As should be evident from this examination of employee ownership as an economic development strategy, it is not a panacea. Part of this is due to the fact that some states have not put much effort (if any) into implementation of state programs or legislation. Employee ownership is not a viable alternative in all situations either. If a plant is not economical viable, employee ownership will not save it. Employee ownership works best when it is implemented in a healthy business. There are also problems that need to be corrected, such as exclusion of unionized workers, voting rights, and the complexity of the tax code pertaining to ESOPs, to name a few.
Employee ownership can, however, provide a number of functions with regard to economic development, such as job creation and retention. Research has shown that employee ownership is more likely to create new jobs then are traditional firms. Employee ownership also serves as a means of job retention. Since employee ownership anchors capital in the community it also reduces the uncertainty of economic development created by the fear of capital flight. Employee ownership research has shown leads to greater job security since employee-owned firms are less likely to layoff workers during economic downturns.
As a result of anchoring capital in the community, one proponent concludes that employee-owned firms should have a higher local multiplier effect. This is due to fact that employee-owned firms often do more of their purchasing locally, and of course, employee owners’ purchasing power is more closely tied to the community than that of conventional shareholders. Furthermore, profits are not siphoned off to distant corporate headquarters.
Successful implementation of employee ownership legislation is necessary for states to meet these policy objectives. There is one primary characteristic of those states that have successful implemented employee ownership legislation. The establishment of a state program greatly increases the likelihood that employee of successful implementation. State programs have provided a variety of important functions that increase the probability of utilizing employee ownership as an economic development strategy.
First, through information dissemination, these programs have increased the likelihood that potential clients will know about the program. There are numerous resources available to the potential employee owner. These include resources from both the federal and state government. However, research has shown that potential employee owners (and even state officials) are often unaware of the resources available to them. Through networking and other educational programs potential clients are made aware of the types of programs available and the potential benefits of employee ownership. Educational programs, in New York and Ohio, have provided a vital function particularly with regards to information on succession planning.
Second, these programs have also contributed to the success of established employee-owned firms by providing specific training and other assistance. Different skills are often needed for the successful operation of the employee-owned firm. Research has shown that establishing an ESOP does not necessarily entail increased productivity and profitability. It often necessary that employee owners need specialized training in for example accounting and financial management.
Other technical assistance that has been provided by state programs is assistance with establishing democratic decision making structures. Research suggests that employee-owned firms with greater employee participation are more likely to have increased profitability and productivity. The Ohio Employee Owned Network, through the use of training seminars and retreats, provides continued skills training and assistance to employee-owned firms.
Third, state programs have also been more likely to draw on other sources of funding, such as from JTPA for preliminary feasibility studies, as well as from private foundations. Research has shown that states with programs are more likely to utilize these resources in greater quantity and with greater success. JTPA can be a valuable funding resource for potential employee owners and is a cost effective job retention strategy for states that have chosen to utilize the program.
Fourth, these programs, through their continuing research of employee ownership, have increased the knowledge pertaining to employee ownership. For the continued success of employee ownership it is important that research is done to discover what has worked and what has not. State programs have conducted most of the research that has been done on employee ownership. This research can be a valuable resource for potential employee owners, economic development departments, and policy makers.
Employee ownership works. Employee ownership can lead to increased productivity and profitability, especially if there is a high level of employee participation. In addition to available federal benefits, twenty-eight states have passed legislation encouraging, facilitating and/or promoting employee ownership. State employee ownership programs increase the likelihood of successful implementation of both federal and state employee ownership legislation. In the absence of state programs, available resources are often under-utilized. Lastly, employee ownership, though not a cure all, can provide a variety of functions to various groups, from business start to succession planning to keeping a closing plant open.