Labour-Managed Firms

The Classic Capitalist Firm

In capitalist economies, the dominant form for the organization of firms is one where investors buy shares (or stock) and appoint managers who, in turn, hire labour in order to do the work necessary to make a profit. After paying the wages of the workers, the salaries of the managers and the other costs, the residual profit is returned to the investors as a dividend. Two important issues arise from this. First, Marxian theorists would argue that the investors are benefiting by exploiting the surplus value of the workers' efforts. They would also argue that, under such regimes, workers become alienated from their labour. Because the firm belongs to the investors, not the people who work in it, the owners might, and frequently do, decide to transfer their capital to other cities, regions or even countries where they could get a more profitable return. Such capitalist firms can therefore have a very detrimental effect on local communities and economies. The counterargument is that investors deserve a reward for risking the capital in the first place and that they should be able to move their capital to maximize their own personal financial position because this makes markets efficient.

A second consideration is that a conflict arises in such firms between stockholders/shareholders (the principals) and the managers who are their agents. Investors appoint managers to look after their business affairs, as seen in the work of Adolf Berle and Gardiner Means. But managers are subject to a moral hazard—if they maximize the profit position of the investor, this might mean a lesser reward for their own work. Thus, they might be tempted to maximize their own financial positions at the expense of the investors. This division between ownership by stockholders and control by managers is fraught with dangers of economic inefficiency and has been the subject of much work on corporate governance (see, e.g., the work of Martin Conyon), dating back to Adam Smith.

These common types of firms engender particular socio-economic relationships marked by the expropriation of the surplus value of labour, the alienation of labour and a propensity towards the flight of capital which denies jobs to local communities. Moreover, the separation of ownership and control, and the inter-group power struggles that gives rise to, can seriously reduce the economic efficiency of firms. These firms are legitimized by supposedly objective neoclassical economic theories.

Alternatives Forms of Work Organizations

Perhaps in response to the difficulties generated by this traditional form of the firm, a significant variety of alternative types of work organization have evolved which are controlled and managed by those who contribute their labour to them. The most familiar of these are workers' co-operatives—organizations where ownership, control and labour are at unity. Typically, all co-operative workers own a share of the enterprise and participate more or less democratically in decision-making (see, e.g., http://www.suma.coop). But there are other forms too. For instance, in the John Lewis Partnership in the UK, the stock of a conventional [Page 486]incorporated capitalist enterprise was vested, in 1929, in a non-revocable trust, the beneficiaries of which are the current employees (‘partners') and pensioners of the firm. The partners and pensioners do not own the firm—rather, it is held for their benefit in trust. They do, however, control the firm through a complex system of internal democracy (http://www.johnlewispartnership.co.uk). Both typical co-operatives and firms such as John Lewis have formal and transparent rules for determining members' or partners' remuneration.

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