Louis Kelso

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Bill Moyers talks with Louis Kelso, coauthor of The Capitalist Manifesto. Kelso advocates for spreading America’s wealth through Employee Stock Ownership Plans.


BILL MOYERS: In this half hour: some thoughts on capitalism with Louis Kelso. I’m Bill Moyers.

Louis Kelso wants to make a capitalist out of every American. He believes that everyone, not just big corporations, could be an owner of stock paid for out of its earnings. In The Capitalist Manifesto, written more than thirty years ago with Mortimer Adler, he explained his populist interpretation of Adam Smith. The main idea is to spread America’s wealth through a plan of Employee Stock Ownership, commonly called ESOPs. It’s an idea that has made Kelso a rich man. His firm advises companies on employee ownership plans. In the 1970s, Congress endorsed his idea and Kelso’s brainchild became law. Since then, one company after another has tried a variation of Kelso’s plan.

ADVERTISING CLIP: “The Employee Owners of Avis…we try harder…”

BILL MOYERS: Avis, Proctor and Gamble, Dan River, JC Penny, Anheuser Busch. Some plans have worked, some haven’t and the reasons vary. But by the end of the 1980s, some 10 million workers belonged to ESOPs. Kelso is still crusading for more democratic capitalism. And he had just returned from promoting his ideas in Europe when I talked to him in New York City.

BILL MOYERS: I know as a reporter that there’s a widespread perception in the country that something is fundamentally and dangerously wrong with our economic structure. Our debt has tripled in the last ten years, there are 32 million people living in poverty, 12 million of those live with less than $5,000 a year. It’s harder and harder for even two spouses in the same family to do for their children what one spouse did with one…

LOUIS KELSO: …twenty-five years ago.

BILL MOYERS: …twenty-five years ago. Working couples have a hard time buying a home. More and more people falling by your own statistical studies falling out of the middle class. I mean something is wrong here.

LOUIS KELSO: It isn’t working for a large part of the population. But that isn’t the whole story. The other story is the poor live in a very lousy fashion. HUD estimates there are 25 million people in the United States who would love to have homes and want to buy them who will never be able to buy them in their lifetimes under present conditions.

BILL MOYERS: Is that why you say that in the United States today we have a political democracy within an economic plutocracy?


BILL MOYERS: That’s strong language you know. I mean plutocracy, that’s not a word we normally hear.

LOUIS KELSO: No, that’s a very strong word.

BILL MOYERS: And in fact you write in one of your books that the concentration of wealth in the United States today is as great as Marx and Engels found in Europe when they wrote The Communist Manifesto.

LOUIS KELSO: That’s exactly right. It’s even worse. They said it was in the top ten percent, I’d say with all the nonresidential capital, it’s in the top five percent. Ninety-nine percent of all the capital assets in the United States have been bought out of the income of capital. That tells you what the little guy who’s saving his money in a savings and loan is risking besides the thievery of the people who run the savings and loan, or some of them anyway.

BILL MOYERS: During the 1980s we saw capitalism at its heyday in one sense; the free-marketeers had their decade with Ronald Reagan, the mergers, the leveraged buyouts, all of this. What was the result of it? Wasn’t it further to concentrate the capital?

LOUIS KELSO: No question about it. Concentrated the heck out of it. Look at the Forbes 400. That’s a study by Forbes magazine that identifies the 400 largest family incomes in the country. You used to be able to get in that club with 100 million or so. Now it’s almost 500 million. And, you know, it will be a billion sooner or later if we keep on the way we are. Now, the marvelous thing about it is, the minute you’re income exceeds what you will spend on consumption for yourself and your dependents, you’re no good to the economy anymore. You only use the excess for one purpose, and it’s a bad purpose, namely accumulating more excess. The thing is out of control.

BILL MOYERS: You’ve said that one of our problems is the rich don’t spend enough.

LOUIS KELSO: They can’t spend enough. They only spend it for the wrong thing: accumulating more excess. You see, capital is too fabulous a thing, too vital a thing, too critical a thing to be owned by the few and we’re just violating that all over the place.

BILL MOYERS: Because our capital is so concentrated as you say and five percent of…

LOUIS KELSO: That’s right, and we live on redistribution. The wars and war production have been an indispensible part of making this plutocratic economy work. We have to raise the earning power of the people. Look at it another way. Over half of the total taxes state and federal, Bill, are levied to support transfer payments.

BILL MOYERS: Boondoggles, subsidized jobs; you keep building an aircraft even though you don’t need it because you don’t want to lose the jobs it supports.

LOUIS KELSO: That’s exactly right. Look at your papers day after day. We can’t cut back on this because it provides hundreds of thousands of jobs and so forth.

BILL MOYERS: This is redistribution?

LOUIS KELSO: It’s redistribution. Now, why do we tax some to give to others? Because the earning power of a large part of the population is inadequate and even with all the redistribution and the damage that that does and it does tremendous damage, we can’t get everybody under the redistribution rug.

BILL MOYERS: So you have to do what?

LOUIS KELSO: You have to adopt a national economic policy that recognizes that capital is a main source of productive input and it is a human right. I mean the right to life implies a right to earn a good living. Where ninety percent of the goods and services are produced by capital, as they are in an industrial society like ours, you can’t earn a good income, normally, without earning capital. You need to have both and therefore you need to have a reasonable opportunity to acquire it, to buy it and pay for it out of its own income.

BILL MOYERS: And by capital you mean?

LOUIS KELSO: Land, structures, machines, capital intangibles, processes, tools, normally represented in our economy by common stock, since most assets are held in corporations and most production is carried on in corporate form.

BILL MOYERS: So you say that what we need in this country are 150 million capitalists.

LOUIS KELSO: Or 200 million, whatever.

BILL MOYERS: So what’s your definition of capitalist in this sense then?

LOUIS KELSO: Well a man, a family who earns a significant part of their income through the ownership of capital. As I say, that’s normally land, structures, machines, processes, capital intangibles, it’s normally represented by common stock. A corporation is a magnificent entity intangible that enables many people to individually own a piece of the assets held by the corporation.

BILL MOYERS: So every worker is a shareholder in the corporation or company for which he or she works?

LOUIS KELSO: A shareholder of enough capital ownership to supplement and eventually supplant his labor income or her labor income, a lifetime employment. Look at the rules of marketing economics: the only way to earn income is to engage in production. Now in Adam Smith’s day, you could do that till you got too old to do the job, whatever it was, and then you were a burden on your relatives or friends or the state itself. With a gradual accumulation of capital ownership, you shift from labor dependency to capital dependency, and at some point you can retire from the labor market but go on as a capital worker till the day you die. It’s a constitutional right. The right to life doesn’t mean a thing without the right to earn a good income, a good income in this society.

BILL MOYERS: Where do you find that in the constitution, the constitutional right to be a capitalist?

LOUIS KELSO: I find it in the fine print and in the development of the law. The right to life of course, you don’t have to jump very far philosophically to realize that that means the right to earn a good income to support life, as good an income as the average can do or as good as the system could do if it were properly used. The idea of the level playing field being a field in which every individual is treated as economically equal is absolutely insane. The Roman arena was a level playing field, and there were the lions with all the weapons and the Christians with all the blood. That’s not a level playing field, that’s a slaughter. And so putting people into the economy without equipping them with capital and equipping a tiny handful of people with hundreds and thousands of times more than they can use when they can’t even take it with them…I mean, if they could take it with them we could make an argument but…

BILL MOYERS: But you know you’re defying the very nature of capitalism itself when you make this argument because capitalism, is it not essentially competitive and even essentially ruthless in theory and in practice?

LOUIS KELSO: The answer, Bill, is no. And the reason it’s no is that the claim to capital ownership is one of the expressions of the law of private property. Now the law of private property is part of the common law. We acquire our common law from Great Britain; Great Britain refined it for seven or eight hundred years and the roots of it go right back into Roman law. So we’re talking about the definition of the relationship between an individual and his capital as being subject to three limitations. Private property does not vest an owner with the right to use his property to injure a fellow man. It does not vest him with the right to injure the property of a fellow man. And it doesn’t vest him with the right to injure the public welfare. The moment you recognize that capital is man’s invention to combat toil and poverty and that every person needs to have it, those three principles of limitation, which come out of the ancient common law of private property, become operative and we need a Supreme Court that sits up and says so.

BILL MOYERS: Yes but that ancient principle that goes back as you say to deep roots was so violated by practice over the centuries that it led to Marx’s own diagnosis which you quoted earlier, that the concentration of wealth had become so profound that it was twisting the very meaning of human dignity and human life.

LOUIS KELSO: That was inevitable Bill because until you recognize that owning capital, just owning it, is actively engaging in production and earning income, you don’t have a case. I mean every once in a while you’ll find some wise guy, usually a billionaire, who says it doesn’t make any difference who owns the capital. He’s speaking from a very safe position you can see. The truth is exactly the opposite. Owning capital is the difference between being poor and being not poor.

BILL MOYERS: And your idea was that employees of a company would be able to obtain access to credit and use the proceeds, the profits from a company to pay back that credit.

LOUIS KELSO: All employees should have, and all they really honestly can ask for is, the right legitimately to acquire the stock and pay for it but pay for it out of its own income.

BILL MOYERS: Pay for it out of the profits of the company, not out of wages or salaries?

LOUIS KELSO: That’s right. That’s right.

BILL MOYERS: And what does that do for them?

LOUIS KELSO: Well it enables them to do just what the industrial revolution intended with developing capital assets. It enables them to fight poverty, it enables them to reduce toil, to be productive while gaining more leisure. It enables them to live better, to live more respectably, that is Adam Smith’s private property, free market economics modified as to its assumptions to recognize that owning capital is a way to engage in production and a way to earn income.

BILL MOYERS: But Louis, even your own idea: employee stock ownership, ESOPs, has been corrupted by capitalism.

LOUIS KELSO: No question about it. No question about it.

BILL MOYERS: Eastern Airlines gives twenty-five percent of its stock to workers, not much democracy though and they have to sit around when Eastern Airlines is sold; they sit around helplessly. Dan River down in Virginia, twenty-five percent of its stock is given to the employees, they feel good about it. Bang, it all goes badly and the workers now feel they’ve been had by management that is out to protect its own interest to preserve its own privilege at the expense of the workers.

LOUIS KELSO: Well, the right to buy in the same way that the rich have bought their capital, namely, buy it and pay for it out of its own income, that is the human right, that’s the human right that needs to be constitutionally recognized.

BILL MOYERS: But I’ve seen one team of management after another subvert that idea to protect its own interest. They share the stock but they don’t share democracy, they don’t share participation.

LOUIS KELSO: That’s because we simply haven’t gone far enough to make it clear what the principles are and to adopt them as policy.

BILL MOYERS: Well isn’t that a point of human nature, which flies in the face of theoretical ideas of capitalism, that privilege always protects its own privilege?

LOUIS KELSO: It does, but the purpose of the state is to lay down a sound policy, to make it possible for people to live well and peaceably, and prosperously, and competitively. The United States is going downhill in the world competitive society. Evidence of it is all over the place. Unfortunately, the double entry bookkeeping logic on which a market economy is built doesn’t require that the consumers be in the same economy in which the producers exist. So by producing high quality, lower cost products, the Japanese and to a somewhat lesser degree the Germans have simply taken the American markets. And they’ve impaired our leadership in a hundred industries and they’re the big industries, the most prosperous, the most significant. And that’s the good news; the bad news is they’re going to do it in the rest of them if we don’t wake up.

BILL MOYERS: What would it take? You’re talking about changing American economic policy from full employment…everyone has a right to a job—to…?

LOUIS KELSO: Full employment and capital ownership, efficient, effective capital ownership as early as possible in your life, but over a reasonable period of years.

BILL MOYERS: How do we do that?

LOUIS KELSO: We need one leader who says, “This is insane. We have an economic policy that was very appropriate in the Stone Age but we’ve passed that now and there’s every sign that we’re losing in the world competitive race.” We’ve got to change it and obviously the missing link is that we haven’t upgraded the assumptions underlying free market economics that were made by Adam Smith.

BILL MOYERS: But the tendency of society is not in that direction. Look at the 1980s. Look at the wild, euphoric romp that the free marketeers had on Wall Street. And the result was…?

LOUIS KELSO: It wasn’t a free marketeer exactly, Bill, it was a greed romp, it was an absolute greed rage and we had a leader who didn’t recognize it and who thought it was good.

BILL MOYERS: But isn’t that the nature of this capitalist…?

LOUIS KELSO: I don’t think so. I don’t think so. I think it is the misused nature. Its real nature hasn’t been aroused. I don’t think that anyone can defend his position in seeking to own more than about 25 or 30 million dollars at most when he can’t use it, won’t use it, won’t take it with him, and when his ego is imposing enormous harm on his fellow man.

BILL MOYERS: Are you self-deluded? I mean here you are arguing against the very dominant tendency in American capitalist development, here you are saying that with the right leader we could make America truly a people’s capitalist society, when you’re flying in the face of the way we’ve been going the last 25 years.

LOUIS KELSO: Yes, but we’ve been getting deeper and deeper in trouble, Bill. We have reached the limits of redistribution. We’ve been running this society on redistribution since the New Deal. We need independent people. We need strong families, all strong, not just some. Everybody has ego. Everybody has an acquisitive instinct. We need to pay attention to the instinct of all.

BILL MOYERS: Isn’t it more than that? I mean the wealthy stack the decks that they then…what’s the old saying in Texas where I come from? “Play the cards fair, Ruben, I know what I’ve dealt you.” Isn’t that what the wealthy do, and the privileged? And the concentrations of power concentrate more power and wealth so that they can further concentrate their power and wealth. They do deal themselves a good hand.

LOUIS KELSO: But they’re leaving out the ninety-five percent and I say that in a democracy, with odds of ninety-five to five, you should be able to win. The good should be able to win; the sensible should be able to win.

BILL MOYERS: Would you be undermining capitalism?

LOUIS KELSO: Quite the reverse; you’ll be establishing it. You’ll be putting it on a sound powerful footing, a footing where it can really spread all over the world. This capitalism cannot be imitated in other parts of the world because they’re indoctrinated in Marxist goals, namely the goal of equal economic opportunity. You don’t have equal economic opportunity in this society without capital ownership. I mean you’re a lamb against a tiger.

BILL MOYERS: You wrote a letter, a long letter to Mikhail Gorbachev.


BILL MOYERS: What did you say?

LOUIS KELSO: Well I said to him he ought to examine the whole concept of binary economics because it accepts the validity of the Marxist goals that equality of economic opportunity is an important part of society, a good society and a democracy, and that to think that democracy depends merely on democratization of political power is to miss the big ball. It requires the democratization of economic power and that requires the democratization of capital ownership.

BILL MOYERS: You were telling him in effect not to make the mistake that we have made and to become a real capitalist society.

LOUIS KELSO: Well take the best of Marx, namely the goals, and the best of what are, erroneously I think, called capitalist economies, namely the free market means and put them together and let’s make the thing work. Rationality has to serve some purpose in life. This is irrational and the socialist economies were irrational.

BILL MOYERS: You are arguing beyond Marxism, beyond Adam Smith, beyond liberal and conservative, beyond Republican and Democrat, beyond arbiter and corporate executive, which means that all of those people, Marxists, liberals, conservatives, Republicans, Democrats are going to stand back and say, “He’s a crank you know, he wants to take our system and radically change it.”

LOUIS KELSO: Nothing would be taken away; nothing would be given. Everything would be bought and sold. For 200 years for two centuries people have been coming to America in search of the American dream which is to acquire a competence that is a capital holding that will stand you in good stead when you’re in trouble and when you’re old and that’s what coming to America meant for most people. For 200 years they’ve been defeated for the most part. A few get through. The Homestead Act was in a sense one of the first tools, certainly the first governmentally recognized tool, of recognizing that capital ownership is essential. We were still an agrarian economy when Lincoln pushed through the Homestead Act after it had been debated for about twelve years.

BILL MOYERS: It made landowners of a lot of ordinary people.

LOUIS KELSO: And we made landowners of people who couldn’t make a good income, earn a good income without that capital. Now we have a precedent; don’t look just to ESOPs, look to the Homestead Act. There was a case where government owned it all and where government didn’t go to Wall Street and say, “Now can you help us finance this? Loan a few billion and we’ll sell this to some folks,” and get it all in the hands of the people who wound up owning the railroads. It was paid for with sweat equity, but it was paid for. It was bought with very dear labor.

BILL MOYERS: So you’re saying that capital, income producing assets, are the equivalent today of land a hundred years ago?

LOUIS KELSO: Absolutely. Absolutely. The logic of the Homestead Act was never followed through into the Industrial society. It should have been, but it wasn’t.

BILL MOYERS: In part, the resistance comes because the capitalist is a tiger. Once he gets it, he doesn’t want to…

LOUIS KELSO: But he’s not the only tiger in the jungle, and the hungry tigers are going to beat the greedy tiger every time, especially when they outnumber them ninety-five to five. All they have to do is get the issue straightened out so they know what they’re fighting.

BILL MOYERS: From New York this has been a conversation with Louis Kelso. I’m Bill Moyers.

This transcript was entered on April 3, 2015.

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