The
Case for Workplace Democracy
David Ellerman
World Bank*
There is a clear and definitive case for workplace democracy based on first principles that descends to modern times from the democratic, anti-slavery, and inalienable rights theories of the Enlightenment and the Reformation with antecedents traceable back to Stoic thought. By the 20th century, the arguments had been "lost" partly due to misconceptions, mental blocks, and misinterpretations embodied in Marxism, liberalism, and economic theory. When one has worked through some of these intellectual road-blocks, then one may be better able to reassemble the case for workplace democracy from well-known first principles. Let us try.
The modern
liberal consciousness was formed in the 19th century with the abolition of
slavery and the triumph of political democracy as the normative ideal in the
West. Both changes were interpreted
as moving from a coercive system to a system based on consent.
Thus "consent" became the root-principle of liberalism (always
in the European sense of classical liberalism or libertarianism), a principle
further exemplified with the triumph of market societies.
But this "liberal principle of consent" is both a conceptual oversimplification of the issues as well as a historical falsification of the debates. There were always sophisticated arguments for slavery and for non-democratic forms of government based on consent. The advances in anti-slavery arguments and democratic arguments based on the inalienable rights arguments of the Enlightenment and Reformation were made against those liberal defenses of slavery and autocracy based on consent. These inalienable rights arguments have been largely lost to modern liberalism (not to mention, neoclassical economics) with its dumbed-down dichotomy of "coercion versus consent." Of course, there were always illiberal defenses of slavery and autocracy (e.g., racist arguments or divine-right theories), and those are precisely the ones propped up and then batted down by liberal philosophers and intellectual historians as they portray the triumphal march from status to contract.
Take slavery.
The contractual arguments for slavery go back even to antiquity.
In Justinian's codification of Roman law, each of the three legal means
of becoming a slave had an incidence of contract.
One means was an explicit contract to sell one's labor services all at
once, the self-sale contract. Another
means was the practice of allowing prisoners of war to plea bargain a lifetime
of labor instead of being executed. Finally,
those who were born slaves received food, clothing, and shelter from their
masters and they could (by manumission) pay off this liability inherited from
their mothers' contractual condition, or they could continue the arrangement for
another generation. These same
contractual aspects of slavery were even condoned by John Locke, the
intellectual father of classical liberalism.
In the American
debates over slavery, people like Reverend Samuel Seabury gave perfectly liberal
consent-based defenses of slavery harking back to Grotius, Hobbes, Puffendorf,
and Locke–using what economists now call "implicit
contracts"–while George Fitzhugh and a host of others gave illiberal and
racist arguments. The reader is
invited to see which arguments are propped up and batted down in the standard
histories of the slavery debates
Today, the
reigning social model finds its "scientific" expression in the
neoclassical model of competitive capitalism which not only allows, but requires
for efficiency, complete future markets in all goods and services including
labor. Although self-sale contracts
were outlawed when slavery was abolished, the shining exemplar of liberal
thought (the neoclassical economic model) requires that such lifetime labor
contracts be re-allowed in order to get the basic efficiency results.
Modern economics profession uses "implicit contracts" and
explicit lifetime contracts while blithely ignoring centuries of debate about
the use of such contracts to condone slavery.
The issue–as seen through the simplifying lens of liberalism's basic
misconception–is "consent versus coercion." And economics has come down foursquare in favor of consent.
Bravo!
To place emphasis of the libertarian logic of freedom, a leading philosopher, Robert Nozick of Harvard University, has argued that a free system would allow an individual "to sell himself into slavery." As if to emphasize the modern studied ignorance of Enlightenment inalienable rights doctrine, Nozick even reinterprets an "inalienable" right as a right that one may not give up without consent–which just identifies "inalienable rights" with "rights" as opposed to privileges. Nozick thus has no notion whatever of "inalienable right" in the original sense of a right that one may not give up even with consent (e.g., due to the inherent invalidity of the contract to alienate the right). As if philosophical discourse was not dumbed-down enough in our time, we even see commentators presenting a Harvard professor who explicitly condones the slavery contract as a defender of "inalienable rights."
The contractual
arguments for allowing non-democratic government also go back to antiquity and
continue down to Nozick. Any
rulership that existed as a settled condition was interpreted as based on an
implicit contract or covenant with the people.
For instance in the Institutes
of Justinian, we find that the Roman people have by the lex
regia enacted the imperium of the
ruler. The German legal scholar,
Otto Gierke, finds that by the late middle ages, it was propounded as a
philosophical axiom that rulership was based on a voluntary contractual
alienation of rights from the ruled to the ruler, the contract of subjection or pactum
subjectionis. Surely the
best-known version of this doctrine was Thomas Hobbes' (1588-1679) theory of
contractual autocracy. To avoid the
war of all against all that would make life "nasty, brutish, and
short" each along with the other would alienate the right of
self-determination to the Sovereign. This
liberal tradition of non-democratic government based on the "consent of the
governed" continues on down to Harvard's poster-child for free-market
principles whose libertarian vision of a free system would allow the pactum
subjectionis where individuals contract away their governance rights to a
"dominant protective association."
This completes the summary of the basic misconception of liberalism, that the abolition of slavery and the triumph of political democracy represented a decision for consent over coercion. The older non-trivial debate, lost to modern liberalism, was not between consent and coercion but between two opposite forms of voluntary contractual arrangements. It was between a Hobbesian contract to alienate the rights of self-determination and a democratic constitution to secure those rights. This does not mean for a moment that liberals are personally in favor of non-democratic government (at least in the political sphere). It means, as the examples of modern economics and philosophical libertarianism illustrate, that the non-trivial inalienable rights arguments against such alienative contracts have been "forgotten." The "problem" is that when the old inalienable rights arguments are understood in clear and modern terms, then it is quickly seen that the arguments cut far deeper that just ruling out buying other people and political autocracy–but that is getting ahead of our story.
Let us pause to
consider an amusing invisible barrier in "capitalist talk."
Suppose a person lived in the middle of a slave society (e.g., the
ante-bellum American South). Surely
when asked if they knew of a society based on owning other human beings, they
would recognize their own as an example. Now
consider present-day society and consider the following experiment the author
has conducted with economics students.
First
the students are told about the system of chattel slavery where workers are
bought and sold as movable property. But
just as a house or a car can be bought and sold, so one can also rent a house or
car. Now instead of buying workers
as in a slavery system, suppose we consider a system of renting workers.
The students are asked if anyone knows an economic system based on the
renting of workers. There is usually a puzzled silence. A Black student might point out that during slack times,
plantation slaves were rented out to work as stevedores, as hands in factories
(for example, turpentine or sugar mills), or as common laborers.
The Professor agrees but asks again for an example of a whole economic
system based on renting people. After
another pause, some students offer, "Well, what about feudalism?"
The Professor responds that feudalism might be seen as based on the
voluntary homage contract, but that permanently attached the serf to the manor
and was not a temporary rental contract. Thus we still need an example of a
system of renting people. After
more embarrassed silence and shuffling feet, finally a student, by the process
of elimination if by no other logic, offers: "Well, isn't that sort of like
what we have now?"
Yes, except that we use the word "hiring" or some other euphemism ("employing" or "giving a job") instead of "renting" when people are rented in the employment relation. Hiring and renting are used interchangeably when referring to cars (e.g., "car-hire" instead of "car-rental" in the UK), but not for people. Learning this unwritten rule is part of being socialized into a society based on renting human beings. Try it on your friends.
The
"science" of economics has even stronger unwritten rules as to what
words and concepts can be used. Certain
facts, known to all, are quite unmentionable in this "science."
For instance, we all know that only people can be blamed or held
responsible for anything. We all
might occasionally indulge animistic metaphors about "things" being
blamed for some outcome, but we are well aware of the metaphor.
We know, for example, that when a crime is committed, the responsibility
for the crime must be imputed back through the tools or instruments to the human
users. When we do not blame the
knife or gun for a crime, we do not think for a moment that the instrument was
therefore of no "help" to the perpetrator in the commission of the
crime (and thus some crimes and many accidents might be prevented if such tools
were scarcer). Of course, such
instruments have some efficacy in crimes; otherwise they would not be used! But we have no trouble differentiating that efficacy from
responsibility for the crime. No
trouble, that is, unless one is a professional economist who must, in the
interests of science, "overlook" what everyone knows.
This simple and
definitive differentiation of human actions from the services of things on the
basis of the R-word "responsibility" has been lost to economics for
the whole 20th century. In
economics, human actions and the services of things are seen alike as having a
causal efficacy called "productivity" and they are represented
symmetrically as input services in "production functions."
Economists flip-flop between two symmetrical pictures of the production
process. When feeling scientific,
economists adopt an engineering mentality and a passive voice; the inputs are
technologically transformed into the outputs.
When economists wax poetical, then all the inputs (such as land, labor,
and capital) cooperate together to produce the product.
At all costs, the asymmetrical picture is avoided where persons use up
materials and the services of the instrument to produce the outputs.
Long years of
rigorous economic training are necessary in order to "forget" such an
obvious difference between persons and things.
The payoff from this rigorous indoctrination can be seen by investigating
any economics textbook. Before the
20th century, there was a darkness over the land and muddle-headed political
economists like Thomas Hodgskin and other classical laborists had some sort of
"labor theory" that tried to treat labor as having some
"mysterious" attribute fundamentally different from the services of
things. Then around the turn of the
20th century, a light burst over the land as the theory of marginal productivity
emerged to solve the "problem of imputation."
Every Principles text, from Marshall's and Samuelson's to their vast
contemporary progeny, discusses (and dismisses) the "labor theory" and
presents marginal productivity theory.
The reader is invited to try to find a single economics text in the entire 20th century which even mentions that only human actions (labor services) are imputable–that responsibility must be imputed back through whatever the instruments and tools to the human users. For a couple of decades, I have offered any fellow economist a Free Lunch if they find such as text, but to no avail. Failing that, one begins to appreciate the power of capitalist indoctrination in the "science" of economics.
The last
ideological misconception that we can consider is about the structure of
property rights in production. The labor theory of property is about the appropriation of
newly produced property. The
standard view pretends that no appropriation takes place in capitalist
production since the right to the product is supposedly already part of the
"private ownership of the means of production."
Any appropriation, where the labor theory might be applied, could only be
situated in some original state of nature when the first means of production
were being appropriated, and in any case all that is lost in the mists of the
past.
But the
"story" is false from the get-go.
The rights to the product are not part of the "ownership of the
means of production" (private or otherwise); that is the "fundamental
myth." Appropriation does take
place in normal production, not just in some original state of nature.
Indeed, there is a market mechanism of appropriation quite unnoticed by
conventional economics which buys the myth that the product is already part of
the "ownership of the means of production."
Consider a
technically-defined production opportunity wherein people use some materials and
a widget-maker machine to produce widgets.
The "fundamental myth" is that the right to the product is part
and parcel of the ownership of the capital good, the widget-maker machine.
In this simple form, the myth is fairly easy to defeat.
Have labor hire capital or have some third party hire both.
Then the hiring party would own the product, not the owner of the
machine.
But that
insight is much more "difficult" to grasp if we put the capital asset
inside a corporate shell. Incorporate a company and have the owner of the widget-maker
machine contribute it to the company in return for the only shares.
Then he is the owner of the company and would "supposedly" be
the owner of whatever is produced using the capital assets of the company (that
is, the widget-maker machine). But
that is again false for the same reasons. The
machine can be rented out by the company. When
the machine is rented out, then the company would not be the owner of the
product produced using the company's capital assets (the machine). The company would only be an input-supplier to the
"firm" or "enterprise" using the machine.
Yet the original owner of the machine is still the owner of the company.
Thus the ownership of the product produced with a company's capital asset
is not part and parcel of the ownership of the company. That is the fundamental myth about capitalist property
rights.
It is the
direction of the hiring contracts (who hires what or whom) that determines who
bears the input-liabilities and who thus appropriates the output-assets–not
the "ownership of the means of production."
One party buys or already owns all the inputs to be used up in production
and then, having absorbed those input-liabilities, can lay sole claim on the new
produced assets. That is the market
mechanism of appropriation.
The idea that the product was part of the "ownership of the means of production" was crystallized by Marx and thus he named the system "capitalism." It is unfortunately a misnomer. The product right is not part of capital. Both Marxists and the defenders of "capitalism" agreed on the myth that the owner of capital was the "owner of the firm"; they agreed to disagree on whether that "owner" should be private or government.
We are now in a
position to briefly state the case for the democratic firm based on ordinary
jurisprudence. I will state the case based on the "labor theory of
property"–which is just the ordinary juridical principle of assigning
legal responsibility in accordance with de
facto responsibility. There is
a parallel argument based on democratic theory that is left to the reader.
Regardless of
the productivity of the instruments and materials of production, only the human
beings involved in the firm can be de
facto responsible for producing the product.
But hordes of textbook-trained economists immediately throw up their
hands and point out that you can't impute the entire output to Labor
("Labor" = "managers and workers"); the product must be
divided to account for the income to the other inputs!
But they are wrong; they just think too positively.
They must learn to think negatively.
There is also a negative product. Labor
does not produce the product ex nihilo;
Labor produces the product by using up the input materials and the services of
the capital instruments. And thus
Labor is also de facto responsible for
that negative product (and the satisfaction of those input-liabilities accounts
for the other factor incomes). The
positive and negative product, the (undivided) produced assets and
input-liabilities, make what we might call the "whole product." It is not described by a number but by an ordered list of
positive and negative numbers, a "vector."
The imputation principle (assign the legal responsibility to the de facto responsible party) implies that Labor should have the legal responsibility for the positive and negative fruits of their labor. In the 19th century, Hodgskin and others asserted "Labour's Right to the Whole Product." Labor should be legally liable for the used-up inputs and should legally own the produced outputs; Labor should be the firm. The net value of whole product is the "residual" so the responsibility argument concludes that Labor ought to be the residual claimant.
It remains to
square this argument with the "freedom of contract" such as the right
to rent oneself out piecemeal or all at once.
The inalienable rights argument against not only buying but renting
people can be illustrated with a simple story.
Suppose that an entrepreneur hired an employee for general services (no
intimations of criminal intent). The
entrepreneur similarly hired a van, and the owner of the van was not otherwise
involved in the entrepreneur's activities.
Eventually the entrepreneur decided to use the factor services he had
purchased (man-hours and van-hours) to rob a bank.
After being caught, the entrepreneur and the employee were charged with
the crime. In court, the worker
argued that he was just as innocent as the van owner.
Both had sold the services of factors they owned to the entrepreneur.
"Labor Service is a Commodity" as the scientific texts
proclaim. The use the entrepreneur makes of these commodities is
"his own business."
The judge
would, no doubt, be unmoved by these arguments.
The judge would point out it was plausible that the van owner was not
responsible. He had given up and transferred the use of his van to the
entrepreneur, so unless the van owner was otherwise personally involved, his
absentee ownership of the factor would not give him any responsibility for the
results of the enterprise. But
man-hours are a peculiar commodity in comparison with van-hours.
The worker cannot "give up and transfer" the use of his own
person, as the van owner can the van. Employment
contract or not, the worker remained a fully responsible agent knowingly
co-operating with the entrepreneur. The
employee and the employer share the de
facto responsibility for the results of their joint activity, and the law
will impute legal responsibility accordingly.
We see that
when a crime is committed, the law ignores any alleged "contractual
transfer of responsibility," sets aside the so-called "employment
relationship," reconstructs the relationship as a partnership, and
recognizes the joint de facto
responsibility of the involved human beings.
But the facts about human responsibility are the same when no crime is
involved. Non-criminous human
actions are not suddenly "transferable" like the services of a van.
Responsible human action, i.e., labor, is always not transferable.
Labor is "bought and sold" but it is never transferred (as the
example illustrates). The employer-employee contract for the renting of human
beings is thus inherently invalid. That
is (one form of) the inalienable rights argument that descends from the
Enlightenment and Reformation (where it took the form of the
"Inalienability of Conscience").
Notice that
this argument is entirely independent of the size of the wage and has no
connection to any theory of price or value including any so-called "labor
theory of value." The parallel
argument from democratic theory arrives at the same conclusion about the
employment contract except that it is then viewed as the private
Hobbesian pactum subjectionis of the
workplace. The fact that a whole
economic civilization is founded on an bogus "contract" to transfer
what is untransferable (the contract to rent human beings) is
"unbelievable" to most people which is why so much false consciousness
needs to be socially constructed to sustain the system.
Human beings
should always rent the capital they need (but do not already own) rather than
the owners of capital rent other human beings.
All enterprises, criminous or non-criminous, should be legally construed
or reconstructed as the joint activity of the human beings (managers and
workers) involved in the activity. That
is, all enterprises should be self-managed firms.
Further Reading:
Ellerman,
David 1992. Property &
Contract in Economics: The Case for Economic Democracy.
Cambridge: Blackwell.
Ellerman,
David 1999. The Democratic Firm: An Argument Based on Ordinary Jurisprudence. Journal
of Business Ethics. 21:
111-24.
* The findings, interpretations, and conclusions expressed in this paper are entirely those of the author and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to the members of its Board of Directors or the countries they represent.