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founding

We don't ordinarily think of Nobel Prize winning economists as mean or evil people. But Milton Friedman is the man who made the principle of maximizing shareholder value the main business ethic, indeed, he asserted that the corporation's sole responsibility was to its shareholders. Just think of the amazing assumptions that must underpin that policy! The environment counts for nothing! The workers well-being and income count for nothing. The infant mortality rate of newborns in this country being higher than Russia's isn't a concern under that theory. The once-precious concept of the common good counts for nothing. When you look at the implications of a business principle such as the Friedman Doctrine, putting the earnings of the wealthy and influential people above all other environmental, social and governance values, its just plain evil.

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author

I hate to defend Milton Friedman, but the change in corporate incentives toward maximizing shareholder returns -- even at the cost of harming workers and communities -- took hold in the early 1980s when corporate raiders (now politely termed "private-equity managers") demanded that CEOs maximize shareholder returns, or the raiders would replace them by CEOs who would do so.

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I'll take your word for that. Yet, based on my extensive readings, Friedman,

nonetheless, promoted the idea that a corporation had no responsibility to its workers nor to society at large; the one and only aim of corporations, he said, was to maximize profits for its shareholders, a notion picked up by the shallow-thinking Ronald Reagan. He, in turn, successfully sold it in the American political sphere under the rubric of "government is not the answer, govt is the problem" from which emanated policies of deregulation, small government, low taxes, and all the rest of the nonsense "Dutch" promulgated. See, this is exactly why "they" do not want to educate our people to the point of developing critical thinking. The uneducated are more easily duped. That's why the Donald said he loved them--a con man loves a mark. Feel free to push back with whatever you've got. I never take umbrage when folks disagree.

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And that is when honest law makers and officials elected by the people should have kept the well being of those people foremost in their minds and levied laws and regulations to curtail that corporate greed . As they should be doing on a daily basis .

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This is what labor unions do and why they are so important to balance the equation. Corporations are supposed to look after their owners/shareholders and labor unions look after their workers who are their family. Why do you think they are named with "Brotherhood" in the labor union's title? Unions take the place of BIG Government and iron fisted regulation and minimum wage mandates. Labor unions gave us the 8-hour day, 40-hour work week first then government adopted it into their labor law. Politicians are listening to the voices that bombard them with answers that make sense and corporation lobbyists are constantly in their ear, but the working class only has the labor union lobbyists paid for by union dues. The decline of the labor union voices has been the decline of the working class getting any attention.

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As someone who worked on several railroads and belonged to the Brotherhood of Railroad Trainmen and who worked for the Ford Motor Co. while being a member of the UAW, and who has studied the history of the American Labor Movement at university, let me say that unions are a double threat to Big Business Republicans. First, Unions contribute money to campaigns of Democrats; second, since working people don't know who to vote for, union leaders tell them the names to vote for that will represent labor interest. Republicans got hip to this eventually and decided to emasculate unions. Bingo! there goes the money. Then, because the workers have no one to tell them how to think, they can be conned into thinking unions are a bad thing and can be sold the notion that the Right to Work (for Lower Wages) is a good thing. A very few years ago, congress had before it a bill titled Employee Free Choice Act (EFCA) that would have enabled workers to formulate unions. The multi-billionaire, one of the founders of Home Depot, campaigned against the passage of the Act saying "its passage would be the end of capitalism." I kid you not. Those were his very words. I'm told that you never see the same workers at home depot twice because turnover is high. The condition of national public education is shambolic due to inadequate funding. One cannot help but wonder why. It's all connected, isn't it?

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Thank you for sharing and making the point that unions do make a difference to the American Worker.

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founding

Yes, professor, my history is perhaps a shorthand and personification of a very complex set of trends and motives...

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Yes there are no shortages of sellouts. Friedman provided a framework and rationale for greed above all else. Corporate power essentially hired managers to implement it.

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You are correct. Friedman saw corporate CEO and CFO compensations, as decided by the corporate boards of some companies, as eating up all of the net profits of companies and the shareholders, that actually own the companies. They were getting very little after the executive compensation and bonuses got through with the profits. Many pensions and Mutual Funds were not getting a lion's share of the non-re-invested profits while the CEO and other executive were becoming wealthy. By insisting that the shareholders gains were maximized, rather than executive compensations, was not supposed to be directed at the workers at the bottom yet corporations directed the lower wages toward them while keeping the executive compensation high. This is why unions are discouraged because they would put more money into the workers pockets rather than the executives or stockholders' pockets. Although Friedman tried to re-direct the money from exorbitant executive bonuses and compensation, the wording left the re-direction open to interpretation and many boards of directors chose to use "Trickle Down" onto the non-union workers that actually keep the corporation profitable. Many Union pension plans have benefitted from keeping all the profits from going to corporate executives in their held portfolio stocks but have also lost membership as workers jobs were eliminated, outsourced or off shored in an attempt to strengthen yields on stocks.

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Again, The Seven Deadly Sins stand as a warning to beware the pitfalls of the human paradigm for the private citizen. They stand as a closely followed set of instructions for the corporate citizen. Hence, the failings of unfettered capitalism .

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Yes 'human resources' can be expendable.

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THE SHOCK DOCTRINE, by Naomi Klein, spoke of those evils and related ideological tactics.

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It wouldn't be as bad without the enshrinement of temporal myopia, of course.

But denial of anything like community or community interests is indeed rejected so implicitly that it shocks me.

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founding

@Mary Ann. Recently I wrote that ordinary nice people might be environmentally sensitive at home, drive economy cars, recycle their waste, shop locally and avoid foods that deplete the natural world. But almost everyone needs a job. Those same nice people get up on Monday morning and go into their corporate jobs where they make decisions and take actions that have very evil and damaging effects! It is generally not the people that are evil - it is the structure of unfettered capitalism under the long neoliberal trend that carries the evil effect, but also because such things are allowed by workers and citizens. We need regulation, trust busting and equitable tax policies to keep capitalism and capitalists from destroying our country and the world. Effective government is the people's tool to protect themselves and the world from the effects of the Friedman Doctrine.

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Bingo ! A revisitation to the anti-trust, anti-monpololy law suits of the past. The isolation of our elected officials from corporate influences luring them from the work 'Of The People'. Unfettered capitism, corptocracies DO NOT WORK !

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founding

Yes! You are so right, Benjamin.

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Yes and need to be calling this kind of selfishness what it is—evil!

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Agh! Yes. Ugh...Milton Friedman is the guy who created the "shock doctrine" theory, neoliberal policies that, along with many other things, trashes the concept of "the common good."

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ABSOLUTELY and precisely correct. Can't be said better.

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Friedman is the Dracula of economists.

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The profit maximizing maxim has always been the theoretical basis of capitalism since Adam Smith. That construct only applies within a societal legal system that would address your concerns about the environment, infant mortality etc. and within which firms have no political influence. Profits are constrained by effective competition. It is a Darwinian model within which bankruptcy is the consequence of not maximizing efficiency and therefore profit. It is a model for avoiding waste and the squandering of scarce resources. The modern condition of unrestrained corporate greed is not the fault of Milton Friedman, but of congress (failed anti-trust) and the Supreme Court (Citizens United v. FEC).

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founding

Generally speaking. But bankruptcy (these days) is just another tool in the corporate raider's tool box. Romney, for example, bought up companies, charged them huge fees, had the company borrow the money to pay the fees, then put them through "re-structuring" before dumping them to others at much reduced value.

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With workers kicked out of the place, barely able to get their possessions from their lockers. One video of this featured workers building a stage without knowing that the announcement to close on short notice would be made from that stage, a week before Christmas. They were actually escorted from the premises by police.

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And, the Lewis Powell Memo written in 1971. That memo pushed policies that corporations should dominate democracy. Powell was a justice on the SC from 1971-1987, Nixon appointed him. The SC decisions clearly are based on Powell's ideas.

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Yes it is astounding that a 1971 memo is mimicked almost verbatim in current far right rhetoric.

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A lot has happened in the last 50 years to bring this country to the demoralizing economic hole we're in now.

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Mr. Reich, this is the kind of material that ignites my sense of possibility again. More, more, more! People need ideas, we need to know there is something worth working for and fighting for.

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Milton Friedman wrote his influential "maximize shareholder value" essay in 1970. In 1980 we elected Ronald Reagan President. A year later in 1981 Reagan broke the PATO air traffic controllers strike and signaled that the federal government would henceforth be on the side of management and against workers. The Tax Reform Act of 1986 (TRA) was signed into law by President Ronald Reagan on October 22, 1986. The Act lowered federal income tax rates, decreasing the number of tax brackets and reducing the top tax rate from 50 percent to 28 percent. In 1987 the character Gordon Gekko, played by Michael Douglas in the movie "Wall Street" said, “The point is, ladies and gentlemen, that greed, for lack of a better word, is good. Greed is right."

These events, happening in a such remarkably short period of time, were waypoints on our transformation from an imperfect but quasi functioning society and economy into a dysfunctional one that today resembles the board game Monopoly", when one player has all the hotels, houses, railroads utilities and cash. Then the game stops.

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Not to mention changes to IRS that permitted shareholders to cash out at reduced capital gains taxes. This pretty much ended reinvestment in plant and equipment, R&D, and initiated offshoring and vulture capitalism.

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The problem for workers isn’t owning shares, it is who allocates capital. Most corporations today have billions of shares. The shareholders are beholden to the management for the success or failure of the corporation and the management operates the corporation largely for their own benefit not that of the shareholders. A good example of this is AT&T. It’s management decided to borrow billions of $ to buy into media content and content distribution. It stopped investing in its real business. It then paid itself enormous bonuses for successfully completing the acquisition. When the management finally realized they had no experience with content creation and they were losing money with their acquisitions they decided to sell them off at a loss, cut their dividend and continue to pay themselves bonuses for this new turn in the corporate

So you have to go much farther than profit sharing. Profit seeking is what motivated all of AT&T management decisions. They were not thinking how do we extend fiber to the home, that wasn’t profitable. It took Covid and government subsidies to force them into investing in extending high speed internet to the home. They wouldn’t allocate capital to it themselves.

So unless you come up with a better way to allocate capital than leaving it to the selfish self interested management of Corporations you are doing nothing for workers.

The better option is tax high incomes, asset accumulation, and profits. When this was done in the 1950s getting more money wasn’t an advantage to managers because the government took it all away in taxes. So sharing corporate income with the workers wasn’t as much of man out of my pocket into theirs issue.

To give workers non controlling stock is just to give them a few token chips with which to enter the Wall St casino.

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author

Yes, but more corporate democracy and sharing the gains with regular workers aren't incompatible with bolder social-democratic reforms. To the contrary, they contribute to them.

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The question here Robert is what is the active political force for corporate democracy? Is it shareholders? Is it workers? If it is workers where should they put their demands for change and their energy. Should they fight for union representation on corporate boards and corporate democracy when they can’t even get a union recognition and a livable wage?

I think we have limited space and time.

The right is moving forward and is very active politically. I favor finding an issue like voter rights with broad support within the Democratic Party and working towards mass mobilization around a few social Democratic reform issues that are before Congress. That will take leadership either from Biden or Bernie or civil rights organizations since it cannot be accomplished spontaneously.

To me corporate democracy would be a diversion from the immediate political crisis.

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author

I'm eager to enlist anyone in the cause of democratic reform, whether it's workers forming a union, voters mobilizing to protect and expand voting rights, people organizing their districts and precincts for the next election, or pushing to democratize the corporation and spread the gains. I understand the potential danger of diverting attention from the immediate crisis, but my own experience tell me that getting people engaged and involved is the threshold challenge; once they become activists in one area, they're likely to be activists in others.

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Yes engagement is the key. But why is it that all of those Democrats that were deeply engaged in the Bernie and Warren campaigns are no longer engaged? Why are they passive in the face of violent challenges to our democratic rights? I think it is because there is no leadership and there is no hope that their situation will improve. There has to be a well defined path forward. You and I both know that in 1963 and 64 the path forward was the Civil Rights Movement and in 1967-68 it was the anti-war movement. And then the feminist movement and the gay rights movement and the environmental movement. These movements encouraged involvement and hope.

We need Exactly such a spark today. We need a focus for all the good people who want the great promise of our country to survive. I continue to believe that the greatest political tragedy facing the Democratic Party is the failure to understand that you can’t get anything out of Congress without a mass movement of the people demanding it. I and my friends and your friends didn’t organize the Civil Rights March on Washington but we participated in it. I drove with my best high school buddy in 1964 to hold up signs to denounce Goldwater at a Republican rally. We were alone but we knew we were part of something bigger. We need something bigger and we need it now or those right wing dummies are going to take the country down the fascist rathole.

The responsibility isn’t on the grass roots to self organize, it is on the leadership of the Democratic Party. Time to change. Time to lead. Time to move the country forward. After November it will be too late.

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Many, who comment on this site, are very much engaged and financially support media organizations such as "Inequality Media" that daily fights for progressive ideals by fighting disinformation and lies about progressives that are trying to help the middle-class working families. Remember it is the ideals Bernie Sanders and Elizabeth Warren hold dear that we are after not their personages as with the Donald Trump supporters. Getting out the vote, as we did in 2020 to defeat Trump and "Trumpism", is what we need to do every election cycle. Midterms are coming up and we need to get everyone to vote in their primaries and the general elections in 2022. Welcome to the grass roots hosted by Robert Reich.

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As far as Inequality Media goes, I think you need to explain what it is and what it does. I don’t want to characterize it for you. Let me just say that during Bernie’s 2016 campaign there were a group of marketing people that saw a way to use volunteers to substitute for paid field staff to extend the reach of the campaign message without that campaign expense. They succeeded enough so that every campaign had volunteers traveling to primary states to knock on doors in 2020. Cambridge Analytica did them one better. It used social media data scrapping techniques to identify people who would align with Trumps messages. They then reached them through social media messaging. Effective but superficial. As Professor Reich noted, engagement is the key to progressive political activity. For engagement you need to address the economic interests of the people you are trying to engage. You need to organize them.

Father Gapon was able to engage thousands of people to petition the Czar with their grievances in 1905. Surely if the Czar knew of their injustices he would do something. So thousands of people went to the Czar.They were dispersed with machine guns.

Intellectuals have a duty to develop the right strategy. Is that going to be knocking on doors to support Democrats candidates who voted down the $15hr minimum wage?

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Dedication to the Democratic Party is no substitute for strategy. You clearly haven’t understood what I have been saying if you choose to think voters will come out to vote for politicians that haven’t delivered on their promises.

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Absolutely. Capitalism needs regulation in order for a healthy economy as well as a healthy democracy to thrive.

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Of course we need to tax higher incomes. However, we also need to make corporations more democratic. That means not only regulating them through government actions but creating more accountability structurs within companies. A recent academic study interviewed corporate directors in depth. Directors told them they don't monitor their CEOs because they can't. They only fly in for a board meeting 4 times a year. The information they get comes from the CEO. If they feel they need to monitor the CEO, they think they should look for a replacement. Directors say their job is to advise the director. Yet, agency theory is how investment is typically understood. Investors hire/elect agents (directors) to guard their investments... to monitor. If workers owned a substantial amount of the company (10-20%) they could work with outside investors to nominate and elect a portion of the board with closer ties to workers who DO know what is going on at the company. They are more likely to know when AT&T is wasting its money, how management is actually performing, etc.

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founding

A thousand likes. I’ve seen this in action and it’s mind boggling.

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In the case of AT&T, Elliot, a hedge fund took a 5% stake in the company. It then demanded stock buybacks and other management commitments to raise the value of the stock. They were not interested in corporate democracy.

But they were listened to and the company took capital that could have been used to reduce debt or reinvest in the business and pissed it away on stock buybacks.

As to union pension funds they are there to maximize investment returns not to represent workers interests. They routinely vote against board reforms.

In other countries workers do have representation on boards but that has only come about by legislation.

I don’t think it makes any sense to go for profit sharing with the existing corporate structure being what it is.

Fundamentally so long as workers have no say in capital allocation their best recourse is legislation.

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founding

I agree, Peter. The company my husband just left was and is doing similar things and is on the road to bankruptcy, in our opinion. A lot of it comes down to ego and entitlement. I could tell you stories but they’re too depressing. Suffice it to say that I completely agree with you.

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I have friends who benefited from their companies “profit sharing” and retired with a huge amount of money. I also have friends whose companies never offered profit sharing and even though they received a small percentage match on their 401K contributions, they lost most of it, along with jobs and homes in 2008 due to the Wall Street crash. Which then brings us to “pensions” which have also disappeared from most industries except for high level executives who receive millions in stock options and exit bonuses.

Businesses cry that they don’t have workers anymore and can’t survive. I have no sympathy for them, they should have built a solid employee foundation based on a happy, well paid and compensated workforce right from the beginning, including pensions and stocks. If they want employee loyalty then it’s time they start earning it.

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When manufacturers were individuals rather than cold blooded corporate blood suckers, employers often had a sense of noblesse oblige. None of that today.

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founding

Yes, so right, Susan!

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Jan 29, 2022·edited Jan 29, 2022

I urge you to read "Employee Ownership and Wealth Inequality: A Path to Reducing Wealth Concentration" https://ssrn.com/abstract=3942536 It examines how the wealth of various populations would change if all businesses were to become 30% employee-owned. The Gini coefficient would decrease nearly 10% from 0.85 to 0.77, lower than any point measured by the Survey of Consumer Finances since its inception in 1962. The wealth share of those with below-median wealth increasing from 1% to 6% of total wealth. The net wealth of the average black family would increase more than 400%, from $24,100 to $106,271, and those with no high school diploma would see similar gains. Overall, all demographic groups would see gains to their median wealth. On the other end of the spectrum, the decline in wealth would be concentrated among the top 1%. Those in the 90th to 99th percentile of wealth would see an average decline in net worth of 1%, while the wealth of the top 1%, who currently have an average of $28.4 million in assets, would see a 14% decline to $24.4 million, on average. Plus shares carry voice. Workers who own a significant share of the companies they work for would be able to reprioritize activities. Workers have less incentive to externalize costs because they live in the communities where they work. While 30% ownership by workers may be overly ambitious, 10% ownership is not. Instead of cash bonuses, give employees stock that comes with voice. Workers could combine their voices with those of worker-friendly pension funds like CalPERS and with many traditional SRI funds. Together, they could use proxy access provisions to elect up to 20% of the members on corporate boards. Voice and representation, that's the ticket.

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Very interesting information, and a great idea to lower tax rates on corporations that share profits with their employees. If the idea gained enough momentum, you could expect blowback from the Bezos of the world that it smacks of socialism, or that it’s unAmerican or some other b.s.

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founding

Heaven forfend we should have a functioning society. 😀

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founding

I agree.

I spent my working life interfacing with small business owners. They constantly griped about their inability to find "good workers." I often found myself wondering why these owners didn't have a profit-sharing plan in place. The few that I asked about this responded, in one form or another, that it wouldn't work: people only wanted higher wages, they wouldn't appreciate it, they didn't deserve it, the business needed the money, etc. The inference to be made is that good old fashioned greed was the real reason they didn't want to do it.

I stopped asking why, but I remain quizzical about the subject. It seems so obvious: if you want good employees who will be productive, remain loyal and care about the the health and welfare of the business, share the profits.

But business owners don't see it that way. They want it all for themselves.

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This sounds like a great idea. We need more discussion of sharing in this country. We also need the powerful to recognize that employees are human beings and not merely a business expense. The greedy plutocrat class seems to believe that life is all about the already privileged accumulating more and more wealth at the expense of everyone else. Why does one person even need $200 billion?

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For that matter, why does one person need $one billion.

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Somebody say "AMEN"

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Jan 29, 2022·edited Jan 29, 2022

What role would a union play in a profit-sharing environment? What purpose would it serve? Somehow, it seems like a profit sharing union membership could end up at cross purpose with itself. Maybe it's a dumb question, but I don't mind appearing dumb, as long as I get a clear answer here.

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Unions use worker ownership to protect jobs and organize new members. The United Steelworkers and the United Food & Commercial Workers, International Association of Machinists and United Auto Workers have used ESOPs to save jobs See Labor Union led Case Studies. The Service Employees International Union (SEIU) has a worker co-op owned home care company and a licensed vocation nurse (LVN) co-op, and is investigating other uses of worker co-ops to help their members. https://www.esoplaw.com/labor-union-led-employee-ownership

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Thanks.

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Economics professor, Richard Wolff, speaks glowingly of worker co-ops, esp., the one in Spain (since 1956), Mondragon, a huge conglomerate of worker co-ops in the Basque region. How extensive are they in the U.S.? Are they becoming more popular? How well do they work here?

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The union is a necessary to counterbalance the power of the executive suite because, after Milton Friedman, executives' sole motive must be to maximize shareholder value. Nothing else. That requires management to be hostile to the interests of workers and even, in the long term, the survival of the corporation itself.

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I get that. I was a union member all my working life. The question concerned the role of a union within a profit-sharing environment. I've never had the experience with that. Otherwise, you're preachin' to the choir, which is OK by me. I agree with you, and thank you. That's what had me concerned. It seemed to me that if the union membership were stockholders, the attempt to maximize shareholder value could be at cross purpose to union interests. Jim addressed that concern nicely here.

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Good suggestion. Totally agree with using taxation as a tool to encourage profit sharing.

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Common sense should show that Professor Reich's analysis of business management practice is on target. As long as the emphasis is on maximizing short term gains for upper management and big stockholders, the wealth gap will keep widening, and the benefits to the larger society will keep shrinking. The whole infrastructure of investment and corporate management has to change to restore a balance between big capital, labor and the consumer of the company's goods or services. The trick will be to overcome years of knee jerk responses against adjusting the system, in part due to diverting labor into focusing on short term outcomes (small increases in wages and benefits) vs. more structural change in the broader system of ownership and governance. Where is the national leadership needed to drive this lesson home, and show the way to a more equitable system?

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I could not agree more. Ownership especially matters, and companies that share it widely through Employee Stock Ownership Plans (ESOPs) perform better than other companies and their employees do much better. ESOPs are supported by both parties and have been provided generous tax benefits. A few additional steps could make them far more common.

A 2021 study by the National Center for Employee Ownership looked at how participants in ESOP companies fared relative to participants in retirement plans in comparable companies. First, note that 50% of the private sector workforce is not in any retirement plan, and lower paid employees and employees of color and women are even less likely to be in these plans.

Looking at the total average assets of ESOP participants versus those in comparable companies with the main other form of retirement benefit, the 401(k) plan, the study found that ESOP participants have over twice the assets in their ESOP accounts as those in comparable companies have in their 401(k) plans and about the same assets in their 401(k) plans (most ESOPs have both plans, not just one).

Data from the General Social Survey show that over the last 20 years, employees in these plan are laid off at one-third to one-fifth the rate of other companies.

Based on Census data, the median household net wealth among respondents in ESOPs was 92% higher for employee owners than for non-employee-owners. This disparity held true for the great majority of subgroups analyzed, including single women, parents raising young children, non-college graduates, and workers of color. Employee-owners of color in this data, for instance, had 30% higher income from wages, 79% greater net household wealth, and median tenure in their current job 36% over nonemployee-owners of color.

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Thanks for the numbers and making us aware of the sources!

It seems to me that we would benefit from a template for profit sharing. That’s probably implicit or even explicit in the laws and regs, if I read you right.

One of the crucial, key benefits of a majority rule democratic society based on law is the resulting level playing field.

Knowing everybody is required to pay minimum wages and provide a set minimum level of benefits allows all businesses and employers to do what they otherwise could not, solo.

The common taunt — ‘if it’s such a good idea, why don’t *you* give your employees ( name the benefit or standard )?’ — has a clear answer. No one entity can afford to take on greater expense and risk alone, in competition with those who won’t.

But when everyone does, it works.

best luck to US — b.rad

ps yes there are many extreme and nonsensical rules, an infinity, that would screw this up. We won’t waste our time on those.

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Yes, ESOPs are in the tax law with rules for how to do -- see www.nceo.org for details.

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Corey, see my email to you of 1/27. Let's get you and Jack Moriarty scheduled to talk with our corporate accountability group on zoom - maybe the first meeting in March. I feel great about filing a bunch of shareholder proposals this year bringing inestor attention to the many benefits of employee ownership. Increase wealth for workers, fewer layoffs, dramatic improvements for women and minorities -- plus better company performance. It is a win/win strategy that also address systemic social and environmental issues. Wealth inequality is directly correlated with political polarization. We don't have to wait to address that issue. As you indicate, increasing employee ownership has bipartisan support.

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Great

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This is an excellent and very necessary column, and I'm particularly impressed by the thoughtfulness and intelligence of the discussion that follows. More reason to value Professor Reich's essays. Well done to all!

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Employees are an important investment just as buildings and machinery. It would seem some companies think of employees as disposables. The tax incentive is a fabulous idea.

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Companies consider employees part of the machinery, but they take better care of the machines than people. Higher taxes may humble some of them, but they will be few and far between. Thanks Robert for your wisdom and advice.

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Also, my company used to use matching funds for up to a certain percentage of your income. This may be a compromise where individuals can eek out saving a bit every week and the company matches it.

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