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There’s a hot new idea on the transatlantic left: democratize the firm. Bernie Sanders and Jeremy Corbyn have proposed plans to give company shares to employees; Elizabeth Warren wants to put employees on corporate boards. As Palladino’s essay makes clear, the consensus is that company reforms are key to a fairer and more productive economy. But while these reforms advance democracy at the company scale, they represent a twentieth century solution to a twenty-first century problem. And as we face urgent issues in sustainability, equality, and justice, such old-fashioned solutions are not only insuffient—they pose grave risks to the progressive agenda.
Consider our response to the climate emergency. Some industries need to be shut down rapidly—coal, oil, and gas, to start—and many others must be radically restructured, including transportation, chemicals, and agriculture. If people are going to help drive those changes, both with their political support and with their daily efforts in the workplace, they must feel that their incomes and their communities are protected from the economic costs of the green transition. But tying employees’ incomes to the fortunes of firms in those industries almost guarantees that they will become ferocious opponents of such necessary change.
Consider, too, the challenge of economic insecurity. In the reformed capitalism envisaged by these policy proposals, firms will still need to compete, and employees on their boards would be forced—just as in any capitalist firm—to lay off fellow employees if business slows down. By tying employees’ income to their employers’ profitability, these reforms risk dividing working people and aggravating their precarious economic position.
Some might argue that government regulation could steer these firms, now reformed, towards our collective goals. But the policies required to deal with the climate crisis and advance our social goals will severely impact the profitability of many businesses. While aggressive action on carbon emissions, for example, will help the solar industry, it will negatively and seriously reduce profits in a much wider swath of industry. As long as firms must yield profits for investors, employees on these firms’ boards would be torn between the profit goals of their firms and societal goals.
Disempowerment in the workplace is certainly a big problem today, and these corporate governance reforms would help overcome it. But they miss the forest through the trees. The biggest problems we face in the twenty-first century—the environmental crisis, economic insecurity, regional disparities—are systemic. They are not due to deficiencies in the internal workings of individual firms but rather to the basic character of the capitalist, private-enterprise economy.
To deal with these bigger problems, we need to aim higher—to give employees a say not only in their firm, but also in the governance of the wider economy. Investment and production decisions need to be guided by society’s priorities, not by the goal of maximizing individual firms’ profits—even if these firms’ boards include employees, even if their profits are shared with their employees, and even if they are regulated more closely. Employees and citizens must direct production and investment not only at the firm level, but more importantly, at the regional, industry, and national levels. To democratize control in this way, we need to socialize ownership—to bring our society’s resources under public control.
A good first step toward this goal might be to legislate that large corporations use a proportion of their profits each year to issue new shares—not to their own employees, but to a democratically-controlled public investment fund. Yes, we want employees on boards, but on the boards of these funds, not just on the boards of individual businesses. As these funds grow and the public share of ownership expands, democratic control over production and investment could expand across the economy.
Some may fear that replacing profit-driven market competition with economy-wide democratic direction would create a stifling bureaucracy. But these fears are overblown. We already have vast government-run programs that operate very effectively, such as the Social Security Administration and the National Institutes of Health, to name just two.
Our biggest corporations also give us evidence of the viability of strategic management on a very large scale. Every day, firms such as Walmart effectively coordinate the work of millions of employees and thousands of suppliers. The same strategic management processes used by Walmart could be democratized and scaled-up to manage production and investment for the entire system of socialized industry.
Such a democratic-socialist future may sound unrealistic to some. But it is far more realistic than believing that private-enterprise capitalism can solve the big challenges of our time—no matter how many employees we put on corporate boards.
Paul S. Adler is the Harold Quinton Chair of Business Policy and Professor of Management and Organization, Sociology, and Environmental Studies at the University of Southern California. He is the author of the forthcoming book, The 99 Percent Economy: How Democratic Socialism Can Overcome the Crises of Capitalism (Oxford University Press, available Oct 1, 2019).
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