Friday, October 30, 2009

Workers' Ownership and Management and Work Sharing

If indeed, as the kurzarbeit evidence from Germany suggests, work sharing or other methods of reducing work hours during a recession preserves jobs, then it should be of interest what sorts of economic systems and organizations might lead to more of this. One form that has long been suggested as having this character is worker managed and worker owned firms, more conventionally called "cooperatives." The literature on this is simply huge, and a good summary can be found in John P. Bonin, Derek C. Jones, and Louis Putterman, "Theoretical and Empirical Studies of Producer Cooperatives: Will Ever the Twain Meet?" Journal of Economic Literature, 1991, 31, pp. 1290-1320. Indeed, in such enterprises owner-manager-workers are more likely to share the pain of a fall in demand by a shared cutback. These firms also tend to show greater short-term productive efficiency through flatter managerial hierarchies and the worker-owners monitoring each other for shirking.

The literature also cites possible disadvantages, perhaps a tendency to be reluctant to hire more worker-owners, possible tendencies to engage in ignoring externalities and trying to gain monopoley power, and so on. With a few exceptions, such as the Mondragon cooperatives, these firms rarely become very large, with financing a big issue. A few countries have tried to encourage them, but by and large they remain scarce in most economies, a vision, but not much of a widespread reality.

15 comments:

Walker said...

I agree this is a major consideration, one that Ugo Pagano addresses with respect to the orthodox labor supply model in Work and Welfare in Economic Theory. Pagano refers to the adoption of what he calls a "leisure semantic device" originating in Walras's work as bridging the difference between English and Austrian versions of opportunity cost and thereby finding a way of including both work and leisure in the indifference diagrams. The adoption of the device, in Pagano's opinion, underlies modern economic theory's "almost complete ignorance of the difference between human labour and the other resources."

Econoclast said...

Barkley, that makes sense to me. Though reducing work hours and sharing work as a way to deal with recession-imposed cutbacks are good, what's important is the institutional framework which allows and encourages such responses.
Jim

Walker said...

Following up on that last point, what Pagano is trying to show overall is that conventional models that purport to compare worker owned and managed co-ops with non-worker owned employers do so by loading all the utility on income and discounting working conditions, autonomy, security and leisure. Of course they don't even realize they're discounting those things because the assumptions are buried so deep in the model. And the original bit from Walras is utterly grotesque. It's a bit of "other than that, Mrs. Lincoln, how did you enjoy the play."

Anonymous said...

"Though reducing work hours and sharing work as a way to deal with recession-imposed cutbacks are good, what's important is the institutional framework which allows and encourages such responses."

Hmmmm...

So, the absolute demographic control of any and all democratic election outcomes by working people is not enough to cut it? If so, what additional advantage is required?

Econoclast said...

me:
"Though reducing work hours and sharing work as a way to deal with recession-imposed cutbacks are good, what's important is the institutional framework which allows and encourages such responses."

Some anonymous person wrote:
> So, the absolute demographic [?] control of any and all democratic election outcomes by working people is not enough to cut it? If so, what additional advantage is required?<

democracy can't work without good institutions.

BTW, who are you? please identify yourself, to be politeif nothing else.

Jim

Walker said...

I agree entirely with Econoclast on this. Work time arrangements don't just fall out of the sky. The long stalemate (or reversal) in hours reduction of the past 40 years or so reflects the sclerosis of American institutions.

gordon said...

Ah, it looks as though industrial democracy/ workplace democracy/ cooperatives and maybe performance-related and productivity-related pay are due for another round. It happens every 25 years or so.

For the record, I'm a supporter. It's just that these ideas, even though often successful (as often as most other management ideas, anyway) have few political legs. Management/shareholders don't like them, for obvious reasons. Unions don't like them, because it looks like an attack on the adversarial bargaining relationship with management which most unions rely on. To many politicians it looks like a bit too much democracy.

After a while, despite the success stories (and there are successes), the enthusiasm wanes for lack of support from these important quarters, and we wait about 25 years for it all to be rediscovered again...

John Emerson said...

Co-ops played a major political and economic role in the Midwest during the 30s. They grew out of a heated leftist political - communitarian - religious environment that would be hard to duplicate today. I suspect but don't know that during the fifties they basically became corporate. Land o Lakes butter is the most famous -- the coop revolutionized butter merchandising.

Garrison Keillor's brother Steven wrote a book "Cooperative commonwealth" about this movement, which had cross-border connections in Canada.

These coops were all organizations of petty bourgeois landowners, of course.

Peter Dorman said...

One of the reasons why worker coops provide a good context for reduced hours is that they militate against the use of hours reduction to heighten exploitation. If a normal capitalist firm reduces hours in a downturn, it will always be tempted to package this with a speedup for those who remain.

Of course, worker coops often self-exploit...

Anonymous said...

Jim Cramer, speaking tonight on the Hardball with Chris Matthews, on the "institutional framework" determining how this present crisis will be resolved:

“What’s happened in the last six months is that corporate America has decided, ‘you know what, we’re not going to fire any more people.’ But, where I feel Obama is going to be most challenged is when we do see hiring, Chris, it’s not in this country, American companies want to hire overseas. Why? Because those economies are growing much faster than ours. They will fire five people in this country and will hire two people in Brazil.“

Five minutes into this video: http://www.msnbc.msn.com/id/3036697/#33556202

I don't believe we will have the time required to encourage coops. Corporate America clearly has a plan B.

If democratic outrage will not resolve this issue in our favor, we will likely recreate Detroit on a continental scale.

rosserjb@jmu.edu said...

As I noted, the biggest problem for coops according to most of the literature is financing. If we as a society were to encourage more of them, this would probably be the best area to try to help them out, although there are many who are not keen on doing so.

The last major effort in the US to help them was when tax breaks were offered to ESOPs, many of which did not work out all that well and were undone (with United Airlines being probably the most notorious example, with a lot of weird stuff involved in it, such as some workers left out and the pilots paying themselves too much). Those tax breaks have since been eliminated, I believe.

TheTrucker said...

The move to communism (worker owned stuff) is not a workable idea because it is politically impossible. Your reaction to the word communism is an illustration of why that is so. I am also not a big fan of unions because the current/past genre was totally defeated by globalization. And if it was one giant union then it would be a political party. I guess I have been a closet socialist because I am more and more convinced that medical care is the primary challenge we Americans actually face. No person in this country currently starves. And although there are homeless people most of them are homeless due to mental/medical disorders. Those who are not homeless due to medical disorders likely choose to be so. And when I was at Goodwill last week the cloths were very inexpensive. They were not the latest rage, but clothes they were. I would say that anyone can "get by" in this country if not for medical problems and medical expenses.

The politically correct way to "fix" the USA is through a tax system (primarily a progressive income tax system) that encourages domestic investment while funding social services; primarily social insurance systems. I say this because it is politically possible to do so with the support of a strong and vibrant voice from the economics profession.

Free trade is for Wall Street weasels because the only thing that moves freely is financial capital. It moves to take advantage of all overpopulated areas where governments share in the exploitation of the environment and the people. The American producer class does not get a vote in the elections in China or Mexico.

Anonymous said...

a short case study which, in its main points, has applied to essentially all esops

worker-ownership does not mean control

juan

Jack said...

"The politically correct way to "fix" the USA is through a tax system (primarily a progressive income tax system) that encourages domestic investment while funding social services; primarily social insurance systems. I say this because it is politically possible to do so with the support of a strong and vibrant voice from the economics profession." Trucker

A point well worth repeating. I would only question where and when you would expect that "strong and
vibrant voice" to emanate from from any profession so well entrenched within the current economic system.

Eleanor said...

To Trucker: People who are homeless can have a lot of problems, but a key problem is lack of money. Middle class people with medical/mental problems do not end in the street, as long as they have money. The rich almost never end in the street, because they can buy a solution to every problem.

The local shelters are getting people who have lost their houses to foreclosure right now. I have friends who have lost their jobs and are wondering how they are going to continue to pay the rent. There is nothing wrong with my friends, except lack of a paying job.