Sorry, I goofed. I sent an earlier unedited version of the footnote on
the company, which understated the performance of Mid-South Building
Supply. Here's the corrected version, showing the correct date of the
sale, thus reflecting a 19-year, not a 20-year history as a 100% worker
owned company. In the last 4 years, share values have increased
annually by 19.5%, 25%, 29%, and 32%. Not too bad an example of
Kelsonian pure credit financing.
5.
The closest “pure
credit” Kelsonian model in the United
States
of which we are aware is the December 31, 1985 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 out of
profits in 12 years. The
company has expanded to 8 branches with over 300 full-time workers
throughout
the region. As of December 31, 2004 the appraised value of the
company’s shares
allocated among the workers has increased 493% above the original
buyout price. Since
the buyout the company has increased its workforce by 1000%.
John Médaille wrote:
At 06:21 PM
7/27/2005 -0400, Norman G. Kurland wrote:
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.
So then, the stock was priced at seven times earnings. If you know of
any other stocks at that price, let me know.
That's pretax earnings. Under ESOP laws loans can be repaid in pretax
dollars. The P/E ration would be much higher with conventional loans,
which must be repaid in after-tax dollars. Is that unfair? No,
because the Kelso system is based on a restoration of private property
rights in corporate equity, meaning that the double and triple tax on
corporate profits can only be justified as redistributive tax policy
when there are unjust exclusionary barriers for workers and other
propertyless people to become capital owners on the Kelsonian version
of "social credit." Under binary economics, dividends would be
deductible from corporate net earnings (as is the case for ESOPs) to
avoid an invasion of the new owner's right to the full stream of
profits to pay off the share acquisition loan and thereafter receive
taxable dividend incomes. You'll see our tax reforms in chapter 8 of
Capital Homesteading for Every Citizen, which you can download free
from www.cesj.org.
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.
Yet, in 29 years, the price only tripled. That doesn't sound like good
results. It is certainly not 14%/annum.
See above for the correction to 19 years.
You can sneer at the model,
I sneer at nothing. I point at that tripling in value over the course
of 29 years does not sound like good results. Does it sound good to
you?
Is 19 years more acceptable to you?
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.
Right, with taxpayer help.
See our tax proposals as suggested above. We'd be interested in how
you challenge our principles of taxation. If you have the time to
challenge the logic of the whole system, start by reading
http://www.cesj.org/binaryeconomics/price-money.html
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
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