Economics of participation
A historical analysis of worker participation traces its development from informal profit sharing in U.S. factories, to flexible remuneration in the aftermath of Industrial Revolution and to staff democracy's application for earning stability in economic downturns during the 21st Century.
This foundational concept dates to as early as 1733, when President Benjamin Franklin applied a form of employee ownership to the establishment of print shops during the founding of the United States.
[3] The directors of large companies, for example Procter & Gamble and Sears & Roebuck, wanted to provide their staff with income during retirement, as financial support during employees' post-working lives.
[2][8] During the late nineteenth century, General Foods and Pillsbury were among the first companies to formally initiate profit-sharing bonuses: select percentages of firm profits were reallocated to staff when they exceeded sales targets.
[6] Later, in 1916, Harris Trust and Savings Bank of Chicago created the first profit-sharing pension plan, drawing upon the example set by Procter & Gamble to ensure loyal, motivated staff received financial aid during retirement.
[6] Resultantly, the concept of profit-sharing was more widely used to the point where, during the Second World War, select employers applied it to provide necessary financial aid to staff without raising wages numerically.
[11] Dr William King, a pioneer in the field of economics of participation, founded a monthly periodical titled The Co-operator in 1828, which many sourced for advice on inaugurating their own worker cooperative.
[9] While traditional business uses of the economics of participation primarily aimed to increase firm profitability, modern applications are often justified by their capacity to improved corporate culture, morale and staff satisfaction.
[1][12] For instance, the aggregate yearly value of Huawei's employee remuneration, including profit-sharing plans and stock ownership, is 2.8 times the firm's annual net profit.
[4][14] By allowing employees to participate in organisational decision-making, businesses reinforce a corporate culture framed around self-ownership, accountability, shared values and secure employment.
[16][19] By doing so, a business's cost of human capital is more closely aligned with its ability to award financial compensation: the firm is thus provided with greater flexibility to adjust wages according to prevailing economic conditions.
[16][19] For example, a decrease in profit-shared wages during an economic recession may mitigate the impact of reduced output and revenues on business profitability, enabling firms to retain workers at a lower cost rather than retrenching them.
[15] Often, this is facilitated through training in public speaking and small-group debate opportunities, which develop staff members' communication abilities and equip them with skills vital to labour participation.
Scholars including Gregory Dow, David Ellerman and James Meade recognise that the labour-managed firm, tools for profit sharing and mechanisms for employee ownership may not be Pareto efficient, and are unfeasible for certain economies where market imperfections exist.
[30] Prolonged decreases in share performance may also lead to covert and overt industrial actions, which create a toxic corporate culture and accrue negative publicity for the firm itself.
[5] Instead, they rely on the indirect effects of worker democracy to improve financial performance; for example through a reduction in fixed wages, gradual productivity gains and the elimination of supervision personnel.
[33][34] As the profit-enhancing effects of employee participation are not guaranteed nor immediate, capital is often required from external investors and venture capitalists, who may desire decision-making power which has the potential to undermine the very concept upon which the labour-managed firm is predicated.
[35] Hence, worker income stability is jeopardised and remuneration may be significantly lower than a formal salary if economic conditions dampen or a firm's profit performance plateaus at a low point.
[4][36] In a particular focus group, 96% of employees opposed the complete substitution of wages and salaries for profit-shared remuneration, with a further 42% emphasising the "disappointment or bitterness" encountered when profit performance, and thus staff pay, decreased.
The 'Degeneration Thesis' presented by Cornforth argues that firms operating upon the principles of worker democracy inevitably degenerate into more traditional capitalist structures, as a result of an economic variation of Michels's "iron law of oligarchy".
[39][38] When freely competitive markets confront an employee-owned firm, technical expertise, access to information about competitors' products and taller management structures are required to remain operative and profitable.
In particular, the work of Gregory Dow, David Ellerman, Derek C. Jones, Takao Kato, James Meade and Jaroslav Vanek has been significant in advancing the econometric, microeconomic and macroeconomic analysis of labour-managed firms, worker cooperatives, profit-sharing tools and other mechanisms for employee participation.
