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Forum Post: Anarchism--a proven model: employee owned & managed firms

Posted 8 years ago on March 2, 2012, 12:03 a.m. EST by francismjenkins (3713)
This content is user submitted and not an official statement

Over the years, the NCEO has conducted and reported on research on employee ownership and corporate performance. The research comes to a very definite conclusion: the combination of ownership and participative management is a powerful competitive tool. Neither ownership nor participation alone, however, accomplishes very much. The findings apply most clearly to closely held companies. The relationship between ESOPs and corporate performance in public companies is more ambiguous. Limited research on broad-based equity compensation plans have consistently found positive results. Studies on ESOPs and corporate performance in public companies come to more mixed conclusion.

http://www.nceo.org/main/article.php/id/3/

Here's a listing of the top 100 employee owned firms in the United States:

http://en.wikipedia.org/wiki/List_of_employee-owned_companies

Here's why we should be concerned:

U.S. manufacturing is in crisis, with almost 6 million jobs lost and 42,000 factories closed over the last decade. Even worse, we are losing know-how and ultimately control over our future. While the U.S. retains important strengths, U.S. manufacturing competitiveness is slipping rapidly. There is no reason to resign ourselves to defeat or to sugarcoat the challenges we face. We possess the tools, talent, and resources to revive manufacturing. But to do so we need a national strategy for manufacturing renewal. This report explains the five key reasons why we need to act quickly and boldly to revitalize our manufacturing sector.

http://www.itif.org/publications/case-national-manufacturing-strategy

ITIF is exactly right, we need a national manufacturing strategy, and here's an idea. A government loan program enabling workers to buy and reopen these closed down factories (or companies scheduled for closure, facing bankruptcy, etc.). Employee owned companies is a proven model, well studied, and it provides evidence for one of the core values of anarchism, workers owning and managing the places the work at!

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23 Comments


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[-] 2 points by JPB950 (2254) 8 years ago

The key would seem to be that workers have something invested in a company in addition to having control over it's operation. As opposed to simply being handed the keys to the factory so to speak and being told now you're owners.

The problem with an anarchistic model is it too often strays into socialism and simply redistributes property. The ownership is only on paper, the worker doesn't have any true physical or emotional investment in the company or its success.

[-] 1 points by francismjenkins (3713) 8 years ago

Why wouldn't the incentive of "keeping their jobs" be enough to promote solidarity within a company, among its employee owners? I mean, this is not a redistribution scheme along the lines of a socialist model. We're talking about providing loans to buy factories, which are closed down and idle, not using the mechanism of state to seize property, without regard for the property rights of its current owners (nor am I suggesting we implement some sort of centralized control regime). Obviously, there would likely need to be a system put in place, where workers become "gradually" vested (in terms of ownership), essentially sweat equity. We would want "professional" managers (with proper education and experience). Moreover, much of the initial workforce would be the employees who lost their jobs in the first place. Also, we're not talking about just handing over keys without regard for common sense. We would want a viable business plan, and we'd want to use as many aspects of general commercial lending practices as is feasible under the circumstances. Nevertheless, asking workers who have lost their jobs, who have been displaced because of a dysfunctional trading system that operates against the interests of our own citizens, to contribute money they don't have, sort of misses the point.

We already provide loans to small businesses (e.g. the Small Business Administration), we provide grants, export loans and assistance, and we have all sorts of other programs in place to help our businesses (or provide seed money to launch an enterprise). There are thousands of very successful employee owned businesses in the United States. So this program is not inconsistent with our respect for property rights or even for that matter capitalism.

[-] 1 points by JPB950 (2254) 8 years ago

As you describe it in greater detail, it may have some merit. Taken on a case by case basis with attention paid to the general business climate and most importantly why the business failed in the first place.

The last thing we need is another program where bureaucrats feel it's their job to approve as many loans as possible. If the motivation is just to collect another year or two of checks until the loan money is lost on a business that never stood a chance, then it's just another variation on corporate welfare. That Chicago window plant is a good example, it's failed under two different owners, loaning it money isn't likely to make the operation viable.

[-] 1 points by francismjenkins (3713) 8 years ago

Right, and here's where the distinction between jobs that were lost because of a dysfunctional trading system, and jobs that were lost because the market simply no longer exists, obviously becomes critical.

I'm certainly not interested in funding lost causes.

[-] 1 points by BradB (2693) from Washington, DC 8 years ago

A campaign to start up new employeed owned manufacturing is a Fantastic Idea ... where/how would we raise the capital ?

a "Social Reserve Bank" will fix all this

[-] 1 points by francismjenkins (3713) 8 years ago

I would suggest "direct loans" from government (no bank intermediaries). The loans should be low or no interest loans, which provide enough seed money to resume production, pay salaries (for a reasonable period), and pay the bills, while the company establishes an adequate revenue stream, with flexible repayment terms that allows the company to get its feet off the ground before requiring the company to begin making payments on the loan.

[-] 1 points by April (3196) 8 years ago

Why would you propose re-opening a business that failed? Are you suggesting that a co-op type management can make successful a business that already failed once? For reasons that probably had more to do with global wage competitiveness than anything else. So how is a co-op going to compete any more successfully?

If there was a chance at turning around a business that failed, I'm sure someone already jumped all over it.

What you seem to be suggesting is that the government should "prefer" to give business loans to co-ops v other types of ownership.

The co-op still has the same issues of competitiveness that any other ownership type does. They still have to sell their goods at a competitive price. Or fail again.

And there is nothing to stop a group of people from getting together right now, develop a business plan, kick in equal amounts of capital, apply for a business loan, and open up that closed factory. They still have to compete against goods from China for instance. How is the government "preferring" or backing their loan, going to help them compete?

[-] 1 points by francismjenkins (3713) 8 years ago

Valid questions, for which there ARE answers (whether you're willing to seriously consider those answers, is another question). Yes, they will face competition from sweat shop and child labor overseas, but only because we have a dysfunctional trading system that promotes human exploitation and opposes the interests of our own citizens.

Obviously, this situation would need to be remedied in tandem with a loan program. It is complicated by trade agreements, such as WTO, but there are ways we can favor our domestic workforce (even if not explicitly) while remaining in compliance with WTO.

For instance, Bangladesh has a 15% value added tax, which exempts "cottage industries" (generally speaking, small to mid size companies, including manufacturing operations), but all imports are subjected to its value added tax, and (as is common with value added tax schemes) exports are not charged the tax. An added benefit of a "properly structured" value added tax is it allows us to reduce (or potentially eliminate) income taxes on middle and working class Americans, and revise our corporate tax regime in a way that's more favorable to domestic production.

[-] 1 points by April (3196) 8 years ago

I'm not sure what is the answer to global fair trade issues in the short term. But I think the long term answer is innovation. Innovation creates jobs. This will require that the US make changes to our education system. Which is no better than average. We still have the best universities in the world but the cost is too far out of reach. It's increased 1000% over the past 30 years.

Innovation creates jobs. The manufacture of newly innovated products has a home country bias. As the manufacture is perfected and standardized over time, it may migrate. So the key is to have a continuous flow of innovation. So as manufacturing may migrate, there is some new innovation/manufacture to take it's place.

All business types will benefit from this. Co-ops included. There's nothing preventing co-ops from existing. They exist now. If we have the innovation that creates jobs, co-ops can get business loans just like anyone else.

Let's say we get there. Innovation explodes and a new growth industries emerge. Jobs galore. You suggest the government provide loans to co-op businesses, I'm assuming at a low interest rate. We already have this. There are all sorts of loan programs for start up businesses. Co-ops can participate in just like any other.

Other businesses will spring up to take advantage of the same opportunities in these new emerging industries, using private capital that will likely require a higher ROI.

They both have the same opportunity for success or failure.

All else being equal - the co-op, or any business that has gets it's capital/loan with a low interest rate has the advantage. The co-op would have more money to re-invest in it's business v a private equity business that would have to pay a higher ROI to it's investors.

Seems to me co-ops, any business particpating in a low interest rate business loan, already has the advantage. What am I missing?

How is that different from what we have today? There is already lots of programs to encourage small business loans programs encouraged/backed by the government.

[-] 1 points by francismjenkins (3713) 8 years ago

I agree with most of the things you're saying, but my contention is the loan programs we have aren't adequate (and should be both refined and expanded). However, there's also an assumption implicit in my idea (that I should elaborate on). I think our economic structure suffers from a serious flaw, which needs to be remedied.

We're too quick to allow manufacturing to migrate, which has resulted in overspecialization. In other words, we still do a good job at research and development, but in many areas, we've completely lost the ability to manufacture goods. It's not because manufacturing of those goods has become obsolete, but rather, it's because of the dysfunctional incentives built into our system (relative to the incentives provided by our trading partners).

This has created over-reliance on consumption versus production. Free trade has become a dogmatic theme in our economic ideology, and we've gone along with this idea without even understanding or taking into account all of the complexities involved with trade. I think it's fair to say at this point, the empirical evidence is exposing flaws in this theoretical model. It's not to say trade is bad, it's only to say there needs to be qualification in how we formulate the idea of free trade.

We've masked the problem of a declining manufacturing sector with consumption, funded by reckless levels of debt and artificial monetary expansion. Now we're suffering the hangover of this dysfunctional economic approach, but it still seems like we're in denial. Innovation is of course the engine of economic growth, but we ignore more basic aspects of our economy at our peril. We're simply too large of a country to hope that everyone can earn a PhD in electrical engineering or biophysics. We need a country that can accommodate large numbers of machine operators, tool and die specialists, manufacturing experts who can operate automated industrial machinery, robotics operators, etc. We won't be able to succeed if we only focus on designing this stuff, because it's just not enough for a population of our size (assuming we want to sustain and enhance our quality of life).

We're borrowing huge sums of money, but getting nothing in return. No improvements to our physical infrastructure, no expansion of our manufacturing base, nothing, but piles of debt and future interest obligations. The worse problem is this dysfunctional system, is giving us the idea that debt is bad in all cases (which only further guarantees our decline). The old maxim still applies, it takes money to make money. Products don't manufacture themselves, it requires capital investment in factories and machinery. Not enough of that investment happens in our domestic economy.

[-] 1 points by April (3196) 8 years ago

Totally agree with you. There are no easy answers. We've made this bed that we have to lie in now. But while I don't have anything against co-ops, I don't see how it is an answer to anything. They have the opportunity to exist now and in the future as well. And I think they already have some built in advantages.

To the degree that they succeed or fail, why they aren't thriving more, all else being equal, I mean they are on the same playing field as any other similar size comparable business. To any degree they aren't more successful may have more to do with problems of consensus type decision making that is required for that type of ownership. Honestly, to the extent that there aren't more of these types of businesses, leads me to believe, the business decision making model doesn't work or is not very good. Otherwise, there would be more of them.

In the short run, regarding co-ops, I'm not sure what you would have the government do that it isn't already doing, ie: small business loans.

I disagree with you about loan programs. I think the loan programs we have are adequate. Plus, there is billions of dollars of private equity and businesses sitting on their cash. The problem isn't loan programs or available capital. The problem is demand. Lack of. Consumers are strapped. Paying down their debt hangover. On top of low consumer confidence. Why should any of us have any confidence when we know our government is corrupted and pretty well dysfunctional, and our economic system is driven by a financial system (Wall Street) that has not been properly reformed and could collapse again at any given moment.

Not sure what you mean by "dysfunctional incentives" built into our system. Do you mean lowest cost of production?

I don't think everyone has to have a PhD. But we have to improve our educational system to fuel innovation. A spark of innovation can have exponential effects. Creating jobs at all levels of society. Like I said, there will likely be a home country bias. But I don't see any way to keep low skill or standardized labor here forever. There will always be a country less fortunate, with cheaper labor. Even if trade is made more fair, there will always be cheaper labor somewhere.

The only market driven thing I can think of that would keep manufacturing here rather than moved overseas is oil/transportation cost. The increased shipping cost offsets the labor savings. We don't have much control over this and it's obviously more in our favor that oil prices are low.

The government is borrowing money. But businesses are profitable and hoarding cash. Businesses need to see increased demand before they start expanding/investing capital/increasing production.

Short term it's all about consumer confidence and demand. And also the best scenario is that consumer debt is paid down first and personal savings rates are up. Some middle/lower class tax relief would help consumers get their debt paid down quicker. To get to the point they can start spending a little more disposable income in the economy.

[-] 1 points by francismjenkins (3713) 8 years ago

Yes we have to improve our education system (no argument on that point), but I think asking why there isn't more co-ops or employee owned companies isn't exactly the right question. Our system is geared towards conventional companies. Employee owned companies usually occur only as a result of acute distress, and this model has been able to pick up the pieces in many cases (where the conventional model has failed).

So I think the better questions surround the evidence demonstrating the viability of this model? My OP presents evidence (one research study anyway), showing the effectiveness of this model. So I think this model can compliment our current economic system well, and presents a more sustainable alternative in the case of manufacturing (at least in more labor intensive production operations).

I mean, saying that the loan programs we have now are adequate, right away admits that having some loan programs can be beneficial. Well, if some loan programs can be beneficial, why the resistance towards new ideas? Are you saying that our current approach should be forever set in stone, and never change in response to changing circumstances?

[-] 1 points by April (3196) 8 years ago

ok. Sorry if I got off subject! I got carried away with my own thought process. : )

Our system is geared towards survival of the fittest. That's capitalism. Sink or swim. It's up to the co-op to sink or swim. I would restate what I said above. Under any given circumstances, co-ops have the same risks/rewards/benefits as any other similar comparable business. They're on the same playing field.

To the extent that they aren't more prevalent, tells me, aside from operating on a small niche basis (credit unions) they aren't all that successful. Othewise credit unions would be more prevalent.

Partnership type businesses aren't that much different than a co-ops. Just a little more limited. The large investment banking firms used to be partnerships. This worked will for like 100 years. Then they went public and most of the big ones, Lehman and Bear Stearns, crashed soon after.

Most law firms are still run as partnerships. And it seems to work for them.

[-] 1 points by francismjenkins (3713) 8 years ago

SBA has all sorts of special loan programs. They have programs for woman and minority owned businesses, veteran owned businesses, etc., which is fine, but ESOP's face discrimination in borrowing and even in the ways taxation is structured.

There was a bill in congress, the ESOP Promotion and Improvement Act of 2009, which would have provided at least a small remedy to this discrimination, but unfortunately it never became law.

So not only have ESOP's been extremely successful, in many cases rescuing distressed companies, but they've been able to do this while at the same time overcoming various forms of subtle discrimination. In other words, we do not have a case of a level playing field, where ESOP's can battle it out, and best man wins. ESOP's have much more difficulty accessing capital, and there's no "market based" reason for this. I mean, the evidence demonstrates how well ESOP's perform.

[-] 1 points by BradB (2693) from Washington, DC 8 years ago

----> 6 million jobs lost and 42,000 factories closed over the last decade. Even worse, we are losing know-how and ultimately control over our future.

and the typical answer from the 1%er's ... is go to school ... get a job .. work to better yourselves.... hehehehe F*CKING Idiots

[-] 1 points by gcaorg (19) 8 years ago

Employee owned companies are a good idea, also possible companies owned by employees and customers. The goal of the human beings is NOT work, it is to have a good life with little or no work. The imports of the USA are paid by loans so the first thing should be to make it harder to import (Tax imports or lower the value of the dollar). At a good system the goods are produced where they are needed and not transported from the other site of the world. The whole systems are all WRONG!!

[-] 1 points by go99ers (31) 8 years ago

I don't understand why people go on about manufacturing jobs. Manufacturing has been dead in this country for decades. Our factories can't compete with the cheap labor overseas. It doesn't matter if the factory is employee owned or not. If we don't see the value of keeping some percentage of ALL of our jobs here we will continue to have the same problems.

[-] 1 points by ogrdanny (73) from Grand Rapids Charter Township, MI 8 years ago

There's a lot of inertia in the co-op and similar movements right now. I've gotten involved in a number of related efforts. I think it's one great avenue for the Occupy movement, one which I've already seen early action in. Everyone should do what they can to assist in these efforts and there's many ways to do so. It's a clear, relatively easy direct action that serves to permanently empower the people and the community.

[-] 1 points by francismjenkins (3713) 8 years ago

Indeed. But also, the money a government loan program could potentially bring to bear, could provide the platform to really change the calculus of our economic system in a profound way. Within a relatively short span of time, we could have thousands of employee owned and manged factories, with millions of workers benefiting. This could also make this idea "mainstream" ... give the idea legitimacy, and soon enough, it could become the model for most businesses.

[-] 1 points by Mooks (1985) 8 years ago

I guess I don't see how this is really any different than how a company like Wal-Mart offers shares of stock at a discounted rate as part of an employees compensation.

And also, what happens when employees quit and move on to another company? Do they take the shares they have accumulated with them? Is it any different if they are fired or laid off?

[-] 1 points by francismjenkins (3713) 8 years ago

Workers for the thousands of existing employee owned companies have as mobility as any other category of worker. There's a variety of ways ESOP's handle this, but even closely held companies issue stock (which is transferable). As for the Walmart comparison, Walmart workers do not participate in management of the company in any way. Moreover, Walmart is publicly traded (so the entire dynamic is different than closely held ESOP organizations).

[-] 1 points by ogrdanny (73) from Grand Rapids Charter Township, MI 8 years ago

I agree, though of course it seems like a long shot to expect a corporate-run government to do something against their corporate interests. :) It'd be good to see that happen though.

This isn't actually the first time I've heard of the idea. It was brought up during a May Day planning meeting recently.

One other way to do this is through revolutionary unionism, as my union's been working towards for over a century, but that's probably a long topic for another thread. :) However, this battle ran in direct confrontation to that "mainstream", especially during the early, more violent days of this seemingly eternal red scare against all things that challenge economic and political hierarchy.

On that note, what ideas are there on how to achieve this from the legislative angle? The particular ideas that come to mind for me is to somehow beg the Democrats to change their "jobs program" platform to be based on co-operative empowerment...but I'm not too optimistic on that route, nor am I personally excited by the idea of putting a lot of effort into something hinging entirely on their political interests in the idea. (I can't wait to hear the shower of buzzwords coming from the Right on this if it gains momentum.)