Research Into Shared Capitalism Connects Professor, Student, and Alumnus

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Takao Kato, W.S. Schupf Professor for Far Eastern studies and professor of economics, is building on decades of research by studying the day-to-day work of a Colgate alumnus while helping to guide a new generation of researchers in exploring the effects of employee ownership. 

Kato’s career took a turn in 1995, when he co-published an article in American Economic Review, providing the first rigorous evidence of the positive productivity effects of employee ownership. Kato says that it was the first time people really started to pay attention to his research.

The findings were produced in collaboration with Hamilton College Professor of Economics Derek Jones, and they showed that, if a company introduced employee ownership, employee productivity increased by about 4–5%.

“It’s a very simple idea,” Kato says. “If your pay or wealth is tied to the company performance or the well-being of the company, of course you’re going to work harder and smarter.” Under a shared-capital system, employees start thinking about how they can improve productivity.

“I’ve been doing this for three decades now, and all the evidence I have acquired so far points to positive or neutral effects, but not negative effects,” he says. 

A new generation of research
Jason Wang ’23, one of Kato’s students, says he first became interested in shared capitalism after he took Kato’s class The Japanese Economy. Several Kato classes later, Wang is now researching the intersection of economic justice and shared capitalism. Most recently, he has been analyzing unique longitudinal data to provide new evidence on the effect of shared capitalism on wealth for workers with and without disabilities. This effort will inform both a labor seminar paper and his honors thesis.

Wang’s findings show that, when shared capitalists become disabled, “they do not lose as much wealth as non-shared capitalists, pointing to shared capitalism as an effective mechanism to help workers with disabilities,” he says.

Wang notes his self-interest in the study of shared capitalism. “Eventually, I’ll be a worker, and I want to work in an environment where I can accumulate wealth and where I can be treated fairly,” Wang said. “I think that’s what I really get from shared capitalism. It’s a program that can really benefit all employees.”

Putting shared capitalism into practice
Daniel Goldstein ’89 lives shared capitalism as president and CEO of Folience, a holding company with more than 500 employees, based in Cedar Rapids, Iowa. He initially reached out to Kato after seeing the professor’s name in the program of the 2020 Kelso workshop at Rutgers University, and Kato recently visited Goldstein in Cedar Rapids and furthered their academic-practitioner collaboration.

Folience was originally established in 1884 and began transitioning to employee ownership in 1986, resulting in 100% employee ownership by 2012. Goldstein joined the company in 2016 and was instrumental in diversifying its business portfolio and transforming its employee ownership culture, embodied in the company’s employee stock ownership plan (ESOP). In 2022, Folience was named the National Employee-Owned Company of the Year by the ESOP Association in recognition of the company’s continued commitment to employee ownership.   

ESOPs are governed by some of the same laws and regulations as 401(k) plans. But ESOPs offer additional advantages to businesses, owners, employees, and communities — including increased employee engagement, because employee-owners share the rewards and risks of stock performance.

Also, most ESOPs don’t require an out-of-pocket contribution from employees, and they help to narrow the wealth inequality gap, with ESOP company employees tending to both earn higher wages and greater savings than those in non-ESOP companies, findings supported by decades of Kato’s research.

When it comes to generational transition of ownership in companies, a business will often be handed down to heirs, sold to a private equity company, or end up closing, according to Goldstein. But, through his work on the ESOP Association Board of Directors, he hopes to advocate for shared capitalism and encourage retirement-ready business owners to consider a different option.

“This is absolutely capitalism. It’s not a handout, but a much better path,” Goldstein says.

Sharing the exploration
Goldstein also notes that broken companies aren’t fixed by employee ownership, and the leadership and employees all have to be educated and engaged for it to be successful. “Getting your employees to focus on building their retirement is a challenge. It requires a lot of education,” he says.

Kato agrees and says there is a strong consensus among scholars that an employee-ownership model is most successful when combined with other supporting programs.

“It’s vital that employees have an effective mechanism to share their ideas and also that a company makes sure to adequately educate and train employees,” Kato says.

Goldstein continues to be a strong advocate for shared capitalism and ESOPs, testifying before Congress in 2020 about small business benefits and challenges as part of his ongoing advocacy work. Kato says, as a researcher, his approach is completely neutral, based on statistical analysis: “If the evidence tells me this doesn’t work then I would say so.”