Employee Ownership: A More Equitable Approach to Capitalism?

The unequal distribution of wealth is a problem which has perplexed politicians and civic leaders for time immemorial. Thomas Jefferson first posited on the feasibility of an equal distribution of wealth through a progressive tax system and the abolition of inherited wealth in his Notes on the State of Virginia. Theodore Roosevelt fought against the anti-competitive industrial practices of the “Robber Barons” through anti-trust litigation. And Franklin D. Roosevelt’s response to mass poverty and unemployment was the National Labor Relations Act and Keynesian Economics. Many modern critics of predatory capitalism have addressed the growing inequity between the working class and the privileged class, yet few have offered workable solutions. The purpose of this analysis is to determine whether employee ownership is a viable solution in addressing the problem of growing wealth disparity in the United States.

Government subsidies and social welfare programs have become the accepted method of redistributing wealth and sustaining low income families. However, there has been much criticism about the long term viability of government intervention in the economy, due to the burden it places on the most productive citizens and its interference with free market operations. Profit sharing seems to be a practical alternative. It retains the possibility of redistributing wealth without assaulting the American bastions of private property and free enterprise. According to the National Center for Employee Ownership (NCEO) “Broad-based stock-option plans are important to study because of their possible role in aligning worker and shareholder interests, encouraging job creation in knowledge-related industries, helping corporations cope with tight labor markets, and involving more citizens in sharing the fruits of capitalism” (Blasi, et al 2002:3).

While many finely crafted arguments have been made about the equity of our capitalist system, it has been rightly criticized for its lack of economic equality. As the argument goes, greater financial rewards for entrepreneurs are justified by the greater financial risk of capital investment. I must disagree. Employees have an active interest in the financial success of any enterprise on which they rely on to make a living. The individual shares a financial risk with his employer by choosing to participate in the profit seeking partnership. While ownership has economic mechanisms to adjust for lower demand in product, such as layoffs or reduced wages, an employee has no such security in maintaining his interest. The result is inherently inequitable. As political economist, Louis O. Kelso points out:

An economy which makes it easier for John Paul Getty to get a third billion dollars than it does for two-thirds of the families in the country to get $500 ahead of their debts is buying a lot of hogwash about the value of John Paul Getty. The aggregate motivation in the millions of individuals that is destroyed and frustrated by such an insane arrangement is infinitely more productive than anything that one individual could contribute, irrespective of what that may be. (as quoted in Gates 1998:50)

The object of this paper is to investigate several theoretical models and the available statistical data in an attempt to compare the economic justice of profit sharing corporations versus the traditional entrepreneurial model of defining labor as an input. Kruse (2002:1), a professor of the School of Management and Labor Relations at Rutgers University, estimates that there were over 70 empirical studies between 1977 and 2002 which studied the effects of Employee ownership. Much of the literature has dealt with (a) employee attitudes and behavior (Coyle- Shapiro, et al, 2002); (b) firm performance (Fitzroy and Kraft 1987; Kruse 1992; Blasi et al, 2002); (c) employment stability, growth, and firm survival (Meade 1972; Weitzman 1985; Blanchflower and Oswald 1987; Gates 1998); (d) employee wealth and wages (Gates 1998; Blasi et al, 2002; Kruse 2002); (e) and the theoretical function of employee ownership (Meade 1972; Weitzman 1985; Blanchflower and Oswald 1987; Coyle-Shapiro et al 2002). The case studies and statistical analysis provide useful data in testing the plausibility of various economic and social theories which can be applied to measure the economic justice of employee ownership as compared to traditional profit seeking entities. While theories on how profit sharing affects corporate performance and employer/employee relationships have been plentiful, studies on its potential to affect economic equality have been lacking.

Employee Ownership: ESOPs and Profit Sharing Plans

The National Center for Employee Ownership reports that in 1996 more than ten thousand American corporations had Employee Stock Option Plans (ESOPs) and similar broad based ownership plans covering almost 9 million employees (Gates 1998:2). By 2002, employer participation had more than doubled, while employee coverage had almost tripled. As of 2002, $330 billion, or 19.8%, of the total $1.7 trillion of assets in employee contribution plans was invested in employee stock (Kruse 2002:3).

An ESOP is a financial incentive offered by companies which grants workers shares of stock, usually tied into a 401(k) or similar type of pension plan. “In the United States, the main vehicle for employee ownership is the [ESOP] which was first given recognition and preferred tax treatment as a form of pension plan in a 1974 ERISA law” Kruse (2002:2). According to the U.S. Department of Labor (2001) report on federal form 5500 data for all large pension plans, there were approximately 18.8 million U.S. employees participating in large ESOPs.

A profit sharing plan is another type of financial inducement offered by employers, which rewards employees with shares of stock or cash payouts based on quarterly, or annual, earnings. According to the U.S Department of labor (2002), there are an additional 8.4 million U.S. employees enrolled in profit sharing plans.

The steady growth of employee ownership plans in the past two decades has been attributed to several causes: (1) Government tax incentives offered to employers (Gates 1998); (2) employee retention (Blasi et al 2002; Kruse 2002); (3) employee/employer response to hostile takeover attempts (Gates 1998); (4) enhanced employee/employer relations (Coyle- Shapiro, et al, 2002); (5) higher productivity (Blasi et al 2002; Kruse 2002); and (6) to avoid bankruptcy (Gates 1998).

Employee ownership is not without risk. The financial wellbeing of workers and managers is intrinsically tied to company performance. However, it is a shared risk, one that would exist if a non profit sharing organization suffered financial hardship as well. “While detractors worry that employees ‘will put all their eggs in one basket,’ supporters worry that employees have neither eggs nor a basket” (Gates 1998:62).

The greater danger, exemplified by the recent Enron scandal, seems to lie in the potential for mismanagement of pension funds. In the case of Enron, corporate executives deceived employees about company performance. The problem was exacerbated when pension fund managers, even after becoming aware of the firm’s financial problems, continued to limit option purchases to Enron stock. As Enron’s mismanagement came to light, high level executives dumped their shares, causing stock prices to plummet, while simultaneously freezing the sale of employee shares. Many employees lost their retirement funds as stock depreciated from $80 per share to $12 per share between February and November of 2001 (Appleby 2002). The Enron debacle has led to calls for closer scrutiny of stock-based pension funds and greater accountability for pension fund managers.

Kruse (2002:9) advised Congress that employees should be advised that investments in substantial amounts of employer stock are “not the basis for sound investment” and that employees should be have better access to internal data on company performance. The hazard of fund mismanagement increases where employees have limited knowledge or understanding on the financial health of the company. Kruse (2002:9) conjectured that mechanisms such as the attendance of “employee monitors” at board meetings would help to hold board members and trustees more accountable to employees.

Hypothesis

My hypothesis is that employee ownership effects greater economic justice. In attempting to prove my hypothesis I will need to examine a series of factors that affect causality: 1.) whether profit sharing organizations are more productive/profitable than traditional firms; 2.) whether higher productivity/profitability increases the earning potential and job stability of employees; 3.) whether profit sharing affects a redistribution of profits at a micro level; 4.) whether the anticipated advantages of profit sharing acts in accordance with market mechanisms to ensure that companies adopt the profit sharing model in an effort to remain competitive; and, finally; 5.) whether the increase in firms adopting employee ownership practices will be significant enough to spread wealth redistribution to a macro level; reducing the overall growth rate of economic disparity and unemployment, if not stabilizing it.

The potential of profit sharing to affect economic justice is attractive in that it requires no considerable restructuring of our current economic system; it is a phenomenon that already operates freely within the parameters of capitalism, while placing no restrictive limitations on the market. “The idea of employee ownership has attracted support across the political spectrum, often being seen as a form of economic democracy that complements our political democracy” (Kruse 2002:1). Employee ownership also presents a challenge to the notion that economic equity and equality are separate concepts that can only exist on a continuum (Sodaro 2004:168).

Methodological Approach

This study will employ an examination of the written record to compile empirical data about profit sharing entities. The information will be used to appraise the predictive value of the various theories put forth regarding employee ownership. My research will be aimed at verification or falsification of the theoretical models by comparing them to the available data. I will be compiling no new figures, but simply utilizing existing data already produced by researchers interested in employee ownership. I am certain this knowledge will be useful in creating a new theory about the potential for greater economic justice that exists in employee ownership.

I will attempt to extract the applicable information from the studies on employee ownership between 1975 and 2006 to create a quasi- running record for the last thirty years. Problems with continuity will arise, as there are time gaps between the studies. However, it should present us with a better picture of the interaction between firms and profit sharing over a significant period in time, proving useful in projecting future trends and developments.

To control for the effects of differing economic attitudes in different political systems, the aggregate data has been limited to include only the study of U.S. Companies. I will report the methodological approach and controls used by the researchers when available, and will limit my use of case studies to provide context for some of the aggregate data.

One weakness to this type of research is that I will need to rely on the validity and reliability of past studies, rather than confirm the data myself. This, however, is an unavoidable risk caused by my temporal and financial restraints. Another drawback is that many of my conclusions must be limited to logical inferences as much of the data has been compiled at random, to fit the need of the individual research projects. The inconsistent levels of measurement and differing subject matter pose difficulties in composing a parsimonious theory. Much of the data, fortunately, overlaps and allows for general inferences to be made about the behavior of profit sharing entities. There is a specific pattern which evolves.

While much of the aggregate data measures different attributes of profit sharing over different periods of time, they all uniformly measure the results of the same independent variable, employee ownership, upon a common dependent variable, corporate behavior. I believe that the variety of research culminates into a more comprehensive understanding of the general effects of employee ownership.

Operational Definitions

Employee ownership is a broad term used to cover a range of employee participation plans that offer stock options as a form of employee compensation. These plans include ESOPs and profit sharing plans as defined earlier in the paper, and cooperatives which are a more democratic means of profit sharing by giving all employees a stake in ownership and a voice in decision making through voting shares.

The concept of economic justice is simply defined as fair and equitable business practices that result in a greater equality between the employer and the employee’s interests. This study will attempt to measure four aspects of economic justice: (1) job stability, (2) wage and income increase, (3) redistribution of wealth, and (4) employer/employee conflict. This is by no means an exhaustive list of qualities that can be attributed to economic justice; nonetheless, they are characteristics which can be reasonably measured using the available aggregate data and case studies.

Other related economic factors that will be gauged are productivity, efficiency, and firm survival, which I believe are closely linked to profitability and employee retention. This data will be used to make certain assumptions regarding the abstract measurement of job stability.

Effects on Productivity and Efficiency

Some of the theoretical gains attributed to profit-sharing are higher productivity (Blanchflower, Oswald 1987; Kruse, 1992; Meade 1972; Weitzman 1985), higher profitability (Weitzman 1985), higher real wages (Weitzman 1985: 948-9), and lower unemployment (Weitzman 1985: 950). Weitzman (1985: 948-949), a pioneer in the development of profit sharing theory, postulated that a profit sharing entity operates at “full employment,” and was better suited to handle disequilibrium: “not only is aggregate output and employment higher in a profit-sharing economy than a wage economy after a contractionary shock to a long-run equilibrium state, but so is each employed worker’s real pay.” According to Weitzman, “resources are always fully utilized in a share system,” and as a result:

A wage economy behaves in the short run as if aggregate supply were elastic at fixed prevailing prices (the as if Keynesian case). A profit-sharing economy behaves in the short run as if aggregate supply were inelastic at the full-employment level (the as if classical case) … The share economy behaves essentially like a classical macroeconomy, even while the classical preconditions are not being met. And the wage system, of course, behaves like the Keynesian macroeconomy that it is … Output in a profit-sharing economy automatically self-regulates at the full employment level, independent of government policy, or lack of … (Weitzman 1985: 949-950)

Weitzman (1985: 937) also argued that an additional benefit to profit sharing was that it “possesses natural immunity to stagflation.”

How do the theories hold up in actual practice? The report on Public Companies with Broad-Based Stock Options: Corporate Performance from 1992-1997 provides us with a useful empirical study in which to examine the claims, as this study uses the most extensive dataset yet available on broad-based stock option plans in U.S. companies (Blasi, et al 2002). The researchers compared the performance of 490 profit-sharing companies against that of companies without broad-based stock option plans (Blasi, et al 2002). According to the report “All data on company performance was taken from Standard and Poor’s Compustat data of public information on public corporations which is available at Rutgers University” (Blasi, et al 2002: 26). The data was compiled by researchers at Rutgers University, who according to the report were not compensated by the NCEO, nor by any of its consulting organizations: “The agreement was that the Rutgers University team would work independently in arriving at and publishing our results and make them available in a final report to the organizations that facilitated the initial survey” (Blasi, et al 2002: 26). The performance criteria used were productivity, annual and cumulative total shareholder return over the period between 1992 and 1997, Tobin’s q return on assets, and fixed wage compensation per employee.

Blasi, et al. (2002: 4), used the definition of a broad-based stock-option plan provided by Weeden, Carbury, and Rodrick (1998: 185) as one “where the majority of full-time employees of a corporation actually receive (rather than are merely eligible for) stock options over a reasonable period of time.” They narrowed the definition further by using the standard that a “broad-based” company is one which “includes a majority of non-management employees” (Blasi, et al 2002: 4). The companies in the survey “distributed an average of 45% of recent stock option grants to non-management employees” (Blasi, et al 2002: 2).

The report made some interesting observations. It argued that “there is unambiguous evidence that broad-based stock option companies had statistically significant higher productivity levels and annual growth rates” compared to traditional wage-paying companies in general, as well as among their corporate peers (Blasi, et al 2002: 2). Next, the “actual average and median cumulative shareholder return” for all groups of profit-sharing companies exceeded that of their entrepreneurial counterparts between 1992 and 1997. An additional measure of market value, the Tobins q, reveals that the levels of Tobin’s q of profit sharing companies tend to exceed the Tobin’s q of waged based employers:

The available evidence suggests that the levels of return on assets of broad-based stock option companies may be significantly higher than that of the non-broad-based stock option companies, although there is inconclusive evidence regarding annual growth rates in return and some mixed evidence of this effect remains. Our interpretation of these findings is that the performance of the firms using broad-based stocks, appears to equal or exceed the dilution that these plans would have initially caused. (Blasi, et al 2002: 2-3)

Finally, they found that profit-sharing companies did not substitute the stock options for wage cuts and found support “that broad-based stock option payments during the period studied may have significantly contributed to unmeasured and hidden wage inflation” (Blasi, et al 2002:3). This means an increase in real wages for the employees, as stock options supplemented their normal wages, rather than replacing them.

The NCEO report does much to affirm many of the conjectural benefits attributed to profit sharing, as well as to validate the claims made by some of the corporations who offer broad-based stock options. Alan S. Binder (1990:3) questions whether incentives such as profit sharing programs boost production because employees exert more effort, or because “they simply attract the most productive workers to jobs where high productivity is rewarded.” He argues that the empirical data simply shows that productivity does increase, without satisfactorily answering why:

From society’s point of view, the source of the productivity gain is crucial. If profit sharing simply shifts workers from one company to another, society neither gains nor loses. But if profit sharing actually raises the productivity of individual workers, society reaps an important benefit. (Binder 1990:4).

Employee/Employer Relations

So why is profit sharing successful? According to Coyle- Shapiro, et al (2002), “the success of profit sharing can … be explained as an application of principal-agent theory (Eisenhardt, 1988, 1989) since it is a performance based form of compensation that serves to better align the interests of employees, managers, and shareholders.” They also believe that a company’s willingness to share profits with the employees who help to earn them invokes trust in management, and nurtures organizational commitment (Coyle- Shapiro, et al, 2002:434). As a result, companies find themselves better situated to retain their high skilled employees.

Kruse (2002:3) found that “most studies” found “higher organizational commitment” under employee ownership, while studies on “job satisfaction, motivation, and other behavior” were less conclusive. However, “it is rare to find worse attitudes and behavior under employee ownership,” in fact, the only study that did report negative findings was “an ESOP where the union had lost a bitter strike the year before” (Kruse 2002:3).

Kruse (2002:3) also discovered that “improved attitudes” were generally related to the “status of being an employee owner” rather than “the size of one’s ownership stake.” Kruse (2002:3) found that “employees generally like the idea of employee ownership.” He cites a 1994 EBRI/Gallup poll which found that employees preferred a stake in company ownership over higher immediate take home pay, and that 80% of those surveyed believed that “employers should be allowed to contribute company stock to fund retirement plans” (Kruse 2002:3).

It is not a novel idea that increased incentives lead to higher productivity. Most companies motivate employees through rewarding relative performance with promotions and raises. However, it is hard to link the effort of a single individual to overall company performance and “exclusive reliance on individual incentives under uncertainty is also likely to engender counterproductive rivalry rather than efficient cooperation and mutual assistance in team work” (Fitzroy and Kraft 1987:25). This type of reward system can result in decreasing productivity. Fitzroy and Kraft (1987:26) point out: “If workers believe that most of the gains from increased productivity will be appropriated by owners or managers, their best collusive strategy is to maintain their nonpecuniary benefits through limiting efforts.” Discouraged workers seek to decrease their workload by maintaining minimum expectations, whereas economic rewards tied to company performance should provide an enhanced motivation to perform at maximum effectiveness. The firm seeks a “cooperative solution” by offering a “contractual share of the surplus” and by providing a “substantial marginal return to increasing effort and efficiency” (Fitzroy and Kraft 1987:25).

Profit sharing also encourages employees to reduce costs. United Airlines, which is 55% employee owned, has become the most profitable airline in the United States. Innovations soon emerged from a newly collaborative workforce. A task force of ramp workers, pilots, and managers devised a way to use electricity instead of jet fuel while planes sit at the gate, saving $20 million a year…another task force urged more flexibility for in-flight personnel to swap assignments, resulting in another $20 million saved. (Gates 1998:50). The CEO of Continental (2007), another employee owned airline, also attributes his company’s increased profits to an “ability to significantly out-perform our competitors by working together as a team.”

The opposite also seems to hold true. There is evidence that with declining incentives comes decreased employee cooperation. Home Depot was a model for employee ownership in the 1990’s; their employee stock option plan led to greater levels of cooperation which manifested itself by increased customer service. However, in a recent move to expand contractor business, Home Depot has cut costs by replacing full-time employees, eligible for profit sharing, with part-time employees. According to Business Week (2006) part- time workers make up 40% of store staff and customer satisfaction has dropped significantly. As a result, profits have taken a hit; “share price has dropped 24% during the biggest home improvement boom in history” (Business Week 2006).

Labor Relations

Another theoretical benefit of employee ownership is the reduction of employee/employer conflict in the form of strikes and work stoppages. Labor unions have sought employee ownership plans as part of collective bargaining agreements. In the 1980’s, labor unions representing airline, automotive, and steelworkers negotiated for employee ownership stakes as a form of wage concession.

Kruse (2002:5) reports that “there is no of decreased desire for union representation in employee ownership firms.” He attributes his conclusion to survey results (Kruse 1991) and the existence of “occasional strikes in employee ownership firms” (Kruse 2002:5). This sends a warning signal that workers are not fully confident with the promised prosperity of stock option plans. Worker uneasiness may be the result of their mistrust in corporate willingness to remain committed to employee interests in the absence of union representation.

Wage Increases and Wealth Distribution

Blasi et al. (2002:3) discovered in their analysis of 490 broad based stock option companies that companies did not compensate for enacting stock option plans by lowering employee wages, but rather that stocks supplemented employee income. In addition, the companies that adopted employee ownership practices were those that already tended to offer higher compensation packages; however, “companies did not continue to increase wages beyond their earlier edge” (Blasi et al. 2002:3). This was confirmed by Kruse (2002:8) in his report to a congressional committee: “Company stock appears to come on top of, and not in place of, other compensation.” Blasi et al. (2002:49) also found that employees in firms with “broad based” employee ownership, on an average, earned 8% more than the employees of comparable public companies.

Blasi et al. (2003:41) estimated that broad based stock companies “statistically significantly surpassed” the average returns of their non-employee owned competitors during every year of the five year study; The cumulative average share holder return between January 1992 and December 1997 of broad based stock companies was 303.2% compared to the 193.1% combined average for overall company returns. This means that employee owned stock was more valuable than that of traditional firms, creating another advantage for stock options to help employees increase overall wealth.

There are a few instances where employees made wage concessions in exchange for ownership interest. There were the smaller technological startups which paid low starting wages and offered stock options instead, as well as cases where unionized employees conceded to lower wages as a part of company restructuring package, as with United Airlines. Nevertheless, Kruse (2002:8) reports that “among nearly 1,000 publics firms that developed employee ownership stakes of 4% or greater over the 1980’s … there were only 40 reports of wage and benefit restructuring linked to employee ownership.” That equates to a modest four percent. Nonetheless, even in these rare cases employees tend to have higher earnings then their non profit sharing peers.

This translates into a redistribution of profits at the organizational level, which should eventually spread to the macro level:

Stock options represent one of the fastest growing components in employee equity participation. A 1997 study by William Mercer consultants found that 30 percent of the largest U.S. companies now have broad-based stock option programs covering more than half their employees… (Gates 1998:61).

Firm Survival

The survival of any financial enterprise is significantly affected by its efficiency and its ability to compete. Economic security, in turn, promotes employment stability and continuing profits. These are key factors of success whether a firm adopts employee ownership practices or not. However, studies have shown that employee ownership is related to greater employment stability, “which does not come at the expense of lower efficiency” (Kruse 2002:7).

Weitzman (1985:950) conjectured that a profit sharing entity always seeks to operate at full employment, being that the advantage of increased production outweighs the shared cost of added labor. Theoretically, a profit sharing entity meets lowered demand by increasing production, by which it then attains market equilibrium by creating a surplus and reducing price to increase demand. A profit sharing entity has a built in advantage with its flexibility of wages that results in full term employment during short term contractions in the economy, rather than a reduction in labor (Weitzman 1985:950).

While the only evidence he offers is an abstract economic proof, Weitzman’s prediction seems to be confirmed by the aggregate data: “A study of U.S. plywood cooperatives in the pacific northwest found that these cooperatives tended to adjust pay rather than employment as demand changed, and these firms had higher average productivity levels than conventional plywood firms” (Kruse 2002:7). Three studies comparing firms before and after the adoption of ESOPs found that firms experienced faster employment growth after adopting employee ownership practices; these included companies that had greater employee involvement in decision making (Quarry and Rosen 1993; Winther and Marens 1997); and a study of Ohio ESOPs which outgrew their competitors (Logue and Yates 2001).

Chelius and Smith (1990:263) found marginal support that profit-sharing firms faced with decreased demand “reduced employment less than did firms without profit sharing” and that workers with profit sharing, in general, “have greater job security” during economic downturns. Another study which tracked U.S. public companies from 1983-1995 found that firms with “substantial employee ownership stakes” had a 20% greater chance of survival (Blair et al. 2000 as quoted in Kruse 2002:7). Meanwhile, in a study of 1,382 U.S companies, Kruse (1991:451) found that “profit sharing firms have greater employment stability” than their traditional competitors, “specifically within manufacturing firms.” In addition, the NCEO (2007:7) reports “a 1995 study by Michael Conte at the University of Baltimore found that during the 1980’s, fewer than one out of 100 ESOPs were terminated because of the bankruptcy of the plan sponsor.”

Growth in Employee Ownership

The NCEO (2007) estimates that company participation in ESOP’s and equivalent plans has grown from 1,600 to 9,650 companies since 1975. In the same thirty year period, the number of employee participants has grown from 250,000 to 10,500,000 (NCEO 2007). ESOP plan assets have also significantly jumped from an estimated $133 Billion in 1975 to $675 Billion in 2006. The word seems to be getting out.

This growth in employee ownership is an encouraging sign. In order for the benefits of employee ownership to significantly affect wealth distribution, we hypothesized that it would need to offer a competitive advantage to businesses. This would lead to an increasing number of firms adopting employee ownership plans to remain competitive, eventually affecting the redistribution of wealth at a macro level.

The evidence that this is taking place seems to be positive, yet it is difficult to predict for how long this upward trend will continue. There is simply not enough data to confidently assert that a growth in employee ownership is the result of in company productivity. The attractiveness of ESOP’s could be the result of Government tax incentives created by the 1975 ERISA laws. Adding to the dilemma is the fact that the numbers have been tracked sporadically throughout this time span making it difficult to determine which periods exhibited the most growth.

It is also not certain whether companies are committed to employee ownership for the long term, or if they are simply using it as a short term fix to lure potential employees and/or increase productivity. Not all companies who have adopted profit sharing have continued down that road.

Interesting Observations

The investigation logically culminates into the practical implications of profit sharing procedures in regards to public policy. If the disadvantages of incorporating profit sharing strategies outweigh the perceived advantages to most companies, then there will be little or no effect on economic well being in the long term. However, a thirty year trend has shown significant rise in the adoption by U.S. firms of employee ownership solutions.

There is substantial evidence that employee ownership increases the productivity and profitability of firms. This seems to promote firm stability through greater fiscal viability, and employee retention. There is also marginal evidence that employee ownership results in higher levels of employment and job security, even when firms are faced with decreased demand.

Employee ownership seems to increase employee income, by supplementing, rather than replacing fixed wages. This translates into an increase in real wages for employees, and the possibility for a redistribution of wealth at an organizational level. For those who choose stock over cash payouts, even minimal company ownership affects a raise in take home pay among workers.

The largest gains, however, are dependent on employees taking advantage of the long term maturation of their stocks. If they tend to cash out their stock options early, employee ownership will fail to result in an exponential growth of wealth for the lowest income bracket. Higher salaried employees have the luxury of more disposable income, making it easier for them to allow their stock to attain maximum value through price growth and stock splits.

There is also evidence that workplace satisfaction increases when workers experience an increased sense of value and organizational justice within a firm: “…when profit sharing is perceived as both, an opportunity for individual input to the organization’s success and a reflection of the organizations desire to treat employees fairly, higher levels of commitment follow” (Coyle- Shapiro, et al, 2002:434). This seems to reduce labor disputes and creates a common enterprise among employees and shareholders in pursuing the financial success of a company.

While profit sharing does exhibit some signs of economic justice by a fairer distribution of rewards, higher real wages, increased job security, and improved employee/employer relations, the question of whether it can affect the redistribution of wealth at a macro level and decrease the national growth of income disparity is a question which remains unanswered. A change in employee income needs to be complimented by a change in saving habits to realize the full promise of employee ownership. Nevertheless, the potential for the redistribution of profits to increase the standard of living for many lower income Americans does seem promising: “the fact remains that broad based ownership is preferable to its alternative” (Gates 1998:67).

Problems Encountered During Research

My Hypothesis that employee ownership effects greater economic justice by measuring (1) job stability, (2) wage and income increase, (3) redistribution of wealth, and (4) employer/employee conflict remains unproven with the current available data. Valid research is limited by the amount, the content, and the usefulness of the current statistical data.

The majority of the statistics concerning employee ownership have been compiled by the National Center for Employee Ownership, in Oakland, California. Their information is limited to the research provided by economic scholars interested in the effects of employee ownership on firm productivity and profitability. While this information is useful, it sheds little light on the impact of stock option plans upon individual income.

Missing from the research is data on employee salaries, employee investment, and employee satisfaction that is vital to the confirmation of my hypothesis. I believe the assumptions are still testable with the collection of relevant data. Without the requisite salary information, I am limited to further articulation of my general theory and recommendations for future research.

Employee Ownership’s Potential for Effecting Economic Justice

If profit sharing organizations tend to be more productive/profitable than traditional firms, this should give them a competitive advantage. Higher profitability makes the firm more attractive for shareholder investment, the lifeblood of a successful corporation. This allows for an increase in capital, which further strengthens the fiscal viability of the firm.

Another significant factor is the effect of higher profitability on employee confidence. Faith in an employer’s stock should foster employee investment, distributing a greater share of ownership among the workforce. The greater the amount of employee owned stock, the greater the potential for a redistribution of wealth at an organizational level.

Increased profitability also allows for higher wages. A company’s increased profits allow it to maintain a competitive pay scale, encouraging employee stock purchases. The more disposable income an employee has, the more he can invest. If an individual’s wage barely meets their living expenses, then employee stock options are simply a token gesture. However, an increase in take home pay should encourage saving and investment.

A competitive pay scale, coupled with an employee stock option plan, also affects a firm’s ability to sustain its workforce. Higher wages and profit sharing incentives make a company more attractive to higher skilled employees in the labor pool. It also aids in the retention of current employees. A sense of economic fair play in the workplace should also cultivate employee loyalty. This should have a positive financial impact on a firm by reducing the costs of recruiting and training.

The advantages that profit sharing bestows upon employees and employers should stimulate additional firms to adopt this business model to remain competitive in the marketplace. Heightened employee cooperation, increased productivity, higher profits and greater shareholder returns are attractive incentives for corporations to incorporate stock option plans. Likewise, the promise of higher salaries, greater wealth accumulation, increased job stability, and enhanced job satisfaction are appealing to employees. The exponential growth of employee ownership would confer these benefits on a large scale basis.

 

Future Research

          New data must be accumulated before any significant correlations between employee ownership and economic justice can be drawn. I believe that the most important areas of research are the effects of stock option plans on employee income, investment, and job satisfaction. These measurements will allow for further research into the potential for wealth redistribution.

The most cost effective way to obtain this information would be to survey the 1,092 businesses that participated in the Blasi, et al (2002) study. The businesses have been selected to reflect similar businesses in different fields of industry, thus controlling for many outside variables. It also gives an adequate sample of 490 employee owned business; roughly half the population size. Furthermore, the researchers were able to identify when these companies adopted employee ownership practices, making it easier to apply the pretest/posttest method by reviewing salary information before and after 1992.

Anonymous salary information should be obtained for the years 1991 (1 year prior to the implementation of their stock option plans) through 2001. This gives us a substantial 10 year period in which to study the fiscal activity. This data should be entered into the Statistical Program for the Social Sciences (SPSS), or a comparable program, to determine whether there is a significant statistical relationship between employee ownership and salary distribution. Wage increases and stock option purchases should also be measured for.

The data on employee income should be requested through the board of trustees, trying to impress upon them the important implications of this study. The researcher should compile salary figures without names to protect the privacy of the individual employees. During the request process, board members should be surveyed on the question of why their company chose to adopt a stock option plan. This information is useful in determining what factors influenced their decision. I would ask the open ended question verbatim, also using an attitudinal scale to measure the influence of tax incentives, employee cooperation, and wage concessions upon their decision.

An alternative would be a poll of the workers requesting salary information. This would be a much less reliable determinant, as it would be affected by an employee’s ability to produce accurate salary figures. An attitudinal scale to assess job satisfaction could also be included in the poll. This would prove useful in determining what influence employer ownership has on attitudes. Board members and laborers may differ in their outlook towards cooperation.

Conclusion

I believe that the study of employee ownership’s ability to effect economic justice is an important focus of future research. The prospect of continuing economic growth depends on a more equitable distribution of wealth. The increasing economic disparity between our wealthiest and poorest citizens has a negative impact upon our society. The economic effects are work stoppages, increased absenteeism, lower productivity, and higher unemployment rates due to worker discouragement. The societal effects are an increase in entitlement spending, a rise in crime rates, and an escalation of tensions between the socioeconomic classes.

A legitimate economic hope is a powerful medicine for an ailing culture. The enduring economic prosperity of America depends on our ability to heal the social ills created by a widening economic gap. History has shown that working class frustrations usually manifest themselves in the form of violent civil conflict. Employee ownership is a potential cure.

By Lawrence Christopher Skufca (2007)

Some Rights Reserved 

Bibliography

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Blanchflower, David G. and Andrew Oswald. 1987. “Profit Sharing -- Can It Work?” Oxford Economic Papers. New Series, No. 1. (March): 1-19. Stable URL: http://links.jstor.org/sici?sici=00307653%28198703%292%3A39%3A1%3C1%3APSIW%3E2.0.CO%3B2-0 (accessed 9/23/2007)

Blasi, Joseph, Douglas Kruse, James Sesil, and Maya Kroumova. 2002. “Public Companies with Broad-Based Stock Options: CorporatePerformance From 1992-1997.” National Center for Employee Ownership Report, (2002): 1-75. Stable URL: http://www.nceo.org/library/optionreport.html (accessed 9/20/2007)

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Coyle-Shapiro, A-M Jacqueline, Paula C. Morrow, Ray Richardson, and Stephen R. Dunn. 2002. “UsingProfit Sharing To Enhance Employee Attitudes: A Longitudinal Examination Of TheEffects On Trust And Commitment.” Human Resource Management. No. 4. (Winter): 423-429.
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Gates, Jeffrey R. 1998. The Ownership Solution: Toward a Shared Capitalism for the 21st Century, 1st ed., Reading, MA: Addison-Wesley Books.

Kruse, Douglas L. 1991. “Profit Sharing and Employment Variability: Microeconomic Evidence on the WeitzmanTheory.” Industrial and Labor Relations Review. No. 3 (April): 437-453. Stable URL: http://links.jstor.org/sici?sici=0019-7939%28199104%2944%3A3%3C437%3APAEVME%3E2.0.C0%3B2-6 (accessed 11/06/07)

Kruse, Douglas L. 1992. “Profit Sharing and Productivity: Micronomic Evidence from the United States.” The Economic Journal. No. 410 (Jan): 24-36. Stable URL: http://links.jstor.org/sici?sici=0013-0133%28199201%29102%3A410%3C24%3APSAPME%3E2.0.CO%3B2-%23 (accessed 9/20/2007)

Kruse, Douglas L. 2002. “Research Evidence on Prevalence and Effects of Employee Ownership.” Oakland,CA: National Center for Employee Ownership. Stable URL: http://www.nceo.org/library/kruse_notes.html (accessed 10/10/12)

Logue, John; and Jacquelyn Yates. 2001. The Real World of Employee Ownership. Ithica, NY: Cornell University Press.

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Winther, Gorm, and Richard Marens. 1997. “Participatory Democracy May Go a Long Way: Comparative Growth Performance ofEmployee Ownership Firms in New York City and Washington States.” Economic and Industrial Democracy,Vol. 18(3), (August): 393-422.

An Equal Protection Argument for Challenging Heien v. North Carolina

In Heien v. North Carolina, 135 S.Ct. 530 (2014), the U.S. Supreme Court has issued forth its new edict asserting the Fourth Amendment is not disturbed if a constitutional deprivation occurs because of a police officer's reasonable mistake of the law. This creates a scheme where divergent interpretations of the same statute may produce unequal outcomes, which may ultimately prove to be untenable under the Due Process and Equal Protection Clauses of the Fourteenth Amendment.

Hein v. North Carolina stems from a routine traffic stop which escalated into a felony drug arrest after a law enforcement officer discovered cocaine in the defendant's vehicle. The officer’s pretext for the stop was that he believed state law prohibited driving a vehicle with a broken brake light. However, the statute in question only requires one working brake light. During the stop, the drugs were discovered after the defendant granted the officer consent to search his vehicle.

Prior to trial, the defendant filed a Motion in limine to suppress the evidence seized on the grounds that the officer’s erroneous pretext for the stop violated the Fourth Amendment. The Trial Court denied the motion to suppress and the defendant was convicted. The State Court of Appeals reversed, finding that the officer's mistake of law meant that no probable cause existed for the initial stop. On appeal, the North Carolina Supreme Court upheld the Trial Court's decision to deny defendant's motion to suppress the evidence, ruling that the officer’s mistake of law was a “reasonable” one, thus the stop did not violate the Fourth Amendment. On appeal, the U.S. Supreme Court granted certiori to hear the case.

The ACLU's amicus curiae brief on behalf of the defendant, Nicholas Heien, argued the North Carolina Supreme Court's decision should be overturned on the grounds that treating mistakes of fact and law in the same manner under the Fourth Amendment contravenes well established legal principles. Attorneys argued:

The legal standard against which the facts and circumstances are judged does not depend upon what was known to the officer. Instead, it is based on the “infraction itself.” Whren v. United States, 517 U.S. 806, 818 (1996); accord Michigan v. DeFillippo, 443 U.S. 31, 36 (1979) (“Whether an officer is authorized to make an arrest ordinarily depends, in the first instance, on state law.”). The question is not whether the facts could have caused a law enforcement official to perceive a violation of a law he reasonably believed to exist; it is whether the facts could have given rise to reasonable suspicion of a violation of an actual law. See, e.g., United States v. Cortez, 449 U.S. 411, 417 (1981) (“An investigatory stop must be justified by some objective manifestation that the person stopped is, or is about to be, engaged in criminal activity.”); Delaware v. Prouse, 440 U.S. 648, 661 (1979) (“When there is not probable cause to believe that a driver is violating any one of the multitude of applicable traffic and equipment regulations—or other articulable basis amounting to reasonable suspicion that the driver is unlicensed or his vehicle unregistered—we cannot conceive of any legitimate basis [for a stop.]” (footnote omitted)).

As a matter of public policy, the ACLU argues that adopting the rule crafted by the North Carolina Supreme Court has negative consequences on individual liberty. Their brief asserts, "[i]f the Fourth Amendment inquiry hinges on the reasonableness of police officers’ beliefs about the law ... the rule will enable an expansive new category of government intrusions." Put into practice, the rule could justify intrusions "based on all manner of innocent conduct, so long as the state raises, post-hoc, a non-frivolous question of statutory interpretation."
The ACLU further contends "allowing state intrusions that have no basis in law, undermines the legitimacy of law enforcement and threatens officer safety." In support of their position, they put forward the argument that "the rule diminishes incentives to ensure that law enforcement officials receive thorough and up-to-date training in the law. See United States v. Nicholson, 721 F.3d 1236, 1242 (10th Cir. 2013) (“Permitting officers to excuse their mistakes of substantive law as ‘reasonable’ ‘would remove the incentive for police to make certain that they properly understand the law that they are entrusted to enforce and obey.’” (quoting United States v. Lopez-Soto, 205 F.3d 1101, 1106 (9th Cir. 2000)))." In addition, the ACLU argues "the rule may damage the public perception of law enforcement’s knowledge and authority, discouraging citizens from obeying or cooperating with police and alienating law enforcement officials from those they serve." As a result, officer safety could be negatively impacted "by encouraging citizens to dispute the law with officers who are no longer presumed to understand it."

The U.S. supreme Court disagreed. In an 8-1 majority opinion, the U.S. supreme Court adopted the North Carolina Supreme Court's position as the new standard for "reasonableness" under the Fourth Amendment. The Court held, "Because [Officer] Darisse’s mistake of law was reasonable, there was reasonable suspicion justifying the stop under the Fourth Amendment." Chief Justice Roberts, delivering the opinion of the Court, provided the following rationale:

Reasonable suspicion arises from the combination of an officer’s understanding of the facts and his understanding of the relevant law. The officer may be reasonably mistaken on either ground. Whether the facts turn out to be not what was thought, or the law turns out to be not what was thought, the result is the same: the facts are outside the scope of the law. There is no reason, under the text of the Fourth Amendment or our precedents, why this same result should be acceptable when reached by way of a reasonable mistake of fact, but not when reached by way of a similarly reasonable mistake of law.

The lone dissenter, Justice Sotomayor reasoned:

The Court is, of course, correct that “‘the ultimate touchstone of the Fourth Amendment is “reasonableness.”’” Riley v. California, 573 U. S. ___, ___ (2014) (slip op., at 5). But this broad statement simply sets the standard a court is to apply when it conducts its inquiry into whether the Fourth Amendment has been violated. It does not define the categories of inputs that courts are to consider when assessing the reasonableness of a search or seizure, each of which must be independently justified. What this case requires us to decide is whether a police officer’s understanding of the law is an input into the reasonableness inquiry, or whether this inquiry instead takes the law as a given and assesses an officer’s understanding of the facts against a fixed legal yardstick. I would hold that determining whether a search or seizure is reasonable requires evaluating an officer’s understanding of the facts against the actual state of the law.

The vehicle for challenging the recent Fourth Amendment precedent established by the Court under Heien v. North Carolina may reside in the Fourteenth Amendment's due process and equal protection clauses, which protect individuals against arbitrary application of the law. The Court's ruling in Heien v. North Carolina creates a scenario whereby an unequal application of the law most likely will arise through individual police officers enforcing different standards, which stabs through the heart of the original guarantee against an unequal application of the law enumerated by the Fourteenth Amendment.

An appeal to the Court's void for vagueness jurisprudence transforms a Fourth Amendment inquiry over the reasonableness of the officer's actions, into a Fourteenth Amendment due process inquiry into the reasonableness of the statute, as applied to the defendant. If the offending statute was applied in an arbitrary or discriminatory manner against the defendant, then they have suffered a deprivation of their due process and equal protection rights through its enforcement, regardless of the reasonableness of the officer's actions. Hence, any evidence gained as a result of the constitutional deprivation becomes fruit of the poisoned tree.

The first step in evaluating whether a law is unconstitutionally vague is to determine if the statute provides adequate notice of what conduct is prohibited. United States v. National Dairy Products Corp., 372 U.S. 29, 33 (1963) (citing United States v. Harriss, 347 U. S. 612, 618 (1954)). A regulation must be sufficiently clear to warn a party regarding what is expected of them before they can be sanctioned for failure to comply with the required regulation. Id. at 33. Legislation is not unconstitutionally vague if the law’s prohibitions are such that an ordinary person exercising common sense is able to understand and comply. CSC v. Letter Carriers, 413 U.S. 548, 579 (1973).

The second step is to determine if the statute is drafted in a manner that fosters arbitrary or discriminatory enforcement. To prevent arbitrary and discriminatory enforcement, laws must provide explicit standards for those who apply them. A law is unconstitutionally vague when it "impermissibly delegates basic policy matters to policemen, judges, and juries for resolution on an ad hoc and subjective basis, with the attendant dangers of arbitrary and discriminatory applications." Grayned v. City of Rockford, 408 U.S. 104, 108-09 (1972), quoted in Village of Hoffman Estates v. The Flipside, 455 U.S. 489, 498 (1982). The vagueness may be from uncertainty in regard to persons within the scope of the act, or in regard to the applicable tests to ascertain guilt. Winters v. New York, 333 U.S. 507, 515 -16 (1948); Cf. Colten v. Kentucky, 407 U.S. 104, 110 (1972).

Here, a law enforcement officer who has been deemed to have made a "reasonable" mistake of law in regards to the enforcement of a traffic ordinance provides the necessary ammunition for challenging the offending statute on the grounds that it fosters arbitrary or discriminatory enforcement. By deeming a police officer's mistake of law as "reasonable," what the Court has inadvertently established is that the law in question is capable of being applied on an "ad hoc and subjective basis," which in turn fosters arbitrary and discriminatory application. This would make it impossible for the reasonable person, exercising ordinary common sense, to comply with the statute in such a manner that would protect them from being targeted.

This opens the door for a creative legal strategy of challenging an arrest on the grounds that the underlying statutory offense providing justification for the stop is unconstitutionally void for vagueness. The legal dichotomy this creates is that either the officer's understanding of the law was unreasonable, causing a Fourth Amendment deprivation, or that the law, as applied to the defendant, is capable of being reasonably misinterpreted and arbitrarily applied, hence, is unconstitutionally vague.

The void for vagueness claim should be supplemented with a selective enforcement challenge arising under the Court's equal protection jurisprudence. This should adequately protect against any finding that the challenged statute is facially valid, since the discriminatory enforcement of an otherwise facially valid law is unconstitutional under the equal protection clause. Yick Wo v. Hopkins, 118 U.S. 356, 373-74 (1886); Holder v. City of Allentown, 987 F.2d 188, 197 (3d Cir. 1993) (applying Yick Wo to a claim of discriminatory enforcement of a residency ordinance).

Generally, to establish selective enforcement a claimant must establish (1) that they were treated differently than other similarly situated individuals, and (2) that this selective treatment was motivated by an unjustifiable standard, such as race or religion, to punish or inhibit the exercise of constitutional rights, or by a malicious or bad faith attempt to injure the person. See, Holder, 987 F.2d at 197; Hill v. City of Scranton, 211 F.3d 118, 125 (3d Cir. 2005).

However, a selective enforcement claim can also be brought by a “class of one,” where the defendant alleges that they have been intentionally treated differently from others similarly situated and that there is no rational basis for the difference in treatment. Village of Willowbrook v. Olech, 528 U.S. 562, 564 (2000); see also Allegheny Pittsburgh Coal Co. v. County Commission of Webster County, 488 U.S. 336, 345-46 (1989). In Olech, the Court reaffirmed, "The purpose of the equal protection clause is to secure every person within a State's jurisdiction against intentional and arbitrary discrimination, whether occasioned by express terms of a statute or by its improper execution through duly constituted agents.” 528 U.S. at 564 (quoting Sioux City Bridge Co. v. Dakota County, 260 U.S. 441, 445 (1923) (quoting Sunday Lake Iron Co. v. Township of Wakefield, 247 U.S. 350, 352 (1918))).

Here, a police officer's "reasonable" mistake of law certainly qualifies as an "improper execution through duly constituted agents." Therefore, a mistake of law, no matter how "reasonable," subjects a defendant to different treatment than similarly situated individuals, without a rational basis for the difference in treatment.

As for the public policy argument, Justice Sotomayer provides a persuasive individual rights justification by asking "why an innocent citizen should be made to shoulder the burden of being seized whenever the law may be susceptible to an interpretive question." This argument can be supplemented with the ACLU's contention that the rule undermines respect for authority by inviting the public perception that police officers are unfamiliar with the law that they are seeking to enforce and will be held unaccountable for their mistakes.


Lawrence Christopher Skufca (2015)

The Tipping Point: Are Student Activists Being Targeted by U.S. Universities?

How many Rutgers students have heard of the Minerva Initiative? If Rutgers University and the Department of Defense had their choice, none of them would. The Minerva Initiative is a joint research project between the DOD and US universities which receive funding to study social movements to identify trigger events which may lead to civil unrest. [1]. Rutgers University is a project participant. [2].

The program was implemented in 2008 to formulate a strategy for identifying social movements and undermining their efforts to organize. Minerva was initiated over concerns that the economic crisis triggered by the mortgage collapse had the potential to lead to mass civil unrest such as occurred with the Arab Spring movement and the riots in France. The DOD asked University researchers to examine social media trends to identify "tipping points" which could ignite mass civil protests and to develop strategies for immobilizing potential threats.

It has been reported by the Guardian [3] and the Partnership for Civil Justice Fund [4] that these strategies were utilized by the FBI Joint Terrorism Task Force in response to the Occupy Wall Street Movement in 2011. The FBI identified leaders of the OWS movement in the months prior to the group occupying Zucotti Park by tracking the activity of group organizers on social media sites. The JTTF then formulated a joint national response among local police departments and corporate security personnel aimed at suppressing the protests. Furthermore, the ACLU has reported that this type of data mining has been regularly used by the F.B.I. and cooperating law enforcement agencies to target journalists, whistle-blowers and activists for engaging in First Amendment speech. [5].

The practical effect of the Minerva Initiative has been that paranoid University administrators, fueled with fear propaganda supplied by the DOD and law enforcement agencies, are currently monitoring student's electronic activity on their networks to identify "potential threats." This has led to a number of socially concious students who are too politically outspoken being labeled as agitators. These students are then monitored, targeted and harassed by University police and administrators seeking to neutralize the threat and deter student protests.

This, coupled with the Snowden revelations over the NSA mass domestic surveillance programs, raises legitimate concerns over the potential for abuse within the US intelligence community's domestic surveillance network. The NSA has admitted that their mass surveillance and data collection programs have not led to the prevention a single act of domestic terrorism in the US. [6]. However, the program has created a culture of paranoia and retaliation against political dissidents deemed to pose a threat. This has created a noticeable chilling effect on individuals discussing controversial subject material or questioning the underlying motivations behind public policy decisions.

More information about the Minerva Initiative can be found at:  minerva.dtic.mil.

The FBI documents obtained by the Partnership for Civil Justice Fund in their 2012 Freedom of Information Act request can be found at: http://www.justiceonline.org/fbi_files_ows#document.

More information about the crackdown on journalists, whistleblowers and activists can be found at:  https://www.aclu.org/sites/default/files/assets/unleashed-and-unaccountable-fbi-report.pdf.

Lawrence Christopher Skufca (2015)

Bibliography

[1]   Stable URL: http://minerva.dtic.mil/overview.html. [accessed 6/15/2015].

[2]   Stable URL: http://minerva.dtic.mil/funded.html [accessed 6/15/2015].

[3]   Stable URL: http://www.theguardian.com/commentisfree/2012/dec/29/fbi-coordinated-crackdown-occupy [accessed 6/15/2015].

[4]   Stable URL: http://www.justiceonline.org/fbi_files_ows [accessed 6/15/2015].

[5]   Stable URL: https://www.aclu.org/sites/default/files/assets/unleashed-and-unaccountable-fbi-report.pdf [accessed 6/15/2015].

[6]   Stable URL: https://www.washingtonpost.com/world/national-security/nsa-phone-record-collection-does-little-to-prevent-terrorist [accessed 6/15/2015].

Maladjusted

"Modern Psychology has a word that is probably used more than any other word in Psychology. It is the word maladjusted. It is the ringing cry of modern child psychology --- maladjusted. Now of course we all want to live the well adjusted life in order to avoid neurotic and schizophrenic personalities. But as I move toward my conclusion, I would like to say to you today, in a very honest manner, there's some things in our society, and some things in our world, for which I am proud to be maladjusted. And I call upon all men of good will to be maladjusted to these things until the Good Society is realized.

I must honestly say to you that I never intend to adjust myself to racial segregation and discrimination. I never intend to adjust myself to religious bigotry. I never intend to adjust myself to economic conditions that will take necessities from the many to give luxuries to the few and leave millions of God's children smothering in an airtight cage of poverty in the midst of an affluent society."

- Martin Luther King, Jr.

Speech at Western Michigan University, December 18, 1963

The Evolution of Equality

A Comparative Analysis Between the Lincoln and Jeffersonian View of Racial Equality

“Four score and seven years ago our fathers brought forth on this continent, a new nation, conceived in Liberty, and dedicated to the proposition that all men are created equal.” [1]. With these words, Lincoln impressed his vision of equality upon the American political landscape, effectively supplanting the limited Jeffersonian concept of human equality based on “natural right” and the “utility” of “moral sense.” [2].

Lincoln envisioned an equality of the races, politically and socially, that ventured far beyond Jefferson’s simple premise of equal treatment under the law. Lincoln’s understanding was that racial equality was based upon natural, as well as, sacred right. [3]. He attributed the intellectual differences among men to be due to the “doctrine of necessity”, men’s intellect being guided “by some power," outside of their control [4], rather than strictly being the product of intellect or education.

For Lincoln, all men are created equal meant all of mankind, not just Whites of European descent. Thus, Lincoln’s sense of equality was more inclusive than Jefferson's. While Lincoln was careful not to denigrate Negros as necessarily being physically, mentally, nor morally deficient, he was also careful not to enrage the dominant class by publicly conceding racial equality, acknowledging “he is not my equal in many respects - certainly not in color, perhaps not in moral or intellectual endowments.” [5].

Lincoln did , however, see Negros as being capable of making an intellectual contribution to society. In a private letter to Michael Hahn, Governor of Louisiana, Lincoln wrote:

Now you are about to have a Convention which, among other things, will probably define the elective franchise. I barely suggest, for your private consideration, whether some of the colored people may not be let in-as, for instance, the very intelligent, and especially those who have fought gallantly in our ranks. They would probably help, in some trying time to come, to keep the jewel of liberty within the family of freedom. [6].

Jefferson felt otherwise; he conceded that Negros might be morally equal to the Whites, but saw them as physically and intellectually inferior. According to Jefferson, nature had provided “distinctions” between the races; besides the physiological differences, blacks lacked “forethought,” proper “reason," and were “much inferior” in intellect. [7]. For these reasons, Negros, if emancipated, were to be segregated to prevent a “mixing of the races.” [8]. Jefferson was victimized by the poor science of his day, the prevailing European theories being that Negros were mentally inferior to Whites. 

Jefferson’s equality was contingent on natural rights. All men were not “created equal” with natural attributes; each was endowed with differing degrees of “talent” and “virtue,” - thus, each was afforded the right to pursue prosperity on an equal footing, but were unequal in their ability to attain the same level of achievement. [9]. Nevertheless, all men were equal in their natural right to procure “life, liberty, and the pursuit of happiness,” and they shared a common “moral sense,” of “right and wrong” provided by nature. [10]. Jefferson upheld that by exercising this intrinsic quality, through education, all men were capable of coming to a consensus on “self-evident” truths such as these.

Lincoln’s views on morality differed, in that they were based on his doctrine of necessity, rather than the Jeffersonian understanding of an internal moral sense. For Lincoln, educated men could come to opposing positions on the same issue, for “the human mind is impelled to action, or held in rest by some power, over which the mind itself has no control.” [11]. Lincoln’s later writings support the notion that he may have believed this vague external force to be the result of God exercising his sovereign will in different circumstances to meet His divine plans and purposes. [12].

One of the great moral truths both, Lincoln, and Jefferson, could agree on was the injustice of the subjugation of the African race. Jefferson wrote:

The love of justice and the love of country plead equally the cause of these people, and it is a moral reproach to us that they should have pleaded it so long in vain, and should have produced not a single effort, nay fear not much serious willingness to relieve them and ourselves from our present condition of moral and political reprobation. [13].

Lincoln echoed these sentiments:

The monstrous injustice of slavery itself . . . Deprives our republican example of its just influence in the world-enables the enemies of free institutions, with plausibility, to taunt us as hypocrites- causes the real friends of freedom to doubt our sincerity, and especially because it forces so many really good men amongst ourselves into open war with the very fundamental principles of civil liberty. [14].

Where Lincoln veered from Jefferson was on the source of the natural right to equality. Lincoln appealed to the common humanity of the Negro, in His assertion that “it is your own sense of justice, and human sympathy, telling you, that the Negro has some natural right to himself … will you ask us to deny the humanity of the slave?” [15]. Lincoln also contended slavery was a transgression of the natural right to self-governance “according to our ancient faith,” and that “the just powers of governments are derived from the consent of the governed.” [16]. He agreed that this was intrinsically understood, not by nature, but by divine ordinance. Furthermore, Lincoln argued that “the relation of masters and slaves is Protanto, a total violation of this principle.” [17].

Jefferson and Lincoln concurred on the premise of a slave’s right to equal treatment under the law. Jefferson asserted that “whatever be their degree of talent it is no measure of their rights” [18], while holding onto the future hope for “their re-establishment on an equal footing with the other colors of the human family.” [19]. Lincoln was even bolder in his stance, asserting “there is no reason in the world why the Negro is not entitled to all the natural rights enumerated in the Declaration of Independence.” [20]. Lincoln avowed that the Negro, “in the right to eat bread, without the leave of anybody else, which his own hand earns... is my equal… and the equal of every living man.” [21].

I believe that Lincoln’s greatest innovation was in transforming the notion of equality, from Jefferson’s abstract intellectual principle, into a concrete moral imperative. While treading lightly, Lincoln sought to replace Jefferson’s equality of nature, with an equality of status. In Lincoln’s opinion, the question was not “can any of us imagine better?” but rather, “can we do better?” [22]. Lincoln's major obstacle was that “the great mass of white people” was reluctant to embrace the ideal of social and political equality between the races. Despite lack of public support, Lincoln endured, and patiently nurtured the seeds of racial equality that Jefferson had so carefully sown. However, it would take another one hundred years before those seeds would bear fruit.

Lawrence Christopher Skufca (2007)

Some Rights Reserved

Bibliography

 

[1]  Lincoln, Abraham. Address Delivered at the Dedication of the Cemetery at Gettysburg, November 19, 1863. Abraham Lincoln: His Speeches and Writings. Editor: Roy P. Basler. Cleveland and New York: The World Publishing Co., 1946: 735.

[2]  Jefferson, Thomas. Moral Sense. Coursepack. Greenville: LAD Custom Publishing, Inc. 2007: 72.

[3]  Lincoln, Abraham. The Repeal of the Missouri Compromise and the Propriety of its Restoration: Speech at Peoria, Illinois, In Reply to Senator Douglas. Abraham Lincoln: His Speeches and Writings. Editor: Roy P. Basler. Cleveland and New York: The World Publishing Co., 1946: 302-304.

[4]  Lincoln, Abraham. Religious Views: Letter to the Editor of the Illinois Gazette. Abraham Lincoln: His Speeches and Writings. Editor: Roy P. Basler. Cleveland and New York: The World Publishing Co., 1946: 187-188.

[5]  Lincoln, Abraham. First Debate, at Ottawa, Illinois, August 21,1858. Abraham Lincoln: His Speeches and Writings. Editor: Roy P. Basler. Cleveland and New York: The World Publishing Co., 1946: 445.

[6]  Lincoln, Abraham. Letter to Governor Michael Hahn, March 13,1864. Abraham Lincoln: His Speeches and Writings. Editor: Roy P. Basler. Cleveland and New York: The World Publishing Co., 1946: 745.

[7]  Jefferson, Thomas. Notes on the State of Virginia, queries XIV and XVIII. Coursepack. Greenville: LAD Custom Publishing, Inc. 2007: 48-49. Stable URL: http://press-pubs.uchicago.edu/founders/documents/v1ch15s28.html

[8]  Ibid., p. 50.

[9]  Jefferson, Thomas. The Natural Aristocracy. Coursepack. Greenville: LAD Custom Publishing, Inc. 2007: 75-79.

[10] Jefferson, Thomas. Moral Sense. Coursepack. Greenville: LAD Custom Publishing, Inc. 2007: 72.

[11] Lincoln, Abraham. Religious Views: Letter to the Editor of the Illinois Gazette. Abraham Lincoln: His Speeches and Writings. Editor: Roy P. Basler. Cleveland and New York: The World Publishing Co., 1946: 187-188.

[12] Lincoln, Abraham. Meditation on the Divine Will. Abraham Lincoln: His Speeches and Writings. Editor: Roy P. Basler. Cleveland and New York: The World Publishing Co., 1946: 655.

[13] Jefferson, Thomas. Emancipation and the Younger Generation. Coursepack. Greenville: LAD Custom Publishing, Inc. 2007: 91-92.

[14] Lincoln, Abraham. The Repeal of the Missouri Compromise and the Propriety of its Restoration: Speech at Peoria, Illinois, In Reply to Senator Douglas. Abraham Lincoln: His Speeches and Writings. Editor: Roy P. Basler. Cleveland and New York: The World Publishing Co., 1946: 291.

[15] Ibid., pp. 302-303.

[16] Ibid., p. 304.

[17] Ibid.

[18] Jefferson, Thomas. The Negro Race. Coursepack. Greenville: LAD Custom Publishing, Inc. 2007: 61.

[19] Ibid.

[20] Lincoln, Abraham. First Debate, at Ottawa, Illinois, August 21,1858. Abraham Lincoln: His Speeches and Writings. Editor: Roy P. Basler. Cleveland and New York: The World Publishing Co., 1946: 445.

[21] Ibid.

[22] Lincoln, Abraham. Message to Congress, 1862. Abraham Lincoln: His Speeches and Writings. Editor: Roy P. Basler. Cleveland and New York: The World Publishing Co., 1946: