Employee ownership schemes can lift up the entire economy

On April 30 trade, industry & competition minister Ebrahim Patel hosted a press briefing on efforts to promote worker ownership to benefit workers.

Representatives of large SA companies and trade unions spoke about share ownership structures launched in the past few years. The minister made it clear that employee ownership is an important component of the government’s economic plans.

It is therefore timely to reflect on the arguments for employee shareholding in companies, and to draw lessons from SA’s experience of employee ownership.

Shared business ownership is a way to give content to the largely empty rhetoric around building a more inclusive economy. The past 14 months have highlighted what was already obvious before the pandemic: current levels of inequality and poverty globally and in SA are unsustainable and immoral.

It is also obvious that solutions need to go beyond assuming that a share of anaemic GDP growth will somehow trickle down to the marginalised and eradicate poverty and reduce inequality. That is the assumption underlying the notion of inclusive growth.

Employees sharing in the ownership of the companies where they work is one way to include more people in the wealth that has already been created, rather than only focusing on marginal increases in future GDP. It is an option that has been gaining traction among a surprising constituency — company owners — as was demonstrated by those who participated in Patel’s briefing.

GLOBAL PHENOMENON

This is a growing global phenomenon. In the US, Harley Davidson is granting shares to its 4,500 employees, after the lead of investment giant KKR. Eight industrial companies owned by KKR have awarded $500m in shares to their employees.

In the UK an Employee Ownership Association has been founded and run by businesses to promote the idea that employee ownership is good for the economy, businesses and workers. More than 5% of the UK GDP goes to companies with employee ownership. There are similar organisations in Canada and Australia.

These organisations emphasise that, in addition to benefiting worker income and asset growth, employee ownership increases productivity, improves cohesion in the company, resilience in a crisis, and company performance over time. It begins to reverse an approach that puts the interests of financial capital ahead of all other economic actors.

In SA it could also be seen as a genuine attempt to redistribute wealth that was accrued in an unequal way by colonial and apartheid exclusion of the majority from the centre of the economy.

There is some experience in SA post 1994 with employee ownership schemes in agriculture, land reform, mining, tourism and manufacturing. Much of this has been linked to broadbased BEE and industry codes of good practice, with supportive funding from the Industrial Development Corporation and other state-funded entities. There are lessons to be learnt from these notalways-successful initiatives.

MOMENTUM

If employee ownership is to develop real momentum, we should take note that:

● The financing of employee share schemes has often been expensive, unimaginative and inaccessible. The schemes are often vendor or debt-financed in ways that delay tangible benefit to employees for years, leading to loss of interest and belief among workers.

● Employee share schemes seldom allow workers participation in decision-making and governance of the firms in which they hold shares. This is an opportunity missed.

● It is often difficult to find trustees with sufficient knowledge and experience to represent workers effectively.

● There can be real conflicts between workers’ short-term needs and their longer-term interests as owners. Companies, investors and trade unions are often lukewarm about the idea, albeit for different reasons.

Much work needs to be done to help all parties see the potential and benefits of creating substantial employee ownership in the economy.

There is a need for robust advocacy programmes, for information about the growing international movement towards employee ownership, and for a centre that can gather and make available international and local best practice in employee ownership. This would support all actors interested in promoting economic justice, greater social harmony and a growing economy through shared business ownership.

In SA, with its high levels of unemployment, employee ownership is only part of the solution. But it is likely that the multiplier effect of improving workers’ financial situation would have an immediate positive effect on the economy and the companies that transition to shared ownership. It is a constructive policy choice that all parties should be able to support.