Burgess COMMENTARY

Peter Burgess

Post by  David Richins 3 Responses  Saved in  Business, Society Reinventing Our Economy: Part II — Alignment Through OwnershipOctober 21, 2013 The first core value that I would like to discuss is alignment through ownership. Keep in mind that my goal is to present a high-level, philosophical argument, not work out the nitty-gritty details of implementation. Those details will come in time, but I want to tie everything back to core values. When it comes to reinventing the economy, we should remember to ask ourselves: “What is the goal?” The goal, as I set forth in the previous section, is to overcome materialism, escape the economic treadmill, and live a more meaningful life. In an ideal system, economic matters are not the main focus of our existence. The system should provide a certain level of security without stifling our freedom to achieve. Rethinking Assumptions Let’s look at our current system and examine some of its shortcomings. Conventional wisdom says that we must save for retirement. Young people are counseled to start saving as early as possible. A common vehicle for savings in the U.S. is the 401(k). We have to be like squirrels and gather up big piles of nuts before the winter comes. Many of the people approaching retirement age are worried that their pile isn’t big enough. If they run out of money, then they will have to depend on family or social safety nets. squirrel Saving money is certainly a good idea. But as we save and plan for retirement, we are operating on certain assumptions: We have to work for money (wages). We use that money to live. If we didn’t have that money, we wouldn’t be able to cover our living expenses. But those assumptions are not completely valid. In times past, people operated differently. People had land. They worked the land, and the land produced crops year after year. So everyone had to work in order to survive, but they didn’t necessarily need to work for money. If they produced a surplus, they could sell that and trade for other things they needed. After the Industrial Revolution, people started working in factories. It seemed like a more efficient way of doing things, but factory workers soon learned that if they were unable to obtain sufficient employment, they could literally starve to death. That put them in a very vulnerable situation. Managers were able to take advantage of this and force them to work for low wages in poor conditions. The only way workers could stop this was by organizing into powerful labor unions. Over time, our industrial system has stabilized, but it is still subject to inequities and problems that require regulation. But this is all because of the initial assumption that we have to work for money in order to survive. Inheritance In ancient Israel, they had the concept of inheritance. For them, it had both temporal and spiritual implications. Upon arrival in the promised land, each family was given a plot of land that was basically just big enough to support that family. This initial distribution put everyone on an equal footing. The story of Naboth in the Old Testament demonstrates that they considered the inheritance to be valuable and precious: And it came to pass after these things, that Naboth the Jezreelite had a vineyard, which was in Jezreel, hard by the palace of Ahab king of Samaria. And Ahab spake unto Naboth, saying, Give me thy vineyard, that I may have it for a garden of herbs, because it is near unto my house: and I will give thee for it a better vineyard than it; or, if it seem good to thee, I will give thee the worth of it in money. And Naboth said to Ahab, The Lord forbid it me, that I should give the inheritance of my fathers unto thee. They had to work to survive, but the word “inheritance” connotes that the land was considered a gift, just like the daily manna that had previously sustained them. In other words, it was a free lunch. Throughout the ages and across various cultures, people have valued and sought after land ownership. On the one hand, owning land provided a certain level of security. But at the same time, farmers have always understood their dependence and vulnerability. A bad crop can be devastating. In modern times, we have amazing technology available to us. Supply chains have become more efficient. But despite all this, there is growing interest in local farming. People seem to have an intuition about why this is valuable. local farm How does the concept of inheritance apply today? Does that mean we all need to go back to growing our own food? Times have changed, and it’s not efficient for everyone to be full-time farmers. But we would be in a much better position if everyone had ownership of the productive assets in the economy. Instead of depending completely on wages, we should depend on capital. Today, we are required to collaborate and work with others. We can store up food in our basements, but without a farm, it’s difficult to be completely self-sufficient. But by restoring the principle of ownership to the economy, we can restore that sense of security that we once had. Alignment In addition, ownership within a collaborative environment offers an added benefit: the opportunity for alignment. Alignment refers to the harmonization of interests. Alan Fiske has talked about four categories of human relationships. Steven Pinker elaborated on this in his RSA talk and described how the unspoken rules of language help us sort out the ambiguity inherent in these differing relationships. Some of the categories include: Dominance. One person tells another what to do. This is the relationship a boss has with his/her employees. Reciprocity. “I scratch your back, you scratch mine.” This is the relationship that trade partners have with each other. Communality. Trust and sharing. This is the relationship that family and friends have with each other. I mentioned earlier the problems with the unstable dominance relationship that sometimes exists between management and labor. This can be alleviated by allowing workers to share in the ownership of the company. This is one of the purposes of modern ESOPs – Employee Stock Ownership Programs. These programs allow workers to earn equity in addition to wages. Ronald Reagan saw ESOPs as a viable alternative to socialism: Over one hundred years ago, Abraham Lincoln signed the Homestead Acts. There was a wide distribution of land and they didn’t confiscate anyone’s already privately-owned land. They did not take from those who owned to give to others who did not own. It set the pattern for the American capitalistic system. We need an Industrial Homestead Act. . . I know that plans have been suggested in the past that all had one flaw. They were based on making the present owners give up some of their ownership to the non-owners. Now this isn’t true of the ideas that are being talked about today. Very simply, these business leaders have come to the realization that it is time to formulate a plan to accelerate economic growth and production at the same time we broaden the ownership of productive capital. The American dream has always been to have a piece of the action. Income, you know, results from only two things. It can result from capital or it can result from labor. If the worker begins getting his income from both sources at once, he has a real stake in increasing production and increasing output. One such plan is based on financing future expansion in such a way as to create stock ownership for employees. It does not reduce the holdings of the present owners, nor does it require the employees to divert their own savings into stock purchases. Ownership also has the potential to solidify reciprocal relationships. For example, if I hire an outside marketing person to develop a website or produce a promotional video, they really just care about getting paid for the work that they’ve done. They might do a good job because they care about their own reputation and future prospects, but they’re not really in it for the long haul. But if I were to offer equity in addition to cash, that would change the relationship. Contractors would be more interested in the long-term effects of their work. The reality is that all relationship types are needed in a healthy economy. A dominance relationship is not necessarily bad. Organizations cannot operate efficiently unless managers give orders and employees follow those orders. But ownership means that at the end of the day, we can all work together and still be friends. It aligns individual goals with collective needs. Debt It’s not hard to see that debt does not create alignment. Debt represents a dominance relationship that makes demands, but offers little in return. It’s not much different from slavery. David Graeber reminds us: If we have become a debt society, it is because the legacy of war, conquest, and slavery has never completely gone away. It’s still there, lodged in our most intimate conceptions of honor, property, even freedom. It’s just that we can no longer see that it’s there. Given the importance that ancient Israel placed on the concept of inheritance, it’s really no surprise that usury amongst the Jews was forbidden and that debts were cancelled every seven years. Finding the Application Using ESOPs is a good idea, but there are limitations. Simply offering an ESOP doesn’t guarantee an ownership culture within a company. Lots of people get employer stock in their 401(k)s, but do they really feel like owners? It’s clear that our society in general does not have an ownership culture. In ancient times, people would only sell their land in dire circumstances. They knew that a productive asset can provide returns year after year, so why would anyone want to sell? But today, most people who own stocks plan to liquidate their assets when it comes time to retire. Dividends are rarely even mentioned (more about this in the next section). Plus, within mature companies, opportunities for expanding ownership (without redistribution) are limited. In my opinion, there are greater opportunities in the growth stage. Instead of trying to transform existing businesses, we should create new ones that are built with the right social values in mind. As equity-based crowdfunding and other forms of peer-to-peer finance start to take shape, many people are recognizing the potential for tremendous social benefits. It’s opening up the possibility for expanded ownership and a broader distribution of wealth. The peer-to-peer shift changes things because it empowers people. It means that entrepreneurs will be able to receive help and funding from anyone who believes in their ideas, not just venture capitalists or banks. And it means that investors will no longer be limited to traditional investments, like stocks or mutual funds. They can invest in companies they believe in, and earn a return on that investment. Basically it means we can take control of our economic destiny. People in a community can get together and say: “Hey, I want to create some new businesses. I want those businesses to provide the products and services that we want and need, I want them to be socially and environmentally responsible, and I want them to be profitable and provide me with financial security.” Some founders and business owners, especially those that care about sustainability and social responsibility, are concerned about giving up ownership in their company. This is a valid concern. But there are ways to get around this problem. For example, a company could offer non-voting shares. I am generally opposed to the use of debt for the reasons outlined above, but perhaps in some cases it might be appropriate to issue convertible notes or use low-interest loans. Perhaps shares could be issued with buy-back agreements, so that owners could repurchase the shares once they have sufficient cash flow. While it’s important to stay true to mission, we shouldn’t forget the benefits of broader ownership. Broad ownership is socially responsible. Founders can retain a 51% stake and thereby maintain control. The 49% that they share can have a profound positive effect. As I said in the beginning, the details have yet to be worked out. I’m confident they can be worked out. My purpose in writing this is to emphasize the need for expanded ownership. We need owners who are aligned and focused on common goals. Reinventing Our Economy Series Part I — The Need For Core Values Part II — Alignment Through Ownership Part III — Long-term Focus on Value Creation Part IV — Local Self-reliance Part V — Summing Up Images by Mark Oakley and Karen and Brad Emerson