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A Virginia Declaration of Economic Justice: Own or Be Owned

The proposed sale of Smithfield Foods, Inc. (“the Company”), to a Chinese meat producer through the Wall Street firm of Goldman Sachs has raised serious concerns about ownership and control of America’s core industries, i.e., those that meet basic needs such as food, clothing, and shelter, as well as the stranglehold that Wall Street has on the American economy — a grasp that sabotaged the Russian privatization effort and has super-concentrated capital ownership even in America to the detriment of life and liberty. Our principle is that, instead of Americans working for foreign owners or jobs being outsourced to other countries, each person should work for him- or herself. Every American has the natural right to be an owner of capital, as stated in § 17(1) of the Universal Declaration of Human Rights, and § 1 of the Virginia Declaration of Rights of June 12, 1776. Handled properly, the sale of the Company could lead the way for a rebirth of American economic preeminence in which all Americans participate, and provide a model for the world, restoring American prestige. As a model, a sale could even help guide the Chinese to a more democratic system, both politically and economically. Keeping the Company locally and domestically owned would bring instant bipartisan support in both houses of Congress, while dethroning Wall Street would gain immediate support from many concerned political constituencies throughout the country. We therefore recommend a sale of Smithfield Foods, Inc. to its 46,000 workers through a “JBM S-Corp ESOP” with the following features and on the following terms, all of which are feasible under current U.S. law: • An S-Corp ESOP Trust should be established to purchase all outstanding shares of the Company. The purchase should be financed with credit extended by a consortium of local community and large banks located in Virginia. The loans would immediately be rediscounted at the Richmond Federal Reserve or other regional Federal Reserves, thereby ensuring an adequate source of low-cost, asset-backed financing without requiring any worker to take reductions in pay or benefits, or to invest any existing savings. Acquisition loan(s) would be repaid from the future earnings of the Company itself in the form of annual cash “contributions” to the ESOP, with shares and, later, cash being allocated to workers’ accounts. After the acquisition loans have been repaid, the Company would continue to make cash “contributions” to the ESOP, to be invested in a prudent mix of securities. This would provide the liquidity to repurchase shares from departing or retiring Participants, build in diversification, and establish an “inhouse stock exchange” for Company shares. S-Corps are not subject to corporate income tax. Instead, the shareholders are taxed, whether or not they receive distributions of earnings. As a non-taxed entity and sole owner of the Company organized as an S-Corp, the ESOP would pay no taxes. Taxes would be paid only when ESOP Participants receive pass-through profit distributions or a distribution of benefits from the Trust. This, to all intents and purposes, makes the Company 50% more profitable by eliminating the corporate tax liability, while tax revenues suffer little, if any, diminution due to the increase in Participant income and expansion of productivity and economic growth in the surrounding economy stimulated naturally by increased consumption incomes, avoiding increased labor costs. As Americans with equal rights to be owners, ESOP allocations should be equal, across the board. The value of each person’s labor to the Company, however, should be adequately compensated by the market rate, but each person should be equally an owner, as each has an equal right to be an owner, a “new” right of citizenship that has been recognized on paper in the Commonwealth of Virginia since 1776, but has not yet been made effective. Equal annual allocations should, everything else being equal as well, result in each Participant accumulating a typical account balance of over $100,000 ($4.75 billion/46,000 Participants) to supplement other savings and retirement plans. This represents a potential addition to retirement incomes of $9-12,000 annually if rolled over on a tax-deferred basis into another qualified plan such as an IRA and invested in a prudent mix of securities. To protect each Participant’s ownership rights and to optimize Company performance by emphasizing that everyone in the Company is directly and intimately concerned with the Company’s success (“A man pays most attention to that which is his own”), “Ownership Unions” should replace existing collective bargaining organizations, ensuring that the principles of “JusticeBased ManagementSM” and “Justice-Based Leadership” are integrated into the Company culture from the start. Participants would vote the shares in their accounts, and have representation on the board. In addition to equal annual allocations, the ESOP should include “cliff” instead of graduated vesting (i.e., 100% vesting after a pre-determined period instead of annual increases), and annual “rebalancing” of accounts, i.e., all Participants having an equal proportion of Company shares to other investments, with adjustments being made each year. A similar effort involving a start-up construction company with innovative products and techniques is currently underway in Cleveland, Ohio. Community leaders are closely watching the project with an eye toward providing a model for the economic revival of the “rust belt.” Applied to the worker buyout of Smithfield Foods, the proposal would gain national prominence for sponsoring politicians, who would thereby get credit for saving one of America’s core industries and paving the way for a sustainable economic recovery that does not involve increases in government debt, taxation, or power. A minor change to current law could be made, extending the § 1042 tax-deferred rollover now available to C-Corp ESOPs to SCorp ESOPs. This would make a sale to an ESOP Trust more attractive to existing shareholders than a sale to the Chinese meat producer, and gain a significant political constituency among the ESOP community and pro-ESOP Representatives and Senators of both parties who have long been urging such a change.