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Open Access
Article
Publication date: 26 August 2020

David Ellerman

This paper will discuss two problems that have plagued the literature on the Ward-Domar-Vanek labor-managed firm (LMF) model, the perverse supply response problem and the…

Abstract

Purpose

This paper will discuss two problems that have plagued the literature on the Ward-Domar-Vanek labor-managed firm (LMF) model, the perverse supply response problem and the horizon problem. The paper also discusses the solution to the horizon problem and the alleged “solution” of a membership market.

Design/methodology/approach

This is a conceptual paper so it analyzes the two problems and shows how they can be resolved. It also shows how one alleged “solution” (membership market) is based on several conceptual mistakes about the structure of rights in a democratic firm.

Findings

The perverse supply response is based on the assumption that the members of a democratic firm can expel for no cause some members when it would benefit the remaining members. It is shown that the same perverse behavior happens conceptually and historically in a conventional firm under the same assumptions. The horizon problem is resolved by the system of internal capital accounts (ICAs) that has been independently invented at least four times.

Research limitations/implications

The idea of a democratic firm is quite often dismissed by conventional economists: “At first it seems like a good idea but unfortunately it is plagued by structural problems such as the perverse supply response and the horizon problem.” Hence it is important to see that the first is not a problem under ordinary assumptions and that the second is a solved problem.

Practical implications

The perverse supply response problem can be reproduced in a conventional firm under similar assumptions, and the horizon problem is real problem for social or common ownership firms but is solved in the Mondragon-type worker cooperatives by the system of ICAs. This has been known and published since the early 1980s, but conventional economists ignore the solution and still cite it as an inherent structure problem of a democratic firm.

Originality/value

It has not been previously shown in the LMF literature that the perverse supply response can be reproduced in a conventional corporation under similar assumptions since the maximand for the conventional firm is not total market value but that value per current shareholder. The solution to the horizon problem using ICAs has long been “known” but never acknowledged in the conventional literature as if it was a necessary feature of workplace democracy. The idea of a membership market is analyzed and criticized.

Details

Journal of Participation and Employee Ownership, vol. 3 no. 2/3
Type: Research Article
ISSN: 2514-7641

Keywords

Content available
Article
Publication date: 22 June 2021

David Ellerman and Tej Gonza

This paper collects together quotations and extracts from 19th and 20th century thinkers who were little-known for being supporters of workplace democracy.

Abstract

This paper collects together quotations and extracts from 19th and 20th century thinkers who were little-known for being supporters of workplace democracy.

Details

Journal of Participation and Employee Ownership, vol. 4 no. 1
Type: Research Article
ISSN: 2514-7641

Article
Publication date: 1 June 2001

David Ellerman, Stephen Denning and Nagy Hanna

Examines assistance to economic and social development as a problem in knowledge management (KM) and focuses on how the World Bank promotes developmental learning in…

1788

Abstract

Examines assistance to economic and social development as a problem in knowledge management (KM) and focuses on how the World Bank promotes developmental learning in developing countries. Since much of the knowledge about successful practices is tacit and local, the best model for knowledge transfer is less hub to spokes, or North to South, and more South to South, with the development agency in more of a broker role (instead of a “high priest” disseminating truths). The communication of the context of knowledge requires narrative modes of communication to supplement abstract forms of thought. Concludes that the complexity and uncertainty of development work entails that projects be designed in a highly adaptive learning mode as opposed to a blueprint mode. Shows how the best laid KM plans can be frustrated by organizational “imperatives” and identifies some of those barriers to knowledge‐based development assistance.

Details

Journal of Knowledge Management, vol. 5 no. 2
Type: Research Article
ISSN: 1367-3270

Keywords

Article
Publication date: 1 April 1994

Mark A. Lutz

The idea of what constitutes rationality has always been central to moral philosophy as well as to modern social science and economics; regardless of the fact that its…

Abstract

The idea of what constitutes rationality has always been central to moral philosophy as well as to modern social science and economics; regardless of the fact that its meaning has also greatly changed during the last five hundred years. While for Aristotle and his followers, full rationality implied not only effective deliberation of means towards any given end, but also that such end had to be rationally selected with the guidance of reason or “practical wisdom”, since the age of Thomas Hobbes and David Humes, the concept of rationality has been reduced to one of seeking the best means to any particular end, wise or unwise. In the process, reason was relegated to mere “reckoning”, of adding and subtracting according to arithmetic rules. The good was simply what was desired, motivated by a physiological appetite for survival or otherwise. As could have been expected, such mechanical mode of reasoning readily provided the rudiments of contemporary computational theories of action, in particular game theory (see Cudd, 1993).

Details

Humanomics, vol. 10 no. 4
Type: Research Article
ISSN: 0828-8666

Book part
Publication date: 9 December 2013

Christopher Mackin

Political institutions and contemporary workplaces operate according to different rules. The seeming contradiction between these two spheres, one democratic and the other…

Abstract

Purpose

Political institutions and contemporary workplaces operate according to different rules. The seeming contradiction between these two spheres, one democratic and the other something else, presents an opportunity for productive speculation about the possibilities for reconciliation. The purpose of this paper is to provide a guide for future research investigation of this perennial topic.

Design/methodology/approach

The discussion of whether the workplace can catch up with the democratic achievements of political life requires an understanding of the status quo, the prevailing frames or metaphors that govern our understanding of organizational life. Four metaphors are put forward to describe the prevailing spectrum of thought. In addition to metaphors, analogies are introduced as an interpretive tool to help guide the imaginative transition between political and workplace domains.

Practical implications

Democratic political cultures are supported by structures and institutions which encourage the expression of individual and collective voice. Workplaces, comprised of the same citizens who participate in the governance of communities, do not, with some important exceptions, offer the same opportunities for democratic participation. If a general analogy between political and workplace sphere is found persuasive, it should be possible to import and adapt democratic traditions from the former to the latter.

Originality/value

Discussions of workplace democracy often suffer from a certain naiveté, a bias against structure and toward informal consensus. Insofar as democratic workplaces are by definition smaller scale than political communities, this bias is defensible. This paper concludes however by asserting certain minimal “acid test” challenges to those who would promote the goal of workplace democracy.

Details

Sharing Ownership, Profits, and Decision-Making in the 21st Century
Type: Book
ISBN: 978-1-78190-750-4

Keywords

Book part
Publication date: 9 December 2013

David Ellerman

The purpose of this paper is to delve into three themes about democratic enterprises.

Abstract

Purpose

The purpose of this paper is to delve into three themes about democratic enterprises.

Design/methodology/approach

(1) The first theme is the question of capital structure where labor-managed firms (LMFs) are often pictured as having “horizon problem.” Yet this is only a minor technical problem which is solved by the system of internal capital accounts as in the Mondragon cooperatives.

(2) The second theme concerns the attempt to implement participative management and the related ideas of active learning in educational theory in the workplace. The point is that the democratic firm is the natural setting to implement these ideas, not the conventional firm where the staff have the legal role of “employees” rented by the company.

(3) The third theme is the old canard the cooperatives are incompatible with entrepreneurship. My rethinking of the issue was inspired by the analysis of the late Jane Jacobs who emphasized that the primary means of growing economic “biomass” is through economic offspring (e.g., spin-offs) – in analogy with the biological principle of plentitude. Yet the conventional form of ownership operates as a fetter on this process since the ownership and management wants to expand its empire and maintain “ownership” of any potential offspring. But that constraint against spin-offs is absent in democratic firms, and the Mondragon complex has indeed illustrated how to catalyze this process of growth through offspring.

Social implications

A public policy to encourage all companies to grow by affiliated and perhaps democratic spin-offs would create more jobs (through filling extra niches) and more stability (through the agility of separate companies).

Details

Sharing Ownership, Profits, and Decision-Making in the 21st Century
Type: Book
ISBN: 978-1-78190-750-4

Keywords

Article
Publication date: 5 April 2019

Camilo Olaya

What has been called “the McDonaldization of universities” (another name for top-down and strong corporate managerialism) has gained momentum as a model for governing and…

Abstract

Purpose

What has been called “the McDonaldization of universities” (another name for top-down and strong corporate managerialism) has gained momentum as a model for governing and managing universities. This trend exacerbates the traditional tension between academic freedom and managerial control – a major challenge for the administration of academic institutions. The ideas of Charles Darwin represent an opportunity for overcoming such a challenge. However, traditional managerial models show inadequate, pre-Darwinian assumptions for devising organizational designs. This paper aims to show not only the opportunities but also the challenges of embracing a Darwinian paradigm for designing social systems. The case of managerialism in universities is an illustrative example. The paper proposes evolutionary guidelines for designing universities capable of maintaining managerial control while warranting academic freedom.

Design/methodology/approach

The paper proposes to understand the tension between academic freedom and managerial control in universities as the same tension between freedom and control that Karl Popper identified as successfully handled by evolutionary processes. The paper uses Darwinian theory, understood as a broader theory for complex systems, as a heuristic for designing social systems – universities in this case – able to adapt to changing environmental conditions while handling equilibrium between freedom and control. The methodology articulates the Popperian model of knowledge with the Darwinian scheme proposed by David Ellerman known as “parallel experimentation” for suggesting organizational forms in which university administrators and faculty can interact for generating free innovations in pseudo-controlled organizational arrangements.

Findings

A salient characteristic of strong managerialism is its pre-Darwinian understanding of survival and adaptation; such an approach shows important flaws that can lead universities to unfit designs that changing environments can select for elimination. As an alternative, the philosophy behind the ideas of Charles Darwin provides guidelines for designing innovative and adaptive social systems. Evolutionary principles challenge basic tenets of strong managerialism as Darwinian designs discard the possibility of seeing managers as knowledgeable designers that allegedly can avoid mistakes by allocating resources to “one-best” solutions through ex ante exhaustive, top-down control. Instead, a Darwinian model requires considering survival as a matter of adaptability through continuous experimentation of blind trials controlled by ex post selection. The key is to organize universities as experimenting systems that try new and different things all the time and that learn and improve by making mistakes, as an adaptive system.

Research limitations/implications

Governing and managing universities require to acknowledge the uniqueness of academic institutions and demand to look for appropriate forms of organization. The proposal of this paper opens possibilities for exploring and implementing action-research initiatives and practical solutions for universities. Studies in management and administration of higher-education institutions must take into account the characteristics of this type of organizations and should consider wider spectrums of possibilities beyond the core ideas of managerialism.

Practical implications

University managers face a special challenge for achieving equilibrium between managerial control and academic freedom. Darwinian models of management invite to reconsider several management creeds, for instance, that “errors are bad things” – instead of innovation triggers and learning opportunities or that “one solution must fit all” – instead of considering bottom-up, different and adaptive solutions triggered by local academic units, each facing different environments.

Originality/value

Currently, there is no clear picture for governing universities. This paper introduces principles and guidelines for facing the current challenge that strong managerialism represents if universities are expected to maintain academic freedom and also survive in volatile environments.

Details

Kybernetes, vol. 48 no. 7
Type: Research Article
ISSN: 0368-492X

Keywords

Article
Publication date: 1 April 1991

Mark A. Lutz

Introduction Relativism of all shades and kinds is in fashion. For some decades, it has been trying to enter the very bastion of the academic heartland by questioning the…

Abstract

Introduction Relativism of all shades and kinds is in fashion. For some decades, it has been trying to enter the very bastion of the academic heartland by questioning the prevailing cognitive realism in the philosophy of science (Kuhn, Feyerabend). More recently a somewhat different and stronger version of relativism has made some extraordinary advances in literary criticism (the movement of “deconstruction”) and spawned some controversy in the field of law (critical legal studies). The same tendencies have now emerged in architecture (Jencks). More alarmingly, perhaps, in the social sciences we observe a brand new interest in so‐ called “post‐modern” perspectives: post‐modern ethnography in anthropology (Tylor), new voices in sociology (Lash and Urri), and, of course, also the novel ideas representing economics as discourse with a distinctly post‐modern flavor (Amariglio; Rossetti; Milberg; Ruccio).

Details

Humanomics, vol. 7 no. 4
Type: Research Article
ISSN: 0828-8666

Book part
Publication date: 19 August 2019

David Ellerman

Nancy MacLean’s book, Democracy in Chains, raised questions about James M. Buchanan’s commitment to democracy. This chapter investigates the relationship of classical…

Abstract

Nancy MacLean’s book, Democracy in Chains, raised questions about James M. Buchanan’s commitment to democracy. This chapter investigates the relationship of classical liberalism in general and of Buchanan in particular to democratic theory. Contrary to the simplistic classical liberal juxtaposition of “coercion vs. consent,” there have been from Antiquity onward voluntary contractarian defenses of non-democratic government and even slavery – all little noticed by classical liberal scholars who prefer to think of democracy as just “government by the consent of the governed” and slavery as being inherently coercive. Historically, democratic theory had to go beyond that simplistic notion of democracy to develop a critique of consent-based non-democratic government, for example, the Hobbesian pactum subjectionis. That critique was based firstly on the distinction between contracts or constitutions of alienation (translatio) versus delegation (concessio). Then, the contracts of alienation were ruled out based on the theory of inalienable rights that descends from the reformation doctrine of inalienability of conscience down through the Enlightenment to modern times in the abolitionist and democratic movements. While he developed no theory of inalienability, the mature Buchanan explicitly allowed only a constitution of delegation, contrary to many modern classical liberals or libertarians who consider the choice between consent-based democratic or non-democratic governments (e.g., private cities or shareholder states) to be a pragmatic one. But Buchanan seems to not even realize that his at-most delegation dictum would also rule out the employer–employee or human rental contract which is a contract of alienation “within the scope of the employment.”

Book part
Publication date: 9 December 2013

Mark J. Kaswan

To examine how different types of ownership, including investor-owned, employee-owned, and mixed models, affect the dynamics of participatory practices in the workplace…

Abstract

Purpose

To examine how different types of ownership, including investor-owned, employee-owned, and mixed models, affect the dynamics of participatory practices in the workplace, and the broader social effects of these differences.

Design/methodology/approach

Brings together literature from democratic theory and empirical research in workplace participation and employee ownership. The first step is to articulate the range of democratic practices from nondemocratic to strongly democratic. The essay then discusses the different forms that participation can take and the threshold for what can be considered democratic participation. It then considers different models of ownership and the impact of ownership type on participatory practices.

Findings

It is found that investor-owned firms cannot be considered strongly democratic and that worker cooperatives are more likely to be strongly democratic and cannot fall below the threshold of weak democracy. However, strong democracy is not necessarily a feature of worker cooperatives.

Originality/value

Little work has been done to consider the way the type of ownership affects the kind or degree of democratic practices that may be present in an enterprise.

Details

Sharing Ownership, Profits, and Decision-Making in the 21st Century
Type: Book
ISBN: 978-1-78190-750-4

Keywords

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