America’s Hidden (and Much Better) Economy

What is behind today’s culture wars? Experts point to factors such as race, immigration and other sensitive issues. But there is another problem underlying the current level of irritation and distrust. And the good news is that we Americans know how to fix it.

To understand what we mean, imagine two economies.

In one, a relatively small group of people enjoy almost all of the wealth created by corporations. These people own most of the stocks traded on Wall Street. They own most of the large companies that are privately held. The value of their portfolios has steadily – and significantly – increased over the past few decades.

Everyone else in this economy depends on wages and salaries. That’s not so bad if you have valuable skills; Doctors, executives and others were doing well economically. But it’s quite difficult if you don’t have the right skills or a college degree — like more than half of Americans over the age of 25. The wages of people in this group have largely stagnated since the 1970s. Many have no savings and no retirement plans. Many feel they are slaving away at dead-end jobs.

That, of course, is the economy most of us live in. Are we surprised that it arouses distrust and resentment, even anger? A 2020 Pew Research survey found that a whopping 70% of respondents believed that “business unfairly favors powerful interests”.

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But there is a second economy that is largely hidden in our vast, diverse country – an economy where the employees themselves own the companies.

In this second economy, wealth is more widely shared. The average worker has about $200,000 worth of company stock in a retirement account. Some workers become millionaires because they share in the success of the company they work for.

In the first economy, economic insecurity and job dissatisfaction make people increasingly skeptical of society and more willing to blame someone—some malicious “them”—for their woes. In the second economy, people have had the experience of working together towards a common goal and sharing in the rewards.

America’s second economy is bigger than you think

The second economy – the one with employee participation – is still small, but much larger than many think. About 6,500 US companies are partially or wholly owned by some type of trust called an Employee Stock Ownership Plan (ESOP). These companies — a group that includes giants like supermarket chain Publix and innovative mid-sized companies like WL Gore & Associates, maker of Gore-Tex fabrics — control $1.4 trillion in assets and employ about 14 million People.

Another 11 million work for companies that issue some other form of ownership, such as stock options or shares, to most or all of their employees. Even some private equity firms, notably KKR, have begun making substantial amounts of stock available to all workers in the companies they buy.

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A solution that is often ignored

If there were a way to double or triple the size of this hidden economy, you might think politicians and pundits would be all over it. Well, there are, and they aren’t.

Certainly, ESOPs and employee ownership have been supported by leaders across the political spectrum for decades. And Congress has enacted a number of tax breaks for ESOPs and worker co-ops over the years.

But no leading presidential candidate, few prominent pundits, and no major newspaper editors have ever mentioned employee ownership. The idea is patted on the head by pretty much every leader and taken seriously by almost none.

This is a major oversight as there are great opportunities to expand this hidden economy. One obstacle is simply that too few people know how employee ownership works; They don’t understand the benefits to business owners, workers and communities. Another reason is that companies looking to move into employee ownership may not always have adequate funding.

This is a situation ripe for change

Now is the time for more business and political leaders to start learning about and talking about the idea. Congress could provide funding for states to conduct employee ownership education and awareness programs. States can act on their own: Colorado and Massachusetts, for example, have established publicly funded employee ownership offices, and California is likely to follow. State and federal loan programs could be opened up to employee ownership.

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Imagine the impact of more – much more – employee ownership in the US. More workers would feel safe. You would work alongside people from all walks of life. You could feel like valuable citizens of this great country.

And who knows? We could all be less angry and more willing to work with others towards a common goal.

Written by Corey Rosen, Ph.D.
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