Continuing our
examination of a program that could be instituted to rebuild Puerto Rico and
the rest of the Caribbean, today we begin looking at Part II of the “strategy
paper” that led to the Presidential Task Force on Project Economic Justice, “Project
Economic Justice: A Beachhead for Regional Infrastructural Reform,” to be
followed by President
Reagan’s speech to the Task Force.
Today we post the first section of Part II, along with an introductory
section that will be repeated for each section as it is posted:
PART II
Basic Components of an Agenda for Economic Justice
Basic Components of an Agenda for Economic Justice
To succeed on the
ideological front, it would help to organize on a regional basis, perhaps
within a regional bank with central banking capabilities, such as the Central
American Bank for Economic Integration (CABEI). From such a base it would be easier to
advise on the infrastructural changes that would be necessary within one or
more of the developing countries willing to cooperate on the new agenda for
stimulating private sector growth linked to broadened ownership.
The strategic
objectives would be to maximize growth rates, jobs, and productivity of the
private sector within selected countries or target areas, with a zero rate of
inflation, and maximum ownership and profit sharing opportunities among all
private sector workers as a supplement to free market wage rates.
The four main
components of this agenda for economic justice are:
·
A
new social contract with workers based on expanded capital ownership;
·
A
two-tiered capital credit system for local banks;
·
A
regional SDR to establish lower-tier-capital credit; and
·
The
multinational corporation as a primary vehicle for accelerating private sector
growth linked to expanded ownership.
Today we look at —
A New Social Contract With Workers Based on Expanded Capital
Ownership
The traditional
wage system rests on a “conflict theory” of management-labor relations. The
traditional system takes for granted that workers and owners have different
interests and therefore assumes that they will be in conflict. That assumption
vanishes under a system which attempts to maximize the ownership opportunities
of working people, whenever possible enabling the management and non-management
workers to acquire up to 100% of the firm they work for.
The expanded
ownership system assumes a merger of interests among all persons with an
ownership stake in the enterprise. If implemented properly, maximum profits and
maximum justice go together. Job security is enhanced by everyone agreeing to
accept modest base wages, generally set in the freely competitive market-place.
This allows the company to operate with low fixed costs when times are rough.
But workers participate in a monthly cash bonus plan and an annual cash bonus
plan, both based on a formula linked to productivity and profits. A wage
differential may be instituted so that the highest paid manager is paid a
multiple of what other full-time workers are paid, with his increases also
coming from his proportionate share of productivity and profits of the overall
company; in this way all members of the team prosper or tighten their belts
together.
The best ESOP
models allow employees to vote their ownership stake in the company, normally
measured by their shares of stock. An employee-owned company is generally
structured to permit delegated powers and responsibilities, with a minimum of
formal meetings or group decision-making. Thus, it is a system which must be
delicately structured (like a republican form of government) to balance
efficiency with justice; a high degree of autonomy for leadership decisions,
with high levels of management accountability and disclosure of results;
professionalism at the top, with self-management of the workplace. The basic
principle of management is that of “subsidiarity,” where authority is left as
close as possible to those responsible for doing the work.
Workers earn
their ownership shares, generally based on credit extended to them individually
or jointly and repayable with their share of future profits. Ideally, the tax
system would avoid the double tax on corporate profits, so that the capital
credit for workers could be repaid with future dividends. In the United States
workers are taxed on the bonuses or dividends they receive in cash, but they
are not taxed until retirement on the stock they accumulate within an ESOP
trust. Tax laws that allow workers to accelerate the rate of their equity
accumulations help promote savings and investment within the private sector,
while reducing the need for redistributive taxation. (See the “Expanded
Ownership Act” introduced by Senator Long for additional tax reforms to
encourage employee stock ownership.)
Remember, one of
the unique features of an ESOP is that it systematically extends the benefits
of capital credit among all workers of a company. This allows the employees to
borrow to buy outstanding stock from an existing owner (including the
government, where it wishes to denationalize a nationalized enterprise), or to
buy newly issued stock directly from the company for meeting the expansion or
working capital needs of the company. A properly designed loan to an ESOP is
more secure than a straight loan to the company because, in addition to normal
security on loan repayment, the workers have a stake in the outcome and there
are special tax advantages for all parties.
This “ESOP
Advantage” can easily be extended to every child, woman, and man in the
Caribbean by means of a regional “Capital Homestead” or “Economic
Democracy” Act, so that all forms of individual and joint ownership with
the full rights of private property can be employed to maximize participation
in economic growth by everyone.
#30#
