BUYING TROUBLE
Mattera, Philip
TROUBLE Workers who become owners get more than they bargain for BY PHILIP MATTERA The New York Times labeled his proposal "the best idea since Keynes," and Forbes magazine lauded his book....
...The result was a significant increase in social security, in the broad sense of the term...
...After most of the buyouts, however, the glow of becoming owners and preserving jobs quickly wore off...
...eventually, a local businessman gained control of the firm...
...As time went by, large companies began to understand that they could avoid bad publicity and community anger by selling out instead of closing down...
...The private sector and the Government increasingly favor speculation and uncertainty at the expense of wage security...
...By organizing unions and agitating for government reform measures, workers gradually obtained contractual and legislative guarantees mandating minimum conditions for wage earners—in boom and bust...
...For the labor movement, the rise of worker buyouts poses a difficult dilemma...
...Icahn...
...But these guarantees have come under attack in recent years...
...Today, about ten million workers participate in ESOPs at some 7,000 U.S...
...How the hell do you bargain with yourself...
...Michael Locker, a union consultant, says, "Let's face it...
...Under the Enterprise Allowance Scheme, a laid-off employee can remain on the dole for up to a year while trying to launch a small business...
...This represents, at root, a shift from security to risk...
...In a recent issue of Labor Research Review, he contended that employee buyouts undermine the collective strength of workers...
...But obtaining full or partial ownership can be an opportunity for playing a greater role in determining how companies are run...
...Weitzman, an economist at the Massachusetts Institute of Technology, is the author of The Share Economy, which argues that American industry should replace traditional fixed wages with a form of profit-sharing...
...The business community's campaign to "tame" unions, deregulation, recession, the increase in part-time and temporary employment—all have eroded worker security...
...11 Greyhound announced it would offer selected segments of its nationwide bus system to independent contractors on a franchise basis...
...The employee-stockholders gained no company voting rights...
...The United Auto Workers local suggested that plant employees take a 25 per cent pay cut and buy Hyatt Clark...
...11 Members of the United Steelworkers obtained shares of preferred stock after the union made concessions to Kaiser Aluminum and Bethlehem Steel...
...Martin's Press...
...And they discovered the tangible benefits of worker buyouts...
...Martin Weitzman has taken the business world by storm...
...Conflicts over profit-sharing and decision-making have led workers to strike South Bend Lathe and several other employee-owned companies...
...At democratically structured companies, worker-owners have an opportunity to participate in such decisions, though their participation does not guarantee harmony...
...asks Machinists Union President William Winpisinger...
...Under ESOPs, workers typically obtain title to a small portion of their company...
...General Motors enthusiastically endorsed the idea and agreed to go on purchasing the independent firm's output...
...The conflicting interests of workers, managers, and stockholders came to the fore...
...In only a decade, worker ownership has come full circle...
...Workers have been drawn into the current wave of entrepreneurship against their will or, at least, without an opportunity to consider the implications of this new state of affairs...
...In an increasingly competitive world economy, union leaders may believe they have no choice but to share business risks with employers...
...Thousands have given up important elements of economic security-pensions, seniority rights, personal savings—to rescue their jobs...
...But if market discipline and entrepreneurial considerations are allowed to dictate working conditions, employees will wind up where they came in fifty years ago—toiling in the oppressive climate they fought long and hard to change...
...Should it plow money into diversification and capital improvements...
...Saving jobs is a noble objective, but employees who become owners are forced to weigh their interests as wage-earners against their interests as stockholders...
...But at many firms, worker-owners have little real voice in management...
...Steel's refusal to sell two mills to a group called Community Steel—the corporation worried that a worker-owned plant would compete with the "parent's" own continuing operations...
...Early proposals for worker buyouts I met with suspicion and resistance in Icorporate boardrooms...
...The Share Economy and the attention it has received reflect an important trend in U.S...
...Recently, some corporate managers have turned to worker buyouts for a reason not directly related to labor relations: deterring raiders...
...Phillips Petroleum raised the possibility of a worker buyout to block T. Boone Pickens, while National Can used the threat to stop Victor Posner...
...The workers saved their jobs, but they had to accept a six-year no-strike contract as well as substantial cuts in wages and benefits...
...Though a small number of Americans might prosper under such a program, most would suffer the consequences of allowing business and government to duck their responsibility for dealing with the effects of industrial restructuring...
...Since the mid-1970s, almost 100 companies have been rescued this way, saving at least 50,000 jobs...
...Mike Slott, a union organizer in the Philadelphia area, sees a more fundamental problem...
...In some instances, owners believed they could come out ahead simply by liquidating their plants' assets...
...Kelso, a lawyer and investment banker, insisted in his 1958 book, The Capitalist Manifesto, that the only way to save the United States from a "creeping socialist revolution" was to diffuse the ownership of stock...
...National Steel saved millions of dollars in shutdown costs...
...In a number of small communities, where the shutdown of one plant can mean disaster, workers and residents have pitched in to buy the threatened factories—an asbestos mine in Vermont, a furniture manufacturer in upstate New York, a meat-packing firm in Iowa, a machine shop in Indiana...
...Should it improve working conditions and raise pay and benefits, even if doing so shrinks the bottom line...
...Independent contractors, free-lancers, franchisees, and individual entrepreneurs play a growing role in the economy...
...11 The management of Dan River, Inc., a large textile concern in Virginia, sold the firm to its employees to ward off a takeover attempt by corporate raider Carl Philip Mattera, a journalist based in New York City, is the author of "Off the Books: The Rise of the Underground Economy," published recently by St...
...In 1982, National Steel wanted to dump its huge Weirton plant in West Virginia, and the company came right out and offered it to the employees...
...The labor movement has historically attempted to win protections against the fluctuations of the business cycle and the greed of employers...
...Should a worker-owned firm maximize its profits and pay high dividends...
...In the early 1970s, he won a powerful convert in Russell Long of Louisiana, then chairman of the Senate Finance Committee, who spurred enactment of legislation that gives significant tax incentives to companies establishing Employee Stock Ownership Plans (ESOPs...
...The labor movement is in retreat...
...Without reaping the full rewards of risk-taking, they have been compelled to expose themselves to the vagaries of the market...
...Such developments would please Louis Kelso, an early proponent of "universal capitalism...
...Whatever the tactical wisdom of buyouts, they are part of a broad transformation of the conditions under which Americans try to earn a living...
...Inspired by these programs, members of the U.S...
...Congress have introduced legislation that would let the unemployed receive their benefits in a lump sum for investment in a business...
...But the auto maker was not, and it shut down the factory...
...The arrangement turned out to be quite convenient for General Motors: It retained a captive supplier eager to please, it saved the full cost of shutting down the plant, and it got the workers to accept a hefty wage reduction...
...The workers rejected both options, perhaps hoping that Ford was bluffing...
...companies...
...As international competition has intensified, large companies—particularly conglomerates-have tried to close down operations that do not meet high profit expectations...
...That year, Ford said its employees in Sheffield, Alabama, would have to buy their plant or accept a 50 per cent cut in wages and benefits...
...National employment levels could be raised and stagflation prevented, Weitzman says, if workers' pay were linked to the financial performance of their firms...
...What began as a technique for protecting workers has become a survival strategy for managers...
...The company encouraged some employees to quit their jobs and take on the routes...
...At Vermont Asbestos, for example, a dispute flared over applying profits to diversification...
...In other cases—most notably U.S...
...labor relations: More and more workers are under pressure to assume a greater degree of risk in earning their livelihood...
...Concessions are invariably made in the course of purchasing plants, he argued, and these givebacks prompt conventionally owned companies to make similar demands on their workers, thereby pushing down wage and benefit levels throughout a particular industry...
...In 1981, General Motors announced it would buy certain parts from Japan and close a New Jersey subsidiary, Hyatt Clark...
...Nonetheless, these plans (and other forms of employee ownership) have been a force for industrial reorganization...
...Consider these examples from what Ronald Reagan calls "the age of the entrepreneur": 11 For granting major wage and benefit concessions, employees at several major airlines received blocks of corporate stock— 25 per cent at Eastern and 9 per cent at Pan American...
...Others are more hopeful...
...Such state-owned enterprises as British Steel and the National Coal Board make loans to surplus workers to help them set up new ventures outside declining industries...
...Cone Mills installed em-, ployee ownership last year to avoid being absorbed by Western Pacific Securities...
...This trend is perhaps most pronounced in Britain, where Prime Minister Margaret Thatcher's government has explicitly sought to turn unemployed workers into entrepreneurs...
Vol. 49 • September 1985 • No. 9
