The National Interest
Can the DFC Compete with China’s Belt and Road Initiative?
July 25, 2025
By: Jack Moriarty, and Jim Sorenson
Reauthorizing the DFC with an employee ownership focus could counter China’s influence, empower workers in developing nations, and align US foreign investment with long-term economic self-sufficiency goals.
In the twilight of the Cold War, President Reagan used a 1987 White House speech to articulate a vision for the widespread ownership of property in developing nations, “The people of Central America, and, in a broader sense, the entire developing world, need to know first-hand… that property is not just something enjoyed by a few, but can be owned by any individual who works hard and makes correct decisions… and that business, large or small, is something in which everyone can own a piece of the action.”
The pending reauthorization of the US International Development Finance Corporation (DFC) presents an opportunity to advance American interests by enabling people in the developing world to own a piece of the action. Created during the first Trump administration through the bipartisan BUILD Act, the DFC is the market-oriented American counterweight to the Belt & Road Initiative, a strategy by the Chinese Communist Party (CCP) to deploy large-scale infrastructure financing in ways that advance its economic, political, and military interests across the developing world.
How Can the United States Combat the Belt & Road Initiative?
As the Belt & Road Initiative has proliferated, China has demonstrated a consistent pattern of eroding the economic sovereignty of the countries that receive its investments. It has done so by promoting a coercive development model characterized by exploitative lending terms, predatory labor practices, and the arrogation of economic benefits to Chinese state-owned enterprises (SOEs) directed by the CCP at the expense of small and medium-sized businesses in the recipient country. Any responsible development actor would instead treat these businesses as the linchpin of future economic growth, job creation, and technological innovation.
By contrast, the DFC enables America to offer a competing financing alternative, premised on strengthening rather than undermining the market institutions of a developing nation and its citizens in ways that advance US economic and security interests, while generating a healthy profit for the American taxpayer.
How Does the DFC Work?
It operates with an explicit mandate to attract private investment through co-investments and risk sharing with local institutional investors and other multilateral development banks. Its toolkit includes political risk insurance, loans and loan guarantees, and equity investments in projects and investment funds that support a portfolio spanning infrastructure and critical minerals, energy assets, agriculture, health services, and the development of financial markets that are capable of supporting entrepreneurship and a robust ecosystem of small and medium-sized businesses.
To enhance the effectiveness of our strategic investments in these emerging markets, Congress should ensure that a reauthorized DFC expands the small business and financial services components of its mandate to include the development, implementation, and financing of transaction structures that enable workers in emerging markets to build wealth and achieve financial self-sufficiency through employee ownership.
By allowing the workers to participate directly in economic growth through an ownership stake, the DFC can gain a better return on taxpayer investment by addressing the root causes of financial insecurity that create the demand for development assistance in the first place. Incorporating employee ownership into the investment thesis for small and medium-sized businesses would also advance the strategic foreign policy interests of the United States by better equipping private investors to compete with Chinese state-owned enterprises, which often operate under different rules in emerging markets when it comes to achieving competitive financial returns.
What Are the Benefits of Employee-Owned Enterprises?
Employee ownership has gained momentum as a new frontier for development finance both domestically and internationally.
Back in 2018, President Trump signed the Main Street Employee Ownership Act, which enabled the Small Business Administration to support private lenders in financing the sale of small businesses to their employees through its flagship 7(a) program. Five years later, Secretary of State Marco Rubio was a lead sponsor of this bipartisan legislation during his final term as US Senator that would have further mobilized private institutional capital sources to accelerate the growth of employee ownership in the United States by addressing financing impediments to the adoption of Employee Stock Ownership Plans (ESOPs), the leading employee ownership structure by volume in the world.
A new version of this legislation was reintroduced as the American Ownership and Resilience Act earlier this year, led by Senators Chris Van Hollen and Jerry Moran alongside Reps. Blake Moore and Lori Trahan in the House.
The business case for employee ownership is straightforward. Empirical research suggests that employee-owned businesses tend to grow more rapidly, retain high-quality jobs, increase labor productivity in industrial sectors, and exhibit greater resilience during market downturns. The value proposition for workers is equally compelling: employees at American ESOP companies typically experience a wage premium and have been shown to accumulate over twice the amount of retirement assets as their peers. Ownership is a source of generational wealth that aligns the interests of workers, businesses, and investors while reducing the demand for social safety net programs over the long term.
The potential to replicate these benefits in the developing world is immense. By establishing clear linkages between private sector development and wealth creation for workers, development finance institutions that prioritize employee ownership can strengthen the commitment to property rights, support the development of pro-market cultures, and address the root causes of economic migration over the long term by allowing employees to directly participate in the upside of their firm’s performance and economic growth where they live. This type of financing would reflect the essence of what development assistance looks like at its best, helping people help themselves.
What Has Been Done to Advance Employee-Ownership?
The groundwork to integrate employee ownership into the development finance toolkit is already being laid. In February 2025, the Predistribution Initiative (PDI) released A Playbook for Employee Ownership in Sub-Saharan Africa with support from the Sorenson Impact Foundation. Its findings detailed the opportunities for employee ownership to deepen capital markets, incentivize local talent, increase community reinvestment, reverse and prevent inequality, and accelerate economic progress across the subcontinent.
On the topic of capital markets, the report acknowledged one of the most glaring pain points that private investors routinely confront when evaluating whether to deploy capital in African private capital markets: the relative lack of exit and liquidity options that make the realization of investment proceeds inherently uncertain. The report concluded that “employee ownership can provide an additional avenue for exits and liquidity to complement the opportunities of financial or strategic acquisitions and the public markets” and that employee ownership “can be a win-win that enhances liquidity for investors while creating an unparalleled wealth-building opportunity for workers.”
Enhancing the availability and reliability of exit options for US investors, not just in Africa but across the full spectrum of emerging markets, would materially advance the foreign policy interests of the United States while promoting a market-tested solution to expand developmental impact through quantifiable employee wealth creation.
Crucially, the promotion of legal structures and financing mechanisms for employee ownership would help level the playing field for American companies and investors doing business in emerging markets who require confidence in the ability to exit an investment opportunity to generate a financial return, in stark contrast to competing Chinese state-owned enterprises, which face no such market motive.
However, regulatory uncertainty, inconsistent tax treatments, and other jurisdictional complexities pose significant barriers to the development of employee ownership, highlighting the need for a financial first mover with robust technical assistance capabilities.
The playbook addresses these challenges and highlights development financial institutions as a catalytic force in accelerating the development of markets that feature scalable employee ownership and profit-sharing structures. This type of “demonstration additionality” de-risks new forms of investment for the private sector to scale, making it an essential component of the value proposition for any development financing strategy.
Historical examples of this phenomenon in the United States include the creation of the 30-year “American mortgage” during the Great Depression through a combination of the Federal Housing Administration, the Home Owners’ Loan Corporation, and Fannie Mae. These financing interventions in the home mortgage market eventually gave rise to an entirely new private mortgage lending industry. In its latest annual report, the DFC articulated its role in “demonstrating the viability of new investment structures” as part of a broader strategy to mobilize private capital and derisk priority investment areas for private co-investors.
Congress Needs to Prioritize Employee-Ownership for a Better America
As Congress prepares to reauthorize the DFC, incorporating employee ownership into its statutory mandate would require no more than a surgical addition. Such a move would be highly synergistic with the menu of priority fixes that have been put forward by development and foreign policy experts including increasing DFC’s overall financial capacity, addressing the currently unfavorable budgetary treatment of its equity investment authority to more effectively offer an alternative to China more effectively, and allowing greater flexibility in making strategic investments in middle and upper-income countries including in Latin America.
Even in the absence of a statutory reference, the Administration can and should incorporate employee ownership into its operational priorities, aligning with the existing strategic focus on developing financial markets alongside small and medium-sized businesses.
In pursuing this path, there may be no greater strategic or philosophical contrast between the state-owned model of the CCP and a retooled American DFC that directly equips American investors to enable workers in developing nations to achieve financial self-reliance and prosperity through private sector wealth creation. Such an approach would eschew the sovereignty-extracting investments of the Chinese Communist Party in favor of sovereignty-respecting investments in partnership with the local financial intermediaries within a developing nation.
Individual sovereignty and prosperity were undoubtedly on the mind of President Reagan back in August of 1987. He concluded his speech with an aspirational prediction:
“I can’t help but believe that in the future we will see in the United States and throughout the Western world an increasing trend toward the next logical step, employee ownership. It is a path that befits a free people.”
About the Authors: Jack Moriarty and Jim Sorenson
Jack Moriarty is the Executive Director of Lafayette Square Institute, a nonprofit data and policy organization bridging the gap between policymakers and capital markets. He is a Fellow at the Rutgers Institute for the Study of Employee Ownership and Profit-Sharing. He serves on the Experts’ Board of the Institute for Economic Democracy in Ljubljana, Slovenia.
Jim Sorenson is Chairman of the Sorenson Impact Group, a multidisciplinary investment platform that aligns mission and values with capital. Through our four branches – Funds, Advisory, Foundation, and Institute we drive innovative solutions to the world’s most intractable problems by expanding the impact investing marketplace.
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