Labor-managed Firm Research Articles

Between capitalism and socialism: Tugan-Baranovsky on cooperatives

Abstract This paper provides a comprehensive discussion of Tugan-Baranovsky’s (1916) seminal study about the working of cooperatives in a capitalist environment, which, due to historical and linguistic circumstances, has left only a limited trace in the subsequent economic literature in the Western world. He claimed to have provided the then only full analytical and historical account of economic cooperation in its several forms, especially producer and consumer cooperatives, and their impact on their members’ welfare. It was not until the 1950s and 1960s that cooperative organisations gradually occupied again the research agenda of economists under the guise of ‘labor-managed firms’. Tugan’s treatise on cooperation has been mentioned in that literature to a limited extent only, in connection with the issue of the life-cycle of producer cooperatives. Tugan’s economic treatment of cooperatives is discussed here as part of his broader social and political views of capitalism and socialism.

The way forward from Guild Socialism: a comment on Hodgson

Abstract This note starts from Hodgson’s (2023) thorough review and critique of Guild Socialism and argues that his proposed way forward—a decentralised producer cooperative sector embedded in a competitive market economy—is likely to be a political impossibility. A political economy model of a system of labour-managed firms is outlined which shows that laissez-faire on investment decisions is likely to be outvoted by a capital tax/subsidy scheme that redistributes income from rich coops to poor coops.

Broad-based Employee Ownership in Great Reset of capitalism

Purpose: the authors explore the Role of Employee Ownership in the context of the Great Reset of Capitalism.Methods: in contrast to the theory of stakeholder capitalism, this article discusses an alternative point of view on the reset of capitalism – through the Broad-based Employee Ownership of companies in the world and Russian economy. The article criticizes G. Dow's methodological approaches and the underestimation on the contribution of Labour-managed firms to the world economy. The criterion of "45 founders or more" is applied to the mass ownership of employees, with a minimum number of founders of a cooperative of 5 persons.Results: the article presets results of two empirical studies. The first is to verify the current assessment of the head of the National Center for Worker Ownership (NCEO) on the significant role of Employee Ownership. Since neither the Employee Stock Ownership Plan (ESOP) nor its analogues are implemented in Russia, the second empirical study was conducted on an array of 15,086 agricultural cooperatives representing small and medium-sized businesses in the Russian Federation.Сonclusions and Relevance: it is concluded that the NCEO assessment was fully confirmed, and accordingly, G. Dow's assessment was refuted. The share of medium-sized enterprises-agricultural cooperatives with mass ownership of workers (45 founders or more) in the general database of enterprises-agricultural cooperatives is estimated to be an order of magnitude higher than the share of medium-sized enterprises in the total number of small and medium-sized enterprises (SMEs). To improve the mechanism of state financial support in the long term, new directions havebeen identified: the organizational and legal the form of a small and medium-sized business entity, the ownership and Broad-based employee ownership (founders /co-owners) of companies.

Corporate Social Responsibility and Reaction Functions of Labor-Managed Firms with Lifetime Employment as Strategic Commitment

Corporate Social Responsibility and Reaction Functions of Labor-Managed Firms with Lifetime Employment as Strategic Commitment

The labor-managed firm, Oliver Williamson, and me

AbstractMore than 30 years ago, I engaged in a debate with Oliver Williamson over the theoretical structure of transaction cost economics (TCE). This debate had its origins in our conflicting views of the labor-managed firm (LMF). Williamson believed that such firms were rare due to their inefficiency while I believed they might be rare due to market failures. Here I clarify my criticisms of TCE and contrast Williamson's view of the LMF with my own approach. I discuss empirical evidence that can distinguish between these two approaches and take up Williamson's challenge to identify policy interventions that could yield net social gains.

A Note on Stackelberg Mixed Triopoly Games with State-Owned, Labor-Managed and Capitalist Firms

This paper investigates three sequential-move games with a capitalist firm, a labor-managed firm and a state-owned firm. The first game is as follows. In stage one, the capitalist firm chooses its output level. In stage two, the other firms choose their output levels simultaneously and independently. In stage three, the market opens and each firm sells its entire output. The structures of the second and third games are nearly identical and differ only in order in which the firms choose output levels in the first two stages. The paper discusses the equilibrium outcomes of the three sequential-move games.

Government R&D subsidies and international competitiveness of labor-managed firms

The literature postulates that government subsidization of strategic R&D activities of profit maximising firms (PMFs) increases their shares in international markets. Will this also hold for labor-managed firms (LMFs) which are owned by employees and aim to maximize the profit per labor? This paper provides a theoretical model that examines how such governmental interventions can help LMFs in their home countries to compete better with PMFs in international markets. Our model shows that in most, but not all cases, investing more in R&D activities benefits LMFs by increasing their shares in international markets and decreasing the market share of their competitors. The optimal government R&D subsidy or tax for LMFs depends on the R&D elasticity of LMFs as well as how their competitors react to R&D investment. In contrast, the optimal government R&D subsidy for PMFs depends solely on the slope of the R&D reaction curve of their competitors. Our results present useful policy implications for those governments that seek ways to support LMFs - or more broadly cooperatives - to attain more sustained growth given their advantages over PMFs in the context of sustainable development.

The labor-managed firm, Jaroslav Vanek and me

PurposeThe purpose of this article is to summarize the relationship between the research of Jaroslav Vanek on labor-managed firms (LMFs) and the research of Gregory K. Dow on the same topic.Design/methodology/approachThe article reviews the research of Jaroslav Vanek in the 1970s and explains how this influenced the publications of Gregory K. Dow extending from the 1980s to the present. A particular focus involves Dow's book “The Labor-Managed Firm: Theoretical Foundations” published by Cambridge University Press in 2018. The methodology is to present an intellectual history in narrative form. The scope of the paper is the economic theory of the LMF.FindingsThe article finds that Dow's interest in LMFs was stimulated by Vanek's publications from the early 1970s. However, Dow's publications in the 1980s were motivated to a large degree by efforts to overcome the limitations of Vanek's theory of the LMF, a goal that shaped much of Dow's later research in the field.Originality/valueThe paper illuminates the strong intellectual influence Jaroslav Vanek exerted on the economic theory of the LMF. Readers who want information about the influences on Dow's work may also find it useful.

The intellectual legacy of Jaroslav Vanek: how the twain met

PurposeThis essay is a tribute to Jaroslav Vanek who spent 32 years at Cornell University where he founded the Program on Participation and Labor-Managed Systems (PPLMS) in 1970, which became the home for economic research on these issues in the US. It is a brief intellectual history of a multi-dimensional scholar.Design/methodology/approachVanek's seminal work in the American Economic Review in 1969 marked the culmination of a decade of work on labor management inspired by his brother Jan's work on Yugoslavia, considered then to be a worker-managed economic system. In two rapidly following tomes, Vanek laid out the landscape for the development of a new subfield in economics by providing precursors to many of the results to follow. In that previous decade, Vanek produced papers in traditional economic theory, e.g. international trade and economic growth.FindingsVanek's mindset persists in the interplay between the emerging theory of labor-managed firms and traditional economic literature that takes seriously the role of organizational form. This essay develops that cross-pollination and seeks to identify the remaining questions and issues for future work that the economics profession owes to Jaroslav Vanek.Originality/valueConnection of strands of literature in the economic theory with the literature on labor-managed firms and worker-managed economies tracing the evolution of the latter to the work of Jaroslav Vanek.

Cooperative conversion and communalization: Closely observed interactions between the material and the mental

AbstractVarious authors, including Elinor Ostrom, have shown that the legal form of a cooperative has many of the characteristics of a Common. Here we focus on cooperative conversion, through which conventional enterprises become labor‐managed firms (LMFs), viewing it dynamically as a communalization process. These processes are addressed in the light of a field survey carried out in France, looking at six firms involved in cooperative conversion. The changes entailed are two‐dimensional, both material and mental. This is visible, for example, when finding the capital to mount an LMF: members of the workforce must draw on their own funds; they must also believe in the project. Through our empirical observations we highlight the obstacles in the way of forming an LMF. In particular participants must undertake a work of negotiation hinging on stakes marked by the two, largely inseparable dimensions. Ultimately we query the ethic brought into play in the collective action of constituting a Common. Specifically, individuals must contribute to a collective action underpinned by principles of self‐governance, or commoning, the rock on which the Common rests. A key finding of our study is to demonstrate that a Common can only be successfully created if the constituent processes are consistent with the overall goal. In other words the manner in which we travel is inseparable from our final destination; otherwise we shall surely lose our way.

On some alleged “problems” and alleged “solutions” in democratic firms

PurposeThis paper will discuss two problems that have plagued the literature on the Ward-Domar-Vanek labor-managed firm (LMF) model, the perverse supply response problem and the horizon problem. The paper also discusses the solution to the horizon problem and the alleged “solution” of a membership market.Design/methodology/approachThis is a conceptual paper so it analyzes the two problems and shows how they can be resolved. It also shows how one alleged “solution” (membership market) is based on several conceptual mistakes about the structure of rights in a democratic firm.FindingsThe perverse supply response is based on the assumption that the members of a democratic firm can expel for no cause some members when it would benefit the remaining members. It is shown that the same perverse behavior happens conceptually and historically in a conventional firm under the same assumptions. The horizon problem is resolved by the system of internal capital accounts (ICAs) that has been independently invented at least four times.Research limitations/implicationsThe idea of a democratic firm is quite often dismissed by conventional economists: “At first it seems like a good idea but unfortunately it is plagued by structural problems such as the perverse supply response and the horizon problem.” Hence it is important to see that the first is not a problem under ordinary assumptions and that the second is a solved problem.Practical implicationsThe perverse supply response problem can be reproduced in a conventional firm under similar assumptions, and the horizon problem is real problem for social or common ownership firms but is solved in the Mondragon-type worker cooperatives by the system of ICAs. This has been known and published since the early 1980s, but conventional economists ignore the solution and still cite it as an inherent structure problem of a democratic firm.Originality/valueIt has not been previously shown in the LMF literature that the perverse supply response can be reproduced in a conventional corporation under similar assumptions since the maximand for the conventional firm is not total market value but that value per current shareholder. The solution to the horizon problem using ICAs has long been “known” but never acknowledged in the conventional literature as if it was a necessary feature of workplace democracy. The idea of a membership market is analyzed and criticized.

The Intellectual Legacy of Jaroslav Vanek: How the Twain Met

This essay is a tribute to Jaroslav Vanek who spent thirty-two years at Cornell University where he founded the Program on Participation and Labor-Managed Systems in 1970, which became the home for economic research on these issues in the United States. As such, it is a brief intellectual history of a multidimensional scholar. Vanek’s seminal work in the American Economic Review in 1969 marked the culmination of a decade of work on labor-management inspired by his brother Jan’s work on Yugoslavia, considered then to be a worker-managed economic system. In two rapidly following tomes, Vanek laid out the landscape for the development of a new sub-field in economics by providing precursors to many of the results to follow. In that previous decade, Vanek produced papers in traditional economic theory, e.g., international trade and economic growth. His mind set persists in the interplay between the emerging theory of labor-managed firms and traditional economic literature that takes seriously the role of organizational form. This essay develops that cross-pollination and seeks to identify the remaining questions and issues for future work that the economics profession owes to Jaroslav Vanek.

Fostering Worker Cooperatives with Blockchain Technology: Lessons from the Colony Project

In recent years, there has been growing policy support for expanding worker ownership of businesses in the European Union. Debates on stimulating worker ownership are a regular feature of discussions on the collaborative economy and the future of work, given anxieties regarding the reconfiguration of the nature of work and the decline of standardised employment contracts. Yet, worker ownership, in the form of labour-managed firms such as worker cooperatives, remains marginal. This article explains the appeal of worker cooperatives and examines the reasons why they continue to be relatively scarce. Taking its cue from Henry Hansmann’s hypothesis that organisational innovations can make worker ownership of firms viable in previously untenable circumstances, this article explores how organisational innovations, such as those embodied in the capital and governance structure of Decentralised (Autonomous) Organisations (D(A)Os), can potentially facilitate the growth of LMFs. It does so by undertaking a case study of a blockchain project, Colony, which seeks to create decentralised, self-organising companies where decision-making power derives from high-quality work. For worker cooperatives, seeking to connect globally dispersed workers through an online workplace, Colony’s proposed capital and governance structure, based on technological and game theoretic insight may offer useful lessons. Drawing from this pre-figurative structure, self-imposed institutional rules may be deployed by worker cooperatives in their by-laws to avoid some of the main pitfalls associated with labour management and thereby, potentially, vitalise the formation of the cooperative form.

On the Labour-managed Firm as a New Mode of Socialism

On the Labour-managed Firm as a New Mode of Socialism

Socialist growth revisited: insights from Yugoslavia

Beyond the recent past, and beyond the Soviet Union, we know little about the performance of Eastern European economies. This paper fills the knowledge void by analyzing socialist Yugoslavia using a diagnostic tool that identifies the mechanisms that drive economic growth - business cycle accounting. The analysis provides novel findings. During the “Golden Age of economic growth, total factor productivity became gradually more important in sustaining economic growth. Distorted labour incentives were a major constraint on growth since the mid-1960s, and explain the slowdown of the economy during the 1980s. Socialist growth was primarily handicapped by poor incentives to work, rather than by poor incentives to innovate or to imitate. In an attempt to liberalise the economy, economic power was delegated to the labour-managed firms. These firms were maximising income per worker, which I hypothesise hindered the ability of Yugoslavs to work.

The Labor-Managed Firm: Permanent or Start-Up Subsidies?

:We explore a new argument that seeks to explain the near absence of the labor-managed firm or cooperative, despite a range of inefficiencies attributed to the present-day capitalist firm. We derive the crucial condition for the emergence of labor-managed firms and show that it is unduly restrictive from an efficiency point of view. The policy implication is that public intervention to promote labor-managed firms should primarily be in the form of start-up subsidies rather than in providing permanent tax subsidies.

On the Advantages of a System of Labour-managed Firms

This paper offers an outline of a large body of economic literature which discusses the advantages of a system of employee-managed firms: the disempowerment of capitalists thanks to the suppression of their right to make decisions in cooperative firms; appreciable efficiency gains from worker involvement in production processes; a softer competitive regime and small risks of insolvency; an end to external firm control and, consequently, to the sway of multinational corporations; reduced monopoly building; a socially determined income distribution pattern and economic efficiency gains from a lesser need for state intervention.

On the Advantages of a System of Labour-managed Firms

This paper offers an outline of a large body of economic literature which discusses the advantages of a system of employee-managed firms: the disempowerment of capitalists thanks to the suppression of their right to make decisions in cooperative firms; appreciable efficiency gains from worker involvement in production processes; a softer competitive regime and small risks of insolvency; an end to external firm control and, consequently, to the sway of multinational corporations; reduced monopoly building; a socially determined income distribution pattern and economic efficiency gains from a lesser need for state intervention.

Smith"s Wedge: The Invisible Mishandling of Context in Robert Frank"s The Darwin Economy

In <italic>The Darwin Economy</italic> a distinguished behavioral economist, Robert Frank, promises to put Adam Smith’s “invisible hand narrative” into “context.” Neglecting history, empirical evidence, original sources, and a voluminous secondary literature, he fails to deliver. Frank predicts that one hundred years from now professional economists will name not Adam Smith but Charles Darwin as the intellectual founder of their discipline. The reason he gives is “Darwin’s wedge” – a term he coins to emphasize a divergence between individual and group interests which in turn causes wasteful competition and collective loss. He credits Darwin for the insight. We find the very same “wedge” and insight in a book wholly neglected by Frank and most economists after Stigler, namely, Smith’s <italic>The Theory of Moral Sentiments.</italic> Working with original sources we show that Frank’s view of the invisible hand – and thus of modern economics – is not sustainable. Contextual economics after Schmoller is of course voluminous but the literature is hardly known by Frank, who is wedded to the axiomatic approach and “no cash on the table” conjecture favored by most neoclassicals. We highlight the problem with evidence on the economics of labor-managed firms and with a revival of a once-famous study by Carleton Parker on large scale farming, unregulated migrant labor, and the Wheatland Hop Field riot of 1913. <italic>JEL Codes: B3, N3, J6, B41, Q10</italic>

Produktivgenossenschaften und selbstverwaltete Unternehmen – eine Alternative bei Unternehmenskrisen und Unternehmensnachfolgen

Zusammenfassung Der vorliegende Beitrag beschäftigt sich mit der Rolle von Produktivgenossenschaften bei Unternehmenskrisen und Unternehmensnachfolgen. Wir präsentieren zunächst einen Überblick über die theoretische und empirische Literatur und konfrontieren diese mit den bisherigen praktischen Erfahrungen in Deutschland. Auf dieser Basis arbeiten wir heraus, wann und wie Produktivgenossenschaften einen Betrag zur Stabilisierung kleiner und mittlerer Unternehmen leisten können.