Ownership & collective action

Patrick Barclay has an idea:

According to the latest estimate, Manchester United have 333 million fans across the world. So the answer to the ownership problem is simple. Everyone chips in a fiver, producing £1.665 billion, enough to pay off the debts, give the Glazers a healthy profit and return the club to the interest-free state in which Alex Ferguson found it when he arrived from Aberdeen in 1986.

Even if we leave aside the fact than Manyoo probably don’t have 333 million fans - are  there really that many people living in Woking? - there’s a problem with this. It’s the classic problem of collective action. It takes a lot of organization to get millions of people to pay a fiver. Who’d want to do so much grunt-work when they’d get no more reward than the ordinary guy chipping in his fiver? Everyone would rather someone else did the work, so they could free-ride off his efforts. The upshot is that the job doesn’t get done.
So far, so straightforward. But herein lies an issue.  Could it be that this  problem is widespread?
Certainly, it is common for ordinary shareholder-owned firms. Traditionally, the costs to any one shareholder from taking a more active oversight of management are high - lots of hassle - whilst the benefits are dispersed across all shareholders. So there’s little oversight, and managers get away with murder.
But might it also be a common reason why inefficient ownership forms persist? Could it be that we don’t see the transition from bad ownership forms - such as dispersed shareholders or (this is oft-forgot) government* - to worker or consumer co-ops because of the problem of collective action?
Of course, this is not the only obstacle. A bigger one is simple lack of capital; workers would have to stump up £40,000 each to buy out shareholders in Sainsburys, for example.
What I’m driving at here is an ambiguity in the claim that capitalist ownership is more efficient than the alternatives. This can mean two different things:
1. In a steady state, capitalist ownership produces better results - however you measure these - than more collective ownership forms.
2. The transition from capitalist to collective ownership is costly.
Even if (1) is not true, (2) might be. 
* Why don’t local residents buy out libraries, or even schools or swimming pools?

Comments

[Morten]

Well, there is, as I am sure you know, an extensive research literature in this field. Just google 'Corporate Governance'. The bottom line is that there is no one best ownership structure of all firms. In some industries we see customer owned firms (eg mutual banks), some have supplier owned firms (eg mutual dairies), employee owned firms (eg lawyers, accountants), government owned (eg schools) and capitalist firms. They all have pros and cons, but they all work under the right circumstances. As for football clubs, I am not convinced the mutual bank model is necessary the best.

(Your comparison to Sainsbury limps - the relevant metric would be how much each customer would have to cough up)

[chris]

Yes, Morten - of course you're right. My point, however, is that difficulties of transitioning from one structure to another cause a bias towards capitalist-style structures. Maybe some of these are "efficient" in the sense that the cost of changing is high, rather than they would out-perform co-ops over the long-run.

[Miguel Madeira]

"* Why don’t local residents buy out libraries, or even schools or swimming pools?"

I think that some "recreative societies" are basically that.

[Phil]

In response to your specific question, I presume if you're aware of it, you'll be looking out for its results: Lambeth Borough Council is going to spin out council services as co-op -run business:

http://news.bbc.co.uk/1/hi/england/london/8522105.stm

[RobG]

This point has always seemed fairly clear to me. There are huge collective action problems in trying to organise worker takeover of firms, but that's not the only way co-ops have the odds stacked against them. Co-ops are also less likely to externalise costs, making them less competitive even though they're increasing economy wide efficiency. To get round the lack of capital problem, workers could always just occupy and try and take it forcefully: but this also faces collective action problems, and the fact that the capitalists could call on state violence to defend their property 'rights'.

[RobG]

That said, collective problems are sometimes exaggerated. They're based on silly 'rational actor' models in which the utility boost of peer approval is not considered (and the painful effects of peer sanctioning faced by free riders). Collective action organisers might not benefit any more than everyone else in immediate material terms, but they will enjoy enhanced social prestige and possibly enjoy material gains in the long terms.

[Bialik]

What is the advantage of 'the public' owning local libraries over council ownership? In neither case can everybody get the book they want because there are so many published and so few bought in comparison.

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