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August 05, 2009

Comments

Tom P

Nice post!

Quick response - to be honest I don't think it's a great idea either. Differential voting rights make actually make it easier to entrench poor management, especially as (as you suggest) most fund managers aren't interested in their ownership role anyway.

But I'm glad he is trying to stir things up. I does give me a bit of hope that the Walker Review doc that came out isn't the last word.

Luis Enrique

agreed - great post.

About the worker/owner conflict, I'm trying to work out how what you've written relates to a co-ordination problem, that might lurk in the difference between the incentives faced by workers at individual firms, and what benefits workers as a whole.

In aggregate workers benefit from increases in efficiency (efficiency - or 'technology' being, as you know, the greatest single determinant of the real wage) but on an individual level, workers within existing firms (often) suffer from attempts to raise efficiency.

That is to say, it's hard to imagine workers voting to make themselves redundant, yet we know that in the long-run, reducing the number of workers involved in producing a good or service, combined with an expanding set of goods & services produced, is what raises real incomes.

You could view the current 'conflict' between workers and capitalists as mechanism that works around this coordination problem - competing capitalists invest, develop new technologies, and fire workers, in the pursuit of profits, prices are cut, raising real incomes and creating demand for new goods and services which then provide more jobs. I know this is a simplistic, overly benign picture, but there is a truth in there, I think, that the system can be seen as operating in the interests of workers, in so far as it raises real incomes.

So how does Marx relate to this story, in which a conflict of interests between workers and capitalists combines to serve the interests of both? How does what Marx says relate to the conflict of interests between the worker as producer (who benefits from a high price for the good he or she produces and job protection) and the worker as consumer (who benefits from low prices and efficiency gains?)

If there was a contract with workers could sign up to that would "allow for the net present value of dividends to be maximized (more or less) whilst at the same time empowering workers to manage firms better" would the difficulty lie in resolving the conflicts of interest between workers and capitalists, or in the conflict of interest between workers as producers and workers as consumers?

I feel I haven't expressed that very well - can you see what I'm driving at?

Ironman

Some fun with that third possible argument, with an argument that it's a solution to a prisoner's dilemma.

Ironman

Apologies - here's the relevant link that didn't take in the previous comment:

http://bit.ly/T4ZBg

Duncan

But someone has to act as an owner...

And fund managers won't do it unless forced to.

Personally I prefer a big stamp duty. Say 4% on any buy or sell.

It would destro most of the active fund management industry. But what was left would be a few who are, hopefully, capable of picking good companies and engaging with management.

This is very much my prefered model for actuive management:

http://www.hermes.co.uk/ic_hff.aspx

Everyone else could stay in trackers.

On the other hand I'd be delighted with more worker control too.

Tom P

Got to say I'm a bit disillusioned with Hermes actually. Their voting record is pretty rubbish - there are more activist managers out there. They opposed a couple of union-sponsored shareholder initiatives too.

Jim

And what is going to happen in this workers paradise to people employed by sole traders and partnerships, rather than limited companies? Do they get to tell their boss what to do, and how the business should be run, and decide how much they get paid too? If I take on an employee am I ever allowed to sack him, or does he have a job for life, or until I go bankrupt (which probably comes first)?

And the answer to your question as to whether there is a mythical 'Third Way' is No. Someone has to be in charge, and its either the owners of the capital (plant/machinery/buildings/cash) or the workers (providing the labour). It can't be both.

Owners risk their capital in return for their dividends. Workers risk nothing. They are remunerated for their labour, and if the business fails, still have their skills/knowledge. They can work elsewhere. The capital is gone. Why risk your capital investing in a business if it can be frittered away by others beyond your control?

If you haven't worked out where 'workers controlling the means of production' ends up, I think you need to re-read some history.

Charlie Marks

Jim displays the typical capitalist hostility to worker participation.

I can answer the following question:

"And what is going to happen in this workers paradise to people employed by sole traders and partnerships, rather than limited companies?"

They will have their rights respected, I would hope.

Think of it like this - the more involved we are in the running of our workplaces, the more devoted we are to our work, the more productive our labour.

"Why risk your capital investing in a business if it can be frittered away by others beyond your control?"

The stakeholder-cooperative model is desirable, from my own perspective as a Marxist, in that it allows workers, consumers, and investors to be represented in the decision-making process.

rockinred

@Jim
"Someone has to be in charge, and its either the owners of the capital (plant/machinery/buildings/cash) or the workers (providing the labour). It can't be both."
Why on earth not? As Charlie Marks says above, it's perfectly possible to run co-operative businesses in which the interests of workers, consumers, and investors are all taken care of. Sadly, Jim's comment typifies the "can't change, won't change" mentality of dinosaur capitalists, for whom ownership rather than effort, skill or talent entitles them to disproportionate rewards. It's an attitude that lies at the root of the current economic problems, which won't be solved until the dinosaurs die out. Which they will do.

Jim

'The stakeholder-cooperative model is desirable, from my own perspective as a Marxist, in that it allows workers, consumers, and investors to be represented in the decision-making process.' Charlie Marks

Of course it's desirable to you Charlie, you want to get you hands on money and assets that belong to someone else without having to do the hard work of earning them first. How about I as business owner get a say in how you spend your wages then? You want to tell me how to run my business, it's only fair I get the chance to tell you what to do as well? No more smoking or drinking, I don't approve. Another holiday abroad? I don't think so. Big plasma TV? Get a second hand CRT model.

Not so nice having someone tell you what you can do with your own money and life is it?

'it's perfectly possible to run co-operative businesses in which the interests of workers, consumers, and investors are all taken care of.' rockinred

Indeed it is. If you want to start a business, with your money, do all the hard work of making it successful, and hand it over to the workers (as in John Lewis Partnership) be my guest. I'm not stopping you. Its a free country (or it used to be). Just don't try and force me to do the same.

All businesses start with someone putting in capital (and their own labour) and risking that capital. I set up as a plumber - I buy a van and tools, and off I go. I'm successful, I buy another van and get an employee. And so on and so forth. If it all goes tits up, who do the creditors come after? Me. Not the employees. I stand to lose my assets, house even, if I balls up my business. If you want to increase the power and financial rewards of employees, then they will have to have an equal increase in their risk too. Otherwise you have the harlots prerogative - power without responsibility.

Charlie Marks

Jim makes the startling claim that I "want to get you hands on money and assets that belong to someone else without having to do the hard work of earning them first".

No, I don't. Being a Marxist doesn't make you ill-mannered...

I want workers to receive the full fruits of their labour - without the work done by employees, an enterprise is nothing.

We generate the wealth with our labour - it's only fair that we should have our invested time and energy recognised.

So I am making the case that workers in an enterprise should be recognised as stakeholders at at the very minimum be paid a living wage, have their rights respected, and be treated with courtesy.

Myself, I don't expect to dictate to my employer - even in a cooperative, workers are subject to majority rule of themselves and other members of the cooperative (in non-worker co-ops this means investors also have voting rights on a one-person, onve-vote basis.)

Incidentally, I have known many small businesspeople who pay decent wages to the employees they work alongside, are courteous and loyal - and this is returned in kind by workers. There's not much exploitation going on here, of course - so profit margins are slim. But then, these are the kind of employers who are more workers than capitalists - they take pride in their work and the goods/services provided.

I've never argued that these small businesspeople have their enterprises seized or unilaterally handed-over to the employees. It isn't possible to make moral arguments with a corporation which is designed to maximize profits - but a small businessperson with a conscience can respect the environment, the local community, and their employees.

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Clay Davis

I'm interested in your apparent faith in the "common man" to act in theirs & each others best interests if they were given the right to vote on management's activities. Does this mean that the shareholders that (partly) precipated the current crisis are just 'bad', whereas workers in this alternative reality are 'good'?

And the fact that fund managers are poor at addressing corporate governance effectively is not (in my mind) an adequate defence for opting for a passive approach to your capital allocation (i.e. accepting FMs failings and shrugging your shoulders). I do agree that paying active management fees is largely a waste of time though.

Charlie Marks

I am perhaps more engaged with the company in which I work that someone who may be a shareholder for a few minutes, wouldn't you say, Clay?

reason

"The counter-argument is also straightforward. If workers had power, they would enrich themselves by seizing current and future dividends. So shares would become worthless. The explicit voting premium is small only because non-voters can shelter behind voting shareholders."

That was the general idea in company pensions wasn't it - then along came Robert Maxwell (unintented consequences?). But even without that, employees do have an interest in dividends to the extent that it ensures future investment in the firm.

reason

"Why risk your capital investing in a business if it can be frittered away by others beyond your control?"

(Surely long term employees can say EXACTLY the same thing.)

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