Mike Wallace interviews the inventor of ESOPs, Louis O. Kelso, on 60 Minutes

buried in the Senate version of the massive tax cut Bill the Congress is putting together to a our siik economy is a little known little understood provision that could significantly change the relationship between you and the company you work for that provision would make some of you part owners along with your employers the author of the plan is a Maverick Economist who has caught the imagination of the chairman of the Senate finance committee Russell long long believes the plan might just be the way to break the boom and bust cycle that periodically produces a depression in the United States here's how the plan would work the men who work on this Doc in Oakland California work for the Matson lions and they earn a good wage here but if they lose their jobs they'll earn nothing or they'll go on welfare because all they own is the sweat of their brow their labor but the folks who own the equipment on these docks that crane these ships the stockholders of the Matson company they don't have to show up here and yet they earn a yearly income just the same because they own Capital instruments they own this equipment well there's a fellow across the bay in San Francisco who says that all the workers on this dock indeed all wage earners everywhere should own a piece of the outfit that they work for should own a piece of the action his name is Lis Kelo he's a millionaire Corporation lawyer who puts together multi-million dollar business deals Kelo argues that if capitalism is good for the rich then everyone should be able to play otherwise warns Kelo our society as we know it will wither and die the death of the economy is the first step in the death of a civilization this economy has stopped growing for years Kelo has been hopping around the country like an itinerant preacher delivering his sermon he tells anyone who listen what he told the economic leaders assembled by President Ford that proposals for more tax cuts and more welfare will never solve the economic mess we're in they don't go to the root of the problem he said Americans says Kelo are a nation of industrial sharecroppers who work for somebody else and have no other source of income if a man owns something that will produce a second income says Kelo he'll be a better customer for the things that American industry produces but the problem is how to get the Working Man that second income how do you use the logic of corporate finance the logic that the corporation in insists upon as minimal that is the logic of investing in things that will pay for themselves how do you use it for the individual how do you bring the economic game down from the corporation to the human scale here is what Kelo would do he would have every company set up something called an employee stock ownership plan an ESOP for short an employees trust that trust would then go to a bank and borrow money money to buy a stock in the company the employ employers work for when that company wants to expand and says Kelso it wouldn't cost the employers a penny out of their paychecks to buy the stock to build a new plant because the loan would be paid back out of profits produced by that new plant that's the way business always operates borrow and pay back out of profits why would a company want to do this because it's a cheap way to finance its growth under our tax laws you see an employees stock ownership plan is a tax exempt trust with Uncle Sam getting no cut if the new plant cost a million dollars to build the company would only have to funnel a million dollars of its profits back through the ESOP to pay off the loan if there were no tax exempt ESOP it would take more than twice as much of the profits to pay off the loan and the taxes Kelso says the government would make up those lost taxes because as the employees start getting dividends from their stock they'll all be in a higher personal income tax bracket but more important the cost of government he says will shrink as fewer people need to get government handouts we know how to build goods and services but we don't know how to produce customers you're attacking poverty by attacking its causes that is by making the average man more productive because he's not only has a job he has a capital estate that's growing a capital estate that will support him whether he's whether he's too old to work or sick or or or or or technologically unemployed or whatever and there isn't a single trace of Labor power that isn't being targeted on by some piece of Machinery here's an example of what Lelo means just half a dozen years ago it took 600 Men 2 weeks to unload and reload a ship like this well today with all this new equipment cranes straddle carriers containers it takes a 100 men just 2 and A2 days to do the same job this kind of automation has been going on across America for 20 years and Kelo has been arguing for esops for nearly 20 years but few businesses have SE fit to adopt his plan the ones that have are mostly small this is the Los Angeles Warehouse of infant Specialties one of the 150 odd companies in America which have adopted ESOP the employees stock ownership plan a year ago the 75 employeers of this company were told they were going to become part owners stockholders in infant special and without putting up a penny of their own money the man who did it for them the man who took over this company a year ago is John Carter how much did you pay for this company a year ago when you bought it just a million dollars how much of your own money did you put up I and some colleagues put up $250,000 so you borrowed the other 750 that's right you went to an ESOP why I wanted the employees to buy this company I wanted them to pay off this loan because I wanted to be sure that they were working on my side and make my investment a good investment so they will own their stock they'll own 75% of this company in 8 years even more right of course Carter's Rosie predictions may not pan out the business could go sour but the employees wouldn't have any personal liability as in any other bankruptcy the creditors would just seize whatever assets the corporation has Russell long chairman of the Senate finance committee is Luke kelo's most Ardent supporter on Capitol Hill he is pushing to make the ESOP a major form of corporate financing now what you're trying to do here deserves a trial it uh has been very successful where tried but so far hadn't been tried on the big scale tried on and I think we're going to get that getting ESOP into the big time means winning over Big labor and that's a formidable stumbling block Kelo outlined his plan to the Executive Board of the national Maritime Union who looked at him with some suspicion when I first read your plan I saw the whole thing as a union busting plan we're going to be representing workers who are now are going to be part of management they're going to be stockholders in the company why are they going to need us as union leaders the union will represent the workers as workers in all of the aspects that it represents them today uh uh wages hours working conditions and it will represent them as stockholders as owners I can't believe for example that Penn Central could have gotten away with what it did if its employees had owned a significant piece of pen Central labor is not alone in its hostility toward Kelo ISM the traditional economists don't like him very much either leis Kelo complains there is a conspiracy of Silence about him in the economic fraternity they won't talk about him he says but worse still they won't argue with him well there is one Economist who will Nobel prizewinning economics professor here at the Massachusetts Institute of Technology Paul Samuelson you consign Kelo to oh uh I I I have not met uh Mr Kelo I don't object to anyone uh uh pushing his thing I'm sure he's sincere he remains an amateur crank your words no no your words uh I I think that the uh Kelo ISM at this point of scientific knowledge has is amateur cranked like other uh interesting forms of alchemy Samuelson never made it clear just why he so disdainfully dismisses kelo's Esa plan his main objection seems to be that the esa plan is predicated on loopholes in the tax laws it really has a Marie antish ring to it uh let them own Capital Paul Samuel son calls leis Kelo an amateur crank how come I'm in the position of Pastor not a doctor uh coming in and saying to the doctors um if you'll do it a different way the thing will work they said pastor is a crank uh he's a chemist he should stay the hell out of medicine and not mess around this is exactly what this pre uh professional credentialism of the professional Economist uh amounts to when it comes to saving the society which is in very grave danger or saving their faces they will never make the wrong decision they will save their faces all right my understanding of Kelo ism is that it's designed to enable men who are born without Capital to buy it to pay for it out of the income at producers to own it and thereafter to receive income from that Capital devoutly to be wished no oh oh yes and uh it would be nice to have lollipops uh uh grow on trees for the picking the only thing that you object to really in kism is the fact that it uses a tax loophole to to give the workers stock inan that is my my my primary uh criticism now you tell me that Senator long is interested in this I'm distressed I'm distressed because Senator long is an influential senator in connection with the closing of tax loopholes and the opening of them what he calls a tax loophole is there already it was there when I became a senator 26 years ago there all sorts of things like that in the tax code I could dredge up a hundred of them for you very easily the question is do they achieve a desirable social purpose I think that the idea of encouraging the people who work for a company uh to own an interest in the company is sufficiently socially desire vble to give it favorable tax treatment we're going to be asked to bail out a lot of companies like the pen Central the locked and others uh right now we're being asked to uh to help panamic and I'm telling panamerican Airways well now here if you fellas want us to put government money behind your company and save your big Airline for you I want you to have an employee stock ownership plan where those employees who right now out lobbying to try to help save that company Luke Kelo says that this will stimulate the economy and what will it do to the current recession it will bring more production to your economy and therefore more wealth to your economy it's almost like aliceon Wonderland sitting here sitting here at a time when unemployment rates are rising when inflation has been skyrocketing when the economy is apparently in recession and conceivably going into depression and you talking as though uhuh problems are solvable right well we've had 40 Years of Mr samuelson's brand of economics and then it brings us right back to where we started another depression uh is perfectly obvious that something's missing and I say the thing that's missing is we're pretending that you can solve the income distribution problems solely through employment in the meanwhile the scientist the engineer and the manager is hellbent on destroying employment that's that's how he measures his how much employment he can destroy by putting in machines by substituting machines for men right so let the unemployed own machines and everybody's going to be happy right unemployment is not so bad if you can afford it this week the US Senate will begin debate on the pros and cons of Lewis kelo's ESOP