The plaintiffs’ lawyer pressed Mr. Ford on the witness stand: Hadn’t he stated publicly that he had as much money as he needed? Yes, he said, he was one of the wealthiest men in the country. Then what, asked the lawyer, was he trying to do? Employ as many workers as he could, give them high wages, and provide the public the benefit of a low-priced car.
“And incidentally make money,” added Henry Ford.
“Incidentally make money?” echoed the lawyer.
“If you give all that,” said Mr. Ford, “the money will fall into your hands; you can’t get out of it.”
That remark added to Mr. Ford’s public luster, but it lost him the case. Making shareholders wealthy in the short run, ruled the judge, should not be incidental to making everyone wealthy in the long run. And he ordered the Dodge brothers’ dividends paid.
The debate on corporate ownership has followed the same basic lines ever since. Whose interests come first: those of shareholders, or those of the general public? Which group should be “incidental” to the other? Through most of the 20th century, the two sides held more or less equal sway — until the 1970s, when the shareholder-dominant view of governance moved far into the lead. By the year 2000, saying that corporations existed for some purpose other than return on investment to shareholders was enough to label you a crackpot in most financial circles. Then came the bubble burst of 2000, the ongoing boardroom scandals of 2001 and 2002, and a whole new current of critique of the “shareholder first” mind-set, which is still rippling out through waves of pro-and-con punditry as I write this.
In the midst of all the turbulence, one provocative voice has picked up Henry Ford’s original point. The voice belongs to Jeff Gates, a lawyer turned employee-stock-ownership expert turned policy wonk turned investment banker turned gadfly, part-time politician, and writer. His two books are The Ownership Solution: Toward a Shared Capitalism for the 21st Century and Democracy at Risk: Rescuing Main Street from Wall Street, both published by Perseus Press, in 1998 and 2000, respectively.
Mr. Gates takes seriously the idea that large, mainstream markets depend on a large, mainstream middle class. In the last 30 years, he argues, American business has drifted away from that principle, which has paved the way not only for the Enron Corporation, Global Crossing, and Tyco International Ltd., but also for what he terms a kind of “legalized looting” endemic to our current economy, in which executive salaries rise dramatically and ownership becomes more concentrated, fueled by pension-fund capital that would otherwise be getting far better returns. If this trend continues, in Mr. Gates’s view, we’ll drain away not just much of our pension-fund asset base, but the American middle class itself. He has marshaled a daunting amount of data (along with a fair amount of Sturm und Drang rhetoric) to show how plausible that could be, even within the next 10 years, whether the Dow Jones average recovers in the short term or not.
In Democracy at Risk — a no-holds-barred, apocalyptic manifesto — Mr. Gates projects an apocalyptic financial crisis, which he thinks will be upon us by 2010 or so. There will be about 76 million baby boomer retirees beginning to cash in their 401(k) stock, only to find its value dropping dramatically as everyone tries to sell at once. Housing prices will drop, too, as boomers try to cash in that equity to a smaller base of buyers. Middle-class manufacturing jobs will long have been lost to China. Clerical and management jobs will dwindle away through the application of information technology and automation. A U.S. federal government crippled by thousands of billions of dollars in debt and a falling dollar due to trade deficits will see its credit rating slip. A draconian Social Security tax, unrepealable because it becomes the only source of retirement income that most baby boomers have left, will push more jobs abroad. Personal bankruptcies will mushroom. Three- and four-job breadwinners will become commonplace. So will the kind of environmental degradation that is generally associated with less-developed countries.