Re: HOMESTEAD: Ray Carey's Democratic Capitalism

["Norman G. Kurland" <thirdway@cesj.org>]

As I will point out, your analysis does not square with the facts.  The 
original owner was a hard-nosed businessman and his price was at the 
high end of what constituted a fair market price.  He got his money out 
of the business and invested it in other securities.   Market forces 
were at work.  Management, which was and still is first-rate, did not 
change at the time of sale.  The CEO retired several years ago with a 
nice ESOP distribution, and the former VP has been CEO for about 10 
years.  The company had no pension plan at the time of sale.  With the 
company growing dynamically and a work force ten times the original 
team, the average 10-year employee has an ESOP account in the 6 
figures.  What was key to the buyout was the application of Kelso's pure 
credit concept.  This company's history proves that, in the hands of 
good management, synergy is at work between the productiveness of 
capital and the productiveness of labor and capital pays for itself. 

You can sneer at the model, but it works in the real world, as long as 
capital credit is accessible to workers with no reduction in their 
take-home incomes. (In fact, the labor incomes of Mid-South workers are 
at the high-end of their industry.)  No magic was involved.  Only the 
power of capital finance.  Had no-interest (i.e., service charge only) 
capital credit been available under section 13 of the Federal Reserve 
Act, as advocated in our book Capital Homesteading for Every Citizen 
(http://www.cesj.org/publications/capitalhomesteading/whatif-flyer.pdf) 
and supported by Rodney Shakespeare, the loan would have been paid off 
much sooner.

Norm Kurland

John Médaille wrote:

> At 03:55 PM 7/27/2005 -0400, Norman G. Kurland wrote:
>
>> Below is a footnote to a paper that will appear in the next edition 
>> of Employee Stock Ownership Plans by Smiley, Gilbert and Binns, 
>> published by Warren, Gorham and Lamont.  This case is living proof 
>> that a leveraged buyout can be achieved entirely on market terms.  
>> Here the buyout was achieved by a loan from Equitable Bank in 
>> Baltimore at market interest rates.  It works.
>>
>> Norm Kurland
>> 4.      The closest pure credit Kelsonian model in the United States 
>> of which I am aware is the 1975 leveraged buyout of 100% worker-owned 
>> Mid-South Building Supply headquartered in Springfield, Virginia from 
>> its original owner at an appraised fair market value, with all buyout 
>> funds supplied by a single commercial bank.  No worker put up any 
>> money, and the loan was paid off in full in 7 years out of profits.  
>> The company has expended to 8 branches with over 300 full-time 
>> workers throughout the region, and the appraised value of the company 
>> s shares as of December 31, 2004 allocated among the workers is 
>> almost triple the original buyout price.
>
>
> A number of points here. One, either the company was undervalued OR 
> the new owners operated it at a much higher efficiency than the old 
> owner. No one does an LBO unless he thinks he can extract more value 
> than the current owners can--else the LBO wouldn't make economic 
> sense. IOW, the new owners have to perceive that the property has more 
> value than the price offered. That's what makes an equities market: 
> buyers perceive more long term value than sellers. Sometimes they are 
> right, and sometimes they are wrong. But the real question is not with 
> the one company, but with the economy. If the previous owner get 
> fair-market value, than he could convert it to a claim on some other 
> company, and nothing would really change. To deny this is to deny that 
> the market is Pareto optimal. Which may be true, but if it is, there 
> are a host of other problems which crop up. Further, your example is 
> less impressive than it looks. What it says is that in 29 years, the 
> value of the firm tripled. Given the growth and inflation rates over 
> that 29 year period, this is not remarkable performance by any means.
>
> Any more Kelsonian successes since 1975?
>
>
> John C. Médaille
>
> "A dead thing can go with the stream...
> but only a living thing can go against it."
>         -G. K. Chesterton
> http://www.medaille.com/distributivism.htm
> john@medaille.com
>
> To subscribe to this or another of COG's discussion groups register at:
> http://cog.kent.edu/register.html
> To unsubscribe from this group send a message to majordomo@cog.kent.edu
> with a single line in the body of the message that says:
> unsubscribe homestead
>
>


To subscribe to this or another of COG's discussion groups register at:
http://cog.kent.edu/register.html
To unsubscribe from this group send a message to majordomo@cog.kent.edu
with a single line in the body of the message that says:
unsubscribe homestead