Worker Cooperatives as Industrial Policy: The Case of the "Scottish Daily News"

Abstract

Arguments for state support of declining industries generally stress a need to maintain employment or slow down redundancy. The strongest political case for support is commonly made by firms whose factors see little immediate alternative demand for their services, hence possess low shadow wages. Greater long-run possibilities of factor reallocation cause political pressure to diverge from economic arguments, but it appears to be difficult for the latter to influence political payoffs and decisions. A sequence of politically optimal but myopic decisions may seriously worsen resource allocation: see e.g. Gelb (1977). Nevertheless, slow growth and low investment reduce the speed of economic restructuring in developed countries while capital and technology flows lead to the swift creation of manufacturing capacity in middle-income developing countries. International agreements limit selective interventions in product markets, while the increased power of organized labour and cushioning of the unemployed weaken traditional market mechanisms of factor reallocation. Given anything like the present political systems of most developed countries, the reconciliation of efficient long-run resource allocation with pressure for selective support of declining industries promises to be one of the most intractable problems of the 1980s: see, for example, World Bank (1978). Support methods must be developed which satisfy immediate pressures for cushioning, yet lead to minimal longerrun resource misallocation. In 1974 the Labour government founded three worker cooperatives: Meriden, Kirkby and the now defunct Scottish Daily News (SDN). The political furor over their merits has obscured the cooperatives' unique significance as testing grounds for an alternative pattern of employment-maintaining state support, temporary or permanent in nature. We here analyse the SDN financing method as industrial cushioning and suggest the reappraisal of attitudes to cooperativism, not necessarily on ideological grounds, but because of the method's potential, in certain circumstances, as a factor screening and project control mechanism, helping to reconcile short-run political pressure with longer-run economic efficiency without the need for difficult, costly direct monitoring. Worker control may be a useful managerial strategy for the state. The next section outlines salient points of the SDN cooperative. We then note three reasons why conventional support policies tend to lead to resource misallocation and indicate the advantages of the SDN intervention method. Section 4 models, at individuallevel, its implications for factor selection and internal efficiency. In Section 5 the model is