Don’t Rage Against the Machines—Own Them

“I could name employee owners who love robots, because robots will work all night and they don’t take any profit-sharing.” – Michael Quarrey, VP Web Industries, Marlborough, MA

In 2015, Harvard economist Richard Freeman proposed an elegantly straightforward idea: workers could benefit directly from the disruptive technologies fueling wage and job loss by becoming owners of the very machines created to displace them. His paper, “Who Owns the Robots Rules the World,” offers a conceptual framework for creating a positive-sum relationship between workers and technology, which has only become more relevant in the era of artificial intelligence.

“There is only one solution to the long-term challenge posed by machines substituting for human skills and reducing demand for skilled labor,” Freeman argued. “That is for you, me, all of us to have a substantial ownership stake in the robot machines that will compete with us for our jobs and be the vehicle for capital’s share of production.”

As technology-driven productivity gains outpace real wage growth and exacerbate the continued decline in labor’s share of national income across the developed world, Freeman says it will be the owners of capital that will reap an ever larger share of national product. Unless workers can supplement their labor income with additional income and capital appreciation from the ownership of productive assets, “the trend toward a more unequal income distribution is likely to continue, and the world will increasingly turn into a new form of economic feudalism.” His rule of thumb for assessing the implications of technological advancement on the welfare of workers is simple: “how these new technologies affect worker well-being and inequality depends on who owns them.”

The best strategy for securing a prosperous future for workers confronting AI and other labor-automating technologies in the workplace is for policymakers to turn workers into owners.

Rage Against the Wage

The labor movement of the nineteenth century understood this. The onset of the Industrial Revolution prompted a gradual shift away from the family enterprise institution and its tradition of small-scale handicraft production in favor of a larger-scale, more rationalized system of factory production under the auspices of the corporation. This transformed the nature of work from a culture of independent proprietorship—with economic security conferred by localized, long-term property rights—to an unfamiliar new regime of transient wage labor.

For labor reformers, the loss of property rights was not a transition met with open arms. As Steven Sass notes in his history of early American pensions, “Labor organizations from the Jacksonian Workingman’s Party to the National Labor Union and the Knights of Labor at the end of the century actually campaigned for a liberation from wages and a return to family enterprise, not accommodation to a permanent employee status.” Indeed, the prevailing social assumption at the time according to political scientist Alex Gourevitch was that “wage labor would never be more than a passing, marginal, or seasonal fact of the economy, rather than a central and permanent way of organizing economic production.”Fundamentally rejecting the institution of wage labor, these labor organizations set about devising an alternative conception for the future of work. It reconciled the dignity and security of the family enterprise with the rapidity and disruptive capacity of technological advancements in new industrial productive methods, along with legal advancements in the still nascent corporate form. The result was a vision of “free labor” defined by broad worker participation in the ownership and governance rights to the emerging landscape of industrial enterprise.

Over time the free labor impulse wove its way into the mainstream political discourse of the pre-Civil War period and into the heart of Republican Party ideology, where the concept of free labor was linked to the abolitionist movement and its fight to ensure that new states would enter the Union based on “free soil” bereft of slavery. In an 1859 campaign address delivered to the Wisconsin State Agricultural Society, Abraham Lincoln articulated a clear view of wage labor as a temporary pit stop on the journey towards independent agricultural or artisanal proprietorship: “[T]he prudent, penniless beginner in the world, labors for wages awhile, saves surplus with which to buy tools or land, for himself; then labors on his own account another while…[This] is free labor.”

In other words, wage earning would be an ephemeral stage of life to be briefly tolerated before the natural transition to proprietorship. Only with property in hand would the American worker be truly free. Accordingly, a core objective of the labor movement of the day was to reinstate for workers the property rights that had been lost during the early industrial transition, and to mold the corporation to reflect the dignity and economic security that had been previously taken for granted in the disappearing institution of the family enterprise. The idea that labor would ultimately resign itself to negotiating the terms of the employment relationship within the system of wage labor was anathema to the Knights of Labor and their contemporaries. For workers, property rights held the keys to broadly shared prosperity in an era of unprecedented technological and industrial development. A human rental contract would not do.

However, the centrality of property rights—of ownership—to the conception of worker power in America’s economic life eventually receded. Labor was obliged to settle for wage and benefit contracts rather than property rights. The American Dream of the mid-twentieth century was constructed on the almost singular foundation of home ownership, rather than economic security derived from broad-based ownership of business assets. The overwhelming majority of workers would be permanent renters in the workplace—a trend that continues to this day. There would be no industrial republic to accompany the political republic.

This history offers contemporary lessons about the purpose of our economic system and how that purpose can best be fulfilled. Too often, voices on the Right and Left overlook the fact that ownership is the primary source of economic power and, by extension, the most influential determinant of how an asset is governed. The structure and composition of ownership are the fundamental attributes of an enterprise—we must understand all decisions and behaviors of a company from this first-order lens. After all, most students of financial markets intuitively understand that a business purchased by Berkshire Hathaway can expect a very different investment horizon than one acquired by a short-term financial buyer. As authors Corey Rosen and John Case correctly note, “changing who owns a company, after all, is potentially the most effective and far-reaching way of changing its behavior.” The surest way to institutionalize the interests of workers is by economically enfranchising them with an ownership stake.

The Promise of Employee Ownership

How then might American workers come to own the robots? As luck would have it, such an opportunity was created by Congress in 1974 as a small provision of the landmark Employee Retirement Income Security Act (ERISA). That legislation created the Employee Stock Ownership Plan (ESOP), one of the most unheralded American legal and corporate finance innovations of the last half century, invented by the iconoclastic lawyer Louis Kelso and originally championed by Senator Russell Long of Louisiana. Much like Richard Freeman, Kelso was motivated by the concern that technology would ultimately come to displace wage income, which necessitated obtaining a “second income” from capital ownership.

The ESOP is a unique form of employee benefit trust that serves as both a retirement plan and a vehicle for corporate finance. It enables the purchase of shares from a selling shareholder on behalf of employees, typically in the course of business succession. The existing shareholders of closely held businesses, often founding entrepreneurs or family owners, can defer their capital gains tax liability—potentially indefinitely—when selling at least 30% of their business to an ESOP. For S corporations that are 100% employee-owned through an ESOP, the business pays no federal income tax. Most ESOP buyouts of privately held companies are leveraged and involve the ESOP trust borrowing money from a combination of external lenders and selling shareholders. Like a home mortgage, the company repays the acquisition debt over time through free cash flow. One could even conceive of ESOP financing as a “capital mortgage”—inviting the possibility of worker ownership at an industrial scale.

Well-meaning economists unfamiliar with the mechanical details or empirical data related to ESOP companies tend to clutch their pearls at the thought that non-management workers would be asked to put all their proverbial “eggs” in one basket. Upon closer scrutiny, these concerns prove to be misguided. Unlike a home mortgage, there is no down payment from the workers that comes out of personal savings or wages—their ownership stake is an incremental, no-cost benefit that is typically in addition to a separate diversified retirement plan such as a 401(k). In fact, ESOP companies are more likely to offer such a diversified secondary plan than non-ESOP companies are likely to offer any retirement plan at all. As the debt financing used to purchase the shares is amortized by the company’s free cash flow over time, those shares are allocated proportionally to all full-time employees, typically on the basis of salary level and employment tenure. When employees leave or retire, the ESOP has a repurchase obligation to monetize the value of those shares in cash. These financial impacts can be life-changing for workers and their families.

A robust empirical literature demonstrates that ESOP companies generate superior outcomes for their employees. Data from the Rutgers Institute for the Study of Employee Ownership and Profit-Sharing and the National Center for Employee Ownership demonstrate that employee owners possess over twice the amount of retirement assets compared to peer workers in conventionally-owned companies, provide a median wage premium, feature higher job satisfaction, and lay off fewer workers during economic downturns. It should come as no surprise that employee-owned businesses outperform in creating value for their employee shareholders.

But what about the bottom line of the company? Crucially, the value proposition of employee ownership is not limited to the wealth endowment allocated to the workforce. Properly structured and implemented, the evidence base suggests that employee ownership is a source of competitive advantage for companies and investors. Employee-owned businesses have been found to generate higher profitability, increased labor productivity, and reduced turnover along with lower rates of bankruptcy and loan defaults. This performance premium is most consistently found when employee ownership is paired with high-performance work practices such as transparency on company or business unit performance.

These performance results should be no less surprising than the favorable outcomes for workers. By merging the traditionally separate and distinct domains of workers and shareholders, ESOP companies uniquely align the self-interest of their workers with the long-term interests of the business. When workers go the extra mile to create value, they are directly benefiting themselves and their colleagues. No rational investor would underwrite an investment in a company where the management team had no alignment with shareholders through some form of equity compensation. Yet investors and management teams routinely fail to extend that logic to the entirety of the workforce in an era where 90% of the S&P 500 market value consists of intangible assets such as human capital. Firms with a workforce of renters instead of a workforce of owners are leaving value on the table.

Beyond the firm level, employee ownership offers a timely addition to an agenda of national industrial strength and productive capacity as we reshore American manufacturing and enhance our industrial resilience. A record number of baby boomer business owners are now reaching retirement age and will eventually sell their company, a phenomenon known as the silver tsunami. Their most obvious options are to sell to a competitor or financial buyer (including a foreign buyer) that may have little regard for the workers and communities that helped build the business in the first place—to say nothing of a foreign buyer. According to the New American Industrial Alliance, “‍Of the approximately 250,000 manufacturers nationwide, 98% are small businesses with fewer than 500 employees. The majority of the 13 million American manufacturing workers are employed by small businesses.” Fully half of these small and medium-sized manufacturers have an owner older than 55 years who will likely look to exit the business over the next five to ten years.

We must treat business succession in domestic manufacturing and other critical industries as an acute risk to the vitality of our industrial base. From the standpoint of the national interest, selling our most productive industrial assets to American workers is certainly preferable to offshoring the capacity or acquisitions by buyers that have no interest in investing in production and innovation in the United States. By creating the right financing and regulatory conditions to allow private markets to more efficiently finance the formation and growth of ESOP companies, we have the opportunity to preserve the capacity of our existing industrial base, upgrade the productivity of our domestic workforce, and create substantial retirement wealth for American workers.

If Only the Luddites Were Owners

Beyond fortifying our industrial base, employee ownership has the potential to transform the relationship between not only workers and their companies, but also between workers and AI. The Luddites destroyed the products of technological innovation in their era because they felt threatened. Does anyone believe they would have taken the same course if these same skilled craftsmen had been the owners of these new machines? If the output and productivity of those machines had accrued to the benefit of their own economic security, the term “Luddite” would likely mean something entirely different today. The structure and composition of ownership determines who the capital is designed to serve. It is these ownership variables that help determine whether technology is viewed as a threat or a tool.

Richard Freeman was prescient when he suggested that turning workers into owners may help address the underlying cause of the fear of displacement by automation and technological development in the workplace. A 2024 study titled “Are Employee-Owned Firms Luddites? Effects of Ownership on Adoption of Robots and Employment after Adoption” examined these questions using a sample of U.S. manufacturing plants to study the adoption of robotic industrial technology in employee-owned firms versus conventionally-owned firms. The authors find that firms with broad-based employee ownership are more likely to adopt robotic technology (incidentally, higher robot adoption was also associated with an increase in hiring post-adoption at both types of firms). Comparative research suggests that profit-sharing—a form of capital income—has a positive effect on product innovation relative to traditional firms.

Given that employee ownership is already linked to higher degrees of job security, this relative lack of anxiety may create precisely the right environment to adopt technology that leads to innovation at the firm level and fortifies industrial and technological leadership at the national level. There is an essential distinction between labor automation and labor augmentation—the latter of which can increasethe demand for labor. The available research suggests that workers who approach technological innovation as owners are better positioned to both identify opportunities for augmenting new technology, including AI, and to directly accrue the financial benefits of higher productivity, even in situations of labor automation.

A Policy Path Forward

Policymakers in both parties have caught on to this insight. However, while existing tax incentives have helped to produce modest levels of employee ownership in the American economy, it remains a peripheral phenomenon. Only about three million workers across roughly 6,000 privately held ESOP companies currently have access to significant broad-based ownership stakes, due to the combined effects of a private financing gap and an adverse regulatory environment that currently diminish the value proposition for prospective sellers and investors. The pending bipartisan American Ownership and Resilience Act (AORA) would equip the Commerce Department with a private investment facility to address this financing impediment at zero subsidy cost to the taxpayer. There is also cause for optimism on the regulatory front given the strong support for ESOPs from Labor Secretary Lori Chavez-DeRemer, herself a cosponsor of a prior iteration of AORA when she was a member of Congress, and Daniel Aronowitz, Assistant Secretary of Labor for the Employee Benefits Security Administration.

At an unusually bipartisan July 2025 Senate hearing titled “Empowering Workers by Expanding Employee Ownership,” Senator Bill Cassidy (R-LA), the chairman of the Senate Committee on Health, Education, Labor, and Pensions, appropriately kicked off the hearing with a discussion of worker power before introducing the concept of employee ownership: “An ESOP model is pro-worker, pro-family, and pro-business…and while ESOPs are proven to help workers succeed, outdated federal law makes it difficult for companies to implement the model without being in legal jeopardy.” Senator Jon Husted (R-OH) opened his remarks in a similar fashion by expressing his view that “I think that ESOPs are one of the most virtuous forms of capitalism in America.” Ranking Member Bernie Sanders (I-VT) found himself quoting Ronald Reagan—not exactly a regular occurrence—and offered his own observation that “…never in my life have I seen employees who take more pride in the work that they do from senior executives and managers all the way down to the cashier and the store clerk.”

Support for employee ownership is not only bipartisan but bicameral. In an address this past spring, Congressman Blake Moore (R-UT) reflected on his motivation for accelerating the growth of ESOP companies as a national conservative priority: “Are we not now the party of the middle class? This is the one thing that can do it in a sustainable way. This isn’t a giveaway, this is taking the opportunity for owners of a company to create a legacy for themselves and to enhance the lives of their employees. There’s only win-wins here.”

He’s right. If we create the conditions for working people to participate in the ownership of their companies and the robots those companies deploy, we may well end up with a more broadly prosperous, technologically capable, and productively dynamic nation. This will require an understanding by policymakers, industry, labor, and technologists alike that ownership matters.