Democracy in America is not perfect, but it is relatively widespread. We elect school boards, judges, sheriffs, city councils, and mayors on the basis of one-person-one-vote. But there is a glaring exception: business. Management does have to answer to the stockholders; but you have to buy stock in ourder to vote, and those with more money get more votes. Meanwhile people whose lives are intimately connected with the company--its employees--have little or no influence on decisions which truly affect them.
Why is that? Many economists argue that there are few democratic companies because they are less efficient than conventional ones, and efficient companies win out in a competitive economy. But there is little evidence to support their conclusion. Worker-controlled businesses are rare because investors, lenders, and entrepeneurs--those whose money helps businesses form and grow--have little to gain from them. Yet the myth that democratic companies are inefficient lives on, and may even discourage managers and bankers from taking cooperatives seriously...
Businesses behave inefficiently if they are less productive, if they allocate resources badly, and if they don't hunt agressively for new sources of profit. Democratic firms are supposed to score badly on all three counts. But the evidence is not convincing.
Perhaps democratic firms are inefficient because democracy is too costly. How will employees be able to find and supervise good managers? How can these managers order employee-owners around? And what about the time and effort wasted in endless meetings and discussions? Such obstacles notwithstanding, coops are at least as productive as conventional firms. For instance, in a study of the Pacific Northwest's plywood industry, Ben Craig and John Pencavel estimated that coops were 6% to 14% more productive than traditional firms.
Maybe existing coops are exceptions that prove the rule. They are small, tightly-knit groups where disagreements are easily resolved. In larger, more complicated organizations, democracy would lead to expensive conflicts among worker-owners. Now if democracy is a source of costly disagreements, then more democracy should mean lower productivity, other things being equal. Yet studies of coops with varying degrees of democracy do not support this view. Among Italian coops Derek C. Jones and Jan Svejnar found that the higher the level of employee ownership, participation, and profitsharing, the greater a coop's productivity. Evidence from conventional firms yields similar conclusions. For instance, employee participation almost never has negative effects and, furthermore, "is more likely to produce a significant, long-lasting increase in produtivity when it involves decisions that extend to the shopfloor and when it involves substantive rather than consultative arrangements," say David L. Levine and Laura D'Andrea Tyson...
If democratic companies are efficient, then why are they so rare? The reason is that in a capitalist economy it just doesn't take much to stand in the way of even efficient cooperatives.
The key obstacle is probably access to capital. Businesses need money, often lots of it. And most people don't have the capital to risk in a speculative venture. Hence those who control the resources for investment can decide whether companies will be democratic or not.
Usually they decide against democracy. Why? Probably because traditional companies give investors and entrepeneurs an ownership stake, and allow them to keep more of the profits. They allow them to have more control, to run things without employee interference. Conventional businesses may also be more profitable than democratic ones; cooperatives are less likely to expand and more likely to invest in employee participation, worker training, and so on. On balance, this may be efficient. But it's not the kind of behavior that maximizes profits in an economy crawling with conventional firms.
This means that building a democratic economy is difficult. It would require institutions to help coops develop and grow. And it would require a redistribution of economic power from investors to everyone else.
But the same is true of politics. Even the limited democracy we enjoy today took centuries to build, and it came at the expense of those with political power. Indeed, enlightened opinion once had it that democracy and good government were incompatible. Every major expansion of democracy--human rights, elections, women's suffrage, etc.--has been resisted on grounds of political efficiency. Such concerns proved unwarranted. Perhaps economic democracy today is only as hopeless as political democracy five centuries ago.