders. Even if only a portion is paid out directly, earnings are generally the basis for company value, and that value is pocketed by shareholders. Yet in the knowledge era, much corporate wealth arises not from assets purchased with shareholder dollars but from the knowledge in employees’ minds. As the foundation of wealth creation has changed, the allocation of gains should change also.

The principle is simple: efficiency is best served when gains go to those who create the wealth. Thus, instead of aiming to pay employees as little as possible, corporations should distribute employee rewards based on contribution—while recognizing that in any humane social order, a living wage is the basic minimum. Likewise, corporations might aim for a decent minimum stockholder gain but drop their focus on maximum gain. The legitimate goal is reward based on contribution. Since the contribution of stockholders has shrunk dramatically, their gains should shrink also. It simply defies market principles to continue giving speculators the wealth that employees create.

To use again the terminology of Jeff Gates, we must look at opening the closed loop of wealth creation. Instead of allocating wealth only to wealth, we need a greater emphasis on mechanisms that allocate wealth to merit. We must recognize new principles: First, that infinite and increasing flows of wealth for a onetime hit of money are artificial, aristocratic, and absurd. Second, that wealth flows more naturally to those who create it. As Thomas Jefferson put it, the “artificial aristocracy founded on wealth” must make room for the “natural aristocracy” of talent.³

THE PROPERTY RIGHT OF LABOR

We can rest our argument for this principle on natural law—and by that I mean not scientific law, but the naturally just order that Thomas Jefferson invoked when he wrote of principles we hold to be self-evident. As we saw in chapter 3, it was this kind of natural law that American courts appealed to in articulating a democratic law of real property: the value of improvements are to be left with the developer. Wealth belongs to those who create it.

It makes little sense today that corporate law remains feudal, with stockholders supposedly owning a firm’s assets and thus everything created on top of those assets. If we divest ourselves of prejudice and allow reason to determine for itself, it’s natural that employees have a right to much of the value they help to create.

Market principles, at their best, are about self-reliance, hard work, and competition. Free market theorists are always urging nations to open themselves to competition, to let down protectionist barriers. We might make the same argument to stockholders, urging them to let down the protectionist legal barriers guarding shareholder primacy, to open themselves to free competition with employees. If the contribution shareholders make to the corporation is so vital, it will be regarded as such by market forces. If their contribution is not so vital—and in many cases, clearly it is not—then why protect them? Economic theorist Joseph Schumpeter said the free market is about “creative destruction.” Perhaps it’s time for a little creative destruction of the privileges reserved for wealth.

Perhaps it’s time to replace archaic privileges with democratic economic rights—like new property rights for employees. A property right accruing to labor may seem like a new idea, but in truth it is a very old idea. In our best political and economic traditions, it is labor that creates the right to property in the first place.

John Locke in Two Treatises of Government was one of the first to articulate this principle, in the late 1600s. “Justice gives every Man a Title to the product of his honest Industry,” he wrote.⁴ “As much land as a man tills, plants, improves, cultivates, and can use the product of, so much is his property.”⁵

Writing nearly a century later, Adam Smith echoed this philosophy in The Wealth of Nations, writing, “The property which every man has in his own labour … is the original foundation of all other property.”⁶

We find the same principle scattered throughout democratic history. Thomas Paine wrote, for example, that a key issue was the status of the common man, and “whether the fruits of his labour shall be enjoyed by himself.”⁷ Thomas Jefferson, in the same vein, defended a right “to the acquisition of our own industry … resulting not from birth, but from our actions.”⁸ As a slave owner himself, Jefferson’s actions of course fell short of his ideals. But it is to the ideal that we must constantly return, as Abraham Lincoln did in challenging the institution of slavery. He observed: “Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration.”⁹

Some might argue that it is the labor of the entrepreneur that creates title to corporate wealth, and that this wealth—in the form of corporate stock—rightfully passes to one’s descendants. We think of this as economic democracy: that anyone may start his or her own company and run for the top. We fail to see our unconscious aristocratic assumptions: that there is a top, that wealth should flow to the top, that those who reach it will rule their own commoners like feudal lords, and that their privileges will pass intact to the next generation. If this system favors entrepreneurs, it also favors CEOs, who likewise benefit from a system where wealth flows upward. We may think of this “openness” at the top as democratic, but it’s really about allowing a chosen few entry into the aristocracy.

The alternative, in a democratic era, is Thomas Jefferson’s vision of all citizens owning productive assets and enjoying the fruits of their own labor. Similarly, Thomas Paine’s vision was of “every man a proprietor.”¹⁰ It’s a worthy ideal, to own one’s place of work. But in the corporate era, most citizens are necessarily employees, and always will be. We need a new economic vision for a new era: not every man a proprietor, but every employee an owner.

All of us have the capability of working on our own, but many choose to deposit this capability with a corporation. The corporate contract thus works much like the social contract. As Paine described it in Rights of Man, the citizen deposits his rights and capabilities “in the common stock of society, and takes the arm of society, of which he is a part.” This makes him or her a full citizen, by natural right. “Society grants him nothing. Every man is a proprietor in society, and draws on the capital as a matter of right”(italics in original).¹¹

In similar manner, every employee is a natural owner of the corporation, and draws on wealth created as a natural right. This is not something the corporation grants the employee, as in the gift of a few stock options.

In believing that property rights spring not from all labor but only from the labor of entrepreneurs and CEOs, we value aristocratic rights over natural rights. The point is not that the skills of a CEO aren’t scarce and valuable but that they realize their value only in conjunction with the skills of others. The point is not that the property rights of the entrepreneur are illegitimate but that they have been stretched beyond reasonable bounds—much as the property rights of kings were once stretched beyond reasonable bounds. Entrepreneurs are like the original warrior-kings, for whom it is legitimate to own territory they themselves have conquered. But when their rights pass to descendants or speculators, we have others claiming wealth they did little to earn.

If our centuries-long battle with kings has taught us anything, it is that property rights are an evolving concept. And they must continue to evolve. They must conform to natural principles of justice, which means having some reasonable relation to productivity and reflecting some concern for a decent minimum income. In our own era, this may well mean emerging property rights for employees. It may also mean that a living wage is as important a right as the right to a reasonable return on investment.¹² And it certainly means that granting exclusive and increasing privileges to those who live off wealth that others create is no longer legitimate.

RECLAIMING LOCKE AND SMITH

If we find hints of these principles in many sources, we find their best elaboration in John Locke, who is often claimed as a champion of property rights. When his writing is viewed in full, we find him expressing contempt for “the idle, unproductive, and Court-dominated property owners,” the “court parasites” and “pensioners” who lived off their property but no longer worked it. In terms that might be used to attack poverty-level wages paid today, Locke called it an offense “against the common rule of charity” for one individual to “enrich himself so as to make another perish.” To thus exploit someone because of his necessity Locke said was robbery.¹³

This radical criticism of property detached from labor is a point often missed in Locke, but University of California–Los Angeles political science professor Richard Ashcraft draws it out persuasively in his book Revolutionary Politics and Locke’s Two Treatises of Government. In his analysis, Ashcraft upends the common interpretation of Locke—an interpretation seen in Isaiah Berlin, for example, when he proclaims Locke to be “the spokesman of unlimited capitalist appropriation.”¹⁴ This interpretation is likewise seen when conservatives defend property rights by citing Locke’s famous statement that government “has no other end but the preservation of Property.” But for Locke, we must recall, property did not mean merely wealth: it meant one’s life, liberty, and possessions. In modern terms, it means everything that is one’s own, including family, dignity, and the right to a decent life.¹⁵

Ashcraft emphasizes that Locke did not exalt property rights in general but favored only those rights stemming from honest industry. In his own time, Locke was a revolutionary. In his Two Treatises of Government—which was, in effect, the political manifesto of Britain’s Glorious Revolution—Locke attacked the absolute property rights of the king and his court, and was thus among the first to intellectually undermine eternal property rights, to assert that property was an evolving concept. As Ashcraft writes, Locke’s essential political message was that the productive members of society ought to unite against “an idle and wasteful landowning aristocracy.”¹⁶

We might summon the spirit of Locke in uniting against the idle stock-owning aristocracy. Using Locke in this way is more significant than it might seem at first blush. Although he is not as well known today as Jefferson or Paine, his ideas permeated the air of Philadelphia when the American Revolution began. Locke was a founding theorist of democracy. By allowing wealth-rights absolutists to claim him as their own, we allow them to claim the mantle of democracy. In reclaiming Locke, we capture the guns of the opposition and turn their own weaponry against them. In the process, we seize the legitimacy once claimed by wealth privilege—just as Locke seized the legitimacy once claimed by monarchical privilege.

Ideas provide every regime’s base of legitimacy, without which the amassing of wealth seems indefensible. Reclaiming Locke is thus much more than an intellectual nicety; it is, in the most profound sense, a coup.

We might execute a similar coup by reclaiming Adam Smith—placing alongside his ubiquitous notion of the invisible hand his other, more revolutionary principle: that high corporate profits represent an “absurd tax.” Here again we find a thinker used as an apologist for “unlimited capitalist appropriation” whose own writing contradicts that usage.

What’s often overlooked in Smith is that he believed profits should naturally be low. They are “always highest in the countries which are going fastest to ruin,” he wrote. Such a state of affairs enriches only the few, he continued. For “by raising their profits above what they naturally would be,” wealth holders in effect “levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens.”¹⁷

This is intellectual ammunition of the most potent sort. We might pull out both cannons of our canon at once, and invoke Smith and Locke together as we depict corporations levying an absurd tax on employees and the community in order to benefit an idle, speculative, stock-owning aristocracy.

What we gain from these thinkers are principles for challenging the legitimacy of the system design. We gain from them the grounding to assert that current wealth allocation relies not on natural principles but on artificial principles: the courts’ insistence that corporations maximize returns to shareholders. We gain the audacity to say this mandate no longer makes sense.

The time is coming when we must replace today’s archaic mandate with a more humane law: individuals have a right to the acquisition of their own industry.

The principle is so simple—yet so often neglected. Economists sometimes dismissively refer to it as the “labor theory of value,” and like to say it has been discredited. But the labor theory of value, usually attributed to Karl Marx, stipulates that “only human sweat and skill is the true source of all value”(italics added).¹⁸ And that is clearly not the case. Human skill becomes more effective when combined with financial resources.

But we might turn the argument around and note that the stock market today embraces a “financial theory of value,” which stipulates that financial capital is the true source of all value. If we allow our reason to determine for itself, we see that corporate wealth is a joint creation of capital and labor, and by right belongs to both.

Employees are deprived of their rightful share when productivity goes up much faster than wages and the surplus is directed to stockholder gains. Citizens of communities are deprived of their rightful share when corporations evade taxes or are given billions of dollars of “property rights” in the public airwaves. It’s not the market that directs those gains to corporations and their stockholders. It’s the corporate power structure, a structure that tramps on democratic right and violates economic laws.

RESTORING NATURAL ECONOMIC LAW

It’s a common tenet of mainstream economics that agents of production are paid in relation to their marginal productivity. We see this, for example, in the work of American economist John Bates Clark—one of the initial developers of marginal productivity theory (and the namesake of a prestigious award for economists under forty). In the first sentence of the preface of his Distribution of Wealth, he wrote: “It is the purpose of this work to show that the distribution of the income from society is controlled by a natural law, and that this law, if it worked without friction, would give to every agent of production the amount of wealth which that agent creates” (italics added).¹⁹

The problem is, corporate wealth distribution is not without friction. It is controlled by a feudal law—a privilege—that says new wealth belongs to those already possessing wealth. This friction is built into the current structure of corporations. Because of their size and economic dominance, corporations systematically undermine the natural law of wealth allocation throughout our economy—as Clark himself recognized. In his Essentials of Economic Theory, he wrote that corporations “are building up a semi-public power—a quasi-state within the general state—and besides vitiating the action of economic laws, are perverting governments.”²⁰

If we are to restore the operation of natural economic law, we must acknowledge an employee right to a substantial portion of corporate wealth—as some of our most successful business leaders already do.

One of the most elegant structures for recognizing employee economic rights is the arrangement devised by Roberto Eisanman, founder of Brazil’s La Prensa—an arrangement whereby the publication’s profits are split evenly with employees, after capital draws its “wage.” “Capital should make a wage,” Eisanman explains, based on where else it might be invested, and at what rate. (And this, I might add, seems to me a reasonable proposition.) Thus at the beginning of each fiscal year, the company determines the proper salary for capital. If it is 10 percent, then the first 10 percent of profits that year go to capital. Additional profits are split with employees, fifty-fifty. “It creates extraordinary efforts that create extraordinary profits,” he said at the 1998 Business for Social Responsibility conference. The previous year, for example, the lowest-paid employee had taken home profit sharing equal to six months in wages. And shareholders got a cash dividend of 36 percent. “It didn’t cost us anything,” he added. “It’s good for everybody.” And this system has been in place for thirty-five years.²¹

La Prensa’s plan is striking in its simplicity. Employees and stockholders together create wealth, and since it’s impossible to determine who created how much, they split it evenly, after each draws a wage.

Profit sharing has of course been around for a long time. It’s one sign that our system is naturally trying to evolve toward a more democratic economy. But the fact that profit sharing with lower-level employees remains so rare—it’s practiced at only about 10 percent of companies—is a sign of how far we have to go.

THE PROS AND CONS OF EMPLOYEE OWNERSHIP

If profit sharing on a large scale (not the tiny scale in force at many companies) is one way to move toward an employee property right, direct ownership in the company is another. Here we might look to the example of Robert Beyster, founder of Science Applications International Corp. of San Diego. With 1999 revenues of an impressive $5.5 billion, SAIC was dubbed by Red Herring magazine “the giant that moves like a startup.” A good deal of that nimbleness is due to the fact that employees own 90 percent of the company.²²

Beyster’s philosophy is simple: “Those who contribute to the company should own it,” he has said. And as the company’s ownership philosophy puts it, that ownership “should be commensurate with employee contribution and performance as much as feasible.”²³

In this spirit, two hundred among the firm’s forty-one thousand employees—identified as future leaders—get $25,000 in stock annually, through a trust vesting over seven years. Others are eligible for stock purchase, bonus, and option programs. And everyone can participate in the Employee Stock Ownership Plan (ESOP). Through these various means, about 91 percent of employees own stock. And many hundreds have already become millionaires.²⁴

As a consulting firm, SAIC offers a nearly pure example of the principle that employees create company wealth. Apparently recognizing that, Beyster made an early pledge never to own more than 10 percent of the company. Today he owns just 1.3 percent, which is estimated to be worth $90 million. As he told Forbes, “How much money can you spend anyway?”²⁵

Employee ownership is a valuable tool of economic democracy, though it is not without flaws. It retains the principle that economic sovereignty rests in property and that with property ownership comes a right to have one’s interests considered paramount. In an ultimate scheme of reform, we should make the claim for a legitimate employee stake quite apart from property ownership, based on the notion that corporations are not objects but human communities. Because these corporate communities exist inside a democratic order, all their members should have a right to a voice in governance—even if they don’t own property.

A second problem with employee ownership is that it implies that if the “right” people own stock, corporate focus on shareholders alone is somehow justified. We thus run the risk of simply elevating a new body of feudal lords.²⁶ What economic democracy also requires is a broad recognition that corporations must serve the common good—a topic to which we’ll turn in chapter 9.

That said, the concept of employee ownership is fruitful because it taps directly into market forces. The whole idea of profit is that it spurs owners to manage efficiently, because they know they’ll pocket the gains. Absentee ownership works against this natural economic law, as it can force corporations to lay off productive employees in order to siphon wealth to idle speculators. Employee ownership begins to put incentives back in their proper place.

What’s also promising about employee ownership is that it could be almost immediately viable politically. Asset-based policies are popular today, in part because they’re often acceptable to both liberals and conservatives. This is a sign that new principles are indeed emerging: rewards should be related to productivity; wealth should flow to those who create it; and financial assets should be broadly owned.

The time may be ripe to create new public policy initiatives for employee ownership. In prior decades—the 1970s and 1980s—we had government policies promoting employee ownership, and we can rejuvenate them. Though it’s little noticed today, a large-scale experiment in employee ownership has been under way for the last twenty-five years. The National Center for Employee Ownership in Oakland, California, estimates there are over 11,500 partially or wholly employee-owned firms in the United States, covering more than 8.5 million employees, and holding assets of more than $650 billion. About one in four of these firms are majority-owned by employees—which gives them a real chance to become models of genuine economic democracy.²⁷ These companies are laboratories of change. They deserve far more attention than they currently receive from writers, theorists, think tanks, and legislators.

As John Logue of the Ohio Employee Ownership Center at Kent State University observes, research and experience show that employee ownership can not only broaden asset ownership but also avert plant shutdowns, reduce absenteeism, decrease the risk of capital flight, and increase productivity. Research also shows, Logue wrote in Business Ethics, that employee ownership works best when it’s combined with employee involvement in decision making at all levels. Put another way, it works best when it follows natural economic law: gains go to those who are actively empowered to create them. The benefits from genuine employee empowerment flow not only to employees but to the entire economy. If American companies broadly implemented employee decision making and wealth sharing, one study for the New York Stock Exchange estimated that productivity in the United States would increase by 20 percent.²⁸

There’s still another benefit of employee ownership. It’s a way to defer (or eliminate) taxes for founders who sell to employees, thus enabling them to pass the company on to its rightful heirs: those who helped build it. Unfortunately, some of the tax advantages of employee ownership have been eliminated over the years, and they should be reinstated and broadened—perhaps on a sliding-scale basis, so companies with more substantial employee ownership would receive more substantial tax benefits.²⁹

We might devise other policy options for tackling a major challenge of employee ownership: share repurchase obligations. When firms place stock in an Employee Stock Ownership Plan—a kind of retirement trust—they are obligated to buy the shares back when employees leave or retire. Companies in effect must liquidate themselves, paying out the entire value of the company, over and over again, from cash flow.

Some firms—like SAIC—get around the obligation to buy back shares by creating an internal market, allowing employees and retirees to sell shares among themselves. On a public policy level, we might do something similar by creating special financing vehicles that allow employee-owned firms to become “semipublic”—to have access to equity investments without giving up control. As we now promote home ownership with institutions like Fannie Mae and Freddie Mac—which repurchase home loans from lenders—we might promote employee ownership with a similar federally chartered institution, say, a Federal Employee Ownership Corporation (FEOC).

Such an entity could purchase shares, perhaps only from majority-employee-owned firms, and hold them like a mutual fund. As part of the charter of both the FEOC and the firms themselves, it might be stipulated that firms may not be sold to the highest bidder but can trade hands only with majority employee approval. Firms might write further democratic terms into charters, and FEOC participation could be open only to those meeting certain minimal requirements—like employee voice in governance or substantial profit sharing. Through an institution like this, employee-owned firms would gain the advantages of being public—increased liquidity and decreased share repurchase obligations—while remaining safe from hostile takeovers.

One possible objection to this approach is that founders may be reluctant to see shares trading in a relatively faceless venue and prefer to keep ownership close to home with their own employees. Part of the pride (and effectiveness) of ownership might also be diluted if employees’ holdings are not directly in their own company.

These problems may not be insurmountable, however. Experience shows that public financing for employee ownership can work. Canada’s Crocus Fund, for example, is a regional venture capital fund sponsored by the Manitoba Federation of Labor and the provincial government, which pools Canadian-style IRA accounts to invest in equity stakes in local firms. The fund uses social screens, including a preference for employee-owned firms. Crocus today provides about two-thirds of Manitoba’s venture capital, and it has invested $100 million in forty-seven companies, creating thirty-five hundred new jobs and maintaining fifty-two hundred—in a province with only one million inhabitants. Notably, Crocus has been the top performer in its class of funds in Canada.³⁰

Still another method of moving toward employee ownership, for public companies, is stock options. The very existence of these options is an acknowledgment of the principle that if employees help increase the value of the firm, they get to keep some of the gains. But options are only a small step in the right direction. Employees generally have no voting rights with options. And they benefit only upon exercise of the options and sale of the stock, so long-term ownership is discouraged. Indeed, as employee ownership attorney Deborah Groban Olson points out, employees who have acted as long-term owners may have suffered in the recent volatile market. If they exercised when share price was high but failed to sell, they may have found themselves holding stock worth less than the taxes owed on the exercise price.³¹

Another problem with options is that so few are given to employees. Even in widespread option plans—which are relatively rare—employees often get only a hundred shares. If the value of a share goes up $10, which is a lot, an employee gets $1,000, and it can take five years to earn even that.

An additional drawback with options is that employees still must buy the stock, and artificially low wages make that difficult. The result is that nine out of ten employees sell shares as soon as they exercise their options. We might begin to solve this problem with new policies on employee stock options: instead of allowing firms to discount shares only a modest amount, we could allow discounts of, say, 50 percent. Employees might be allowed to purchase shares at this discount only if they held them for perhaps five years. Gains could be taxed not as employment income but as capital gains, for which taxes are lower.

Existing stockholders will no doubt complain about dilution, but dilution is actually the aim, and it is legitimate—for it’s the easiest way to reduce the gains of noncontributing shareholders and move gains to those who make a productive contribution. It is, after all, a time-honored principle of capitalism that new capital dilutes old capital. And much new capital these days is the intellectual capital of employee knowledge.

A more innovative path to employee ownership is the ownership transfer corporation, a concept promoted by Australian employee ownership theorist Shann Turnbull, as well as by Deborah Groban Olson and Alan F. Zundel, associate professor at the University of Nevada, Las Vegas—all three of whom are active in the Capital Ownership Group, a global online think tank focused on ideas for broadening capital ownership. As Olson and Zundel described it in a paper published in Business Ethics, the concept involves reducing the corporate tax rate to make it feasible for stockholders to transfer some equity each year to employees. If the corporate tax rate were cut in half, they say it would provide incentive to transfer 5 percent of equity annually, so that all ownership would be in employee hands in twenty years.³²

A related example can be found in the Zimbabwe Enterprise Development project, which requires foreign investors to have a local partner for 30 percent (in some cases 65 percent) of ownership in local firms.³³ Similar requirements for foreign investors to transfer shares to indigenous persons have been created in Malaysia and Australia. And a related arrangement was used in the Chrysler Loan Guarantee Act of 1980, which as part of a government loan guarantee required the company to set up an Employee Stock Ownership Plan and contribute $163 million in stock to it by 1984.³⁴

What’s particularly attractive about the ownership transfer concept is that by making transfer financially palatable, it ingeniously solves the problem of eternal ownership by absentee shareholders. We might make a conceptual argument for such an approach by noting that other forms of ownership, like patents or copyrights, are often limited in time. Even imperial ownership was limited, as we saw when Great Britain recently ceded control over its colonial possession, Hong Kong.

We might try floating a “Hong Kong rule” with corporate ownership that says stockholders may own corporations no longer than 158 years—the amount of time Great Britain held Hong Kong.³⁵ Ten or fifteen, even thirty years might be more reasonable. But the point is to raise the issue, Is there any length of time—even a century and a half—after which return on investment legitimately ends? Must it necessarily go on into eternity? I might note that conceiving of stock as expiring does not mean anyone buys out shareholders in the end. It simply means their time of extraction has gone on long enough to recover both principal and return, and ownership should therefore revert to the company. It might then be issued to employees, whose ownership would in turn also eventually expire.

For the time being, that’s a conceptual argument. There is a more direct way to demonstrate employee property rights immediately—with a St.Luke’s maneuver. St.Luke’s, you will recall, was the London ad agency purchased by employees during a buyout of Chiat/Day by Omnicon, and it offers an intriguing model that might be replicated, like this:

Imagine a hostile takeover. When a company goes into play, let’s say employees decide they’re not coming along—all employees, from the CEO to the janitor (or perhaps all employees except the CEO, who is amply bribed by stockholders). Employees might tell the buyer, “You can certainly buy this company, but you can’t buy us. Let’s see what the company is worth without its employees.” Valuation specialists could be called in to draw up relative values.

Let’s say a $1 billion company—stripped of all human knowledge—is worth half as much: $500 million. Then the value of the employee presence is $500 million. Should employees change their minds and decide to come along, that’s the amount of stock they would get. They wouldn’t take stock away from anybody, but would do what CEOs routinely do for themselves: issue new stock. If there are 10 million shares outstanding, employees would be issued an additional 10 million shares, so they end up with half the company. They could decide among themselves how to distribute it.

Or should the buyer turn tail and run, employees might sit down with the board and make the same demand: “We have now seen that employee knowledge is worth $500 million, so we demand that much in stock, or we’re leaving tomorrow.” Faced with this choice or the choice of governing a pile of lifeless assets—files no one can find, machines no one knows how to run, customers no one has heard of—a board might come to a decision rather quickly.

Imagine what would happen if this occurred at one major company, even at a branch of a major company. What tremors would run through boardrooms nationwide? And since this tactic would be inappropriate for a company with substantial employee ownership, what mad dash might we see to put stock in employee hands?

A St. Luke’s maneuver might have drawn the approval of John Locke, the first major theorist to say that governance rights can be forfeited when the governing power breaks the social contract—which it does when the ruler delivers “the people into the subjection of a foreign power.” This marks “a dissolution of the government,” Locke wrote, and once the government is dissolved, the people are free to erect a new government.³⁶

A corporate merger or takeover is literally a dissolution of the old corporate contract. It can mean collective bargaining agreements will be broken, layoffs made, benefits cut, offices closed, and charitable giving gutted. When such destruction of old agreements is in the offing, Locke said the people “have not only a Right to get out of it but to prevent it.”³⁷ Far from being a theoretical right, this principle was enacted in practice by revolutionaries in both Great Britain and America, when they believed the king had broken the social contract.

In the economic realm, even conceiving of such a move as an imaginary exercise makes the point—without laws, without endless debates—that employees have a natural right to ownership, if they choose to claim it. A St. Luke’s maneuver makes another point as well: stockholders have no right to sell employees in the market as though the corporation were a feudal estate. Stockholders get away with such acts today because, as Paine said, “a long habit of not thinking a thing wrong, gives it a superficial appearance of being right.”

What is more naturally right is recognizing employees’ emerging property rights. In the knowledge era, it’s time to dedicate our economy to a new proposition: that corporate wealth belongs to those who create it.

PROPERTY RIGHTS FOR THE COMMUNITY

Related to this is another principle of economic equality: community wealth belongs to all. Although such a concept seems intuitively right, it is just now beginning to take tangible form in laws and lawsuits invoking community property rights.

One example of the dollar value of such rights can be seen in a 1997 lawsuit in California, which established a public property right to the use of public beaches. After a 1990 oil spill closed beaches for six weeks, a jury ordered a tanker company to pay $18 million to the community. Other companies involved paid an additional $11 million in settlements. Since that verdict, lost recreational value has been a part of other significant settlements, including a $215 million settlement in 1998 for the restoration of the Clark Ford River basin.³⁸

A more powerful example of community property rights is the Alaska Permanent Fund, created by Governor Jay Hammond in 1978 to share revenues from public oil reserves. As Peter Barnes described it in The American Prospect, “Hammond felt strongly that Alaska’s oil wealth belonged to its people, not its government (he described Alaskans as ‘stockholders in Alaska, Inc.’).” In a unique design, the fund pays an annual cash dividend to state residents, which in 2000 brought a household of four an impressive $7,855. Other portions of the fund go to schools and infrastructure, and are invested in a stock and bond portfolio, so when the oil is gone the dividends will continue. Though the fund was initially controversial and faced a Supreme Court challenge, today Alaskans love it.³⁹

Barnes advocates giving every American a share in the sky, so that polluting it would require corporations to pay individual Americans (he estimates the windfall could reach a trillion dollars).⁴⁰ A similar proposal has been offered by Olson and Zundel, who suggest creating a Fair Exchange Fund, so that any business must provide a fair exchange to the public whenever it extracts natural resources, uses up clean air or water, receives tax abatements, or enjoys other public subsidies and contracts. The idea might be more palatable to business, they say, if payment were made in stock rather than cash. A trust could be established to reinvest in the community and to pay a portion to citizens. “At one blow,” Olson and Zundel wrote in Business Ethics, “this structure would deter local governments from competing for corporate location, build a diverse stock portfolio for every citizen, and secure a vote in corporate decisions by a diverse citizenry.”⁴¹

Making payment in stock rather than cash carries an additional benefit, Olson points out. In an era when corporations are becoming major global powers, broad stock ownership secures economic voting rights for the citizenry. To secure these rights, Olson has written, “we must use the current power of existing nation-states before it diminishes further.”⁴²

But as with many solutions, devices like a Fair Exchange Fund could bring a new set of problems. They may mean citizens actually come to favor pollution and resource extraction because such acts bring direct financial benefit. We can already see this as a side effect of the Permanent Fund in Alaska, where in some quarters there is strong support for opening the Arctic National Wildlife Refuge to oil drilling, even though such a move could be environmentally disastrous.⁴³ But such problems might be solved with strong enforcement of environmental protection laws.

No solution will be perfect, but citizen and employee property rights are worth developing in law because they have the potential to create a countervailing force to the growing global power of finance. They may ultimately help create a more broadly grounded economic governing power. But in the meanwhile, they can also help create a broad constituency for change. If self-interest must never be allowed to run rampant, it still can serve as an engine of change. We are rarely so moved to fight for something as when we stand to gain from it.

As Thomas Paine might have said, granting property rights to the common folk simply makes sense. It may be radical, but it is no more radical than the notion of granting political voting rights to all. Of course, citizen and employee property rights are principles that will no doubt meet at first with a formidable outcry in defense of custom. But that tumult will soon subside. Time will make more converts than reason. And time, one suspects, will be on our side.