There's somethingintuitively appealing about ESOPs -- employee stock ownership plans. They're a sort of workers' capitalism. The idea is that workers become shareholders in their own company. They're then more committed to its success. Conflicts between workers and managers fade. Cooperation flourishes. The company becomes more productive and profitable. Workers get rich. Society prospers. Who could be against this? No one. The trouble is that ESOPs don't actually operate this way. They're mostly a hoax. But they're booming anyway. Perhaps 200 major companies have adopted ESOPs in the past year. Procter & Gamble and Anheuser-Busch are among the latest. Don't expect a surge of worker involvement or improved corporate efficiency. The infatuation with ESOPs is strictly expedient. They provide generous corporate tax savings and offer top executives a new defense against hostile takeovers. Suppose you're one of Procter & Gamble's 77,000 workers. The company will contribute $1 billion in stock to its new ESOP. The stock will be allocated to workers' individual ESOP accounts over 15 years. That's an average of almost $900 per employee a year. Do you suddenly start taking fewer coffee breaks? Do you come to work earlier? Go home later? Suppose you detest your supervisor. Do the two of you now turn into fast friends? "People aren't {experimental} rats," says Joseph Blasi, author of "Employee Ownership, Revolution or Rip-off?" and a management professor at California Polytechnic State University. "They do not respond automatically to modest financial incentives." Studies of ESOPs (about 10 million workers have them) confirm this conclusion. The ESOPs' rewards are too small and too distant to change how workers work. Most know that individually they can't raise their firm's profits or stock price. Profitability and productivity improve only if the ESOPs are part of a broader program to engage workers and involve them in everyday decisions. Nor do ESOPs give workers something for nothing. An ESOP is a fringe benefit like health insurance or pensions. Companies can typically spend only so much for salaries and fringes. Spending more on one fringe benefit means spending less on something else, as economist Michael Conte of the University of New Orleans points out. Sometimes the shift is invisible. But many companies have explicitly cut other fringe benefits when creating ESOPs. The Treasury estimates that ESOPs will cost the federal government more than $3 billion in lost revenues over the next five years. This estimate -- made before the recent ESOP boom -- may prove far too low. To promote ESOPs, Congress has granted them many tax breaks. A company creating an ESOP usually borrows (say, from a bank) to buy its own common stock in the market or to finance an issue of new stock. The stock goes into the ESOP, triggering the following tax benefits: The company can deduct both interest and repayment of the loan's principal from taxable income. Normally, only interest is deductible. The lender (in this case, the bank) doesn't have to pay taxes on half the interest income from ESOP loans. Some of the tax savings are passed on to the borrower. Consequently, ESOP loans have interest rates 1 to 1.5 percentage points lower than normal business loans. The company creating the ESOP generally gets a deduction for stock dividends paid to the ESOP. Dividends aren't usually tax deductible. But these tax breaks didn't start Corporate America's ESOP stampede. What did was the demonstration -- by Polaroid -- that ESOPs could be used as a takeover defense. Creating an ESOP places a big block of stock in friendly hands. Employees are less likely to sell their shares, because they fear new owners might fire workers. An ESOP can act as a powerful takeover deterrent in states with tough anti-takeover laws. Consider Delaware, where about half of all major U.S. companies are chartered. The Delaware antitakeover law requires a hostile buyer to get 85 percent of a company's stock before being able to exercise effective control. Thus, many new ESOPs tie up about 15 percent of a firm's stock. The Investor Responsibility Research Center in Washington reports recent ESOPs control 20 percent of the stock at American Standard, 15 percent at Boise Cascade and 11 percent at ITT. There have been some stunning ESOP successes. In 1984, Weirton Steel Corp. in West Virginia was spared bankruptcy through an ESOP. But the workers also took a 20 percent pay cut, and the real spur to better cooperation was the threat to everyone's job. A few stirring stories don't justify a huge tax break. Many companies have rescued themselves without ESOPs. The ESOP was once touted as a way to transfer corporate wealth to workers. It's true that direct stock ownership by individuals is highly concentrated among the very rich. But the rise of pension funds has already accomplished a substantial amount of redistribution. In 1950, pensions owned stocks equal to less than 1 percent of the stocks owned directly by households. In 1988, pensions owned $758 billion of stock, equal to a third of household stock wealth. ESOPs contributed almost nothing to this process. As they now stand, ESOPs are a growing waste of taxpayer money. They may ultimately foster corporate inefficiency by sheltering mediocre managements. Getting workers and managers to cooperate is important. But the tax breaks for ESOPs can't accomplish that. Each company is different. Employee stock ownership and profit sharing can succeed as a part of a wider corporate commitment to a collaborative style of management. That's a commitment that companies and workers must make themselves. It can't be imposed from Washington.