Harvard Economist touts employee sharing programs in Warns-Render keynote speech

Harvard's Herbert Ascherman Chair in Economics, Richard Freeman, was the keynote speaker at this year's Warns-Render Labor and Employment Law Institute. His presentation focused on the importance of employee ownership programs and their influence on productivity and equality. He delivered his keynote Friday afternoon at the Seelbach Hotel, breaking down the current state of labor into two areas – capitalism and democracy.

On the capitalism side, there are three main “troubles,” as he called them:

1. A specter of inequality. “A society in which the upper tier has pulled away is the new normal,” Freeman said. “The labor share has dropped precipitously.” Freeman said compounding this issue is that 5 percent of jobs have been lost in the United States since the Recession and those jobs are not expected to come back.
2. Robots/machines are replacing people. Freeman pointed to examples of artificial intelligence replacing the labor force in a variety of fields, from serving hamburgers in a restaurant to performing surgery. “And yes, here come the robot lawyers,” he said. “The law is the same as any other field (in regards to this development).” With the rapid evolution of artificial intelligence, some see robots as better substitutes for humans. This trend, Freeman warned, will cause humans’ cost to decline over time.“The whole point of technology advancement is costs go down. That puts a bound on wages,” he said. “The key issue is not what the robot does, but who owns it. If you own it, you’ll benefit.”
3. Crooks at the heart of finance. Freeman pointed to effects of having rampant corruption on Wall Street and how little we’ve done to curb it.

On the democracy side:

1. As James Madison once said, “With too much inequality, desperation will grow out of anarchy.” Freeman opines that this is already happening at some level.
2. Oligarchy is founded on corruption.
3. Laws are made for the few, but not for the many. Freeman pointed to lobbyists’ influence in law creation as an example.

“The problem with massive inequality is it will corrode our democracy,” he said. “This isn’t an ideological stance and it’s not really controversial. The evidence is with the banks and the idea stems back to our founders.”

The solution

The best solution to remedy drastic inequality, Freeman said, is “labor’s capital,” or having inclusive/shared capitalism through employee ownership/profit sharing/ESOs, etc., or through the pension fund ownership of shares. “Right now, there’s ownership but no control,” he said.

Freeman said most studies show that greater employee ownership works because firms with profit sharing programs have 2.5-percent higher productivity. All of our country’s top technology companies, for example, have such a program in place.

“It makes firms more efficient if the workers are benefiting,” he said. “It’s not a tradeoff for lower wages because more productivity is expected. Employee ownership systems work, but they need to be bigger.”