Drew Field
Direct Public Offerings

The Ownership Solution and Democracy at Risk by Jeff Gates


Jeff Gates met Lou Kelso while Jeff was in law school, where he wrote articles about Lou’s ideas for his law school newspaper.  At Lou’s suggestion, Jeff worked on Stuart Speiser’s book, A Piece of the Action.   Jeff then went on to be counsel for Russell Long’s Senate Committee on Finance during the 1980s, where “I crafted much of the federal legislation encouraging employee stock ownership plans.”  He became special counsel to Kelso & Company and has since been a consultant to governments and other organizations on “ownership engineering.”  His books are The Ownership Solution: Toward a Shared Capitalism for the Twenty-First Century, Addison-Wesley, 1998 and Democracy at Risk:  Rescuing Main Street from Wall Street, A Populist Vision for the Twenty-First Century, Perseus, 2000.  


In The Ownership Solution, Jeff suggests “a steady broadening of ownership, in the knowledge that a vigorous effort in that direction will, in time, correct the current concentration.”  Beyond the economic effect, he sees shareownership “as a social tool for linking people not only to things (productive assets) but also to each other, to their community and (importantly) to their endangered environment.”


Jeff presents a clear, compelling analysis of the current ownership of financial assets and the “closed system” of business finance.  However, he does not believe that new shareowners will be created if shares must be purchased “from their already stretched paychecks.”  He argues that the “best way . . . is for government to intervene with a foresighted policy environment that induces capitalism to create a broader base of capitalists.”   Examples from his own consulting work are ESOPs and extensions to RESOPs (Related Enterprise, such as a company’s vendor’s employees); CSOPs (Customer) and GSOP (General, “in which ownership is based on geography or citizenship.”) 


Jeff uses his experience in federal government policy to suggest “twelve areas where the government’s presence could be retooled to broaden ownership.”  They include favoring companies with ESOPs or “certifiably broad-based ownership” in making government purchases, licenses, access to public property, trade assistance, loans and loan guarantees, public pension plan investments and antitrust enforcement.  He adds ten changes in taxation “to foster broad-based capital accumulation,” as well as a “major education and communication campaign to better school citizens about finance, business and the various paths to ownership.”  Combined, all of these measures are to achieve “a ‘critical mass’ of encouragement so that the current closed system of finance (which concentrates ownership) becomes less attractive than financial techniques that broaden ownership.”


In Democracy at Risk, Jeff describes the current “people-disconnected capitalism” and argues for a “people-responsive economy.”  In chapters like “Killer Capitalism,” he documents many of the negative effects on people and our environment from poverty, erosion in real income from work and the continuing concentration of capital ownership.


The chapter on “Education for Democratic Capitalism” proposes an education campaign for voters to learn about “today’s economic disparities, . . the unmet obligations due our children, . . the antidemocratic nature of our current financial structure,” and “the threat that economic centralization poses to the democratic tradition.”


Few new programs are suggested in this second book.  Published just before the 2000 presidential election, it is mostly a call to political action, to elect a “populist administration.”  Jeff would have the new populist president “proceed along the same lines as those Huey Long proposed in 1935,” which would include a “National Share Our Wealth Corporation that would ‘operate as a steward and trustee for the American people in the redistribution of wealth.’”


A friend of Jeff’s directed him to our website in 1999, as he was finishing his second book, and we had an email exchange of views.  Democracy at Risk includes descriptions of our direct offerings for California Federal Bank and Real Goods Trading Corporation.  However, Jeff also says that “the idea of people accumulating significant capital through personal saving is a particularly vigorous exercise in futility.”  Our experience has shown that people will choose to buy shares with some of the earnings they have left after paying for necessities.  Loan guarantees, tax benefits and other government programs could increase the amount of those purchases, but the political agenda today does not even include any studies about broadening the ownership of capital. 


We see the work to be done as a marketing and education challenge.  In direct offerings, a business presents itself to its own communities and helps individuals decide whether they want to become shareowners.  No new government program is required.  While the actions that Jeff suggests would seem to be helpful, they risk involving the law of unintended consequences that so often follows the political process.  Direct offerings can be completed with no new attention from government.