My post on the conservative case against Wal-Mart generated a lot of email and blog responses, several of which I plan to discuss in the next couple of days. One of the most interesting came from Max Sawicky, who makes a number of good points. I want to particularly note his invocation of employee involvement in corporate decision making:
The most interesting point in the post goes to the democratic implications of easy entry of markets by small, entrepreneurial firms. Such entry is thwarted by the dominance of Walmart-scale retail firms. The left can be a bit scrambled on this count. The left has a thing about business, while the right has a thing about labor. The left can talk about the merits of industrial democracy -- workers having more say in how their workplaces are run, the merits of flexible assignment of tasks in a workplace, flexible arrangements in work schedules, and representation on boards of directors. These are all of course privileges of working for yourself, the logical escape from wage slavery.
Max thus seemingly raises the interesting question of whether industrial democracy is a substitute good for individual ownership of a small business. I would argue that it is not - or, perhaps more precisely, that it in practice employee involvement has not proven to be a useful substitute for ownership of one's own business.
I did a lot of work on this issue in the late 1990s, producing a number of articles on the topic. In Privately Ordered Participatory Management: An Organizational Failures Analysis, for example, I argued (quoting from the abstract):
American industrial enterprises long organized their production processes in rigid hierarchies in which production-level employees had little discretion or decision making authority. Recently, however, many firms have adopted participatory management programs purporting to give workers a substantially greater degree of input into corporate decisions. Quality circles, self-directed work teams, and employee representation on the board of directors are probably the best-known examples of this phenomenon.
These forms of workplace organization have garnered considerable attention from labor lawyers and economists, but relatively little from corporate law academics. This is unfortunate, both because the tools routinely used by corporate law academics have considerable application to the problem and because employee participation is ultimately a question of corporate governance.
According to conventional academic wisdom, perceptions of procedural justice are important to corporate efficiency. Employee voice promotes a sense of justice, increasing trust and commitment within the enterprise and thus productivity. Workers having a voice in decisions view their tasks as being part of a collaborative effort, rather than as just a job. In turn, this leads to enhanced job satisfaction, which, along with the more flexible work rules often associated with work teams, results in a greater intensity of effort from the firms workers and thus leads to a more efficient firm.
Although this view of participatory management has become nearly hegemonic, the academic literature nevertheless remains somewhat vague when it comes to explaining just why employee involvement should have these beneficial results. In contrast, my article presents a clear explanation of why some firms find employee involvement enhances productivity and, perhaps even more important, why it fails to do so in some firms. Despite the democratic rhetoric of employee involvement, participatory management in fact has done little to disturb the basic hierarchical structure of large corporations. Instead, it is simply an adaptive response to three significant problems created by the tendency in large firms towards excessive levels of hierarchy. First, large branching hierarchies themselves create informational inefficiencies. Second, informational asymmetries persist even under efficient hierarchical structures. Finally, excessive hierarchy impedes effective monitoring of employees. Participatory management facilitates the flow of information from the production level to senior management by creating a mechanism for by-passing mid-level managers, while also bringing to bear a variety of new pressures designed to deter shirking.
In other words, I view employee involvement - at least as actually used in US corporations - as not an escape from what Max calls "wage slavery," but rather a top-down phenomenon intended to redress certain problems associated with the growth of bureaucratic hierarchies within US corporations. In my article Employee Involvement in Workplace Governance Post-Collective Bargaining, I elaborated the analysis, using transactional economics to argue that employees are better served by traditional collective bargaining than by the various forms of industrial democracy. Finally, in my article Corporate Decisionmaking and the Moral Rights of Employees: Participatory Management and Natural Law, I rejected arguments that employees have a moral right to participate in corporate decision making (as contrasted to a moral right to act collectively through unions).
