February 19, 2021
From Center For Stateless Society
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First, most producers are employees of firms, not owners. Viewed from the vantage point of classical theory, they have no reason to maximize the profits of firms, except to the extent that they can be controlled by owners. Moreover, profit-making firms, nonprofit organizations, and bureaucratic organizations all have exactly the same problem of inducing their employees to work toward the organizational goals. There is no reason, a priori, why it should be easier (or harder) to produce this motivation in organizations aimed at maximizing profits than in organizations with different goals. If it is true in an organizational economy that organizations motivated by profits will be more efficient than other organizations, additional postulates will have to be introduced to account for it.

            Herbert A. Simon, “Organizations and Markets” (1992: 28)

… [Mondragon is] worker-owned, but manager-controlled. Workers pick the managers, but they — theoretically, at least — control the managers; how much they control them you can debate … that’s pieces of a more free and democratic society — pieces only, because workers aren’t participating directly: they’re still picking someone to tell them what to do. 

                —Noam Chomsky

Introduction

Basterretxea, Heras-Saizbitoria, and Lertxundi (2019) have an article that looks at the closure of Fagor Electrodomésticos, one of the oldest and largest worker cooperatives in the world — and a symbolically important part of the larger Mondragon Corporation. Mondragon itself is a massive federation of worker cooperatives in the Basque region of Spain, including cooperatives in fields such as social services, education, banking, and so on in addition to heavy manufacturing. In essence, Mondragon is a self-sustaining town built on the principles of economic democracy, though as the Chomsky quote above notes, it’s ultimately a form of representative democracy, in that managers in Mondragon are still a separate group from front-line workers — albeit with elections to keep them accountable and, by the nature of what a cooperative is, the owners to whom managers are responsible are the worker-owners themselves. Because Mondragon is the largest worker cooperative currently in existence (and, indeed, one of the largest corporations period), it serves as an important source of data for the literature on cooperatives; hence why Basterretxea et. al. seek to analyze the failure of one of its units and offer an analysis of some internal issues that they argue contributed to its failing. A follow-up article co-written with Chris Cornforth (2020) builds from this analysis to also argue that certain reforms are needed to better combine workplace democracy and necessary Human Management Resources (HMR). The authors seem quite sympathetic to the goals of worker cooperatives but, nonetheless, see a need for Mondragon as a whole to evolve to avoid further failures like Fagor. I myself am sympathetic to this position, and both articles make some very important observations; but, ultimately, I think they highlight (without explicitly endorsing, it should be said) reforms that move in the entirely wrong direction. The authors suggest increasing the managerialization of Mondragon — at least insofar as making democratic bodies like the General Assembly more receptive to suggestions from management — however I’d argue that, as per the Chomsky quote above, the goal ought to be to remove management from the picture entirely

I should qualify that, by “managerialization,” I mean cultural or structural changes that better allow managers to make tough decisions that worker-owners might not like (such as closing down a factory) or improve their ability to monitor against shirking. They value the importance of autonomy and participation of workers and, indeed, argue that part of the failure of Fagor was its adherence to a Taylorist model of production that is emphatically contrary to the cooperative spirit (2019: 12). Indeed, they note a comment from an interviewee that says managers over-emphasize the social aspects of the cooperative (i.e., manager’s restricted power) over production inefficiencies (ibid), and the biggest connection between restricted managerial power and these issues seems to be nepotistic hiring policies and resistance on the part of the General Assembly to policy changes (ibid: 13-14). But they nonetheless highlight the weakness of a manager’s ability to act as a potential restraint on organizational effectiveness; and a proposal that some Mondragon managers have suggested, and which the authors argue may counteract this restraint, is the introduction of more independent “expert” members to sit on the Governing Council (i.e., the equivalent of a “Board of Directors” for a typical corporation) that can listen to and guide managers more effectively. I take issue with this suggestion, and would say that the problem is that Mondragon’s many cooperatives are structured too much like traditional capitalist corporations.2 It’s typical firm politics, but with some democratic mechanisms slightly more participatory than a social enterprise or representative government (and likely less participatory than other types of worker cooperatives). 

I’d offer up three alternative solutions instead: (1) Stay small; (2) Make greater use of polycentric decision-making bodies; and (3) Liquidate management and establish a culture where workers monitor and motivate one another, rather than crowding this out through middle management. The literature is fairly unambiguous in saying that worker cooperatives — at least when they combine robust participatory mechanisms alongside ownership — are more productive and foster better motivation for members than traditional capitalist firms; these proposals try to double-down on the importance of participation and engagement, which I think should make the effectiveness of cooperatives even greater.

Stay Small

As Kevin Carson has noted in his excellent work Organization Theory (2008), diseconomies of scale can play havoc with firm effectiveness and create downward pressure on firm size. Increased distribution costs in terms of transportation, marketing and the like (ibid: 34-35) eat into any savings a firm might receive from economies of scale; the costs of supervising and communicating with a larger workforce also eats into efficiency (ibid: 43); and, of course, there are internal information problems from which traditional firms are largely isolated thanks to corporate welfare and other forms of state-based protection (ibid: 165). This state-enforced privilege is something that worker cooperatives — and Mondragon in particular, since it aims to generate its own finance, social and security services — don’t have access to. Tax-payer dollars and monetary policy help to fund expansive subsidies, tax credits, and other, more indirect forms of corporate welfare, whereas for Mondragon this financing has to come from within the system itself: hence why only so much assistance could be spared from other parts of Mondragon as Fagor started to fail, eventually being cut-off from aid entirely. The authors of the previously mentioned studies noted that the cooperative’s rapid expansion resulted in a dilution of the number of worker-owners, which undoubtedly affected the internal culture of the cooperative (Basterretxea et. al. 2019: 7).3 In general, Fagor likely exceeded the size that any firm should have under freed market conditions, which is to say, in a market that isn’t awash in state-backed privileges, and so the tendency for information problems and diseconomies of scale to destabilize an organization after a certain point would have no doubt hit Fagor even if there wasn’t a world-wide recession. That the cooperative eventually closed shouldn’t be surprising, then, and it should be said that its internal issues are not only not unique to the cooperative structure (as Carson’s analysis of traditional capitalist corporations highlights) but that these sorts of problems plague organizations in general.

However, one thing to emphasize is what a small size allows a cooperative to do, especially when it’s facing economically difficult times. An underrated element of cooperatives is that, because of their diffused decision-making capacity and use of distributed intelligence, they have far greater potential to adjust their policies and brainstorm potential solutions than firms that rely on top-down management. But smaller cooperatives, like smaller organizations in general, are structurally more flexible than larger ones, in addition to the benefits of distributed intelligence that come with a cooperative. 

The keyword there, it should be emphasized, is structural. This is to say that a smaller firm, in general, can radically alter its mission and identity on a scale that larger firms simply can’t, while also being in a better position to quickly (and frequently) adapt its internal social networks and production methods. In small firms there are fewer moving parts, fewer blind-spots, less institutional inertia to keep certain formal rules in force long after they’ve become a liability, and greater communication of information. The interactions between members of a small firm can afford to be less formal while still being maximally trustful, which allows greater scope for the generation and adoption of new ideas. Being small doesn’t automatically mean you’ll be more flexible (indeed, a dictatorial owner or manager can easily demolish the structural advantages of smaller organizational size, which again means that cooperatives have a natural advantage to make the best use of small sizes compared to capitalist firms) only that being large tends to work against truly radical reorganizations on a structural level. Established and heavily enforced corporate policy, segregation of production into different departments, and the rigid hierarchies that frequently come with upwards scaling can actively cut off or work against the kinds of channels needed for rapid adaptation. It’s far easier to change what a small boutique does and how it goes about doing it than it would be for ExxonMobil, is what I’m saying.5 

Ultimately, having management make “hard decisions” amounts to using a chainsaw to hack away at detritus: it’s an “effective” strategy only compared to letting a bloated firm collapse in on itself. If a firm had the capacity to utilize its already existing human and social capital (rather than destroying it) to modify its internal workings and re-create itself, I believe that would result in far better outcomes, particularly in terms of innovation and welfare (in the economic as well as social sense). With the outlook and stated participatory mission of cooperatives, again, its intersection with small size could result in highly fluid — and, thus, innovative and welfare maximizing — organizational structures. I say innovative because the members of a small cooperative could utilize skills that perhaps existed in a radically different context from the one they’re currently entering, allowing them to tackle problems in new ways while also adding to their base of knowledge and capabilities. And I say welfare because, ultimately, existing social ties aren’t artificially cleaved off by scattering employees either to other cooperatives or traditional firms or back into the labour market, so the ability to communicate with, trust in, and understand others doesn’t need to be relearned to nearly the same extent. Members can exit of their own volition and without necessarily severing contact, as could happen during a down-sizing, and maintaining existing social ties can help better integrate new people and perspectives in a bottom-up fashion, rather than from a top-down reshuffling.6 Less trauma and a shorter acclimation period should result in greater productivity gains; managers being empowered to downsize or try to externally reorganize is, by contrast, mostly limited to being a cost-cutting mechanism. 

Again, it can’t be repeated enough that taking full advantage of a small firm size requires a substantial increase in participation and egalitarian relations for worker-owners — that is to say, thoroughly doubling down on the ethical and technical spirit of cooperatives — as hierarchies and passing ideas through a chain-of-command would make the cooperative, or indeed any firm, far too rigid (to say nothing of potentially crowding out initiative). Rather than a move more towards representative democracy in the workplace via empowered managers, Mondragon would do best to take the participatory spirit of cooperatives even further. Exactly how small this sort of arrangement should be is an open question, and one that likely can’t be discovered in advance: people will have to experiment. 

Finally, let’s not forget that Mondragon has a particular networking advantage, as a great many diverse cooperatives and services exist side-by-side and already have deep relations with each other. There is already an impressive amount of social capital in the region that could help sustain small networks as they begin to grow and evolve, meaning that decentralization would not only take place within a friendly environment, but that it would be building off a foundation that, while not perfect, is at least better than starting from scratch. And this would be decentralization: it was noted in Basterretxea et. al. that members of the General Assembly were flooded with information and yet also felt as though vital bits were missing or being purposefully excluded from reports (2020: 6). The problem here is too much centralization and diseconomies of scale, as both will have an obvious effect on the accurate and efficacious flow of information. However, vesting greater control in the hands of the Governing Councils of each cooperative is still a centralized approach, and indeed fewer eyes and fewer brains will be expected to make sense of incoming data and create general policy for the cooperative as a whole. The distance from production between the General Assembly and the Governing Council is more or less equal, if we simply take each body as a whole rather than look at the individuals that constitute each body. Ergo, increasing the power of the Governing Council isn’t an effective use of decentralization: it’s an argument that more professionalized and dedicated managers will be better able to interpret the information that’s being presented to them. But this is a wholly unconvincing argument that seriously underestimates the nature and distribution of information.

Even a wholly professionalized Council, filled with the best and brightest graduates of the Wharton School of Business, won’t be able to effectively cope with the distribution and interpretation of information within a large cooperative. Complex information from within and from without the cooperative will still have to be gathered, requiring the Council to either further bureaucratize in order to have dedicated fact finders or risk spending most of their time gathering data rather than generating policy ideas; but even then, that doesn’t guarantee that the Governing Council will be in a better position to understand the data they’ve been presented. The Board of Directors of a firm have the option of delegating away from them whenever a problem is too complex, or to rely (usually in an unspoken fashion) on people below them to do a substantial portion of the translation and sorting of information before it reaches their hands. The General Assembly does not have that option, to the same extent, for the simple reason that it’s made up of the members that, normally, would be the recipients of delegation. It’s also important to remember that interpretation requires access to context, and while the General Assembly is no doubt an inefficient body to effectively make decisions (likely because of the way meetings are structured rather than any deficits of technical knowledge), it nonetheless contains worker-owners that are on the frontlines of production and, thus, understand the context in which decisions are made better than managers will. Indeed, outsourcing to independent Board members makes the problem of contextual interpretation even more difficult, all without properly solving for centralization. If interviewed managers from the articles I’ve highlighted (and it must be said that the managers take this position, not the authors) believe that increasing the technical competence of the members of the General Assembly is “naive,” I’d counter that expecting technocratic solutions to rather intractable information problems is equally if not more-so. Technical expertise — knowing-how — is something that’s learned and cultivated through action as much as instruction, so the best way to get worker-owners to be better self-managers is to let them develop those skills, especially in the context of smaller cooperatives with greater uses of fluid networks. I’ll be discussing the idea of increasing direct participation in decision-making through alternative bodies in the section below. Again, though, for anyone I may not have convinced, see Carson (2008; 2020) for more on the problem of information processing within a hierarchical firm. Doubling down on hierarchy will only further exacerbate the problem. 

Beyond that — and back to firm size in particular — it’s also entirely likely that the optimal size, while facing an absolute limit at some point, will fluctuate wildly depending on local conditions and broader trends in the market. The question then is, what to do about the currently existing decision-making bodies in Mondragon’s many cooperatives? What types of reforms can we think of that focus specifically on the role played by middle managers, the Management Council, and the Governing Council? As I’ll lay out in the next section, I’d recommend making greater use of polycentric decision-making bodies, though in a slightly altered format from how it’s presented in Ostrom’s work. In keeping with my previous comments, though, a substantial part of this polycentricity ought to be the use of informal decision-making bodies as well, to maximize both participation and flexibility.

Polycentric Decision-Making Bodies

I mentioned in the previous section that worker-owners’ ability to self-manage could be improved if they were allowed to practice the art of self-management. I’d like to expand on that here by moving away from the rigid, formalized decision-making bodies that Mondragon seems to favour and instead emphasizing the importance of fluid, small-scale, shifting bodies where the distance between cultivating information and acting on said information is significantly smaller. There needs to be a model where people can brainstorm more efficiently and at less of a distance from the actual hands-on work they normally engage in, so that long-term planning has greater ability to adapt based on changing conditions. Distributed intelligence is key to organizational success, and the polycentric model is, I think, an excellent way to harness distributed intelligence in modern organizations. Since polycentric models can also rapidly increase the level and intensity of participation in decision-making without bogging said process down in endless rules, and since polycentric models can cultivate strong ties between members of a cooperative in a much more present and flexible way than the much more distant meeting space of the General Assembly, the cooperative is the perfect environment to take advantage of polycentricity. The idea of closely linking regulators and producers is already being practiced in the context of industrial relations (Sabel and Zeitlin 2012); if it works in the complex swirl that is relations between governments and businesses, I don’t see why it can’t be applied within a firm too. 

It probably isn’t much of a stretch to say that the most influential thinker on polycentric institutions has been Elinor Ostrom. Generally speaking, and as Ostrom herself notes in a summary of her research on the provision of police services, polycentricity allows for different sized organizations with overlapping mandates to “achieve economies of scale in the production of some … services and avoid diseconomies of scale in the production of others” (2010: 1). As she notes elsewhere, in empirical cases of polycentric governance, “among long-enduring self-governed regimes, smaller scale organizations tend to be nested in ever larger organizations” (2005: 269). For Mondragon as a whole, “nested organizations” would be an apt description of its internal structure: each cooperative and its own Governing Council are independent legal entities but exist within the larger Mondragon system. They can be a part of further “support co-operatives” and are all ultimately accountable to the General Assembly.7 It’s a highly federated system. What I think is missing, and what I’d like to focus on, is the idea of overlapping units; and I’d like to scale the discussion of polycentricity to within a single organization, rather than focusing on numerous interacting organizations like Ostrom’s institutional analysis and development framework (IAD) primarily does. My targets of criticism are the Governing and Management Councils, as opposed to the federated nature of Mondragon itself.8

The main advantage of overlapping institutions is that they enable learning: “information about what has worked well in one setting can be transmitted to others who may try it out in their settings” (Ostrom 2005: 283). It creates space not just for diverse experimentation but also for building off one another’s successes, something that’s hard, if not outright impossible, to accomplish in settings with clear boundaries and a lack of reciprocity. There’s also the added benefit of establishing a safety-net, as “redundant designers” can help mitigate error and cover for previous poor decisions in ways that rigid divisions can’t cope with (ibid: 284). Ostrom further warns, in the context of common-pool resources,9 that when there’s

only a single governing authority, policymakers have to experiment simultaneously with all of the common-pool resources within their jurisdiction with each policy change. And, once a major change has been made and implemented, further changes will not be made rapidly. The process of experimentation will be slow, and information about results may be contradictory and difficult to interpret. Thus, an experiment that is based on key data about one key structural variable or one false assumption about how actors will react can lead to a very large disaster (ibid). 

This risk is present not just with a centralized, overarching authority, but also when the specific tasks and areas of responsibility are highly segregated, preventing any interaction. 

In the case of Mondragon, I’d argue that there’s very little overlap in terms of managerial functions: the Management Council has a clearly defined role, as does the Governing Council, and since managers are appointed by the Governing Council (meaning that actual democratic appointment of managers is limited to electing the Governing Council and hoping their appointments are acceptable), the management team and their tasks are also clearly separated from worker-owners on a day-to-day basis.10 As far as the studies mentioned at the beginning of this essay seem to highlight, conflicts between the General Assembly and the Governing Council/managers involve two well-defined bodies and delegated tasks. It’s not the case that the General Assembly has a similar set of concerns as managers (daily administration and monitoring, for instance) but, instead, that it has general oversight and ultimately influences the long-term strategy of the cooperative. Carson notes that even cooperatives are essentially pulled into similar institutional structures as large corporations, because State intervention, directed by its wealthiest backers, functions to prioritize the large corporation over everything else (2008: 119). As such, the fact that this relationship can mirror the relationship between management and workers in a typical capitalist firm shouldn’t necessarily be surprising; it also means that many of the same issues with learning and knowledge transfer that occur in rigid, more centralized situations (like in typical capitalist firms) are going to be present within Mondragon. Efficiency and productivity gains due to internal democratic mechanisms are likely the result of the General Assembly mitigating managerialism, but the strength of the General Assembly to do so is going to be dependent on the general culture of the worker-owner members. Even then, as it’s just one body, it’s effectiveness will be limited compared to the kinds of gains a cooperative could potentially unleash.  

A better option, I think, would be to allow worker-owners to spontaneously create councils within their cooperatives — furthermore, there shouldn’t be any expectation that these councils are formalized, or that people can’t form competing councils, or that individuals can’t be a part of more than one if they so feel, or that the scope of one can’t encompass the tasks and problems of another. Overlap should be encouraged; and fluid, interacting, informal bodies are in a better position to work with egalitarian social relations to cover for each other’s weakness or build upon the ideas of others than in traditional, hierarchical firms. That means decreasing or expanding, dissolving or merging councils depending on context rather than from a set plan; indeed, the actual plan or problem that a council might focus on could, and should, change as individuals and councils interact with one another, learn from one another, and push forward with whatever solutions or adjustments or even statements of intent that they create. Or, to put it another way, the process of creating decision-making bodies to identify problems, generate solutions, and organize the workforce into actualizing them ought to be a process that emerges organically from below and with minimal formal procedures: and utilizing the egalitarian ethos to sustain both fluidity and reciprocity has the best chance of maximizing sound decision-making. But that will require abandoning the idea of giving managers more power and greater scope. 

There’s precedent in the business literature for minimizing, rather than encouraging, managerial power — even though said literature doesn’t go so far as to question the ownership of capital and how that could impact the very mechanisms they’re championing. In Search of Excellence, as a description of the “best managed companies” in both the United States and abroad, describes both “chunking” (the process of breaking things down to small groups to encourage fluidity) and the “adhocracy” of temporary, voluntary, but also numerous task forces that are put together without a formal charter (Peters and Waterman Jr. 1982: 126-130). The main formal element within the “adhocracy” is established lines of communication so that everybody gets what they need, the “intense contact” between members could be maintained as needed, and solutions were distributed as widely as possible (ibid: 131). I’ll mention this book again in the next section, but as much of the author’s research emphasizes the importance of empowering employees (though not to the extent that traditional forms of ownership are threatened, obviously), I think their insights probably have quite a bit of applicability for cooperatives. 

The importance of informal institutions in the IAD framework has been well-established by Ostrom, including using examples of Maine fisheries (2005: 285). In fact, after informal arrangements began to break down and the State moved in to formalize many of the mechanisms that were previously being used, new informal institutions appeared to supplement the democratic councils (ibid). The general rule-making procedures of many organizations where “individuals genuinely participate in the crafting of multiple layers of rules” also have informal characteristics as well (ibid: 19), and so there’s little reason to discourage this practice, or expect that rule-making and decision-making bodies have to follow formalized command-and-control schemes, in a democratic environment like a worker cooperative. So long as general principles allow for genuine participation, which is baked into the very nature of a cooperative, then the informal, ad-hoc, and spontaneous creation of overlapping decision-making bodies should boost engagement and better distribute decision-making capacity.

Doubling down on managerialism, by contrast, is only likely to impede these important mechanisms — and potentially undermine the participatory spirit that’s so important for the ethical and technical success of a cooperative. Managers, as a position within a firm, and the chain-of-command, as a formalized procedure for giving and following orders, can only sustain so much shifting ideas, personnel, and fluid group dynamics before (a) managers become completely out of the loop and (b) the chain-of-command is ignored outright. Attempts to retrench managers’ power or to reassert the necessity of the chain-of-command not only require resources to make up lost ground, but also require push-back directed at the unpredictability of worker-owners — or, it should be said, unpredictability from the perspective of someone who is not, themselves, a worker-owner. 

To sum up this section: a polycentric model with multiple decision-making bodies of various sizes, focuses, and scopes is arguably a more optimal model for encouraging sound decision-making in the cooperative. Additionally, smaller size to encourage greater structural flexibility and the use of networks should help bolster the effectiveness of worker cooperatives as well. That leads to my final point, which is that management as a separate class ought to be abolished within worker cooperatives. There are better ways to encourage and practice monitoring, but they all start with liquidating the managers.

Liquidating Management

One of the main arguments for having a separate class of managers — to say nothing of, potentially, expanding their power in the corporation — is to prevent shirking. Put another way, managers (so the argument goes) either directly or indirectly prevent workers from slacking off on the job, free-riding, stealing supplies, and so on. This was Oliver Williamson’s main “neo-Hobbesian” argument for why traditional, capitalistic, management-driven firms existed in such great number while other, more democratic forms were rare.11 To an extent, while Williamson specifically bases his theory of the firm on bounded rationality, his assumption follows from that of Mancur Olson in stating that organizations have to have robust “selective incentives” which target individuals (either through punishment or positive enticement) who don’t contributed to the common good (1965: 51). A separate class within an organization —management — would, in theory, have the best means and ability to monitor and motivate the workforce. 

This is largely a thread that the articles mentioned in the introduction (Basterretxea et. al 2019; 2020) try to follow: certain managers in Fagor noted high absenteeism which, while partially attributable to changes in workplace culture brought on by nepotism, the managers nonetheless believed eventually led to the downfall of Fagor due to their restrained ability to sanction workers or individually target them with performance-based incentives (the latter option generated particular controversy with the General Assembly, as it was seen as undermining the cooperative ethos of Mondragon). Fagor’s rapid expansion resulted in a decreasing share of worker-owners within the cooperative over a very short time-interval, and the authors note that this too had an impact on the general spirit of the corporation; but even so, there’s an underlying acceptance of neo-Hobbesian assumptions in that workers — even those with an ownership stake — might still not be properly motivated to work towards the cooperative’s shared goals, and that the General Assembly has to be willing to accede some more control to managers and the Governance Council in order to properly motivate everyone to work. But there are a number of avenues to critique the neo-Hobbesian assumption that management is necessary in a firm, of which I’ll list a few, while focusing on one (from Herbert Simon) in particular. 

Carson (2008), for example, discusses Williamson and opportunism at length; and Samuel Bowles has written a series of articles that argue for democratic management of the firm without significantly rejecting neo-Hobbesian assumptions.12 While Williamson adopted bounded rationality as one of his primary theoretical lens, he — alongside Olson — still assumed that “rational behaviour” constituted atomistic self-interest wherein the concerns of an individual didn’t extend past their own utility function, or that said utility function didn’t overlap, meld, or adjust to fit with other utility functions such as those of co-workers. The underlying behavioural model of Ostrom’s IAD rejects those assumptions and heavily utilizes evidence from advances in sociobiology, social psychology, and evolutionary game theory to put trust at the centre of any successful collective action. It simply isn’t the case, empirically or theoretically, that workers — even without a direct ownership stake — are inherently at risk of defecting; if trust had broken down between members of the cooperative, then it’s hard to justify it as being caused by intrinsic motivational problems. Indeed, Basterretxea et. al. may have stumbled upon the ultimate cause of the loss of trust and general commitment issues without diving more deeply into how this could snowball into a cooperative-wide systems failure: previous conflicts between managers and worker-owners seemed to have long-term effects on institutional memory (2019: 10), which I’d argue indicates a general separation between management and the members of the cooperative. Or to put it another way, despite the fact that managers are supposed to be accountable to worker-owners, much like in a system of representative democracy, the worker-owners don’t appear to perceive managers as being on their side. Cooperatives have high expectations which, if unfulfilled, can lead to a greater perception of failure amongst worker-owners (ibid: 12; see also Basterretxea and Storey 2017), but this likely applies to instances where the cooperative model appears to be less than optimally cooperative. If managers are being seen as an external authority that’s less responsive to the needs of worker-owners despite their ownership status, in the same way voters can become dissatisfied with politicians who are supposed to represent their interests, then the fact that cooperatives explicitly are supposed to operate on the basis of empowering everyone will be especially noticeable. As the Chomsky quote above notes, Mondragon’s workers are still being told what to do; what would happen to morale and identification with the cooperative model if managers were seen as a threat to what democratic accountability is present?

Interestingly, Ostrom’s notion of human behaviour followed significantly closer to how Herbert Simon — the man who first theorized about “bounded rationality” — saw human action. And Simon provides theoretical argumentation and empirical evidence to re-centre the importance of intrinsic factors in the success of the organization, as well as noting the utter impossibility of targeted, select incentives to increase production (or decrease absenteeism and shirking). In “Organizations and Markets” Simon rejects the notion that incentives alone can induce workers to “work so vigorously for the welfare of the organization” as is typically seen, because the effectiveness of rewards on motivation is significantly dulled the more interdependent the many moving parts of an organization are; and, he notes, increasing interdependence arises “from the very nature and rationale of the organization” itself (1991: 33-34). Instead, Simon emphasizes that, evolutionarily, there’s a selective pressure that selects for an openness and adaptability towards social context, which serves as the basis for allowing learning and exploratory behaviour (ibid: 35).13 A consequence of this is that, if a major component of a firm’s success is to not simply “follow the rules” but assume responsibility for “producing results,”then a social context within the firm is needed in order to cultivate a sense of loyalty and identification between employees and the firm itself (ibid: 37). Good management, for Simon, has to take shape within the general theory of altruism that he develops, which emphasizes the fitness of cooperation, trust, and connectedness in a similar vein to that of Ostrom.14 Rational and effective management, in other words, has to involve the producers of a firm feeling as though they belong in the firm, and this has to be accomplished without brainwashing or coercion. Worker cooperatives, in particular, are uniquely positioned to inculcate identification between employees and the organization they’re a part of — and Mondragon already has a significant amount of social capital built up within its interlocking cooperatives, as the entire system is geared to be interdependent and mutually supporting.  

But there’s a second underlying assumption in the neo-Hobbesian model that’s worth pulling apart: namely, that it’s in the interests of the corporation to keep employees on a tight leash, lest they deviate from the plan. In this case, trust isn’t just a mechanism (that the neo-Hobbesians believe to be lacking, in general) that induces effort, but also keeps those on the frontlines efficient. Stick to the collective plan so that things don’t unravel. The previous sections should indicate that I think there’s a significant negative trade-off between that attitude and actual performance, but (at least parts of) the business literature agrees that giving employees leeway is the foundation for success, not a detriment to it. In Search of Excellence — which, at the risk of being simplistic, I’d say is a management book written explicitly to minimize the role of managers — specifically notes how the most well-run and innovative corporations were productive by treating people like people: ample space is allowed for employees to experiment and forge ahead without direct supervision because successful businesses trust people to behave, and know that those who abuse that trust will be compensated for through increased autonomy for all (1982: 236-237). In fact, companies like GE specifically budgeted for “bootlegging”: unauthorized research undertaken without the direct consent of management which, in most cases paid off handsomely in the future (ibid: 205). They furthermore found that people responded best when, in a very Ostromite sense, they regulate their actions by setting their own goals and comparing themselves to their peers, rather than having others breathing down their necks with the explicit goal of making sure they behave properly: 

Perhaps surprisingly, the people orientation [in addition to having a kind, benevolent side] also has a tough side. The excellent companies are measurement-happy and performance oriented, but this toughness is borne of mutually high expectations and peer review rather than emanating from table-pounding managers and complicated control systems … nothing is more enticing than the feeling of being needed, which is the magic that produces high expectations. What’s more, if it’s your peers that have those high expectations of you, then there’s all the more incentive to perform well. People like to compare themselves to others … and they like to perform against standards — if that standard is achievable, and especially if it is one they played a role in setting (ibid: 240). 

In short, productive and innovative companies that are otherwise traditional capitalist firms were, according to Peters and Waterman Jr., moving away from utilizing managers to sanction and monitor employees, and instead recommended that other businesses follow their lead in letting employees self-manage to a far greater extent than was (and for the majority of businesses, as well as the field of “New Public Management” still is) the corporate norm.15 The fact that worker-cooperatives ideally would be utilizing these same management practices in accordance with their ethos means that there shouldn’t be much push-back in trying to implement these policies, except from the management class that Mondragon has unfortunately cultivated over the years.  

If we allow the worker-owners of Mondragon the space to set their own standards and self-manage — if we allow them to take participatory economics to its logical conclusion and abandon a separate class of management — I think the members of Mondragon would be in a far better place to manage their own affairs than a separate, professionalized Governing Council would be. Mondragon should embrace worker-control and radical democracy, rather than defaulting on a representative model. Representative democracy in the workplace may still be better than what traditional capitalist corporations offer — it may even fundamentally handle power inequalities better than the ideal corporations of Peters and Waterman Jr.; but there’s no reason to avoid pushing forward into a more participatory outlook, and many reasons to embrace such a move.

Conclusion

I’ve argued in this essay that if Mondragon’s cooperatives (a) stay small, (b) embrace polycentric decision-making bodies, and (c) liquidate management rather than relying more heavily on it, the effectiveness of the organizations within the system would be greatly enhanced. This is leaving aside the ethical arguments in favour of doubling-down on the cooperative ethos Mondragon was founded upon. I leave that aside because the impetus for this essay came from an analysis of Fagor after it had gone through a stressful dissolution, and as a general practice it’s difficult to counter the “There Is No Alternative” rhetoric that frequently accompanies Theory of the Firm literature with ethical appeals, as inseparable as ethics and survival ultimately may be. 

Indeed, the observations by Peters and Waterman Jr. entail some interesting propositions — or, I should say, some fairly radical propositions. While neither author explicitly argues against profit-maximization, they nonetheless provide direct empirical evidence that successful and innovative companies in a competitive market (who, by and large, eventually do accrue accounting profits) do not explicitly focus solely and only on profit-maximization. The most successful companies in competitive markets are those that provide space for autonomous worker actions by restricting management’s power, cultivate trust such that workers both have a say in the running of the company and are confident enough to pursue  passion projects without supervision, utilize kindness and understanding so that workers can self-regulate rather than relying on top-down control mechanisms, and by-and-large emphasize that workers are the most valuable part of a company — through them, possibility emerges. 

This description of the working environment of successful companies in competitive markets indicates an endorsement of the purpose of management practices being the use of resources to institutionally support workers — and they couple this endorsement with the argument that only through these actions can firms truly hope to be successful, innovative, and competitive. If corporations only exist to maximize shareholder value by generating accounting profits, then Peters and Waterman Jr. are arguing that shareholder value can only be maximized by focusing resources in the corporation to institutionally support workers and their projects, actions, and dignity. The ethical treatment of people — and the recognition that you are, indeed, dealing with people and not just another commodity — is tied directly to the firm’s success (in competitive markets).

This could be interpreted in a purely instrumental fashion — i.e., to maximize shareholder value as an end, workers have to be treated ethically and be allowed to flourish as a necessary means — but in the context of what the identity and purpose of a corporation is, I think the relationship is more complicated. If the purpose of a corporation is thought of as maximizing shareholder value, but in competitive conditions the only means of doing this is by guaranteeing the welfare, dignity, and liberty of the workers it employs, then claiming that corporations maximize shareholder value simpliciter glosses over the essential mechanisms that actually realize value (this is not a claim that labour creates all value, only that, when value is tied to real goods, then it’s a metaphysical absurdity to claim that this could be done without labour). Indeed, Peters and Waterman Jr. make the argument that corporations that don’t emphasize the welfare, dignity, and liberty of its employees — the mechanism of realizing value — and instead expect workers to be tools by which profits are generated, rather than living and complex creatures, are, in a self-defeating way, less successful at generating profits. 

If we assume that corporations want to be successful, then the purpose of a corporation can’t be only to maximize shareholder value, because the most effective means by which a corporation maximizes shareholder value is to institutionally support its workers, and those two goals can radically diverge. That is to say that the archetypal corporate raider can maximize the return on a corporation’s shares by gutting it or running the workforce into the ground, but this isn’t using the corporation to generate wealth — rather it’s destroying the corporation to generate wealth. It makes no sense to claim that a corporation was created with the explicit goal of being gutted and liquidated by investors, especially since the threat of corporate raiders / activist shareholders is, in theory, supposed to deter corporations from underperforming. On the other hand, if Peters and Waterman Jr. are correct, then any corporation that believes its function isn’t to institutionally support its workers will fail; thus institutional support for workers is a non-negotiable part of the success of a corporation. We can, as well, conceive of a firm that has no shareholders and doesn’t seek to maximize accounting profits and still adheres to a dignified, employee-support system of human resource management — say a non-profit that works to distribute malaria medicine to those in need. Ergo we can ultimately separate “maximizing shareholder value” from the purpose, function, or identity of a corporation, because in some cases maximizing shareholder value is unconnected to the success of a corporation, where as in no circumstances is the same true of institutionally supporting its workforce. 

Because of this relationship, managers ought to primarily and directly deal with the needs and welfare of workers while indirectly ensuring that shareholders receive the maximum value for their investments. Therefore, and contra Milton Friedman’s assertions (and so much of what Law and Economics assumes is necessary for corporate law), the purpose of a corporation as a unit of organized human behaviour in competitive market conditions is to provide institutional support to its producers — the workers. So when identifying what a corporation is, it’s workers, in other words, come first. The identity of a corporation, too, can’t be limited to that of the owners of the firm at the expense of its employees. As a legal entity, employees and their needs are far more essential in understanding what a firm is than the notion that corporations simply are their owners, if capital and labour are wholly separate. 

Note how I repeatedly mentioned “competitive markets” or “competitive conditions.” In the context during which In Search of Excellence was written, US corporations were under intense competition from Japanese firms (hence the origin of the “Japan Takes Over the World” trope in so much of 80’s fiction). The authors were looking not just at successful American firms but also successful Japanese firms, where they found important parallels in the distribution of decision-making and the treatment of workers (which does open them up to critique that they downplayed the importance of leisure time outside the firm for motivational, cognitive, and ethical reasons). But beyond that, it also means that in less-than-competitive markets, shareholder value can be maximized in short-term bursts and without taking the steps towards humane treatment of the workforce that Peters and Waterman Jr. so closely connect to competitive success. The actual products of these firms will be quite poor, innovation will be stagnant, productivity will fall, and firms will be vulnerable (and find it difficult to adapt and survive) to even the slightest changes in technological, social, and ecological variables; but the bank accounts of a select few shareholders can be filled, followed by shareholders jumping ship to a new firm to hollow it out. This strategy is ultimately self-defeating — without human beings and an environment that sustains us, eventually capital too will cease to exist — but, in the swells of short-termism, that ultimately doesn’t matter. You don’t have to consider the consequences of your actions, even to the benefit of your long-term survival, if all you care about is short-term gains to you and you only.  

We don’t live in a competitive market: state intervention acts to closely limit competition and prop up harmful and ultimately self-defeating forms of social organization, like the capitalist corporation (Carson 2001; 2008). And we can start to see the behavioural incentives capitalism creates, wherein despite humane treatment of others being a precondition for success, the corporate world is awash with misery and authoritarianism. If capitalists believe that firms exist only to serve their interests, and no-one else’s, and importantly the law agrees with them in this assessment, then capitalists are under no obligation to think more reflectively about how the production process works. And if the law works in such a way that it’s easy to gut a company and move on to the next firm — as, like any parasitic behaviour, the success of this strategy depends on a large number of groups actually creating things that the parasite can suck dry — because the market can be dominated by large, inefficient, institutions of central planning without workers having much in the way of the right to exit, then we should expect this sort of behaviour to propagate amongst those that own capital even if it’s ultimately a self-defeating strategy. In fact, one of the corporations that the authors identify as a “success story” is Walmart, but they’re hardly what we would consider a “people’s company,” what with how underpaid, poorly treated, and generally alienated their workforce is. It’s possible that in the years since this book was written, the strategy of Walmart changed drastically; if this is the case, then the multitude of subsidies and State interventions that Walmart has benefitted from can be assumed to play a role in sustaining the corporation while the Waltons get richer. Even if capitalists purport to think in the long-term, it’s a myopic form of reasoning that reduces people to data-points rather than considering them in their entire complexity (and, consequently, in understanding the many multifaceted ways that innovation and productivity emerge from humane treatment of others, rather than instrumental and/or exploitive relations). Subjecting capitalism to a freed market, by contrast, tightly constrains not just short-term thinking but also myopic outlooks, forcing those who have capital to consider the production process more holistically and recognize the importance of humanity in innovation and success.16

In this way, worker cooperatives are already in a prime position to succeed within a freed market, whereas top-down, managerial, and capitalist firms are not. Cooperatives — especially as they become smaller, more polycentric, and jettison a management class entirely — are already expected to support their worker-owners. And collapsing ownership and labour together is supposed to (and I think successfully does) take the notion that a corporate identity can’t ignore the many people within it that aren’t simply owners to a logical end-point, where the many people within a cooperative are also its owners simpliciter. Mondragon is no different, especially as it’s attempting to bypass the State all-together and support itself through mutual aid networks rather than privilege — though its rather larger proportion of workers with no ownership stakes is problematic and, I think, highlights the need for its various cooperatives to embrace its cooperative ethos, rather than attempting to more closely mimic traditional capitalist firms. 

Regardless, there are some outstanding questions about whether Mondragon can or would be willing to endorse some or all of the three suggestions I’ve made (and that’s not just because I’m a nobody with zero political clout). Mondragon’s practices towards other businesses — that is, the cooperative-members rapid expansion — as well as their use of underpaid labour internationally show just how embedded in capitalist-infected markets the Mondragon system is. Since the State apparatus props up these businesses, and Mondragon’s self-sufficiency (to say nothing of its politics) makes it rather unpalatable when it comes to the State distributing out corporate welfare, it faces an uphill climb in terms of modifying its practices. I think it can be done, especially since, as I’ve said above, Mondragon does still enjoy a build-up of social capital that few other organizations can match. Furthermore, the very nature of property, let alone economic transactions, could be changing quite drastically as we move deeper and deeper into the information-intensive digital age (Bowles 2004: 501); shifting towards the fluid, participatory networks that I suggested might become the only survivable model of a firm in the coming years. In that case, the cooperative spirit and participatory mechanisms already in place with Mondragon could give it an advantage as other, more entrenched firms are forced to pivot. It would require downsizing, of course, but as I hope I made clear in Section 2., there are reasons to push for that move anyways. 

A more interesting source of opposition may be from within anarchism. As I’ve been writing this essay out, I realized that I’ve essentially been suggesting that Mondragon abandon the Anarcho-Syndicalist model (at least as it’s traditionally conceived) that it’s so closely mimicked throughout its history. If that sounded conceited in any way, I apologize and didn’t intend for it to come off that way: it’s simply an observation that dawned on me as I realized how many times I had mentioned “network” in this essay. 

Making a full-fledged defense of alternative forms of anarchism that don’t rely on industrial democracy as their foundation would, again, be well beyond the scope of this project. And C4SS as a whole has a great many resources on how radicalized freed markets best serve egalitarian, just, and participatory aims (in addition to undermining a great number of capitalist sacred cows). But I think that, given the general situation of the world, it’s a legitimate question to ask if these sorts of reforms can’t end up being captured by vested capitalist interests and turned against the cooperative spirit of Mondragon. After all, to an extent, it’s already happened, as outlined above with Mondragon’s expansion and treatment of foreign workers.17 Ultimately, I don’t have any ready-made answers for this sort of thing, other than the tentative suggestion that Mondragon, as a system, could likely handle some internal experimentation with, say, small start-ups or spun-off subsidiaries whilst using larger, established cooperatives as protection from other multinationals. The other option would be to potentially wait for our technological and social context to rapidly shift and, as mentioned above, take advantage of their existing stock of social capital to rapidly pivot. But that suggestion sounds awfully similar to a historical materialist argument, so that’s likely a non-starter as well.

Regardless, the closure of Fagor offers us an excellent case study to peer into Mondragon and pull apart some of its structural weakness; and for that, I think Basterretxea and his co-authors have not only made an important contribution to this analysis, but have opened up the floor to a broader discussion on managerialism’s place in the cooperative movement. I believe that my arguments here point to the self-defeating nature of managerialism from even the most basic performance perspectives, but when added to the importance of continuing the cooperative spirit that Mondragon was founded upon, I think a turn towards managerialism is something to be avoided at all costs.

Bringing financial information down to the shopfloor is a major step in bridging the gap between management and labor; more than any other single act, it makes the goals explicit and the nature of the partnership concrete … The benefits, to GM’s way of thinking, outweigh any harm that might come from revealing competitive information.

—A Fortune article, as reported in by Peters and Waterman Jr., on GM’s decision to disseminate information down the production chain as widely as possible (1982: 267), and indirectly providing a means for workers to return to the IWW’s method of revealing vital information as a means of protest (or, at least, that’s how I’m interpreting it).

Endnotes:

  1. Retrieved from: https://www.youtube.com/watch?v=TyUciVOjZP4
  2. The similarities shouldn’t be overstated; Mondragon still does many interesting things in the service of increasing worker empowerment. But critiques of the system from the left are nonetheless valid, and that includes the lingering presence of managerialism in some quarters. 
  3. That Fagor expanded through mergers and acquisitions but didn’t expand ownership to its new workforce is, in and of itself, behaviour one would expect from a traditional firm more than one predicated on worker-solidarity. This is one of many critiques that have been leveled at Mondragon as a whole by radicals, all of which allege — in keeping with the spirit of the Chomsky quote above — that Mondragon hasn’t been fully able to break away from capitalism, at least in terms of how it acts to those outside the system.
  4. Errasti, Bretos, and Nunez (2017) make a valid point that Fagor, and the Mondragon system, nonetheless did far better than other firms in terms of remaining viable in the market after the Spanish economy began to suffer, and that reforms were eventually implemented by the General Assembly (14). Employees were able to find work quite quickly in other parts of Mondragon as well, which as they note is “inconceivable in capital-owned companies” (ibid: 15). They conclude, and I agree wholeheartedly, that its closure “says less about the viability of cooperatives than about the risks inherent in actual market economies: any business may fail, whatever the size, the juridical nature, or the corporate and institutional support” (ibid), although as noted above, many traditional firms face less of a prospect of failure, thanks to the state, than Mondragon does.
  5. I’m not necessarily saying that all firms need to be boutique size, necessarily; I just figured that would produce the biggest contrast with something like ExxonMobil.
  6. There is, additionally, another benefit in that staying small forces firms to network with other firms to engage in projects that are bigger than its current capacity, rather than attempt to expand in such a way that it feels like it can do everything it needs to do internally. Networking with other firms can make better use of distributed intelligence and also act as a downward pressure on firm consolidation, as two cooperating organizations don’t necessarily have to become one merged entity in order to produce something they couldn’t have done alone. In keeping with Carson’s important notes on the limits of firm size (2008), cultivating a mixture of weak and small ties with other productive units, rather than relying on mergers and acquisitions to gain a greater or more stable market share, might help direct the economy to behave in a more decentralized and networked fashion (but fully diving into that particular claim is well beyond the scope of this essay). 
  7. See https://web.archive.org/web/20101024014643/http://www.mondragon-corporation.com/ENG/Co-operativism/Co-operative-Experience/Co-operative-Bodies-and-Terminology.aspx for a quick summary of the various bodies in Mondragon and what they do. 
  8. Which is not to say there isn’t scope to critique this element as well; it’s just beyond the scope of my essay here. 
  9. A possible objection to my analysis might be that Ostrom is talking about common-pool resources, while I’m talking about firms; Ostrom herself distinguishes firms as one of many organizations managing common-pool resources, so using the IAD framework to describe firms in general — cooperative or not — is illegitimate. Fully diving into this idea is well beyond the scope of this essay, but I think this potential criticism is seriously misguided. For starters, the boundaries of the firm can be difficult to establish when repeated interactions are required between different firms, such as when one firm creates a superior product or productive capacity and could benefit from sharing this breakthrough with competitors, but is ultimately unsure of how to price a trade, resulting in closer integration between firms and possibly leading to a merger (Holmström and Roberts 1998: 90-91). And as Williamson argues (1985), it can be hard to establish ex ante the costs of a transaction and, thus, repeated interaction and bargaining is often required; a similar problem is present with common-pool resources and questions involving rules, access, and extraction. Tortia (2017) has an interesting analysis where-in owned capital is considered as a common-pool resource. It’s noted in this article that firms “have been explicitly referred to as commons” in the past (ibid: 3), but that they haven’t been specifically analyzed in the context of the IAD framework. Based on the IAD framework, and with relevance to my discussion, it’s argued that cooperatives best fulfill the organizational requirements of the IAD to adequately manage owned-capital as a common-pool resource. 

I think that future research could look at other resources that firms are expected to manage, and see how it fits into the “private, impure-private, public, toll goods” framework that both Elinor and Vincent Ostrom conceptualized (Ostrom 2010: 4-5). Namely, I’m talking about productive capacity, or the combination of the human capital, social capital, and organizational knowledge of a firm’s employees. Why employees specifically? As Herbert Simon noted in the quote above, employees are the producers in a firm; they’re also, additionally, on the front-line for accumulating knowledge, as per Carson [2008; 2020]. They also happen to be actualizing and adjusting corporate policies within the firm: see, for example, the IWW’s famous pamphlet “How To Fire Your Boss,” which accurately stated: 

Almost every job is covered by a maze of rules, regulations, standing orders, and so on, many of them completely unworkable and generally ignored. Workers often violate orders, resort to their own techniques of doing things, and disregard lines of authority simply to meet the goals of the company. There is often a tacit understanding, even by the managers whose job it is to enforce the rules, that these shortcuts must be taken in order to meet production quotas on time.

But what would happen if each of these rules and regulations were followed to the letter? Confusion would result — production and morale would plummet. And best of all, the workers can’t get in trouble with this tactic because they are, after all, “just following the rules” (1970).

Herbert Simon similarly states that for 

the organization to work well, it is not enough for employees to accept commands literally. In fact, obeying operating rules literally is a favorite method of work slowdown during labor-management disputes, as visitors to airports when controllers are unhappy can attest. What is required is that employees take initiative and apply all their skill and knowledge to advance the achievement of the organization’s objectives (1991: 32).

Being the source of actual production of goods or services (the source of the goods or services as entities, not necessarily their “value”), this notion of productive capacity would also include the technological sophistication of the tools they use. Like impure-private goods, though, productive capacity is difficult to exclude others from accessing — insofar as your competitors could discover your strategy, employees could leave, technological innovation could spill over — without incurring substantial inefficiencies (at the expense of workers, like through non-compete or zero-hour contracts, or at the expense of broader society, like through intellectual property laws). It’s “subtractability of use,” however, is limited to the productive capacity of the firm itself: we could consider this to be a case of a firm having high subtractability, insofar as it eventually reaches max capacity in the same way fish can be overharvested, but since organizational capacity also depends in part on how much a firm is attempting to exclude others from utilizing its productive capacity, there’s an interacting effect between the two elements that might not be present with other resources. 

As I say, it’s well-beyond the scope of this project to fully dive into this question, but it’s something to look at in more detail in the future. 

  1. See endnote 7, again, for details on the inner workings of Mondragon. Any misrepresentation of what actually happens within the system is my own error.  
  2. See “Opportunism and Its Critics” (1993) in particular. 
  3. See Bowles (1985) and Bowles and Gintis (1993). It’s important to note that both of these articles appeared before either Bowles or Gintis began to incorporate evolutionary game theory and theoretical biology into their work, which in many important respects served to undermine the behavioural assumptions of the neo-Hobbesian model. Whether Gintis, in his post-Marxist phase, still believes in the viability of a democratic enterprise or not, Bowles continues to include worker cooperatives as a model of production in the CORE textbooks he co-authors with Wendy Carlin. 
  4. Simon specifically uses the term “docility” but states that he doesn’t fully think it captures exactly what he wants it to mean — he just can’t think of a different word (1991: 35). I think, given his description, that it’s better to call it “social flexibility” or “social openness” than “docility,” because Simon argues that in only certain circumstances might it be beneficial for a person to “obey or conform.” The benefits of obeying authority depend on a number of social factors and contexts, and so individuals will have to switch between a diverse set of strategies as context changes (ibid) — in Situation A you might agree to follow a leader, in Situation B you might rebel against their commands, and so on. “Docility,” for Simon, is meant to contrast with stubborn pigheadedness that refuses to deviate from narrow self-interest under any circumstances, a close-mindedness or myopia that Simon argues is self-defeating from an evolutionary perspective. I’ll avoid using that term here simply because it seems far too easy to confuse this with unthinking acceptance of authority, when Simon’s point is anything but (though whether thinking acceptance of authority is any better is a philosophical conversation that extends far beyond the scope of this essay).
  5. See Simon (1990; 1992; 2005) for more. Put briefly, altruism is a fitness enhancing strategy because the limits of cognition (i.e., the fact that no entity is omniscient/perfect) incentivize us to cooperate and form connections with other people, forming an interconnected web. The most fit individuals won’t be as unconditionally altruistic as pure altruists will be (i.e., they won’t be willing to needlessly sacrifice themselves for some greater cause without first identifying what that cause actually is), but they’ll be far more fit than purely selfish individuals as well. This rational altruism is also another reason why I avoided using his term “docile,” as built into the model is a discriminating ability to evaluate potential options and consequences with the observation that people who are closed-off to cooperation or the inputs of others will find their ability to discriminate between options, and evaluate consequences, being extremely limited. In other words, Simon doesn’t expect workers to accept management’s authority simply because they’re altruists: workers will cooperate with each other, and management too if management acts appropriately towards them, but organizational loyalty is something that has to be earned, not assumed from the onset. 
  6. Despite being McKinsey & Company consultants at the time of writing, In Search of Excellence is filled with points that line up explicitly against managerial capitalism and significantly more in favour of increased worker involvement in the running of the firm. The authors note, for instance, that in favouring an increasing influence of the market in the firm, they seek to avoid “analysis done to line operators by control-oriented, hands-off staffs” and instead — following a direct comment from a senior executive at a highlighted firm — that those who implement the plans also make the plans (1982: 31). They also chastise executives who blame sluggish performance on unions and “lack of employee goodwill” and suggest that it’s a lack of “true persistence and caring on the part of management” that’s the problem (ibid: 241). In Search of Excellence seems to me to be an anti-management book written by management consultants, and since they explicitly criticize Taylorist scientific management and argue for the boundary between firms and markets to be dissolved — in the process, hopefully empowering workers to at least the same extent as the firms they highlight in the book — is, in my view, good evidence that the program of left-wing market anarchism is on the right track in taking up the radical free-market socialist program of the 19th century. 

Granted, the authors never go so far as to suggest that workers ought to own the firm or directly control capital, and thus the regular problems of centralization within capitalism still apply. Indeed, this likely speaks to some of the problems that Wendy Brown notes in Undoing the Demos (2015), where modern firms are decentralizing responsibility but not expanding empowerment; the workforce is more being atomized than it is being given true autonomy. I think Brown misses the mark on a number of points, but it’s a viable critique of the ways that some firms are paying lip-service to Peters and Waterman Jr. (something they themselves say is a serious danger) without fully implementing what their analysis has uncovered. And her use of Foucault’s notion of soft-power to critique power in otherwise horizontal-appearing relationships is an important point to make (though, being the Habermasian that I am, Foucault’s notion of power has serious limitations in and of itself). Indeed, there are some passages in In Search of Excellence that leave the door open for the sort of soft-power form of control that Brown identifies as a key component of neoliberalism: for instance, while they note that companies that focused only on financial profit at the expense of a broader set of values were actually less effective in realizing positive returns on equity (1982: 103), there’s nonetheless a description of culture that sees people at the top creating the “symbols, ideologies, language, beliefs, rituals, and myths” of the organization (ibid: 104). The underlying ideology that the authors want to inculcate in American corporations is still a people-first ideology — they point to the “no layoff policy” of Levi Strauss in the aftermath of San Francisco’s 1960 earthquake, as an example — but the possibility of abuse, of managers simply substituting direct forms of control for indirect ones, is a very real possibility. And since the authors take spontaneous order and the importance of participation very seriously, there isn’t much reason for them to assume that culture isn’t similarly a bottom-up process, where the employees are the best source of symbols and stories while management would work best by getting out of the way. 

That being said, psychological research hadn’t fully thrown off the influence of B.F. Skinner by this point (whom the authors cite, albeit critically, when discussing the importance of positive over negative reinforcement); and, though I’m speculating, it’s unlikely that they would’ve found themselves a job as management consultants if they had published a book that essentially left no room for management in the modern corporation. It’s a heartening account to read, especially since it emerged from the business literature rather than radical political economy, and an analysis of the ways that horizontal-looking relationships can still hide power inequities is a problem that anarchism takes seriously even within its own tradition (see: individualist critiques of communes, for example).

  1. Joseph Heath (2014) repeatedly emphasizes, in constructing a “market failures” approach to business ethics, that the blind maximization of profit without considering a certain set of cardinal rules (such as not taking advantage of market failures, avoiding creating barriers to entry, and reducing information asymmetries) will eventually lead to the collapse of the market as an effective means of solving collective action problems, to the detriment of all involved participants (eventually). I disagree with many parts of his account — his critique of traditional ethics as being separate or unrealistic from business concerns; his reliance on moral foundations theory; and his statist assumptions — but I nonetheless find it an important and interesting work that helps to put into stark relief how the narrow self-interested behaviour that is supposed to represent the typical capitalist man eventually works against itself, even if your only consideration is that of running a successful business rather than, say, being ethically virtuous.
  2. One could always read Adam Przeworski’s excellent Capitalism and Social Democracy (1985) and take notes on how left-wing movements have been co-opted into capitalism in the past. 

Bibliography: 

Basterretxea, I., and John Storey. 2017. “Do Employee-Owned Firms Produce More Positive Employee Behavioural Outcomes? If Not Why Not? A British-Spanish Comparative Analysis”, British Journal of Industrial Relations 56(2): 292-319. 

Basterretxea, I., Heras-Saizarbitoria, I., and Aitziber Lertxundi. 2019. “Can employee ownership and human resource management policies clash in worker cooperatives? Lessons from a defunct cooperative”, Human Resource Management 58(6): 585-601.

Basterretxea, I., Cornforth, C. and Iñaki Heras-Saizarbitoria. 2020. “Corporate governance as a key aspect in the failure of worker cooperatives”, Economic and Industrial Democracy https://doi.org/10.1177/0143831X19899474

Bowles, S. 1985. “The Production Process in a Competitive Economy: Walrasian, Neo-Hobbesian, and Marxian Models”, The American Economic Review 75(1): 16-36.

——. 2004. Microeconomics: Behaviour, Institutions, and Evolution. Princeton: Princeton University Press.

——, and Herbert Gintis. 1993. “A Political and Economic Case for the Democratic Enterprise”, Economics and Philosophy 9(1): 75-100. 

Brown, W. 2015. Undoing the Demos: Neoliberalism’s Stealth Revolution. New York: Zone Books.

Carson, K. 2001. “The Iron Fist Behind the Invisible Hand: Corporate Capitalism As a State-Guaranteed System of Privilege”, The Anarchist Library. Retrieved from: https://theanarchistlibrary.org/library/kevin-carson-the-iron-fist-behind-the-invisible-hand  

——.2008. Organization Theory: A Libertarian Perspective. Retrieved from: https://kevinacarson.org/ 

——. 2020. “Hayek’s Fatal Conceit”, Center for a Stateless Society: Studies. Retrieved from: https://c4ss.org/content/54067 

Chomsky’s Philosophy. 2015. “Noam Chomsky on the Mondragon Cooperatives and Worker’s Councils”. Retrieved from: https://www.youtube.com/watch?app=desktop&v=TyUciVOjZP4  

Edmonton IWW. How to Fire Your Boss. Black Cat Press.

Errasti, A., Bretos, I., and Aitziber Nunez. 2017. “The Viability of Cooperatives: The Fall of the Mondragon Cooperative Fagor”, Review of Radical Political Economics 49(2): 181-197.

Holmström, B. and John Roberts. 1998. “The Boundaries of the Firm Revisited”, The Journal of Economic Perspectives 12(4): 73-94. 

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