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 19:04:43 2000
>From: Michael Harrington <mharrington@milken-inst.org>
>To: "'Deborah Groban Olson'" <dgo@esoplaw.com>
>Subject: RE:  Globalization as Social Darwinism, Workers' risk aversion, g
>       ood policy and personal greed
>Date: Wed, 5 Jan 2000 16:01:19 -0800 
>X-Mailer: Internet Mail Service (5.5.2650.21)
>
>Deb,
>
>Yes, I do believe that the most viable long-term solution is for all people
>to own a diversified portfolio of productive assets, which could include
>land, real estate, private partnerships, debt contracts, etc. but most
>typically would be stock in public corporations. This way one is protected
>from economic shocks that adversely affect one company, one region, one
>industry etc. I concur with the biological analogy for the economy and I had
>often thought of my appraoch as a wholistic one. But the basic idea is that
>the economy develops naturally over time with constant feedback and
>endogeneous effects - endogenous meaning generated from within the workings
>of the system.
>This is why models that are rigid and based on linear equations work best on
>isolated problems in the economy - like a specific market or industry or
>firm. Such equilibrium models cannot deal with the biological, wholistic,
>feedback analogy very easily.
>
>To get to the SQPQ issue, it is my feeling that ESOPs were a mechanism to
>get to broader ownership, not to serve an end such as a cooperative utopia.
>I believe the Kelsos argue this as well. ESOPs were conceived as a tool to
>work within the prevailing paradigms of finance and organizational
>structure.
>Employment is a means by which to accumulate income that can be capitalized
>into assets which is the wealth that then needs to be diversified. Employee
>ownership does this at the firm level whereby workers can capture some of
>their surplus labor value by using credit to buy out previous owners. Tax
>policies favor borrowing for productive investments, so why not use such
>policies to provide greater economic security to the large proportion of
>taxpayers who are employed?
>The ultimate goal is to sever the employment relationship so that we don't
>have to be wage slaves and can actually choose other ways to spend our time.
>
>ESOPs do not redistribute wealth because owners are paid fair market value
>for their stock. This adheres to the private property maxim which Kelso
>wanted to follow.
>I think the problem with SQPQ from Norm or Shann's POV is that it introduces
>politics into the business arena and therefore invites all kinds of
>political infighting (not that it's not already there but the idea is to get
>it out). The idea of an ESOP is that no one should have any strong
>objections if the transaction is voluntary and not coerced. The same
>objection probably applies to using state charters over corporations.
>
>In general, getting from here to there on policy in economics is usually a
>fairly straightforward theoretical problem, but when the actual politics
>gets going the process loses all semblance of rationality. I think this is a
>legitimate fear for proponents of ESOPs and explains why few rational minds
>wanted to tackle the issue of international trade on the ground in Seattle.
>But of course I am biased as more of a scientist than an activist.
>
>I would like to see policies or strategies that encourage labor leaders to
>demand equity participation in wage bargaining - this entails also accepting
>undiversified risk, so this must be managed some way through participation
>in voting control or reinsurance. I think a viable role for labor reps is to
>represent workers as shareholders and employees within the corporate
>governance structure. Outside shareholders could use representation as well
>to overcome the collective action problem for diversified minority
>shareholders. I would hope that enlightened labor leaders would contribute
>to this discussion so that we can reconcile the idea of broadened ownership
>with organized labor interests.
>
>Those are my thoughts for now...
>regards,
>Michael
>
>-----Original Message-----
>From: Deborah Groban Olson [mailto:dgo@esoplaw.com]
>Sent: Wednesday, January 05, 2000 2:05 PM
>To: Michael Harrington; Homestead
>Subject: RE:reply to Harrington re: Globalization as Social Darwinism,
>Workers' risk aversion, good policy and personal greed
>
>
>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/> 
>>
>