Louis Kelso; Force Behind Employee Stock Ownership Plans

Louis Kelso, the maverick investment banker and self-styled economist who conceived of today’s popular employee stock ownership plans, has died of a heart attack.

Rutgers University business professor Joseph Blasi, probably academia’s best-known link to Kelso, said the theorist who sought ways to make capitalists of workers was 77 when he died Sunday at Pacific Presbyterian Medical Center in San Francisco.

In 1956, Kelso conceived of and later became a passionate advocate of the employee stock ownership plan as a bridge between the philosophies of socialism and capitalism.

“Ownership of close to 5% of the wealth in the United States economy has been broadened to include working people as a result of his work, which is pretty significant for one man,” said Blasi, who has written four books on employee stock ownership plans, or ESOPs.

About 15% of all the companies traded on the New York, American and over-the-counter stock exchanges have significant employee ownership. “This can be largely credited to Louis’ patience, persistence and stubborn education of the public,” Blasi said.

Today, more than 13% of the private-sector work force in the United States--some 11.3 million people--work at companies that allow employee investment. That represents about 9,800 ESOPs. In 1974, only 1,600 companies employing 250,000 workers used the investment vehicle.

Corey Rosen, director of the National Center for Employee Ownership in Oakland, said Kelso’s work was initially ridiculed by many economists. But his ideas eventually sparked employee ownership movements in Britain, Europe, Mexico, Central and South America and the Soviet Union.

He fashioned his concept of making capitalists of workers while a student at the University of Colorado in 1934.

It was the height of the Great Depression and Kelso had made a simple determination, one which stirred the wrath of his economist-professors:

Poor people are poor because they weren’t rich, he said, blaming the Depression not on the economy but on economists who hadn’t provided the nation’s labor force with a way to meaningfully share in their labors.

The answer, he said, was to make capitalists of them by financing their way into ownership through ESOPs.

In 1956, with Mortimer J. Adler, he wrote “Capitalist Manifesto,” which the two saw as a viable alternative in a capitalistic system to Karl Marx’s “Communist Manifesto.”

Kelso’s influence grew slowly but by 1975 he was credited with adding a proviso to that year’s national tax-reduction act that allowed corporations additional tax incentives for establishing ESOPs.

That opened the floodgates for businesses, which would reap a cash benefit for the stock they had earlier resisted giving away to workers.

Kelso’s wife, Patricia, said her husband had complained during the last several years that his concept was being perverted by corporate raiders in the late 1980s who used the ESOP as a tax dodge in several leveraged buyouts.