Dear Ravi, et.al.,
Further to Deb's comments, let me
formally introduce myself and add several comments relevant to South Africa in particular.
I am the Vice President of the Foundation
for Enterprise Development (we do business in the US under the name Beyster Institute) which is an organization focused
on promoting entrepreneurship and employee ownership. I'm the former
Executive Director of the US-based ESOP Association. Detailed information on
our organization can be found at www.fed.org.
I've worked on a number of
international development and privatization programs involving employee
ownership. My experience has been primarily with ESOP-like stock-based employee
ownership programs and less so with worker cooperatives. I agree that one of
the key attributes of ESOPs is, as Deb suggests, the focus on distributing
future earnings. Another key attribute is the ability of ESOPs to provide
workers with access to capital credit, whereby the cost of acquiring ownership
on behalf of the workers can be paid for out of the future earning potential of
the company they acquire (in whole or in part).
One of the key problems, however, with
referring to "ESOPs" in the international context is that ESOP has
become a generic term for employee ownership that varies quite widely in
different jurisdictions. ESOPs as conceived in the US and UK are trust-based mechanisms. That may not be the case in other
countries. Similarly, US laws governing the operation of ESOPs regulate how the
shares are to be distributed among a broad base of employees. "ESOPs"
in other jurisdictions may be simply referring to traditional management share
schemes without providing any benefits to rank-and-file workers. I could
reference a number of other examples, but the key point is to define what you're
referring to in regard to specific applications.
This was a key element of a recent
assignment dealing with ESOPs in South Africa. We found that the term ESOP was used describe
both management share schemes and broad-based employee schemes alike. One of
the key recommendation we made was to clearly
differentiate between the various types of plans, in particular to distinguish
between management plans and broad-based plans. Which
necessitated developing operational guidelines for broad-based plans to ensure
that they are managed in the interests of a broad cross-section of employees.
Another important consideration in the context of South Africa is that their legal system is based more on Dutch precedents that
English Common Law. That raises fundamental impediments to such "basic"
ESOP concepts (from a US-UK perspective) as company contributions of shares to
employee benefit plans, to cite just one example of the complexity of introducing
ESOP reforms into South Africa. As a result, most ESOPs in South Africa are really trust-based stock option plans, not plans to which
employees necessarily contribute shares directly.
That said, there
may be an interesting opportunity developing to promote a variety of
broad-based ownership strategies in South Africa in the near future. The recently announced Mining Industry
Charter, which resulted from negotiations between government, industry and
labor, has a goal the distribution of up to 15% of mining industry assets by
2015 to "historically disadvantaged South Africans". ESOPs are
mentioned among other potential approaches to broadening ownership of the
mining industry. It's a very politicized issue
but it offers an opening for creative thinking for reforming ownership in a key
South African industry.
David Binns
-----Original Message-----
From: Deborah Groban Olson
[mailto:dgo@esoplaw.com]
Sent: Friday, February 21, 2003
2:56 PM
To: povertyreduction@cog.kent.edu
Subject: Re: POV-RED: When will
owners relinquish assets?Old and new forms.
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