Law and Democracy Lecture 1: Building Workplace Democracy

all right hello everyone welcome to the harvard law forum the forum for you for those who don't know is the longest-running American law school speaker series over the years we've hosted the JFK Jimmy Carter Thurgood Marshall Ralph Nader Eleanor Roosevelt Jerry Falwell Cesar Chavez Malcolm X Timothy Leary the inventor of LSD and wrestling magnate Vince McMahon so you know take that Harvard Law Review this year as head of both the forum and the Democratic Law Society I'm focusing a series of talks on what can be seen as a burgeoning new view of the law framework we're calling law and democracy law and democracy Rhian visions the law as a tool to enable the public to participate in power that is a tool to create a democratic society that's in contrast to the prevailing views of the law we normally see here at Law School which whether it's the view of the law as a means to ensure lays a fair markets and efficient allocation of value or the view of the law as a mechanism for expert technocratic oversight of society rather in a democratic society the laws primary rule rule rule is to empower the public to construct and participate the world around them if you're interested in what that view looks like what that view of the law looks like there's a sign-up sheet that'll be going around in a bit and folks and put their names down to get involved but regardless of all that our speaker today Chris Mackin has worked tirelessly over the years promoting a more democratic society through democratizing the workplace where people spend the majority of their time all that Chris explained his own work but I want to emphasize that the thought and debate over democracy at work that Chris engages in is not a new phenomenon in fact the extension of democracy into the corporate firm lies at the roots of the labor movement the Knights of Labor which was one of the founding organizations of the labor movement and the first post-civil war labor organization that was open to all laborers including blacks and women had as one of their central principles the establishment of quote cooperative institutions such as will tend to supersede the wage system by the introduction of a cooperative industrial system many people in the early republic right up through the New Deal thought that democracy and the corporate firm was an essential component of democracy in the political sector and as Chris has pointed out in his own recent piece in The New Republic which you guys should all check out this labor Republican line of thinking was so important in the u.s. at one point that it was a central theme of a dedication ceremony at our very own Harvard Business School's Baker library at that ceremony the CEO of GE Owen young this was in 1927 the CEO of GE had this to say about the industrial workplace that had enveloped the economy over the past hundred years he said quote into these larger scale businesses we have brought together larger amounts of capital and larger numbers of workers then existed in cities we once thought great we've been put to it however to discover the true principles which should govern their relations from one point of view they meaning workers in capital they were partners in a common enterprise and from another point of view they were enemies fighting for the spoils of their common achievement I hope the day may come again this is a CEO of GE I hope the day may come when these great business organizations will truly belong to the men and women we would add now hopefully the men who are giving their lives and efforts to them I care not in what capacity then we shall dispose once and for all of the charge that industry organizations are autocratic and not democratic then we shall have no hired men so here to describe to us the path forward to realize this vision of workplace democracy let's all welcome Kris Mac into the Harvard Law Firm [Applause] hello hello I'm not sure this is broadcasting I hope it is hello everybody good afternoon good to see everyone here and great to hear that set up by Martin which I will echo some of mr. Young's material at the end of it at the end of this talk so first things first workplace democracy is the lead title lead idea of our title here and you may know you may notice that we don't have a lot of it in the American economy today and it's reasonable to ask why this talk will share practical methods and policy ideas for how to achieve it but I want to precede that discussion with a combination of moral and empirical arguments as to why we should have workplace democracy in the first place I don't assume that everybody is on the same page about that and I think that the framework is necessarily vague and needs to be filled in I would say that without compelling moral justifications what we're talking about here risks becoming just another technique easily forgotten with no staying power when the going gets rough and what's talked about here in terms of the scale of changes is not something that is easy without evidence that it works that people can produce products and services under these kinds of arrangements on a competitive basis it'll be difficult to enlist people to take this journey so that's the background and here's where we're going to go I want to be able to present some moral arguments that will provide some staying power hopefully for these ideas I want to do a sort of quick bit of intellectual geography in terms of like where does this idea of workplace democracy fit it's a nice sounding slogan but how could we make it something with a with a home want to touch on the history which I'll go quicker now that that Martin has has helped with that then we'll talk about employee ownership where it's actually happening and this is by way of background this has been my career I've been working in the field of employee ownership tonight since 1978 for 40 years started with a non-profit up Massachusetts Avenue here that was we were sponsored by the American Friends Services Committee a group called the Industrial Cooperative Association this is when I was a graduate student at Harvard in the Graduate School of Education actually where I first encountered these ideas I was someone who was doing school democracy but I read the labor history the labor Republican tradition and I was beating historians and economists and I just fell in love with this idea it also occurred to me that the Democratic school activity that I was doing we're sending kids out into a world of work that didn't speak that language and then perhaps the problem was further upriver and we had to find ways of democratizing the workplace and I was delighted to learn that I wasn't the first one and my friends weren't the first ones to sort this out there there is a great history behind it so we'll talk about that we'll talk about some facts and figures then we'll talk about a policy idea it's also in the title of what's going on the President and this employee equity loan act and then in conclusion there are some killer quotes that I'm hoping will keep you in your seats to the end that are that are particularly designed for a law school audience which I hope you might find interesting this entire presentation by the way is is up on Christopher Mackinac org so you you can go through it at your leisure if you'd like okay background framing the topic the moral case and then we'll talk about locating this and then historical roots so first the moral case there are three arguments to focus on here the first one is economic inequality as wealth inequality and the ways in which worker ownership employee ownership of businesses speaks to wealth inequality as a distinct construct a second moral frame to talk about is just isn't that democracy has been on an incomplete journey and these ideas help complete it the third and most controversial and perhaps novel to your ears claim is that employment law that you learn in this law school and that we accept it is right under our noses is the institutionalized acceptance of the renting of human beings and that that is a problematic concession made long ago that can be reversed and that we need to understand in order to see the depth of the difficulties we're dealing with I recognize that we also have to again not just make moral arguments but supply you with some evidence that these ideas are not a fantasy and there are academic colleagues of mine teach with some of them at Rutgers part-time now Richard Freeman here at Harvard is has been one of the scholars that's been doing work on this for a long time we'll get around to talking about that so let's go through the moral arguments first and the first point is that inequality is more extreme and wealth than it is an income this is not commonly understood and I would claim that our grasp of the problem of economic inequality as even educated people is still primitive when people talk about economic inequality they generally jump right to wages and to income and to paychecks you're more likely to hear income inequality as the problem than wealth inequality well it's a fairly simple faculty if you think about it that that in some sense is you know paychecks are just a symptom or a surface manifestation of an inequality problem and wealth is in some sense stored income and it is it is a it's a different value construct it's one that if you have it in the foot in the particularly in the form of assets this is something the rich know very well the wealthy know very well is that it can grow as you sleep it provides a certain kind of foundation and security that income and paychecks will never provide we should all be campaigning and working hard for things like the $15 an hour minimum wage but if we're not doing anything to attack this wealth problem I fear we're not going to get very far very fast here's a statistic rather dramatic one may remember from the Federal Reserve in Boston did a study that this is no typo the median net worth of black Bostonians is $8 that's the wealth that's a that's a statistic that that sort of rams home to me the importance of wealth is a construct and we're talking about inequality we should care about this gentleman's paycheck but the fact that he and his family have eight dollars of wealth is certainly a problem and here are some more detailed statistics and and those people those of you who want to study wealth determine be able to sort of focus on that this is a category I recommend to you the work of New York University professor at Wolff he's the lead scholar in this field this is a recent book from Harvard University Press century of wealth in America and look at what he shows at the bottom 90% this is just financial wealth okay there are other it's a longer discussion to get into but the in terms of financial instruments and forms of financial wealth business equity which is equity mostly closely held privately held businesses the bottom 90% of American society owns 6% of business equity and the top one percent owns 63 and we can go do the you know the the the 1% within the 10% the 0.1% and it gets even more concentrated but this this at least illustrates the beginning of the problem when we begin to think about what we're facing as a wealth inequality challenge so my hope is that the policy debate of the future her policy debates of the future will be as much about wealth inequality versus income inequality we've much about as wealth versus income about property and not just about pay and surprise surprise the punchline here is that employee ownership broad-based employee ownership of companies is probably the most effective in scaled way of addressing wealth inequality I don't anything else comes close guaranteed annual income whatever you like this is the most effective way to do it okay second moral challenge if wealth inequality is not enough to get you going here is this is again one of my sort of early heroes when I got into this business a very mainstream Yale political science professor who is who wrote his last book was called ikan a preface to economic democracy he was he earned his fame and this red textbook anybody who's my age went to college from my time I don't know if they're still selling it with what was it was in every undergraduate political science course he was considered in the Dean of political theory about democracy and what we find is that the book end his career he starts articulating about what political democracy is and he comes to the conclusion that political democracy cannot prosper cannot be what it should be unless there's a corresponding form of economic democracy and he speaks about how it's with economic democracy you could you can help cultivate moral agency in people if they are participants in their enterprises I was lucky enough to meet him and it's just again it helped reinforce that this was something that wasn't just a some sort of crazy left-wing program you know when you can have people of this stature recognize it admit that political democracy on its own isn't going to probably survive unless there's some kind of corresponding economic democracy you're on a you're on a journey and he's says there should be such a journey now finally these are the two easy moral claims now the fun begins employment law the renting of human beings dwell on that for a second the ranting of human beings that sounds like is that some sort of rhetorical claim here well where does it come from how do we arrive at concepts like this here's a guy Paul Samuelson sure gentlemen productive scholar what probably the most famous 20th century economist done at MIT this is his text economics that again most every undergraduate in the twentieth century took economics course used it's the Bible of economics here's a quote from that text since slavery was abolished human earning power is forbidden by law to be capitalized a man is not even free to sell himself he must rent himself at a wage so this is this is the field of economics admitting straight ahead that what we have is a human rental relationship in the workplace now that's a little rough little problematic so what do we do what do we do with this harsh sounding Samuelson newse well as a culture as a society we make use of a euphemism and what's a euphemism if we substitute an agreeable or inoffensive expression for one that may offend or suggest something unpleasant rented human beings is a little unpleasant to some ears the euphemism is hire we hire people we don't rent them the potentially offensive expression is rent the true description we get it from Samuelsson as we're renting the central human institution structuring modern economies is the employment relationship hiring the initiating act of the employment relationship is a euphemism an agreeable linguistic substitute for renting and last but not least employees today and ever since the employee construct was invented our rented humans that's what we've got and we teach law about it and really the only right employees have if they don't have some kind of protection for me in your contract is to quit its contractual it seemed to be a contractual relationship and that seemed to be in sort of mainstream intellectual disciplines to be sufficient some would beg to differ and here's a guy who begs to differ my friend who we started in 1978 doing this work the most productive scholar and original thinker in this field the guy named David Ellerman he calls himself a neo abolitionist these days a lot of his critique of the employment relationship in particular comes out of studying anti-slavery movements and studying the coverture marriage contract studying slavery through the ages including here in the 19th century of the United States David says that responsible human agency is inalienable just as we overcame slavery with the claim that human beings are inalienable they can't and shouldn't be and salt David claims responsible human agency is inalienable and cannot be rented therefore the modern employment contract is invalid it's fraudulent managers and workers instead of being employers and employees should work for themselves in enterprises structured as democratic social institutions competing and regulated market economies that to simplify is his his affirmative position this isn't just to take down the employment relationship it's to substitute it was something that recognizes human agency in human responsibility a couple of illustrative quotes that are great I'm risking the camera angle the contract to rent human beings is an institutional fraud legally sponsored by a society based on renting instead of owning other humans so that the positive and negative fruits of the rented people can be appropriated by the employer that is the basis for the neo abolitionist claim that the employee contract for the renting of human beings is inherently invalid one more the fact that a whole economic civilization is founded on a bogus contract lawyers of the future the contract to read human beings to transfer what is untransferable is unbelievable to most people which is why so much false consciousness needs to be socially constructed to sustain the system while the earlier systems of legalized violations of human rights chattel slavery feudalism coverage of marriage contracts had their platoons of intellectual cleric hirelings or mercenaries no previous system had anything approaching the sophistication of Orthodox economics political science legal theory and other social sciences that's there is a there's lots of papers lots of books it's very productive there's lots to go there as a matter of fact David is going to be in town Monday October 29 through Thursday November 1 if I was a law student here and I was interested what that's been presented I'd see to it that he'd be invited over for chat and he'll be staying at my apartment in Harvard Square okay so let's see let's summarize we're going to get it getting through these moral claims you like inequality you like the incomplete journey or do you like the renting of human beings those are reasons to dig into this issue for those of you who are looking for reasons then we got to do some evidence because you've got to be Pareto optimal you have to show that this actually works and that you're not sacrificing efficiency to make it work and guess what because we could solve that we can answer that claim a quick little thing here about intellectual geography this is a being a stickler are so workplace democracy I like there that's like it's an okay idea but where is it where does it fit what does it mean is that gonna be how we're gonna like all this going forward I'm not sure I like a broader notion borrowing from Dahl in some sense of economic democracy with workplace democracy is the sort of biggest subset of that there are other reform ideas your favorite that might be called economic democracy they don't have anything do the workplace they're all wonderful ideas we're centrally focused on the workplace and on production and on property as the sort of fundamental institutions to change the economy and within that workplace democracy frame what we have we really have two ways of looking at that we've got standard union management collective bargaining the achievements of collective bargaining that have happened against great odds over the years certain kind of negative power so you're kind of limitation of the rental relationship that's on its heels now it's not strong and in some sense it doesn't get to the heart of the matter which we'll talk about and the second idea is employee ownership mmm-hmm and private sector we're talking about stock we're talking about Aesop's and cooperatives we're talking about a general idea of labor hiring capital and we're talking about the employment relationship ending human rentals no hired men as mr. Young said okay and now quickly on historical stuff because Martin did do this I recommend to you this book those of you who want to get excited about how it isn't a brand new idea it was in fact this idea of worker ownership was the natural reaction of on the part of farmers and trades people whose parents had fought in the political revolution here in the in the 18th century early in the 19th century being faced with Europeans coming back across the ocean this time with dollar bills and the steam engine and factories and saying to these former farmers and tradespeople where we got a deal for you we want you to be an employee and you're gonna work for us under these sorts of conditions you don't have to worry your pretty little heads about anything you just work your 10 hours initially and then it became eight hours and we get the profits and we're on our way well there were people and they were there are people of the labor movement of the 19th century said that is the worst idea can ever imagine go back to Europe they started cooperatives they started them a lot of them around here in Massachusetts in Stoneham and Linn and they made barrels they made rope they made shoes and what they decided to do and when faced with this proposition was to pool their resources and they recognized that it made more sense to make a thousand shoes a week than a hundred shoes in the small shop so they pulled their resources and they form cooperatives and for what at least one generation or are you know one probably that you know the science clear on this but it looks like for about one generation they competed with the the employer-employee model but guess what they weren't able to replenish their capital stock they weren't able to bring in the the newest steam engine the newest sewing machine and so they lost out to the European competitors who had a lot of money to burn from centuries of feudalism to be able to drive home that no the industrial structure that shall prevail is the employer-employee structure and this idea this resistance went under the ways except people wrote wrote it down and if you study it this is the first stage of the American labor movement before the afl-cio a quick couple quick quotes from one of my favorite gents from back in the state guy named George McNeill of Amesbury Massachusetts who wrote in 1887 an inevitable and irresistible conflict between the wage system of Labor and the Republican system of government is proposed by our European friends inevitable inevitable and irresistible conflict between the wage system of Labor and the Republican system of government that our parents and grandparents just fought for he viewed the cooperative ownership by workers as a means to turn the tide to quote engraft republican principles into our industrial system hence the name labour Republicans another way in which these people talked about that is that if we have stood up a political Republic we should stand up a corresponding Industrial Republic right out of Robert Paul Roberts all picked it up many years after that that kind of symmetry 20th century that's where I got my start so did he and this bit of politics we'll talk about that Russell long the son of Huey Long that's Hughie behind Russell there get control of the tax code in the last era of his career he wanted to reach back to what his father the famous populist the Bernie Sanders of his day with some warts that Bernie that doesn't have but Huey Long was a populist he didn't think that Franklin Roosevelt was going hard and fast enough against the economic inequality he started to share the wealth clubs he wanted people to talk about that well Russell was much more conservative and at the end of his career he wanted to connect to what his father's themes and ideas were and he as you'll see in a minute he met up with some people who helped him conceive of this idea of being able to write tax law to induce capitalists to share ownership with their workers and there are 7,000 of those with 14 million workers we'll see in a second and then here we are in the 21st century what's going on now Aesop's and private equity in quotes I'm a part of a group that's raising a large fund we hope it'll be a three or five hundred million dollar fund to be able to back management and workers to be able to buy them out as an alternative to go into conventional private equity there's also a revival of the co-operative movement there's this platform cooperative stuff that was talked about a year ago when I came to a session here there's some interesting stuff going on and there's some legislative ideas so this is just to put it in history all right what is employee ownership I was a long set up I apologize but that's the fun I have okay I know this other stuff cold so employee ownership this really happens in four ways you can expropriate a factory as was done in Argentina and at the turn of the century and it many factories it's not a generalizable policy but that sometimes happens workers literally take over abandoned factories and run them on a worker ownership basis you can start factories this way that's how that's the co-operative movement it's most associated with that idea it's usually people who have read something or thought something talked to their friends and said you know we're going to do this on a democratic basis and the co-operative movement is a it's been around for a long time who's talking about here last year again it's primarily a creature of startups the most scaled and significant example of the success of cooperatives is in the Basque Country of Spain in Mondragon been there four times my part one of my partner's is on the faculty of my underground University for it Freilich and that's where to go to learn about this and now platform cooperatives are being talked about by Trevor Schultz and others and there that's a promising idea again it's mostly focused on startups a third way this gets had this happens is through negotiation to collective bargaining very rare these days I was involved in the United Airlines employee buyout back in 96 97 I think it was the employees there had 55% of the stock and they controlled the board it's a fascinating story that's very misunderstood it actually had a lot of promise and there were some structural flaws a one a deal that has is up and running that bit my group American working capital help design is a 100 percent employee-owned supermarket chain in Oklahoma about a hundred stores called homeland food stores and we worked with the UFCW to construct that deal and to negotiate it on their behalf and it's resulted in a hundred percent employee-owned chain so it can happen that way but but overall the most overwhelming what ver here of how this happens is when workers and managers somehow which I'll explain by profitable cash flow positive scaled closely held privately held companies right in the middle of Main Street USA that's overwhelmingly the largest segment or niche there they are almost 7,000 firms 1.3 trillion in assets 14 million people workers with account values that average one hundred and thirty four thousand dollars that are separate from their 401 k plans that are wealth accounts that that are that they they have be blue and red or s corpse and C corpse talk about that where are we in terms of converting the American economy to this kind of structure not very far we've got about one point five percent of the of the legitimate market that we would target for this which I'm saying our private sector firms over over fifty employees those are like ESOP herbal firms you know about one point five percent of them and so there's a there's a rich market to go after examples of the companies you may have heard of some of these public supermarkets is the largest 108 190,000 workers let's see Parsons that's an engineering firm you've got and one that you might say it could see in the room is represented number 11 a goring associates the maker of gore-tex those of you who are wearing Gortex that's a company in Delaware it's hundred percent employee-owned firm so those are some scale companies that have done this and I mean I know another one locally which was there is harpoon Brewing Company dam Canary and his partners sold internally to their employees I urge you to drink harpoon if you like these ideas how does this work evidence Joseph Pilates coming to town my colleague for a session in a month December 14th I urge you to he's the guy he and Doug Cruz and Richard Freeman have done the hard work on I'm not the moral arguments as much as these economic arguments the evidence and guess what people working together for themselves work better it's smarter the firm's are more productive they grow faster sales grow faster it works not to say that the science is over but there's been a lot of science there's been a lot of writing on this and we can talk more about that if you want to from a public policy standpoint employee ownership more of what businesses are more likely to be retained the 25% more likely to stay in business an employee owners are four to four times less likely to be laid off during the last recession so payroll taxes are being paid states are in better shape if firms are owned at a broad-based local way that's some evidence for you now let's switch to how does it happen this is the super quick legal 101 of how you do an esop transaction how could people with no money the people on the left side buy from these swell fellas on the right side these workers don't have any money well we get back to our friend Russell long he knew that and he said I'm gonna figure out a way to do it he learned from a gentleman named Lewis Kelso a very creative economist lawyer who thought hard about how well why can't pension plans and you know that are these existing legal structures that exist in many companies and there were more DB pension plans back in those days can't they potentially borrow money on behalf of the employees as a group because you actually have the employees as a group already gathered through an illegal structure of a pension plan so why not enable the pension plan to borrow money and he wrote he wrote books about that and he convinced Lewis Kelso that that was a good idea and a law that you all have heard of I think called ERISA was passed and an amendment to ERISA introduced to provide tax incentives for the sellers of businesses to be able to sell internally to their employees some companies there's the company create trusts employee stock ownership trusts a new kind of benefit plan an additional benefit plan and what happens is that the trust goes to the bank and borrows the money employees are not coming out of pocket the seller has to want to do this because the collateral for the loans or the assets of the firm why does the seller want to do it well one of the reasons is that Russell long put some tax incentives in there if you in the partners at harpoon or a local example if you sell internally to one of those trusts you paid no capital gains tax that was that that's the easiest to understand instead of the bit long put into the law further and deeper if firms are a hundred percent employee-owned they pay no corporate taxes there there are pass-through corporation where and that's what's led to their growth so it's a benefit plan that can borrow money it's it has to be inclusive if you're going to do this you can't say this side of the room participates that side can't let's like a 401 k plan the same the same rules and its tax favorite and that's what's driven the statistics that that you saw now let's talk about policy in politics there's a problem we only have 1.5 percent of the of the available companies and there's been slow growth of the ESOP field in recent years so why well first problem is time sellers eager to make a decision they're what they're are willing bars is strategic or private strategic buyers are private equity waiting right outside the door to be able to gobble up these companies their advisers and brokers who are close to these business owners who don't know what the heck this is and are more likely to advise on a conventional sale there's cultural confusion how can low wealth employees possibly buy companies and then one would think that this is a bottom-up thing if the workers are buying the firm well in fact and we're gonna address this this is mostly a top-down consideration it's adopted as an idea because the seller or the owner thinks it's a good idea and I should say that many of those owners are not just driven by the tax proposition many of them knowing that they're gonna get a market price for their assets like the idea of selling to their employees and prefer it just selling to private equity or the strategic people they know who has made them rich after all it's their employees and they prefer to do it there are decent people who want to do that the leadership initiative is confusing to people who's going to lead this and then finally capital pilot final dollar risk capital is not available and secured lending at present only goes so far what I mean by that is that most D stop transactions to get to 100% all right you have to happen in at least two tranches you're not going to have a bank lend a hundred percent of the value of the company if you've got a successful company and so finding that high risk capital to close a deal at one hundred percent is difficult which is one of the reasons why business owners don't do it you have to be a patient seller that's a problem what's the solution to this well we've got to build up specialty institutions private equity like groups like when I work for and some others and we have to find and we have to find a way of providing scaled secured credit and we've got to encourage bottom-up activity here where the middle management and the workers are talking to the boss about this we have an idea about how to do that because there's two ways of doing it right now you either sell the private equity of strategic buyers or you sell internally to your people but the resources to do it are limited and here's what we're up against private equity has got a 2.5 trillion dollar war chest they're ready to buy any good company that's around my friends and I and the in the in the field together we have about a billion that we can invest we need more institutions to do that maybe you'll go to work for one of them at some point I hope you will these are American working capital is the one I work with mosaic at one point or two others we need more of these but what we're talking about today is a public policy initiative of how to scale this how to get out of the low level that we are how do we do it and these are the these are the three people who wrote the paper but I'll put on my website my love you are interested a dick may of America working capital is the primary genius behind this idea if I might prejudice what I think of our idea or characterize it okay so what's the purpose we need to have a guarantee the employee equity loan act proposes that over a 10-year period the federal government would provide an annual guarantee of a hundred billion dollars to SBA EDA or export-import bank certified lending institutions for the purpose of lending to certified broad-based employee ownership trusts the guarantees should apply to the full spectrum of Lohman lower-middle market privately held businesses up to 300 million employing up to 3,000 employees this idea can make use of existing infrastructure of banks we're not talking about starting a big federal bank program we're talking about credit worthiness can be established by having this program be worked through the banks the security of anniela guarantee will motivate lenders to lend aligning their incentives with the goal of broad-based employee ownership we're empowering buyers with this idea again we're not just waiting for the seller to do it if there's a sign in every bank window saying talk to the boss about ownership they're gonna be more conversations about this idea and we're we be overcoming resistance and having an idea like this of this scale guess what it's been done before this kind of big idea using the Full Faith and Credit of the federal government to achieve a social end an economic and happened under a Republican Herbert Hoover and when was that 1932 what they do what they did what he did was to provide federal home loan guarantees through the Federal Home Loan Bank Act that allowed people with little or no savings like workers have little or no savings to buy homes this is a policy that obviously extends to today it's arguably created in American middle class it was focused on housing stock it was burst a tonight at a time when there was concern about inequality that is I believe worse now so if we care about scale ideas we go back to the playbook Franklin Roosevelt implemented most of this but to be fair the idea came from a Republican from Herbert Hoover how would we do it we'll readmit astir it those are three agencies that administer federal credit programs right now the SBA the EDA and the export-import bank I would like to get this out of the SBA frankly I'd like to get to be in the EDA I want to get this idea out of the image that it's a small business thing I want to be able to use an idea like this go after scaled companies that's how you would do it and what kind of impact would it have what would it do about that problem of the black guy with eight dollars of net worth we started this this presentation would well here because of our friend ed wolf we could see the five family wealth quintiles that exists in the United States right now the bottom three we see quintile sixty percent of the American population has no more than seventeen thousand dollars in savings or net worth sixty percent that sounds like Herbert Hoover bill to me in terms of the of the emergency of inequality what would this idea do if you were able to fully deploy the money over a 10-year period of time the rich get richer but that bottom sixty percent begin to accumulate wealth accounts of a kind that they would never be able to get by saving from their paycheck $15 an hour or whatever it's only by having an ownership intervention that that kind of wealth can be accumulated by ordinary people realities of politics doing something like this incremental change versus big picture change well here's Kirsten Gillibrand she's interested in this idea and god bless her she just passed a bill this summer try to promote and to grow awareness about this but it doesn't change there's no economics associated with it there is a small a loan guarantee program that exists already with the SBA of limited at five five million dollars that's great but it doesn't really move the needle along comes Elizabeth Warren with her accountable capitalism Act great idea no mention of ownership no real financial dimension there's just an implicit hope I'm assuming I'm reading into it if you have 40 percent of the members of a Board of Directors being workers that they're going to somehow influence the policy would management and workers are gonna get a pay raise well pay raises are not really the heart of the problem ownership and control is the problem and here we are with our ela idea we want to amend these agencies we want 10 million to five hundred million dollar guarantees not five million ones and we want to we want to enlist the participation of existing banks and we want to stand up and start conversations inside companies it'll probably be led by some combination of middle management and workers say hey boss what you know you're getting a little long in the tooth you know what are you gonna do with the business here we understand your kids don't necessarily want it you know about this ela program we could make a deal those that's what I hope would happen with something like this okay so summarize this this is too much whatever I'm not gonna go to that I want to conclude our students with a conservative member of parliament in England Lord Eustace Percy we'll start with him and then we're going to go to Martin's friend oh and young there is in his resplendent robes this is what he had to say in a 1944 lecture Redell lecture said here is the most urgent challenge to political invention ever offered to the jurist and the Statesman the human Association which in fact produces and distributes wealth the association of workmen managers technicians and directors is not an association recognized by law the Association which the law does recognise the association of shareholders creditors and directors is incapable of production and is not expected by the law to perform those functions we have to give law to the real Association and to withdraw meaningless privilege from the imaginary one I think he's right your lawyers your future lawyers I'll urge you to go to the full-text to read it but the challenge is clear enough the the structures and conventions of corporate law as they've arisen our content historically contingent they didn't have to be written the way they were written powerful people steered them in different ways people who are intellectually honest like this guy said there's something wrong with how this capitalist legal structure is developing here it's rewarding and protecting the wrong people doesn't mean the Capitol shouldn't get any rewards Capital should get risk-adjusted returns the Capitol shouldn't have the affirmative power to govern production that should be in the hands of the workers and the managers and the firms that's that that's the challenge and along comes ok we're getting back here to Baker library found a picture from 1927 this is a dedication of Baker library at the Harvard Business school and here it is today you know the building a pretty building by the Charles was all isolated back in that day somehow Owen DeYoung was who was the CEO or the chairman of General Electric was invited to give the dedication ceremony and you've heard we're just gonna repeat you've heard the highlights of his remarks and his again his his remarks think about this for a second this is 1927 industrial capitalism was barely a hundred years old in terms of taking over the economy because 100 years back was farmers and tradespeople 100 if you want to push that back a little further fine but he was able to heat from his vantage point he's like looking at like okay and we're building a business school this first kind of business school to look at this stuff well this is what he had to say I'm just repeating what Martin said into these larger scale businesses we've brought together larger amounts of capital and larger numbers and workers that existed in cities once thought great we've been put to it however by this talk to discover the true principles which should govern their relations from one point of view there were partners in a common enterprise from another there were enemies fighting for the spoils of their common achievement I hope the day may come when these great business organizations will truly belong to the men who are giving their lives and their efforts to them I care not in what capacity then we shall dispose once and for all of the charge that industry organizations are autocratic and the Democratic then we shall have no hired man he spied what the labor Republicans a few decades before him were writing about hired men the employer-employee relationship bad idea we're only a hundred years into this people he's saying from the Harvard Business School we can change this that objective may be a long way off but it is a worthy it's worthy to engage the research and efforts of the Harvard School of Business here's a biography done by his daughter and her husband of Owen young and in chapter 20 they comment on the speech this is the chairman of General Electric speaking in 1927 was anybody listening if some of Young's auditors were puzzled or dismayed the speech as a whole was well received but this time without cheers nor is there anything in the record to indicate that the Faculty of the Harvard Business School found Young's objective worthy of their sustained attention much less of any systematic research Harvard Business School I would contend and here we are this last slide oh and Young had a geography problem he was just a little bit lost he was on the wrong side of the Charles River wrong intellectual discipline he should have been over here I was built in 1883 Austin Hall he could have been giving the 45th anniversary speech at Austin hall and had an audience of lawyers listening who perhaps could have put pen to paper and said you know you're right mr. young we're gonna do something about it I think it is lawyers who can and should in some senses take the lead over their good businessmen business owners we know that they exist there are people who would want to do the right thing but we have to have the laws and the structures to do it that's it [Applause] so not much time