Sen. Ron Johnson (R-Wis.), one of the most conservative members of Congress, and Rep. Alexandria Ocasio-Cortez (D-N.Y.), one of the most liberal, have both introduced sweeping proposals to broaden employee ownership in the U.S. That surprising fact testifies to just how practical—and urgent—this idea is.
Too many Americans have too little wealth. Just over 20 percent of all Americans have no wealth at all. Forty percent of Americans cannot cover a financial emergency with available cash, forcing them to need to borrow money, put it on a credit card, raid their retirement accounts (if they have one), or other less than optimal choices. Only about half the working age population has retirement savings of any kind. The racial disparities are even starker. The net worth of a typical white family is nearly ten times greater than that of a Black family. About 60 percent of white families have retirement accounts; 30 percent of Black families do. The median ownership of stock by white families is nearly eight times as high as Black families. Housing equity is about 2.5 times greater among white than Black families. While the differences are less stark for Hispanic families, the disparities remain very large.
This lack of access to wealth is economically, socially, and psychologically devastating. Wealth means options; wealth means security; wealth means we can plan for the future. With wealth, we can send our kids to college, take a chance on a new job or starting a business, handle an emergency, and much more.
The uncomfortable reality is that these self-perpetuating disparities in wealth are based in large measure on policy decisions made by governments and businesses at all levels, whether racial exclusion programs, tax incentives captured mostly by the very rich, subsidized loans to businesses, zoning requirements, outlandishly large equity grants to top executives, and much more. The current economic and health crisis is disproportionately affecting people with low wealth, even threatening their very lives.
There are many proposed solutions to the wealth gap, from universal grants at birth, to sovereign wealth funds that pay dividends to citizens (such as the Alaska Permanent Fund), to universal basic income. Whatever their merit, these proposals will face substantial political obstacles. One way to address this issue is already in place, however, and could have a profound impact with steps that would have bipartisan support: broad-based employee ownership through employee stock ownership plans (ESOPs). About 14 million Americans are in these plans, which hold about $1.4 trillion in equity. Because of the way these plans are structured, they are inherently more equitable than almost any other government incentive for wealth building, such as 401(k) plans, federal housing loans and tax incentives for home ownership, small business loans, tax incentives for corporations, and many, many more that benefit mainly white, wealthier people.
An ESOP is a company funded employee benefit plan that creates ownership accounts in employer stock for all employees based on their relative pay up to a maximum level (some companies have even more level formulas than this). Unlike a 401(k) plan, how much you get does not depend on how much you put in, a system favoring the better off with more discretionary income. ESOPs are almost always add-ons to other retirement plans. Participants in these plans accumulate 2.2 times the retirement assets of employees in other retirement plans and literally infinitely more than the roughly half the non-government working population that has no retirement plan at all.