RE:reply to Harrington re: Globalization as Social Darwinism, Workers' risk aversion, good policy and personal greed

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

Michael:

        Your reply raises a number of questions, some of which I would like to
lead back to my Stock Quid Pro Quo (SQPQ) proposal in the earlier Homestead
discussion.  If I understand you correctly, you believe that the best type
of ownership broadening policy would provide every person with a wide
variety of stock in many companies, whether or not he or she were and
employee owner. I favor that idea. The SQPQ proposal offers a method of
getting to that position, that differs from the Kelsonian method of getting
there. It also provides a more collective solution to handling the assets,
by providing funds such as the Canadian labor venture funds, to handle
them. Both Shann and Norm Kurland have critiqued the SQPQ idea, as has
Robert Stumberg of the Georgetown Law Center and author of " Investor
Rights and Local Economic Development. I have already published some other
verbal critiques of the idea I received from labor attorneys. I have not
come up with a synthesis of these critiques and the original idea.

        However, I am asking your thoughts on this again in order to spur 
further
disucssion about the parameters necessary to achieve a workable capital
broadening mechanism. I am trying to open our discussion beyond the pro and
con on the Kelsonian paradigm.

        I am intrigued by David Korten's idea that the economy operates less
mechanically and more biologically. I have not gotten far enough into his
second book to say more than that. I know he is one of those who believes
that we should use the power of the state to charter corporations as a
means to exercise more social control over them.  I, personally, like the
aspect of employee ownership and the other Kelsonian ideas that are market
driven, and less dependent on regulation. However, I fear that they lack
the necessary social safety net.

Deb
 At 09:39 AM 1/5/00 -0800, you wrote:
>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/>  
>