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 programs and policies by which employees participate in decision making and/or financial results in firms.

History

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.[1] 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.[1][2]

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.[3] Though Gallatin did not explicitly label this form of remuneration as 'profit sharing', the concept common to economics of participation was apparent nonetheless.

Industrial Revolution & 20th Century

Economics of participation emerged more formally during the USA's shift towards an industrial economy.[2] 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.[2] 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.[4][5]

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.[3] 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.[3] 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.[3][2] 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."[6] Worker cooperatives emerged rapidly, to combat "insecurities of wage labor" by establishing and operating employee-owned firms that provided fair wages, most prominently in the cotton mills of New Lanark, Scotland.[7] 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.[8]

Benefits for employees, firms 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.[9] In turn, this culture generates financial and non-financial benefits for staff, firm profitability and the wider economy.

The application of economics of participation to business decision making more strongly identifies individual staff members with the values and culture of their workplace.[10] The resulting increase in motivational outcomes stimulates gains to productivity, which improve total output, revenues and growth.[10] 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.[11] Subsequent studies have confirmed the positive effects of worker participation on business output, concluding that this practise generally stimulates "increased productivity reinforced by increased participation".[10]

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.[9][12] 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 "economic democracy".[9][13] By fulfilling these managerial functions, workers develop transferrable soft skills in communication and responsibility that increase chances of future employment and career development.

Contributing scholars, publications and organisations

Journals and other publications

Scholarly organizations
  • International Association for the Economics of Participation

References
  1. Franklin, Benjamin (1981). The Autobiography of Benjamin Franklin. New York City: McGraw-Hill Humanities/Social Sciences/Languages. pp. 116–118. ISBN 9780075542711.
  2. "The History of Employee Ownership | Employee Ownership Foundation". employeeownershipfoundation.org. Retrieved 2022-03-20.
  3. "Profit Sharing | Encyclopedia.com". www.encyclopedia.com. Retrieved 2022-03-20.
  4. "Peninsula Newspapers Inc". The Menke Group. Retrieved 2022-03-20.
  5. "The Origin and History of the ESOP and Its Future Role as a Business Succession Tool - The Menke Group". menke.com. Retrieved 2022-03-20.
  6. Adams, Frank T. (1993). Putting democracy to work : a practical guide for starting and managing worker-owned businesses. Berrett-Koehker. ISBN 1-881052-09-5. OCLC 751011720.
  7. Branigin, Roger D. (1972). Pitzer, Donald (ed.). Robert Owen's American Legacy. Indianapolis: Indiana Historical Society. p. 20.
  8. King, William (1922). Mercer, Thomas William (ed.). Dr. William King and the Co-operator, 1828-1830. University of California Libraries. Manchester [Eng.] : Co-operative Union.
  9. Wren, David (2020-01-01). "The culture of UK employee-owned worker cooperatives". Employee Relations: The International Journal. 42 (3): 761–776. doi:10.1108/ER-12-2018-0327. ISSN 0142-5455. S2CID 216182503.
  10. Mygind, Niels; Poulsen, Thomas (2021-01-01). "Employee ownership – pros and cons – a review". Journal of Participation and Employee Ownership. 4 (2): 136–173. doi:10.1108/JPEO-08-2021-0003. ISSN 2514-7641. S2CID 244277410.
  11. Durso, Gianna (1991-01-01). "Employee Stock Ownership Plans: Popularity, Productivity, and Prospects". Management Research News. 14 (3): 10–12. doi:10.1108/eb028124. ISSN 0140-9174.
  12. Ridley-Duff, Rory (Winter 2013). "Workforce Participation: Developing a Theoretical Framework for Longitudinal Research". Journal of Co-Operative Studies. 5: 4 – via Co-Operative News.
  13. Ellerman, David P. (1990). The democratic worker-owned firm : a new model for the East and West. Boston: Unwin Hyman. ISBN 0-04-445743-X. OCLC 20797004.
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