Framing worker democracy

Nicola Smith says that predistributionist policies should include greater workplace democracy. I agree. What worries me though is the framing of this issue. I fear there's a danger that the call for workplace democracy will be seen as a demand made by a sectional interest. It shouldn't be.

Instead, it should be a response to the fact that capitalist control of firms has failed. I mean this in three senses:

- The collapse of banks shows that shareholders do not monitor managers well. They lack the incentive to do so, because their share ownership of any firm is typically only a small fraction of their wealth. And they lack the knowledge to do so too, because outsiders normally know less about what's happening in a firm than do insiders such as key workers.

- Capitalists have largely ceased to be providers of capital.For most of the last ten years, non-financial firms, in aggregate, have retained more in profits than they have spent on capital equipment. And except for the recapitalization of banks, net share issuance has been small or negative in recent years.

- Capitalist control of firms might not have solved a problem thought to bedevil coops, that workers have short-term time horizons. Capital can be as short-termist (pdf) as labour - or maybe more so (pdf).

These failings suggest that the case for greater worker control should be framed not as a sectional demand, nor as a case for greater equality, but as one of efficiency. Quite simply capitalist ownership of firms is (often? sometimes?) inefficient; I hesitate to call it capitalist control, because firms' nominal owners exercise pitifully little control.

The case for worker ownership and control is a Blairite one: what matters is what works, and worker democracy works.

I suspect the persistence of capitalist firms is in some cases an example of path dependence. It exists now largely because it existed in the past. Granted, there was a time when capitalist ownership and control made sense: when they did provide capital; when workers were easily monitored; and when capital-owners knew more about the business than workers. But the days of 19th century mill-owners are gone. So why should the ownership structure that made sense then persist?

To put this another way, if we had worker control and ownership today, under what circumstances would the demand for a shift to capitalist control and ownership make sense?

I stress here that I'm not arguing for the overthrow of capitalism; the question of the merits of worker vs capitalist control will vary from place to place, as this long pdf describes. All I'm saying is that the call for worker democracy should be framed within a context of a widespread failure of capitalism.

Comments

[Luis Enrique]

who is the audience?

If we are hoping that shareholders will decide to replace hierarchical management with worker democracy, I'd probably agree the emphasis should be on efficiency. Although their bottom line is probably dividends, and even if I believed worker democracy would improve performance, I'd find it hard to believe that worker-controlled firms wouldn't retain more of the surplus as wages, as opposed to distributing as dividends.

if, on the other hand, you think top-down legislation is going to be needed to bring about worker democracy, because private owners will never cede control to workers voluntarily, then the framing needs to appeal to voters and hence politicians. Maybe voters will just like the idea of replacing high-paid bosses? Although you're probably right that the idea workers run firms are in some sense "better" - I don't mean just in Waitrose snob/quality sense, but better customer service, better treatment of "stakeholders" (ugh) and so forth - should probably be a big part of the message.

if we had worker control, when would demand for a shift to capitalist control make sense? If companies were being run for the benefit of insiders (workers). If you think that producivity gains are like an externality that help the rest of us through lower prices but tend to hurt insiders, then you might want to replace worker control if you thought workers liked keeping prices and wages high and resisted productivity innovations that put them out of jobs.

[chris]

@ Luis - companies are already being run by insiders, to the detriment of shareholders. It's just that the insiders are management rather than workers.

[Luis Enrique]

Okay, sloppily put by me, sorry. Still bosses and workers face different incentives w.r.t adopting labor saving technologies. That may provide a reason to prefer bosses. I mean, potentially at least.

[Anonymous]

A fascinating issue but where to start?

What is meant by efficiency in this context? And who benefits from efficiencies?

Is it more efficient to replace labour with machines? A firm operating in a competitive market will continue to do so after workers have been elected to the board. Co-determination does not of itself change the competitive pressures faced by firms. So even a co-determined firm may elect to replace labour with machinery if competitive pressures dictate. This is because both labour and capital have an interest in the survival of the cash cow they both seek to milk.

From a social or wider economic perspective it may be more efficient (or at least be a superior outcome) for firms to remain labour intensive. It is not efficient from a wider economic perspective to have workers idling on the dole. Co-determined firms are less likely to replace labour with machines in cases where there is no existential threat to the firm.

Co-determination should make for better investment decisions that properly consider impacts on the locale, the environment, the firm's and the wider workforce. So co-determination could produce efficiency savings in clean up costs, unemployment costs, even health costs if firms invest in local health and social amenities from which local communities benefit.

I would add that the short-termism of the capital markets would be constrained by co-determinism because shareholders would control just one-half of the board. The remaining half of the board would remain invariant and immured from City pressures to produce short term returns, this half of the board being elected by the firm's workers. This would enable longer time horizons to be used in investment decisions.

Personally, I believe that truth and beauty meet in co-determination, that is, it is both a morally correct and economically superior model of corporate governance.

[andrew]

yes, capitalist control does fail
yes, worker democracy works

i see no evidence that worker democracy works better - i see john lewis, tesco, amazon, sainsbury...

under the general capitalist profit seeking framework, shareholder owned firms still seem to provide the best answer

[Anonymous]

@andrew

Under co-determination firms would still be shareholder owned.

The issue is who controls these firms? At the moment, control is with the directors, largely appointed by themselves.

Co-determination splits control between shareholder appointed directors and employee elected directors. The two groups would sit on the board.

[Antidismal.blogspot.com]

Hasn't Hansmann's, "The Ownership of Enterprise" explained why worker ownership is very rare?

Dow, Gregory K. (2003). "Governing the Firm: Workers’ Control in Theory and Practice", Cambridge: Cambridge University Press does make the case for worker control using a Grossman-Hart-Moore framework.

[SEO Consultants]

I agree, most of the controls are usually with those people who are also the one who place themselves in the said position. As far as I see it, tthe system really needs to change... big time.

[chris]

@Anti - Hansmann's actually sceptical of most of the reasons why coops aren't more widespread. The one he favours is that coops are infeasible where there are big differences between workers and thus conflicts of interest among them.
But note that coops aren't rare. Partnerships (law, accountancy etc) are more numerous than plcs.

[Neil]

An interesting perspective Chris, but I feel that I'm missing something. If, from a pure efficiency point of view, worker-run businesses are superior, should we not be seeing them out-competing traditional capitalist enterprises all over the place? And if they're not doing so, is that not evidence that they are in fact not more efficient?

If they are both more efficient and less successful, what is the cause of this? I would find it hard to believe that customers are avoiding co-ops on principle - if anything, I think that all else being equal most people would *prefer* co-ops. So what are the conditions holding them back?