Democratic Firms and the Distribution of Wealth

Abstract

By a democratic firm we mean an enterprise whose management and administrative structure are chosen by the firm’s labour force using a democratic political process. A capitalist firm is one whose management and administrative structure is determined by the owners of the firm’s capital assets, who are distinct from the firm’s labour force. In this chapter we show that, under plausible conditions where both types of firm are possible, and where workers allocate themselves among firms to maximize a standard measure of well-being, the equilibrium fraction of workers in democratic firms and the distribution of wealth are mutually determining.