Category Archives: Public Policy

Apocalypse, New Jersey: A Dispatch From America’s Most Desperate Town

No jobs, no hope – and surveillance cameras everywhere. The strange, sad story of Camden

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BY December 11, 2013

The first thing you notice about Camden, New Jersey, is that pretty much everyone you talk to has just gotten his or her ass kicked.

Instead of shaking hands, people here are always lifting hats, sleeves, pant legs and shirttails to show you wounds or scars, then pointing in the direction of where the bad thing just happened.

“I been shot six times,” says Raymond, a self-described gangster I meet standing on a downtown corner. He pulls up his pant leg. “The last time I got shot was three years ago, twice in the femur.” He gives an intellectual nod. “The femur, you know, that’s the largest bone in the leg.”

“First they hit me in the head,” says Dwayne “The Wiz” Charbonneau, a junkie who had been robbed the night before. He lifts his wool cap to expose a still-oozing red strawberry and pulls his sweatpants down at the waist, drawing a few passing glances. “After that, they ripped my pockets out. You can see right here. . . .”

Even the cops have their stories: “You can see right here, that’s where he bit me,” says one police officer, lifting his pant leg. “And I’m thinking to myself, ‘I’m going to have to shoot this dog.'”

“I’ve seen people shot and gotten blood on me,” says Thomas Bayard Townsend III, a friendly convicted murderer with a tear tattoo under his eye. “If you turn around here, and your curiosity gets the best of you, it can cost you your life.”

Camden is just across the Delaware River from the brick and polished cobblestone streets of downtown Philadelphia, where oblivious tourists pour in every year, gobbling cheese steaks and gazing at the Liberty Bell, having no idea that they’re a short walk over the Ben Franklin Bridge from a full-blown sovereignty crisis – an un-Fantasy Island of extreme poverty and violence where the police just a few years ago essentially surrendered a city of 77,000.

All over America, communities are failing. Once-mighty Rust Belt capitals that made steel or cars are now wastelands. Elsewhere, struggling white rural America is stocking up on canned goods and embracing the politics of chaos, sending pols to Washington ready to hit the default button and start the whole national experiment all over again.

But in Camden, chaos is already here. In September, its last supermarket closed, and the city has been declared a “food desert” by the USDA. The place is literally dying, its population having plummeted from above 120,000 in the Fifties to less than 80,000 today. Thirty percent of the remaining population is under 18, an astonishing number that’s 10 to 15 percent higher than any other “very challenged” city, to use the police euphemism. Their home is a city with thousands of abandoned houses but no money to demolish them, leaving whole blocks full of Ninth Ward-style wreckage to gather waste and rats.

It’s a major metropolitan area run by armed teenagers with no access to jobs or healthy food, and not long ago, while the rest of America was ranting about debt ceilings and Obamacares, Camden quietly got pushed off the map. That was three years ago, when new governor and presumptive future presidential candidate Chris Christie abruptly cut back on the state subsidies that kept Camden on life support. The move left the city almost completely ungoverned – a graphic preview of what might lie ahead for communities that don’t generate enough of their own tax revenue to keep their lights on. Over three years, fires raged, violent crime spiked and the murder rate soared so high that on a per-capita basis, it “put us somewhere between Honduras and Somalia,” says Police Chief J. Scott Thomson.

“They let us run amok,” says a tat-covered ex-con and addict named Gigi. “It was like fires, and rain, and babies crying, and dogs barking. It was like Armageddon.”

Not long ago, Camden was everything about America that worked. In 1917, a report counted 365 industries in Camden that employed 51,000 people. Famous warships like the Indianapolis were built in Camden’s sprawling shipyards. Campbell’s soup was made here. Victor Talking Machine Company, which later became RCA Victor, made its home in Camden, and the city once produced a good portion of the world’s phonographs; those cool eight-hole pencil sharpeners you might remember from grade school – they were made in Camden too. The first drive-in movie was shown here, in 1933, and one of the country’s first planned communities was built here by the federal government for shipyard workers nearly a century ago.

But then, in a familiar narrative, it all went to hell. RCA, looking, among other things, for an escape from unionized labor, moved many of its Camden jobs to Bloomington, Indiana. New York Shipbuilding closed in the Sixties, taking 7,000 jobs with it. Campbell’s stuck it out until the Nineties, when it closed up its last factory, leaving only its corporate headquarters that today is surrounded by gates high and thick enough to keep out a herd of attacking rhinoceroses.

Once the jobs started to disappear, racial tensions rose. Disturbances broke out in 1969 and 1971, the first in response to a rumor about the beating of a young black girl by police, the second after a Hispanic man named Rafael Gonzales really was beaten by two officers. Authorities filed charges against the two cops in that case, but they initially kept their jobs. The city exploded, with countless fires, three people shot, 87 injured. “Order” was eventually restored, but with the help of an alarmist press, the incidents solidified in the public’s mind the idea that Camden was a seething, busted city, out of control with black anger.

With legal business mostly gone, illegal business took hold. Those hundreds of industries have been replaced by about 175 open-air drug markets, through which some quarter of a billion dollars in dope moves every year. But the total municipal tax revenue for this city was about $24 million a year back in 2011 – an insanely low number. The police force alone in Camden costs more than $65 million a year. If you’re keeping score at home, that’s a little more than $450 a year in local taxes paid per person, if you only count people old enough to file tax returns. That’s less than half of the $923 that the average New Jersey resident spends just in sales taxes every year.

The city for decades hadn’t been able to pay even for its own cops, so it funded most of its operating budget from state subsidies. But once Christie assumed office, he announced that “the taxpayers of New Jersey aren’t going to pay any more for Camden’s excesses.” In a sweeping, statewide budget massacre, he cut municipal state aid by $445 million. The new line was, people who paid the taxes were cutting off the people who didn’t. In other words: your crime, your problem.

The “excesses” Christie was referring to included employment contracts negotiated by the police union. A charitable explanation of the sweet deal Camden gave its cops over the years was that the police union had an unusually strong bargaining position. “Remember, this was the only police force in South Jersey whose members regularly had to risk their lives,” says retired Rutgers-Camden professor Howard Gillette. The less-charitable say these deals were the result of a hey-it-isn’t-our-money-anyway subsidy-mongering. Whatever the cause, until Christie came along, the Camden police had a relatively rich contract, with overtime up the wazoo and paid days off on birthdays. If a cop worked an overnight, he got a 12 percent “shift enhancement” bump, which made sense because of the extreme danger. But an officer who clocked in at noon under the same agreement still got an extra four percent. “Every shift was enhanced,” says a spokesman for the new department.

But a big reason that Christie hit Camden’s police unions so hard was simply that he could. He’d wanted to go after New Jersey urban schools, which he derided as “failure factories.” But a series of state Supreme Court rulings based on a lawsuit originally filed on behalf of students in Camden and three other poor communities in the Eighties – Abbott v. Burke, a landmark case that would mandate roughly equal per-pupil spending levels across New Jersey – made cuts effectively impossible. The courts didn’t offer similar protection to police budgets, though. By New Year’s 2011, the writing was on the wall. After Christie announced his budget plans, panicked city leaders got together, pored over their books and collective-bargaining agreements, and realized the unthinkable was about to happen. Camden, a city that even before any potential curtailing of state subsidies made Detroit or East St. Louis seem like Martha’s Vineyard, was about to see its police force, one of its biggest expenditures, chopped nearly in half.

On January 18th, 2011, the city laid off 168 of its 368 police officers, kicking off a dramatic, years-long, cops-versus-locals, house-to-house battle over a few square miles of North American territory that should have been national news, but has not been, likely because it took place in an isolated black and Hispanic ghost town.

After the 2011 layoffs, police went into almost total retreat. Drug dealers cheerfully gave interviews to local reporters while slinging in broad daylight. Some enterprising locals made up T-shirts celebrating the transfer of power from the cops back to the streets: JANUARY 18, 2011 – it’s our time. A later design aped the logo of rap pioneers Run-DMC, and “Run-CMD” – “CMD” stands both for “Camden” and “Cash, Money, Drugs” – became the unofficial symbol of the unoccupied city, seen in town on everything from T-shirts to a lovingly rendered piece of wall graffiti on crime-ridden Mount Ephraim Avenue.

Cops started calling in sick in record numbers, with absenteeism rates rising as high as 30 percent over the rest of 2011. Burglaries rose by a shocking 65 percent. The next year, 2012, little Camden set a record with 67 homicides, officially making it the most dangerous place in America, with 10 times the per-capita murder rate of cities like New York: Locals complained that policing was completely nonexistent and the cops were “just out here to pick up the bodies.” The carnage left Camden’s crime rate on par with places like Haiti after its 2010 earthquake, and with other infamous Third World hot spots, as police officials later noticed to their dismay when they studied U.N. statistics.

At times in 2011 and 2012, the entire city was patrolled by as few as 12 officers. Police triaged 911 calls like an overworked field hospital, sometimes giving up on property and drug crimes altogether, focusing their limited personnel mainly on gun crimes committed during daylight hours. Heading into 2013, Camden was sliding further and further out of police control. “If Camden was overseas, we’d have sent troops and foreign aid,” says Chuck Wexler of the Police Executive Research Forum, a guy Chief Thomson refers to as his “wartime consigliere.”

Then, this year, after two years of chaos, Christie and local leaders instituted a new reform, breaking the unions of the old municipal police force and reconstituting a new Metro police department under county control. The old city cops were all cut loose and had to reapply for work with the county, under new contracts that tightened up those collective-bargaining “excesses.” The new contracts chopped away at everything from overtime to uniform allowances to severance pay, cutting the average cost per officer from $182,168 under the city force to $99,605 in the county force. As “the transfer” from a municipal police force to a county model went into effect last May, state money began flowing again, albeit more modestly. Christie promised $10 million in funding for the city and the county to help the new cops. Police began building up their numbers to old levels.

Predictably, the new Camden County-run police began to turn crime stats in the right direction with a combination of beefed-up numbers, significant investments in technology, and a cheaper and at least temporarily de-unionized membership. Whether the entire thing was done out of economic necessity or careful political calculation, Christie got what he wanted – county-controlled police forces seemed to be his plan from the start for places like Camden.

In fact, just a few months ago, Christie publicly touted Camden’s new county force as the model he hopes to employ for Trenton, and perhaps some of Jersey’s other crime-sick cities. (For a state with one of the highest median household incomes in America, New Jersey also has four of the country’s biggest urban basket cases in Camden, Trenton, Paterson and Newark.) Local county officials, echoing Christie, called Camden the “police model of the future for New Jersey.”

In recent months, Christie has visited Camden several times, making it plain that he puts the daring 2011 gambit here in his political win column. And not everyone in Camden disagrees. One ex-con I talked to in the city surprised me by saying he liked what Christie had done, and compared Camden’s decades-long consumption of state subsidies to the backward incentive system he’d seen in prison. “In prison, you can lie in your bed all day long and get credit for good time toward release,” he said, shaking his head. “You should have to do something other than lie there.”

No matter what side of the argument you’re on, the upshot of the dramatic change was that Camden would essentially no longer be policing itself, but instead be policed by a force run by its wealthier and whiter neighbors, i.e., the more affluent towns like Cherry Hill and Haddonfield that surround Camden in the county. The reconstituted force included a lot of rehires from the old city force (many of whom had to accept cuts and/or demotions in order to stay employed), but it also attracted a wave of new young hires from across the state, many of them white and from smaller, less adrenaline-filled suburban jurisdictions to the north and east.

And whereas the old city police had a rep for not wanting to get out of the car in certain bad neighborhoods, the new force is beginning to acquire an opposite rep for overzealousness. “These new guys,” complains local junkie Mark Mercado, “not only will they get out of the car, they’ll haul you in just for practice.”

Energized county officials say they have a plan now for retaking Camden’s streets one impenetrable neighborhood at a time, using old-school techniques like foot patrols and simple get-to-know-you community interactions (new officers stop and talk to residents as a matter of strategy and policy). But the plan also involves the use of space-age cameras and military-style surveillance, which ironically will turn this crumbling dead-poor dopescape of barred row homes and deserted factories into a high-end proving ground for futuristic crowd-control technology.

Beginning in 2011, when the city first installed a new $4.5 million command center – it has since been taken over by the county – police here have gained a series of what they call “force multipliers.” One hundred and twenty-one cameras cover virtually every inch of sidewalk here, cameras that can spot a stash in a discarded pack of Newports from blocks away. Police have a giant 30-foot mobile crane called SkyPatrol they can park in a neighborhood and essentially throw a net over six square blocks; the ungainly Japanese-robot-style device can read the heat signature of a dealer with a gun sitting in total darkness. There are 35 microphones planted around the city that can instantly detect the exact location of a gunshot down to a few meters (and just as instantly train cameras on escape routes). Planted on the backs of a fleet of new cruisers are Minority Report-style scanners that read license plates and automatically generate warning letters to send to your mom in the suburbs if you’ve been spotted taking the Volvo registered in her name to score a bag of Black Magic on 7th and Vine.

The streets have noticed the new technology. Dealers and junkies alike have even begun to ascribe to the police powers they don’t actually have. “They have facial-recognition on cars, man,” says Townsend, the homeless ex-con with the murder sheet. “So that when you go by ’em, they see if you are wanted for anything.”

For sure, there’s bitterness on streets in Camden over the fact that the city was essentially abandoned three years ago. But misery loves company, and this is a place where even the police seem shellshocked. Some of them, you get the sense, feel abandoned too – cut off from the rest of America just like everyone else here. Very few of them have the pretend-macho air you get from hotshot cops in other tough cities. Camden police will come straight out and tell you stories about getting their faces kicked in and/or beaten half to death. And they all talk about this place with a kind of awe, often shaking their heads and whispering through the worst stories.

“The kid happened to be on a bike,” begins a 20-year police vet named John Martinez, closing his eyes as he remembers a story from July 2011. He was riding with a rookie partner that day. The city at the time was still in near-total chaos, with drug dealing mostly going unchallenged by the police. But on that hot July afternoon, Martinez spotted a teenager doing a hand-to-hand on Grant Street, shrugged, and decided to pursue anyway.

“[The dealer] saw me walking up to him. I told the rookie to stay in the car, because 90 percent of the time, they run.” The kid started pedaling away. The rookie gave chase in the car, then stopped, jumped out and went after him on foot. Martinez started to follow, but then looked back at the car and realized his newbie partner had left it running.

“I started to run with him,” he said, “but I thought, ‘Yeah, this’ll be gone.'”

By this, Martinez meant the car. Last summer, in fact, a male-female pair of suburban junkies stole a squad car parked right in front of police headquarters, ran over the cop it belonged to (he survived, but his leg was shattered, his career over), tore across the bridge into Philly pursued by a phalanx of Camden cops (“You can imagine the public’s bewilderment, seeing police cars chasing a police car,” recalls Thomson), and crashed in Philly after a long chase – only to flee on foot, double back, and steal another car, this time a Philadelphia police cruiser.

“Junkie Bonnie and Clyde” were eventually caught, but the point is, you can’t leave a car running in Camden, especially a police car. So on that July day, Martinez went back to his cruiser instead of helping out his partner. Eventually, another experienced officer showed up, also toting a rookie partner. The two rookies ended up catching the suspect on foot and were trying to get him cuffed when Martinez started to sense a problem. A crowd of about a hundred formed in the blink of an eye and started pelting the cops with bottles and rocks. Martinez ended up chasing onto a porch a teenager who’d thrown a bottle.

Next thing Martinez knew, he was jumped by “women, older women, men, kids. . . . As soon as I grabbed the kid, everybody started trying to forcibly take him from me. They’re punching me in the back, on the side of the head. . . . ”

In the struggle, Martinez and the kid ended up crashing backward through the porch railing and tumbling to the street, where Martinez suddenly found himself looking up at 100 furious people, with an angry teenager on top of him, reaching for the gun in Martinez’s thigh holster. The three other cops rushed to his aid – the two rookies making another mistake in the process. They’d cuffed the original suspect and put him in the back of the car, but in the rush to save Martinez, they again left the cruiser unlocked. Backup arrived a few moments later, but when Martinez got back to his feet, he realized the crowd had left them all a big surprise.

“We go back to the original police car where that drug-dealing suspect was, and the back door is open and he’s gone,” Martinez recounts. The neighborhood had taken the suspect back, cuffs and all. “But I’ll take that.”

The moral of the story: Arrests in North Camden, the most stricken part of town, sometimes just don’t take. Many cops here have stories about busts that either didn’t happen or almost didn’t happen when the streets made an opposite ruling. “Ninth and Cedar. I remember chasing a guy a block and a half – he had a Tec-9,” says Joe Wysocki, a quiet, soft-spoken 20-year Camden vet. “Handcuffing him, I remember looking up and there were, like, 60 people around me. I threw the guy into the car, jumped in the back seat with him, and [my partner] took off.”

“Telling the prisoner, ‘Move over,'” joked another cop in the room.

“Yeah,” says Wysocki. “Sometimes you just have to scoop and run.”

Nobody in North Camden calls the police. When the county installed the new “ShotSpotter” technology that pinpoints the locations of gunshots, they discovered that 30 percent of all shootings in the city go unreported, many of them from North Camden. “North Camden would generally like to police itself,” says Thomson. “Rather than getting a call of an adult who had assaulted a child, generally you’ll get a call to send an ambulance and a police officer to the corner of 7th and York because there’s a person laying there beaten nearly to death with chains.”

Late October 2013. It’s nearly three years after the layoffs. A trio of squad cars flies through North Camden. Over the police radio, a voice chimes in from the RTOIC, or Real-Time Tactical Operational Intelligence Center, a super-high-tech, Star Trek-ish bridge of giant screen displays back at the metaphorical Green Zone that is police headquarters. There, a team of police analysts monitors the city using six different advanced technologies, watching those 121 camera feeds via 10 42-inch monitors and six different listening stations tracking cruisers by GPS. Somebody back there apparently spotted a drug deal through a camera near where this police convoy is cruising.

“Black male, white shirt, bald head,” the radio crackles. “White shirt, bald head.”

The cars take off like rockets and screech to a halt at exactly that same spot where John Martinez once almost punched his ticket, the 400 block of Grant Street. We’re right in front of that same house. The wooden railing through which Martinez crashed backward two years ago has been replaced by an iron one, and leaning against it is a similar crowd of angry onlookers, glaring at the cops. Around the corner, near the house with the new porch railing, a young black dude in a white shirt stands surrounded by police, trying not to make sudden moves.

About 10 yards off from the “suspect,” barking loudly and standing next to his handler-partner, Sgt. Zack James, is Zero, a black Czech shepherd police dog. Everything connected with crime in Camden breaks some kind of record, and Zero is no exception – he’s dragged down 65 suspects in foot chases, something only one other canine in state-police history has done. Zero is friendly enough in nonworking situations (he even drops to his back and sticks his tongue out to the command “Cute and cuddly!”), but the department’s male cops still cover their balls reflexively, even from great distances, if they see him loose in the parking lot.

Sgt. James, a burly officer who lives and works with Zero full-time, seems like he’s ready to do a Lambeau leap in celebration, if only someone would try to run on his dog and become number 66. But in this case, they’ve got the wrong guy. There’s a brief interrogation, the guy walks away slowly, and dog and humans pile back into their respective cars and screech out at high speeds, disappearing as quickly as they came.

Any reporter who’s been embedded in Iraq or Afghanistan will find these scenes extremely familiar – high-speed engagements backed by top-end surveillance technology, watched by crowds whose reactions range from bemusement to rage to eye-rolling disappointment. In that latter category is Bryan Morton, a fortysomething community leader of sorts who still lives in the North Camden house where he was born. Morton went away in his youth for eight and a half years for armed robbery and drug dealing, got out, went straight, got his college degree, worked for years running local re-entry programs, founded a North Camden Little League, and had things looking up for himself, before he was laid off last May. Fortunately, he’d bought a food cart six years before that, which he left in his backyard as a backup plan; he now drives across town before dawn every day, setting up next to the McDonald’s in Camden’s pinhead-size “downtown.”

Handsome, articulate, charming, Morton had just been robbed the day I met him. The guy he hired to fix up his cart bolted after the last payment, taking big chunks of his cart’s sheet metal with him. There had also been another murder in North Camden the day before, a drug killing a few blocks up from Morton’s house. Asked how bad things have been in North Camden since the 2011 layoffs, he laughs faintly. “Hell, the police gave up on this neighborhood long before that,” he says, hoisting the cart onto his pickup truck’s trailer hitch in the predawn light in front of his house. For years, he says, cops would drive through his block once every half-hour or so, pretending to police the place, but they wouldn’t stop unless they had to.

“We know you’re afraid to get out of the car,” he says. “We know that.”

North Camden is one of a few neighborhoods in the city that still feels less policed than occupied. There’s even an infamous brick housing-project tower here called Northgate 1 where the middle floors carry the nickname “Little Iraq,” for the residents’ reputation for being not quite under government control. In fact, when the state raided the tower to serve warrants a few years back, they were so concerned with ground-level resistance that they invaded from the sky, like soldiers in Afghanistan, rappelling onto the roof by helicopter. The state police believed they’d sent a message, but there are locals who reacted to the Rambo-commando episode with the same you’ve-gotta-be-kidding-me incredulity you see on faces of kids surrounded by multiple squad cars and millions of dollars in technology, busted for loitering or a few lids of weed. “They pussies,” is how one Camdenite put it.

Thomson, the city’s energetic young police chief – he carries an uncanny resemblance to Homeland lead actor Damian Lewis – is trying to provide a counterargument to the alien-occupier vibe. His plan is to stabilize the city with foot patrols one neighborhood at a time. On an October afternoon he drives me through Fairview, that once-dazzling planned city full of brick homes built for New York Shipbuilding workers nearly a century ago.

A little overgrown still, the place now looks, well, nice, with few of the rat-infested vacant homes and factories that dominate much of the rest of the city. Conspicuously, there’s no obvious drug traffic here. “A year ago, this space was controlled by gangsters,” Thomson says proudly. “Now you have kids playing there.”

He nods in the direction of a street corner, where a policeman in a paramilitary-style uniform, all steel-blue with a baseball-style cap, stands on guard. There’s one of these sentries every few hundred feet, each seemingly within eyesight of the other, each standing bolt upright and saluting military-style when the chief drives by. We watch as a few elderly black pedestrians amble by, and if you listen carefully you can catch the street patrolmen diligently offering RoboCop-ian greetings to each one as they pass.

The plan is to deploy more and more of these getting-to-know-you details, moving neighborhood by neighborhood, working their way up to places like North Camden, where the police will eventually answer once and for all the question of whether they will lay it all on the line for America’s most unsafe neighborhood.

Thomson is engaging and smart, and has the infectious enthusiasm of a politician, except that he seems sincere. Driving through Camden, watching these grim scenes of pseudo-occupation that in this part of the world count as progress, my overwhelming feeling was a weird kind of sympathy: None of this shit is on him. In another life, actually, he and someone like Bryan Morton might have been co-workers, or political running mates, since both men – the chief with his foot patrols, Morton with his pan-Camden Little League – say they’re working toward the same thing: trying to create safe places for people to go in a city that historically isn’t terribly safe even across the street from police headquarters.

But Thomson’s optimism is based, again, upon the assumption that if you create enough safe streets and parks in a place like Camden, jobs will return, and things will somehow go back to normal. But what if the jobs stay in China, Mexico, Indonesia? Then the high-tech security efforts in cities like this start to feel like something other than securing a few streets for future employers. Then it’s the best security money can buy, but just for security’s sake, turning a scene like Camden into a very expensive, very dark nihilistic comedy: a perpetual self-occupation. Thomson clearly doesn’t believe this. He has hope – he’s as intensely focused on development gains like the opening of a new $62 million Rutgers-Camden nursing building as he is about locking people up – but even he at times can’t help but sound like a military commander charged with recapturing alien territory.

“What you lose in one month, it takes five or six months to get back,” he says, referring to the footing the police lost after the layoffs. “After what we went through, that’s five to seven years we don’t have.”

Early afternoon, I’m parked near a little stretch of grass and chain-link in the shadow of the “Little Iraq” Northgate 1 tower. I’m riding with Kevin Lutz, a one-time homicide detective from the old municipal police days who’s just become a sergeant in the new force. Lutz doesn’t have any issues with getting out of any cars. In fact, he seems to get along with most everyone, even the local crew chiefs. We passed one earlier, a ripped character with a shaved head and a bushy Sunni beard who, word is, someone from another block had incompetently tried to assassinate the day before.

“Hey, what’s up?” Lutz asks him. “How’s your health?”

“I’m all right, man, I’m all right,” the guy says, waving.

Lutz smiles and drives on. “He took one right in the chest yesterday, center mass,” he says. “It was just buckshot, though. But check him out, walking around the next day, like it’s nothing.”

Later, we’re near the towers. Lutz spots a white girl sitting on a brick wall ringing the Northgate 1 parking lot, wobbling, then suddenly falling backward over onto her head. He drives over and the girl, obviously a junkie, gets up and is walking around, disoriented. She starts spinning an impossible-to-follow tale about her friend being attacked in adjacent Northgate Park, a story that within minutes changes to a new story about that same friend just heading toward Northgate Park to get some chicken. The constant in the story is that she needs to get to Northgate Park. There’s nowhere to get chicken in Northgate Park, but you can get all the dope you want.

“Hey, go home,” says Lutz. “OK? There’s nothing good in that direction. We both know what’s going on.”

“But I’ve got to find my friend!” the girl screams.

“Go home,” Lutz repeats, driving off.

She starts in the right direction, back toward Philly, but in the rearview mirror Lutz sees her doing a 180 and heading back to Northgate. He casually turns around. About 85 percent of the heroin customers in this city are like this: young, white and from the suburbs. At all hours of the day, you can see junkies plodding across the Ben Franklin Bridge, usually carrying a knapsack that contains a set of works and, very often, a “Homeless and Hungry” sign they’ve just used to panhandle in Philly. The ones who don’t come on foot come by car, at all hours of the day, and they come in such huge numbers that police say they couldn’t deal with them all if they had a force of 5,000.

This is another potential hole in the policing plan: The fact that broken suburbs – full of increasingly un- or underemployed young people – send a seemingly limitless supply of customers for Camden’s drug trade. The typical profile is a suburban kid who tore an ACL or got in a car accident back in high school, got an Oxy prescription, and within a few years ended up here. This city, incidentally, has a reputation for having the best dope on the East Coast, which partly explains the daily influx of white junkies (“Dope,” jokes Morton, “is a Caucasian drug”). In fact, when Camden made the papers a few years back after a batch of Fentanyl-laced heroin caused a series of fatalities here, it attracted dope fiends from hundreds of miles away. “People were like, ‘Wow, I’ve gotta try that,'” says Adrian, a recovering addict from nearby Logan Township who used to come in from the suburbs to score every day and is now here to visit a nearby methadone clinic. “Yeah,” says her friend Adam, another suburban white methadone commuter. “If someone dies at a dope set, that’s where you want to get your dope.”

While I was talking to Adam and Adrian in the city’s lone McDonald’s, an ambulance showed up – somebody OD’d in the parking lot. Adrian craned her head and nodded, watching the paramedics. She says she and Adam often sit at the city transportation center in the mornings and watch the steady flow of fights and drug-induced seizures.

“The thing about Camden is, when you come back here, you can always say, ‘At least my life is better than what I thought,'” says Adrian. Two minutes later, she’s in full McNod, head all the way back, eyes completely closed, zoned out from a methadone dose she got at a nearby clinic.

A decade or so ago, you wouldn’t have seen white people just hanging out in downtown Camden. Now they’re here by the hundreds every day. “There wasn’t no white people up in this motherfucker,” says Raymond, the self-described gangster who was shot six times. Now, he says, the city is full of white kids on dope. “The last few years, it’s like an epidemic surge,” he says.

That’s the crazy thing about this city. The Camden story was originally a controversial political effort to isolate urban crime and slash municipal spending by moving political power out of dying nonwhite cities. And they do it, this radical restructuring backed by the best in Baghdad-style security technology, and for a second or two it looks like it’s working – only the whole thing might be rendered moot in the end by the collapse of the rest of America. All over the country, we’ve been so busy arguing over who’s productive and who isn’t that we might not be noticing that the whole ship is going down. There’s no lesson in any of it, just a giant mess that still isn’t cleaned up.

Back in Northgate with Sgt. Lutz, we’ve circled around now, and Lutz shouts at the girl, who’s made it all the way to the park.

“Hey, I told you to go home!” he shouts.

“But I need to get some fucking chicken!” she shouts back.

Lutz laughs, shakes his head, drives off, nodding toward Northgate Park.

“Best chicken in Camden,” he says.

This story is from the December 19th, 2013 – January 2nd, 2014 issue of Rolling Stone.

From The Archives Issue 1198: December 19, 2013

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Aaron Swartz: Guerilla Open Access Manifesto

Information is power. But like all power, there are those who want to keep it for themselves. The world’s entire scientific and cultural heritage, published over centuries in books and journals, is increasingly being digitized and locked up by a handful of private corporations. Want to read the papers featuring the most famous results of the sciences? You’ll need to send enormous amounts to publishers like Reed Elsevier.

There are those struggling to change this. The Open Access Movement has fought valiantly to ensure that scientists do not sign their copyrights away but instead ensure their work is published on the Internet, under terms that allow anyone to access it. But even under the best scenarios, their work will only apply to things published in the future. Everything up until now will have been lost.

That is too high a price to pay. Forcing academics to pay money to read the work of their colleagues? Scanning entire libraries but only allowing the folks at Google to read them? Providing scientific articles to those at elite universities in the First World, but not to children in the Global South? It’s outrageous and unacceptable.

“I agree,” many say, “but what can we do? The companies hold the copyrights, they make enormous amounts of money by charging for access, and it’s perfectly legal — there’s nothing we can do to stop them.” But there is something we can, something that’s already being done: we can fight back.

Those with access to these resources — students, librarians, scientists — you have been given a privilege. You get to feed at this banquet of knowledge while the rest of the world is locked out. But you need not — indeed, morally, you cannot — keep this privilege for yourselves. You have a duty to share it with the world. And you have: trading passwords with colleagues, filling download requests for friends.

Meanwhile, those who have been locked out are not standing idly by. You have been sneaking through holes and climbing over fences, liberating the information locked up by the publishers and sharing them with your friends.

But all of this action goes on in the dark, hidden underground. It’s called stealing or piracy, as if sharing a wealth of knowledge were the moral equivalent of plundering a ship and murdering its crew. But sharing isn’t immoral — it’s a moral imperative. Only those blinded by greed would refuse to let a friend make a copy.

Large corporations, of course, are blinded by greed. The laws under which they operate require it — their shareholders would revolt at anything less. And the politicians they have bought off back them, passing laws giving them the exclusive power to decide who can make copies.

There is no justice in following unjust laws. It’s time to come into the light and, in the grand tradition of civil disobedience, declare our opposition to this private theft of public culture.

We need to take information, wherever it is stored, make our copies and share them with the world. We need to take stuff that’s out of copyright and add it to the archive. We need to buy secret databases and put them on the Web. We need to download scientific journals and upload them to file sharing networks. We need to fight for Guerilla Open Access.

With enough of us, around the world, we’ll not just send a strong message opposing the privatization of knowledge — we’ll make it a thing of the past. Will you join us?

Aaron Swartz

July 2008, Eremo, Italy

Altruism vs. Self-Interest: What is the Proper Balance?

Camden Civil Rights Project

by L. Christopher Skufca

Where should self-interest yield to self-sacrifice in promoting mutual cooperation and common dignity in a civil society? Is there an implied social contract which produces a civic or moral responsibility to provide a safety net for society’s most vulnerable citizens or does this place an unfair economic burden upon self sufficient individuals? I will attempt to navigate this minefield with the help of the Dalai Lama and Ayn Rand.


download (19)Our prime purpose in this life is to help others. And if you can’t help them, at least don’t hurt them.

From the moment of birth, every human being wants happiness and does not want suffering. From the very core of our being, we simply desire contentment. I don’t know whether the universe, with its countless galaxies, stars and planets, has a deeper meaning or not, but at the very least, it is clear that we humans who live on this earth face the task of making a happy life for ourselves.

From my own limited experience I have found that the greatest degree of inner tranquility comes from the development of love and compassion.

Ultimately, the reason why love and compassion bring the greatest happiness is simply that our nature cherishes them above all else. The need for love lies at the very foundation of human existence. It results from the profound interdependence we all share with one another.

Inter-dependence, of course, is a fundamental law of nature. Not only higher forms of life but also many of the smallest insects are social beings who, without any religion, law or education, survive by mutual cooperation based on an innate recognition of their interconnectedness.

It is because our own human existence is so dependent on the help of others that our need for love lies at the very foundation of our existence. Therefore we need a genuine sense of responsibility and a sincere concern for the welfare of others.

However capable and skillful an individual may be, left alone, he or she will not survive. However vigorous and independent one may feel during the most prosperous periods of life, when one is sick or very young or very old, one must depend on the support of others.

The more we care for the happiness of others, the greater our own sense of well-being becomes. Cultivating a close, warm-hearted feeling for others automatically puts the mind at ease. This helps remove whatever fears or insecurities we may have and gives us the strength to cope with any obstacles we encounter. It is the ultimate source of success in life.

– Dalai Lama



The basic principle of altruism is that man has no right to exist for his own sake, that service to others is the only justification of his existence, and that self-sacrifice is his highest moral duty, virtue and value.

My views on charity are very simple. I do not consider it a major virtue and, above all, I do not consider it a moral duty. There is nothing wrong in helping other people, if and when they are worthy of the help and you can afford to help them. I regard charity as a marginal issue. What I am fighting is the idea that charity is a moral duty and a primary virtue.

Do not confuse altruism with kindness, good will or respect for the rights of others. These are not primaries, but consequences, which, in fact, altruism makes impossible. The irreducible primary of altruism, the basic absolute, is self-sacrifice—which means; self-immolation, self-abnegation, self-denial, self-destruction—which means: the self as a standard of evil, the selfless as a standard of the good.

Do not hide behind such superficialities as whether you should or should not give a dime to a beggar. That is not the issue. The issue is whether you do or do not have the right to exist without giving him that dime. The issue is whether you must keep buying your life, dime by dime, from any beggar who might choose to approach you. The issue is whether the need of others is the first mortgage on your life and the moral purpose of your existence. The issue is whether man is to be regarded as a sacrificial animal.

It is altruism that has corrupted and perverted human benevolence by regarding the giver as an object of immolation, and the receiver as a helplessly miserable object of pity who holds a mortgage on the lives of others—a doctrine which is extremely offensive to both parties, leaving men no choice but the roles of sacrificial victim or moral cannibal.

Even though altruism declares that “it is more blessed to give than to receive,” it does not work that way in practice. The givers are never blessed; the more they give, the more is demanded of them; complaints, reproaches and insults are the only response they get for practicing altruism’s virtues (or for their actual virtues). Altruism cannot permit a recognition of virtue; it cannot permit self-esteem or moral innocence. Guilt is altruism’s stock in trade, and the inducing of guilt is its only means of self-perpetuation. If the giver is not kept under a torrent of degrading, demeaning accusations, he might take a look around and put an end to the self-sacrificing. Altruists are concerned only with those who suffer—not with those who provide relief from suffering, not even enough to care whether they are able to survive. When no actual suffering can be found, the altruists are compelled to invent or manufacture it.

Such is the secret core of your creed, the other half of your double standard: it is immoral to live by your own effort, but moral to live by the effort of others—it is immoral to consume your own product, but moral to consume the products of others—it is immoral to earn, but moral to mooch—it is the parasites who are the moral justification for the existence of the producers, but the existence of the parasites is an end in itself—it is evil to profit by achievement, but good to profit by sacrifice—it is evil to create your own happiness, but good to enjoy it at the price of the blood of others.

– Ayn Rand



admin-ajax-ConvertImageI tend to embrace the Dalai Lama’s message of mutual cooperation over the Objectivist appeal to uninhibited self-interest. My personal moral imperative would be that, so much as it is within our personal control, our primary purpose in life should be to seek mutually beneficial social and economic arrangements.

The Dalai Lama’s assertion that our own human existence is dependent on the help of others is undeniable. Most intellectually honest individuals recognize that any assertion of sole-sufficiency is over-exaggerated and that success, or failure, is highly dependent on the cooperation of others. I believe It takes a tremendous amount of self-deception for anyone to believe that no one else deserves credit for the cultivation of their virtue and talent or the potential success of their ventures. No person has ever reached the age of self-sufficiency without a caretaker or become educated in how to navigate the waters of society without a mentor. And no-one has ever engaged in a successful enterprise without the cooperation of those whom have either granted them an opportunity, or tirelessly labored for their cause.

As for altruism, I believe that if there is a legitimate need, and you have the ability to alleviate another’s pain and suffering, then you should provide what charity you can afford. Charity is a mercy shown to another premised on the mutual experience and understanding, that at one point in our lives, our own well-being was dependent on the kindness or goodwill of another. On a societal level, it is simply sowing the seeds of compassion with the hope, but not the expectation, that if you or a loved one ever fall on misfortune, someone will return the kindness. It should be a voluntary act of compassion without judgment.

As Rand contends, this does not mean that individual acts of charity should be involuntarily imposed. If you feel put out or taken advantage of, you should not give a cruel gift. It would be a kinder act not to give at all than to berate or dehumanize another human being for having a need. If given the choice, I do not believe that the vast majority of humanity would ever voluntarily choose the subjugated status of dependence over the independence and self dignity that self-sufficiency provides.


In terms of societal well-being, Rand’s portrayal of altruism as a social harm stands on less solid ground. The moral impetus behind altruism is the ethic of reciprocity: you should treat others as you wish to be treated. To make her appeal to self interest more palatable, Rand prefers to attack the lesser maxim that it is better to give than receive, on the grounds that it promotes “self-sacrifice—which means; self-immolation, self-abnegation, self-denial, self-destruction.”  By framing the argument in this way, Rand avoids the more repugnant task of having to question the moral sufficiency of the precept that each member of a society is required to provide the same level of respect and common dignity which they presume for themselves.

My main criticism of Objectivism is that, more often than not, it is employed as an oversimplified moral justification for rationalizing away the negative externalities caused by a dominant class’s social and economic interactions with the more vulnerable class. On the macro level, the self sacrifice demanded by Altruism is more aptly characterized as political compromise. It represents the voluntary submission of an individual’s claim to uninhibited wealth and privilege in exchange for a benefit or security which the existing social arrangement provides.

The moral deficiency of an egocentric society is in the claim that the individual duty to ensure the equitable treatment of its less fortunate members only extends so far as the transaction does not personally inconvenience an individual’s life. This is a very debilitating policy, insofar as it undermines the very existence of any express or implied social agreement amongst members of society to engage in mutual cooperation or to cultivate a common respect for one another. What develops is a highly militaristic attitude against individuals who seek a more equitable distribution of material resources. Reforms are challenged as a threat to one’s social status and competition is perceived as an adversary to be overcome, rather than a mutual entitlement to seek financial independence.

Moreover, the rationale that individual acts of charity should be voluntary does not easily translate into the moral proposition that society has no collective duty to provide an economic safety net for its most vulnerable citizens. In any civilized nation, there should sensibly be a preferential option for assisting the poor and disenfranchised. Subsidizing existing wealth at the expense of society’s less fortunate individuals tends to promote instability and crisis. A society which cruelly neglects its most vulnerable members invites violence upon its own head, whether it manifests itself in the form of rising crime rates or seditious revolution. Thus, a society which shows deliberate indifference towards a persecuted segment of its own population has no reasonable expectation of domestic tranquility.

The less a society strives for Egalitarian ideals, the more turbulent the political climate becomes. A segment of the population which is economically exploited by the existing social arrangements is not morally bound to suffer in silence. To do so would be an irrational act of preserving one’s own undignified state of existence. The calculated choice to peacefully redress one’s grievances is a magnanimous act designed to bring attention to an injustice in the hope of invoking Society’s notions of equity and fair play. However, once an affected population’s faith in peaceful reform is extinguished by the dominant society’s refusal to redress their social grievances, violence is embraced as a justifiable and necessary act to ensure one’s own self-determination. As former president John F. Kennedy warned, “Those who make peaceful revolution impossible will make violent revolution inevitable.” This model of economic tyranny being met with violent insurrection has unfailingly repeated itself throughout the course of human history. As such, no society should ever rationally encourage domestic insurgency through deliberate indifference or institutionalized cruelty.

The preservation of a civil society ultimately rests upon its maintaining an acceptable level of altruism. The competing claims made by interdependence and individuality can only be reconciled through a self-imposed moral restraint which permits members of society the freedom to determine the course of their own lives, while ensuring they do not violate the personal autonomy or self-dignity of others in the process. Objectivism undermines this civic ethic with its abolition of a moral duty to protect the most vulnerable members of society. As a result, it inflicts a greater social injustice than it initially sets out to correct

Lawrence Christopher Skufca (2015)

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, Abraham Lincoln impressed his vision of racial 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, both, politically and socially, which ventured far beyond Jefferson’s simple premise of equal treatment under the law. Lincoln understood racial equality to be 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 biology 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 saw 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 theory of Phrenology posited that Negros had a smaller brain mass than 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 the Negro’s “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].

Lincoln’s greatest innovation was in transforming Jefferson’s abstract intellectual principle of equality 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 his 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 begin to bear fruit.

Lawrence Christopher Skufca (2007)

Some Rights Reserved


[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:

[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:

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 legislation. 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.


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.


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 


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