Employee Ownership: An Economic Development Tool for Anchoring Capital in Local Communities


Many traditional types of economic development incentive programs do not help anchor capital and quality jobs in local communites.
In addition, employee ownership legislation, as it is presently structured in the United States, does not usually advance positive economic development goals. Employee ownership mechanisms often promote the interests of management and most of the employee ownership fostered by our tax incentive system does not provide for sufficient employee control of corporate investment decisions to keep quality jobs and businesses in any particular community. Thereare, however, a wide range of circumstances under which employee ownershipcan be used effectively to create and preserve local capital and jobs.

The purpose of this article is to explore the broad range of positive uses ofemployee ownership as an economic development tool. In a variety of situations, the use of different employee ownership mechanisms, such as cooperatives, employee stock ownership plans (“ESOPs”), and combinations of these or other corporate structures, further the interests of workers, unions, businesses, and local communities. Employee ownership helps anchor capital in local communities because employee-owners usually reside in the community in which they work and their interests, as residents and employee-owners, coincide with those of the community. Employee ownership is therefore a valuable tool for aiding economic development strategies which value both the geographic stability and the quality of employment opportunities created. The quality of these new employment opportunities should be measured by the number of jobs created, the probability that these jobs will generate additional employment, and the jobs’ level of wages, type of benefits, and permanency.

This article will illustrate how employee ownership can be used to anchor capital and jobs in local communities by describing employee ownership projects which have received assistance from the Midwest Employee Ownership Center (“MEOC”) or its consultants, acting independently. MEOC is a private, nonprofit corporation created by and composed of representatives from labor, business, and government. Its role is to educate labor, business, and government about employee ownership, analyze the appropriateness and feasibility of employee ownership in any given enterprise, and assist in the establishment and structuring of employee-owned businesses. MEOC limits its use of employee ownership as an economic development tool to circumstances which fit within a set of principles aimed at protecting workers, unions, and local communities and promoting the preservation and development of profitable businesses. As a private agency, MEOC has the flexibility needed to react quickly and creatively to new developments.

Based on my experiences as general counsel for MEOC and as a consult- ant in the employee ownership projects discussed in this article, I propose that all government bodies consider modeling their employee ownership policy on Michigan’s recent legislative and administrative initiative. Michigan’s legislation defines employee ownership as employee control of businesses and provides for a number of programs that encourage employee ownership. I conclude that in order to serve the economic values proposed above, federal, state, and local legislators should consider requiring employee ownership and control of businesses as a prerequisite for many, if not all, economic development and employer tax credit, deduction, and incentive programs.

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