This story (CHT Tom Knapp) is a bit old, but I found this passage inteesting:
A 1993 survey of 188 companies conducted by the Washington State Office of Trade and Economic Development found that employee-owned firms grew no faster than conventional companies unless they gave workers a voice in management. Likewise, broader sharing of information and authority with workers didn’t boost growth unless that was combined with ownership. But firms that put the three together grew about 12% faster than their competitors.
Does anyone know if there’ve been follow-up studies?
Interestingly, this both supports and undermines left-liberarianism, IMO. Supports because it shows worker-owned firms can do very well. Undermines because it shows the prevalence of non-worker-owned firms is apparently not due to worker-owned firms being somehow more hampered by the state.
martin,
Why do you think it follows from that article that “the prevalence of non-worker-owned firms is apparently not due to worker-owned firms being somehow more hampered by the state”?
Because, according to the article, the worker-owned firms do better. So even if the worker-owned firms are more hampered by the state, it’s apparently not enough to hold them back in comparison to non-worker-owned firms.
But you were talking about prevalence. I don’t see how evidence that those worker-run firms that do exist perform better is necessarily evidence that their prevalence isn’t hampered by the state. In my experience, the typical left-libertarian theory isn’t that performance is hampered, but wide-spread adoption. This story doesn’t provide any evidence that contradicts that theory, as far as I can tell.
But how is wide-spread adoption hampered if not through hampering of performance?
Through barriers to entry?
What barriers to entry which are not in essence hampering of performance? Why don’t they apply to the worker-owned firms in the article?
martin: What barriers to entry which are not in essence hampering of performance?
Performance for whom? Of course barriers to entry hamper — or, often, simply prevent — the performance of (would-be) new entrants. But not of incumbents. That’s what makes them barriers to entry. But let’s suppose it’s true that, if both clear a barrier to entry, worker-managed firms outperform other-managed firms. Still, that doesn’t tell you whether worker-managed firms and other-managed firms are equally capable of clearing the barrier. If not, better performance won’t be enough to secure greater prevalence. So it goes in markets where peaceful competition and entrepreneurial discovery are politically inhibited.
Imagine you have two tracks for two teams of sprinters, the Reds and the Yellows. Both tracks have a hurdle just after the starting line. Now, the Reds can all run faster than the Yellows. But most of the Yellows can jump hurdles, whereas only a few of the Reds can. Now, if they went racing on an even track, the Reds could beat the Yellows every time. When they go racing on a track with a hurdle thrown at the start, the Reds who can make the jump will still beat the Yellows who can make the jump. But the Yellows will win most of the races, because no matter how fast the Reds could run only the few who can make the jump can stay in the race long enough for their running to matter.
martin: Why don’t they apply to the worker-owned firms in the article?
Typically they evade some of the relevant barriers to entry by reorganizing an existing capitalist-owned firm into a partially or fully worker-owned firm, by means of an ESOP buy-out — rather than by starting from scratch with a new operation. But there are a lot of barriers involved in that mode too — it’s a huge headache from a legal and logistical standpoint, and very expensive; it’s effectively not even an option unless you already have a huge publicly-traded firm with a hefty budget for lawyers and accountants. Etc. Why does it ever happen? Well, because barriers to entry are hurdles, not force fields. They are difficult to clear, and to the extent that they are difficult entry will (ceteris paribus) be less prevalent than it would otherwise be. But that doesn’t mean that it will be nonexistant. Some of the Reds can make the leap. But the question is why they should have to.
Your analogy shows how it could work, but not how it does. The question is: does it hold up? Since government interference doesn’t stop after a company is started, I don’t think it does. Or, to stay with the analogy – I would expect hurdles all along the track.
And why would the hurdle (or hurdles) be more difficult for the reds? Why would starting a worker-owned firm be more difficult than starting a non-worker-owned firm?
Off topic: could you be so kind as to reply to this comment on your own blog?
Sure. My comment was intended to answer the conceptual question you asked — “How is wide-spread adoption hampered if not through hampering of performance?” — by pointing to a possible mechanism — politically-imposed barriers to entry. (As it happens this is a mechanism that’s of some importance to left-libertarian analysis, in general.) It wasn’t intended to answer the additional empirical question of whether or not this really is a factor holding back the prevalence of worker-owned enterprises, or, if it is, how much or how little that factor matters compared to other contributing factors. That’s the sort of thing we’d need to look at economic data to prove or disprove. My point here is simply that the data we were looking at right now (about the performance of those worker-owned enterprises that do manage to clear barriers to entry under state capitalism) doesn’t prove what you initially seemed to think it proves (that their lack of prevalence is not due to being somehow more hampered by the state).
I am not sure how this is supposed to cut against the claim? I’m not sure how this cuts against the claim? Certainly “government interference” doesn’t stop after a company has started, but “government interference” is not homogeneous. There are different kinds and the several kinds may each differently affect people who are in different sorts of material and institutional positions.
There are a lot of controls that specifically create problems for startups and not for incumbent companies (since they depend on things like the cost of initially obtaining licenses or legal recognition, the need to start out with artificially high levels of initial capitalization, the costs of competing with already subsidized incumbents, etc. etc.). These might disparately hamper entry without disparately hampering performance for those who have successfully entered.
On the other hand, there are some controls and costs that are persistent over time, which don’t go away simply in virtue of getting yourself established in business. But if we look only at those, I still don’t see how it changes the conceptual point. You have to consider what is not seen as well as what is seen. It may well be that the limited number of worker-owned enterprises that can clear those costs, not only at entry but over time, will — provided they do that — proceed to outperform capitalist-owned enterprises. But that doesn’t tell you anything (yet) about how many worker-owned enterprises might be able to do just as well in a freed market, but are not able to clear the persistent costs. (Again, think of the racetrack. Suppose it is full of hurdles. Well, you’d expect to see the same result, wouldn’t you? The Reds that can jump may well beat the Yellows every time. But if the Yellows are generally better at jumping than the Reds, then most of the winners will be Yellows nevertheless. But it’s not clear that adeptness at clearing politically-imposed hurdles is the sort of thing that people ought generally to have to cultivate. In any case it is not the same thing as adeptness at running on an even market track.)
I don’t know. I can think of some possible reasons that I could suggest tentatively.
For example, the overwhelming difficulty involved in any startup is very often initial capitalization. But there are many sources of capitalization (conventional business loans, VC funding, angel investors) that are much harder for worker-owned enterprises to get at than they are for capitalist-owned enterprises. (If your management model won’t allow absentee investors a seat at the management table, you’re less likely to attract absentee investors. If your plan is to start something that the state tax laws would see as a not-for-profit enterprise — as many co-ops are — then it’s nearly impossible to get any kind of bank loans. Etc. But the fact that there is such a rich financial industry looking to lay out capitalization for your competition; and the fact that banks are so conservative in the kinds of business models they’re willing to deal with; and the fact that workers and their friends and families have so little money or personal credit of their own to pool towards starting up the business, whereas professional-class managers and capitalists and their families and friends have so very much; and the fact that the fixed costs that you need to cover in initial capitalization are in the first place so very, very high are all facts that are not exactly innocent of politics or of the effects of money monopoly.) Similarly, it may be (I’m not committed to this claim, but let’s consider it for the sake of argument) that there are basic coordination problems in scaling up worker-ownership beyond a certain number of workers or a certain scale of operations. It’s certainly possible — very large enterprises cause all kinds of communication problems, and if your model of management is based on everyone talking to and consulting with everyone else, then that becomes geometrically more costly as the number of people in the enterprise increases. It may be that beyond a certain size the only practical way to deal with this difficulty is to start adopting different, more vertical models of management, and vertical models of management may not be the sort of thing that worker-ownership is very conducive to establishing. But if so, that’s a competitive problem for worker-owned firms only if firms need to be or become very large in order to stay competitive, or in order to stay afloat at all. But, again, the predominance of very large firms, and of firms which someday might become very large — and the difficulties that small firms have in sustaining themselves — are also not things that are innocent of political privilege.
That said, I think that this is an area that needs a lot more research and a lot of empirical data. But for the research and the data to have much import, we have to get some conceptual issues straight (since it is the conceptual issues that guide our ability to understand what the data might mean). My point was to answer the latter kind of question, so that we can get a better grip on how to study the former.
Off topic: could you be so kind as to reply to this comment on your own blog?
O.K.