Chrysler Proposals

I. Executive Summary

This proposal is presented to Cerberus Capital Management, LC, Daimler AG and the United Auto Workers to convert Chrysler Holding LLC to a substantially employee-owned and controlled company. 

At this hour, both Chrysler and General Motors are awaiting government review of austerity measures and have requested funding to stay afloat while car sales are down.  These measures have been negotiated with the UAW, however they have not been submitted to the rank and file for approval.  Additionally, both companies are behind in their funding of the health care trust fund, which is designed to allow them to shed long term obligations.  Traditionally, when employees are asked to give substantial concessions in order to save the company, they receive an increased ownership stake.  This case should be no different, although the approach I am proposing differs in one key respect – when Chrysler returns to profitability, the workers will be much better off than under any similar restructuring. 

In the short run, too much austerity will be counter-productive, especially if it is copied in other industries.  Systemic austerity will result in consumer uncertainty, making the purchase of durable goods – especially automobiles – an impossibility.  The measures proposed here will begin to literally pay dividends to employees as soon as sales increase, so that austerity measures are not permanent.  If such measures are replicated in other industries, the economic downturn could be shortlived.

Unlike traditional Employee Stock Ownership Plans, we propose taking advantage of existing pension assets to avoid extreme debt loads, which would occur under almost every other scenario to capitalize Chrysler.  We also propose several avenues for cost reduction, including the health care sector, which will set the standard for cost reduction for all of industry while maintaining quality of service and benefit levels. This is especially important in light of the recent shifting of responsibilities for health care costs from the company to the Union.  Our proposals avoid many of the pitfalls of other Union buy out plans, most notably United Air Lines, by changing the Union culture to welcome innovation and cost control while changing the Management and Professional cultures to introduce democratic structures more appropriate to employee-ownership than the traditional principal agent model and by linking compensation to results rather than position.  These innovations will provide the edge Chrysler needs to succeed in today’s troubled times. 

Prior to the current bridge loan, discussions took place regarding the merger of Chrysler and General Motors.  The proposals offered here are as applicable to such an arrangements as they are to Chrysler Holdings alone.  Finally, many of these proposals include the use of TARP funds, both because private financing will likely not be available to accomplish these proposals and to create assets which provide taxpayers some degree of security compared to an unallocated loan.

This proposal offers the following twelve propositions in the areas of Health Care, other Consolidation and Pay and Benefits reform:

1.  Purchase of health care providers for employees and retirees, including hospitals, managed care organizations, pharmacy operations and medical and nursing schools.  These new employees would receive same ownership and salary considerations as covered UAW employees and management.  Request additional TARP fund loans to finance this proposal.

2.  Inaugurate Medical Savings Accounts/Lines of Credit to pay or finance deductibles, alternative medicine and out of plan and optional health care.  Raise deductibles and credit limits based on income level.

3. Purchase dealerships with stock and cash and operate directly, considering employees within the Company pool.  Request additional TARP fund loans to finance this proposal.

4.  Move toward the point where the overwhelming majority of shares are held by the employees.  Convert 33% of current UAW and company pension trust funds for labor, professionals and management to Company stock.  67% will be held in reserve for pension benefits for spouses and surviving widows who will not have stock voting rights.  The stock shares will be voted by retirees and current workers or their proxy representative.  Create ESOPs for labor, professionals and management to make up the balance of the employee stake.  Request additional TARP fund loans to finance this proposal.

5.  Leverage Longevity Pay with a portion of dividends from equity shares.  Decrease wage levels accordingly (which then increases profit, some of which goes back to savings).  Establish a rate structure for government contracts whereby compensation over base pay is paid in stock and the stock purchase is built into the burden rate.

6.  Provide scholarships to all workers and dependents to 14^th grade in university, community college, or private secondary school, as well as trade school for the non-college bound in exchange for a percentage cut in wage representing the average college and private school tuition costs experienced company-wide per employee for students in these situations. 

7. Recruit professionals and managers at 15th grade and provide tuition, room, board and books and supplies, as well as a stipend.  A percentage of tuition costs will be assumed by the firm, a portion by the United States and a portion by the student through loans which will be paid back automatically on a two years of work for every year of school basis.  During this time a smaller pension fund accrual will be distributed, until the educational repayment period is exhausted.  Students who do not complete their educations and/or their service requirement will be liable for the repayment of a student loan for the entire 1/3 share of tuition costs accrued and not yet repaid.  Request additional TARP fund loans to finance this proposal.

8.  Provide additional dividend paying stock to professional and management employees to provide a dividend to further compensate them for discounted value of their education expenses and cut salary equally.  For example, the discounted value of engineer X’s education was $Y.  Provide $Y worth of equity and then reduce the salary of X by the dividend stream produced by that stock.  Request additional TARP funds to finance this proposal.

9.  Increase incentives for innovation and performance by a healthy multiple of the current incentives and cut average salary for professionals and managers accordingly.  Develop rules for team sharing of incentives where applicable, including objective determination of rewards by an outside source.  Performance awards come in both cash awards and stock grants to capture the value of the lasting impact of innovation on profitability.

10.  Provide $500 per dependent per month (spouses and children under 20 unless emancipated earlier) and cut the base wage of each employee by the average dependent payment (with a floor for younger lower wage employees).

11.  Provide reduced interest rate mortgages.  Use TARP funds to leverage interest reductions.

12.  Provide housing for younger company employees who are not yet ready to purchase home or who are still in training.

 

II.  Specific Proposals

Health Care Cost Saving Provisions:

Proposal 1 – Provide Direct Services:

Purchase by Chrysler, the UAW Health Trust Fund, Fiat (and G.M. if a merger is attempted) of health care provider organizations for employees and retirees, including hospitals, managed care organizations, pharmacy operations, group practices and medical and nursing schools.  The employees of these enterprises would receive the same ownership and salary considerations as covered UAW employees and management (see proposals below).  Request additional TARP fund loans to fianance this proposal.

Rationale:

Relying on outside providers requires reimbursement of their marketing costs and profit.  Including these services within the company limits these costs.  Additionally, medical malpractice becomes a matter of internal company discipline rather than outside litigation, greatly decreasing legal costs.  Company facilities are large enough to justify dedicated medical facilities for employees.  An added benefit is that covered medical facility employees, both doctors and SEIU members, would become a ripe market for the purchase of other Company products.  Finally, unexplained opportunities for cost control will present themselves with absorption of this major cost driver in the cost of labor.

Company ownership of pharmacies will also allow for more flexibility in purchasing drugs and increase the bargaining power for the benefit of the Company and its employees.

Using TARP funds for this purpose will provide the United States with real assets as security for much needed capital.

Implementation:

The Project Team will form a strategic alliance with the SEIU, which represents nurses.  It will identify SEIU serviced facilities which are geographically accessible to Company facilities and begin acquisition talks.  Facilities can be public, private or religiously based (Baptist Healthcare and Catholic Health Association).  The Project Team will also identify state and private medical and nursing schools which might be in financial difficulty to begin purchase talks. 

The Project Team will assess the value of buildings and grounds, as well as the value of the enterprise, then make offers leveraging the deal with both Company stock and UAW and SEIU pension assets.

Proposal 2 – Medical Savings Accounts/Lines of Credit:

Inaugurate Medical Savings Accounts/Lines of Credit to pay or finance deductibles, alternative medicine and out of plan and optional health care.  Raise deductibles and credit limits based on income level.  The total cost of high deductible insurance, medical savings accounts and medical line of credit contributions will be capped at current monthly health care expenses for comprehensive insurance coverage.

Rationale:

One major cause of the rise in health care costs is the lack of an incentive for cost control.  Comprehensive plans hide the impact of cost escalations for doctor visits, malpractice costs and pharmaceuticals.  The proposal to absorb medical facilities will mitigate some, but not all of these costs.  To make consumers smart shoppers, they must be accountable for more of the cost of care.  In order to do this effectively, however, out of pocket costs should not be increased directly, as this will be unacceptable to employees.

Implementation:

The Project Team will devise a health care proposal to mitigate direct impact of higher co-payments for prescriptions and office visits to include both medical savings accounts funded by both the company and the employee and medical lines of credit, which would be funded by the employee up to an annual limit, after which the company would fund non-optional costs.  Optional costs are items not traditionally funded by health care plans, such as massage therapy, experimental therapy and alternative medicine, as well as uncovered office visits for certain types of health care.

The Project Team will work with providers to create a single swipeable health insurance card to access to medical savings accounts, medical lines of credit and catastrophic insurance.  Such a card will decrease the need for insurance specialists in individual provider offices and prescreening for insurance at associated pharmacies.  The Project Team will propose the allotment of services between these three legs of the plan for negotiation, agreement and ratification. 

Other Consolidation:

Proposal 3 – End Franchising:

Purchase dealerships with stock and cash and operate directly, considering employees within the Company pool.  Request TARP fund loans to finance this proposal.

Rationale:

This increases the stock ownership pool and allows dealership workers to unionize and to gain the benefits of a larger pension plan.  It also expands the health insurance pool, including younger workers who will decrease average costs.  Finally, it allows for a more seamless information flow between dealers, manufacturing and engineering, potentially improving product quality. 

Implementation:

The Project Team Real Estate Advisor will value the complete real estate portfolio of Dealer Franchises.  The Project Team, with the cooperation of the Company auditor, will, determine the financial value of each dealership, less net land value, and recommend the number of shares to be exchanged for the ownership of each franchisee.  The Company will tender offers to each franchisee.  The Project Team will secure the services of an arbiter for any disputes.  The Project Team will make clear that failure to convert will result in the loss of the franchise relationship.

The Project Team will calculate the size of franchisee pension assets to be absorbed into the UAW pension fund and Company stocks.  The Project Team value these contributions accordingly as part of the negotiation process to purchase franchises.

The Company will enroll franchise service personnel into the UAW and sales and financial personnel into the appropriate professional group so that these groups may vote their individual shares.

Using TARP funds for this purpose will provide the United States with real assets as security for much needed capital.

Pay and Retirement Cost Savings:

Proposal 4 – Employee Stock Ownership:

Concentrate a portion of pension fund ownership in newly created Chrysler stock.  Convert 33% of current UAW and company pension trust funds for labor, professionals and management to Company stock.  67% will be held in reserve for pension benefits for spouses and surviving widows who will not have stock voting rights.  The stock shares will be voted by retirees and current workers or their proxy representative.  Create ESOPs for labor, professionals and management to make up the balance of the employee stake.  Request additional TARP fund loans to finance this proposal.

Rationale:

This provision gives Company employees a stake in the cost savings proposals cited above, while still maintaining a secure pool of diversified shares for surviving spouses, who should not have voting rights.  Retirees are given voting rights because their experience with the firm will be valuable.  Further, by giving them a voting share and making their pension profits dependent upon the profitability of the Company, they have an incentive to support these changes while management has an incentive to provide high enough benefits to keep the retirees happy.

Implementation:

The Project Team will calculate the total number of accumulated work hours for current workers in each sector (including health care and dealership employees added to the Company under the first three proposals) using payroll and dealership data. 

The Project Team will calculate the retiree sector share based as the number of total hours worked times one-half the total amount of pension assets already used divided by one-third of their total pension assets for retirees and survivors based on life expectancy using employee benefit and pension fund data. 

The Project Team will use these totals to calculate the ownership stake for each sector. 

The Project Team will determine the value of 33% of each pension fund for each sector, including 401(k) funds and existing ESOPs.  Upon agreement between labor and management, the pension advisor for each sector will convert these funds into stock of the Company, holding the remainder in diversified assets. 

The Project Team will determine the difference between the shares owned by each sector and the ownership stake agreed to above.  Retirees shall be entitled to 100 percent coverage in of their ownership stake in voting stock (which equals 33% of their total pension assets).  The Project Team will make arrangements to create an ESOP trust to purchase the necessary shares for each sector.  As private sector financing is almost impossible to come buy, TARP funds will be used to finance the ESOP Trust.

The Project Team will draft proposed language to amend ERISA allowing trustees to vote for the total best interest of the beneficiary rather than just the best fiduciary interest.

Using the sector calculation rules above, the Project Team will determine individual entitlements based upon work hours to date, which shall be reviewed by labor, management and professional society representatives for agreement and ratification.

The Project Team will education Union leadership and the rank and file on the ownership mindset required to effectively discharge their new role within the company.

Proposal 5 – Reform Longevity Pay:

Leverage Longevity Pay with a portion of dividends from equity shares.  Decrease wage levels accordingly (which then increases profit, some of which goes back to savings).  Establish a rate structure for government contracts whereby compensation over base pay is paid in stock and the stock purchase is built into the burden rate.

Rationale:

One of the main economic drivers behind job loss for middle aged professional workers and union job loss to overseas plants is the cost of longevity pay, which increases salary based upon tenure.  It is more expensive to get older, but funding this expense with wages provides an incentive which can lead to disaster for many workers.  Transferring a portion of this pay to ownership dividends by funding stock rather than pensions allows a portion of these payouts to be distributed prior to retirement, while a percentage may be reinvested for future retirement earnings and enhanced voting power.  Lowering the wage allows more funds to be diverted toward stock grants and dividends.  Additionally, paying some of these dividends now provides a direct incentive toward increased productivity and even increased automation, as well as making health plan changes more palatable for the rank and file employee.

Implementation:

The Project Team will calculate what portion of the current salary structure for professional, management and union employees is due to longevity and the dividend stream required to replace this amount at various levels of seniority, yielding stock grant amounts for each level.  The Project Team will calculate the stock grant and salary for each employee and will present the package to a review team made up of labor, management and professionals for review, agreement and ratification.  Note that stock grant shares shall be non-transferable until retirement or termination, but dividends may be payable immediately.

The Project Team will draft proposed changes to ERISA which prevent or penalize the distribution of dividends held for retirement and present these to policy makers.

The Project Team will draft proposed changes to the FAR to assure that firms who undertake this reform are not penalized and present these to policy makers.

Proposal 6 – Educational Assistance:

Provide scholarships to all workers and dependents to 14^th grade in university, community college, or private secondary school, as well as trade school for the non-college bound in exchange for a percentage cut in wage representing the average college and private school tuition costs experienced company-wide per employee for students in these situations. 

Rationale:

A major driver behind the need for longevity benefits is the need to fund education for ones children.  Removing this cost from the family budget eliminates the need to pay higher wages for longevity.  Additionally, group purchasing of education allows greater buying power, thus limiting the explosive growth in education costs.

Implementation:

The Project Team will examine the company benefits office and recommend its optimum size to handle the additional workload for this task and will provide supplemental staff for the project period to train permanent and temporary benefits employees.  Each employee will be able to register his or her dependents in this program.  The Project Team will form relationships with all schools near company facilities and negotiate payment arrangements which are more advantageous than individual students can make.  The Project Team will also assess the requirement for additional university instructors to meet these needs and will create a recruiting program for experienced and retired professional employees to serve as adjunct faculty members in these institutions. 

Proposal 7 – Early Recruitment:

Recruit professionals and managers at 15^th grade and provide tuition, room, board and books and supplies, as well as a stipend.  A percentage of tuition costs will be assumed by the firm, a portion by the United States and a portion by the student through loans which will be paid back automatically on a two years of work for every year of school basis.  During this time a smaller pension fund accrual will be distributed, until the educational repayment period is exhausted.  Students who do not complete their educations and/or their service requirement will be liable for the repayment of a student loan for the entire 1/3 share of tuition costs accrued and not yet repaid. Request additional TARP fund loans to finance this proposal.

Rationale:

The best and the brightest students are often overwhelmed by the prospect of the cost of higher education.  Offering employment prior to graduation allows Human Resources to lock sooner.  Doing so also removes the rationale for providing higher salaries due to the possession of higher education, as the now employee-owned company assumes the financial risk of the educational experience and allows these students a higher standard of living than is currently possible.  It also imposes a dose of realism on the personal level, so that students may be less likely to indulge in risky behavior with the responsibility that comes with a career.  For those who do not get the hint, employee assistance programs can be utilized at an earlier age.

Implementation:

The Project Team will devise a plan to begin campus recruiting at an earlier age, including proposed salary levels for students and entry level professionals, new loan instruments and revisions to existing loan instruments.  This effort will also dovetail with Proposal 6 in the forming of relationships with universities in order to obtain discounted tuition and fees. 

The Project Team will work with the Departments of Education and Labor to create a pilot program to partially fund tuition, since a vast quantity of current financial aid arrangements will no longer be needed if such a plan were adopted industry-wide.

Note that this program will also be used to fund nursing and medical education in company sponsored facilities described in Proposal 1.

It will be necessary to increase funding for Employee Assistance programs, which will become available to student-employees.

The Project Team will generate materials to recruit and screen rank and file workers who are capable of pursuing advanced education but who have lacked the opportunity to do so.   The Project Team will devise a program to allow current employees to transfer their educational debt to this program, thus providing them with a level of additional financial security.  TARP funds will be used to leverage student loans, which may not be available from the banking system at this time.

Proposal 8 – Compensation for Education:

Provide additional dividend paying stock to professional and management employees to provide a dividend to further compensate them for discounted value of their education expenses and cut salary equally.  For example, the discounted value of engineer X’s education was $Y.  Provide $Y worth of equity and then reduce the salary of X by the dividend stream produced by that stock.  Request additional TARP funds to finance this proposal.

Rationale:

The benefits to providing higher education should result in lower salary costs, but not less compensation.  Additionally, current professional and managerial employees are paid premium salaries for their educational attainment.  A portion of these salaries can be reduced and replaced with stock dividend payments.  This takes additional incentive away to outsource professional duties to India or to bring in lower wage H-1B workers.  Such a provision also spreads salary cuts to the white collar sector, which is required to reduce the resistance of UAW and SEIU personnel to wage concessions.

Implementation:

The Project Team will audit each professional employees’ educational expenses and calculate their net present value and the value of dividends resulting from a stock grant of that value.  The company will fund that value with a stock grant debiting Retained Earnings and lower the salaries of these workers by the amount of the dividend stream resulting from these stocks, some of which being reinvested to produce an increasing dividend from this program.  If Retained Earnings are not available for this purpose, create an Educational ESOP or other debt instrument for this purpose, which may involve proposing amendments to ERISA.  In this case, a portion of the dividend stream will be required to repay the ESOP financing, which will be provided using TARP funds.  The Project Team will arrange for any necessary financing for such an ESOP. 

Proposal 9 – Innovation Incentives:

Increase incentives for innovation and performance by a healthy multiple of the current incentives and cut average salary for professionals and managers accordingly.  Develop rules for team sharing of incentives where applicable, including objective determination of rewards by an outside source.  Performance awards come in both cash awards and stock grants to capture the value of the lasting impact of innovation on profitability.

Rationale:

Current incentive systems reward creativity mostly by salary, offering only small performance incentives for patents and other innovations.  The result is a clear message that creativity must be according to the master plan and innovation outside of these lines is not allowed.  The result of this paradigm is the loss of global market share, with Toyota now leading all American automakers in both sales and innovation, particularly in the area of fuel economy.  Reducing base salaries while increasing performance awards will encourage outside the box thinking for engineering and management, as well as for line workers, who might be sources of innovation.  Introducing group incentive plans will increase collaboration and will guard against group sabotage by jealous co-workers.  Finally, objective determination of awards and using outside evaluators guards against the perception that performance awards are used to reward conformity or based upon management favoritism.

Implementation:

Create a task force with Union locals, professional associations and management to determine performance benefit rules, facilitated by the Project Team.  This task force will negotiate an agreement establish procedures under which rewards are calculated and create a permanent staff to estimate and a permanent body to review these awards.  The main criterion to earn an award is an increase in the profitability of the enterprise, either in terms of innovation/sales generation and loss avoidance.

Proposal 10 – Dependent Allowances:

Provide $500 per dependent per month (spouses and children under 20 unless emancipated earlier) and cut the base wage of each employee by the average dependent payment (with a floor for younger lower wage employees).

Rationale:

Aside from health care costs, the major driver behind the movement of jobs offshore is high wages.  A major driver behind the desire for high wages is the need to support growing families.  The education benefits cited in Proposal #6 will reduce much of this need.  Further subsidizing families directly will target resources to those who most need them for the time they are needed, making domestic workers more competitive in the long term as direct pay is reduced in favor of payment for innovation and stock ownership.

Implementation:

The Project Team will work with the payroll department to calculate wages for all current workers.  First, the amount of money in the dependent benefit pool will be calculated using tax withholding and insurance information.  Tax benefit and cost figures will be included in this calculation.  Second, the average dependent cost per worker will be calculated (both net and gross).  Third, these factors will be applied to current wage and salary levels to generate a proposed net and gross salary for each worker and class of workers.  The results of this salary study will be presented to the labor, professional and management sectors for discussion, negotiation, agreement and ratification.

The Project Team will also propose legislation to increase tax benefits for dependents at the federal and state levels and will mobilize labor and management organization efforts to bring these proposals to policy makers.

Proposal 11 – Mortgage Finance:

Provide reduced interest rate mortgages.  Use TARP funds to leverage interest reductions.

Rationale:

A major cost driver in the need for higher salaries is the cost of housing.  In the current economy, many workers are unable to find credit for the purchase of housing, regardless of credit worthiness.  Additionally, some workers are ignored by mainstream financing or preyed upon by sub-prime lenders based on their demographics.  The provision of mortgages by the company or its surrogates, in cooperation with an aggressive stock ownership plan, provides incentives for longevity.

Implementation:

The Project Team will devise a program to purchase existing mortgages and offer mortgages for the purchase of new and existing housing at a reduced rate which will compensate the company for lost profits to non-employee shareholders, taking interest deductibility into account.  The Project Team will calculate mortgage terms to coincide with the full funding of retirement assets in the stock ownership and diversified pension plans.  The Project Team will arrange for financing through existing Credit Union and Company-owned Mortgage providers at a subsidized rate.  Use TARP funds to leverage interest rate reductions.

The Project Team will also propose legislation to allow companies to claim tax benefits for providing home mortgage interest to employees at a reduced rate at the federal and state levels and will mobilize labor and management organization efforts to bring these proposals to policy makers.

Proposal 12 – Employee Housing:

Provide housing for younger company employees who are not yet ready to purchase home or who are still in training.

Rationale:

As mortgages are harder to get, more families are entering the rental market, which will further increase the cost of rental housing, thus pricing younger workers out of the mainstream rental market and into group housing situations which are not conducive to employee well-being.  Additionally, providing housing for students and younger employees in the process of working off an educational debt is synergistic with Proposal Number 6, where student housing costs will be provided by the Company.  Providing such housing also bridges the gap between the beginning of work and eligibility for the mortgage program in Proposal Number 11.

Implementation:

The Project Team will perform market research for apartment facilities in areas in close proximity to educational institutions and work sites with large numbers of younger employees, student-employees and trainee/apprentices.  The Project Team will survey the level of interest of these individuals for employee-sponsored housing.  Where such a need is expressed, the Project Team will perform a lease/buy analysis on likely properties, provide recommendations to the Company and execute Company decisions, offering leased housing interested individuals with rental deducted from the employee paycheck as applicable.  The Project Team will also hire building management staff as appropriate.  Undoubtedly, there are buildings which are now owned by TARP which can be sold to Chrysler for this purpose.

III.  Overall Approach

A.  Team Formation

1.  Utilize Existing Supporting Organizations

To the greatest extent possible, the Project Team will be composed of internal organizations and consultants currently supporting Chrysler, Cerberus, the UAW, the SEIU including investment advisors, mortgage bankers and underwriters.  Using existing assets will build new competencies into the current system, lessening the need for long term relationships with additional consultants.

2.  Recruit Project Consultants

Where there are experience gaps in existing support networks, outside consultants will be recruited to fill them with the consent of both management and labor, with each sector sharing the costs.

3.  Team Orientation

After the Project Team is formed, the Project Director will conduct intensive training and discussion with Project Team members, as well as leaders from ownership, management, labor and the United States, until initial buy-in is achieved.  Bindner Analytics recognizes that not all proposals will achieve leadership buy-in at first.  We believe that as initial proposals are adopted and prove salutary, then duplication will occur across industry.

B.  Assessment of Current Legal Instruments and Procedures

e remaining proposals will be reconsidered and adopted as well.

Project Team members will review all current legal instruments and procedures, including the labor contract, company procedures and government regulations.  All team member work products will be discussed in a team setting, with the Project Director or his designee facilitating these discussions. Team members will identify all current provisions which must be modified to implement project proposals, as well as obstacles that either cannot be overcome or which can only be overcome with changes to law or regulation. 

C.  Drafting of New Legal and Financial Instruments and Procedures

New language will be drafted by responsible Project Team members, working closely with the Project Director.  Work products will be discussed in a team setting, with each sector contributing work to each document and the Project Director or his designee facilitating these discussions.  Proposals for regulatory and legal reform will be brought to the attention of the Secretary of the Treasury and legislators from states where Chrysler has a significant presence.  Discussions will be complete as work products are accepted by ownership, management, labor, the United States (where applicable).  An implementation schedule will be developed by the project team, based on the ease of implementation, with “easy” items being implemented first.  Part of the implementation plan will be the development of training materials to train management, human resource and union professionals and to orient rank and file employees so that they can intelligently consider ratification of these proposals and can begin to behave as employee-owners.

D.  Training and Orientation of Management, Professional and Union Personnel

1.  Train the Trainer

Management and Labor will identify personnel to train plant managers, former franchisees, supervisors, department heads and shop stewards.  These individuals will be trained by Project Team members and the Project Director.  Trainers will then train the next round of personnel in Auburn Hills.

2.  Rank and File Training

Plant, department and union leadership at the local level will then train professionals, rank and file employees, and newly acquired employees. 

E.  Final Ratification by Union Members, Daimler AG and Cerberus

Final implementation of individual proposals will commence after ratification by union membership and ownership and upon receipt of any required governmental and private funding.

F.  Continuing Consulting Relationship

Bindner Analytics will continue to make personnel available as formerly rejected proposals are reconsidered and adopted, and as Chrysler acquires additional units which require integration into the new corporate culture and legal structures.

III.  Qualifications of Project Director

Michael Bindner is the Principal of Bindner Analytics.  He was the founder and Executive Director of the Iowa Center for Fiscal Equity, which provided proposals to the President’s Task Force on Tax Reform and the Commission to Strengthen Social Security.  He is the author of Musings from the Christian Left, which provides a conceptual outline for most of the proposals presented here.  He holds a Master Degree in Public Administration from the American University in Washington, DC and a Professional Designation in Cost Analysis and Price Analysis from the Air Force Institute of Technology.  He has contributed opinions published in America Magazine and Business Ethics and is a member of the Capital Ownership Group, an online think tank sponsored by Kent State University.  There is no other source for many of the proposals advanced here.

Inter Indendence: Cooperative Habitats

Housing is provided in two ways in employee-owned firms. Young people who are in training or early in their careers are provided dormitory or apartment housing and full boarding. They receive this benefit while they pursue their educations and during that time while they are paying off their educational debt with a service commitment to the employer who financed their education or training. Young families who are receiving remedial education are also provided this style of housing. I explore this topic in more detail in the next essay. The remainder of this chapter describes the homes that employees are eligible to purchase after they have fulfilled their educational service requirements.

If the planet were not more crowded, a workable farm would be provided to all workers. Given population pressure, the desire by some to explore space and the ever-present threat of environmental disaster due to pollution, bio-terror or war, outdoor farms are just not feasible for everyone. This essay provides a blueprint for a workable alternative, which I call Inter-Independence. Inter-independence combines cooperation with self-sufficiency. In theory, each employee applies his or her unique talents and training so that everyone is able to become self-sufficient. Self-sufficiency comes in the form of a dwelling with its own food production facilities.

Individual food production is necessary because people have wildly varying tastes and preferences for food. This system is offered as an alternative to Socialism, which often leads to rationing. Rationing is not an acceptable solution, as only the median customer is satisfied. This is unacceptable, as people are not ants. Having workers grow their own food makes them responsible for their own diet. It also overcomes the free rider problem, since slacking off only makes one’s own family hungry and no one else’s. Long-term dependence on society through a public pension or broad based stock ownership is also a lesser alternative. Public pensions are never high enough to provide the range of choices people desire, while the experience of recent years has shown that stock ownership without total ownership by the workers provides no real security.

Inter-independence also provides the worker with something to do in retirement. Growing one’s own food, albeit in a highly automated setting, provides retirees with enough to do to keep them interested in life. It is also more spiritually rewarding than the idleness often associated with retirement.

Workers who chose this type of home are given a shorter work day in order to have time to grow their own food, as well as a lower salary to account for the fact that they no longer have to purchase a share of their food. Of course, many firms also provide cafeteria service at breakfast and lunch, so commercial agriculture is still required. Additionally, not all workers want to grow their own food and instead work a standard eight-hour day. These employees devote the money saved on their mortgages to investment to comfortably purchase food in retirement.

Individual food production is a key part of the American ideal, which we have grown away from in the last century. J. Hector St. John de Crèvecoeur first wrote about this ideal in his Letters from an American Farmer in the late eighteenth century. In colonial America, owning land was key. Crèvecoeur asked What should we American farmers be without the distinct possession of that soil? It feeds, it clothes us, from it we draw our great exuberancy, our best meat, richest drink... (20). It was the essence of the American ideal to land on its shores, become skilled, build up a small amount of capital and raise a farm, often giving and receiving labor from one’s neighbors in doing so. Inter-independence restores this ideal, replacing food production techniques developed for space colonization for free land.

Food Production Facilities and Environmental Efficiency
Homes with food production facilities will be available everywhere, from the Midwest to a space colony on Mars. The home duplicates the entire food production cycle found in nature. Waste products are reintroduced into the food chain through the hydroponic production of grass, which is then either burnt or broken down in a bioreactor to produce either soil or a nutrient solution for hydroponic vegetable production. The Great Plains were created over a long process of topsoil growth and burning, over a time span of thousands of years. Technology is able to duplicate this process in a shorter span of time.

Mankind evolved as a carnivore. Therefore, to man, eating meat is natural. However, unless everyone has a bit of outdoor pastureland set aside, or wishes to take on the raising and butchering of animals in their basement, simulated meat production equipment is needed, either through the growing and processing of yeast or soy to look like muscle fiber. As the aim of this economic system is independence, appliances to process vegetable matter into simulated meat must be small enough, and easy enough to maintain, to be placed in the home. Cows, sheep, pigs and chickens synthesize protein all the time. Science is now, or will soon, be able to duplicate this process in the laboratory, then in the factory, then in the home. Small animals are also kept, especially if they provide a dual purpose. Chickens are useful for both eggs and meat, while sheep are raised for both wool and meat. Those who do not wish to learn butchery pay for the slaughter and processing of these animals.

(Editor's note, recent stem cell research shows you can use such things to make animal tissues.  Meat  alone was so-so for doing a hamburger, but add bone, blood and fat cells grown from stem sells and you might get something closes, and even a steak!).

Cotton is grown at home and spun using automated machinery. The computer revolution makes possible in the home much of what was previously found only in factories. Robotics, expert systems and artificial intelligence are used to assist basement or roof gardening.

Grain is grown to produce both food and alcohol for consumption and energy production. Renewable sources, such as solar, wind, garbage and methane are also utilized. Employee-owned firms also hold local energy or telecommunication stocks, distributing them to their retirees so that the dividends from holding the stock are adequate to purchase power, transportation and telecommunication services.

These dwellings are environmentally efficient, meaning that they are both self-sufficient and at peace with the outside environment. Habitats are self-contained and toxin free as possible. Factory farming and environmental degradation become relics of the past. With food grown in the home, reforestation and restoration of grasslands commences, giving the earth a rest. Inter-independence takes the urgency away from population control, as self-contained habitats allow an expanding human ecology without the attendant ecological ruin. Self-contained cities are built under the earth, under the sea and in space, giving mankind room to grow.

Providing for Growing Families
Habitat size is a function of family size. When a child is added the family trades up. When this occurs the loan value of the home changes, with adjustments for the state of repairs of the house given up and the house acquired. Another option is to subsidize the difference between the house sizes and let the family put the habitat up on the open market - a solution which allows the market to determine the value of the house rather than a bureaucracy, while still assuring the needs of the cooperative and the family.

Families apply a portion of their dependent tax credit to offset the increase in mortgage costs. In Inter-Independence, children are viewed as both a public and a corporate resource. The more resources produced, the better the prospect for the society, both in terms of a strong marketplace and in terms of human resources. The absolute number of geniuses grows with the size of the population, with geniuses achieving more in a larger, more diverse, society. The society eventually makes its money back through more and better output. Firms need workers and customers, so it is in their interest to treat families well, even without tax advantages.

Green Transportation Systems

Aside from education, the biggest fiscal challenge facing local governments is fixing our transportation infrastructure without increasing pollution. The President has proposed that we switch to hydrogen within ten years. This is nice, but does not solve all the problems of accidents and congestion we currently face. Accidents still kill too many people. Congestion is still too much of a problem. Forcing people to use more public transportation is not the answer, because people will never give up the freedom and convenience offered by owning your own car. An integrated solution provides for systematic traffic control, increased mass transit and individual or rented car ownership.

We currently have the technology to switch to an entirely electric system, with vehicles on major roads and highways drawing power from overhead cables in the same manner that passenger trains and electric buses do. A roof is put over these transmission lines, and grass grown on these roofs. In cities and new developments, roads with this feature are even put under street level. These transmission lines also double as an electric transmission system to houses.

Practical electric cars, with electric motors in the axels, are already under development. Automatic control technology is also improving. Extending a transmission line from a car to an overhead power and control system is only a baby step. Once this step is taken, interstate travel is revolutionized, as vacationers set their cars to their destinations and go, working, watching television or sleeping while the car does the driving.

Funding
A key advantage to this system is that it is either entirely private, or a mix between public and private funding. However it is funded initially, the driver provides a link to a debit or credit account to the system and the trip begins provided funds are available. Rental cars are even used, either for single trips or cross-country excursions, relying on the same premise. Of course, taxicabs as we know them are replaced by this technology.

Workers at employee-owned inter-independent firms get their car loans through their workplaces. Firms even include the stock of the evolving transportation companies in their retiree investment portfolios, so that travel expenses in retirement are covered by stock dividends.

Daily Travel
For daily travel, the system adjusts itself to limit congestion. When road congestion is high, rates for “downtown” trips are raised, while rates to public transportation facilities are lowered. If public transportation is overloaded, rates to drive downtown are decreased. Over the long term, fuel usage, auto production and road construction and maintenance are integrated and fees are set to optimize the system and remove gridlock. Since the system is largely under ground, it does so without tearing up the landscape. The solution to the parking problem is the best part, with empty vehicles returning home to park and coming back at the end of the day. Is this science fiction? Not any more.

Energy Sources
This solution to our transportation problems is an ideal way to increase the use of clean burning natural gas or hydrogen generators to power the electric grid, or even to harness long neglected nuclear power technology. Recent breakthroughs in developing fusion technology also show promise. Physicists are close to generating a sub critical reaction that is used to provide power generation. When this occurs, the system described here is ideal, provided the right industrial partners are brought on board to prevent obstruction. Cars also have reserve batteries, which charge while in the system for use on those streets that have not yet been improved.

Overcoming Resistance
Individual drivers are less likely to resist this system than mere appeals for more public transit, since privately owned vehicles are a component of this system. Another major selling point is that people are able to program their destinations and go, taking their minds off the road. Automobile accidents are a thing of the past, especially drunk driving. This system actually encourages travel, and the production of more comfortable vehicles to travel in - with television and Internet access. This development also lowers the price of airlines and hotels, given the realistic alternative of driving straight through.

State and Local Goverment Finance

This essay covers two separate strategies to improve state and local finance, one based on the current system of taxes and the other based on the proposal for a Business Income Tax discussed above. Both of these proposals are related to the situation in Virginia. First, though, let us look at the fiscal situation generally.

Reforming Tax Structures
Two recent events in the early 2000s put most states, and their localities, into financial crisis. The first is the 2001 tax cut, which is exacerbated by the 2003 tax cuts. The new "Great Recession" has exacerbated these issues. Any state that ties its income tax structure to the federal structure loses money unless they increase tax rates. The second is the collapse of the Internet bubble. Prior to the collapse, revenues grew with income, which was overstated by the acquisition of paper millions. Most jurisdictions based their future revenue projections on this funny money and cut tax rates accordingly. These rate cuts have not been reversed, as it is easier to cut taxes than to raise them.

The current shortfalls also point to the lack of thought given to the mix of taxes at each level of government. Most state governments collect an income and/or sales tax on a statewide basis and property taxes at the local level, while funding education at the local level and welfare, social services, mental health and corrections at the state level. Roads are paid for at both the state and local levels. Additionally, most states give grants to localities, as they are more efficient tax collectors. Surveys show that the tax that is least resented is the state income tax, although that is certainly not true in all states – some of which have no state income tax at all. Currently, governments with unified budgets collect taxes from many sources and spend it on a variety of programs. There is a better way. Link revenue sources to the social purpose that the public agency is trying to accomplish. There are five kinds of revenue sources: income taxes, sales taxes, property taxes, permit fees and transportation taxes and fees.

Income taxes are redistributional in nature, so link them to the redistributional functions of government. The ultimate form of redistribution is public education, so fund all public education with state income taxes with the state distributing these funds to localities based on the needs of each jurisdiction. Money for schools is allocated based on student population and inversely related to student family income (disadvantaged areas get more money). State and local income taxes also support welfare programs, as well as mental health and family services. Property taxes are no longer used for education, as poor districts have little to draw on to fund education where it’s needed most. States which tie their income taxes to the federal system need to introduce an automatic rate increase or decrease in each bracket to compensate for changes in the federal tax code, so that federal tax cuts do not provoke a fiscal crisis in state government and tax increase do not doubly penalize state taxpayers.

Property taxes are the ideal way to fund and protect infrastructure, so they fund local streets, housing inspection and a portion of public safety. Fees collected for home building inspection, titles, etc. also support these activities. Debt service is also tied to this tax. A jurisdiction uses capital budgeting to redevelop blighted areas, with future tax collections paying off these investments. A portion of gasoline taxes also goes for local streets. Property taxes are administered at the lowest possible level, possibly even the neighborhood. Organizations like the Advisory Neighborhood Commissions in Washington, DC are given decision authority on street funding and service deployment, starting the evolution to a more direct form of democracy and service, shrinking the reach of government.

In metropolitan areas, there are often several jurisdictions responsible for the highway and mass-transit system. Washington, DC is a classic example, with a Federal District, two states, and multiple counties responsible for bus, highway, subway and commuter train systems. Competition within the system, such as price competition to minimize gas taxes, often causes other the whole system to break down with inefficient bus routes, gridlock, and deteriorating roads. For both single and multiple jurisdictions, regional authorities to pursue a common building and funding strategy for both major roads and public transportation are desirable. These authorities set gasoline taxes for the entire region, share the resulting revenue, recommend property tax rates for roads, set rail and bus fares and establish routes, establish toll roads and develop highways and rail lines. When congestion occurs on one part of the system, or to fight high levels of pollution, tolls or gasoline taxes are be increased or decreased or alternate service provided. Inefficient bus routes, which are a hold over from before light rail's reemergence, are rerouted to support the rail lines rather than compete with them. Such authorities also issue debt instruments tied to future revenue to upgrade the system.

Sales taxes fund commercial regulation, inspection, business services and public health, as well as the portion of public safety serving business interests. These funds are also distributed to jurisdictions that have greater infrastructure and public safety needs than their property tax base can meet. Sales taxes are especially useful to fund a more service oriented regulatory structure. Ombudsmen are assigned to each business or institution to coordinate all other government contact, a regulatory “cop on the beat” to handle all taxes, inspection and compliance activities at all levels of government, from the federal level to the local level. If a business needs a permit that involves coordination by more than two agencies, the Regulatory Specialist creates an electronic consolidated questionnaire that automatically files all paperwork.

Virginia’s Revenue Crisis
This menu of reforms is especially needed in the Commonwealth of Virginia, which is experiencing serious financial difficulty due to the end of the car tax and to population growth in Northern Virginia. Linking spending to revenue functions helps determine whether income taxes are adequate to fund such items as education, corrections and social services. If they are not, the obvious answer to is to raise the tax rate, which is lower than in nearby areas. Likewise, if gasoline and property taxes are inadequate to fund needed improvements, these are increased. The establishment of toll roads, especially on interstate routes between Washington and Virginia Beach also merit careful consideration. Nothing causes air pollution like idling traffic. Much of this traffic is from out-of-state travelers, so toll roads are most appropriate.

A key question raised in the 2002 tax referendum debates was whether to allow Northern Virginia to levy a higher rate for education and transportation. Central and southwest Virginia leaders stated that such a levy magnifies differences between the northern counties and the rest of the state. Whether these fears are justified or not, they must be taken into account, as well as the higher revenue needs of Northern Virginia. Most of these needs reflect the costs that go with being located in the Washington metropolitan area. Therefore, the only justification for higher income or gas tax rates is to fund regional education, social welfare, mental health, corrections or transportation partnerships, or as an offset to a much feared non-resident income tax in the District. I suspect that, given the record of mismanagement in the District government, most Northern Virginians favor the establishment of regional authorities to such a tax.

Business Income Taxes
If the federal government restructures its tax system as outlined above, and even if it does not, consider the abolition of the income tax and the sales tax and their replacement with a business income/value added tax along the lines discussed for the federal government. Such a tax includes the same credits and deductions as suggested on the federal level. Local jurisdictions with higher costs of living mandate high enough dependent tax credits so that the combination of the federal and state credits provides an adequate income. Some states where the cost of living is lower provide a lower credit, while high cost areas award a higher credit. Credits might even be set on a county-by-county basis to reflect the cost of living.

Additional deductions are established for social service contributions are also be adopted, allowing vast portions of state and local government to be replaced by faith-based organizations, includin education, mental health care, aid to needy families, workforce development and corrections.

Tax rates are set high enough to provide incentive to use these credits. If these are used the actual amount of taxes collected is very low indeed. As businesses shift to employee-ownership, which is discussed below, the need for regulation by the state will lessen. Employee-owned firms are more likely to provide safe products and workplaces (since the employees know their futures are directly on the line). As most regulation is handled by business and professional standard setting bodies, the role of government in this area diminishes.

Non-profit entities and governmental organizations also pay this tax, or an automatic contribution equivalent to the tax. Tax rates for organizations that do not rely on commercial sales are lower, although those organizations that do sell products pay an equal levy because they use the same level of government service in supporting commercial regulation. Governmental organizations make a contribution based on their total payroll, rather than their total budget, much the same way they collect state and local income taxes for their employees.

The key to understanding this tax proposal is to recall that employers collect most income taxes already. Shifting to a value added tax approach continues this, while shifting what is now a shared reporting liability by the employee and the employer totally to the employer. Such a proposal also allows most individuals to end reporting miscellaneous income from savings and investment (which are mostly taxed as part of the Business Income Tax anyway.).

In Virginia, if federal structural reform occurs first, no change is required to the Virginia Constitution to adopt this tax reform (in fact, in the event of a federal change, a constitutional amendment is required to maintain the status quo). If Virginia wishes to take the lead in tax reform, however, a constitutional amendment is necessary. Constitutional reform is also required to introduce a tax credit for faith-based schools and social services. This is needed to overturn the Blaine Amendment banning public support for religious schools. While a tax credit is not the same as direct public support, it is safer to pass an amendment, if only because some anti-Catholic bigot in civil libertarian’s clothing is likely to challenge the provision in court.

Coopertative Trade

Union-owned multi-national corporations are an invaluable tool for modernizing the rest of the world. They have every incentive to do so. The extent to which foreign workers, especially workers in the same conglomerate, are under-paid, that is the extent to which American workers are at risk. When American workers adopt union-ownership, it is in their interest to extend the same system to each of their overseas factories. Likewise, when overseas worker learn of the good fortune of their fellows, they demand equal treatment.

Doing so dramatically alters the economies of the nations where union-owned firms have facilities. These facilities are quickly seen as the best place to work, so that American union-owned multi-nationals have the pick of the best workers and the best students. Firms establish universities in these nations or send their employees to the United States for school. Such firms also look to workers in the lower classes to find geniuses who have been ignored because of their color or class. As workers become owners and pay is increased, living standards rise and a middle class is formed. As living standards rise and elites have less economic influence, these nations become freer and more stable. Political reform sweeps the planet.

Trade, Currency Exchange and Conversion
As economies continue to integrate currency exchange rates become less exploitive of the third world, which in turn preserves the jobs of many American workers. Union-owned multi-nationals need to develop a better means of currency conversion for transfer pricing and trade. These methods rely on developing a common market basket of goods relevant to the needs of all of their workers. This market basket is then priced in both currencies, comparing the cost difference with the exchange rate difference. To be true to all of its employee-owners, it makes internal pricing decisions based on the single market basket, while capitalizing on these differences for other economic decisions.

Comparing the various market baskets cost differentials and the price differentials is also the measure of how much one economy exploits another. An examination of the effect of tariffs and subsidies is part of this analysis. Knowledge of these disparities is useful ammunition in defeating or modifying exploitive trade agreements, such as the North American Free Trade Agreement (NAFTA), as well as subsidies and tariffs. Publishing this information widely also has an effect, as the information itself affects the performance of trade and currency markets.

Using this information in these ways is as close as the world comes to the adoption of a single currency, although wide publication of this information is a first step in that direction. As tariffs and subsidies lessen and third world economies develop currency rates stabilize. When this happens, agreements on money supply growth targets are made between national reserve banks, controlling inflation and further stabilizing both prices and currencies, facilitating long-term growth and prosperity on a more global scale. These actions diminish the need for such institutions as the World Bank and the International Monetary Fund and their failed fiscally conservative policies. In fact, the spread of Cooperativism leads to a wide adoption of tax and social insurance policies suggested in this volume. Such policies are the antidote for the failed policies of the World Bank/IMF.

These metrics are also useful to accurately measure the health of developing economies and ease the transition to a free market system in the formerly Communist world.

Aerospace Firm Management: Mature and Startup

Two types of firms apply here, consortia of existing firms and start-up firms. Consortia of established firms find suggestions here on how to adapt their operations for life in the new century. Start-ups find suggestions on how to use the principles set out in this volume to create new capital, both human and physical.

Total Quality Management
Quality is important in the development of aerospace equipment, since the effect of defects is catastrophic. It is not enough to have a TQM program, it must be central to the culture. For both established and start-up firms, responsibility is assigned to the lowest possible level. Of course, everyone who knows anything about TQM already knows this. What they don’t know is that pay and bonus structures have to mirror this change of responsibility. In traditional capitalist firms, responsibility was assigned to the highest level and delegated down, with pay structures reflecting the assignment of responsibility. TQM and Baldridge are looked at as merely management fads in most organizations because the failure to change compensation systems has signaled employees that management is not really serious about the program. When decision systems are flattened while compensation systems remain hierarchical, employees take the implicit hint that their efforts are not as valued as those are within the hierarchy, and ignore the system accordingly. In employee-owned aerospace firms, if responsibility is assigned more evenly in a TQM culture, pay mirrors that assignment or the TQM program is doomed, as are the people who depend upon the hardware and software developed by that culture.

Recruitment and Compensation
Recruiting the best possible people is essential in succeeding in this high stakes business. The suggestions offered in the essay on the 21st Century Career apply to both established firms and start-up firms, albeit in different ways.

Established firms have the financial wherewithal to attract the best employees by paying them bonuses for education already earned or by paying tuition, salary and living expenses for the best students in the country, thereby gaining competitive advantage. The downside is that they already have an established culture, so an education and pay audit is completed on every single employee to determine the extent their salaries have compensated them as well as they would have been compensated if they had been brought in under the new rules. Management then takes the difficult step of lowering the salaries of employees whose pay to date has been adequate compensation (which is better than the current practice of laying off senior workers and replacing them with two younger workers for the same price). Failure to do so results in two different pay systems, one for long term employees and one for new employees, leading to demands by the newer employees for higher salaries with time. For employees who have been under-compensated, cash bonuses and stock grants are awarded to make these employees whole. This benefit is also used to attract new, mid-level employees who have been under-compensated in prior jobs or who have outstanding educational debt. Firms purchase and pay off that debt and award stock to reflect the cost of going without while going to school.

New firms have a different problem and different opportunities. Unlike older firms, they have no existing culture that needs to be dealt with. However, they also are without existing funds in order to pay students to pursue their educations or the lines of credit to underwrite student debt. In order to compensate for this, venture capital is required for payment of student tuition and salaries as well as employee salaries. The extent to which venture capital funds, rather than revenue pay for these human assets is the extent to which venture capitalists own the product of their labor – a situation that employee-ownership was designed to overcome. If venture capital is used, agreements are made up front on the extent to which venture capitalists receive profit. As revenue is earned, there is a transition period during which the percentage awarded to workers gradually increases until it matches their costs relative to the total cost of the operation, leaving the venture capitalists with the profit for physical capital only. Why would a venture capitalist accede to such circumstances? Self-interest is the reason, as even with a mandated profit-sharing program, firms following this business model have the best employees and produce the best innovations, producing more profit than any competitor, as not only planned, but also unplanned innovations result.

21st Century Housing
Of all the industries on the planet, employee-owned aerospace is the most likely to offer long-term contracts to employees which contain home mortgage financing provisions for the purchase of an environmentally-efficient domicile. Any firm with designs on space colonization, whether it is a pre-existing consortium or a startup, should strongly consider offering whatever environmental system is built for space to their earth-bound employees. It goes without saying that employees who actually live and work in space or on lunar or Martian colonies also have this feature as part of their employment contracts. Newer firms are possibly in a better position to do this, since their usually younger employees do not already own homes. Existing firms also offer this benefit to those employees who wish to sell their existing home and sink these funds into a 21st Century Home with a smaller mortgage.

Employee-ownership
Companies are urged to adopt employee ownership structures along the lines described above, using either Employee Stock Ownership Programs (ESOPs) or cooperative forms of organization. Newer firms, which are in the process of creating wealth through sweat equity use stock grants in lieu of pay for both performance, innovation and to compensate for existing education with stock rather than payroll. ESOP plans are not necessary unless the firm uses venture capital financing, in which case using an ESOP is just the ticket to buy out the venture capitalist. Whatever the structure, employees must have their say, either as individuals or through their labor or professional organization, in the operations of the firm. While all employees are heard, using share ownership as a voting method gives more experienced employees a greater voice. This is wise, since lives are in the balance when some decisions are made. Employees who come to the firm from another firm convert their retirement equity to equity in the new firm, giving them a voice commensurate with their experience while putting them at stake. Providing greater control and ownership to older employees allows for the creation of a flatter wage structure. This also has the effect of decreasing expenses while rewarding loyalty. A caution is in order, however. While older employees gain greater shares each period as dividends are reinvested, basic share awards are equal. Nothing destroys motivation among junior employees like combining unequal ownership and unequal acquisition. Awarding the same number of basic shares prevents this perception, improving morale all around.

Converting Emerging Economies to Cooperatives

As nations move toward democracy and a free market they find themselves in possession of state-controlled industries that are better run as private sector enterprises. This is easier said than done. In the former Soviet Union, shares were distributed to employees while the currency was collapsing. The Russian workers did not know that the stock price was not as important as the maintenance of control, so they sold their seemingly worthless shares to the agents of what are now the Oligarchs. It will now take decades to undo the damage of a badly implemented privatization. Had these shares been held in trust and voted by occupational group, the rise of the Oligarchs might not have happened.

To reverse this trend in Russia, both a progressive tax system and a Social Security system are necessary. A Social Security system is developed in the way I have outlined above, with an employee contribution based on income and an employer contribution based on the average income in the federation. The employer contribution is paid in stock with structures in place so that management does not control how that stock is voted. Employee committees organized by trade union or professional society controls his stock, which is not available for sale until retirement. When enough stock has been purchased, profit is distributed to workers based on the labor cost as a percentage of total costs, with a separate capital distribution to the owners of capital, including the worker-shareholders. If these steps are taken, the oligarchy is overcome, bit-by-bit.

We welcomed then-President Putin’s ongoing investigation into how the oligarchy concentrated power. To the extent that corruption was used, sanctions criminal sanctions are needed against the oligarchs and their assets seized and redistributed to the employees.

Russia is also in dire need of infrastructure repairs and the modernization of agriculture. Construction contractors are needed to build roads. Set these firms up along the lines of Cooperativism. Contractors are also required to share their profits equitably as a contract condition. Roads are financed either through direct budget funding or through a license to charge user tolls. A commodity market and system of food storage reserves is to be set up along the American model. The world does not need to provide food aid to Russia. It needs to buy food from Russia.

Most of what I have said about Russia is applicable to China, where the connected have by and large circumvented the workers right to control the means of production. The prospects in China are dimmer, however, absent a revolution overthrowing the Communist Party. With the rise of a middle class in China and the continued tendency by its government toward repression, some type of revolution is almost inevitable. When it occurs, those corrupt officials who have deprived Chinese workers of their ownership rights are likely to be held to account, and the ownership of factories returned to workers.

There are likely firms in Russia, the other Republics of the former Soviet Union, China, Vietnam, Cambodia and Laos that have not been looted by party members or other Oligarchs. These are easily privatized. To do so, first determine the initial share distribution. Add the total number of worker-months for the active employees and give each worker one share for every month they have worked at the enterprise. Form caucuses of each occupational group and have them elect members to the board of directors based on their relative number of shares held. Shares are restricted from sale until retirement, so as not to repeat the mistakes of the recent past. After this is done, bring in consultants to determine the capital requirements for modernization. If debt is required and credit available, incur it. If debt cannot be procured, value the existing company compared to its value after modernization and set the value of the shares to be sold accordingly. For example, if the workers hold 100,000 shares and modernization doubles the value of the company, then the amount of shares to be created is an additional 100,000 and the value of each share is 1/100,000 of the total financed in the capital markets.

With the development of third world multi-nationals, converting formerly communist enterprise to 21st Century Economics speeds the world to a new economy and a new polity.