• Saturday, February 24, 2024
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Stretching democracy into economy: The case for democratic business enterprises


“We are in a situation where we think that enormously complex organisations, such as cities and nation-states (even in developing nations where many people cannot read or write) can be run democratically. But, on the question of whether we could have democracy at the work place (in a highly developed country like ours), there is almost a thought ban.” This was Bo Rothstein’s lament in Can We Do It Ourselves, a fascinating documentary on ‘economic democracy’. Rothstein is Professor of Government and Public Policy at the University of Oxford.


In the documentary, economic democracy is defined: participants in economic institutions decide the policies of the institution. Economic democracy could be practised in any economic institution: factories, shops, universities, private or state-owned business. ‘Stakeholder capitalism’ ‘shared capitalism’ ‘participatory economics’ ‘shared prosperity’ ‘democratic firms’ are all different descriptions of this idea that is gaining more and more thought-space in policy circles and think tanks in the U.K. Growing inequality, wage stagnation and more workers (salary earners) in poverty are all signs of a failing economic system, so say economic democrats. This new form of capitalism will ensure redistribution of economic power. Just as democratic politics ensures everybody has political power and rights, democratic economics will put economic power in the hands of the common worker.


The democratic firm should not be confused with a state-controlled centrally-planned firm of a communist country. In fact, most large capitalist corporations today are actually run like centrally-planned organizations from the Cold War era.


Ronald Coase, who won the Economics Nobel Prize for his theory of the firm, could not understand why, ironically, most capitalist firms were managed like centrally-controlled authoritarian bureaucracies. Coase questioned why firms exist in the first place: why not transact all business directly with the market? Each transaction with the market has a cost: hiring an employee will save the business owner the trouble of having to go to the market every time she needs that kind of person to perform a task. So, according to Coase, the firm is a place for long-term contracts that save the business owner the transaction costs of continuous short-term contracts. But Coase did not answer the question why firms, particularly large firms, are centrally-planned or undemocratic.


Matthew Lawrence is the Director of the influential new think tank Common Wealth. In an essay published in April this year he wrote: “There is little point in replacing the centralised bureaucracy of private corporations with centralised state bureaucracies that ignore the tacit knowledge and capability of ordinary people and communities. Too often this was the case in previous shifts of ownership; what was intended to disperse economic power led to its concentration, whether nationalisation or privatisation.

The point is to effect not just a shift in economic power, but a change in the structure of feeling in economic life, to radically broaden who has a stake and a say, individually and collectively. This will require strengthened avenues of worker voice and alternative forms of management to the present.”


Research has revealed connection between shared capitalism practices and worker wellbeing, productivity, high performance of firms managed this way. But, the question is why should a business owner give up part of the ownership (or policy making rights) of her business to an employee? After all, the entrepreneur may have used her life savings and all her creativity to start her business. David Ellerman is the author of the book ‘The Democratic Firm’. Ellerman believes that firms today actually ‘rent’ people as employees, when workers should be partners: the renting of persons is similar to the renting of cars or other property.


Ellerman argues that just as voluntary and involuntary slavery have been abolished by Law, the renting of persons must be abolished too. But the employer will state that it is the services of the employee that is rented, not the person. In practice, only in negatively circumstances is it clear within the Law that a person actually cannot be separated from his actions or services. If the employer involves the employee in a crime, the employee is equally liable as the employer in the crime (not just his actions or services but him as a person will be on trial). The employer has rented the person not just the person’s skills or services.


So, according to Ellerman, the proper democratic practice is for the worker as partner in the firm he works in (with a negotiated stake in the business) instead of working as a rented person.

 Uyiosa Omoregie

Omoregie is a certified management consultant and a fellow of the Institute of Management Consultants