Corporatocracy to Cooperatocracy

An opinion

A Proposal for Rescuing the US Economic and Political System
by Apek Mulay and Ac. Dhanjoo Ghista

Corporatocracy control of the American Political System and Economic System and Policies

Corporatocracy is a term used as an economic and political system controlled by corporations or corporate interests [5]. It is a generally pejorative term often used by critics of the current economic situation in United States. The term has been used by liberal and left-leaning critics, but also some economic libertarian critics and other political observers across the political spectrum [6]. Economist Jeffrey Sachs has described the United States as a Corporatocracy in his book The Price of Civilization. He suggested that it arose from four trends: weak national parties and strong political representation of individual districts, the large U.S. military establishment after World War II, big corporate money financing election campaigns, globalization and offshoring of manufacturing (once upon a time the bastion of American economy) tilting the balance away from workers[9].

The term has also been used by author John Perkins in his 2004 book Confessions of an Economic Hit Man, where he described Corporatocracy as a collective composed of corporations, banks, and governments [6]. This collective is known as what author C Wright Mills terms would call the Power Elite who wealthy individuals are holding prominent positions in Corporatocracies. These individuals pull the strings behind the curtain and control the process of determining society’s economic and political policies [10]. The concept has been used in explanations of bank bailouts, exorbitant bonuses for CEOs, as well as complaints such as the exploitation of national treasuries, people, and natural resources. It has been used by critics of globalization, sometimes in conjunction with criticism of the World Bank or unfair lending practices, as well as criticism of free trade agreements [9].

How to now rescue US democracy and economy from these Power Elite?

Corporatocracy has resulted in (i) the 1% Power Elite driving the US public policies and turning it into corporate-democracy (instead of civilian democracy) and crony capitalism, with the associated (ii) downfall of US economy in terms of huge (almost irrecoverable) trade deficits and budget deficits. How to now rescue US democracy and economy from this Power Elite?

In this article, we are proposing an altered co-operative structure for companies, with the employees involved in owning company shares (instead of Wall Street), in company management decisions and sharing company profits. This would enable companies to concentrate on company benefits and not be driven by Wall Street stock holders. With the 99% company employees now owning companies (not just the CEOs), the economy would also be owned by the 99% Americans, thereby making it possible for the realization of the All American Dream.

Corporate Structural Framework and Managerial Reform

The investors on Wall Street have been controlling the internal framework, workings and operational policies of companies and corporations. They have made companies and corporations controlled by the 1% CEOs who make the 99% employees do all the work and themselves take home 99% of the company profits. The Wall Street investors have also been demanding very high returns on their investments, thereby pressurizing US businesses (in all sectors—from electronics and semiconductor to pharmaceutics and to medical devices) to outsource high paying manufacturing jobs offshore, in order to increase corporate profits and higher stock value to feed on the financial appetite of greedy investors.

To end controlof businesses and corporations by Wall Street investors and stock holders, we are proposing a radical change in the company’s internal organization and management framework, by stipulating that only the company employees should be permitted to become the majority shareholders (with only banks involved in sponsoring companies) and not the wealthy Wall Street outsider-stock holders. The company employees would also then automatically become involved in sharing managerial decisions and company profits. In other words, the company would then be organized as a cooperative, wherein all the staff are partners and have say and stake in the company operation and policy.

The proposed company organizational structure will enable the companies to become independent and freed from outside colonized ownership and policy making. The CEOs and CFOs of companies would then no longer be the 1% receiving 99% of the company assets and profits. Rather, they would be forced to make collective managerial decisions jointly with and in the best interests of their employees and in fact of the companies also. This company structural framework of employee empowerment would enable employee partnership in company ownership and participatory decision making. In other words, with the 99% employees owning the companies, the overall economy would also be owned by the 99% employees of corporations. Further, these 99% corporation owners would then turn around the Corporate Outlook and eliminate corporate dictatorship of American policies and financial control.

Co-operative Ownership of Companies

This system of Cooperative ownership of companies, resulting in “collective and cooperative management” by employees, constitutes an economic system that is based on PROUT (Progressive Utilization Theory) [1] [3]. This system would eliminate “outside (Wall Street) shareholders” and make the companies insulated from their pressures to increase profits at the cost of the employees’ interests and the national interests [1]. These employees owned and guided firms will then naturally also be able to provide health insurance and pension benefits to workers.

Elimination of outside interference by institution of this Cooperative Business Managerial System (CBMS) will help to preserve incentive to growth and not only avoid undue pressure from investors on Wall Street to ship jobs overseas but would also eventually put an end to even the presence of Wall Street and restore the country back to its 99% population, who have started the ‘Occupy Wall Street’ movement to protest against crony Capitalism and Wall Street’s greed.

This policy of cooperative ownership of companies’ policy would also ensure that wages of hard working Americans to catch up with their productivity, increase the percentage of tax paying Americans and thereby help to eliminate budget deficits. This CMBS is most innovative way to (i) transform US Corporate-Democracy to Civilian-Democracy, which is what Democracy is all about—by the people for the people, and (ii) thereby restore the American Economy to its 99% Population—the All Americans!

The American Dream at Work: The Employee Stock Ownership Plan (ESOP)

Currently, we have a version of CMBS in the form of Employee Stock Ownership Plan (ESOP). Most private U.S. companies operating as an ESOP are structured as S corporation ESOPs (S ESOPs). The United States Congress established S ESOPs in 1998, to encourage and expand retirement savings by giving millions more American workers the opportunity to have equity in the companies where they work.

These S ESOPs provide retirement security, job stability and worker retention, due to the productivity gains associated with employee-ownership. Study shows that S ESOP companies performed better in 2008 compared to non-S ESOP firms and also paid their workers higher wages on average than other firms in the same industries. These ESOPs also contributed more to their workers’ retirement security and also hired workers when their non S-ESOP employers were cutting jobs during 2008 recession [21]. Scholars estimate that annual contributions to employees of S ESOPs total around $14 billion [22]. The net U.S. economic benefit from S ESOP savings, job stability and productivity has been estimated to total $33 billion per year [22].

A study conducted by the National Center for Employee Ownership found that S ESOP account balances were three to five times higher on average than 401(k) plans. While median employee account balances for S ESOP accounts were around 75,000 to $100,000, median account balances for employees in 401(k) plans ranged from $20,000 to $22,000 [23].

A study released in July 2012 found that S corporations with private employee stock ownership plans added jobs over the last decade more quickly than the overall private sector [24]. Alex Brill, author of the study and a former advisor to the Simpson-Bowles bipartisan deficit reduction commission, concluded that “The unique strengths of employee ownership drove company gains and jobs in the past decade, while helping insulate S-ESOP businesses from the adverse effects of the recent recession.” Brill found that members of Employee-Owned S Corporations of America increased employment by 60 percent over the past decade, versus flat employment in the economy as a whole [25].

Now we want to go one step further with our CMBS, in which the employees will own the corporation’s stocks totaling its operating cost. Thereby they will be joint owners of the corporation’s assets and thereby of the corporation itself.

How would this CMBS be structured

For an established company, the company stops allowing outsiders to buy company stocks, buys off the outside owned stocks at share value, and offers them to its employees.

The total amount of salaries plus operational costs constitutes the company’s expenses. The sales constitute the company’s revenue. Employees can be given stocks to purchase, to make up the 1-year operational costs of the company; that acts as a safe-guard investment.

Also, for company expansion, the company takes out bank loans and offers stocks to employees to purchase. The employee stocks amounts need to be proportional to their salary. So in this way, the company’s assets are owned by the employees through stocks.

The company’s sales revenues go partly to support salaries and partly to make up the operational costs. The excess constitutes profits that are employed to give stock dividends to the employees.

If the sales fall down, the employees do not get stock dividends, but the company can still operate by making use of the stocks purchase money kept in the bank. Then when next year the company performs better, the employees can again get stock dividends. If the sales fall down for another year, the employees decide to take salary cuts instead of layoffs.

In this way, the company employees together make managerial decisions.

For a new to-be-formed company, the founding people come together and form an operational plan. Then they can take out a 10-year bank loan and offer jobs to appropriate people who have the requisite background for the company operations. From the bank loan, they defray the operational cost (including paying salaries). The company also offers stocks to be bought by the employees; this amount is kept in a bank. The company sales are used to pay the interest of bank loans and defray operational costs.

After 2-3 years, when the operational costs plus bank loan interest are met with from sales revenues, the profits can be used to pay stock dividends to employees. Then from there on, the company has to be collectively managed, such that the operational costs and bank loan interest are met by sales revenues and the profits are used to pay dividends.

When the company’s operation becomes stable, the bank amount of employee share purchases can be employed to start giving additional stock dividends to employees and also for the expansion of the company.

After the bank loan is paid off, the company can take additional loans to expand the company operations.

Towards Cooperative Capitalism

This policy of Cooperatively Managed Corporations (CMCs) would ensure prosperity to all Americans with a sustainable economic demand and minimize malpractices which lead to economic bubbles with a minimal government interference. This policy would also ensure that wages of hard working Americans catch up with their productivity in Figure 1, thereby regenerating consumer demand, eliminating budget deficits and paving way for balanced economy. [13] Moving further, if the employees were to become the share-holders and joint owners of companies, the working Americans would in turn become the share-holders of the US Economy. In other words, if the majority staff of company owns the majority of their company assets, then the majority of Americans would own the majority of American Economy, thereby providing the solution to the “99:1 Issue” of the Wall Street movement.

Finally, let us announce one overarching benefit of CMBS. Thus far, CEOs and owners of corporations have dominated the 99% American working class, by controlling businesses, banks and even governance policies. Now when, due to this CMBS, the 99% workers of companies and businesses have joint stake in the company and business operation and policy making, the economy will automatically come within the control of the 99% Americans [4].

This will in fact replace Corporate Capitalism by Collective (or Shared) Capitalism, and bring relief to the 99% Americans. With this transformation, many policies will become people-centered [4]. For instance, we could even make the universal healthcare dream of the people become a reality. Not just that, but we can foresee the realization of the All American Dream of Education for all, Healthcare for all, Housing for all, Public Transport for all, Employment for all, and Fulfilling Lives for all!

Apek Mulay is a senior failure analyst at Microtech Analytical Laboratories in Plano, Texas. Dr. Dhanjoo Ghista is a known authority in biomedical engineering and physics, and promoter of the role of universities in progressive societal development.