A Personal Journey to the Just Third Way

Biographical Narrative on Norman G. Kurland

1. His Personal Philosophy

Mr. Kurland’s work starts from the premise that basic institutions in the modern world–the business corporation, the labor union, and even the State–are not performing well in the global marketplace. These institutions are not delivering economic and social justice, especially for the least privileged and powerless members of society. From a standpoint of promoting dignity, well-being and personal independence, the laws and institutions in every country need reform.

Mr. Kurland’s professional approach is based on his belief that morality and ideas count. Good ideas work in the long run and inferior ideas eventually create their own problems. The first task of the problem-solver, therefore, is to present those he serves with a conceptual framework based on solid principle and logic. This allows for the most ideal solution to be determined, with compromise exercised only when necessary to move forward–to whatever extent is feasible–toward that ideal solution.

Throughout his life and career Mr. Kurland has observed that the most challenging problems facing society are not in science or technology. Rather, they can be traced to the growing gap between our technological environment and our institutional environment. The first environment we can see or feel; it changes with scientific discoveries and the invention of more efficient technologies. The second environment consists of “invisible structures” (i.e., laws, constitutions, and other social institutions), things we cannot see or feel.

This invisible part of our cultural environment–our “social architecture”–improves with advances in our core values and fundamental principles, especially our deepening understanding of Social and Economic Justice. The design quality (from both a justice and efficiency standpoint) of our laws and institutions determines how people “relate” to each other, to their physical environment, and to the process of technological change.

This unseen cultural environment reflects our ultimate values and defines the quality of our daily lives, even more than the tools we use. Ultimate values, like inalienable human rights, do not change as science and technology advance. But unless these fundamental values are preserved as we restructure our institutions to accommodate to technological change, the fabric of our value systems begins to deteriorate. Social institutions then become social barriers to growing numbers of individuals.

The deterioration of our moral framework and the emergence of social barriers to individual fulfillment lead inevitably to what social scientists call “alienation” or what Toffler called “Future Shock.” These artificial barriers deprive some people of equal opportunity, and thus reinforce injustices and divisions in society.

Consequently, the faster technology progresses, the faster people become separated from their technological environment. By blocking human beings from reaching their fullest human potential and from controlling their own destiny, institutional barriers impede those individuals from working effectively with others for the common good. Therefore, everyone loses from this waste of human creativity.

To lift these social barriers means correcting the faulty ideas and institutional structures upon which they rest. Thus, real solutions ultimately depend on new ideas that better reflect fundamental values.

New ideas require people willing to be ahead of the crowd, willing to abandon their own ideas when they are wrong, willing to take risks, if necessary, for ideas that are right.

2. Professional Highlights

Norman G. Kurland is a founder, Managing Director and President of Equity Expansion International, Inc., a group of consulting professionals who specialize in the design and implementation of Employee Stock Ownership Plans (ESOPs) and other expanded ownership technologies in the United States and internationally. He also helped found Equitech, a systems integration firm that merges the commercialization of advanced technologies with expanded ownership financing.

Among his civic activities, Mr. Kurland serves as President of the all-volunteer Center for Economic and Social Justice, which he helped to found in 1984. He is a member of the Advisory Committee of the Global Strategy Council and a now-inactive member of the Bar of the District of Columbia. He also currently serves as a faculty member of the International Law Institute, an affiliate of the Georgetown University Law Center.

He was appointed by President Ronald Reagan in 1985 as the Deputy Chairman of the Presidential Task Force on Project Economic Justice. In 1979 Mr. Kurland founded the Ownership Campaign, a bipartisan political action committee dedicated to making the expanded ownership message the centerpiece of U.S. presidential politics. For many years he served as a member of the Legal Advisory Committee and the International Affairs Committee of The ESOP Association. He was also a founding board member of the National Center for Employee Ownership.

Mr. Kurland comes to the investment banking and social justice worlds from a highly diverse background. After completing his undergraduate work in English Literature at the University of Connecticut in 1952, he spent five years as an Air Force officer. His service included command of two air defense installations in the Far East and training as an Air Warfare Officer aboard a B-47 bomber in the Strategic Air Command. With this hands-on experience he first witnessed the tremendous potential of American’s most advanced technology.

After leaving the military, Mr. Kurland received a Doctor of Laws Degree from the University of Chicago Law School, where he was awarded a three-year full-tuition scholarship and won the Walter Wheeler Cook prize for legislative drafting. He also ranked first in his class in “Competition and Monopoly”, a special course offered under the school’s Law and Economics Program. Upon receiving his law degree in 1960, he dedicated his life to the pursuit of justice in the world. At this launching point in his career, he realized that serious structural deficiencies in existing laws and basic institutions were perpetuating social barriers to human development.

In 1960, Kurland thought that the place he would best leave his mark would be in the world of Washington politics, not in the business world. (He later realized he was on the wrong road.) As one of the earliest proponents in Washington of Milton Friedman’s approach to solving basic economic problems, Kurland wanted to advance Friedman’s “negative income tax” as a solution to the anachronistic problem of poverty in the midst of advanced labor-saving technology. He eventually came to see the deficiencies of this approach.

In a two-year stint as a lawyer at the U.S. Department of Health, Education and Welfare where he specialized in welfare and education issues, Kurland learned from the inside how Welfare State bureaucracies worked and how they reinforced racial and economic barriers.

He left welfare and education law to become a government civil rights lawyer from 1962 to 1964. Kurland became deeply involved in the Mississippi campaign for “one-person, one-vote,” a goal that many in post-World War II America believed would take another 200 years to achieve. He was a key Washington contact person for such civil rights leaders as Medgar Evers and Aaron Henry of the NAACP and Bob Moses of SNCC.

With the abolition of segregation and racially-based legal barriers virtually assured by mid-1964, Mr. Kurland turned his focus back to the problems of poverty. He joined the handful of individuals who planned the official “War on Poverty” launched by President Johnson. He became known as one of the government’s most forceful critics of the top-down approach to poverty. He advocated structural changes that would equalize economic opportunities and maximize the participation of individuals in decision-making and programs of local self-help. Among his achievements during this period, Kurland authored the federal government’s guidelines on “Maximum Feasible Participation of the Poor” in Federal Community Action programs.

Kurland saw within the original poverty program the potential for creating a new political constituency to support the Milton Friedman approach to income redistribution. He soon became frustrated, however, by the confusion, empty rhetoric, overblown promises, and defective programs generated by poverty bureaucrats. Gradually he began to recognize the inherent structural limitations of government for correcting basic social and economic problems, such as inflation and unemployment. He also came to recognize that income redistribution was the wrong goal and was headed on a collision course with what eventually became the American taxpayers’ revolt.

3. The Kelsonian Paradigm: A Personal Turning Point

Searching for a new pathway to economic justice in a high-technology society, Mr. Kurland found it in 1965 in the concepts and programs of expanded capital ownership conceived by ESOP inventor Louis O. Kelso and the noted philosopher Mortimer J. Adler. (Kurland later developed refinements to the Kelso-Adler theory of economic justice, adding the concept of “harmony” to those of participative justice and distributive justice. He also conceived the “two-tiered interest” rate strategy as a basic reform of Kelsonian monetary theory.)

In late 1965, Mr. Kurland joined Walter Reuther’s Citizens Crusade Against Poverty as its National Director of Planning, a position which he took primarily to generate debate and understanding of the Kelsonian ideas and strategies within Washington leadership circles. This gave Kurland first-hand experience as Washington’s first and only advocate of an idea whose time had not yet arrived. He systematically began to build a unique national coalition of conservatives and liberals supporting the Kelso Plan.

Kelso’s ideas proved to Mr. Kurland that a revitalized private sector, not the public sector, would offer the greatest challenges and opportunities for those seeking to leave to posterity a more just and workable world. Not in government or in traditional liberal organizations would one find the new prime movers. Rather, Kurland became convinced, the most able and creative leaders of the future would be found in the meeting rooms of corporations and among investment bankers.

In 1968, Mr. Kurland officially joined Kelso as his Washington counsel and to activate the Institute for the Study of Economic Systems (ISES) as its first executive director. The initial ISES board built a bridge between Kelso’s supporters, mainly businessmen and conservatives, with grassroots, labor and social activists from Kurland’s networks. He and Kelso collaborated closely on a strategy for elevating expanded capital ownership as a primary new goal for America’s future. Without any foundation support and limited funding, Kurland continued to expand the broad-based coalition of supporters for the Kelso Plan.

In 1972 a breakthrough occurred. Kurland saw an opportunity to convert what later became the Conrail system into a 100% employee-owned system, as an alternative to nationalization of bankrupt Eastern railroads. Kurland drafted an amendment to the Conrail bill being considered by Congress and found Senator Hatfield and four others to sponsor it.

On November 27, 1973, Kelso and Kurland met for four hours with Senator Russell B. Long of Louisiana, then-Chairman of the Senate Finance Committee and one of Washington’s most powerful legislators. Even though it lacked the standard political currency of money or votes, Long became the ESOP’s champion on Capitol Hill. This was the turning point in ESOP history.

In December 1973, Senator Long took Kurland’s draft amendment and converted it into the first of many laws promoting Employee Stock Ownership Plans. As a result of the Conrail initiative, The New York Times described Kurland as “a one-man lobbying organization for Kelsonian ideas” in Washington. Business Week called him “the resident philosopher of ESOPs in the capital.” A milestone in reaching the ultimate Kelsonian goal was later reflected in the 1976 Annual Report of the Joint Economic Committee of Congress, which called for “broadened ownership of new capital” as a major new objective of U.S. economic policy.

Mr. Kurland is generally acknowledged by the ESOP’s earliest supporters as the initial pioneer, catalyst and orchestrator of the Kelsonian strategy on Capitol Hill. Under the effective leadership of Senator Long and others, Congress has given its “stamp of approval” to over 20 legislative advances for the ESOP since late 1973, all tacked on to other major bills. Upon this foundation, the ESOP enjoys probably the broadest bipartisan base of political support of any U.S. economic policy since Lincoln’s Homestead Act of 1862. As a result of these piecemeal ESOP reforms, over 11 million American workers in over 10,000 companies are now enjoying the benefits of ESOP, up from several hundred workers in less than a dozen companies when Kurland first learned of Kelso’s ideas.

In the 1980 Presidential primaries in New Hampshire, Mr. Kurland, a political independent, was elected as the bipartisan Ownership Campaign’s “Republican candidate” for President (a position which Kelso declined). With two “Democratic candidates” and a leader of the American Agriculture Movement as his “Republican” running mate, together with a $13,000 budget and a handful of weekend volunteers, this highly targeted campaign openly limited its objective to carrying the message of expanded ownership to America’s first primary. The Campaign’s most important “victory” was a major Sunday feature article by William Greider in the Washington Post. But the expanded ownership message was not lost on Ronald Reagan, George Bush and other Republican and Democratic candidates, when prominent liberal and conservative media in New Hampshire reported favorably on the new message.

Kurland worked with the staffs of Senator Gary Hart and Rep. Parren Mitchell who on March 1, 1983 co-sponsored legislation to make the ESOP and the General Stock Ownership Corporation (GSOC) major elements of the Democratic alternative to the Reagan Administration’s “free enterprise zone” program. (The GSOC is another name for the Community Investment Corporation Kurland had earlier conceived when he worked in Harlem and Bedford-Stuyvesant for the Citizens Crusade Against Poverty.) Under this approach, land development in low-income areas could be financed through techniques similar to ESOP so that area residents could participate as stockholders in the planning, equity growth, and profits that would normally flow to outside land speculators.

In April 1984 Kurland and others, including the late Rev. William Ferree (retired Chairman of the Board of Dayton University, author and internationally recognized scholar on Catholic social justice), founded the Center for Economic and Social Justice (CESJ) to promote globally the Kelso-Adler theory of economic justice as a necessary component of social justice.

4. Major Professional Accomplishments

Among Mr. Kurland’s most noted business accomplishments was his internationally-acclaimed ESOP at the South Bend Lathe Company. In 1975, he devised the strategy and headed the team which enabled 500 employees to raise over $9 million to acquire 100% of the equity of their failing company and convert it into a money-winner within a year. It was the world’s first 100% leveraged buyout through an ESOP. The South Bend Lathe ESOP was also one of the first in a non-publicly-traded company to allow employees to vote their allocated shares. In the South Bend Lathe project, Mr. Kurland conceived the original ESOP Industrial Development Bank, through which funds from private and public lending sources were mobilized for private ownership-expanding purposes.

However, the “new labor deal” that saved South Bend Lathe did not fit the traditional wage-system collective bargaining agreement. Even after repeated solicitations of their participation, the international representatives of the United Steelworkers Union, which represented SBL workers, refused to negotiate the details of the ESOP with management. Certain unresolved issues in the ESOP’s design inflamed hostilities between SBL executives and international union officials and led to a strike in 1980–characterized misleadingly in the international press as “workers striking against themselves.”

Since the time of the South Bend Lathe strike, the United Steelworkers Union, under new leadership, has become one of labor’s strongest advocates of the ESOP for saving failing companies. But after 18 years of continuing “wage system” strife between labor and management, this inadequately structured ESOP company abandoned its ESOP in early 1993.

Despite the problems encountered at South Bend Lathe, this model set a new precedent in the history of American industrial relations. It served as the prototype for such world-acclaimed and highly successful 100% ESOP leveraged buyouts as Weirton Steel (saving over 8,000 jobs) and the $1.7 billion buyout by 20,000 American workers of the Avis rental car company.

Perhaps Kurland’s most noteworthy prototype of a corporate incentive system combining equity with efficiency (one component of a business approach he calls “Justice-Based Management”), can be found at Allied Plywood Corporation (now the A-Wood Group of Companies) headquartered in Alexandria, Virginia. Workers there have traded future increases in fixed wages and benefits for the more flexible and profitable gains of the ownership system. Since Kurland installed Allied Plywood’s ESOP in 1977, the workers’ ownership gains (in the form of monthly and annual cash bonuses, ESOP shares and dividends) have ranged in the thirteen year period, 1977-1989, from 90% to 300% greater than their modest basic wages.

Thus, even in years when there has been a decline in monthly cash bonuses as a result of declining sales in the home building industry (such as in 1982 and during the home building recession), the “flexible wage cushion” has allowed the company to avoid layoffs and even expand. The success of this profit sharing arrangement is reflected in the fact that employees in the “core Allied” profit center have seldom missed receiving a monthly cash bonus.

In 1982, after buying small blocks of shares from the original owners over a seven-year ownership transition period, the Allied Plywood employees purchased the control block of company shares with funds borrowed by the ESOP from a local bank. (Ed Sanders, the original owner, was Senator Long’s key witness for the 1984 ESOP tax-free rollover for owners divesting to their workers, an incentive he never enjoyed.) The bank loan was repaid within 24 months, wholly out of company profits. Today, the company is 100% owned by its employees, and, with its late 1999 acquisition of a large Florida company, has over 300 employees covered by its ESOP.

Hailed as a model incentive system by management guru Tom Peters, Allied Plywood has expanded from 19 employees in one warehouse in 1977 to a regional company with 15 locations from Maryland to Florida. As the company’s “outside” member of the board since 1982 and ESOP architect from 1977 on, Kurland succeeded in 1998 in getting other board members to restructure the company according to Justice-Based Management principles, thus giving full voting rights to all workers on their ESOP shares, establishing a democratically-elected Ownership Council through which non-management workers nominate candidates to fill three rank-and-file members of the board giving them equal status with three management board members elected by management workers, and up to three outside directors.

Kurland also served as chief architect for the first 100% bank-financed leveraged ESOP buyout in December 1985 by the employees of Mid-South Building Supply, headquartered in Springfield, Virginia. No employee put up a cent or made any wage or benefit concessions to finance the buyout, and the bank loan was repaid by March 1994. The original owner, benefiting from the tax-deferred rollover on the sale proceeds, served as guarantor on the bank note until 1989 when the company built up its own collateral. The company now has over 100 employees operating out of four locations.

5. Involvement with the Labor Movement

Viewing the labor union as a necessary social institution for promoting economic and social justice, Kurland has long worked to promote the ESOP strategy within the labor movement. Involved in the early effort to win the support of U.S. labor statesman Walter Reuther for expanded capital ownership, Kurland brought Reuther and Kelso together. Kurland’s efforts were rewarded when in 1967 Reuther, as head of the United Automobile Workers Union, made an historic statement before the Joint Economic Committee promoting employee equity ownership as an alternative to inflationary wage hikes.

In 1971, Kurland, working with the Banana Workers Union of United Fruit in Guatemala, gained U.S. Department of Justice support for an ESOP strategy to acquire the Guatemalan plantations of United Fruit, to comply with a U.S. anti-trust divestiture decree. Kurland proposed a self-executing anti-trust decree, never done before, where the anti-trust violator would be ordered by the court to sell the divested company to an ESOP, take back paper as a creditor-seller, and be repaid for the appraised value of the company out of future profits. The Del Monte Corporation–reportedly with bribes–won approval from the Guatemalan Government over the workers’ proposal.

In 1972, Kurland was hired by the National Maritime Union to gain Congress’ support for an ESOP strategy to save the American passenger vessel industry. The emerging taxpayer revolt had struck down subsidies for “the vacations of the rich.” Without the subsidies, American-flag companies threw in the towel and petitioned the Congress for permission to sell five American luxury liners (also constructed with taxpayer subsidies) to foreign-flag companies. 5,000 NMU members lost their jobs to low-paid foreign seamen on foreign-flag vessels in the lucrative and growing East coast cruise business. The NMU, in desperation, found ways to cut labor costs by 50% and Joe Curran, the NMU president testified that they would do so if Congress would allow them to restructure the industry through a 100% leveraged ESOP, profit sharing and participatory management (i.e., Justice-Based Management). Ironically, this historic ESOP initiative on the part of a labor union was rejected by Senator Russell Long, Chairman of the Senate Finance Committee, who in late 1973 was to become the ESOP’s most ardent advocate in Congress.

When the Presidential Task Force on Project Economic Justice was formed in 1985, Kurland arranged for William Doherty, head of the American Institute for Free Labor Development, AFL-CIO, and Norman Weintraub, Chief Economist of the Teamsters Union, to be appointed by President Reagan. Kurland later served as a bridge in negotiating changes in the task force recommendations on trade policy, which satisfied both the AFL-CIO and the U.S. Chamber of Commerce. All recommendations were accepted unanimously by this bi-partisan panel, and they remain a standing blueprint for U.S. economic policy in Central America and the Caribbean Basin.

Perhaps the most important of the task force’s recommendations was the concept of a “free trade company” which could sell any products within the U.S. market without any quotas, duties, or trade barriers, if the company were majority-owned by its employees through an ESOP and if the workers were permitted but not required to organize a democratic trade union. This was seen by the AFL-CIO as a way to avoid the potential exploitation of workers in so-called “free trade zones” which American labor has always opposed.

While maintaining solid contracts and friendships with key leaders of organized labor, Mr. Kurland has also remained a strong critic of the “conflict theory” of industrial relations. Traditional “wage system” demands (i.e., progressively higher fixed wages and benefits) have proved to be counterproductive to the job security and incomes of workers and have failed to achieve the highest level of economic justice at the workplace, the original objective of democratic trade unionism.

As with their counterparts in corporate management, enlightened labor leaders are now in search of new directions. Mr. Kurland has convinced a growing number of labor officials from many countries, particularly in Bangladesh, Africa and the Caribbean, that the ESOP and other expanded ownership programs are beneficial to both organized labor and management and offer a wholesome new range of subjects over which to bargain in the future.

6. Work on the Macro-Economic Level

On a community, regional, and national scale, Kurland has developed several innovative and far-reaching programs and strategies applying the logic of ESOP financing. Kurland’s major contribution to Kelsonian monetary theory involved his concept of the “two-tiered” Federal Reserve discount rate. (While leaving the cost of consumer or non-productive credit at market rates, this strategy calls for a radical reduction of the cost of productive credit to member banks, provided they channeled these “self-liquidating” loans through expanded ownership mechanisms such as family farms, small businesses and vehicles such as the ESOP.) In Kurland’s view, this slight refinement of the Federal Reserve’s existing powers could become the single most potent instrument for eliminating inflation and expanding the citizen base for free market policies in the United States.

Kurland publicly unveiled this reform for the first time in a paper, “Kelsonian Monetary Weapons for Fighting Inflation” that he presented as a member of the panel on “Kelsonian Economics” at the 1977 Annual Meeting of the Eastern Economics Association in Hartford. This paper was later made part of the record when Kurland testified before the House Small Business Subcommittee on Access to Equity Capital and Business Opportunities in May 1979. The reform was also a key part of his proposed Industrial Homestead Act (later renamed the Capital Homestead Act) that he prepared in 1982 for President Reagan’s Special Assistant for International Economic Affairs.