How not to argue against worker co-ops

Here’s a dumb argument that people sometimes make against workers’ co-ops. The incarnation I’ve picked comes from Econo-Creep Central, where Posner was lamenting the fact that Larry Summers, the overbearing jackass at the top of the educational red-tape hierarchy at Harvard, was hounded out of his position, largely by rowdy arts and sciences faculty with whom he was extremely unpopular. Here’s Posner, quoting some remarks from a year ago that he thinks are confirmed by the sorry end of Summers’ sorry tenure as University President:

To appreciate the sheer strangeness of the situation, imagine the reaction of the CEO of a business firm, and his board of directors, if after the CEO criticized one of the firm’s executives for absenteeism, ascribed the underrepresentation of women in the firm’s executive ranks to preferences rather than discrimination, dealt in peremptory fashion with the firm’s employees, and refused to share decision-making powers with them, was threatened with a vote of no confidence by the employees. He and his board would tell them to go jump in the lake. But of course there would be no danger that the employees would stage a vote of no confidence, because every employee would take for granted that a CEO can be brusque, can chew out underperforming employees, can delegate as much or as little authority to his subordinates as he deems good for the firm, and can deny accusations of discrimination.

If, however, for employees we substitute shareholders, the situation changes drastically. The shareholders are the owners, the principals; the CEO is their agent. He is deferential to them. Evidently the members of the Harvard faculty consider themselves the owners of the institution.

They should not be the owners. The economic literature on worker cooperatives identifies decisive objections to that form of organization that are fully applicable to university governance. The workers have a shorter horizon than the institution. Their interest is in getting as much from the institution as they can before they retire; what happens afterwards has no direct effect on them unless their pensions are dependent on the institution’s continued prosperity. That consideration aside (it has no application to most professors’ pensions), their incentive is to play a short-run game, to the disadvantage of the institution—and for the further reason that while the faculty as a group might be able to destroy the institution and if so hurt themselves, an individual professor who slacks off or otherwise acts against the best interests of the institution is unlikely to have much effect on the institution.

— Posner (2006-02-26): Summers’ Resignation and Organization Theory

Of course it’s true that in most workplaces, top executives are very often insufferable know-it-alls who treat workers rudely and don’t bother themselves with what the folks doing the work have to say about the workplace or the company. But being common is hardly the same as being right, so if you want to give some kind of argument against employee self-management, at a University or elsewhere, you’re going to need to provide some substantive argument. Posner tries to offer his substantive argument a couple paragraphs down, in his discussion of the incentives faced by workers in institutions; the problem is the argument, such as it is, relies on a jaw-droppingly crude economic fallacy.

Posner’s right that when it comes to operations like Harvard, workers generally have a shorter horizon of interest than the institution that they work for. There’s nothing wrong with pointing out the temptations that this creates. There is something wrong with passing this off as a problem that’s unique to workers (industrial, professional, or otherwise), or claiming that this kind of organizational problem is somehow solved by ditching co-operative models in favor of an organizational hierarchy.

When institutions are hundreds of years old and designed to last into the indefinite future, everyone has horizons shorter than those of hte institution. This is not just true of workers; it’s true of shareholders, trustees, clients, executives, and all other mortal human beings. Posner, like many theorists trying to stick up for modern corporate org charts, blithely assumes that a hierarchial model somehow removes the ordinary limitations of fallen humanity and creates some kind of mystical union whereby the CEO acts as The Institution itself. But since the institution makes no decisions and takes no actions independently of the decisions and actions of mortal human beings, organized in some concrete way or another, you can’t just lazily compare the horizons and incentives of the workers to the horizons and incentives of the institution and claim that this proves that workers shouldn’t be owners. You need to compare the horizons and incentives of shareholding workers with the horizons and incentives of shareholders not working for the institution (let’s call them absentee shareholders from here on out). Absentee shareholders are limited, self-interested, mortal human beings no less than workers are, and if Posner seriously wants to make the case for treating faculty as underlings and not as part of the governance of the University, he needs to make honest comparisons between the two, not a phoney comparison between workers and the disembodied Institution.

So, if you’re concerned with the long-term flourishing of the institution — actually, how important that is is open to some serious questions, but that’s for another day — you need to ask a different set of questions, questions which Posner’s fallacy simply closes off without consideration. For example, (1) whether absentee shareholders have longer horizons than shareholding workers, or vice versa; (2) whether absentee shareholders are less likely than shareholding workers to milk the institution for personal gain within the horizon of their own relationship to the institution at the expense of the long-term flourishing of the institution, or vice versa; (3) whether absentee shareholders are more willing or better able than shareholding workers to discover the best means of serving the interests of the institution within their short-term horizons, or vice versa; and (4) whether absentee shareholders are more willing and/or better able than shareholding workers to discover the best means of serving the interests of the institution beyond the short-term horizons of their personal relationship to the University.

These questions are all important, and I think not obviously to be answered in favor of control by absentee shareholders, at least not in every imaginable case. (Since the structure and goals of the University make it an atypical case compared to factories, restaurant chains, shipping companies, and other for-profit enterprises, it seems like special caution is needed in the particular case at hand. For more on the role that bossless worker co-operatives actually played in the birth of the European University, see Roderick Long’s A University Built by the Invisible Hand.)

But all of these questions remain unasked as long as we pretend that the mystical body of The Institution will somehow be making decisions once mortal workers are no longer playing a substantive role in decision-making. Posner needs a much stronger case before he can justify such a radical set of policy proposals as the accountable to none save the Board platform for University CEOs that he outlines in his post. And folks who want to defend corporate-capitalist modes of production against worker-driven alternatives need to give a much more serious and detailed argument in defense of their position.

In a similar vein

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  1. Labyrus

    Almost any University exists for two main purposes:

    1. To educate people, the vast majority of whom are Undergraduate Students, and

    2. To conduct research, publish and generally contribute to the body of knowledge that we, collectively, have access to.

    So the two main interests that SHOULD be in control, in order for the University to operate efficiently are those of the students, and those of the researchers. Of course, society at large gennerally benifits from a more educated populace, so the education also benefits the general good, which is why we do things such as take money out of the pockets of wealthy people who propably didn’t earn it and use it to educate poor people. I’d like to see the process done by some institution other than the State, but the idea itself is, in my opinion, fairly acceptable.

    A good way of organising an educational institution would involve representing the interests of students (and would-be students who can’t afford education), Educators and Researchers, and Society at large, and creating a means for these interests to make a compromise in allocating resources in education.

    What exactly Deans and Presidents do for Universities, I don’t know. They don’t teach anyone, and they don’t gennerally research, so as far as I can tell, they’re useless, outside of the role of “organising things”, which tends to primarily mean imposing budgets, making financial decisions, and deciding growth.

    It’s a fairly well-established tendency that people involved directly in economic activity are better at making it efficient than people not directly involved - this is why capitalists say central planning doesn’t work. Similarily, a managerial class that has no direct relationship with work that is done is propably more of a drain on efficiency than a cause of it.

    As far as I can tell, the argument for the all-powerful CEO is no different than the State Socialist argument, the idea that one person (or one small, seperate class) who is given the title of “expert” can organise other people’s economic lives better than they themselves can.

  2. Otto Kerner

    Well said, Radgeek. You know, I’m not one of these “left-libertarian” types that are so popular with the kids these days, but the aggressively pro-employer libertarians sure get annoying sometimes (they turn up from time to time on LRC, although not uniformly: Karen DeCoster had a nice little article heckling “Who Moved My Cheese?” a couple weeks ago).

    “The shareholders are the owners, the principals; the CEO is their agent. He is deferential to them [but mean to the employees],” is the conventional way of looking at a firm. However, if we consider that the corporation needs an input of labour to get anything done, it seems more reasonable to me to say that the workers are themselves also “the owners, the principals”: they own their own labour, without which the company is dead.

    Every single time these Econo-Creep types describe the market economy in terms of who is deferential to whom or who has the privilege of abusing whom, they move us further away from freedom by contributing to its bad name.

  3. Roderick T. Long

    I’m glad to hear that left-libertarians are popular with the kids these days. :-)

    On the issue of universities: I often hear people say: “A university run by teachers and students? Don’t you know what crazy ideas they have?”

    Well, I’ve been associated in one way or another — as student, as faculty, or otherwise — with about eight different universities. And yes, academics often do have crazy ideas. And sometimes the administration is the voice of sanity. Nevertheless, in my experience the administration is crazier than students or faculty about 80% of the time — because they’re more distant from the process, have less of a clue what’s going on, and don’t have to live with the results of the bizarre rules they want to impose.

    (It’s for similar reasons that I’m also friendlier to worker management of industry than many libertarians are: the separation between labour and management creates knowledge problems and incentive problems. Sure, there will no doubt be cases where such separation works better, and market competition will help identify such cases, but traditional management structures need to face more competition from the bottom-up alternative.)

  4. Kevin Carson

    Great post. Posner confuses cause and effect. Workers have a short time horizon BECAUSE they have no say over how things are run. They deal with the consequences of other people’s stupidity (namely, those above them) and don’t fully internalize the benefits if they work harder or find ways to make the process more productive.

    I suspect the European serf and the Southern slave also had “short time horizons.” Imagine that.

    But when workers do have a reason to be interested in improving the work process, they usually have a far better idea of what needs to be done than management does. Posner should read Hayek on distributed idiosyncratic knowledge.

    Posner’s piece is an example of how not to argue, period.

  5. Rad Geek

    Kevin,

    Thanks for the kind words.

    You’re right of course; the other problem with Posner’s argument, such as it is, is that he’s not actually comparing the horizons of shareholding workers to anything at all; he’s looking at what he knows about the horizons of non-shareholding workers and extrapolating from that to a conclusion about how shareholding workers would act. But that only makes sense if having a direct share of governance over your workplace doesn’t change your horizons, interests, etc., which seems ludicrous and in any case hasn’t been argued for.

    Roderick:

    Sure, there will no doubt be cases where such separation works better, and market competition will help identify such cases, but traditional management structures need to face more competition from the bottom-up alternative.

    Right, and furthermore it’s perfectly possible for you to have separation of management from labor, in whatever cases it might be useful, without having separation of ownership from labor. It might occasionally be useful for the workers of a co-op to hire a third party to come in and handle some particular task that calls for critical distance or special expertise. The difference is whether the person entrusted with these tasks is ultimately accountable to the workers, or to some absentee third party (e.g. absentee shareholders or a Board of Trustees).

    Even in cases where it really is best to hire outside help to do some of the sorts of things that executives or other red tape dispensers do, there’s no guarantee that the best people to decide who to hire, or what kind of latitude to give her, or when to override her judgment in a particular instance, or when to replace her, are going to be absentee shareholders rather than workers. The same knowledge and incentive problems that speak in favor of worker self-management also speak in favor of giving workers ultimate control over whatever supervisory positions may be helpful. I think, actually, that this is especially clear in the specific case of a University, where the absentee shareholders — members of the Board of Trustees — have no personal interest in the outcome beyond (1) whatever vague sense of philanthropic duty they may have, and (2) whatever rewards they can take by using their power to establish private fiefdoms (as with Bobby Lowder). Professors have both knowledge of, and direct self-interest in, the situation on the ground; that gives them at least two advantages over conventional Board members, who typically have neither.

  6. Kevin Carson

    Labyrus,

    You’re right, to focus on the “short time horizons” of the people actually engaged in the mission of the university, while assuming that empty suits like trustees and the president have some mystical grasp of the “big picture,” has something of an Alice in Wonderland quality to it.

    Barry Stein (Size, Efficiency, and Community Enterprise) has some excellent commentary on the unique competence of those actually engaged in the production process. Most innovation, he writes, is the cumulative effect of lots of incremental process improvements. And the people most qualified to identify opportunities for such improvements are, obviously, those involved in the process. In the hierarchical corporation, those most aware of what would improve efficiency have the least power to do anything about it. And, frankly, they also have very little incentive, since any productivity increases resulting from their improvements will surely be followed by layoffs, soaring stock prices, and senior management awarding itself a huge bonus for “cutting costs.” What worker in his right mind would do something to help his worst enemy?

  7. John T. Kennedy

    Posner,

    “Evidently the members of the Harvard faculty consider themselves the owners of the institution.”

    So what? If I considered myself the owner and fired the CEO would he step down? It’s not like their own illusions can empower the faculty.

— 2009 —

  1. Discussed at athousandnations.com

    Universities, Anarchism, and Control « Let A Thousand Nations Bloom:

    […] Anarchism, and Control 2009 June 11 by patrissimo Via Rad Geek I came across this old piece by Roderick Long: A University Built by the Invisible Hand.  The […]

— 2012 —

  1. Discussed at bleedingheartlibertarians.com

    The Bold and the Desirable: A Prophecy and a Proposal | Bleeding Heart Libertarians:

    […] knowledge problems in large organizations or hierarchical relationships; the assumption of risk, time horizons, transaction costs and other factors in conventional corporate forms and also in alternative, […]

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