Shifting ownership from the 1% to the 99%: Initiative seeks for employee owned companies to be 20-25% of the workforce by 2050, adding security, recirculating money locally 3x more

For decades Marjorie Kelly has looked for ways that businesses can better contribute to the good of society. In 1987, after getting a master’s degree in journalism, she founded Business Ethics magazine to showcase socially responsible corporations. But after 20 years as president and publisher, she sold the magazine. She had come to an epiphany: Encouraging individual corporations to behave better was an insufficient route to improving society. Significant change would require a shift in the ownership structure of business. Kelly’s 2012 book, Owning Our Future,lays out ways to expand democratized ownership models, including employee ownership.

Research shows that when employees own the company, they make higher wages.

Through the Fifty By Fifty Network, which Kelly co-founded with Jessica Rose, she is now putting those ideas into action. Fifty By Fifty is based at the nonprofit Democracy Collaborative, where Kelly is executive vice president. It aims to increase the number of employee-owners in the United States from 10 million today to 50 million by 2050. It’s a shift they believe will transform our economy and our democracy.

Fran Korten caught Kelly at her home in Salem, Massachusetts, to learn more about the network, and its ambitious plans.

Korten: What makes you so passionate about expanding employee ownership?

Kelly: It’s the advantages it provides employees. Research shows that when employees own the company, they make higher wages, have about double the retirement savings, and are one-fourth as likely to be laid off. Their companies are more likely to be environmental stewards, and they don’t export their jobs overseas.

With employee ownership, a lot of things we worry about in the economy are on their way to being solved. That’s because you no longer have absentee shareholders looking only at their returns. It’s a radically different vision of a company.

Another reason I’m passionate about this work is that I see employee ownership as the first alternative business model that’s ready to go to scale. It’s a significant, proven model.

Asset ownership is the secret to security.

Korten: What led you to feel that owning assets is so important?

Kelly: I grew up in a family of eight children. My dad owned his own company, a small business that supplied photographic plates to the printing trade. There were 10 of us supported on one salary, and we lived pretty well. My father never saved a dime, but he owned a business. He and my mother owned a house. He owned some real estate. And I learned, not in words but from the arc of his life, that asset ownership is the secret to security. It’s the key to a comfortable retirement.

Financial security is what so many people lack today. I’ve always felt safe because my father provided a foundation of asset ownership. We weren’t rich, but we were secure.

Korten: Where did Fifty By Fifty’s goal of 50 million employee-owners come from?

Kelly: Thomas Dudley, a Ph.D. student at the Stanford Business School,conducted research that showed that half of all employees in the U.S. could own their companies. When you can find one employee-owned company in an industry, that shows it can work in that industry. The ICA Group, one of our network partners, believes there are whole industries that employees can own. Home care is an example. Employee-owned companies could dominate the whole industry.

So we think our goal is doable. Our 50 million employee-owners goal would be about 20 to 25 percent of the workforce in 2050. That would be larger than all manufacturing employment in the United States at its height, in about 1980.

Korten: How would our economy and our society be different if you and your colleagues could actually reach that goal?

Kelly: We believe it would begin to restore the middle class. It would reduce inequality and stabilize companies with local ownership so they’re not sending jobs overseas. When companies are locally owned, three times as much money circulates locally. Other companies in the area—accountants, lawyers, grocery stores—tap this local wealth. So there are large economic benefits locally.

We also think expanding employee ownership can begin to restore democracy. The 99 percent cannot really be empowered as long as the 1 percent owns nearly all the assets.

Our greatest enemies are ignorance and invisibility.

Korten: How does the idea of employee ownership play politically?

Kelly: It crosses the aisle. Employee ownership is the only policy approach that I can think of that has been favored by both Ronald Reagan and Bernie Sanders. It was under Reagan when a lot of the tax advantages were put in place for Employee Stock Ownership Plans. And many of the business owners who are selling to their employees are Republicans—often in rural areas. Take Galfab, a company that sells waste-hauling equipment. It has 150 employees in rural Indiana. “Taking care of all the employees was foremost in our mind,” CEO Jerry Samson said when he announced the sale of the company to his employees. He decided not to take the highest bid he received. He didn’t want the company sold and moved to some other place, with all those people losing their jobs.

Korten: Are there forces out there that are against what you are trying to achieve?

Kelly: Our greatest enemies are ignorance and invisibility. There is a shocking lack of awareness about employee ownership—how big it is, how successful it is.

Korten: What are some employee-owned companies that I might recognize?

Kelly: You probably have seen King Arthur Flour in the grocery store. That’s 100 percent owned by employees. New Belgium Brewery that makes Fat Tire Amber Ale. That’s 100 percent employee-owned. Equal Exchange, which sells fair trade coffee, is employee-owned. Clif Bar, Dansko, Gardener’s Supply, W.L. Gore & Associates—the makers of Gore-Tex—they all have significant employee ownership.

Eileen Fisher clothing, which has about $350 million in annual revenue, is substantially employee-owned. Fisher has said that she didn’t want her company to be just a little morsel that’s devoured by some big company so they can go devour somebody else tomorrow. She put the ownership of her company in the hands of the people that she thought would steward the company’s mission. That’s her employees.

But the problem is that the public doesn’t know that Eileen Fisher or these other companies are employee-owned. We want to give a face to employee ownership. Eileen Fisher is known for putting her employees in her ads. It would be great if those ads said these are employee-owners. We want employee ownership to be as cool and as well-known as organic or buying local or green building. It should be one of these ideas that everybody thinks is great. It may help if employee-owned companies are certified. That’s a need Thomas Dudley is filling with his recently established organization, Certified Employee Ownership.

Korten: When you say “employee-owners,” are you talking about employees in a worker cooperative, or something else?

There are many forms of employee ownership. The worker cooperative is one.

Kelly: There are many forms of employee ownership. The worker cooperative is one. The Employee Stock Ownership Plan is another. ESOPs represent a much bigger proportion of worker-owned companies. That’s partly because ESOPs have financing advantages that worker co-ops don’t have. For example, bankers often are more willing to lend in an ESOP transaction. In a worker co-op, its not so clear who is on the hook if that debt that goes bad. There are solutions to that, but it can be a challenge. So, for a variety of reasons, worker co-ops tend to be smaller companies. ESOP companies can be huge. W.L. Gore & Associates has 10,000 employees and more than $3 billion in revenue.

Korten: I’ve heard some people say that ESOPs aren’t as democratic as worker-owned cooperatives. Is that right?

Kelly: There’s a lot of variety in ESOPs. The National Center for Employee Ownership, one of our Fifty By Fifty Network members, counts about 7,000 companies that have ESOPs. Some are publicly traded companies where the employees own just a tiny amount. Among the 10 million employee-owners today, about two-thirds are at these kinds of companies. When employees own, say, just 5 percent of a company’s stock, it doesn’t amount to much of a change in the company. But there are at least 1,600 ESOPs—with roughly a million employees—where employees own the majority of the stock. When employees own at least 30 percent of the stock, you can start to have a genuine empowerment culture.

Korten: Getting to 50 million employee-owners in this country sounds like a big challenge. How do you and your colleagues hope to get there?

Kelly: Fifty By Fifty plans to promote much greater awareness of employee ownership. We are also talking with impact investors (investors who want to generate a beneficial social or environmental impact with their money). Right now employee ownership is off the radar for impact investors, yet our research indicates that capital can be a big factor in expanding employee ownership. We found just one mutual fund, Parnassus Endeavor Fund, where all of their holdings have employee ownership. But they don’t advertise that fact. We want there to be many more such investment opportunities and for them to be well known.

Cities can help expand employee ownership. In Rochester, New York, for example, the mayor set up an entity to help launch employee-owned companies and convert businesses to employee ownership. New York City committed $3.3 million over two years to develop worker cooperatives.

And reaching out to civil society groups can help. There are Black empowerment groups that are promoting worker co-ops. They are building on the long tradition of worker co-ops in the Black community. That experience was beautifully documented in Jessica Gordon Nembhard’s recent book Collective Courage: A History of African American Co-operative Economics in Thought and Practice.

Korten: What can an ordinary person do to advance employee ownership?

Every economy is defined by its predominant form of asset ownership.

Kelly: Well, they should go to our website and sign up for our blog about advances in employee ownership. They can shop at companies that are employee-owned. They can encourage their senators and [congress members] to support federal legislation such as the WORK act, introduced by Sens. Bernie Sanders, Elizabeth Warren, and Kirsten Gillibrand. It would fund state employee ownership centers. A second bill would establish an employee ownership bank.

There are some opportunities to invest in employee-owned companies, like Equal Exchange. People should also think about whether employee ownership is possible at companies where they work. Or look for that when they’re job hunting. Citizens can encourage their city to advance employee-ownership. Cities are always surprised when companies that have been in their city for a long time are closed or sold. But the city could identify vulnerable companies and help them stay locally owned and, in some cases, shift to ownership by their employees.

Korten: So in conclusion, it sounds like you and your colleagues are attempting to change the very nature of our economy. Is that right?

Kelly: Absolutely. In studying history, I saw that every economy is defined by its predominant form of asset ownership. In a monarchy, the king and aristocracy own all the land. In a feudal economy, lords own the land. In communism, the state owns the means of production. In early-stage capitalism in the United States, the robber barons and railroad kings owned a lot of the economy. More recently ownership has passed into the financial markets. The next stage is to democratize asset ownership. If we want to have a more democratic country, then we need to have more democratic asset ownership.


City Lab, Why Does Sweden Have So Many Startups? by   

How a tiny country with high government spending bred a large number of vibrant young businesses

STOCKHOLM— This is a high-tax, high-spend country, where employees receive generous social benefits and ample amounts of vacation time. Economic orthodoxy would suggest the dynamics of a welfare state like Sweden would be detrimental to entrepreneurship: Studies have found that the more a country’s government spends per capita, the smaller the number of startups it tends to have per worker—the idea being that high income taxes reduce entrepreneurs’ expected gains and thus their incentive to launch new companies.

And yet Sweden excels in promoting the formation of ambitious new businesses, on a level that’s unexpected for a country whose population of roughly 10 million puts it at 89th in the world in population size. Global companies like Spotify, the music-streaming service; Klarna, the online-payment firm; and King, the gaming company, were all founded here. Stockholm produces the second-highest number of billion-dollar tech companies per capita, after Silicon Valley, and in Sweden overall, there are 20 startups—here defined as companies of any size that have been around for at most three years—per 1,000 employees, compared to just five in the United States, according to data from the Organization for Economic Cooperation and Development (OECD). “What you see is that startups have a high survival rate in Sweden, and they have relatively fast growth,” Flavio Calvino, an OECD economist, told me. Sweden also ranks highest in the developed world when it comes to perceptions of opportunity: Around 65 percent of Swedes aged 18 to 64 think there are good opportunities to start a firm where they live, compared to just 47 percent of Americans in that age group.

Producing startups matters for any economy that strives for efficiency, job creation, and all-around dynamism, but it is especially relevant for countries, such as the U.S., where new-business creation has slowed. Despite the current cultural fascination with startups, only 8 percent of all firms in the U.S. meet that definition today, compared to 15 percent in 1978. In Sweden the trend is reversed: The pace of new-business creation has been accelerating since the 1990s. As the U.S.’s GDP growth remains sluggish, Sweden’s economy grew at a rate of 4 percent in 2015 and 3 percent in 2016—a big jump, even considering that its economy is a lot smaller than the U.S.’s to begin with. And Sweden’s GDP has also outperformed that of other major European countries since the mid-1990s. So, what has Sweden been doing right?

There are several dimensions to answering that question, many of which involve changes that took place in the past 30 years. Since 1990, Sweden has made it easier for upstarts to compete with big, established firms. The 20th-century economist Joseph Schumpeter theorized that economies thrive when “creative destruction” occurs, meaning new entrants are able to replace established companies. Sweden used to have a heavily regulated economy in which public monopolies dominated the market, which made it difficult for such replacements to occur, but regulations have since been eased. While Sweden was making it harder for monopolies to dominate the market, the U.S. was changing its regulatory landscape to favor big companies and established firms (largely through overturning anti-monopoly laws and permitting industry consolidation), argues Lars Persson, an economist at Sweden’s Research Institute of Industrial Economics who has studied new-business creation in Sweden. 

Sweden’s reforms were a response to a financial crisis in the 1990s, when GDP growth sank, unemployment spiked, and the government, in an effort to avoid devaluation of its currency, raised interest rates to 500 percent. To jump-start economic growth, the government deregulated industries including taxis, electricity, telecommunications, railways, and domestic air travel to increase competition, according to Persson. Deregulation helped lower prices in industries such as telecommunications, which attracted more customers. Some public services such as elder care and primary education were outsourced to private firms. So-called “product market reforms” made it easier to license new companies, and helped force inefficient legacy firms out of the market, Persson said.

A new Competition Act in 1993 sought to block big mergers and anti-competitive practices. “The general lesson is that if you make it more difficult for monopolies to dominate the market, then you will have new firms entering the market,” according to Pontus Braunerhjelm, a professor of economics at Sweden’s Royal Institute of Technology.  

Sweden also gives some credence to the controversial idea that cutting corporate tax rates can help stimulate entrepreneurship. The reforms of 1991 lowered corporate income taxes from 52 percent to 30 percent. (Sweden’s corporate tax rate today, at 22 percent, is much lower than the U.S.’s 39 percent, though few companies actually pay a rate that high.) Before the reforms of the 1990s, Sweden favored established companies over individuals who wanted to start a business in a number of ways: Individuals in Sweden had to pay taxes on their firm’s income and their own income from the business, while established businesses had a number of ways to reduce this double taxation.

The reforms “considerably” leveled the playing field, Persson said. “Until 1991, the Swedish tax system disfavored new, small, and less capital-intensive firms while favoring large firms and institutional ownership,” Persson wrote in a paper last year. In the 2000s, Sweden also got rid of its inheritance tax and a tax on wealthy people, which further incentivized people to earn large sums of money and, often, invest it back into the economy. “There was more capital available, so angel investors started to appear,” Braunerhjelm said. Today, there are significant tax breaks for starting and owning a business; for example, entrepreneurs can now have a larger share of their income taxed as capital income, which has a lower tax rate.
This doesn’t necessarily mean that cutting corporate taxes is guaranteed to spark new-business creation, Tino Sanandaji, an economist at the Stockholm School of Economics, told me. On top of that, such cuts can also increase economic inequality. But Sweden’s case does suggest that targeted tax cuts can make an economy more dynamic. Sweden has a reputation for having high income taxes, but today, taxes are much lower than they used to be, and are lower for corporations than they are in other developed countries. The reforms beginning in 1991 lowered the top marginal income tax rate from 85 percent to 57 percent, and today, the tax system is relatively flat, meaning that most individuals, not just rich people, pay a relatively high tax rate. Though this means the middle class pay a lot in income taxes, many Swedes I interviewed said they didn’t mind the high taxes because they got things in return, like free education and health care, that they’d otherwise have to pay for.

Before the 1990s, there was also little foreign competition in Sweden. Protectionist legislation prohibited foreigners from taking substantial ownership in Swedish companies, and fewer than five percent of private-sector employees worked in foreign-owned companies in the 1980s. Then, Sweden opened its market to foreign competition in the 1990s, which helped in a few ways. Instantly, there were more companies that could acquire mature startups, which added to the incentives to start new businesses; Mojang, the gaming company, for instance, was acquired by Microsoft for $2.5 billion in 2014. And inefficient domestic firms that weren’t able to compete with foreign firms tended to go out of business, creating a vacuum in which new companies could arise. The share of foreign ownership of Swedish companies shot up from 7 percent in 1989 to 40 percent in 1999.
All this deregulation coincided with the rise of the internet, which meant that more people were creating businesses at the same time that they were experimenting with new technology. In the 1990s, the government gave a tax break to companies that gave their employees home computers, on the condition that these computers were available to everyone, whether they managed the company or cleaned the toilets. At the same time, the government invested early in fast internet service. Though Sweden’s computer adoption rate was similar to that of the U.S., it primed entrepreneurs to think digitally when the reforms of the 1990s opened the country to development. “Every inhabitant of Sweden under 40 basically grew up with a PC in their home,” PJ Pärson, a partner at Northzone, a London-based venture-capital firm, told me. “In the 1990s, pretty much everyone was online.” Even today, Sweden has among the fastest internet speeds in the world, with an average speed of 22.5 megabits per second, compared to 18.7 megabits per second in the United States.

This captures the experience of Birk Nilson, one of the co-founders of Tictail, a Swedish e-commerce company that has raised $32 million in funding. Having a computer as a kid motivated Nilson to begin coding at a young age, he told me, in Tictail’s Stockholm offices, where programmers are crammed into an open office space and where the foosball tables feature hockey players instead of soccer players. Nilson, who is now 33, learned to code at age 11. He began working in tech when he was in high school, creating a blog for a Swedish magazine when he was 16. By the time he was 19, he’d met his co-founders and began working on Tictail.

Like many Swedish startups, Tictail began as a global company, and Nilson and his cofounders always planned to sell internationally. Because Sweden’s size means there is a limited market for its companies’ products, those companies often plan to sell internationally from the outset, and so are subject to a great deal of international competition, which tends to make them nimbler. In the U.S., by contrast, firms can afford to focus almost exclusively on the large base of consumers in-country, without having to face foreign rivals and competitors. “We’re kind of raised to think about exporting,” Nilson told me. Tictail recently moved its headquarters to New York, and opened up a storefront on the Lower East Side. The U.S. is Tictail’s largest market at the moment.

All of these dynamics, added up, create a lot of businesses, which in turn employ a lot of people. Swedish companies that survive for at least three years create five new jobs for every existing 100 jobs in the economy, according to the OECD, while that number is only two in the U.S. “When you look at the total net job creation in Sweden relative to other countries, Sweden is one of the best performing countries,” Calvino, the OECD economist, said. Startups in Sweden also have among the highest survival rate after three years; 74 percent of all its startups make it past three years.

Sweden’s impressive startup record can also be attributed to some broader aspects of how the country is set up. Its social safety net, for instance, helps entrepreneurs feel safe to take risks. In Sweden, university is free, and students can get loans for living expenses, which allows anyone to pursue higher education. Health care is free too, and childcare is heavily subsidized. None of these benefits are contingent on having a job, which means people know that they can take entrepreneurial risks and still know many of their necessities will be covered.
“I think if you want to be an innovative country, you have to give people security so they dare to take risks,” Mikael Damberg, Sweden’s minister for enterprise and innovation, told me. Birk Nilson, for instance, knew that if his company fell apart, he’d still have health coverage; he also didn’t have any student-loan debt to pay off. “Even if you fail, even if you file for bankruptcy, Sweden has a well-known and ambitious safety net,” he told me. “So I do think that taking on risk is not as daunting in Sweden as it is in the U.S.”

The country’s startups also appear to benefit from characteristics that are less about the economy and more about culture. For instance, because Sweden is relatively small, Nilson and his co-founders frequently worked with and sought advice from the founders of companies like Spotify and Klarna and other successful ventures. This sharing of knowledge between entrepreneurs can make them each more productive. It’s also been argued that Swedes share cultural traits that make them more likely to collaborate. Erik Stam, a professor at the Utrecht University School of Economics, says that Swedes have high levels of trust in one another relative to other countries, which means they’re less likely to require complicated contracts to work with one another and which makes collaboration easier. There’s also an argument to make that because of this trust, supervisors tend to allow employees flexibility in what they do at work, which can spark new ideas.

Relatedly, Sweden has a high degree of “intrapreneurship,” which refers to when coworkers collaborate on projects outside of their usual assignments. For example, the telecom firm Ericsson has a division called Ericsson Garage where employees can work on projects ranging from wearable technology to tools for caregivers who help elderly people. In Sweden, 28 percent of working adults were involved in an intrapreneurial activity in the last three years, compared to 11.7 percent of Americans, according to a recent study by Stam and Mikael Stenkula, of Stockholm’s Research Institute for Industrial Economics.

Of course, there are parts of Sweden’s system that can make it difficult to start and run a company. Recruiting talented employees from abroad is difficult because income taxes for the middle class are so high relative to those in other countries, said Rune Andersson, the founder and chairman of Mellby Gård, a Swedish industrial giant. And Sweden currently levies an income tax on stock options, a form of compensation that many startups offer to entice prospective hires. (The government is changing that policy early next year.)

But Sweden does prove that a dynamic economy can coexist with relatively high taxes and a robust safety net. And it also proves that economies can change over time, from places where new businesses are few and far between to places where they thrive. Andersson told me that in the 25 years since he started his own business, Sweden has gotten better and better for entrepreneurs. “We have become a bit of a startup nation in Sweden, and that’s a new phenomenon,” Braunerhjelm said. It took a giant economic shock to bring the country to this point. One hopes other countries can do the same with less urgent prompting.

This story is part of a series supported by the Abe Fellowship for Journalists, a reporting grant from the Social Science Research Council and the Japan Foundation Center for Global Partnership. It originally appeared on The Atlantic

Governing the commons

Exploring  the need for new rights, responsibilities, economic and  democratic practices to govern the contemporary commons;  both political, physical and intellectual (eg the wiki movement, open source software and creative commons licensing). Linking this to international and local initiatives on Municipalism,  Community Charters, Commoning,  participative democracy and reclaiming contemporary commons (housing , food, parks, community centres , land rights etc)  to develop a Charter of the Commons for London. This will including campaigning content and outlined the constitutional and legal changes needed to provide the framework needed to transition to commoning (including the need for a  written constitution, rather than a mysterious one that is made up by the establishment as they go along).