Worldwide, employee ownership is on the increase. Even as ownership of the world's capital becomes more concentrated, shared ownership through cooperatives and employee stock ownership is a countertrend which allows poor and average people a chance at some capital accumulation.

Employee ownership is gradually setting roots in North America and Western Europe. In Central and Eastern Europe, it was launched like a powerful rocket in the former Soviet-style economies, and some survivors will emerge from the rocket's crash. In East Asia, the Chinese national government and its local communities are experimenting with home grown varieties of employee ownership as they attempt the gradual revitalization of their economy through decentralization and privatization, and Japan's substantial employee ownership program dates from the 1960's. In developing countries in South and East Asia, Africa and South and Central America, it is seen mostly in the form of cooperatives. As dictatorships and juntas are replaced by democratic governments and voluntary associations can exist or re-emerge, activity in collective ownership expands. In addition, foreign aid donors are increasingly promoting and supporting the use of collectives and cooperatives for bootstrap development.

The real success and persistence of employee ownership in many venues has laid to rest long-standing theoretical arguments that employee-owned firms incorporate perverse incentives that will inevitably lead to their demise. Some collectively owned enterprises do succumb to greed, short-sightedness, bad judgment and mismanagement, but there is no evidence that they do so any more often than individually owned enterprises or joint stock companies. Some evidence suggests that they are more likely to be in existence five years after startup than are traditional companies.

The concept of employees' owning part or all of the companies where they work is simple, but the application is complex. National law and practice is varied and confusing. Each country has a distinct style of employee ownership, with a mix of laws, regulations, governmental agencies, institutional forms, and informal practices unique to itself. The chief possibilities include basic cooperatives of independent producers or consumers, and labor or production cooperatives (where the employees own their enterprises collectively), associations of cooperatives, direct ownership of firms by unions, ownership of stock by union pension funds, labor banks, workingmen's funds (collectively-owned portfolios of employers' stock), employee stock ownership trusts, employee stock ownership (pension) plans, employee savings accounts for investing in employer stock, direct stock purchases by employees, stock options, and deferred profit sharing paid in company shares. Even this lengthy list is probably not exhaustive. The ingenuity of groups of humans in developing their own special way of organizing economic activity has no limit. Neither do they hesitate to adopt similar names for different practices.

The oldest, best-established and most widespread form of group ownership is the cooperative. Co-ops take many forms, including credit unions, mutual insurance associations, housing cooperatives, consumer cooperatives, and labor or producer cooperatives.

Credit union and investment cooperatives, owned by their depositors, provide a vehicle for members' savings and access to credit. They are the formalized, legitimate relatives of neighborhood savings and investment clubs where a group of friends and neighbors pool small amounts of funds each week and allocate them to each member in turn. Mutual insurance companies pool members' funds to provide housing, auto, business and farm insurance.

Housing cooperatives allow residents to purchase and maintain multi-family dwellings, which they could not afford on their own. They are the comfort of the rich and famous in New York City and the hope of the poor in Uruguay.

Consumer cooperatives pool their funds to bypass distributors and obtain better quality at lower prices. Typically, they charge market prices and appeal to the general public for customers, but distribute dividends to members.

In all of the above cooperatives, however, employees are not necessarily owners in the cooperatives.

In labor or producer cooperatives, the employees own their firms. Typically, prospective members work for a probationary period, must apply to join the cooperative and are screened by a membership committee. Labor cooperatives vary in the percentage of their employees who are members. A common guideline is to take no more members than the cooperative can guarantee to employ on a full-time basis. Members make a capital contribution in kind or in cash, sometimes through payroll withholdings. This is the member's account value, which will be refunded (with or without interest), at the time of separation from the enterprise. Governance is usually based on one vote for each member, and the elected directors of the enterprise set overall policy and hire top management. The main benefits of membership are job security, participation in the distribution of profits, and above average social benefits. Sometimes membership means participation in enterprise losses or making additional contributions to the reserve. In some countries, the assets of the cooperative can never be distributed to its members, preventing them from realizing long-term appreciation in the cooperative's value, but creating an incentive to continue it over many years.

In the agricultural sector, many kinds of cooperatives are commonly found. Farmers form producer cooperatives to purchase and share expensive equipment or services or to market their crops collectively, with each farmer receiving income proportional to production. Cooperatives for the purchase of supplies are common, with each farmer receiving an annual dividend proportional to his/her trade with the cooperative. Farmers' mutual insurance and credit unions are common in the developed nations. The cooperative is so beneficial to farmers that it is often promoted through national policy.

Cooperative organizations have at times formed second-level associations of cooperatives for the purpose of owning a key supplier or marketer of their products, as well as for banking and management consulting services.

At times, unions have directly owned firms, including early labor organizations in the U.S. and substantial ownership in Israel by the labor union Histadrut. The direct ownership of firms tends to create internal tensions within the union, and in some countries it is illegal for unions to own enterprises.

Union pension funds own considerable stock inmany countries. However, the funds have not been targeted toward promoting employee ownership.

Labor banks may invest in firms that employ their depositors or in other social projects that will benefit depositors, such as housing, hospitals or schools.

Workingmen's funds, collectively-owned portfolios of employers' stock, were tried in Sweden as a means of increasing the savings rate, funding an anticipated shortfall in the national pension fund and stimulating investment, but there are no current workingmen's funds, and no apparent interest in reestablishing them.

In the U.K., Ireland and elsewhere employee stock ownership trusts have been legalized to hold stock distributed as profit-sharing. Stock is allocated on the basis of a written plan, and usually based on wages, seniority or a combination of the two. The trusts keep individual accounts for each employee with a minimum length of service and the trustee votes the shares as a block. Typically, employees may withdraw their stock or cashafter a certain period has elapsed, though sometimes only for specified reasons. The firm receives tax advantages for stock it contributes to the trust, and the employees receive preferred tax rates which descend to zero if the stock is held for several years.

Employee stock ownership (pension) plans are a legal option within the U.S. and a few other countries. ESOPs are pension trusts where the trustee, who has the responsibilities of a legal fiduciary agent, purchases and manages employer stock. The stock must eventually be allocated to individual accounts , butsome may be held by the plan to cover a loan for stock purchase the debt has been repaid. Employees must be vested in the plan over a maximum of seven years and they can withdraw their stock only on separation from the firm, although partial cash value is available at age 55 and 10 years of service.. They receive shares on the basis of wages, seniority, equality or some other written agreement. Their limited voting rights are based on the number of shares they hold. Upon separation from the firm, they may be required to resell their shares to the company and the company may be required to purchase the shares within a specified time. Or they may be required to give the company first right of refusal. ESOPs can borrow money to purchase shares, giving retiring owners cash and repaying the loan out of the firm's profits. There are tax benefits for owners who sell at least 30% of the firm to a trust or coop for the employees and tax benefits for employees, whose share income and appreciation on shares is tax-deferred. Some ESOP firms may avoid paying any corporate taxes whatsoever.

Employee savings accounts for receiving profit sharing and/or investing in employer stock are used in both France and Germany.

In any country where there is publicly traded stock, employees may buy their employer's stock like any other investor. Compensating top management in stock has been used as a performance incentive for many years. Many companies offer their ordinary employees stock purchase on the installment plan or at a preferred price. Employees may be required to hold the stock for a specified period of time before they can sell it, and the employer may require the first right of refusal. In some countries, the amount of stock that an employee can receive in compensation is limited to a certain percentage of salary or wages. Even where no subsidies or tax shelter is offered, the opportunity to buy employer stock may be eagerly taken, as it has been in some Chinese companies.

A variant on stock ownership is the offer of stock options, which allow the employee to purchase stock for a specified time at a specified price, no matter how high (or low) the stock may go. The popularity of this practice tends to fluctuate with the stock market.

Privatization offered stock grants and stock options to employees, and created a large number of employee owned companies, mostly in Central and Eastern Europe. Many of these are floundering or failing, and even in some successful firms, employees are selling their stock as soon as they can legally do so.

Although ordinary profit sharing with employees is not a form of ownership, it seems to be a good way for getting employees to think about ownership. The practice of employees' participating in the financial success of a firm through profit sharing is widely seen as a path to more efficient operations and greater productivity.

In some countries, national policy has made profit-sharing a step towards ownership by allowing or requiring all or part of profit-sharing to be in employer stock. Deferred profit sharing may receive preferential tax treatment for the employer and the employee.

The idea of employees' having an ownership stake in their firms is now acceptable to both traditional left and traditional right, although the two sides have somewhat different ideas about how employee-owned firms should be structured and managed. Parties on the right prefer the voluntary conversion of firms, tax shelters for retiring owners, and nonvoting shares for employees. Unions were initially quite opposed to ownership, but with experience, some have changed their stance. Parties on the left prefer a state- or union role, employee seats on the board of directors and a full pass-through of voting rights. Both sides see the possibility of macroeconomic benefits, greater labor productivity, more amiable labor-management relations and improved firm performance. Despite the differences, the two sides can come close enough to create supporting legislation and favorable government policy for employee ownership..

National governmental policy can provide substantial encouragement and support for employee stock ownership through privatization by employee buyouts, granting tax preferences for employers and/or employees, making loans or loan guarantees, and funding support organizations to provide technical advice and research.

A crucial consideration for legislation is the length of time employees are required to hold stock. Without a legal or contractual requirement to hold their stock, some employees sell immediately, undermining the goal of spreading capital ownership, forfeiting the prospect of long-term gains and creating a crisis for their fellow employee-owners, who must raise cash to purchase shares or risk losing control of the company to outside investors. The ability to sell one's shares after a short holding period has resulted in a good deal of chicanery and upward distribution of wealth where mass vouchers were the means to privatization. Through naïveté, financial exigency or cynicism, many employees who received or purchased company stock in Russia and China treated it like a lottery ticket, cashing it in and hoping to be a big winner. And like the lottery, most were not winners. A long holding period is necessary if employees are to benefit from stock appreciation.

Another important issue is the ability to benefit from sale of the enterprise assets. Forbidding the distribution of the assets to individual employees seems to create greater prospects that the enterprise will survive over a long period of time, but it also deprives the firm of flexibility. The ability to transfer or distribute assets may allow an inefficient producer to be efficient under new leadership, perhaps saving jobs. But if the buyer is interested only for its markets, the enterprise may soon disappear. A final consideration is that the ability to distribute assets may create one final benefit for the employees of a dying firm.
Support organizations are one of the best benefits national policy can confer upon its employee-owned sector. They can supply information, training and research that medium and small firms could not afford on their own. They can help interested groups of employees explore the possibilities of buyouts, and they can facilitate the development of employee-owned networks which are forums for the exchange of information on practice and patronage.

Loans and loan guarantees can aid greatly in the formation of employee-ownership by providing access to capital. Despite examples of success, traditional lenders tend to avoid nontraditional enterprises. Sympathetic and patient capital from government or other sources is needed to overcome this problem. Tax expenditures can also be structured to make traditional bank lending more attractive.

Tax expenditures for sellers and buyers in the form of tax deferrals, lower rates and tax forgiveness seem to succeed in encouraging a modest growth rate in employee ownership.

Employee owned firms need government support comparable to what other kinds of business have. One area for prospective action is the support of management education. No less than other kinds of business, the leadership of employee-owned business requires the cultivation of special skills and qualities. National policy can also help by favoring employee ownership in one-time events like privatization or sale of stock from emergency takeovers, but these should be structured so that there is a realistic possibility that employee ownership will result.

Research on matching social and cultural context to the various forms and practices is in short supply. An examination of employee ownership from a world wide perspective would help to develop a better idea of what kinds of ownership structures are best suited to particular cultures and stages of economic development. Scholars and policy makers in similar countries could benefit immediately from exchange of ideas.

The need for such understanding and action constitutes an urgent necessity in the former Soviet-dominated economies, where employee ownership seems to have been cynically used as a politically acceptable transfer device for privatizing large parts of the state economy. Much of the value of the vouchers distributed to citizens for purchase of shares has been lost through chicanery and incompetence, many of the shares still in the hands of employees are being held simply because they have little or no value. Firms where employees have ownership have been looted by their management. Even so, Russia is right now the largest employee ownership country in the world. With help, some of these enterprises might survive to be owned by their employees.

The door to promoting employee ownership through national policy stands wide. If national governments do not step through it, NGOs, aid programs and individual communities will continue to build community- and collectively-owned enterprises at a slow pace. With national policy for encouragement, the pace can be quickened.