Worker democracy works

Here’s some laboratory evidence that workplace democracy raises productivity:

We report evidence from a real-effort experiment confirming that worker performance is sensitive to the process used to select the compensation contract. Groups of workers that voted to determine their compensation scheme provided significantly more effort than groups that had no say in how they would be compensated. This effect is robust to controls for the compensation scheme implemented and worker characteristics.

This is especially impressive because it focuses upon only one channel through which democracy raises productivity, and ignores others - for example that workplace democracy increases workers’ monitoring of co-workers, or increases motivation over longer periods than can be measured in laboratory experiments.
One message I take from this is that a government that was serious about wanting to increase the efficiency of the public sector would consider ways of empowering workers.
At this stage, glibertarians ask: if worker democracy is so productive, why is there so little of it? Why don’t efficient worker-owned firms expand and put inefficient capitalist ones out of business?
In one sense, the premise of the question is false. Only about one firm in 1000 separates ownership from control by being listed on the stock market; co-ops and partnerships are much more common. And they are almost ubiquitous in businesses where worker effort is the key to performance, such as law firms.
In another sense, the question ascribes too much efficiency to market forces. These don’t grind as finely as you might think. In his classic survey of firm growth, Alex Coad writes:

While there is ample evidence suggesting that low productivity helps to predict exit…productivity levels are not very helpful in predicting growth rates. Put differently, it appears that selection only operates via elimination of the least productive firms or establishments, while the mechanism of selection via differential growth does not appear to be functioning well. As a result, the mechanism of selection appears to be rather ‘suboptimal’ in the sense that its effectiveness is lower than it could conceivably be.

A second question is: why am I so keen on worker democracy but sceptical about political democracy?
Simple. The best forms of democracy don’t ask; “what do you think?” This just invites speak-your-branes drivel. Instead, it asks: what do you know? Workplace democracy does this.
In this sense, workplace democracy does what Hayek attributed to markets: it mobilizes dispersed, fragmented knowledge (this is a separate virtue from maximizing efficiency). My enthusiasm for worker democracy probably owes less to Marx’s influence  than it does to Hayek’s.

Comments

[Prateekbuch]

Brilliant...!

[Adam Bell]

I'm a bit surprised that you somehow skipped over the part where it's much easier for stockmarket-listed firms to raise finance by issuing shares. Readier access to capital will be a factor in their success. Financing for worker-owned firms is perhaps the strongest barrier to the sort of workplace democracy you're after.

[Luis Enrique]

I don't think that's a glibertarian question, I think it's interesting that there might be opportunities for large productivity gains going left unexploited, and understanding why is important stuff. It's not even as if letting workers design their own compensation schemes is terribly costly or difficult.

[Leftoutside]

In the 19th century cooperatives (in the US at least) also faced a lot of firms which refused to deal with them. A lot of this opposition was ideological in origin as well. Another thing holding back worker operated firms.

http://www.informaworld.com/smpp/content~db=all~content=a794695486~frm=abslink

Shirom, Ari. 1972. ‘The Industrial Relations System of Industrial Cooperatives in the United States, 1880-1935’ Labor History 13(4), 533-51.

[steve]

Perhaps this demonstrates the difference between US unions and european unions? It has always been a mystery to me why unions are demonized in the US, and there is some evidence that they did not perform well at times, while European unions and their companies have remained productive.

Steve

[Marcin]

You're massively overestimating the number of law firms which are worker-owned.

Over half of law firms are sole practices, so clearly the usual issues for firms do not obtain. Once you get beyond a few partners, they tend to want to hire associates, so they can profit from the associates' labour.