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The Economic War Among the States: Letters

Employee ownership as a viable economic-development policy
I'd like to put in a plug for employee ownership as a viable economic-development policy that avoids many of the bidding-war problems while helping existing companies instead of trying to lure others from some other state.

A sizable amount of research in the social sciences indicates that companies with meaningful employee-ownership programs: a) are more profitable; b) grow faster, thereby hiring more employees; and c) have more satisfied workers than their traditional counterparts. Debates continue as to what constitutes "meaningful" employee ownership; my own definition is that workers should own a significant amount of the firm's equity and have some say in how the firm is run. Here in Minnesota we have a number of "real" employee ownership companies, notably Braas in Eden Prairie and Foldcraft in Kenyon, among others.

With respect to the bidding wars, the beauty of employee ownership is that worker-owned companies are highly unlikely to relocate out of state in search of lower wages. Why would workers be interested in exporting their own jobs? To answer the criticism that this makes employee-owned companies uncompetitive, I have 2 responses: a) as mentioned above, the empirical evidence does not bear this out, because b) there are more ways to compete than to have a lower-paid workforce, such as having a more motivated, innovative workforce or moving up higher along the value chain, something employee-owned companies are very good at doing.

Thus, states would do much better by using their scarce tax resources to promote employee ownership in home-grown companies, rather than trying to lure companies from other jurisdictions for little benefit.

I am completing a dissertation on the spread of employee stock ownership programs and would be pleased to provide additional information. Please email me at the above address, or call 379-8196.

Steve Smela
University of Minnesota

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