THE INVESTMENT BEHAVIOUR OF A LABOUR‐MANAGED FIRM (¹)

Solving the Underinvestment and Degeneration Problems of Workers' Cooperatives

“…In predominantly common-ownership workers' cooperatives there is a reduced incentive to reinvest earnings because members cannot retrieve the principal or the future earnings of their capital from the enterprise upon leaving (a 'reinvestment horizon problem ': Furubotn and Pejovich 1970, Vanek 1975, F'urubotn 1976, Thornley 1981, Defourny 1986b, Ellerman 1990, pp. 98-100, Bartlett et al 1992, p. 113, Bonin et al 1993, but see Uvalic 1986, who defends common ownership and blames capital maintenance requirements for underinvestment in this type of cooperative -workers cannot recover the principal of a reinvestment if they are not allowed by the cooperative's rules to pay themselves the depreciation charges). A predicted consequence would be that these cooperatives should have shorter time horizons than capitalist firms (see discussions in Ellerman 1986, Minkler 1989.…”

“…possibly by setting up reserves, part of which at least would be indivisible' (third principle). Indivisible collective reserves may improve solidarity (see Uvalic 1986, Doucouliagos 1995a, and can be used to handle a collective endowment or a reserve fund for self-insurance (Ellerman 1990, p. 83). Empirical evidence suggests that a small proportion of collective reserves may actually be associated with increased productivity (e.g.…”

Property Rights, Efficiency and Labor‐managed Firms

“…9 Even advocates ofLMF's accept the-appropriabilitycri ticisms. For example, see Vanek (1971aVanek ( , 1971b); Zafiris; Putterman; Uvalic (1986). longer than their expected tenure, it will be necessary for the payoff to be greater than the economy wide interest rate.…”

Profit‐Sharing and Employment: Claims and Overclaims

“…Pursuing maximum income per employee, those already employed may encourage or adopt employment production policies in their exercise of co-determination. The enterprise type which is characterized by 100 per cent profit-sharing and 100 per cent self-managementi.e., the cooperative enterpriseis expected to adopt employment-restrictive policies and respond "perversely" (or at any rate, inelastically) to output price changes or capital charges, and to shy away from self-financed i n~e s t m e n t .~ Empirical studies of cooperative firms show no evidence of restrictive employment policies and perverse response, or even of under-investment from self-finance (Uvalic, 1986); probably these tendencies are partly offset by other economic (job security, growth-mindedness, etc.) and noneconomic stimuli (Nuti, 1986c;Horvat, 1986).…”