The Labor-Managed Firm: Permanent or Start-Up Subsidies?

Abstract

We explore a new argument that seeks to explain the near absence of the labor-managed firm or cooperative, despite a range of inefficiencies attributed to the present-day capitalist firm. We derive the crucial condition for the emergence of labor-managed firms and show that it is unduly restrictive from an efficiency point of view. The policy implication is that public intervention to promote labormanaged firms should primarily be in the form of start-up subsidies rather than in providing permanent tax subsidies.

Government R&D subsidies and international competitiveness of labor-managed firms

“…However, such subsidies in the past have also helped certain industries to catch-up, for example, in the case of China entering PV production ( Gang, 2015 ). As Groot and van Der Linde (2017) point out such subsidies need not be permanent, but prevail only to provide start-up support and to help gain a strong footing.…”

“…The investigation of the effects of R&D subsidy on firms' behavior is important especially when direct export subsidy is restricted or violates trade rules. Second, our analysis focuses on LMF because LMF may allocate resources more efficiently than PMF ( Groot and van Der Linde 2017 ) and there still exist some firms in Yugoslavia, America, England, France, Germany, China, and Italy, etc. ( Luo 2013 ).…”

“…Our analysis of LMF provides guidance to the government of LMF on how to make the best use of R&D subsidy to promote labor-managed firms to compete with traditional profit-maximizing firms in an international market. An understanding of government intervention is vital as a major difference between an LMF and a PMF is a higher demand reduces labor employment in the LMF and boosts employment in the PMF ( Groot and van Der Linde 2017 ). Effective government intervention via R&D subsidy can prevent the disappearance of LMFs in a country.…”

“… 1 There are differing ways to classify differences between PMFs (conventional firms) and LMFs (worker cooperatives). See Groot and van Der Linde (2017) for a more comprehensive review of these issues. The International Cooperative Alliance (ICA) defines cooperatives as being “people-centred enterprises owned, controlled and run by and for their members to realise their common economic, social, and cultural needs and aspirations” ( https://www.ica.coop/en/cooperatives/what-is-a-cooperative ).…”

Employee participation, job quality, and inequality

“…converting traditional debt into a more equity-like instrument, stabilizing employee incomes, and reducing the risk of default (Dow, 2017;Groot and van der Linde, 2017).…”