Employee Owned Companies Pass the “Recession Test”

Employee stock ownership of companies has been promoted in the US since the country’s founding. After the Revolutionary War, Treasury Secretary Alexander Hamilton fostered the resurgence of the Codfish industry by providing financial subsidies, but only for ships that had written profit-sharing agreements with their crews. This program, enacted in Y 1792, lasted until after the Civil War.

Today, the idea remains attractive. New research analyzing the past 2 recessions indicates that even modest ownership of companies by workers might help cushion the blow from economic downturns and boost productivity. A commission co-Chaired by economists Larry Summers and Ed Balls has embraced the notion, and I have long thought it has merit.

The idea is that, in a severe economic crisis, companies whose employees own stock will fare better than others, and this will mitigate the economy-wide costs that come from job cuts or, worse, company bankruptcies. The great financial crisis provided a testing ground for that proposition, and it seems to have passed.