Re: Yes, the Earth is Round

["David Spitzley" <dspitzle@gw.wash.k12.mi.us>]

To conserve on space, I'll just excise the text I wish to respond to.

>>> <Dellerman@worldbank.org> 10/19/99 10:17AM >>>
I don't think I will be long for this debate if I am called upon to explain that
capitalist economists really do understand the notion of capital goods that are 
profitable to buy and operate.  If that is supposed to be the discovery that 
Kelsoians have made, then I think we have a clue why economists don't take 
Kelsoians seriously.  Actually, Kelso discovered something much more important 
which I spelled out in the chapter but which could be rephrased as a way to 
dilute absentee shareholders in favor of workers all under a verbal smokescreen 
about the wonders of "capital."  Now that really is an accomplishment!

------------------------

First off, I want to admit that at times adherents to Kelsonian ideas can get a 
bit hot under the collar about the productivity of capital.  Some of this can 
be attributed to Kelso's writings in the 1950s, where he railed somewhat 
against the focus on full employment and the concentration of labor unions on 
wage increases which he argued were not justified by any increase in labor 
contribution to economic production.  With those rhetorical foci, Kelso wrote 
some pretty acid prose about mainstream economics' (and mainstream politics' 
and mainstream labor's) failure to recognize the importance of capital in 
dictating economic outcomes, and the independent contribution to economic 
output made by capital.  I have spoken a few times with Norm Kurland about the 
fact that I'm not sure that all of Kelso's original criticisms of economics 
still apply; in particular, Kelso's writings about "productivity" seems 
potentially blunted in the United States in view of the development and use of 
multi-factor productivity statistics by (I believe) the Department of Labor.

On the other hand, it is inaccurate to suggest that the focal point of Kelso's 
ideas is that "capital goods are productive to buy and operate".  Rather, it is 
a recognition that because "capital goods are productive to buy and operate", 
capital acquisition loans are generally self-liquidating, and thus the 
restrictions on access to capital credit which prevent most people from 
becoming capital owners are illogical, unjust, and dangerous to society as a 
whole.  In a nutshell, Kelso's interesting ideas focus on credit, rather than 
capital.

As for ESOPs being "a way to dilute absentee shareholders in favor of workers", 
that must be viewed as a criticism of the way that they are currently used, 
rather than of Kelso's basic idea.  The ESOP was originally advanced as a means 
by which corporations could finance new capital while workers could acquire 
ownership of that new capital.   The ESOP trust would take out a bank loan to 
cover the cost of the new capital.  New shares, representing the value of the 
new capital being created, would be given to the ESOP.  This would serves as 
collateral for the bank loan, which would be passed through to the corporation 
to finance the creation of the new capital; the financial value of the existing 
shares would remain untouched, representing the existing capital in the 
corporation.  Kelso had originally envisioned ESOPs serving as built-in sources 
of investment for corporate growth, aiding both the corporation and the 
workers.  

Worker ownership of the newly expanded capital base does, of course, lead to 
dilution of control over the corporation, but if one sets a goal of broadening 
the distribution of capital ownership, those who own most of it now are by 
mathematical necessity going to experience a dilution of control, even if they 
retain ownership over everything they have now.  Insofar as this can have an 
indirect impact on the financial value of existing shares in an ESOP 
corporation, under US law that impact must be factored into the legal details 
of any ESOP plan in order to protect the financial interests of the existing 
shareholders.  If objections are to be raised over dilution of control, that 
would constitute a major objection to the entirety of Kelso's ideas, and one 
which might be insoluble.