Common Equity

Disillusioned liberals, take heart. On Labor Day, President Barack Obama appointed Ron Bloom—former United Steel Workers executive who has devoted much of his career to promoting worker ownership of the means of production—as his manufacturing czar. Then again, this is the same Ron Bloom who holds a Harvard MBA and once served as an executive vice president of the investment bank Lazard Freres & Co. And no, he sees no contradiction between his business career and his pro-worker activism.

Nor should he. Bloom is a pioneer when it comes to worker buyouts, in which the employees of a faltering firm buy an ownership stake to prevent plant closings or job losses. The idea of an economy of worker cooperatives may seem utopian, and the notion of using the tools of modern finance to do so absurd. But Bloom and his mentor at Lazard, Eugene Keilin, helped prove it possible—and did so with no less than the largest airline in the nation: United.

Working as advisors to the pilots’ union, Keilin and Bloom orchestrated a buyout in which United employees, through their unions, bought a 55 percent stake in the company. The results were staggeringly positive. Worker grievances plummeted while the firm’s productivity and profit margins soared. Previous skeptics appeared to be swayed. BusinessWeek devoted a cover story to the success of worker ownership, including praise from sources as unlikely as a Merrill Lynch analyst and an executive at a rival airline.

United’s buyout was not a fluke. A 2000 Rutgers study showed that worker-owned companies experienced average employment and sales growth that was 2.3 to 2.4 percent higher than non-worker-owned firms. In other words, these companies grow to be on average a third larger than traditionally owned firms over the course of 10 years.

The benefits to workers are just as significant. A study conducted by Washington State University found that hourly wages at employee-owned firms were five to 12 percent higher than those at other firms and retirement benefits almost three times greater in value. Employee culture tends to improve in concert. For example, W.L. Gore, the worker-owned firm that manufactures Gore-Tex, has no formal “bosses” and is routinely ranked by Fortune as one of America’s best companies to work for.

The reasons for this success are clear enough. When workers own their own companies, they have an obvious incentive to protect their own salaries and benefits and to create a friendly work environment. But they also have an incentive to protect the profits and overall success of their employers. After all, ownership in a bankrupt firm is worthless. Thus, worker ownership results in firms where the needs of workers come first, but where necessary cutbacks can be achieved as well.

What, then, does Bloom’s appointment signal? His job encompasses a broad range of industries, from the steel mills he has helped organize in his position with the United Steel Workers to the Big Three automakers—Ford, General Motors, and Chrysler—in Detroit. Bloom and Keilin have already proven that worker ownership can work—since, before the United deal, they made their reputation by advising steel workers in buying out their employers.

But worker ownership is, if anything, more promising in the automobile industry. If the American car companies are to survive, some accommodation must be made between the United Auto Workers, whose eagerness to forestall cuts to retiree and current worker benefits has made it difficult for firms to keep down costs, and the Big Three automakers. Ford, to its credit, has admitted as much by negotiating a deal with the UAW in which Ford has more flexibility in paying retiree health benefits.

However, the heads of other firms, such as GM, have dismissed the possibility of similar deals. Moreover, the longer negotiations drag out between the union and automakers, the greater the danger of bankruptcy becomes. The answer, it seems, is some form of employee buyout. As Bloom himself has said, worker ownership is an ideal way to bring unions and management into a more constructive relationship. “Companies would come and ask unions to modify agreements in one way or another,” Bloom told The American Prospect’s Tim Fernholz. “If the union was strong, it would say ‘no,’ and if it was weak it would say ‘yes,’ but it would never engage in a problem-solving dialogue looking for solutions where both parties could get better off.”

It is too early to say if Bloom’s standing within Obama’s economic team will prove strong enough to start such a dialogue by facilitating more employee buyouts, in the auto industry and elsewhere. For the sake of our nation’s manufacturing workers—and, indeed, for the sake of our nation’s manufacturing companies—here’s hoping worker ownership finds a home in the current administration’s economic policies.


Dylan R. Matthews ’12, a Crimson editorial writer, lives in Kirkland House. His column appears on alternate Tuesdays.