Fifty Years of Utopia: A Half-Century after Louis Kelso’s The Capitalist Manifesto, a Look Back at the Weird History of the ESOP

Abstract

This article summarizes the bizarre historical background of the employee stock ownership plan, or "ESOP." This specialized type of retirement plan, in which participants' retirement savings are invested in the stock of their employer, is the product of the economic theorizing and vigorous lobbying of a single eccentric individual, Louis Kelso. During the 1970s Kelso personally persuaded a powerful U.S. Senator, Russell Long of Louisiana, that employee ownership was a good idea and should be promoted through the use of the retirement system. Despite the fact that ESOPs rely for their justification on economic arguments rejected by mainstream economists, the tax subsidies promoted by Kelso and Long have left ESOPs a prominent feature, to this day, of the American retirement and tax system.

Keywords: ESOP, employee stock ownership plan, Louis Kelso, Russell Long

JEL Classification: J26, K34