Tuesday, August 05, 2008

p06 profit sharing

Continuing Monbiot's Apocalypse
By John Taylor; 2008 Aug 05, 05 Kamal, 165 BE

Last essay (2008 Aug 04) we looked over the best parts of the new book "Bring on the Apocalypse," a collection of George Monbiot's columns in England's Guardian newspaper. This review is at:

We looked at these essays: "How Britain Denies its Holocausts," about wrongs done under the British Empire, "Expose the Tax Cheats," about tax avoidance by the super-rich, "Property Paranoia," a discussion of how the right to roam relates to happiness, and "Britain's Most Selfish People," on the morality of multiple home ownership in a time of homelessness. Today let us look another of the best essays in this book, "A Vehicle for Equality," from a column written April 12, 2005; the full text can be found at:

This essay asks if the Rover motor vehicle plant would not have been better off becoming a workers' co-operative rather than being sold off for ten pounds to another well-connected fat cat. He, instead of investing in a company turnaround, took advantage of the situation and raided the workers' pension fund to make a quick buck. Perfectly legal but putridly immoral. As always, Monbiot investigates the issue dispassionately before coming to an impassioned conclusion.

In this case he investigates worker-owned enterprises, an issue of prime interest to Baha'is because our Holy Writings endorse profit sharing as a milder, more egalitarian and humane alternative to unfettered and polarized capitalism. When those who own a company are different from those who work it, a conflict of interests is established. One side aligns against the other. A good way to unite the two is to have workers, or at least their bosses, own part of the company. At Rover Motors the problem,

"is easily identified: there was a conflict between the interests of the men who ran the business and the interests of the people who worked for them. As long as the directors could escape with their huge pay packets, they had little incentive to ensure that their employees escaped with anything at all."

Monbiot makes an incisive criticism of modern capitalism: by buying into the idea that CEOs and other executives must have ever exploding paychecks, corporations loot their own capitol reserves and prospects of future returns in order to pay their CEO's. The managers become more shareholders than servants of the company. This corrupts a manager's reason for being there, to assure long-term success of a company. Instead, the modern exec aims at the same thing an investor does; make a quick buck any way you can, no matter what. Forget morality, forget people, forget even long term profit, grab the greatest gain as fast as you can.

"In companies in which the principal shareholders and the executives are different people, problems like this should not occur. The shareholders will reward the managers for looking after their capital in a responsible fashion. But in truth, because of the opportunity costs of capital, shareholders and executives have a common interest in securing jam today rather than jam tomorrow. The owners reward the executives for profit rather than investment, so the managers sacrifice the future to the present. It's arguable that the staggering returns the high street banks made this year should not have been treated as profits at all, but as the money which might have protected them, and us, against bad loans when the next recession arrives."

Monbiot points out that this development puts worker-owned enterprises at an advantage. In Argentina, laid-off former workers took over about 160 abandoned factories. These worker owned enterprises, surprise, surprise, do a much better job running them than the old management, in part because they do not have to pay the huge salaries of "high-powered" (meaning well-connected members of the owning class) executives. As Monbiot puts it, "The money which would have been snaffled by the executives has instead been re-invested." Needless to say, the owner class is fighting this furiously, as Naomi Kline's documentary film demonstrates. Monbiot continues his argument, pointing out some history and other background about worker coops that I had not heard before,

"For a country widely credited with inventing the idea, the United Kingdom is remarkably hostile to workers' co-operatives. In one form or another, they have existed since the division of labour began. But it was our own enlightened capitalist, Robert Owen, who formalised the idea. The workers' communities he founded in the early 19th Century soon collapsed. We still have one very large workers' co-op (the John Lewis Partnership), and hundreds, or, if you count professional partnerships, thousands of smaller ones. But the manufacturing co-ops Owen envisaged are few and tiny. The reason, we are always told, is that they are simply not as competitive as hierarchical capitalism. Given that there is no law against forming them, why, if they are such a good idea, have they not outcompeted the standard business model?"
"There is, I think, an interesting answer to this question. If the principle on which workers' co-ops are organised (ownership of the company by its employees) is uncompetitive, why are so many big companies now mimicking it, by turning their executives into shareholders? Their incentive schemes recognise, like the co-ops, that people who own part of the business will make sure it works. Of course, the schemes are mostly confined to the executives, who tend to be more mobile than the rest of the workforce. Being pegged to profits, they do little to encourage the executives to invest. So they don't address the conflict of interest. But the central idea of the co-op is now a standard feature of corporate capitalism.
"In several other countries, workers' co-ops, in which all the workers have a stake in the business and a voice in its decision-making processes, have flourished... Dutch and Danish farmers have survived the invasion of the superstores because, unlike British farmers, they process and market much of their produce cooperatively, and so can bargain collectively. They can also achieve economies of scale, which is why British people eat Danish butter and Danish bacon. The Mondragon co-op is now the biggest industrial group in Euskadi (the Basque country) and the 7th biggest in Spain, with 71,000 workers. Altogether, workers' co-ops around the world employ about 100 million people.

Monbiot brings up the well-known, received criticisms of coops, as documented by Harvard economist Michael Kremer. Kremer showed that dividends in a coop tend to transfer wealth from more productive workers to less productive ones; worse, worker democracy nullifies innovation and efficiency, which often demand harsh, unpopular sacrifices in the short run.

"The greater the capital investment, he shows, the greater the potential inefficiency, which could explain the scarcity of manufacturing co-ops. Co-ops, in other words, like hierarchical firms, suffer from conflicts of interest. There are other constraints too: the lack of access to capital (keeping the business in the hands of the workers means keeping absentee owners - and their money - out) and the lack of opportunities for capital (you can't move it around as freely as other shareholders can). The Mondragon co-op appears to have overcome both these problems, by establishing its own bank, which circulates money among its 200 affiliated businesses, and by encouraging diversification."

It seems to me that under the right regulatory climate worker-owned companies could be tweaked to get around their present shortcomings. Why not have a banking system built into the constitution of every worker-owned company? It is already technically possible to make individuals their own banks. Why not make companies their own banks? At the same time, why not devise internal mechanisms to reverse the flow of capital from productive workers to unproductive ones? Or, even better, why not figure out how to make unproductive workers more productive? That way profit sharing could succeed even in capital intensive industries. None of this seems insurmountable.

The result of profit sharing schemes would be more equality. As Monbiot points out, this does not guarantee that these more democratic and egalitarian companies will be any less predatory or ruthless in their behavior to outsider who stand in their way. But that only proves once again that nothing will replace a universal, spiritually balanced education. The Baha'i principle of equality does not stipulate how much equality we should aim for, as opposed to how much freedom. Nobody knows what is optimum, though safe to say today's extremes are far from acceptable. Only spiritual training and complete elimination of the extremes of opulence and destitution would assure that the broader interests of all, rich and poor, are looked after. All we need is to try it. If it is done in a spirit that avoids strife and conflict, it is bound to succeed.

Next time we will look at another important essay in George Monbiot's book, "The Anti-Social B-'s in our Midst," which addresses the pointed question: has the automobile perverted our moral fibre? I think experienced readers of this blog will already know what my answer to that is...

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