Re: POV-RED: When will owners relinquish assets?Old and new forms.

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

Dear Ravi:

        

I have not
yet participated in this working group, but have been observing it with
great interest. Since you sought introduction from participants. Here is
mine. I am the executive director and a founder of the Capital Ownership
Group (COG) which hosts this on-line forum. I am a practising attorney
specializing in employee ownership. I create all forms of ownership 
plans for companies, cooperatives, and unions. I represent employee owned
companies,as general counsel.  Many of my clients are labor unions,
for whom I do work on employee ownership and other business and
transaction related matters.I was a union labor lawyer before I got
involved in employee ownership. Please see my website
www.esoplaw.com or
the COG on-line library for my publications and training
materials.

        

I am
responding to Ravi"s request for examples where existing property
owners have been persuaded to distribute  assets.  I preface
this comment by saying that I do not think ESOPs are the best answer or
mechanism for broad ownership. However, in the US, they have been very
successful in broadening ownership. I will marshal statistics from
various publications if this is of interest.

        

The
fundamentally important aspect of ESOPs is that they do not
"redistribute" existing assets. Rather they are intended to
distribute future earnings more broadly than previously. This has
been encouraged by substantial tax benefits to the original owners. They
are also attracted to ESOPs as a mechanism for changing their illiquid
assets into tax-deferred (or tax free) cash. This works in a very
developed economy. This specific mechanism may not be appropriate for
developing countries, but the basic concept may be very important. If you
can frame your new asset distribution structure to focus on the
allocation of future retained earnings, and leave alone existing wealth,
your program is not a threat to current asset owners. Many more are
willing to get  less rich in the future. Few are willing to give up
their existing property. Unlike other types of property, so much of the
value of manufacturing or other businesses is supplied by the workers
in the future.

        You are not required to deal with accumulated surplus value, if it is a political non-starter.

 You can simply allocate the future returns
differently.

        

Cooperatives
have been the traditional form of choice for workers to create business
assets from scratch. This is a good strategy. It is often difficult for
such cooperatives to attain sufficient capital to become substantial.
However, there are successful examples such as Mondragon, the Italian
manufacturing cooperatives,  many of the Israeli kibbutzim, etc.
Mark Levin of the ILO is probably the best source for these examples.
Certainly agricultural producer cooperatives have been extremely
successful in North America. But the key governmental intervention in
North America was free land to anyone who would farm and develop it under
the 1862 Homestead Act. ( I don't know if there was anything similar in
Canada.)

        

The
important aspects of these two ideas are these:
1)

      

Entrenched private
owners of illiquid business assets may be willing to redistribute future
ownership if they get tax or liquidity benefits. 

2)

      

Government policy
can create the market for this arrangement. It need not look like a US
ESOP or the current management entrenchment form of ESOP Ravi describes
in SA.

3)

     

A very common form for
starting micro-enterprises in developing countries is cooperatives.
Although sometimes these are capital starved, occasionally they become
large. The cooperative sector has resources available to help create such
enterprises.

4)

     

South Africa may be very
fertile ground in which to try to make some new business forms that
incorporate any or all of the above ideas, because, unlike many
developing countries, SA has a developed country sector sitting atop its
own underdeveloped sector. It is not entirely dependent on capital
investors from outside its borders.

I would like your ideas on how COG might properly interface with the
World Social Forum.

I look forward to your thoughts on all these issues.
Best regards,
Deb
At 05:05 PM 2/19/03 +0200, you wrote:

Dear All,
 
I am back on line again after spending a much time away, first at the World Social Forum in Porto Alegre and later at a UN Economic Commission for Africa panel in Lusaka.
 
The WSF has developed into the biggest 'network of networks' in the world, and saw a lot of excellent discussion lead by important social movements. Officially, of course, bodies like the UN ECA are also working on integrated strategies to address poverty in underdeveloped and poor countries. I am hopeful that our working group will eventually contribute to such processes.
 
In the past month, Jeffery Smith, Michael Binder and Male Oliveros have taken forward our discussion, and I hope the rest of the group is planning to get into the discussion soon.
 
I'd like to agree with the view that a distribution of assets, particularly income-generating/ social protection assets, is crucial to improving economic growth (as in Taiwan example given), poverty reduction and coping strategies. The extremely skewed distribution of assets by race in South Africa explains the extremely skewed racial distribution of poverty in the country. Further, in Africa, the poor's lack of assets means that people are very vulnerable to climatic shocks and bad harvests, and have little else to fall back on during such bad spells. Addressing this underlying distribution of assets, something that is ignored in neo-classical economics (which focuses mostly on productivity), is therefore a crucial strategy. This points to the need to bring distribution mechanisms and redistribution back onto the policy agendas.
 
I'd like to also agree that education (also an asset) is crucial. And has one of the participants has stated, privatisation is a factor. Indeed education, in most countries mostly a publicly delivered basic service, is generally being privatised or commercialised through rising fee-for-service models. This tends to entrench the education gaps. It would be interesting to hear how some poor 'countries' (like Cuba and Kerala - a state in India) managed to dramatically improve education indicators, and achieve a Human Development Index far exceeding their GDP per capita. 
 
Thus far our discussion has focused on an exploration of asset and capability poverty. We have not had much discussion on ways to address income poverty, which is a subject of growing debate in the more developed countries (for example, the issue of basic income). Our focus on assets and capabilities may be because poor countries have as much to do to create wealth as they have to distribute it. That said, there are middle-income countries which have considerable resources and high levels of inequality (another issue that we need some discussion).
 
I'd like to again suggest that all of these strategies we talk of will not be implemented in a power vacuum. Certainly land-owners will not easily agree to part with land, if history is any guide. The same will be said for any other asset holder, where that asset is resulting in a disproportionate share of wealth and income accruing to its owner. It would be interesting to hear more about how instances where asset transfers were achieved.
 
Thus far, there has not been much to suggest that ESOPs could be a major part of a poverty reduction strategy, though they clearly have an important part to play in the formal sector.
 
Finally,  I am attaching a NALEDI report on "Poverty and economics", written in 1998. It was commissioned by the coalition of trade unions, churches and NGOs in South Africa for the "Poverty Hearings", a civil society initiative that coincided with the beginning of SA's "Truth Commission" (into apartheid). The report's conceptual approach is similar to what we have been discussing.
 
best regards,
Ravi Naidoo
 
 

-----Original Message-----

From: Ravi Naidoo [mailto:Ravi@naledi.org.za]

Sent: 18 January 2003 01:24

To: 'povertyreduction@cog.kent.edu'

Subject: POV-RED: poverty reduction: two questions that you could ponder over

Dear All,

 

Thanks for the inputs.

I have drawn two sets of questions based on the contributions thus far. These questions may serve as starting points as they are broad enough to let us branch out to other areas that you may feel are important. I suggest in addressing these questions you do so from a relatively empirical perspective, where you put forward 'evidence' (i.e. good examples) to back up your view. Of course where there is no good example you may still put forward a purely theoretical argument, though I strongly suggest you address the issue of agency (who will make this happen and how) since we all accept that any proposal cannot start from a clean slate, but rather 'from where we are'.

 

[Ravi Naidoo] Mark Levin asked: What role can ESOPs play in poverty reduction in developing countries. Neither Ravi Naidoo nor Juan Guillermo Espinosa's papers to the COG DC Conference were very optimistic on this score. The current structure of employment and ownership in developing countries was identified as a major constraint to the development of ESOPs. Does this mean that ESOPs are (and will remain) a "rich country phenomenon"? Are there good examples to contradict this view?  

 

Michael Binder suggested that poverty could be reduced through seven paths including 'evolutionary' ones. This presents us with an opportunity to explore those examples where 'evolutionary' capitalist economic development has succeeded in reducing what Austin Muneku referred to as 'multi-dimensional' poverty.  In which developing countries has this happened? What were the necessary preconditions for this development? (historical, institutional, govt interventions, etc.) And, what role did ownership distribution strategies play in this? How could such strategies be replicated in currently developing countries?

 

Please through a couple of paragraphs talking to each of these questions or feel free to suggest a few succinct questions for discussion. Please note I will be not responding to this group until the end of January, as I will be attending the World Social Forum in Brazil.

 

cheers!

Ravi Naidoo

 

Deborah Groban Olson
Executive Director
Capital Ownership Group (COG)
COG web site - http://cog.kent.edu
Email: cog@kent.edu

c/o Atty. Deborah Groban Olson
1021 Nottingham Rd.
Grosse Pointe Park, MI 48230
Phone: (313) 331-7821
Fax: (313) 331-2567
Email: dgo@esoplaw.com
Web site: www.esoplaw.com