Fwd: RE: Globalization as Social Darwinism, Workers' risk aversion, good policy and personal greed

[Deborah Groban Olson <dgo@esoplaw.com>]

>>From mharrington@milken-inst.org  Wed Jan  5 12:43:23 2000
>From: Michael Harrington <mharrington@milken-inst.org>
>To: "'Deborah Groban Olson'" <dgo@esoplaw.com>
>Subject: RE: Globalization as Social Darwinism, Workers' risk aversion, go
>       od policy and personal greed
>Date: Wed, 5 Jan 2000 09:39:48 -0800 
>X-Mailer: Internet Mail Service (5.5.2650.21)
>
>Deb,
>I would like to respond to your first set of questions as this is my primary
>area of research.
>Years ago I asked myself the basic question: if everybody basically KNOWS
>that accumulation and ownership of capital is the secret to wealth in a
>capitalist society, why do we persistently gravitate to employment contracts
>(and we have known this for well over a century, since the days of Carnegie,
>Morgan, and Rockefeller, through every 'get rich' book written since)?
>One can and many do gravitate toward entrepreneurial activities - starting
>with the first paper route and evidenced by many asset-poor immigrant
>groups. 
> 
>Well, finance theory says that people are risk averse, economics prefers to
>say people are utility maximizers - from clinical and empirical observation
>I go with the bias of finance (they're not exclusive assumptions - it's a
>matter of emphasis). 
>Starting with this premise that risk aversion determines much of human
>economic behavior and that people have different propensities for risk, I
>set out to test the implications and look for supporting research - there is
>a overwhelming wealth of it. 
> 
>Decision-making theorists like David Kahneman and Amos Tversky have run many
>experiments to show how poorly humans calculate probabilities in order to
>maximize utility under uncertainty - they're often wrong. However,
>evolutionary psychologists John Tooby and Leda Cosmides have shown that
>humans can't intuitively calculate probabilities but they are very astute
>with frequency counts. And they are most accurate with frequency counts and
>evaluations of decisions that affect their survival - in other words, risky
>situations. Humans seem to be very sensitive and keen when it comes to
>survival risks and this certainly makes sense given natural instincts. 
> 
>What this means is that humans think about risks first and returns or
>payoffs later - they display a minimum tolerance for risk that varies across
>individuals and also varies over time. When the world becomes more
>uncertain, people become more careful. Many studies have also shown that
>people are risk averse in the domain of gains and risk seeking in the domain
>of losses. So, when survival is acutely threatened then it usually makes
>sense to take a gamble. This confusion over risky behavior can be cleared up
>by further defining the behavior not as risk averse, but loss averse. It's
>not actually risks we avoid, but the possibility of a loss. Thus nobody
>loses sleep after buying a lottery ticket and not winning $1 million, but
>after one has the million, they will really sweat about losing it all. 
> 
>The implications for investment risk-taking, employment and economic
>security are many.
>Natural inclinations reinforced by socialization discourages people from
>taking the risk of ownership.
>We don't have schools for capitalists, only labor training.  The problems of
>capital financing are considerable.
> 
>The desire for economic security by a citizenry dependent on employment
>creates political pressures for ever-expanding social insurance programs
>like SS and Medicare, and outright transfer programs.
>These are paid for by onerous tax rates on labor incomes. The result is that
>there are many impediments to employee ownership that are rooted in the risk
>dilemma. 
> 
>The positive take is that economic security and risk management in a fast
>changing world is probably achieved more efficiently with a diversified
>portfolio of assets than with cumbersome national insurance pools and
>questionable employment guarantees. Thus ESOPs and employee ownership
>schemes, as long as they don't violate the loss averse theory of behavior,
>can achieve economic security with freedom of choice better than the
>promises of the government. The emphasis should be on internationally
>diversified portfolios of assets for every citizen, which would cover all
>those people who don't choose to be employee owners of business - but
>artists and social workers and academic researchers! (This would also
>require functioning private and social insurance markets to cover the
>contingencies of bad luck - paid for out of premiums, not necessarily
>govt-subsidized. Society still needs to provide a social safety net.)
> 
>There is much more to be said on these issues...
> 
>Regards,
>Michael Harrington 
>The Milken Institute 
>1250 Fourth Street 
>Santa Monica, CA 90401 
>mharrington@milken-inst.org 
>TEL: (310) 998-2699 
>FAX: (310) 998-2625 
>
>-----Original Message-----
>From: Deborah Groban Olson [mailto:dgo@esoplaw.com]
>Sent: Tuesday, January 04, 2000 11:07 PM
>To: Homestead; Richard Ferlauto; Per Ahlstrom; Lynn Williams; Leo Gerard;
>David Imbroscio; David Wheatcroft; Damon Silvers
>Subject: Globalization as Social Darwinism, Workers' risk aversion, good
>policy and personal greed
>
>
>Dear Homesteaders:
>
>        I receive a lot books and articles related to our mission and our
>efforts to develop policy. I want to share with you my questions arising
>from a law review article given me by Ted St. Antoine, a distinguished labor
>law professor at the University of Michigan, and from David Korten's book,
>When Corporations Rule the World. Both of these authors seem to share much
>of the world view stated in the COG mission. Yet each of them raises issues
>that  have not been discussed to date in the COG discussions. I am currently
>reading Korten's book The Post-Corporate World, and would like any thoughts
>you may have about that as well.
>
>Theoretical Questions: 
>
>Based on Duke Law Professor Paul Carrington's, 3 The Green Bag Law
>Journal1998 article "The New Social Darwinism" in which he equates
>globalization with a resurgence of the Social Darwinist views of the
>pre-progressive era: 
>
>********Is it unrealistic to propose that workers undertake the risk of
>being capitalists, because human nature amongst the working class is
>generally too risk averse?
>********Is it wise for society to focus on a risky proposition such a
>ownership, as a major social underpinning? Will it create greater social
>unrest? 
>********Is the risk of ownership any greater than the current periodic
>unemployment risk to the average worker?
>********Is risk the  normal state of affairs for workers and humanity, so
>why postulate life-long jobs as a serious option (especially when they are
>disappearing in Japan)?
>******** 
>
>David Korten's book When Corporations Rule the World, lays out an agenda for
>social change aimed at meeting the basic COG goals of a sustaniable and just
>civil society which includes: 
>
>********a world-wide economic accounting system that counts all the
>environmental and social costs of production, 
>********a tax system which actively encourages stewardship of resources and
>communities and removes taxes on productive work and basic consumption,  
>********a legal system which eliminates corporate political contributions,
>requires the media to provide free air time for political debates, bans
>political advertising, replaces the IMF and WTO with a UN agency that will
>encourage more self-reliance and less debt by current debtor nations, and
>seriously limits the rights of corporations by removing their status as
>"legal persons" for some purposes and exercising the right to grant or
>revoke corporate charters and thereby set standards for corporate behavior
>in civil society.
>
>
>I like a lot of what Korten is trying to accomplish. However, much of it
>runs contrary to the narrow short-term self-interest motivations of many
>current players who have the power to make these changes. 
>
>Is there anything  about what we in the employee ownership community do or
>are proposing, that is any more likely to accomplish these ends than what
>Korten proposes? 
>
> Does employee or broadened ownership provide more room for accommodation
>between greed and accomplishing our mission?
>
>Best regards,
>Deb Olson
>
>
>Deborah Groban Olson
>Project Co-ordinator
>Capital Ownership Group Project
>Ohio Employee Ownership Center
>Kent State University
>c/o Shared Equity Strategies, Inc.
>3163 Penobscot Building 
>Detroit, MI 48226
>(313) 331-7821 or (313) 964-2460
>(f) (313) 331-2567
>email: dgo@esoplaw.com
>web site: http://cog.kent.edu <http://cog.kent.edu/>  
>