Most people think there is only one way of running a business, that is, with a boss in charge telling everyone what to do. The boss makes all the decisions and keeps all the profit. This is the way it always has been and the way it always will be. But then again there was a time when people thought the unrestrained rule of Kings was the natural way of running a country. What if there was an alternative? What if the workers made the decisions themselves? What if they took ownership of their place of work rather than simply having it as a means to make a living? What if the makers of the money got to keep it? What if the divide between employer and employee was removed? What if the workers ran the business?
This idea has been around for some time. They are variously known as worker ownership, industrial democracy, worker self-management, profit-sharing, autogestion, co-operatives, labour managed firms (LMFs), collective ownership or employee share ownership plan (ESOPs). They have their root in Marxist and Socialist thinking. While that alone would put many people off the idea, I feel ideas should be judged on their own merits regardless of where they come from. Just as no ideology is entirely right, none is entirely wrong, so we should aim to salvaged what we can from all ideologies even failed ones. These principles have never been put into widespread use, only in Yugoslavia and small-scale mostly agricultural co-operatives, making it hard to judge their advantages and disadvantages.
The idea is that there would be no overall boss, rather all the employees would collectively make the decisions on a one-employee-one-vote basis. Or they may elect a manager, either way it would be similar to modern democracy. Employees would run the business by making all the decisions. All the profits would be divided evenly between all the employees. This stake in decision-making and a share of the profits, will make employees feel that they are a true part of the business and are truly the owners.
Psychologists point out that all humans having a craving for respect, self-fulfilment and appreciation. It is argued that these are far more important than simply money. Giving workers a share in their business would fulfil this need. They would be feel valued and in control of their lives, the most important requirement for good mental health and a happy life. This would increase motivation and therefore increase productivity. Work would no longer be something to be endured but rather a place of creativity and a source of pride. It is said that the more people you have dealing with a problem the better the solution. Getting more people involved in decision-making could lead to an explosion in innovation and new ideas. After all, the people on the ground are the ones who see how the business works or rather what does or does or not work. The people closest to the action often have the most practical ideas.
People will work harder if they feel they have ownership of the process and will directly gain from the results. They will be more willing to take pay cuts and other reforms if times are tight, as they see the full picture of the state of the business. There is no longer the suspicion and mistrust between managers and workers. People will put all their effort into something they feel belongs to them. Workers could fully gain from increases in productivity, in contrast to the current situation where American wages have not risen in real terms since 1973 while productivity has hugely increased. Worker ownership could lead to benefits from better industrial relations, a reduction in absenteeism and turnover (which plagues some industries), increased job satisfaction, a more engaged workforce and better decisions.
The most well-known example of co-operatives is the Mondragon Co-operative in the Basque Country in Spain. It is composed of 256 different co-operatives employing 80,000 people with an annual revenue of $14 billion dollars. It is a smack in the face of anyone who says co-operatives cannot be large and successful. It is not confined to agriculture having expanded to finance, retail and manufacturing. On average the CEO of the co-operative earns 5 times the wage of its lowest paid employee. This is in contrast to America where the ratio is 400 to 1.
There are certainly flaws. It may be difficult getting everyone to agree and it may take a large amount of time discussing every issue. People may not fully understand the complexities of running a business and may make ill-informed decisions. There are problems with paying everyone the same wage. Should janitors get the same wage as engineers? There may be a free-rider effect, where some workers decide not to pull their weight. Can a large business be run on co-operative principles? What happens if workers seriously disagree? Can a co-operative invest and grow over time or will it put short-term profits first? Is it a part of human nature that we need leadership because we will not naturally get along? Will workers resort to populist and opportunistic polices of “screw the boss” even if it damages the business?
These problems are not necessarily fatal. When democracy was first introduced people warned it would result in chaos as the poor would vote to confiscate the wealth of the rich, yet this never happened. This is because people are more responsible than they are often given credit for. People with little money often support tax cuts for the rich even though they will never benefit from it. Many people support policies that favour businesses even though they do not own a business themselves. Most working class people are not Socialists even if some argue it is in their interests. In co-operatives there is a good chance that people will be responsible and not selfish.
It is true that it will take extra time to make a decision but this means that every worker will pull harder together. After the introduction of democracy hasn’t lead to the breakdown of society as everyone is too busy voting and talking politics. People will naturally defer to someone they feel is more knowledgeable on the topic so it unlikely that a trained engineer will be out voted by a couple of idiots. People know they don’t know everything, and co-operatives encourage a communal spirit involving listening to others. There are problems involved in everyone getting the same wage and some co-operatives do have wage differentials (though less than in a capitalist firm). A compromise will have to be found based on the situation.
Some argue that co-operatives will have less problem with people not pulling their weight. This is because every business has problems with slackers and they have to take costly measures to catch slackers. Whereas in a co-operative every worker is also a boss so they are less likely to put up with lazy co-workers. They can use peer pressure to weed out unproductive workers.
Co-operatives may not grow as much as capitalist firms but is that really a bad thing? Is our obsession with constant growth really a healthy thing? Growth for its own sake is the logic of a cancer cell, should we really adopt it to modern society? Will we ever reach a point where we can just say enough is enough? What if we were happy with what we had, would we still need our income to be constantly increasing? The world is running out of resources and it is becoming clear that the environment cannot sustain continuous growth. The co-operative movement could lead to a large number of small businesses rather than the other way around, but that might even be a good thing. There are many benefits involved with a small local business.
There might be problems if some do not participate in the decision-making. There may be indifferent or too busy to spend time at meetings. They may not understand or care about financial details. A co-operative may be dominated by a small group of people (think of the Iron Law Of Oligarchy). Even still this would be no worse than the current situation. After all control by the few can’t be worse than control by a single person. If people do not participate in the co-operative then it will end up like a capitalist firm, in other words people will be no worse off than if things hadn’t changed.
So much for the theory, what does the evidence say?
A researcher, Chris Doucouliagos complied a meta analysis all studies that dealt with the link between worker ownership and productivity (43 studies in all) He found that democratic worker participation (one-worker-one-vote) increased productivity in two-thirds of the studies he examined. All six studies found that profit-sharing increased productivity. Likewise collective ownership is associated with increases in productivity He declares that democratic participation leads to increased productivity, “rejecting the traditional view that democratic management of the firm is associated with reduced efficiency.” He finds that overall businesses run by their workers are more productive than traditional capitalist firms. He makes it clear that “the various forms of participation do not hinder productivity.” “Contrary to the belief of many observers, democratic governance in LMFs is not negatively correlated with productivity.”
Logue and Yeates state that “A survey of empirical research on productivity in worker-owned enterprises and cooperatives find a substantial literature that largely supports the proposition that worker-owned enterprises equal or exceed the productivity of conventional enterprises when employee involvement is combined with ownership.” These claims get support from Kalmi who also found that labour managed firms are not less efficient than conventional firms. Employee run companies are more long-term focused, as opposed to the focus on short-term profits many shareholdings firms have. They are also more rooted in local communities, providing local jobs. They also find that employees must have genuine decision-making power in order to get a productivity boost. Purely symbolic measures that still leave real control in the hands of the managers does not lead to any gains.
Pierce & Rodgers praise the psychological benefits from worker self-management. They believe “participation helps satisfy employees’ nonpecuniary needs including those for creativity, achievement and social approval. It contributes to a sense of competence, self-worth and self-actualization. It makes use of the whole person.” They explain the source of the productivity boost as being due to “ownership [having] a positive impact on the employee owner’s organization-based self-esteem. As employee owners’ self-esteem is strengthened, the motivation to maintain and/or enhance their self-concept results in an increase in work-related motivation with subsequent performance effects.” They find consistent reports of motivation and productivity increasing when workers have a psychological ownership of their work. They conclude that “employees with ownership will come to believe that they are significant, worthy, and valuable to the organization” and will repay this by working harder.
Worker ownership of firms is a radical idea that could revolutionise how businesses are run. By giving people control of their work self-esteem, motivation and productivity all can be boosted. It would be a serious check on the growth of inequality. Introducing democracy into the workplace is not a purely utopian idea, studies show that it is more efficient than regular firms. It is the future.
Doucouliagos, “Worker Participation And Productivity In Labor-Managed And Participatory Firms: A Meta-Analysis”, Industrial & Labor Review, Oct 1995, 49, 1
Kalmi, The Study of Co-operatives in Modern Economics: A Methodological Essay
Logue & Yeates, “Cooperatives, Worker-Owned Enterprises, Productivity and the International Labor Organization” Economic and Industrial Democracy 2006 27: 686
Logue & Yeates, “Worker Ownership American Style: Pluralism, Participation and Performance” Economic and Industrial Democracy 1999 20: 225
Pierce & Rodgers, “The Psychology of Ownership and Worker-Owner Productivity” Group & Organization Management, 2004 29: 588