ESOP FABLE THE OWNERSHIP SOLUTION Toward a Shared Capitalism for the Twenty-First Century By Jeff Gates Addison-Wesley 388pp $27.50 It seems inevitable that a distinguishing characteristic of 21st century capitalism will be growing ownership and, perhaps, control of companies by their workers. In the U.S., at least, the movement in that direction is remarkable. Stock options or bonuses have become more popular than Friday beer blasts among high-tech companies, spawning thousands of shirt-sleeved millionaires at Microsoft Corp. alone. The National Center for Employee Ownership estimates that 15,000 U.S. companies have broad employee ownership. Most of the companies--roughly 10,000--do so through employee stock ownership plans (ESOPs), which enjoy special tax breaks under federal law. Certainly, stock ownership, whether through ESOPs or 401(k) retirement plans, can give employees a bigger stake in corporate performance. But an unanswered question is how employees will handle this power. ESOP participants alone number 9 million and control, on average, 10% to 15% of the stock in their companies. Will they be content to leave strategic decisions to top management? Or will it become a new force in corporate governance? Jeff Gates thinks he knows the answer, which he articulates in The Ownership Solution: Toward a Shared Capitalism for the Twenty-First Century. Gates, a former Senate Finance Committee staffer who helped write ESOP legislation in the 1980s, has a utopian vision for employee ownership: It is the countervailing force that insensitive, rapacious capitalists have long needed. The shared capitalism Gates sees would have a profound global impact. Workers would get a slice of the returns from capital, equalizing income distribution. Citizens would become less reliant on government support for retirement or other social services. People would feel better about their societies because they would feel they have more control, leading to a host of improvements, including lower crime rates. After creating this grandiose vision, Gates offers an ambitious agenda. He wants more tax incentives for wider stock ownership. Gates suggests a Fannie-Mae-like agency to underwrite debt used to finance employee ownership, and he urges a wealth tax that he calls a '''user fee' charged for the privilege of utilizing the nation's private property tradition.'' This is a lot of baggage for a concept viewed so far mainly as a way to motivate and retain employees. Worse, Gates doesn't test his vision of the future against the actual performance of companies in the vanguard of employee ownership. He mentions that employees at United Airlines Inc., which created an ESOP in 1994, have come up with some creative ways to make the company more competitive. But he doesn't address such issues as the unhappiness of nonunion employees or why a company that should be a model of more equitable income distribution has a lower pay scale for new hires. Gates would have served his cause better if he had written an analysis of how the prototypes of his brand of capitalism are measuring up to his standards. BY G. DAVID WALLACE RELATED ITEMS PHOTO: Cover, ``The Ownership Solution'' BOOK EXCERPT: Chapter One of ``The Ownership Solution'' Return to top of story

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