Worker owned/pwnd FAIL

It appears that the Treasury Department will save the auto industry from collapse for a little while, and the Republic Windows and Doors has a lull in the action while we wait to see what ideas come out of discussions about reopening the plant somehow. Therefore, I’m going to address a bit of old business.

I’ve spent the whole week exploring different angles of how the employees at Republic could salvage their jobs (ranging from buying the place to just seizing it) and now I’m going to turn my attention back to the bankruptcy of the Tribune Company, in which that was tried and didn’t work out very well. The Tribune experience provides a serious cautionary tale for any orthodox worker-ownership solution, especially in our current economic climate.

 Waaaaaay back on Monday, the Chicago Tribune reported that its parent company’s experiment in employee ownership had not gone as hoped. The exact reasons for this are so complicated that even experts are reportedly taking a while to figure it out, but Corey Rosen of the National Center for Employee Ownership (i.e. an expert) took a pretty good stab at it. I’m not going to try to unravel this myself, and will instead encourage anyone interested to read his report. I’ll be reading it again in my continuing effort to understand this situation.

While we are on the subject of worker ownership failures (or, for maximum blog hits through blatant misuse of web-slang, worker pwnd FAIL) another notorious  employee stock ownership plan (ESOP) failure was United Airlines, which declared bankruptcy in 2002 after eight years of partial employee ownership. Salon.com ran a rather useful story on this a long while back, and so did Corey Rosen. The key point is that yes, some ESOPs fail to work, but most of our 11,000 ESOPs do fine. To point to failure at the Tribune or United as evidence that employee ownership doesn’t work is comparable to saying that investor-ownership doesn’t work because of the troubles at US Airways, or Wachovia, or General Motors, or Mervyn’s, or my parents’ restaurants, or…

In both of these cases, there was a serious flaw. United had a difficult organizational culture in which entrenched management and unions didn’t play well together and an ESOP that only included some classes of employees. The Tribune had bad timing and a financial arrangement that put the risk disproportionately on the employees.

My expertise is in co-ops, which are somewhat simpler than ESOPs. The reason why I’ve been venturing into this new territory is that I realize that my beloved cooperative business model is good for some things, and the quick salvage of collapsing businesses is not one of them (unless you count something like the Argentine wildcat approach I discussed yesterday and then wondered why I opened my big mouth).

Ultimately, every business model has flaws, and since we are living through some very turbulent times, those flaws are going to be exposed in some very unpleasant ways. We need to be looking hard at all of our options, and trying to discern what works in these challenging times. Worker ownership isn’t perfect, but I think that it’s going to be the best option in a number of cases. It increases democracy, local control, and worker investment, and all of those are good things in the best of times.

In times like these, they can easily make the difference between success and FAIL.

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2 Responses to Worker owned/pwnd FAIL

  1. Norm Kurland says:

    There are a few ESOPs where the workers are empowered as workers and can protect whatever ownership stakes they have earned, and too many ESOPs where the workers have few if any ownership rights. That’s why some who pioneered the ESOPs will no longer design ESOPs or help them get funding if the management culture remains top=down, rather than bottom-up. Where unions are involved, unions have a stake in the top-down wage-system model and seldom if ever bargain for full ownership rights and risks tied to bottom-line profits for their members. Hence, unionized companies have wage system and benefit costs that make them non-competitive with non-unionized competitors whose costs are lower. As the former head of the UAW Walter Reuther testified in 1967 before the Joint Economic Committee of Congress, if dividends and stock earned from bottom-line profits were available to all workers, the workers’ gains would not increase costs since profits are calculated after the goods or services are sold in the market. Today’s UAW and other labor leaders are not yet as enlightened as Reuther in dealing with current economic crisis and advocating full ownership rights and responsibilities in their collective bargaining with management. When labor unions become transformed into Justice-Based ownership unions and reach out to cut all Americans into ownership stakes in a growing, sustainable and more just market economy, then America and a global market economy can begin to work. Otherwise, everyone’s incomes will be dependent on those who control the State. Marx will have won. For those who are interested in a non-conventional set of solutions, see http://www.cesj.org/jbm/whatisjbm.htm for a micro-economic solution called “Justice-Based Management” and http://www.cesj.org/homestead/summary-cha.htm for creating an ownership-based macro-economic environment called “Capital Homesteading for Every Citizen.”

  2. coopgeek says:

    Thanks for the input Norm.

    I’m curious about your take on Dana Rohrabacher’s Employee Owned and Controlled Company legislation that he was pushing with Bernie Sanders a decade back. A step in the right direction, at least?

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