Thoughts about worker democracy

I suspect that worker-owned businesses can be made to work well, if we can reject populist ideas about how a democratic organization should work. Basically, the workers need to reject the kind of rhetoric associated with Thomas Jefferson. Consider the cruelty of the world that Jefferson promoted, a world of slavery and wealthy slave owners. All of that needs to be rejected. Jefferson’s rhetoric is useful for defending the kind of freedom that allowed him to rape a 15 year old girl until she got pregnant. But it is not useful for building a worker run organization. Such an organization would need to be run by a small elite who are elected by the workers, but who are protected from the wrath of the workers, because that elite will often have to make decisions that will make some workers angry. It’s important to have a rhetoric that points out the benefits of such a system.

There are several ways in which cooperatives might fail as an instrument for progressive reform. First, it might be the case that cooperative management is inherently less efficient, effective, or innovative than capitalism management; so the returns to workers would potentially be lower in an inefficient cooperative than a highly efficient capitalist enterprise. Marglin’s arguments in “What do bosses do?” give reasons to doubt this concern as a general feature of cooperatives; he argues that private management does not generally beat worker management at efficiency and innovation. Second, it might be that cooperatives are feasible at a small and medium scale of enterprise, but not feasible for large enterprises like a steel company or IBM. Greater size might magnify the difficulties of coordination and decision-making that are evident in even medium-size worker-owned enterprises. Third, it might be argued that cooperatives themselves are labor-expelling: cooperative members may have an economic incentive to refrain from adding workers to the process in order to keep their own income and wealth shares higher. It would only make economic sense to add a worker when the product of the next worker is greater than the average product; whereas a private owner will add workers at a lower wage when the new worker’s product is greater than the marginal product. So an economy in which there is a high proportion of worker-owned cooperatives may produce a high rate of unemployment among non-cooperative members. Finally, worker-owned enterprises will need access to capital; but this means that an uncontrollable portion of the surplus will flow out of the enterprise to the financial sector — itself a major cause of current rising inequalities. Profits will be jointly owned; but interest and finance costs will flow out of the enterprise to privately owned financial institutions.

And what about automation? Would worker-owned cooperatives invest in substantial labor-replacing automation? Here there are several different scenarios to consider. The key economic fact is that automation reduces per-unit cost. This implies that in a situation of fixed market demand, automation of an enterprise implies reduction of the wage or reduction of the size of the workforce. There appear to be only a few ways out of this box. If it is possible to expand the market for the product at a lower unit price, then it is possible for an equal number of workers to be employed at an equal or higher individual return. If it is not possible to expand the market sufficiently, then the enterprise must either lower the wage or reduce the workforce. Since the enterprise is democratically organized, neither choice is palatable, and per-worker returns will fall. On this scenario, either the work force shrinks or the per-worker return falls.

Worker management has implications for automation in a different way as well. Private owners will select forms of automation based solely on their overall effect on private profits; whereas worker-owned firms will select a form of automation taking the value of a satisfying workplace into account. So we can expect that the pathway of technical change and automation would be different in worker-owned firms than in privately owned firms.

In short, the economic and institutional realities of worker-owned enterprises are not entirely clear. But the concept is promising enough, and there are enough successful real-world examples, to encourage progressive thinkers to reconsider this form of economic organization.