When Louis Kelso burps, Russell Long puts it in the Internal Revence code," jokes former California congressman Tom Rees. But in his voice is a trace of awe about the quiet influence Kelso -- a wealthy San Franciscan with a radical blueprint for redistributing America's wealth -- wields through his relationship with Long, the chairman of the Senate finance committee.
Not that Kelso is pals with many other movers and shakers in the world of money. For years the 65-year-old attorney has fought against what he considers to be a conspiracy of silence about his economic theories perpetrated by "the priesthood" of established economists. One especially critical high priest of the Keynesian approach to economics, Paul Samuelson, has labeled Kelso's thinking an "amatuerish and cranky fad."
"It's almost as practically useless to be 15 years behind your times as 15 years ahead," says Kelso without bitterness. He considers, among other things, the meaning of Proposition 13.
"We're wired to blow up. The productive get fed up with supporting the unproductive, and the underproductive get fed up with being denied the opportunity to produce the lifestyle they reasonably want to consume."
To traditionalists, a major goal of a capitalist economy is full employment, an ideal supposedly within reach if one tinkers with such things as the money supply and interest rates. The thesis of this concept rests on the theory that people (labor) produce wealth by making goods or offering services. And increasing our standard of living requires an increase in productivity of the laborers.
Kelso goes beyond the people-produce-wealth concept to state that besides labor, the means of production such as equipment and property also produce wealth. As technological advancements mean fewer people are needed to produce goods, laborers -- not just the very rich -- must own a piece of those means of production that create fortunes once built by the sweat of many men't backs. The alternative, Kelso feels, will be either poverty or an artificial and socialistic economy in which workers are supported by meaningless (perhaps government-subsidized) jobs.
Kelso says an ever smaller percentage of the population controls the bulk of America's property and means of production. To change that, Kelso has designed a mechanism to permit employes to share in the ownership and profit of the companies for which they work.
Called an Employe Stock Ownership Plan, or ESOP, Kelso's creating allows companies to raise new money at less cost than they could normally borrow it and at the same time make workers part owners of the firm. The ESOP is a taxexempt employes' trust which borrows money from a bank to lend the company for expansion. The company gives the ESOP stock in exchange for the money. Then the loan is paid off with dividends on the stock, using profits generated by the expansion, just like any routine lending agreement. But because ESOPs are taxexempt, the federal government doesn't get a cut. Therefore, the company can pay off an Esop/ loan more cheaply than a conventional one. When the money the ESOP borrowed from the bank is paid back, the workers begin collecting dividends and, ideally, become better employes because their performance so directly affects their wallet.
About 2,000 ESOPs exist in America, a quarter of which were organized by a firm Kelso owns. While most of the ESOP firms are small or medium-size businesses, the world may soon witness a test of Kelso's theories on a major scale. He is completing a plan which gives Alaska residents a share in the fruits of energy development now going on in their state. The concept is called GSOP, or General Stock Ownership Plan.
"The people of Alaska had committed right under their noses the greatest economic atrocity of the 20th century," says Kelso. "Namely, that they'd permitted to be built a $10 billion asset, the oil pipeline, so structured that it'd be owned by a tiny handful of stockholders -- the already super-rich, if you will, the eight oil companies that own the pipeline."
Kelso was retained by the state of Alaska to cut its residents in on the largesse. And he has the aid of his well-placed friend: Russell Long has helped adjust federal tax laws so they are favorable to ESOPs and ESOP.
The two men met in 1973 for dinner at the Madison Hotel's Montpelier Room. Kelso said it took him about three hours to explain why the traditional approach to capitalism was failing in America.
"The senator was very patient, asked many questions," Kelso recalls. "The waiters were standing around waiting for us to get out. It must have been around midnight. Then the senator said to me, 'Are you saying that using financing techniques based on a twofactor (labor and things) economic theory can make haves out of the have-nots without taking it away from the haves?' I said, 'Senator, you put me to shame. I take three hours to explain something and you cover it in a sentence.' 'That's the kink of populism I can buy,' he said."
And that was the genesis of Kelso's Washington connection. Besides six specific pieces of ESOP-related legislation that have been passed by Congress since that dinner at the Madison, Kelso says about 10 more "major tune-up things" are waiting in the wings.Long has defended Kelso against the slings of critics such as Samuelson who claim Kelso is exploiting tax loopholes.
"What Samuelson calls the tax loophole is there already," Long said several years ago. "It was there when I became a senator. There are all sorts of things like that in the tax code. The question is: Do they achieve a desirable social purpose? I think the idea of encouraging the people who work for a company to own an interest in the company is sufficiently socially desirable to give it favorable tax treatment."
Kelso watches the government take a larger and larger hand in everyday affairs as it tries to bolster a stumbling economy. He watches the rich get richer, sees the concentration of wealth continue. He watches machines replace people. Then he thinks of the corps of economists who have been guiding capitalism during the past decades. And Louis Kelso just smiles at his critics.