Employee Ownership of Firms

Abstract

Once widely considered just a theoretical curiosity or an ideological aspiration, employee ownership of enterprise has attracted considerable interest in recent years as a practical matter of organization. In the West, this interest derives in considerable part from the decline of unionism and the resulting search for other means of assuring efficiency and equity in labor contracting, while in the East, interest in employee ownership has been stimulated by the rapid market-oriented ownership structures that stop short of a direct leap into full finance capitalism. This essay explores the relative efficiency advantages and disadvantages of employee ownership with respect to other forms of ownership--in particular, investor ownership--and seeks to explain why employee ownership has become widespread in some industries, such as the service professions, while it remains rare in many others. The general conclusion offered is that employee ownership appears relatively efficient in a broad range of circumstances so long as control of the firm can be placed in the hands of a class of employees who have highly homogeneous interests. Where, however, this condition cannot be met--as is commonly the case--other forms of ownership typically have the advantage.