15/1999
September
Flexible Wages in Workers' Controlled Firms
 
Ermanno Tortia


The motivation that underlies this work is the desire to analyse the institutional arrangements of workers' co-operatives in order to find valid and viable institutional solutions that need to respect at least two constraints. On the one side they must be compatible with the basic principle of industrial cooperation that, in turn, are usually directly linked to the socialist and egalitarian tradition, in its more libertarian streams aiming to a decentralised community development. On the other side, they are bound to be respectful of the theoretical insights given by the modern theory of the firm and to lead to a sane economic development.
One of these arrangements is just wage flexibility in workers' co-operatives. The topic is not new in itself. The specialised literature shows a clear awareness of average income variability in this type of firm. For this reason my work is not aimed at uncovering a feature of workers' controlled firms. Its objective is to put this feature in working institutional terms. The institutional solutions that will be outlined below are intended to reconcile various necessities and to respect different constraints, while guaranteeing the pursuing of the objectives of co-operation.
More specifically it allows for the existence of a basic institutional structure were the same rights and duties are attached to the position of all the members in the organisation. Workers become residual claimants and acquire the right to decide about the distribution of the surplus and the investment projects.
All the relevant decisions within the firm are taken by workers' representatives, with a likely reduction of the risks incurred by workers on the job. These nice features have an obvious counterpart in more responsibilities for workers, an increased risk-bearing, the requirement of a more participatory and "consummate" co-operative attitude etcÂ…
For these reasons, my argument is not exclusively liked to the mere income variability, but passes through various stages outlining a fairly complex institutional structure where wage flexibility is a crucial feature. The setting outlined is very similar to the one actually existing in the group of cooperatives located in Mondragon, Basque Regions, Spain.
First of all a new definition of property rights is required, where workers, instead of shareholders, become residual claimants. This quite radical modification of property rights is justified by the centrality that labour enjoys in socialist principles. The surplus in co-operatives is bound to have a similar role to the one of the profit in capitalist firms. Therefore, the shares in the surplus that workers enjoy are necessarily saved at least partly in order to finance new investments. In this respect, the role of individual accounts and collective reserves will be highlighted. In this work self-financing is considered, contrary to other significant sources, an unavoidable feature of workers' co-operatives.
The right to obtain shares of the surplus is matched by the necessity to share in a substantive way the economic risks faced by the firm too. Without the profit and the control over the firm being assigned to a third party (the employer), no other subject apart from workers has a real economic interest in subjecting himself or herself to the incertitude of variable returns.
Finally, workers can become residual claimant and can accept to bear the economic risks of the firm only if substantive control over the key economic variables is granted to them. They would be likely to refuse risk bearing and to renounce to a higher, but highly uncertain income if they were not granted control. The rule "one member, one vote", often chosen by existing workers co-operatives, seems to be the most appropriate to give a prominent role to labour and to grant control to workers.

 
Download:   PDF File - 88.97 KB (PDF File - 88.97 KB)