Worker Cooperatives in the Theory of the Firm: Marx and Veblen on Technological Determinism

Abstract:

This article contends that, in their treatments of worker cooperatives, the predominant theories of the firm adhere to the logic of technological determinism, and can accordingly be evaluated using the ideas of Thorstein Veblen and Karl Marx. Invoking these patriarchs’ respective distinctions between instrumental and ceremonial institutions and between the technical and social relations of production, the article argues that, contrary to contemporary theories of the firm, worker cooperatives possess an inherent but often latent advantage in implementing bureaucratic organizational structures, enjoying their instrumental/technical benefits for technology and coordination without incurring their ceremonial/social drawbacks for behavior and cooperation.

Keywords::

• Marx
• technological determinism
• theory of the firm
• Veblen
• worker cooperatives

JEL Classification Codes::

• B510
• B520
• D230
• L220
• 0330

Notes

¹ While the term “cooperative” actually encompasses a diverse range of organizational forms, in this article it signifies worker cooperatives specifically.

² See for example, Joseph Stiglitz and Bruce Greenwald (2014).

³ Not all contract-based theories of the firm employ the rubric of transaction costs. However, they can all be interpreted within the transaction-cost framework that I propose here.

⁴ Asset-specificity theories do not always refer to the management system, dealing primarily with the allocation of residual control rights (e.g., Grossman and Hart 1986). Some team-production theories, meanwhile, explicitly deny that hierarchy exists within the firm (e.g., Alchian and Demsetz 1972). In fact, both varieties of contract-based theories are predicated on the need for a distinction between managers and workers – that is, managerial hierarchy.

⁵ This point was hammered home by the literature on the “labor-managed firm” that originated with Benjamin Ward’s (1958) article and was prominent until the 1980s (for a comprehensive review, see Bonin and Putterman 2001).

⁶ Veblen (1904, chs.5 and 6) also had a conception of “goodwill,” but defined it in terms of the firm’s external reputation rather than its internal relations.

⁷ Although innovations in steam power and electricity required exceptionally capital-intensive forms of production, this is an explanation for why capitalists rather than workers do own/control the firm, not why they should, at least from a competence-based perspective. Indeed, I argue that it is precisely the inaccessibility of financial capital that prevents worker cooperatives from manifesting their productive potential, especially in capital-intensive sectors.

⁸ It should be noted that complex divisions of labor and hierarchical management systems, even while undermining organizational solidarity, can act to bolster occupational solidarity (e.g., Lincoln and Kalleberg 1990, ch.1). In a way, that is precisely the point since the two forms of solidarity are usually considered to be in opposition. Indeed, radical critics have often accused cooperatives of hampering revolutionary movements by substituting the former for the latter (e.g., Clarke 1977).

⁹ To be sure, whereas Marx (and Engels [1932] 1968, ch.1, sec.A, para.8) conceived ownership as merely “the relations of individuals to one another with reference to the material, instrument and product of labor,” thus spanning all productive societies, Veblen (1898a) argued that ownership of any kind was a relatively recent outgrowth of predation and stratification. However, both Marx and Veblen were specifically preoccupied with the capitalist form of ownership and control that, contrary to the mainstream view, they insisted was in no way “natural” (Hunt 1979, 119-120).

¹⁰ A capitalist firm may seek to evade this constraint by offering workers a share in profits, for example, through an employee stock ownership plan (ESOPs). However, if such a scheme is not accompanied by participation in decision-making, its behavioral effects will be limited (Ben-Ner and Jones 1995; Doucouliagos 1995; Thompson 2015b). On the other hand, to the degree that a real transformation in the structure of ownership and control is involved, the firm ceases to be capitalist in a pure sense. One cannot have one’s cake and eat it, too.

¹¹ Williamson (1981, 565) does concede that when human capital confounds contracting and monitoring, the firm will resemble a “relational team” that “will engage in considerable social conditioning,” identifying “certain utopian societies” – in which he (1985, 65-6) seems to categorize cooperatives – as examples. However, Williamson (1981, 565) maintains that such teams are “very difficult to develop” and that “it is uncertain how widespread or sustainable they are.”

¹² Although Veblen also elaborated on the social effects of technology, Marx in particular is often designated as the forefather of technological determinism, with decontextualized statements, such as the “hand-mill gives you society with the feudal lord: the steam-mill, society with the industrial capitalist” (Marx [1847] 1955, ch.2, Part I, sec.2, para.2) submitted as evidence. In fact, devotees of Marx (such as Gerald Cohen 1978) and Veblen (such as Clarence Ayres 1944, 1952) have often been “more Catholic than the Pope,” adhering to technological determinism more strictly than their role models.

¹³ By “capital,” Veblen was referring to machinery and the like, but the only reason that workers would be unable to purchase or rent physical capital is because they are unable to access financial capital. In modern times, it is usually providers of financial rather than physical capital who “own” the firm (Leijonhufvud 1986) – a point that Veblen (1904, 138) acknowledged in The Theory of Business Enterprise.

¹⁴ For insightful studies on the tension between democracy and bureaucracy in worker cooperatives, see Chris Cornforth (1995), Sarah Hernandez (2006) and Rahul Varman and Manali Chakrabarti (2004).

¹⁵ Mondragón earned $19.22 billion of turnover in 2011, while Ccc earned $1.97 billion. The household-appliance manufacturer Fagor Electrodomésticos also made the list of the three-hundred largest cooperatives and mutuals with $1.77 billion of turnover, but was part of the Mondragón group until it filed for bankruptcy in November 2013.

¹⁶ Veblen’s own assessment of unions was curiously ambivalent — and remarkably Marxian (Pluta and Leathers 1978, 128). On one hand, Veblen perceived unions as reacting against the social costs of pecuniary business, even opining that they would eventually pave the way to socialism. On the other hand, he considered them to be riddled with vested interests and thus effectively conservative.