A Model for East Bloc Workers
There is something delightfully anomalous about a campaign by America’s worker-owned companies to persuade leaders of the Soviet Union and East European countries to replace their admittedly failing state-owned companies with worker-owned ones.
The idea of workers owning the companies that employ them was once considered a radical, socialist scheme. But, while still limited, it has spread more rapidly in the capitalistic United States than in any other nation on earth.
Now more than 11.5 million American workers own a significant part or all of their companies, and the number of firms selling or giving stock to their workers is growing by from 600 to 800 a year.
To spread the good word about power sharing, 80 U.S. employee-owned companies last week sent letters to Soviet President Mikhail S. Gorbachev and other leaders of what were once communist countries, inviting them to send delegations here to learn firsthand about giving economic power to workers.
Some experts say that because of its huge size, the almost-completed employee buyout of United Airlines might turn out to be a model for those countries because most of their state-run companies are also large.
The United buyout will give employees the dominant voice in every major management decision. It will give the company’s 71,000 workers full ownership of the nation’s second-largest airline and is by far the largest such buyout yet in the United States.
Unfortunately, no plans have yet been made to give the United worker-owners a role in day-to-day top management decisions or even in decision making related to their own individual jobs. That isn’t unusual in worker-owned companies, but the system functions best when workers are involved in decision making at all levels.
The Soviets and Eastern Europe aren’t waiting for the United deal to go through before taking lessons from America’s rapidly growing experience with employee ownership, says Corey Rosen, executive secretary of the Oakland-based National Center for Employee Ownership.
Some initial exchange visits by worker-ownership advocates have already been made between those countries and the United States. Legislation to encourage the practice is being drafted in the Soviet Union, Czechoslovakia, Poland, Hungary, Yugoslavia and East Germany.
But there are serious obstacles that must be overcome if those countries are going to have a significant amount of worker ownership as they make the historic transition to more market-oriented economies.
For instance, they urgently need foreign investment capital that will not be easily obtained under any circumstances, and will be even harder to get for economically troubled companies owned by workers, says Rutgers Professor Joseph Blasi, author of “Employee Ownership: Revolution or Ripoff?”
Nevertheless, Blasi, who has met with officials of some Eastern European nations, is convinced that workers in most of those countries will have at least a “significant minority stake in their companies.”
The employee buyout at United Airlines demonstrates the difficulty of getting investors to put money even into a financially healthy worker-owned company in America.
It certainly looks like a good deal. United’s employees expect to buy it for $4.36 billion, far less than the $6.7 billion the pilots said they were ready to pay for it last year but couldn’t because they failed to get the financing and because of bitter arguments between the unions involved.
Those arguments are mostly resolved and the new buyout plan would give employees 100% ownership, which means the government can provide tax advantages worth more than $1 billion.
Also, the workers will take an initial pay cut of about 4%, and, after regaining that loss next year, their wages will be frozen for the next four years.
The wage freeze and work-rule changes are worth an estimated $2 billion. In other words, to buy United, the workers, through their unions, are going to need about $1.3 billion from investors.
That’s a real bargain, according to the employees’ financial advisers and others involved in the buyout, including Goldman Sachs & Co.
But, bargain or not, there was limited interest from investors until the unions got former Chrysler Corp. Vice Chairman Gerald Greenwald to lead the buyout and serve as chairman and chief executive officer if it goes through, as expected.
The UAL buyout might be a model, but the Soviets and the Eastern Europeans will probably be a bit bewildered by it. They may think it bizarre that, to make the buyout possible, United’s 71,000 workers needed just one key person--Greenwald.
And while all of those employees will have to freeze their wages for four years and promise not to strike, Greenwald will get $1.1 million a year plus millions more in stock options and a $5-million bonus just for agreeing to be their leader. Even if the deal falls through, he reportedly will walk away with $9 million. True, he has never run an airline before, but he knows finances, and that’s what counts to investors.
John Peterpaul, vice president of the International Assn. of Machinists, who helped put the deal together, says that while he is still not an enthusiastic supporter of worker-owned companies, “things were so messed up at United, we had no choice except to try and buy it, and so with a relatively small investment we are protecting our jobs and ought to be able to make United a very successful airline.”
However, while investors may be putting all their hopes on Greenwald, in the real world it is the workers--with their skills and with key roles in decision making--who can make the company succeed and let it serve as a role model for the Soviets and the Eastern Europeans.
