ARTICLES

Escape from Capitalism

A Catholic Proposal for Economic Justice

BY CHRISTOPHER ZEHNDER

The old Wobbly anarchist, Joe Hill, wrote a song (sung to the tune of the hymn "Sweet Bye and Bye") that has this chorus: "You will eat bye and bye/In that glorious land above the sky/Work and pray, live on hay/You'll get pie in the sky when you die." This is what religious folks, according to Hill, were saying to the poor; basically, "don't bother us with your hunger; things will be better — in the next life." It was not unusual, at the beginning of the last century, to characterize religious people so — as callous dealers in the opiate of piety. And, unfortunately, the characterization, though exaggerated, was often not far from the truth.

But it was not entirely true then, nor is it now; this was again confirmed for me when I interviewed Michael Malone about Fair Trade (see "Don't Roll Over on This Stuff," October 2004 Faith). Malone, a Catholic who promotes Fair Trade, told me of how it works with small, family-run farms in Central America which grow coffee and cocoa beans and other crops, bringing these farms into cooperative structures to assure the farmers a better price for their produce. When writing that article, I called Michael Greaney with the Center for Economic and Social Justice in Arlington, Virginia. What did he think of Fair Trade?

"I've never heard of it," Greaney, also a Catholic, said. "But it sounds similar with what we have been trying to implement throughout the world — not just with coffee, but with anything people manufacture or sell or produce."

Intrigued, I asked Greaney to explain further. He told me his organization seeks to spread an economic model developed by the late Louis Kelso, a lawyer and economist of the last century — but not only that. The Center for Economic and Social Justice seeks to go beyond the ideas of Kelso — called binary economics — and works to incarnate them in what are called Employee Stock Ownership Plans. Kelso's thought, Greaney explained, is neither capitalistic nor socialistic, but is a kind of economic "third way" — an application of the social teaching enshrined in the encyclicals of Popes Leo XIII and Pius XI.

Greaney directed me to the center's website, which gave a short explanation of binary economics. I also read Curing World Poverty: The New Role of Property, a book published by the center in conjunction with the Catholic Central Union of America. Essentially, Kelso said people create wealth through two (hence, binary) factors: labor and capital. Labor refers to the human factor in wealth making: not only manual work (as on a farm, in a factory or workshop), but also intellectual, artistic, and entrepreneurial work. Capital Kelso defines as the non-human factors contributing to wealth creation, such as land, tools, machines, and patents. For Kelso, capital does not merely enhance labor's ability to produce goods, but is the source of income that is not a wage, but a real ownership of the means of production.

But alongside Kelso's twosome of labor and capital is a threesome of participation, distribution, and limitation. The principle of participation demands that, since production results from the combination of both labor and capital, the laborer should not be a kept man of the capitalist, unable to take part in the full fruits of production or in the economic stability that the possession of productive property affords. But in the real world of capitalism, the wage earner does not necessarily receive a just share in the wealth he helps to create, nor is he thought to be anything but an expendable factor of production. A wage earner is merely a wage slave, subject to the employer's will. He has no control over his destiny. To give him this control, the principle of participation demands that labor not only have a right to a wage but a right to a share in the property which produces wealth.

The principle of distribution follows from this. If labor and capital both have access to productive property, then incomes have to be distributed according to what each one contributes to production. For Kelso, a truly free and open market (as opposed to the corporate welfare/merchantilist structures of modern capitalism) will determine just prices, just wages, and just profits. If both labor and capital have a just share in the profits arising from this free market, democratic system, then everyone has the means to participate in the ownership of productive property. The principle of limitation (or "harmony" or "social justice") keeps the balance between participation and distribution, forbidding monopolistic accumulations of capital. In part this works because all owners of productive property —management and workers — have a well-distributed ownership of the business enterprise. No one is so powerful to turn the enterprise to his own uses.

The plight of the laborer in modern capitalism is clarified by Kelso's notion of productiveness, as opposed to the concept of productivity as understood by more orthodox economic theories. According to the notion of productivity, new, labor-saving technologies (the capital aspect of production) enhance a worker's ability to produce; for instance, a man with a chain saw can cut a cord of wood in say half the time two men with a long saw could, or can cut twice as many cords as the men with the long saw in the same time period. But, according to Kelso, technology does not enhance labor as much as it diminishes labor's importance in the production process. In other words, the productiveness of wood cutting is increased only by the chainsaw; the factor of labor is really reduced by half, since one man now does the work formerly done by two using a long saw. Thus, if we view the relation of labor to technology or capital in a pie graph, labor comes to claim an increasingly smaller portion of the pie. And since profits are divvied in our economic system according to the contributions of each part of the whole act of production, labor increasingly claims a smaller and smaller portion of the profits. Eventually, the laborer's only claim will be to pie in the sky.

The answer, according to Kelso's theory, is to give labor, which depends on a wage, access to capital ownership — the possession of private, productive property. But how does the wage earner get access to productive property? In our current system, it is nearly impossible, because lending institutions lend money for most capital acquisition on the basis of existing savings. In other words, they demand collateral, which most workers do not possess. So it is that the only people who are able to invest in new capital are those who already possess capital. According to Greaney, it is still taught in economics courses "that the only way you can own something is to cut consumption and save up your whole life and finally buy it." But labor, which claims an increasingly smaller proportion of profits, will never have sufficient income to save effectively.

But, said Greaney, "if you look at the way rich people or a corporation buys things, they never do that. They borrow the money, and then they pay off what they bought with the earnings of the thing itself. In other words, if I go out and buy an apartment building, I don't put down one cent. I simply borrow the money — sign a mortgage for the apartment building, take title, and when the rents start coming in, I use the rents to pay the mortgage. I didn't have to put up one cent of my money." What Kelso wanted, said Greaney, is for laborers to do the same thing with factories, farms, and other forms of productive capital.

But the wealthy still have collateral; what do poor laborers have to attract loans? Both Kelso and Mortimer Adler suggested a mechanism, said Greaney, in their 1950s-era book, the Capitalist Manifesto. "It's a bad title," Greaney said; "capitalism was the last thing they were talking about. What Kelso wanted to help construct was a society where everyone had the opportunity to become an owner. And capitalism means only a few people own. So, what he did is invent something called the Employee Stock Ownership Plan, whereby people who had no savings, who ordinarily could not become owners of the companies where they worked, could borrow money by organizing together as a group and buying shares and then pay off the shares with the profits, dividends."

This article can give only a cursory idea of Kelso's mechanism; for a more thorough presentation, one should read Curing World Poverty. But, as envisioned by Kelso, an Employee Stock Ownership Plan works in this way. First, it envisions a reordering of the economic order toward distributed ownership. In this new order, a group of potential owners would approach a bank or lending institution with a business plan; the bank would lend money for the proposed enterprise, if it thought it feasible, and shares in the enterprise would be distributed among the group proposing the business — not necessarily equally, though the share of each holder would be sufficient to give him significant control over the company and a living income. The loan would be paid off with interest by the profits earned over a determined period until the entire loan is paid off. The company's owners may still be workers, earning a wage; but as their labor share is decreased by more labor-saving technology, their income from the ownership of new capital would increase to make up for the loss in wages. The state would also be involved by establishing a body to insure loans made by banks — similar to the way the federal government currently insures bank savings through the Federal Deposit Insurance Corporation.

The manner of owning stocks in an Employee Stock Ownership Plan is not equivalent to Wall Street-style stock ownership. Employee stock ownership is "real income, not speculation," said Greaney. "What most people do on Wall Street these days is buy a share for 10 dollars and try to sell it for 20." Under the Kelso plan, profits earned by stockholders are linked to actual production, not any sort of gambling. Citing St. Thomas Aquinas, Greaney said, "a profit gained by speculation is morally wrong. If it's inadvertent, it's okay; but if you enter into the transaction in order to speculate, that's usury. Aquinas distinguishes that money, in and of itself, does not generate more money. But if you take that same money and invest it, and the project makes a profit, you're entitled to a share in those profits."

Kelso's plan would go far to realizing a vision expressed by the popes in their social encyclicals. In Rerum Novarum, Pope Leo XIII wrote that "the law ought to favor this right [to private, productive property] and so far as it can, see that the largest possible number among the masses of the population prefer to own property." And in Quadragesimo Anno, Pope Pius XI said, "in the present state of human society ... We deem it advisable that the wage-contract should, when possible, be modified somewhat by a contract of partnership.... In this way wage-earners are made sharers in some sort in the ownership, or the management, or the profits." John Paul II, too, in Laborem Exercens speaks of the "socialization of property," by which he means, not collectivism, but that state of society where "the subject character of society is ensured, that is to say, when on the basis of his work each person is fully entitled to consider himself a part owner of the great workbench at which he is working with everyone else." In the system envisioned by Kelso, Greaney said, rather than some saying, "'I have half, you have ten percent, and all those other people have nothing; that's the way it is and that's the way it's going to be,' what we do is organize, restructure the social order, and open up access to the means whereby all those people who own nothing can get something, and the people who own just a little bit can get enough to generate an adequate and secure income."

Greaney said Employee Stock Ownership Plans are "similar in spirit to cooperatives. A cooperative traditionally understood (although it does not have to be organized this way) is usually one person, one vote. An Employee Stock Ownership Plan is usually one share, one vote. So the greater the ownership share you have, the more votes you have. Now, you can structure a cooperative the same way, and you can also structure an Employee Stock Ownership Plan so that everyone has equal ownership shares, so they have equal votes. The only thing that's going to constrain you is your own imagination, and whatever laws you want to get passed through the local legislature you're working with."

Companies based on the Employee Stock Ownership Plan model have been formed in the United States and foreign countries. For instance, there is La Perla, a coffee bean plantation in Guatemala; in the 1980s, the owning family sold 40 percent of the plantation to the workers. Similar arrangements, called solidaristas, were established in Costa Rica. The Center for Economic and Social Justice helped set up an operation, the Alexandria Tire Company, partly owned by employees, in Egypt. "It was the first example of an employee stock ownership plan in a developing country," said Greaney. "Right now," he continued, "we're working with a missionary in Bangladesh, a Father William Christiansen of the order of the Society of Mary, the Marianists. He set up what he calls the Institute for Integrated Rural Development, and he' s been trying to implement our principles and programs there."

Greaney said Christiansen's "project is to buy nine textile mills, and the workers — predominately women — will own them. This is all done on an objective free market basis, so it's not a government giveaway or subsidy or anything else. The ultimate idea is to compete with the sweatshop operations on an even footing, but in a way that most of the benefits of the operation actually flow to the people who are actually doing the work, which goes to them by right of private property. We're also looking at something called Justice Based Management and a certification label that will prove that a product made meets certain standards of treatment and of ownership for the workers. Presumably this will have a cache so that, say, you were a college student buying some of the t-shirts they have at those bookstores, you'd say, 'does this have Justice-Based Management label? Or was this made in a sweatshop situation by people working 18 hours a day?' And if the price were the same, or a little bit higher, for the JBM product, you'd go for the JBM product."

Besides providing workers with a stable income and economic security, Kelso' s vision could have profound effects on power relationships in the world. Indeed, Kelso saw economic freedom as the basis of an economic democracy, which would shore up and maintain political democracy. "Instead of the way most people understand power today — how much power can a guy get over everybody else — Kelso's idea was, 'how much power can I get over me?'" said Greaney. "As Daniel Webster pointed out, power everywhere and naturally follows property; so, if you want power over your own life, you better get something that can generate an income so that you are not dependent on the big boss who sits back there in his office and tells everybody else what to do — or, worse, on the government, whch collects money from the rich guy and then doles it out to you."

For more information, contact Central Bureau, CCUA, 3835 Westminster Place, St. Louis, Missouri 63108; or visit the website of the Center

for Economic and Social Justice, www.cesj.org.

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