The Multinational Monitor

NOVEMBER 30, 1985 - VOLUME 6 - NUMBER 17

W O R K E R  : O W N E R S H I P

Worker Ownership

Buying Control or Selling Out?

The Case Against Worker Ownership
- by Mike Slott
Worker Ownership: A Tactic for Labor
- by Dan Swinney

A lively and sometimes bitter debate is raging within the labor movement over what worker ownership actually means for U.S. workers, now and in the long run. At times, labor has been supportive of workers owning equity in their companies, especially in cases where plant closings of still profitable firms threatened to throw entire communities out of work. Buy outs offered workers not only jobs, but a voice in managing their companies.

U.S. business was more skeptical of employee ownership, warming up to Employee Stock Ownership Plans (ESOPs) only after substantial tax incentives had been offered by the federal government. Under stock ownership plans, workers receive part of their wages or benefits in the form of stock. Though workers "own" a share of the company, they usually have little or no real control.

The labor movement makes a clear distinction between ESOPs and buy outs-ESOPs offer workers stock in return for wage and benefit concessions while buy outs offer ownership and eventual control.

Many labor activists fear that in both ESOPs and buy outs, workers will be trading wages, benefits, security and union solidarity for stock in an enterprise that they will not really control. For others within the labor movement, however, worker ownership is seen as one of the few new and innovative ideas around. Worker ownership, proponents argue, has the power to spur industrial reorganization and to create a broader social movement for economic reform.

Worker ownership has been embraced by people on both ends of the political spectrum-President Ronald Reagan and Sen. Edward Kennedy have both supported the concept. In 1984, the new tax law offered important incentives for employee participation in firms. Within management circles the incentives to form ESOPs were already substantial: tax breaks, increased productivity, more harmonious worker-management relations and less capital expenditures. According to the National Center for Employee Ownership, firms where employees hold at least partial ownership have twice the productive growth rate, are 150 percent more profitable and, in the case of majority employee owned companies, create three times as many new jobs as enterprises where workers have no stake in the company. Tax breaks, coupled with increased productivity, have enticed thousands of firms to establish ESOPs. Less than 10 years ago there were 300 ESOPs in existence, while today there are more than 7,000.

For labor, the incentives are much less tangible, but in the long run could have a more profound impact on the future of both unions and workers, proponents argue. In the struggle to save a plant from closing, both the union and the community can be united into a broader social movement that can better understand and challenge corporate power.

In the following debate, Mike Slott, field organizer in the Philadelphia area for the United Electrical, Radio & Machine Workers of America, and Dan Swinney, director of the Midwest Center for Labor Research, look at the pros and cons of worker ownership in combating plant closings and corporate flight.

The Case Against Worker Ownership


American employers may not have a solution to the long-term crisis of the world economy, but they have developed a coherent strategy to weaken the labor movement. Through a combination of concessions bargaining, plant shutdowns, and shifting capital, corporations have succeeded in intimidating unions and dividing workers. As a result, the labor movement grows weaker, and workers lose what little protection they now have for their standard of living and basic rights.

Unions will become a marginal force in society unless the labor movement develops a viable strategy for responding to these employer attacks. The current program and policies of most sections of the trade union leadership are clearly inadequate. The labor movement urgently needs a new strategy.

Clearly, worker ownership merits serious consideration as an alternative to the current strategy of union leaders. But a strategy should be supported only if it has the overall effect of strengthening the labor movement-increasing the power, unity, and self-confidence of rank-and-file workers. A strategy which strengthens one group of workers while hurting the rest can only be harmful to labor.

Many people support worker ownership not as a means of strengthening labor, but as way to foster a labor -management cooperation and give workers a greater stake in the capitalist system so that they will be more productive and more concerned about the profitability of companies.

The potential for worker ownership is severely limited by the structure of capitalist economies. All of the vital sectors of the economy are already owned and controlled by the capitalist class; in the absence of a mass political movement, they can block any attempt by workers to make significant economic inroads on their power. Workers simply lack the financial resources to challenge employer domination of the "commanding heights" of the economy.

Given this lack of resources, worker ownership will be limited to the "crumbs" of the economy: either to certain labor-intensive industries (the traditional co-op sector) or to financially-troubled companies. In either context, worker-owned companies face serious problems. Many are bound to fail economically due to a lack of capital and/or poor market conditions. The ones that survive may be taken over by investors looking for a profitable place to put their money. A final scenario is one in which worker ownership survives, but as a non-threatening, marginal part of the economy.

Worker ownership is not only economically unfeasible, its overall impact on the labor movement is negative. The precarious positions of employee-owned companies in the economy requires workers to put most of their effort into two basic tasks: raising the capital to buy the company and start it up; and, competing successfully against other businesses. The whole orientation of workers is shifted from militant confrontation with their employers to survival in the marketplace.

When worker-ownership consists of isolated employee-owned companies, as it does in this country, this approach does even worse damage to unions. One of the basic components of trade unionism is the idea that workers achieve strength through unity, that solidarity is the basis upon which unions can fight effectively for their demands. In the current economic and political context, worker-ownership strikes at the heart of union solidarity.

Workers who gain ownership of a company tend, over a period of time, to identify less with workers employed by other companies than with the company they now own.

Worker ownership is also divisive because it undermines union standards. Most employee buy-outs have occurred as part of a concessions deal. In order to save jobs and prevent a plant closing, workers agree to major wage-and-benefit reduction and a weakening of traditional work rules. In exchange, the workers buy out the owners and gain employee ownership. This seems like a perfectly reasonable deal: concessions for ownership. Yet, while the concessions save jobs in the short-run, they hurt workers in the rest of the labor movement. Lower wages and benefits at the employee-owned company put pressure on other employers (or give them the excuse) to seek wage reductions at their companies. Workers end up competing with each other to offer employers the lowest labor costs.

Industry-wide contracts aim to prevent such competition by creating uniform wages, benefits and working conditions. Unfortunately, uniform standards have already been seriously eroded in several industries because of concessions bargaining union leaders. When worker ownership is achieved in exchange for concessions, it further erodes industry standards.

The pitfalls of worker ownership are evident when one examines several employee owned businesses which were recently established in the United States. Advocates of worker ownership have sometimes pointed to these companies as examples of the potential of worker ownership. In reality, they show that worker ownership is not a viable strategy for the labor movement.

Worker ownership is primarily used in this country not as a means of saving workers' jobs but as a management ploy to increase profits. In the vast majority of the estimated 6,000 companies which have some degree of employee ownership, management has initiated ESOPs to improve employee motivation and gain certain tax advantages. Typically, workers own only a small percentage of the company's stock and have no control over the company's policies.

Workers have more significant ownership and control in some companies, although the extent of workplace democracy varies widely. Several ESOPs including those at Weirton Steel and Hyatt-Clark Industries (HCI), give workers majority or full ownership, but severely limit their ability to vote their stock shares and control management.

The employee buy-out at Weirton Steel was promoted by the previous owner, National Steel. For a number of reasons, the conglomerate wanted to unload the Weirton plant and opted for employee ownership when it couldn't find a corporate buyer. Desperate to save their jobs, the workers agreed to a 20 percent wage-and-benefit reduction in return for gaining ownership of the plant. Beyond the formal transfer of ownership, however, little has changed. Management retains control of the Board of Directors and the company's daily operations. Workers can't even vote their own shares.

The structure of the ESOP and a six-year labor contract which prohibits strikes and wage increases insure management control in the years ahead. Furthermore, by agreeing to such major wage-and-benefit cutbacks, the workers have set a precedent for additional wage concessions in the steel industry. The bosses can now point to Weirton's labor costs in the next six years as the "competitive" rate for all employers.

Hyatt Clark Industries (HCI), a tapered bearings plant in Clark, New Jersey, has an ESOP similar to Weirton's. The HCI ESOP was shaped to a large extent by General Motors, the former owner of the plant, and the banks who loaned the money for the buy-out. In a letter distributed to HCI employees in April 1984, Alan Lowenstein, chairperson of the Board of Directors, noted that ". ., the business and financial leaders who were in a position to decide whether the company [i.e., the employees] could purchase the plant... insisted that the company be controlled by an independent board of directors as a condition of the purchase of the plant." HCI workers, represented by UAW local 736, now have three people out of thirteen on the board. They will not gain equal representation until 1991.

Despite the undemocratic ESOP, worker morale was high when the ESOP was initiated in October 1981. But, in the last year, tension between management and the workers has grown considerably. The demand for HCPs product, tapered bearings, is declining as auto manufacturers switch from rear- to front-wheel drive cars. Management has responded to the company's shaky economic prospects with demands for greater productivity and sacrifices by the workers. The UAW is caught between management's push for more production and the worker's growing dissatisfaction. Contract negotiations in the fall of 1984 reflected the high level of worker discontent and General Motors' dominant influence. GM demanded that the union agree to a no-strike guarantee and threatened to cancel its purchases of the company's bearings if an agreement was not reached on the issue. Since GM purchases nearly 90 percent of HCrs output, Local 736 and HCI management worked feverishly to come up with an agreement that would satisfy GM.

GM's support for the buy-out was motivated less by concern for the workers' jobs than its calculation that the ESOP was a way of forcing concessions in the plant, which, in turn, could be used to pressure workers in other parts plants to make concessions. (In exchange for ownership, the workers accepted a 30 percent reduction in wages and benefits.) In fact, GM threatened to shut down the Fisher Body Division hardware factory in nearby Trenton, New Jersey, only three months after the HCI ESOP was finalized. The Trenton UAW Local agreed to changes in shift assignments and job classifications to prevent the plant from closing.

Of course, the HCI ESOP didn't start the concessions trend in the auto industry and cannot be seen as the basic cause of disunity in the UAW. Still, to the extent that the ESOP contributes to the dynamic of concessions, it is harmful to the labor movement.

In the context of employer domination of the economy and a weak labor movement, worker ownership is not a solution to labor's problems. It diverts workers' activity into projects which will either fail economically or be coopted by the system. Worse, they can be an additional source of disunity for the working class already hampered by sexual, racial and occupational divisions.

At the heart of an alternative strategy to fight plant closings is the notion that the union's most effective weapon is the organized power of rank-and-file workers. In contrast to the AFL-CIO's emphasis on gaining influence with "labor's friends" in the political arena, what's needed is a grass-roots revitalization of the labor movement, from the union local up to the level of the international union and the AFL-CIO.

Effective resistance at the local level requires the union to have an active and informed membership which is prepared, in advance, to respond to the company's action. It's a sad commentary on the current state of the labor movement that the basics of democratic trade unionism-a strong shop steward system, elected and accountable leadership, education and training for members, a lively and relevant newsletter-have to be emphasized over and over again. But it's absolutely necessary to do so, for in the absence of an active membership, the union's response is bound to be half-hearted and ineffectual.

A democratic local will be better able to respond with an array of militant tactics which put economic and political pressure on the employer. Depending on the circumstances, the local can initiate work-to-rule actions, demonstrations, sit-down strikes, or any number of other responses. In addition to its own militant activities, the local needs to solicit support from other local unions and from community organizations-to bring together the largest and most cohesive force opposed to lay-offs and plant shutdowns.

As a result of such militant tactics and the local's thorough research of the company's financial situation, the employer will be more likely to deal seriously with the union. If this can't keep the firm afloat, the local can demand that management eliminate waste and inefficiency in their own ranks before asking workers to make sacrifices. The union can also suggest ways of improving productivity which don't worsen working conditions or weaken work rules.

At a later stage, assuming that the corporate concessions approach hasn't solved the problem, the local can wage a campaign for government aid to keep the plant in operation or for conversion of the company's product line from, for example, obsolete military hardware to socially useful domestic products. Given the reluctance of government to subsidize businesses-unless substantial corporate interests are at stake-this approach requires the union to mobilize massive outside support to get the funds. United Electrical Workers (UE) Local 277, which represents workers at the Morse Cutting Tool plant in New Bedford, Massachusetts, asked the city to use its right of eminent domain to take over the plant after Gulf & Western threatened to shut it down. Municipal and regional ownership established through eminent domain has also been proposed by the Tri-State Conference on Steel to salvage the steel industry in the Monongahela Valley. These new approaches need to be developed as part of an overall response to plant closings. (See "Saving Jobs: A New Use for Eminent Domain" in the June 1984 Multinational Monitor)

Finally, if, despite all these efforts, the plant is still going to shut down, the local should get the maximum level of health, pension, severance, and retraining benefits.

While militant tactics and innovative proposals at the local level are crucial, the union's response cannot just be a local one. A union local fighting a conglomerate or a large corporation often lacks the resources to win against an adversary who can shift production to different locations or invest in other industries. An effective response to plant closings requires that all levels of the labor movement develop an alternative strategy.

Furthermore, union solidarity and coordination allow labor to gain greater collective control of the economy. The solution to plant closings and unemployment lies not in making individual plants profitable through wage cuts and employee buy-outs, but in changing the basic patterns of capital investment and economic power. When each level of the union movement-local, international union, federation-is part of an overall strategy, labor has the potential to exert some control over the general direction of the economy.

International unions have a key role to play in an alternative strategy. They can provide assistance to locals fighting plant closings, and they can help to create a contractual framework in which plant shutdowns, when they do occur, are less painful for workers. Such a strategy would include: pushing for industry-wide standards, industry-wide job security, public works projects for the unemployed, control of pensions funds and restrictions on capital investment; encouraging government aid for product conversions and to prevent plants from closing; and promoting international solidarity by resisting the attempts of multinational companies and governments to divide workers by nationality.

Even though some of these are not feasible today, innovative programs to deal with plant closings can become a part of labor's agenda. Labor activists have begun to propose specific ideas for limiting employer prerogatives as part of a broader strategy to empower rank-and-file workers. It is through these admittedly exceptional efforts, and not through employee ownership ventures which play into the concessions dynamic, that the labor movement can regain its strength and become a progressive, social force.

Worker Ownership: A Tactic For Labor


A profound change has taken place in the economy, a change which requires an equally profound change in labor. In the mid-1970s, the American economy began to reflect dramatic symptoms of a period of sustained decline. The United States entered a period of sharp international competition with a real loss of American market share in most areas of production; a sharper and more intense scramble for profits; and a general lowering of the real and social wages of the American people.

As a result, there is increasing unemployment and attacks on union strength and organization, increasing the divisions between workers. Most important, there is a corporate willingness to discard whole industries, communities, people and productive capacity not because they aren't profitable but because they aren't profitable enough.

Within this deepening long-term crisis is the emergence of a political and economic vacuum in major urban and industrial areas. Companies which provided job creation and economic development in an expanding economy are now exporting capital and casting off assets in traditional industrial areas. Traditional defenders of the people's livelihood-like the civic machinery, political parties, the church, and organized labor-have been unable to fill the vacuum created by the change in corporate strategy.

Labor's inability to lead effectively in this period is rooted in its training during the years following World War II. During the expanding post-war period a social contract generally defined the role of organized labor: Capital would generally increase the real wages of labor, and labor would provide a stable workforce and keep out of the management of business. Because of this social contract, labor did not develop a sophisticated understanding of the companies and industries for which they worked. The debate between the left and right was frequently around .more" or "less," with no real difference in the depth of understanding of the company, the market or the industry. Strong relationships were not built among the various elements in the working community, the unemployed and unorganized, churches, community groups and local government.

Given this experience, the labor movement was unprepared for the depth of the current economic crisis. Unions were left without tactics or strategies. Unemployment is permanently high, deeply undermining the strength of organized labor. It is being used to break strikes and force concessions. With the cutting of social programs, many of the unemployed are hungry and desperate and willing to break ranks to replace workers on a picket line or to accept substandard wages and benefits. Benefits and important contract provisions that protect seniority in the jobs that remain are perceived as unfair by women, youth, Blacks, Hispanics and other minorities who have been laid off first and have no chance of being recalled. This leaves labor in an adversarial position with its most important allies at a time when it is under the most determined type of corporate attack.

Organized labor is becoming a smaller and smaller percentage of labor. The dwindling percentage of organized vs. unorganized occurred gradually during the postwar period. Now the decline is increasing along with the decline in real wages, and labor is losing its base when it needs it most. Under current conditions, a major loss in a major battle such as steel or auto could result in a decisive and qualitative set-back for organized labor. A union could be literally destroyed.

This crisis requires innovation. Union organizing efforts must have a much more sophisticated and substantial understanding of economics in order to develop effective tactics and strategy.

Worker ownership is a tactic that can and should be used by unions in confronting the new realities. When the term "worker ownership" is used today, it can mean any of a thousand different combinations of how a company is financed and managed. On one end of the spectrum are corporate tax and financing strategies which are designed to neutralize worker solidarity, union strength and militance. These programs create the illusion of "profit sharing," give workers no real role in management, no power to make critical decisions, and very little share in the profits. Frequently, the only role workers have in this situation is to give concessions in wages and benefits to keep "their" company rolling.

On the other end of the "worker ownership" spectrum are companies that are worker-owned, worker-managed, unionized, and a real asset to the labor movement and the community. Examples include the O& 0 Supermarkets in Philadelphia, Franklin Forge in Michigan, Atlas Chain in Pennsylvania, and Seymour Specialty Wire in Connecticut. The examples are few, but the potential for many more exists.

Within these extremes, there are hundreds of possible combinations. Workers must ask who is initiating worker ownership and why, what leverage and plan do the workers have, how is worker authority and dignity protected and promoted, and so forth. Based on an evaluation of these factors, a plan for worker ownership should be rejected or supported. Where the plan is not developed, negotiations can give it substance. Effective and aggressive negotiators with some kind of leverage-the potential to close the company down, the capacity to strike or cripple production, a strong community backing--can transform a general concept into a constructive working plan. Uninformed and passive negotiators, with or without leverage, can transform even a good situation into a scam for the workers and, despite good intentions, end up benefiting only the original owners.

Worker ownership is a tactic not a strategy. It is just like any other tactic, such as a strike, a retreat, a picket line or a demonstration. It can be used effectively or ineffectively. Used effectively, it strengthens the union, its members and the labor movement.

Worker ownership is part of the general struggle for economic reform. Like any reform struggle, it can be consumed with narrow details. If elevated to more than what it is, it can perpetuate illusions. And, it can be co-opted. These are dangers for any struggle for reform.

Pursuing the option of worker ownership exhausts the market place limits and can serve as a springboard for effectively raising consciousness about the necessity for national change and reform. It does this by taking advantage of viable opportunities that aren't recognized or aren't profitable enough for traditional entrepreneurs. The fact remains that worker- and community-owned enterprises combined with enterprises run by traditional parties won't meet all the needs of the American people. Worker ownership will not create full employment. On the other hand, the experience of worker ownership will train the labor movement in workplace democracy and in effective leadership and management. These skills will profoundly complement any major progressive change in the character of the U.S. economy.

The pre-condition for the effective use of worker ownership is a detailed and full understanding of the company, its markets and its industry. Worker ownership is not a good tactic when: proposed by a company as an effort to get the workers to finance the closing of a plant which has been milked dry and would have no viable future under any owner; proposed by a company as an effort to liquidate or neutralize the union; the company is not capable of surviving in the marketplace; the workers are not capable of running the plant.

Worker ownership is a tactic to consider when: there is a viable company that is being closed and could be operated profitably; wage and benefit concessions are the only option to maintain a viable company-worker ownership becomes the quid pro quo in bargaining with the company as the cost for cash; or where there is a viable company that is available for worker ownership for any reason.

Worker Ownership and Labor in a Declining Economy

Any discussion of the strategy and tactics of the working class movement must include those who don't work as well as those who do. Even for those who do work, the threat of not working, the threat of a shutdown, frequently dominates and sets the stage for the demand for concessions. This means that we must take the issue of jobs very seriously to forge unity with the unemployed. By discussing the labor movement in terms of just those who are organized into unions, the unemployed are excluded as are the vast majority of those who are working.

The labor movement has generally failed in this challenge and still operates within the understanding of the earlier period of economic expansion. Even within organized shops, union members are losing confidence in the capacity of unions to protect their jobs. That confidence can be sustained by leadership that has a very precise understanding of what actually causes job loss and what are legitimate options for preventing job loss. Worker ownership is a tactical option for those situations where jobs could be saved or created; and it identifies a commitment to create jobs and fill the vacuum created by traditional market forces.

It is argued that worker ownership has been and necessarily will continue to be restricted to the "crumbs" of the economy, the "financially troubled" companies that are thrown to workers to avoid the cost of their closing. Many of the efforts at worker ownership to this point have involved some of these crumbs, but this is not an inherent aspect of worker ownership. Some plants are exhausted and beyond recovery because of being completely milked or being in an industry sector that has been wiped out because of competition, changes in technology, changes in critical costs or declines in market demand. Others close because:

  • they are profitable but not profitable enough for a parent company or private investors who can make more in the short term in other areas.
  • there isn't an owner to succeed the current owner. The family interest dies and there isn't a successor capable of taking over.
  • there is mismanagement. The company is run by those who simply can't utilitize its assets.

There is a common assumption that traditional capitalists are the most efficient and capable managers and initiators of companies. If they don't do it, it can't be done. If they don't want to do it, it must not be worth doing. In a declining economy, this narrow vision of traditional market forces often comes into conflict with the long-term needs and capacity of particular firms and industry sectors. The requirement of a big return in the short run excludes the possibility of experimenting with new technology or processes that are required for the health of an industry. Under the pressure of a declining economy, many valuable and productive assets, companies and opportunities for job creation simply fall through the cracks.

In this context, the ability and willingness to take over the management of productive capacity including owning and operating a particular company which is being ruined, ignored or discarded by traditional market forces is an important complement to the other tactics the labor movement uses in defending its interests and expanding its power. It preserves jobs, union or potential union membership, and enhances the union's reputation for leadership capacity.

A major reason for the labor movement to include worker ownership in its arsenal is to strengthen its ties with the aspirations of a much broader movement that is committed to job retention and job creation. This movement includes community organizations, urban political organizations, religious organizations, unemployed organizations, and others who are responding to the reality of very high levels of unemployment accompanied by the Reagan onslaught on the welfare state.

The labor movement can play a critical role in leading this effort because of its closeness to production, its familiarity with all the issues, and its strategic position. It can bring into negotiations a commitment to the social obligations of production to workers and the community; a defense of worker and union interests in the organization of production; and aggressively exhaust what potential remains in a diverse market atmosphere. Labor, by utilizing the tactic of worker ownership at the proper times, can create a choice for the growing number of people becoming aware of the limits of capital, and it can provide some models of creativity and broadened social vision. To effectively choose the opportunities and to broadly expose how the narrowness of traditional market forces holds back our country's development, while demonstrating a willingness to fill the void when it is possible, can have a tremendous internal and external impact on the labor movement.

If the labor movement is aggressive in encouraging working people and organizations from working-class communities to take advantage of opportunities for worker ownership, even if the workers aren't initially organized, it can enhance its own organizing of the unorganized. It has a greater capacity than most to provide technical assistance and orientation as well as a national network that could service these efforts in important ways.

Despite the numerous negative examples that exist, worker ownership belongs in the tool box of the labor movement as one option among many to pursue its efforts to defend the interests of those who work and the unemployed. It's a tactic that in some situations meets the issues of job loss and capital flight head on.

The effective use of worker ownership can strengthen labor's role among the unorganized, the unemployed, and in society in general by helping to fill the political and economic vacuum created by traditional market forces. Finally, use of this tactic will immensely broaden the scope of the labor movement, deepen its level of sophistication, and train it for leadership in the critically important trend toward economic reform and democracy.

Worker ownership is a concept and an option that we can no longer afford to avoid. To be willing to rise to the challenge of this and other new approaches like the use of eminent domain, nationalization, and popular control of investment funds, will bring the labor movement into a position of prestige and strength that will exceed that of earlier periods in American history.

A longer version of this debate appeared in the Labor Research Review, a journal of the Midwest Center for Labor Research, 3411 West Diversey Avenue, Suite 14, Chicago, IL 60647.

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