Labor-managed Firm Research Articles

The Yugoslav Firm versus a Wardian LMF, a Socialist Firm and a LMF in a Capitalist Market

This note builds upon research by Estrin and Uvalic that shows that the labor-managed firm (LMF) in the Yugoslav economy was much closer to the enterprise in Soviet-type economies than has usually been believed. It attempts to characterize concisely the Yugoslav enterprise, underline the differences between it and enterprises in Soviet-type economies, see how the Wardian model is relevant to aspects of the Yugoslav labor market, and show graphically that, unlike the unemployment inducing Yugoslav-type labor-managed market, LMFs or cooperatives fit well into capitalist markets. It concludes claiming that constrained capital markets make labor and goods markets unfree and inefficient.

Cartel Size and Collusive Stability with Non-Capitalistic Players

A well established belief both in the game-theoretic IO and in policy debates is that market concentration facilitates collusion. We show that this piece of conventional wisdom relies upon the assumption of profit-seeking behaviour, for it may be reversed when firms pursue other plausible goals. To illustrate our intuition, we investigate the incentives to tacit collusion in an industry formed by labour-managed (LM) enterprises. We characterise the perfect equilibrium of a supergame in which LM firms play an infinitely repeated Cournot game under grim trigger strategies. We show that the critical threshold of the discount factor above which collusion is stable (i) is lower in the LM industry than in the capitalistic one; (ii) monotonically decreases with the number of firms.

Cartel size and collusive stability with non-capitalistic players

A well established belief both in the game-theoretic IO and in policy debates is that market concentration facilitates collusion. We show that this piece of conventional wisdom relies upon the assumption of profit-seeking behaviour, for it may be reversed when firms pursue other plausible goals. To illustrate our intuition, we investigate the incentives to tacit collusion in an industry formed by labour-managed (LM) enterprises. We characterise the perfect equilibrium of a supergame in which LM firms play an infinitely repeated Cournot game under grim trigger strategies. We show that the critical threshold of the discount factor above which collusion is stable (i) is lower in the LM industry than in the capitalistic one; (ii) monotonically decreases with the number of firms.

Learning in Struggle: Argentina’s New Worker Cooperatives as Transformative Learning Organizations

This article considers Argentina’sempresas recuperadas por sus trabajadores(worker-recuperated enterprises, or ERTs) astransformative learning organizations. ERTs are illustrative of how workers’ conversions of capitalist firms into worker cooperatives—especially conversions emerging from troubled firms and in moments of deep socio-economic crises—transform workers (from managed employees to self-managed workers), work organizations (from capitalist businesses to labour-managed firms), and communities (from depleted to revitalized and self-provisioning localities).Theoretically, the study is grounded in class-struggle, workplace learning, and social action learning approaches. These theoretical perspectives help the study work through how workplace conversions by workers, when converting troubled investor-owned or proprietary firms into worker coops, act as catalysts for contesting workplace exploitation and capitalist crises, while also beginning to move beyond them by forging new social relations of production and exchange. In the case of Argentina’s ERTs, crises in the political economy and micro-economic crises at the point of production during the collapse of the neoliberal model at the turn of the millennium heightened workers’ self-awareness of their situations of exploitation and motivated collective action. As a result, new worker cooperatives were created that also stimulated the social, cultural, and economic renewal of surrounding communities.The study’s research method relies on extended case studies of four diverse ERTs, which included ethnographic observation and in-depth interviews. Observations of daily workflows were conducted, as well as interviews and informal conversations with founding and newer ERT workers. In a more structured portion of the interview protocol, key-informants were asked to reflect on how they had personally changed after being involved in the ERT, and how production practices and involvement with the community had transformed in the process of conversion.The article concludes by outlining how worker, organizational, and community transformations emerge from workers’ processes ofinformal learningandlearning in struggleas they collectively strive to overcome macro- and micro-economic crises and learn to become cooperators. This learning, the study shows, occurs in two ways:intra-cooperativelyvia informal workplace learning, andinter-cooperativelybetween workers from different ERTs and with surrounding communities. The self-management forged by ERTs thus embodies new, cooperative, and community-centered values and practices for these workers that, in turn, sketch out different possibilities for economic and productive life in Argentina.

Optimal Firmss Mix in Oligopoly with Twofold Environmental Externality

We charaterise the socially optimal mix of firms in an oligopoly with both profit-seeking and labour-managed firms. The policy maker faces a twofold externality: (i) production entails the exploitation of a common pool natural resource and (ii) production/consumption pollutes the environment. We study the relationship between firms' mix and social welfare in the Cournot-Nash equilibrium of the industry and the resulting policy implications.

Three Themes About Democratic Enterprises: Capital Structure, Education, and Spin-Offs

Abstract Purpose The purpose of this paper is to delve into three themes about democratic enterprises. Design/methodology/approach (1) The first theme is the question of capital structure where labor-managed firms (LMFs) are often pictured as having “horizon problem.” Yet this is only a minor technical problem which is solved by the system of internal capital accounts as in the Mondragon cooperatives. (2) The second theme concerns the attempt to implement participative management and the related ideas of active learning in educational theory in the workplace. The point is that the democratic firm is the natural setting to implement these ideas, not the conventional firm where the staff have the legal role of “employees” rented by the company. (3) The third theme is the old canard the cooperatives are incompatible with entrepreneurship. My rethinking of the issue was inspired by the analysis of the late Jane Jacobs who emphasized that the primary means of growing economic “biomass” is through economic offspring (e.g., spin-offs) – in analogy with the biological principle of plentitude. Yet the conventional form of ownership operates as a fetter on this process since the ownership and management wants to expand its empire and maintain “ownership” of any potential offspring. But that constraint against spin-offs is absent in democratic firms, and the Mondragon complex has indeed illustrated how to catalyze this process of growth through offspring. Social implications A public policy to encourage all companies to grow by affiliated and perhaps democratic spin-offs would create more jobs (through filling extra niches) and more stability (through the agility of separate companies).

Absorptive capacity and R&D strategy in mixed duopoly with labor-managed and profit-maximizing firms

In a mixed duopoly with a labor-managed firm and a profit-maximizing firm coexisting, this paper explores the effect of technology absorptive capacity on firms' output decision, R&D investment decision and social welfare. Firstly, we develop a two-stage R&D game model on the basis of cost-reducing R&D with spillover and absorptive capacity. Secondly, we explore the strategic interactions of output, R&D investment and social welfare respectively in the mixed duopoly with a labor-managed and a profit-maximizing firms. Finally we analyze the effects of absorptive capacity on output decision, strategic investment decision and social welfare respectively. The research suggests that labor-managed firms employ less workers and produce less outputs while they invest more in R&D than that of profit-maximizing firms. Whether the effect of absorptive capacity increases R&D investment of labor-managed firms or not depends on the returns to scale. However, it bears no relationship to the returns to scale of the profit-maximizing firm.

Worker Cooperatives: Good, Sustainable Jobs in the Community

Worker cooperatives are the least well-known part of the cooperative movement. Part of the reason is that the idea of a business run by its employees sounds unrealistic to many people. Yet there are thousands of worker cooperatives and related businesses around the world, including some very large firms. In the last two decades, the availability of extensive new data on worker cooperatives and other firms in several countries has made it possible to gain a more comprehensive understanding of the incidence and patterns of behaviour of worker cooperatives. The picture of worker cooperatives that is emerging from the research findings based on these data suggest that worker cooperatives are more “normal” firms than is often believed. For example, they can be found in a wide range of industries and seem to be larger, on average, than other firms. Importantly, this body of international research also sheds new light on issues that have been at the heart of the research debate on labour-managed firms, such as the objectives pursued by the firms and their capacity for growth. The paper examines the implications of the key international research findings of the last two decades for our understanding of why worker cooperatives are created, the objectives pursued by founding and subsequent members and the spill-over effects of their performance for the communities in which the firms are found. The paper argues that worker cooperatives, by providing institutions in which employees control most aspects of their job and firm strategy (including pay and employment trade-offs) internalise a number of externalities to the conventional operation of firms. They provide good, stable jobs in which employees’ potential and creativity can flourish. In addition to promoting economic democracy, worker cooperatives offer sustainable and local employment and are likely to have a number of positive effects on their communities’ economies, public finances and health.

Growth and Labor-Managed Firms

Some results suggest if the economy is competitive is does not matter whether firms are run capitalists or workers. In particular, in the long run labor-managers use the same amount of labor and hire the same amounts of non-labor inputs as a similar capitalists firm. Here we reexamine this issue when the production possibilities are characterized by technical progress. It is argued that labor-managers can sometimes increase the present value of firm-members’ income by committing to a policy of steadily reduction of labor-use. In turn this implies that changes of the saving rate changes growth.

Productivity, Capital, and Labor in Labor-Managed and Conventional Firms: An Investigation on French Data

Using two new data sets from France, the authors present the first study of the comparative productivity of labor-managed and conventional firms involving large representative samples of firms in a range of industries including services. Their study offers new stylized facts on labor-managed firms, and disentangles incentive effects from those of differences in input demand behavior on factor elasticities. Contrary to received wisdom, labor-managed firms are not smaller than conventional firms; they grow as fast or faster in all industries. The two groups of firms organize production differently. Labor-managed firms are as productive as conventional firms, or more productive, in all industries, and use their inputs efficiently; but in several industries conventional firms would produce more with their current input levels if they organized production like labor-managed firms. On average overall, firms would produce more using the labor-managed firms' industry-specific technologies. Labor-managed firms do not produce at inefficiently low scales.

Information acquisition under uncertainty: The case of labor-managed and profit-maximizing firms coexist

This paper analyzes the output decision and welfare implications of acquiring information under uncertainty for the duopoly market coexisted by a labor-managed firm (LMF) and a profit-maximizing firm (PMF). By establishing objective functions of LMF and PMF, it constructs the theoretical framework to discuss the role of information in the duopoly firstly. Then, based on the comparative static analysis, it discusses the effects of the market demand information and cost information on expected output and welfare. Finally it compares the role of information in LMF with the case of PMF, and the role of information in the LMF–PMF duopoly with those of LMF–LMF duopoly and PMF–PMF duopoly. It is shown that whereas the LMF's behavior is analogous to that of the PMF twin in some circumstances, the former may be entirely different from the latter in others. The LMF will be more sensitive to the information.

Do labour-managed firms benefit from agglomeration?

Panel data on the entry of labour-managed firms in the Basque Country are used to test for the presence of agglomeration externalities. A variety of controls are employed to deal with the identification problem that confronts any attempt to measure such effects. Consistent with theoretical arguments, we find evidence of positive non-industry-specific externalities among labour-managed firms. Our results do not rule out the additional presence of industry-specific externalities among such firms, but do indicate an absence of externalities flowing from capitalist to labour-managed firms.

Endogenous Timing in a Quantity-Setting Mixed Duopoly with State-Owned and Labor-Managed Firms

This paper considers a model in which a state-owned firm competes with a labor-managed firm. There are two production stages, and the firms first announce in which stage they will choose output. Next, if both firms choose the same stage, a simultaneous move game occurs, whereas if both firms choose different stages, a sequential move game arises. The paper shows that the unique equilibrium coincides with the Stackelberg solution in which the labor-managed firm is the leader. As the result, we find that the state-owned firm cannot play the role of Stackelberg leader.

Cooperative Firms as a New Mode of Production

The importance of the notion of ‘the mode of production’ is emphasised by all those scholars who hold that the ‘history-as-totality’ approach is the core of Marx's theory of society. Among them, Gramsci argued that while scientific advancements could shed little light on the issues with which philosophers and economists had traditionally been concerned, concepts such as ‘social relations of production’ and ‘mode of production’ had provided valuable insights for philosophical and economic inquiry. Hence our interest in the question of whether a system of producer cooperatives would actually lead to the establishment of a new mode of production. Opinions in the matter diverge greatly, and major implications stem from the distinction between worker managed firms (WMFs) and labour managed firms (LMFs), where the latter strictly segregate capital incomes from labour incomes. We conclude that LMF cooperatives do implement a new mode of production because they reverse the typical capital–labour relation right within a capitalistic system. An additional major point addressed in some detail is the main contradiction in capitalism.

Lifetime Employment and Three-Stage Games with Labour-Managed and State-Owned Firms

Lifetime Employment and Three-Stage Games with Labour-Managed and State-Owned Firms

Gender and participation in decision-making in labor-managed firms: The context of the USA

Workers’ participation in making business decisions is a key aspect of the management structure of labor-managed firms. However, studies of the variables that determine the degree to which an individual participates in decision-making fail to consider the impact of gender relations. This paper first argues that the organizational features of labor-managed firms have a significant impact on participation. Second, the paper argues that that these organizational features and other explanatory variables have different effects on women’s and men’s participation, due to patriarchal gender relations. Third, this paper tests these theories using data from American labor-managed firms. Several of the variables and organizational features have significantly different impacts on women’s and men’s participation. Notably, occupational status, the surplus distribution method, the wage differential, performance measurements, and the level of cross-training each have gender-differentiated effects on participation.

Investment Strategies in a New Mixed Market with State-owned and Labour-managed Firms

Investment Strategies in a New Mixed Market with State-owned and Labour-managed Firms

STRATEGIC INVESTMENT IN A LABOUR‐MANAGED DUOPOLY

ABSTRACTDeveloping a Cournot two‐stage game model with strategic capital interaction, we compare two different kinds of equilibrium in a labour‐managed (LM) duopoly. An LM firm's reaction function is negatively sloped when capital and output are simultaneously determined, while the slope of its reaction function in the second stage changes in sign depending on the magnitude of its labour‐expansion elasticity. Hence, whether the LM firms employ more capital and produce greater output at the equilibria in the two‐stage game model than at the equilibria resulting from the simultaneous selection of capital and output depends on the magnitude of their labour‐expansion elasticity.

Lifetime employment contract and reaction functions of profit-maximizing and labor-managed firms

This paper considers a model in which a profit-maximizing firm and a labor-managed income-per-worker-maximizing firm are allowed to offer lifetime employment as a strategic commitment. First, both firms simultaneously and independently decide whether to offer lifetime employment. If a firm offers lifetime employment, then it chooses an output level and enters into a lifetime employment contract with the number of employees necessary to achieve the output level. Second, both firms simultaneously and independently choose actual outputs. The paper shows that if the labor-managed firm does not offer lifetime employment, then its reaction function is upward sloping, whereas if it does, then its reaction function changes to downward sloping. The paper also finds that there may be two stable equilibria.

Investment funding: the main problem facing labour-managed firms?

This paper investigates the funding difficulties of producer cooperatives and the potential risks for their financers. It claims that a cooperative requiring members to underwrite bonds will not automatically cease being an LMF (labour-managed firms), nor run the risk of under-investing. The paper also claims that an LMF-type firm will not necessarily tend to make high-risk investments because the link that binds LMF members to their firm is closer than that between shareholders and capitalist firms. Further claims are advanced and discussed to confute the widespread assumption that LMFs have no way out of their funding difficulties.