Defending left-libertarianism

Daniel Shapiro has questions for left-libertarians. He suggests that an economy of worker-owned firms will degenerate into a hierarchical capitalist one:

It will be irrational for workers to concentrate their portfolio in their own firm, lest it go under. So they will want to sell some of their shares in their own firm and buy shares in other firms. Once that happens it is not hard to see how those who don’t work in the firm will come to own considerable shares of the firm...Those who will supply considerable capital will tend to want some way to monitor that their capital is being used in an efficient manner, which means some kind of say over how the firm is run...
We get the scenario of outsiders coming to have full ownership rights in the firms, and it’s not hard to see how this will lead fairly quickly to an economy which is dominated by capitalist firms.

He's right that it would be irrational for workers to put all their eggs in one basket, and that they'd like to have shares in other firms. But this needn't lead to hierarchical capitalism.

For one thing, Workers who own shares in other firms might well believe that the best protection of their interests is not voice but exit; if they fear firms will be poorly managed, or their interests neglected, they'll prefer to sell rather than insist upon control rights. This is the predominant way in which shareholders protect themselves today. Why should it be otherwise in a left-libertarian economy?

This is especially so because by the time people are smart enough to want a left-libertarian economy, they'll be smart enough to realize that hierarchical management is very often a poor safeguard of shareholders' interests, both because of its inefficiency* and because of the opportunities it gives to rent-seekers.

Daniel continues:

It may be a firm needs to reach a certain size in order to be efficient, and that too little hierarchy can impede efficiency.

Up to a point.Staffan Canback has estimated that diseconomies of scale usually set in at quite small scales of firm size. This is consistent with the actual size distribution of companies. In the UK, only 0.4% of businesses have more than 250 employees. Daniel's right that access to cheap equity capital can give firms an advantage if they are trying to grow. But this advantage is swiftly counter-acted by the diseconomies of scale - not to mention the fact that, very often, firms' growth strategies fail for other reasons.

Daniel then asks:

Firms which are financed largely by equity will, in a freed market, be those that maximize shareholder value, and how do we know that a substantial number of those firms won’t be hierarchical firms?

The key feature of a left-libertarian economy is that workers will have more choice where or whether to work; this is because there'll be (initially!) a large coop sector and a citizens' basic income which gives workers an outside option. This will put repressively hierarchical firms at a disadvantage. To attract workers to less pleasant working conditions, they'll have to either pay higher wages or employ mindless drones**. Either way, they have higher costs and lower productivity. Will these disadvantages offset other advantages hierarchy might have? Let competition decide!

Now, I don't say this to pretend to that a left-libertarian economy would be a utopia. No economy would be. And here's a problem. Could it be that opposition to such economies is motivated in part by the sort of status quo bias that causes us to prefer present evils over potential alternatives? Put it this way. Say we actually had some kind of egalitarian economy, and some argued for hierarchy. They'd then face the retort: "What? You want to give hundreds of millions of pounds to people like Chuck Prince or Fred Goodwin so they can destroy the economy. Are you bonkers?" Doesn't hierarchy look more absurd when viewed from the egalitarian perspective than egalitarianism does when viewd from the hierarchical one?

* Imagine most national economies where heavily centrally planned. How difficult would you find it to argue that central planning was inefficient? A similar problem afflicts the question of assessing the inefficiency of corporate hierarchy.

** Some people don't like working at John Lewis because, when everyone's your boss, it's harder to shirk.

Comments

[Luis Enrique]

sometimes I think you underestimate the potential dysfunctionality of workplace democracy, which might be increasing in scale.

why isn't Nationwide better, for instance? It's not paying dividends to greedy shareholders, nor, one presumes, outrageous bonuses to its banksters. So why aren't the interest rates it offers better than the competitions? Why are its systems so clunky compared to its mainstream rivals?

[Luis Enrique]

I should say, I think you're quite right about the status quo bias, although when you ask "imagine a world in which most national economies where heavily centrally planned..." it would be easy to argue central planning was inefficient if the few non-centrally planned economies looked much more successful. We might have a status quo in which most national economies are capitalist, but the few that aren't don't look so great. This is important.

[chris]

@ Luis - I don't know whether Nationwide's systems are clunkier than its rivals. But I do know that if it weren't for massive state aid to shareholder-owned companies, many of those rivals wouldn't exist.
I should add that even if worker democracy does morph into capitalism, this isn't a disaster. Wouldn't it be better to have a capitalism that's (ex hypothesi) demonstrably better than socialism, rather than one that owes its existence to path dependency, state aid, ideology and the power of extractive institutions to perpetuate themselves?

[Neil]

"why aren't the interest rates it offers better than the competitions"

Anecdata here says they are.

[Richard]

"The key feature of a left-libertarian economy is that workers will have more choice where or whether to work; this is because there'll be (initially!) a large coop sector and a citizens' basic income which gives workers an outside option."

I don't think the left-libertarians in this instance believe in a citizens' basic income: they are market anarchists who happen to believe their their favoured system will have left-wing rather than right-wing outcomes.

Re Nationwide discussed above: they used to have the highest interest rates about a decade ago but nowadays I believe they're not as competitive.

[FromArseToElbow]

@Luis, Nationwide isn't a co-op, it's a mutual. This means that democratic power rests with the depositors and borrowers, not the workers.

Though votes are not proportional to financial interest, this ownership regime is closest to standard shareholding in that authority ultimately rests with the providers of capital (mortgagees provide capital in the form of property collateral).

[Doly Garcia]

"To attract workers to less pleasant working conditions, they'll have to either pay higher wages or employ mindless drones."

You are happily assuming that most workers will prefer the non-hierarchical workplace. I wouldn't be so sure. Certainly, having a horrible boss is quite nasty. But having a nice one can be preferable to, say, a democratic governance where people are constantly bickering.

I'd say that the fact that hierarchical organizations are found everywhere strongly suggests that most people don't dislike hierarchy as such very much, they just dislike certain types of people when they reach the top of a hierarchy.

[David Ellis]

Socialism is about social ownership not sectarian workers' co-operatives or workers' ownership of individual enterprises. Lenin said when this was proposed as part of NEP that the October Revolution was never intended for that. We need social ownership but workers' democracy with worker-elected and accountable management in every workplace but with the industry itself accountable to society as a whole.

[aristeides]

""why aren't the interest rates it offers better than the competitions"

Anecdata here says they are."

Indeed, they top Moneysupermarket's tables for Easy Access and Junior ISA accounts, the latter at a 650% premium to bank rate. Quite hard to carp at that although, to be fair, their customer service (imhe) is shocking.

Of course, as FATE says above, Nationwide is a mutual not a partnership. There is very little to suggest that either a mutual or a partnership is ipso facto actually run any better than other types of organisation, but it is very good for competition that they exist. Competition is the primary driver of all improvement, though to say that is probably heresy on a site like this.

[Anonymous]

There is no incompatibility between hierarchy and worker democracy. The directors of a hierarchical firm would be elected in a worker democracy. Please, no more red herrings.

[jon livesey]

This is a completely pointless discussion. Capitalism is what emerges when you allow people to invest - or not invest - their own money. Any other system has to be imposed by Law and often by force.

Eventually capitalism re-emerges. It always has, and always will.

I hope the weather is nice today in Cloud Cuckoo Land.

[Mac]

I am not familiar with left-libertarianism.

Is it similar to libertarian communism and/or socialism from below?

[Alex SL]

This is especially so because by the time people are smart enough to want a left-libertarian economy...

As a left-cynic, I'd say if your ideology depends on the assumption that people aren't, on average, morons, you are in trouble.

[UnlearningEcon]

"Could it be that opposition to such economies is motivated in part by the sort of status quo bias that causes us to prefer present evils over potential alternatives?"

Absolutely. I actually recently had a discussion on twitter about this very issue, and somebody said 'yeah, ever had an annoying coworker? Imagine if they were your boss!"

Obviously they wouldn't be your boss; they'd be your equal in a democracy. But the obvious question is: imagine if your actual boss was an arsehole, which many of them are!?

People also ask difficult questions about anarchist communes "what if a child is born into an abusive commune" etc., ignoring that the same logic applies on a massive scale under capitalism.

[Thomas]

What shares are you talking about? A worker owned company does not need shares, because shares make no sense in such an environment.

In a worker owned company decisions are made by democratic elections where every employee has one vote. If he leaves the company, he looses his right to vote.

Your way of thinking is the way of thinking of people who are not used to work for their own living but depend on others to do the work for them. Only in such an enviroment you need shares while others, those who do the work, still do not need them, as we all can see today. Shares are only needed, when you want to participate from other peoples work. But I do not consider this desire to be left-libertarianism.