8 thoughts on “Employee ownership”

1. Diane
   Re education question.
   If there is a shortage of plumbers and we have to import from Poland is that not seen, at least in part, as a failure of our education system? Similarly with doctors or nurses?
   It is recognized that the UK lags behind other competitors in terms of enterprise creation and the problem increases as you move North. Using the Scottish example, we have now been trying to develop enterprise education for over a decade. Most of it has now evolved into Enterprise and Employability, with the real emphasis on the latter. However, most of what is offered is based on the individual self interest you highlighted is part of the problem (no mention of Smith’s “enlightened” version whatsoever). It is about getting on your bike with no reference to tandems (or other multiple forms of transport) or as Simon Parker at Warwick Business School has suggested “teaching zoology but totally ignoring the existence of elephants or fleas or any other random species”. Essentially we are still teaching “greed is good”, so why are we surprised with the behaviour of Goodwin (remember he isn’t a banker!) and his successors at State owned financial institutions.
   Why do business schools and other parts of our higher education system, who would claim to encourage enterprise and economic growth and innovation, refuse to educate on alternative options? To my mind it represents a form of discrimination and again comes back to your own point about the rich and powerful – who funds the Business Schools which persist with the philosophy that the market will ALWAYS produce the answer (Albeit one that has nothing whatsoever to say about income or wealth distribution and many other issues facing society)
   Education might not be the only solution but it is certainly a huge part of it.
   You are right that successive governments have offered serious tax breaks to encourage employee ownership but again they tend to only offer a partial solution. Financial participation is only part of employee ownership. Where it is proven to produce enhanced corporate performance (and I am sure Era offers plenty of evidence), and wider distribution of income and wealth, is when participation in decision making is part of the equation. Ownership (financial) without control tends to end up as an extended remuneration package and not a different way of owning and controlling a viable enterprise. You cite John Lewis and they are a good example of profit sharing and a structure which allows employees to influence, and hold to account, the people appointed to run the business on their behalf (“to secure their happiness through gainful employment” as the trust deed reads – not a common objective in a public or private company and not how to look after shareholder (member) interest in our current legal/financial framework)
   Finally, I would accept that there is a growing awareness that John Lewis is worker owned but I think you might be surprised at the numbers out there who still don’t know that. More importantly, most don’t understand what it actually means and what relevance it has to them – education?
   Hugh

2. I was and remain grateful for your review, and for the blog. This is mainly to respond to the question you claim the book does not address: why there are not more employee-owned businesses.
   In making that claim you do the book, and the substance of the point, a disservice in also saying ‘its examples are the same as in every book and every article on the subject, John Lewis and Mondragon’. There is good reason for paying attention to those two: they have highly developed constitutions which help them succeed as businesses and sustain their employee ownership. But here is a list by country of other examples discussed in the book:
   In the UK: Arup. Baxi Partnership. Childbase. eaga. g3. Gasforce. Highland Home Carers. Loch Fyne Oysters. NFC (National Freight). Quintessa. St Luke’s. Scott Bader. Stewartry Care. Sunderland Home Care. Tower Colliery. Tullis Russell. UBH. Woollard and Henry.
   In the US: Davey Tree. EBO. Floturn. Litecontrol. Maumee Authority Stamping. Parametrix. Peninsula Newspapers. Publix (with 140,000 employee-owners). SAIC ($8bn turnover). Schafer. United Airlines (a $5bn employee buyout in 1994). Waste Management Company. Woodfold.
   In Spain: excluding the Mondragon cooperatives (there are some 140 of them: it is not a single example; among them I discuss Eroski’s expansion into being Spain’s second largest retailer and the Caja Laboral Popular, the bank): Irizar (one of Europe’s top coach manufacturers) and the approx. 12,000 Sociedades Anonimes Laborales.
   In Italy: La Ceramica and the dozens of worker coops that employ over one in four working inhabitants of Imola, a town of some 60,000 people.
   In Germany: Zeiss.
   This list had to be limited because I was writing a book that I wanted to be readable. But an economist will dismiss the list as being ‘merely anecdotal’. So I referenced work by academics which is very far from being anecdotal, and which supports the case I am making. On the other hand, I took apart one of the iconic works that claims employee ownership will not work. I cannot bear to repeat its name – it’s in the book. In the last few months I have lectured in the universities of York, Stirling and St Andrews, and in every case that paper, which I show is wrong in every single one of its claims, was on the students’ reading list as a valid, authoritative paper. So Hugh Donnelly is right: the conventional model is so thoroughly dominant in education that its myths are strongly perpetuated even where they are ridiculously wrong. This is not because the data are not there, which would be a valid excuse. The data are very clear, in study after study after study: even at quite low levels employee-ownership, when combined with participative management, makes a business outperform its conventional competitors.
   Which brings me to informed vs. ill-informed economists, your other point. On the advice of Richard Freeman of Harvard and the LSE, who as you know is one of the preeminent labour-market economists in the world, I made it clear in the book that my beef is with mainstream traditional economists, whose model is dominant and whose basic assumptions are wrong. It does not matter that there is controversy on the edge of the field, as there is in every academic discipline, and that you can point to economists who deal more subtly with the issues, and others, such as the behavioural economists, who themselves question the foundations – I quote Joe Stiglitz myself a couple of times, who dissents with the traditionalists on other grounds, and I appreciate that you yourself are engaged in a battle to replace the mantra of growth as the target of economic analysis and desire. The point is that the ill-based dominant model is dominant. In Thomas Kuhn’s scheme, traditional mainstream economists are still at the stage of ignoring the counter-factual evidence. I want to get it noticed. Being mild and academic does not work.
   Which brings us back to the substance of your point: why aren’t there more employee-owned businesses? If you look at the list above, you will see that several companies, particularly larger ones – eaga, Gasforce, NFC, Peninsula Newspapers, SAIC, United Airlines – have surrendered their employee ownership, usually after many years, even decades, of stellar performance in employee ownership. The surrender was in no case for good business reasons, except perhaps in the case of United Airlines, where the whole industry was in serious trouble, and they had not made the most of their employee ownership anyway. The reason why these companies surrendered their employee ownership is because people, usually those at the top in particular, and their advisers, can make themselves very rich indeed by selling the rights of future employees. In other words, by securitising the right to appropriate the wealth created in future, and selling those securities. In other words, by fitting the conventional model. (By the way, I do not argue, as you claim in the review, that mainstream economists are responsible for the conventional corporate structure: my criticism is that they act as apologists for it.)
   The point that many people seem to miss in my book, which I accept is entirely my failure, is that equity itself entails a systematic removal of rights from current and future employees. By removing those rights from employees and embodying that power in a security (shares) the current system creates a very valuable instrument. That makes it economically interesting, but it doesn’t make it either effective or right. We have to develop new financial instruments that expand the market in contractual risk capital, and at the same time we have to outlaw conventional equity: the ability to trade power over future employees. Without that, there will always be an overwhelming incentive to move from employee-ownership to traditional ownership. Also simply not to establish employee ownership in the first place. Shares trade power, the power to appropriate wealth from the people who create it. It’s better than actual slavery, but not much. (And it is better than war, the other way of distributing power and wealth.) But employee ownership is much much better. And effective. And right.
   The miracle is that so many people have resisted that temptation to sell. And a reason for optimism is that owners of private companies when they want to sell can sell to well-constructed employee-ownership and not lose out. So there is a way forward.

3. Thank you, David, for the thoughtful and detailed reply. As my original review made clear, I'd welcome more employee ownership (although still with a caveat about individual employees needing a properly diversified portfolio of equity). More institutional variety will be an important element of a more resilient and welfare-enhancing market economy, so I'd also like to see more social enterprises, more mutuals and co-ops, more partnerships etc etc.
   On economists, of course I accept your point about your book referencing some distinguished members of the profession, but I still maintain that even the 'mainstream traditional economists' rarely hold the views so often attributed to them.
   My thanks also to Hugh for an equally thoughtful reply. Let's hope others will join in.

4. A very anecdotal reply, as a fan of employee ownership, on the subject of education and institutional bias.
   My partner and several friend have set-up or taken over enterprises in recent years and had a good deal of engagement with the various business support agencies in London. Not one of them raised the option of setting up as a co-operative and none of them were able to offer good advice on the benefits and legal hoops. Entrepreneurs have to already know about the option and really want to pursue it.
   A more obvious reason is that entrepreneurs are generally interested in making money as well as pursuing the business interest. If you don't have a philosophical commitment to worker power and equality, why would you go to the bother of setting up an IPS when you could just set-up a standard company? Occasional tax breaks may tip the balance a little more in favour of co-ops, but unless you know that a co-op would confer other benefits besides a time-limited tax advantage would you still make the leap, or take the easy option?
   Finally, a conjecture that co-ops are less likely to be interested in expansion and takeovers. My partner set-up a community interest company (A) that was bought out by a for-profit company (B), which in turn also bought out a well established workers' co-op (C). So B swallows two more enlightened models of ownership. I would imagine that the sheer numerical weight of for-profit companies and their interests being more aligned with expansion help to explain why co-ops have struggled to take a much larger share of the market.

5. Certainly a suggestive example.
   People interested in this issue might enjoy this blog post I came across today:
   http://blog.wilshipley.com/2011/04/success-and-farming-vs-mining.html
   DIane

6. I'd like to contribute to this debate from an educational angle (and as course leader for an MSc Co-operative and Social Enterprise Management degree). David's point about the dominance of the conventional economics model is important, but I would go further with reference to Gramsci's work. There is hegemonic control of the educational agenda for business that is hard to break. Trying to establish a course that focusses on employee-ownership, co-operatives and social enterprises means swimming against the mainstream. It is only when you point out to colleagues in forums such as 'Business Development Groups' and “Validation Panels' that John Lewis is employee-owned that they start to listen and don't write it off completely. More people than you would think have no idea how John Lewis is structure, or other large scale examples like the The Co-operative Group (they do not understand the differences or even that they are fundamentally different).
   The problem, increasingly, is that in Business Schools the people involved in making decisions on course development come from marketing backgrounds and are now obsessed with 'growth' (even more so given the current changes in HE). We've had 'widening participation' schemes for students, but not in respect of business access. A wider group of students learn about a narrower range of business options. This is attested to by the fact that more people from *outside* the business school establish businesses than from within business schools. Most business school students, ironically, are focussed on employment in large corporates (which goes some way to explaining the narrowing of the curriculum).
   A recent attempt to change the course name illustrates the issue. The marketing specialists wanted to remove 'democracy' from the previous course title, and prevent 'co-operative' from being added to it. Why? They selectively sought out news stories of large corporates funding 'social entrepreneurship' and wanted the 'target market' to be 'executives' in these 'corporates'. So much of the business school agenda is geared toward satisfying the executive groups of large corporations that the entire curriculum is affected.
   Kalmi, for example, found that co-operative economics disappeared from textbooks at his university despite the co-operative economy growing throughout the post WW2 period. Why? US textbooks do not include it, and the market for textbooks has (until recently) been dominated by US texts.
   There are attempts to redress this – and I myself am contributing to that – but do not be naive about the scale of the task to broaden the educational curriculum of EVERY profession that supports business development. As a founder of several employee owned enterprises, I'm familiar with the ignorance (and prejudice) of accountants, funders, bank managers that others talk about. Their resistance, I think, is largely based on knowing nothing about the alternatives (which is an educational problem as much as a practical one).
   These are good times to advance a new argument, but even in this climate it is a struggle to find a sufficient number of students to run an M-Level programme, and get the university resources to publicise it.
   So, my final point is that wherever people do not have 'alternative knowledge' (and we're talking sustained study here, not a lecture here and there), they will fall back on what they are familiar with. So the challenge is to make people familiar with the alternatives. Actually existing examples of employee-owned businesses do matter, but the educational framework is also in need of its own revolution.
   Best wishes
   Rory Ridley-Duff, Sheffield Business School
   Author – Understanding Social Enterprise: Theory and Practice, Sage Publications

7. A comprehensive analysis of this question is taken up here:

   http://www.econ.brown.edu/1996/pdfs/96-21.pdf

   • Thank you for the link

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