Mixed economy

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https://en.wikipedia.org/wiki/Mixed_economy 

A mixed economy is variously defined as an economic system blending elements of a market economy with elements of a planned economy, markets with state interventionism, or private enterprise with public enterprise. Common to all mixed economies is a combination of free-market principles and principles of socialism. While there is no single definition of a mixed economy, one definition is about a mixture of markets with state interventionism, referring specifically to a capitalist market economy with strong regulatory oversight and extensive interventions into markets. Another is that of active collaboration of capitalist and socialist visions. Yet another definition is apolitical in nature, strictly referring to an economy containing a mixture of private enterprise with public enterprise. Alternatively, a mixed economy can refer to a reformist transitionary phase to a socialist economy that allows a substantial role for private enterprise and contracting within a dominant economic framework of public ownership. This can extend to a Soviet-type planned economy that has been reformed to incorporate a greater role for markets in the allocation of factors of production.

The idea behind a mixed economy, as advocated by John Maynard Keynes and several others, was not to abandon the capitalist mode of production but to retain a predominance of private ownership and control of the means of production, with profit-seeking enterprise and the accumulation of capital as its fundamental driving force. The difference from a laissez-faire capitalist system is that markets are subject to varying degrees of regulatory control and governments wield indirect macroeconomic influence through fiscal and monetary policies with a view to counteracting capitalism's history of boom and bust cycles, unemployment, and economic inequality. In this framework, varying degrees of public utilities and essential services are provided by the government, with state activity providing public goods and universal civic requirements, including education, healthcare, physical infrastructure, and management of public lands. This contrasts with laissez-faire capitalism, where state activity is limited to maintaining order and security, and providing public goods and services, as well as the legal framework for the protection of property rights and enforcement of contracts.

About Western European economic models as championed by conservatives (Christian democrats), liberals (social liberals), and socialists (social democrats - social democracy was created as a combination of socialism and liberal democracy) as part of the post-war consensus, a mixed economy is in practice a form of capitalism where most industries are privately owned but there is a number of utilities and essential services under public ownership, usually around 15 to 20 percent. In the post-war era, Western European social democracy became associated with this economic model. As an economic ideal, mixed economies are supported by people of various political persuasions, in particular social democrats. The contemporary capitalist welfare state has been described as a type of mixed economy in the sense of state interventionism, as opposed to a mixture of planning and markets, since economic planning was not a key feature or component of the welfare state.

Overview

While there is no single all-encompassing definition of a mixed economy, there are generally two major definitions, one being political and the other apolitical. The political definition of a mixed economy refers to the degree of state interventionism in a market economy, portraying the state as encroaching onto the market under the assumption that the market is the natural mechanism for allocating resources. The political definition is limited to capitalistic economies and precludes an extension to non-capitalist systems, and aims to measure the degree of state influence through public policies in the market.

The apolitical definition relates to patterns of ownership and management of economic enterprises in an economy, strictly referring to a mix of public and private ownership of enterprises in the economy and is unconcerned with political forms and public policy. Alternatively, it refers to a mixture of economic planning and markets for the allocation of resources.

History

The term mixed economy arose in the context of political debate in the United Kingdom in the postwar period, although the set of policies later associated with the term had been advocated from at least the 1930s. The oldest documented mixed economies in the historical record are found as early as the 4th millennium BC in the Ancient Mesopotamian civilization in city-states such as Uruk and Ebla. The economies of the Ancient Greek city-states can also best be characterized as mixed economies. It is also possible that the Phoenician city-states depended on mixed economies to manage trade. Before being conquered by the Roman Republic, the Etruscan civilization engaged in a "strong mixed economy". In general, the cities of the Ancient Mediterranean in regions such as North Africa, Iberia, and Southern France, among others, all practiced some form of a mixed economy. According to the historians Michael Rostovtzeff and Pierre Lévêque, the economies of Ancient Egypt, pre-Columbian Mesoamerican, Ancient Peru, Ancient China, and the Roman Empire after Diocletian all had the basic characteristics of mixed economies. After the collapse of the Western Roman Empire, the Byzantine Empire in its eastern part continued to have a mixed economy until its destruction by the Ottoman Empire.

Medieval Islamic societies drew their primary material basis from the classical Mediterranean mixed economies that preceded them, and the economies of Islamic empires such as the Abbasid Caliphate dealt with their emerging, prominent capitalistic sectors or market economies through regulation via state, social, or religious institutions. Due to having low, diffuse populations, and disconnected trade, the economies of Europe could not have supported centralized states or mixed economies and instead a primarily agrarian feudalism predominated for the centuries following the collapse of Rome. With the recovery of populations and the rise of medieval communes from the 11th century onward, economic and political power once again became centralized. According to Murray Bookchin, mixed economies, which had grown out of the medieval communes, were beginning to emerge in Europe by the 15th century as feudalism declined. In 17th-century France, Jean-Baptiste Colbert acting as finance minister for Louis XIV attempted to institute a mixed economy on a national scale.

The American System initially proposed by the first United States Secretary of the Treasury, Alexander Hamilton, and supported by later American leaders such as Henry Clay, John C Calhoun, and Daniel Webster, exhibited the traits of a mixed economy combining protectionism, laissez-faire, and infrastructure spending. After 1851, Napoleon III began the process of replacing the old agricultural economy of France with one that was mixed and focused on industrialization. By 1914 and the start of World War I, Germany had developed a mixed economy with government co-ownership of infrastructure and industry along with a comprehensive social welfare system. After the 1929 stock crash and subsequent Great Depression threw much of the global economy into a severe economic decline, British economists such as John Maynard Keynes began to advocate for economic theories that argued more government intervention in the economy. Harold Macmillan, a British politician in the Conservative Party, also began to advocate for a mixed economy in his books Reconstruction (1933) and The Middle Way (1938). Supporters of the mixed economy included R. H. Tawney, Anthony Crosland, and Andrew Shonfield, who were mostly associated with the Labour Party in the United Kingdom. During the post-war period and coinciding with the Golden Age of Capitalism, there was general worldwide rejection of laissez-faire economics as capitalist countries embraced mixed economies founded on economic planning, intervention, and welfare.

Political philosophy

In the apolitical sense, the term mixed economy is used to describe economic systems that combine various elements of market economies and planned economies. As most political-economic ideologies are defined in an idealized sense, what is described rarely—if ever—exists in practice. Most would not consider it unreasonable to label an economy that, while not being a perfect representation, very closely resembles an ideal by applying the rubric that denominates that ideal. When a system in question, diverges to a significant extent from an idealized economic model or ideology, the task of identifying it can become problematic, and the term mixed economy was coined. As it is unlikely that an economy will contain a perfectly even mix, mixed economies are usually noted as being skewed towards either private ownership or public ownership, toward capitalism or socialism, or a market economy or command economy in varying degrees.

Catholic social teaching

Jesuit author David Hollenbach has argued that Catholic social teaching calls for a "new form" of mixed economy. He refers back to Pope Pius XI's statement that government "should supply help to the members of the social body, but may never destroy or absorb them". Hollenbach writes that a socially just mixed economy involves labor, management, and the state working together through a pluralistic system that distributes economic power widely. Pope Francis has criticised neoliberalism throughout his papacy and encouraged state welfare programs for "the redistribution of wealth, looking out for the dignity of the poorest who risk always ending up crushed by the powerful". In Evangelii gaudium, he states: "Some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and naïve trust in the goodness of those wielding economic power and in the sacralized workings of the prevailing economic system. Meanwhile, the excluded are still waiting."

Catholic social teaching opposes both unregulated capitalism and state socialism. Subsequent scholars have noted that conceiving of subsidiarity as a "top-down, government-driven political exercise" requires a selective reading of 1960s encyclicals. A more comprehensive reading of Catholic social teaching suggests a conceptualization of subsidiarity as a "bottom-up concept" that is "rooted in recognition of a common humanity, not in the political equivalent of noblese oblige".

Fascism

Although fascism is primarily a political ideology that stresses the importance of cultural and social issues over economics, it is generally supportive of a broadly capitalistic mixed economy. It supports state interventionism into markets and private enterprise, alongside a fascist corporatist framework, referred to as a third position that ostensibly aims to be a middle-ground between socialism and capitalism by mediating labor and business disputes to promote national unity. 20th-century fascist regimes in Italy and Germany adopted large public works programs to stimulate their economies and state interventionism in largely private sector-dominated economies to promote re-armament and national interests. During World War II, Germany implemented a war economy that combined a free market with central planning. The Nazi government collaborated with leading German business interests, who supported the war effort in exchange for advantageous contracts, subsidies, the suppression of trade unions, and the allowance of cartels and monopolies. Scholars have drawn parallels between the American New Deal and public works programs promoted by fascism, arguing that fascism similarly arose in response to the threat of socialist revolution and aimed to "save capitalism" and private property.

Socialism

Mixed economies understood as a mixture of socially owned and private enterprises have been predicted and advocated by various socialists as a necessary transitional form between capitalism and socialism. Additionally, several proposals for socialist systems call for a mixture of different forms of enterprise ownership including a role for private enterprise. For example, Alexander Nove's conception of feasible socialism outlines an economic system based on a combination of state enterprises for large industries, worker and consumer cooperatives, private enterprises for small-scale operations, and individually-owned enterprises. The social democratic theorist Eduard Bernstein advocated a form of a mixed economy, believing that a mixed system of state-owned enterprises, cooperatives, and private enterprises would be necessary for a long period before capitalism would evolve of its own accord into socialism.

Following the Russian Civil War, Vladimir Lenin adopted the New Economic Policy in the Soviet Union; the introduction of a mixed economy serving as a temporary expedient for rebuilding the nation. The policy eased the restrictions of war communism and allowed a return of markets, where private individuals could administer small and medium-sized enterprises, while the state would control large industries, banks and foreign trade. The Socialist Republic of Vietnam describes its economy as a socialist-oriented market economy that consists of a mixture of public, private, and cooperative enterprise—a mixed economy that is oriented toward the long-term development of a socialist economy. The People's Republic of China adopted a socialist market economy, which represents an early stage of socialist development according to the Chinese Communist Party (CCP). The CCP takes the Marxist–Leninist position that an economic system containing diverse forms of ownership—but with the public sector playing a decisive role—is a necessary characteristic of an economy in the preliminary stage of developing socialism.

In the early post-war era in Western Europe, social democratic parties rejected the Stalinist political and economic model then current in the Soviet Union, committing themselves either to an alternative path to socialism or to a compromise between capitalism and socialism. In this period, social democrats embraced a mixed economy based on the predominance of private property and a minority of essential utilities and public services under public ownership. As a result, social democracy became associated with Keynesian economics, state interventionism, and the welfare state. Social democratic governments in practice largely maintain the capitalist mode of production (factor markets, private property, and wage labor) under a mixed economy, and pledge to reform capitalism and make society more egalitarian and democratic.

Typology

Mix of free markets and state intervention

This meaning of a mixed economy refers to a combination of market forces with state intervention in the form of regulations, macroeconomic policies and social welfare interventions aimed at improving market outcomes. As such, this type of mixed economy falls under the framework of a capitalistic market economy, with macroeconomic interventions aimed at promoting the stability of capitalism. Other examples of common government activity in this form of mixed economy include environmental protection, maintenance of employment standards, a standardized welfare system, and economic competition with antitrust laws. Most contemporary market-oriented economies fall under this category, including the economy of the United States. The term is also used to describe the economies of countries that feature extensive welfare states, such as the Nordic model practiced by the Nordic countries, which combine free markets with an extensive welfare state.

The American School is the economic philosophy that dominated United States national policies from the time of the American Civil War until the mid-20th century. It consisted of three core policy initiatives: protecting industry through high tariffs (1861–1932; changing to subsidies and reciprocity from 1932–the 1970s), government investment in infrastructure through internal improvements, and a national bank to promote the growth of productive enterprises. During this period, the United States grew into the largest economy in the world, surpassing the United Kingdom by 1880. The social market economy is the economic policy of modern Germany that steers a middle path between the goals of social democracy and capitalism within the framework of a private market economy and aims at maintaining a balance between a high rate of economic growth, low inflation, low levels of unemployment, good working conditions, and public welfare and public services by using state intervention. Under its influence, Germany emerged from desolation and defeat to become an industrial giant within the European Union.

Mix of private and public enterprise

This type of mixed economy specifically refers to a mixture of private and public ownership of industry and the means of production. As such, it is sometimes described as a "middle path" or transitional state between capitalism and socialism but can also refer to a mixture of state capitalism with private capitalism. Examples include the economies of China, Norway, Singapore, and Vietnam—all of which feature large state-owned enterprise sectors operating alongside large private sectors. The French economy featured a large state sector from 1945 until 1986, mixing a substantial amount of state-owned enterprises and nationalized firms with private enterprises.

Following the Chinese economic reforms initiated in 1978, the Chinese economy has reformed its state-owned enterprises and allowed greater scope for private enterprises to operate alongside the state and collective sectors. In the 1990s, the central government concentrated its ownership in strategic sectors of the economy, but local and provincial level state-owned enterprises continue to operate in almost every industry including information technology, automobiles, machinery, and hospitality. The latest round of state-owned enterprise reform initiated in 2013 stressed increased dividend payouts of state enterprises to the central government and mixed-ownership reform which includes partial private investment into state-owned firms. As a result, many nominally private-sector firms are partially state-owned by various levels of government and state institutional investors, and many state-owned enterprises are partially privately owned resulting in a mixed ownership economy.

Mix of markets and economic planning

This type of mixed economy refers to a combination of economic planning with market forces for the guiding of production in an economy and may coincide with a mixture of private and public enterprise. It can include capitalist economies with indicative macroeconomic planning policies and socialist planned economies that introduced market forces into their economies such as in Hungary's Goulash Communism, which inaugurated the New Economic Mechanism reforms in 1968 that introduced market processes into its planned economy. Under this system, firms were still publicly owned but not subject to physical production targets and output quotas specified by a national plan. Firms were attached to state ministries that had the power to merge, dissolve and reorganize them and which established the firm's operating sector. Enterprises had to acquire their inputs and sell their outputs in markets, eventually eroding away at the Soviet-style planned economy. Dirigisme was an economic policy initiated under Charles de Gaulle in France, designating an economy where the government exerts strong directive influence through indicative planning. In the period of dirigisme, the French state used indicative economic planning to supplement market forces for guiding its market economy. It involved state control of industries such as transportation, energy and telecommunication infrastructures as well as various incentives for private corporations to merge or engage in certain projects. Under its influence, France experienced what is called Thirty Glorious Years of profound economic growth.

Green New Deal (GND) proposals call for social and economic reforms to address climate change and economic inequality using economic planning with market forces for the guiding of production. The reforms involve phasing out fossil fuels through the implementation of a carbon price and emission regulations, while increasing state spending on renewable energy. Additionally, it calls for greater welfare spending, public housing, and job security. GND proposals seek to maintain capitalism but involve economic planning to reduce carbon emissions and inequality through increased taxation, social spending, and state ownership of essential utilities such as the electrical grid.

Within political discourse, mixed economies are supported by people of various political leanings, particularly the centre-left and centre-right. Debate reigns over the appropriate levels of private and public ownership, capitalism and socialism, and government planning within an economy. The centre-left usually supports markets but argues for a higher degree of regulation, public ownership, and planning within an economy. The centre-right generally accepts some level of public ownership and government intervention but argues for lower government regulation and greater privatisation. In 2010, Australian economist John Quiggin wrote: "The experience of the twentieth century suggests that a mixed economy will outperform both central planning and laissez-faire. The real question for policy debates is one of determining the appropriate mix and the way in which the public and private sectors should interact."

Criticism

Numerous economists have questioned the validity of the entire concept of a mixed economy when understood to be a mixture of capitalism and socialism. Critics who argue that capitalism and socialism cannot coexist believe either market logic or economic planning must be prevalent within an economy.

In Human Action, Ludwig von Mises argued that there can be no mixture of capitalism and socialism. Mises elaborated on this point by contending that even if a market economy contained numerous state-run or nationalized enterprises, this would not make the economy mixed because the existence of such organizations does not alter the fundamental characteristics of the market economy. These publicly owned enterprises would still be subject to market sovereignty as they would have to acquire capital goods through markets, strive to maximize profits, or at the least try to minimize costs, and utilize monetary accounting for economic calculation. Friedrich von Hayek and Mises argued that there can be no lasting middle ground between economic planning and a market economy, and any move in the direction of socialist planning is an unintentional move toward what Hilaire Belloc called "the servile state".

Classical and orthodox Marxist theorists also dispute the viability of a mixed economy as a middle ground between socialism and capitalism. Irrespective of enterprise ownership, either the capitalist law of value and accumulation of capital drive the economy or conscious planning and non-monetary forms of valuation, such as calculation in kind, ultimately drive the economy. From the Great Depression onward, extant mixed economies in the Western world are still functionally capitalist because the economic system remains based on competition and profit production.

Economics of participation

From Wikipedia, the free encyclopedia

https://en.wikipedia.org/wiki/Economics_of_participation

Economics of participation is an umbrella term spanning the economic analysis of worker cooperatives, labor-managed firms, profit sharing, gain sharing, employee ownership, employee stock ownership plans, works councils, codetermination, and other mechanisms which employees use to participate in their firm's decision making and financial results.

A historical analysis of worker participation traces its development from informal profit sharing in U.S. factories, to flexible remuneration in the aftermath of Industrial Revolution and to staff democracy's application for earning stability in economic downturns during the 21st Century.

The economic analysis of these participatory tools reveals their benefits and limitations for individuals, businesses and the wider economy. As a result of worker participation, employees gain skills, morale and motivation that improve business output, productivity and profitability. Spill-on effects into the wider economy can anchor human and financial capital in domestic industries, which have the potential to increase aggregate demand. However, negative implications of staff democracy encompass the free-rider effect and volatile incomes, which may reduce morale and motivation at an organisational level. Further, the long-run success of worker democracy is economically equivocal, and may prove an Pareto inefficient use of economic resources.

History

James Gamble offered informal ESOPs to employees, whereby company stock would be allocated once retirement was reached.

Economics of participation is fundamentally derived from the concept of an employee's involvement in, and contribution to, the operational and managerial functions of their workplace. This foundational concept dates to as early as 1733, when President Benjamin Franklin applied a form of employee ownership to the establishment of print shops during the founding of the United States. In exchange for a third of each shop's profits, Franklin covered the costs of each shop's upfront capital in addition to a third of operating expenses. After six years, he transferred the stores' ownership to various journeymen, "most of [whom] did well" and who were able to "go on working for themselves" successfully, among the first of all employee-owners.

Then, during the 1970s, the USA's first profit sharing plan was initiated into Pensylvanian glassworks factories by Secretary of the Treasurer Albert Gallatin, where a fixed proportion of company profits were redistributed to employees as bonuses for exceeding output targets.

Industrial Revolution and 20th century

Economics of participation emerged more formally during the USA's shift towards an industrial economy. The directors of large companies, for example Procter & Gamble and Sears & Roebuck, wanted to provide their staff with income during retirement, as financial support during employees' post-working lives. To achieve this without deteriorating firm profitability, these directors decided to award employees ownership in exchange for production effort while still employed: those who achieved set targets were allocated company stock upon retirement. In 1956, the first employee stock ownership plan was created by Louis O. Kelso, a lawyer and economist from San Francisco, to transfer ownership of Peninsula Newspapers, Inc. from two elderly founders to the company's employees.

Many sought King's periodical, 'The Co-Operator' as a source of instructions, advice and guidance pertaining to the establishment & use of worker cooperatives.

During the late nineteenth century, General Foods and Pillsbury were among the first companies to formally initiate profit-sharing bonuses: select percentages of firm profits were reallocated to staff when they exceeded sales targets. Later, in 1916, Harris Trust and Savings Bank of Chicago created the first profit-sharing pension plan, drawing upon the example set by Proctor & Gamble to ensure loyal, motivated staff received financial aid during retirement. Resultantly, the concept of profit-sharing was more widely used to the point where, during the Second World War, select employers applied it to provide necessary financial aid to staff without raising wages numerically. The notion that profit-sharing balances employees' financial security with their firm's need for increased profitability thus emerged.

Worker cooperatives, another key tool used for economics of participation, gained momentum as part of the labour movement. During the Industrial Revolution, once-workers more frequently began to assume managerial and directorial roles as a "critical reaction to industrial capitalism and the excesses of the Industrial Revolution." Worker cooperatives emerged rapidly, to combat "insecurities of wage labour" by establishing and operating employee-owned firms that provided fair wages, most prominently in the cotton mills of New Lanark, Scotland. Dr William King, a pioneer in the field of economics of participation, founded a monthly periodical titled The Co-operator in 1828, which many sourced for advice on inaugurating their own worker cooperative.

Contemporary applications

While traditional business uses of the economics of participation primarily aimed to increase firm profitability, modern applications are often justified by their capacity to improved corporate culture, morale and staff satisfaction. Companies such as Huawei and Publix Super Markets have implemented a combination of employee ownership and profit-sharing plans as tools for employee participation, doing so to more closely align their staff with the goals, objectives and policies of their corporate vision rather than boost financial return. For instance, the aggregate yearly value of Huawei's employee remuneration, including profit-sharing plans and stock ownership, is 2.8 times the firm's annual net profit.

More recently, economics of participation tools, particularly profit sharing and employee ownership, have been applied as strategic responses to pandemic-induced economic downturn. The table below shows results from a 2021 study comparing the effects of COVID-19 on employee-owned and non-employee-owned firms: significant differences in total employment, pay cuts and hour cuts were observed.

Effects of COVID-19 on Employee-Owned & Non Employee-Owned Firms

	Employee-owned firms	Other firms
Percent change in mean total employment	−4.8%	−19.5%
Percent of employees with pay cuts	16.4%	25.7%
Percent of employees with hour cuts	17.3%	24.5%

Owing to their benefits for worker motivation, loyalty, career security and income stability, many economists predict tools for economics of participation are likely to become more frequent responses to downswings in economic activity.

Benefits for firms, employees and society

By allowing employees to participate in organisational decision-making, businesses reinforce a corporate culture framed around self-ownership, accountability, shared values and secure employment. In turn, this culture generates financial and non-financial benefits for staff, firm profitability and the wider economy.

Benefits for the firm

Profit sharing during economic recession may reduce worker retrenchment and maintain job security.

The application of economics of participation to business decision making more strongly identifies individual staff members with the values and culture of their workplace. The resulting increase in motivational outcomes stimulates gains to productivity], which improve total output, revenues and growth. An early study introducing employee-ownership into forty-five firms recorded a 3.84 percentage point increase in employment growth and a 3.51 percentage point increase in sales growth after this tool for economics of participation was implemented. Subsequent studies have confirmed the positive effects of worker participation on business output, concluding that this practice generally stimulates "increased productivity reinforced by increased participation".

Moreover, tools such as profit-sharing or employee stock ownership may reduce shirking behaviours in staff as it is in workers’ best interest to maximise their output for increased pay. Hence, businesses may be able to reduce their supervision personnel and the expenses associated with these staff members’ wages. In addition, the Substitution argument is enabled by economics of participation, whereby firms use tools such as profit-sharing or ESOPs to substitute fixed pay (i.e. wages and salaries) for variable remuneration. By doing so, a business's cost of human capital is more closely aligned with its ability to award financial compensation: the firm is thus provided with greater flexibility to adjust wages according to prevailing economic conditions. For example, a decrease in profit-shared wages during an economic recession may mitigate the impact of reduced output and revenues on business profitability, enabling firms to retain workers at a lower cost rather than retrenching them. As such, economics of participation can improve job security for staff, while guarding firm profits against unforeseen economic misfortune.

Benefits for the employee

Tools for economics of participation often aim to increase business output and productivity. As these increased levels of output are directly correlated to higher profit portions for staff, employees also receive the benefit of voluntarily increasing their remuneration so that efficiency wages may be awarded. These above-market wages are made financially feasible by the gains derived from increased productivity, whereby a firm's initial investment into its human capital enables economic rent to be shared, via profit-sharing mechanisms or wage redistribution.

Furthermore, when an increased number of employees adopt managerial roles within a firm or a worker cooperative, a flatter organisational structure arises. Hence, staff are allowed to participate "at the highest level" through member-driven participation, for example through open-led meetings and consensus decision-making. Often, this is facilitated through training in public speaking and small-group debate opportunities, which develop staff members' communication abilities and equip them with skills vital to labour participation. By fulfilling these managerial functions, workers develop transferrable soft skills in communication and responsibility that increase chances of future employment and career development.

Moreover, when tools to encourage employee engagement are combined with strong labour market regulation, the welfare of employees may increase. For instance, if employee-owners collectively decide to implement policies for flexitime or telecommuting, worker satisfaction and productivity are likely to improve, and aforementioned efficiency wages may further increase.

Benefits for society

Methods to encourage economics of participation are heavily reliant on the concept of economic democracy, and thereby advocate for the transfer of decision-making power from managers and directors to public stakeholders, among which are workers. In the first instance, the implementation of employee ownership can privatise a firm and encourage economic reform, which encourages a more equal distribution of resources and economic growth. The economics of participation can also be applied on a microeconomic scale: for example, a centrally planned economy which includes state-owned factors of production can distribute revenue made from the use of each resource to workers involved in its production. This makeshift use of 'profit sharing' enables manual labourers retain their capitalistic motivations to produce efficiently, while the state maintains a majority share of ownership over the factors of production.

An increase in aggregate demand shifts the AD curve right, increasing both the price level and GDP.

In addition, the economics of employee ownership recognise its ability to "anchor capital", or fix resources in local production and development. Resultantly, domestic employment opportunities are increased as jobs are maintained and added, which increase consumer incomes ${\displaystyle (Y)}$. As levels of income increase, consumers gain greater confidence and consumption ${\displaystyle (C)}$ rises, finally contributing to an increase in aggregate demand ${\displaystyle AD=C+I+G+(X-M)}$.

Additionally, economic analysis of worker participation suggests mechanisms such as profit sharing and employee ownership can "share wealth more broadly and increase the mutuality of interests" for both employees and employers, particularly when the former are of low socioeconomic status. While remuneration in the form of income successfully satisfies short-term consumptive needs, wealth assets are more effective in granting owners access to additional asset-producing opportunities, which can in turn augment quality of life, income security and financial wellbeing overall. For example, after a 2015 study introduced employee ownership into the W. K. Kellogg Foundation, the value of employee owners' "ESOP account after 20 years of employment [was] more than twice the average of a similar employee with only a 401k plan", despite over 50% of employee owners not having a college or associate degree. Hence, employee participation may be seen to improve the long-term asset wealth of staff, and therefore contribute to an increase in financial quality of life for society overall.

Limitations for firms, employees and society

The economics of participation also acknowledge the shortcomings of employees' involvement in the decision-making and financial results of their firm. Scholars including Gregory Dow, David Ellerman and James Meade recognise that the labour-managed firm, tools for profit sharing and mechanisms for employee ownership may not be Pareto efficient, and are unfeasible for certain economies where market imperfections exist.

Limitations for the firm

Many obstacles impede a firm's easy implementation of worker democracy, and its results may not always be purely positive. Corporate morale is not always improved by employee participation: for instance, if a company's share price stagnates or declines after an ESOP is inaugurated, employees may feel as if their efforts are unrewarded. As their remuneration (i.e. a dividend) is directly impacted by share price, company-wide morale may worsen and levels of staff turnover may increase. Prolonged decreases in share performance may also lead to covert and overt industrial actions, which create a toxic corporate culture and accrue negative publicity for the firm itself. In addition, ESOPs implemented via share option plans may dilute company ownership. Thus, as more shares are issued each employee owns a smaller proportion of their firm, which may detract from the sense of ownership required for worker democracy to function effectively.

Moreover, significant expenses are incurred while the concept of employee participation is introduced into a firm, and productivity may be lost during the process of familiarising staff with its protocols. An increase in such expenses, often considerable in magnitude, can severely and negatively affect a business's profit performance. Mechanisms such as profit sharing and employee ownership do not directly increase corporate capital or business profitability. Instead, they rely on the indirect effects of worker democracy to improve financial performance; for example through a reduction in fixed wages, gradual productivity gains and the elimination of supervision personnel. These indirect gains to a firm's profits are not always realised, which may worsen the business's financial position. As the profit-enhancing effects of employee participation are not guaranteed nor immediate, capital is often required from external investors and venture capitalists, who may desire decision-making power which has the potential to undermine the very concept upon which the labour-managed firm is predicated.

Limitations for the employee

As aforementioned, worker participation is often remunerated through non-fixed wages, for example profit-shared income or dividends paid to employee-owners. These forms of income are volatile, fluctuating alongside the economic cycle, company performance and the forces of supply and demand. Hence, worker income stability is jeopardised and remuneration may be

A satirical depiction of the free-rider effect; those who unequally contribute may be equally rewarded.

significantly lower than a formal salary if economic conditions dampen or a firm's profit performance plateaus at a low point. In a particular focus group, 96% of employees opposed the complete substitution of wages and salaries for profit-shared remuneration, with a further 42% emphasising the "disappointment or bitterness" encountered when profit performance, and thus staff pay, decreased. As financial reward is a key motivator for many employees, a decrease in monetary remuneration may, in turn, reduce staff satisfaction, morale and motivation; ultimately lessening the productivity outputted by the firm.

In addition, a variation of the economic argument denoted the "free-rider effect" also pertains to worker participation; a market failure whereby those who receive economic rewards from labour under-participate, or do not contribute equally to collaboratively designed tasks. Though a firm may be controlled by multiple employee-owners, or many staff receive profit-shared rewards, it is likely that they do not all contribute equally to the business's activities. Therefore, the distribution of income may be affected by the aforementioned free-rider problem. If noticed by staff, this effect may negatively impact staff morale and demotivate workers from increasing productivity.

Limitations for society

The successful introduction of worker participation into a business is challenging: as aforementioned, external finance, significant time and lost productivity are all expenses involved in the establishment of profit sharing tools, ESOPs or worker cooperatives. In the longer-term, however, very few tools for economic democracy survive, rendering their resource usage inefficient. The 'Degeneration Thesis' presented by Cornforth argues that firms operating upon the principles of worker democracy inevitably degenerate into more traditional capitalist structures, as a result of an economic variation of Michels's "iron law of oligarchy". When freely competitive markets confront an employee-owned firm, technical expertise, access to information about competitors' products and taller management structures are required to remain operative and profitable. Often, worker cooperatives and firms boasting staff democracy fail to access these resources, and so "degenerate" into traditionally-structured businesses. This process is resource inefficient, as time, capital and productivity is lost in the degeneration of an employee-owned firm, which reduces the total output available for consumption by society.

Contributing scholars, publications and organisations

The economics of participation have been developed by the contributions of numerous scholars and organisations. In particular, the work of Gregory Dow, David Ellerman, Derek C. Jones, Takao Kato, James Meade and Jaroslav Vanek has been significant in advancing the econometric, microeconomic and macroeconomic analysis of labour-managed firms, worker cooperatives, profit-sharing tools and other mechanisms for employee participation.

In addition, the economics of participation are widely published, analysed and debated in the Journal of Participation and Employee Ownership, Annals of Public and Cooperative Economics, Economic and Industrial Democracy and Journal of Comparative Economics. The International Association for the Economics of Participation is also significant in the promulgation of knowledge regarding this applied economic science.

Employee stock ownership

From Wikipedia, the free encyclopedia

https://en.wikipedia.org/wiki/Employee_stock_ownership

Employee stock ownership, or employee share ownership, is where a company's employees own shares in that company (or in the parent company of a group of companies). US employees typically acquire shares through a share option plan. In the UK, Employee Share Purchase Plans are common, wherein deductions are made from an employee's salary to purchase shares over time. In Australia it is common to have all employee plans that provide employees with $1,000 worth of shares on a tax free basis. Such plans may be selective or all-employee plans. Selective plans are typically only made available to senior executives. All-employee plans offer participation to all employees (subject to certain qualifying conditions such as a minimum length of service).

Most corporations use stock ownership plans as a form of an employee benefit. Plans in public companies generally limit the total number or the percentage of the company's stock that may be acquired by employees under a plan. Compared with worker cooperatives or co-determination, employee share ownership may not confer any meaningful control or influence by employees in governing and managing the corporation.

Some companies, particularly private companies, use employee share ownership to support a company's culture. Employee ownership is when all employees together own a substantial stake and have a meaningful voice in the company (or group) that employs them.

A number of countries have introduced tax advantaged share or share option plans to encourage employee share ownership.

Types of plan

To facilitate employee stock ownership, companies may allocate their employees with stock, which may be at no upfront cost to the employee, enable the employee to purchase stock, which may be at a discount, or grant employees stock options. Shares allocated to employees may have a holding period before the employee takes ownership of the shares (known as vesting). The vesting of shares and the exercise of a stock option may be subject to individual or business performance conditions.

Various types of employee stock ownership plans are common in most industrial and some developing countries. Executive plans are designed to recruit and reward senior or key employees. In the U.S. and the UK there is a widespread practice of sharing this kind of ownership broadly with employees through plans in which participation is offered to all employees. The tax rules for employee share ownership vary widely from country to country. Only a few, most notably the U.S., the UK, and Ireland have significant tax laws to encourage broad-based employee share ownership. For example, in the U.S. there are specific rules for Employee Stock Ownership Plans (ESOPs). In the UK there are two all-employee tax advantaged plans that enable employees to acquire shares: the Share Incentive Plan and the Sharesave share option plan.

Varieties of employee share ownership plan (including associated cash based incentive plans) include:

Direct purchase plans

Direct purchase plans simply allow employees to buy shares in the company with their own money. In several countries, there are special tax-qualified plans that allow employees to buy stock either at a discount or with matching shares from the company. For instance, in the U.S., employee stock purchase plans enable employees to put aside after-tax pay over some period of time (typically 6–12 months) then use the accumulated funds to buy shares at up to a 15% discount at either the price at the time of purchase or the time when they started putting aside the money, whichever is lower. In the U.K., Share Incentive Plans allow employee purchases that can be matched directly by the company.

Stock options

Main article: Employee stock option

Stock options give employees the right to buy a number of shares at a price fixed at grant for a defined number of years into the future. Options, and all the plans listed below, can be given to any employee under whatever rules the company creates, with limited exceptions in various countries.

Restricted stock

Restricted stock and its close relative restricted stock units give employees the right to acquire or receive shares, by gift or purchase, once certain restrictions, such as working a certain number of years or meeting a performance target, are met.

Phantom stock

Phantom stock pays a future cash bonus equal to the value of a certain number of shares.

Stock appreciation rights

Stock appreciation rights provide the right to the increase in the value of a designated number of shares, usually paid in cash but occasionally settled in shares (this is called a "stock–settled" SAR).

Employee ownership

Employee ownership is a way of running a business that can work for different sized businesses in diverse sectors.

Employee ownership requires employees to own a significant and meaningful stake in their company. The size of the shareholding must be significant. This is accepted as meaning where 25 percent or more of the ownership of the company is broadly held by all or most employees (or on their behalf by a trust). There are three basic forms of employee ownership:

• direct ownership of shares by all employees as individuals;
• indirect (or trust) ownership on behalf of all employees by the trustee of an employee trust; and
• the hybrid model which combines both direct and indirect ownership.

In addition, the employees’ stake must give employees a meaningful voice in the company's affairs by it underpinning organisational structures that promote employee engagement in the company.

Employee ownership can be seen as a business model in its own right, in contrast to employee share ownership which may only provide selected employees with shares in their company and an insignificant overall shareholding.

In the UK organisations such as the Employee Ownership Association (EOA), Scottish Enterprise, Wales Co-operative Centre and Co-operatives UK play an active role in promoting employee ownership.

An employee controlled company is a majority employee-owned company. This might arise through an employee-buyout. This can be set up through an employee ownership trust. Employee-owned companies are totally or significantly owned (directly or indirectly) by their employees.

Different forms of employee ownership, and the principles that underlie them, have contributed to the emergence of an international social enterprise movement. A public service mutual, by definition, has a significant degree of employee ownership, influence or control, but most public service mutuals identify themselves as social enterprises rather than employee owned.

A worker cooperative is a cooperative owned and self-managed by its workers. It is a type of employee owned company that operates according to the international values of co-operation and adheres to an additional code, beyond the core international principles, focused on democracy and participation in the workplace. The most celebrated (and studied) case of a group of companies based wholly on co-operative principles is the Spanish Mondragon Cooperative Corporation. Spanish law, however, requires that members of the Mondragon Corporation are registered as self-employed and are not employees. This further differentiates this type of co-operative ownership (in which self-employed owner-members each have one voting share, or shares are controlled by a co-operative legal entity) from employee ownership (where ownership is typically held as a block of shares on behalf of employees using an employee ownership trust, or company rules embed mechanisms for distributing shares to employees and ensuring they remain majority shareholders).

By country

United Kingdom

Main article: Employee share schemes in the United Kingdom

Employee Share Ownership Plans (ESOPs) became widespread for a short period in the UK under the government of Margaret Thatcher, particularly following the Transport Act 1985, which deregulated and then privatised bus services. Councils seeking to protect workers ensured that employees accessed shares as privatisation took place, but employee owners soon lost their shares as they were bought up and bus companies were taken over. The disappearance of stock plans was dramatic.

United States

Main article: Employee stock ownership plans in the United States

In the United States, there is a widespread practice of employee stock ownership. It began with industrial companies and today is particularly common in the technology sector but also companies in other industries, such as Whole Foods Market and Starbucks.

In his 2020 Presidential campaign, Bernie Sanders proposed that 20% of stocks in corporations with over $100 million in annual revenue be owned by the corporation's workers.

Guild socialism

From Wikipedia, the free encyclopedia

https://en.wikipedia.org/wiki/Guild_socialism 

History and development

Guild socialism was partly inspired by the guilds of craftsmen and other skilled workers which had existed in England in the Middle Ages. In 1906, Arthur Penty published Restoration of the Gild System in which he opposed factory production and advocated a return to an earlier period of artisanal production organised through guilds. The following year, the journal The New Age became an advocate of guild socialism, although in the context of modern industry rather than the medieval setting favoured by Penty.

In 1914, S. G. Hobson, a leading contributor to The New Age, published National Guilds: An Inquiry into the Wage System and the Way Out. In this work, guilds were presented as an alternative to state control of industry or conventional trade union activity. Guilds, unlike the existing trade unions, would not confine their demands to matters of wages and conditions but would seek to obtain control of industry for the workers whom they represented. Ultimately, industrial guilds would serve as the organs through which industry would be organised in a future socialist society.

The guild socialists "stood for state ownership of industry, combined with ‘workers’ control’ through delegation of authority to national guilds organized internally on democratic lines. About the state itself they differed, some believing it would remain more or less in its existing form and others that it would be transformed into a federal body representing the workers’ guilds, consumers’ organizations, local government bodies, and other social structures."

Ernst Wigforss—a leading theorist of the Social Democratic Party of Sweden—was also inspired by and stood ideologically close to the ideas of Fabian Society and the guild socialism inspired by people like R. H. Tawney, L.T. Hobhouse and J. A. Hobson. He made contributions in his early writings about industrial democracy and workers' self-management.

The theory of guild socialism was developed and popularised by G. D. H. Cole who formed the National Guilds League in 1915 and published several books on guild socialism, including Self-Government in Industry (1917) and Guild Socialism Restated (1920). A National Building Guild was established after World War I but collapsed after funding was withdrawn in 1921.

The science fiction work of Olaf Stapledon suggested that a more "individualistic" form of guild socialism would be a natural outcome for a united humanity hundreds of years in the future.

Cole's ideas were also promoted by prominent anti-authoritarian intellectuals such as the British logician Bertrand Russell, first through his 1918 essay Roads to Freedom. Other thinkers who incorporated Cole's writings on guild socialism include the economist Karl Polanyi, R. H. Tawney, A. R. Orage, and the American liberal reformer John Dewey.

For scholar Charles Masquelier, "[i]t is by meeting such a twofold requirement that the libertarian socialism of G.D.H. Cole could be said to offer timely and sustainable avenues for the institutionalization of the liberal value of autonomy...By setting out to 'destroy this predominance of economic factors' (Cole 1980, 180) through the re-organization of key spheres of life into forms of associative action and coordination capable of giving the 'fullest development of functional organisation'...Cole effectively sought to turn political representation into a system actually capable of giving direct recognition to the multiplicity of interests making up highly complex and differentiated societies".