MAKING GOVERNMENT CRISIS AID FAIR AND EFFICIENT

27 Day Cash Buffer

We have previously published a paper on how employee ownership can be seen as the desired outcome of government aid saving failing companies. More recently, Dr. Christopher Mackin, member of the Experts Board at the Institute for Economic Democracy, wrote on the role of economic democracy in times of crisis. In his paper published on the 1st day of the new year in New Republic, titled ‘A Pandemic Dividend for Every American’, Dr. Mackin argues that “all citizens deserve a share of the wealth that’s being disbursed to save the economy from Covid-19’s ravages.”

Similarly to most EU member states, the USA has seen its largest government aid in its history. Aiming to preserve businesses and avoid massive job losses, tax-payer money is spent to help the economy. The goal of sustaining the needed paychecks seems quite generous, but who is the end beneficiary of the measures and are these actions fair to everyone?

Presuming taxpayer-provided funds and guarantees will continue to play a key role in the recovery of private-sector employers, incumbent shareholders should not be the sole beneficiaries of recovered value. Instead, it should be shared with employees working at all levels of each firm receiving assistance and with each and every citizen whose tax dollars are the ultimate source of funds for the recovery.

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The Covid-19 crisis of 2020 and beyond is arguably broader and deeper than the 2007 financial crisis. It should therefore employ longer-term and broader recovery strategies. If taxpayer dollars are fueling the recovery of private sector firms in particular, then fairness demands that all American citizens should share in the future benefits of that recovery.”

One way of ensuring that the measures affect everyone fairly is to establish share ownership trusts. The shares held by the trust will be written under the name and in the interest of all employees, not only the top tier managers, hence allowing all workers to benefit from the recovery of the firm.

One way of achieving this that proved to be very effective is the Employee Share Ownership Plan (ESOP). There is a 40-year long tradition of the federal tax policy supporting ESOPs, as “research evidence supports the claim that employee ownership makes a positive difference in the productivity, profitability, and longevity of firms.

ESOPs have been historically a bi-partisan policy. Both Democrats and Republicans see employee ownership to be a good idea, especially when it comes to fighting the economic consequences of the COVID-19 pandemic.

In July, a bill called the Temporary Federal ESOP Grant Program Act of 2020 was introduced by Republican Senator Ron Johnson and cosponsored by Democratic Senator Tammy Baldwin.

Even more so, successful businessmen and businesswomen understand why a concept such as ESOP is helpful for the economy. For instance, billionaire entrepreneur Mark Cuban recently said that “if we are going to bail out companies, we need to make sure all employees benefit from a turnaround, not just executives. This would be a step toward income equality.

Where does this leave us? Dr. Mackin proposes to US authorities, as Ellerman and Gonza did for EU at the beginning of the COVID-19 crisis, that “any future Covid-19 related federal assistance to private sector firms should be allocated among three groups: existing shareholders, employee trusts, and a National Wealth Fund. Specific allocations should be calculated by determining the fair market value of governmental infusions of cash and loan guarantees as a percentage of the fair market value of individual firms.

 

 

 

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