“ESOPs and the Limits of Fractionalized Ownership”

‘In recent years, a diverse range of scholars have attempted to mine late 19^th and early 20^th centuries to rediscover an alternative framework for thinking about American economic citizenship. Often described as “radical republicanism” or “economic republicanism,” these efforts reflect both long-standing and newly reinvigorated critiques of economic institutions and practices which draw sharp dividing lines between political and economic democracy, as well as core aspects of modern capitalism such as labor commodification. In contrast, republican notions of citizenship provide an integrated set of governing political and economic values, and emphasize promoting material independence and substantive personal sovereignty, rather than wage labor exchange and subordination to a specific social class of capital owners. The challenge now, as it was in these earlier eras, is translating these ideals and critiques into a coherent set of institution alternatives which could compete or replace existing economic relations. In the mid-20^th century, one attempt to actualize a variation of these principles became known as the ESOP, or Employee Stock Ownership Plans. The originator of the ESOP, Louis Kelso, sought to find a way to generalize American prosperity by expanding, rather than undermining, capital ownership among the population. His innovation was to use a trust mechanism to allow retiring enterprise owners to transfer ownership of their companies to workers which allowed a loan collateralized by the enterprise to be paid down through future earnings. Kelso and his political allies eventual found broad political support for his innovation, initialing securing significant tax benefits for ESOP formation and operation’

‘The subsequent history of ESOPs has been highly controversial. A number of criticisms have been leveled at ESOPs, and the varying degree of their tax benefits has reflected their oscillating political fortunes. While a great deal of the debate over ESOPs has focused on either the specific of their regulation or their relative potential for promoting intra-firm efficiency, much of the original transformative impetus of the ESOP has been lost. In this way, the operational history of ESOPs provides an instructive lens for articulating what exactly is sought from ideals of economic republicanism. Ongoing debates miss that the true relevance of ESOPs is how clearly they parse the limitations of broad but fractionalized capital ownership for promoting republican ideals’

‘Especially as ESOPs and similar regulatory schemes have now migrated internationally, it is important to use the ESOP experience to reassert the central anti-subordination ideals of republicanism. This raises the question of whether an intra-systemic “hack” can achieve such goals in the contemporary moment, or whether the ecology of contemporary American economic governance remains too incongruent with such a gradualist agenda. Dissecting ESOPs in this ways helps provide a framework for assessing the republican potential of the varieties of employee ownership that have emerged globally over the past decades, and lay out a more specific research agenda to transform economic republicanism from ideal to real practice’