Workers' control of the means of production?

One of the most influential books on my political outlook when I was first getting politically aware was Geoff Hodgson's The Democratic Economy, published by Pelican Books in 1984. In it he advocated an economy predominantly consisting of worker-owned enterprises: market collectivism, to use a phrase of Jaroslav Vanek. In a Market Collectivist economy, argues Hodgson(p.177), "The workers are self-managed: they do not work under the direct or indirect control of a capitalist...the workers (collectively) own the product of their labour, which they bring to the market for sale."

I vaguely remember the Kinnock-Hattersley leadership of the Labour Party in the mid-1980s giving some verbal support for Hodgson's ideas, but it was soon forgotten. On most of the British Left, to support any sort of workers' control of the means of production in an economy with a market mechanism is seen as a "sell-out" to capitalism. However, as Larry Gambone (see links at bottom of the blog) has argued, many on the Left have got themselves into a logical hole by arguing simultaneously that (i) the free market is the root cause of human misery in a capitalist society while (ii) the free market doesn't exist after all.

Holding a basically free-market anti-capitalist position, I see anything which gives workers more control over their workplace and enterprise as A Good Thing. Consequently, I was interested when I saw the article below.

Cooperatives pay big dividends: It's commonly held that employee-owned firms are uncompetitive. But, finds Sue Norris, staff who have a stake in a business can give it a drive and adaptability a plc cannot match
The Guardian,Friday March 30, 2007

When John Lewis announced its employees had received a whopping 18% of their salary as a bonus this year, equivalent to nine weeks' pay, it sent ripples through the business world. The company, with its unusual business structure, had enjoyed such a good year that it could afford to pay out £155 million in bonuses alone.
Follow-up media coverage asked how much of John Lewis Partnership's (JLP) success was down to the buy-in of the workforce, who have an even stronger vested interest in going the extra mile than staff in more conventional relationships with their employers.

Could it be that, contrary to the popular perception that an employee-owned organisation is slow and cumbersome, sharing ownership is the best way to motivate a workforce?

Indeed, could JLP - where partners (staff) have a say in how the business is run through democratic internal structures, including five out of 13 board members elected by staff - offer a model for other businesses to follow?

"The past 10 years provide a good case study of the long-termism of many co-owned businesses," says Tracey Killin, JLP's director of personnel, noting that, in the mid 1990s, the firm's performance was less startling, partly because of significant restructuring and investment. This included the purchase of buy.com, an internet retail platform, which took time to bed down.

Eventually, JLP was able to develop this into johnlewis.com, a significant driver of John Lewis's success today. "If we were a plc, we would have been under severe scrutiny during that period," Killin notes. "Instead, we were able to invest for the long term."

Putting even more weight behind the idea that engaged staff are harder workers, the company has now launched a new scheme, BonusSave, which allows JLP employees to invest all or part of their bonuses, and save income tax and national insurance on this investment, provided that it is left in the plan for five years. (Partners also receive a cash dividend for each full year that money is invested in the scheme.)

In an environment where talented staff are difficult to find and even harder to hang on to, innovative staff loyalty programmes like these are on the increase. They also provide good food for thought for new-business founders who are looking for different strategies that can help them punch above their weight when recruiting their first teams.

Small but perfectly formed

London-based paper merchant Paperback is a workers' cooperative that has been in business for almost 25 years, promoting and selling recycled printing and office paper.

"We are a small company, but our legal structure is very different from others in our industry," says director and business development manager Jan Kuiper. Despite its age, the business remains small, with six people and an annual turnover of just £1.5 million, but its profitability is unusually healthy for a business in its market sector, which isn't known for generous margins. For the last three or four years it has turned in a £50-60,000 a year.

"That's very satisfactory in a difficult industry, which has seen a lot of paper merchants disappear," Kuiper says. "We're still here, and we're making a decent profit, which lets us pay bonuses, and it's because we're a cooperative."

How so? Paperback has been able to retain its focus on green products, for example - something it may have been under pressure to diversify away from if outside investors were pushing for aggressive business growth. Limited companies could do the same, but shareholders might look for a better return, delivered more quickly.

Kuiper, one of Paperback's founders, was involved in the environmental movement in the 70s, and started the current business from a market stall, with a co-founder who had experience of housing cooperatives. "The GLC [Greater London Council] had a special fund to generate new businesses, so we got a very 'friendly' loan to buy our initial stock," Kuiper recalls.

With some additional loan stock funding in the late 1980s, Paperback began to expand, moving into a purpose-built warehouse, taking on more people, and rolling out operations in Birmingham and Sheffield. "By the early 90s, we were one of the largest coops in the UK," Kuiper says.

Adaptability

But that was when interest in recycled paper was at its peak. When the ink ran dry and a key UK papermill, responsible for 50% of Paperback's stock, closed, the business endured a painful period of readjustment.

Had the company been answerable to external shareholders, it may have had to fold, or succumb to a takeover, but, thanks to its cooperative status, it was able to weather the storm and is now buoyant in much calmer waters.

But isn't this all slightly hippyish and unambitious? "That's a false impression of cooperatives," Kuiper protests. "Our commercial adaptability has clear advantages. If cash flow fluctuates we can agree to take a temporary wage cut, which you couldn't do easily in a conventional company. Equally, if there is a change in consumer preferences, we are free to look at what's available and profit swiftly."

More crucially, while many traditional companies are now spending huge sums on expensive consultants to develop their strategies and techniques for employee motivation, Paperback can take this for granted. "It's inherent in the business because we all benefit directly when we're doing well, and suffer equally when we're not. It says something that the average length of service with the business is 12-14 years. You see the same thing at John Lewis - staff motivation is very high, staff are very engaged and, as a customer, you can feel it. The key there is a lot more bottom-up communication."

Founders of new start-ups inspired to think differently about the way they structure and drive their business don't have to go to the extreme of sharing out the business in its entirety, of course. Cleverly structured yet more modest company share schemes can have a powerful effect on employee motivation and loyalty, according to those organisations that run them.

Wiltshire-based public-sector IT company Quicksilva, which has been in business since 1999 and now has 40 staff, has experimented with share options over the years, and has now refined its scheme sufficiently that it has seen a marked impact on its staff. Retaining limited company status, the business has the freedom to use share options as a means of rewarding staff for hard work. Each March, when it reviews staff salaries, it issues new shares. This started informally, but is now an Inland Revenue registered scheme, enabling beneficiaries to qualify for tax relief.

Company founder Gayna Hart learnt, however, that once the novelty of the scheme had worn off, staff became less enthusiastic. "Because there were no plans to sell the business, they began to wonder if the shares would ever be worth anything tangible to them, so I introduced a mock dividend - a pot of money we pay each April based on the number of shares each person has," Hart explains. "This in turn relates to length of service and performance. For someone that's recently joined the company that might mean a pay-out of £200, but for someone more senior it could be £1,000 - that's on top of any bonus." Quicksilva's aim is to keep staff turnover below 10%; for the last two years the average has been 8%.

But there are cases when pushing the boat out a bit further, and giving new recruits even more responsibility and reward, is called for. This was the view taken by Patrick Leyden and business partner Phil Kirby when they came out of retirement in 2000 to set up Leyden Kirby Associates, a partnership specialising in environmental engineering.

The partnership is underpinned by a crop of independently run profit centres. Its aim is to give thrusting young environmental graduates and scientists a stake in their own success.

"We realised major opportunities were on offer, especially in contaminated land management, but that to exploit these we needed a team of young and more recently qualified people with an up-to-the-minute understanding of the legislation and best practice," says Leyden. To attract such people and keep them interested, the firm set up a series of profit centres, each headed by a director with an equity share in their own success.

The firm now employs 30 staff and expects to turn over £2 million this year. "We believe transparency is the key to good business," Leyden says. "We're seeing a 40-50% rise in revenues and related profits each year and most of those profit centres have grown into subsidiary companies to accommodate more young and talented individuals."

Another potential trendsetter is James Wilson, a manufacturer of illuminated panels and keyboards for the aviation sector which, after some years in business crisis, followed by a year of deliberation, recently reorganised the business on a radical scale, even though this meant many staff left in the process.

The decision to change the business structure followed the terrorist attacks in New York, and a reduction in military spending. The company was struggling with a large back order book, quality and delivery issues, declining profits and repeat orders and a poorly motivated workforce.

The new idea was to create individual business cells, each able to carry out all of its own functions. Each business would be able to deal with production, purchasing, HR, stock control and so on - and be accountable for its own profit and loss. The company was divided into nine smaller businesses that could trade externally and internally. The model, based on Toyota practices, was designed to combat staff disengagement, break down existing hierarchy and dissolve dependency on those with specialised skills.

"We broke down the whole organisation and put it back together again upside-down, based on the premise of self leadership and self management," says Andrew Holm, a director at the company. "Everything was focused on the customer, with responsibility and reward passed to those on the factory floor."

Functions were disbanded at the end of 2003, new practices implemented and the nine separate businesses quickly established. "People did leave who were simply unwilling to take part in the changes, but what we were left with was a team who were worth investing in, and who have blossomed into highly motivated and inspired individuals with a desire to take control and make a difference," Wilson says.

The gamble has paid off, too - turnover is growing, profits are increasing and innovation is emerging in every corner of the organisation, he claims. "Our measure for delivery performance is 'on time and in full', which has climbed from 17% to an average of 90%, with several cells maintaining the 100% target," he notes. "We're only able to achieve this because everyone is working to resolve problems... each and every person taking ownership for their business cell and their future success. The possibilities for the company are endless."