Record Amount of GDP Going to Profits Shows Kelso Was Right

A new analysis from KPMG shows a record gap between the share of GDP going to profits compared to the share going to compensation. Corporate profits were 8% of GDP in 1992 but are 15.85% today; compensation has dropped from 66.2% in 1982 to 61.9% today. The data parallel other research showing that productivity gains have risen much faster than compensation. In a LinkedIn post, Diane Swonk, chief economist and managing director at KPMG, wrote, “This chart from my recent Economic Compass still haunts me. A friend refers to it as the ‘revolution chart,’ which [is] disturbing but telling. Inequality fuels social and economic instability.”

In their 1957 book The Capitalist Manifesto, Louis Kelso, who created ESOPs, and philosopher Mortimer Adler predicted this exact trend. Economists largely dismissed the idea as inconsistent with economic history.

Kelso argued we needed to rethink ownership to get out of this dangerous spiral. Employees, he argued, should have two sources of income, one from compensation and one from ownership so that they could participate in the changing economy. He and Patricia Kelso proposed a variety of other ways ownership could be spread aside from at work.

The Kelsos were encouraged by the growth of employee ownership, but as Louis Kelso told an NCEO conference over 30 years ago, even the most optimistic projections of employee ownership would still leave billions of people worldwide without capital ownership. The new data—and the dangers many now mainstream economists see in it—underline the importance of his vision.