One other thing that a lot of talk about worker managed companies don’t talk about is that, in my experience, the only real vote that you have in a corporation is to vote with your feet and leave. If you end up with a situation where you make it more difficult for a worker to get up and leave and work for someone else, you might end up actually decreasing the control that the worker has.

Finally, as a worker, I’d really prefer in some cases to just get cash in lieu of marginally useful control rights. If I get cash, it’s mine and the cash is not encumbered with what other people in the company do. If I get control rights, then the value of those rights is determined by things that I may have no control over.

I’ve been very interested in applying Austrian economics to the issue of Chinese industrial restructuring, and I have a very, very rough paper here

http://en.wikiversity.org/wiki/Toward_a_theory_of_corporate_governance_in_China%27s_socialist_market_economy

Basically, I’m trying to argue that a corporation is a “unit of planning” and that the purpose of corporate finance is to interface the unit of planning with the larger economy which is too large to be planned because of the economic calculation problem. The argument is that for an individual or small group, the difficulty of creating a market outweighs the problems of direct planning. For a national economy, the calculation cost of a market is far less than the cost of direct planning. In between there is a “natural scale” for a “unit of planning” that interacts as a single agent in the market, but is bureaucratically planned internally.

One thing that helps me write these papers is that I’ve actually worked in a corporation.

Anyhow some comments on worker owned companies:

1) The theory of worker owned companies works better than the practice because at the end of the day sometimes you have to make a decision, and if the workers disagree you have to have a political process and you might end up being on the side that wins or the side that loses. In any case there is a disconnect between what happens and the decisions that one would personally make.

2) One other problem with worker owned companies is that if the company gets run into the ground, you lose both your income and any value in your control rights for the company. From a portfolio management standpoint it makes sense to take the income you make from the company you work at, and buy control shares of another company so that you have more diversification.

3) Professions which do have worker owned companies often are structured this way because of legal restrictions. Doctors and lawyers are generally legally prohibited from creating joint-stock corporations, and so the corporate forms that exist are usually state mandated.

Yours Truly. The Neoliberal Myth of “Small Government”
Nicholas Hildyard. The Myth of the Minimalist State: Free Market Ambiguities

On agriculture, I won’t try to guess the effects state intervention has on the cooperative form as such. But my gut reaction is that farming would be much smaller-scale and more local, on average, in a free market; and that would tend to mean a greater prevalence of family farms and other operator-owned farms, all other things being equal. The current model of agribusiness is heavily reliant on subsidized long-distance transportation, subsidized irrigation water, and (in the Third World) state-backed latifundismo at the expense of traditional property rights in the land. In the U.S., ag subsidies go disproportionately to large-scale cereal farming, and are primarily a way for the largest operators to collect taxpayer rents on the portion of their huge land holdings they keep idle. In addition, government-funded R&D is aimed primarily at centralizing “Green Revolution” technologies adapted mainly to the needs of large-scale agribusiness with subsidized inputs.

Dick, thanks for mentioning Hansmann (whom Cook cites heavily). And I think you are asking exactly the right questions. The fact that even highly decentralized firms like Koch Industries remain firms, rather than networks of independent contractors, suggest that there are non-trivial benefits of hierarchy that contribute to the optimal mix.

This is not, after all, a free market. The prevalence of corporate hierarchy may reflect, in part, its superior efficiency at exploiting some privilege or other. Corporate hierarchies are excellent, e.g., for exercising control over “intellectual property” [sic] and operating a tollgate between information workers and consumers. In some cases, like Nike as described by Naomi Klein, the corporation has outsourced most actual production to independent contractors, and retained control only over central finance, patents, and trademarks.

It’s often said that slavery is the most inefficient way to organize production. The only thing less efficient, from the slave-owner’s perspective, is having to do the work himself or to negotiate a wage with a free human being. A particular form of organizing production may be quite bad in terms of operating efficiencies, and yet be very efficient indeed from the perspective of those at the top.

Which brings us to the issue of worker participation. One of my pet peeves is the legions of people writing articles wondering why we don’t see many labor-managed firms — why labor doesn’t hire capital. The answer is that we observe tons of labor-managed firms. But they aren’t proletarian-manged firms: they are high-human-capital firms like law firms, medical practices, accounting firms. In these cases workers are the low-cost owners (even though they may face costs 4 and 5 in Cook’s scheme) because, especially as there is little non-human capital involved, they are the most costly class of patrons to monitor. When there is a lot of non-human K involved and workers are not highly skilled, capital suppliers are the low-cost owners. (That’s why more people have studied Mondragon than have worked there.)

If capitalist coops (regular firms) have high-human-K employees, then we should expect some decentalization (“labor management”) in respect of at least some decision rights. But that really begs the Coasean question: if workers are most costly to monitor, why not make each one his or her own firm? The answer is that there have to be offsetting benefits of (some degree of) hierarchy. What are these? This is my question about the Kochian internal-market approach. If there are no synergies among workers (a la Alchian and Demsetz, at the very least), why not decentralize all the way to the market? And if there are such synergies, how do you solve the internal pricing problems?