90% of startups fail within five years. As the old models of organisation fail, maybe democracy works?
by Dominic White, Hyper Island DMM6
This paper sets out to asses the existing evidence on the link between productivity and democracy in the literature, driven by an axiomatic understanding of power as a corrupting force and seeing current models of organisational design as failing to properly safeguard workers and customers from corruption, graft and failures of productivity.
Drawing from literature from political economy, institutional economics, critical management theory, labour economics, psychology, and the emergent properties of systems, this paper provides a rationale for democracy beyond its (already significant) populist, moral & ethical appeal and focusing on productivity and the prevention of sabotage through the effects of power on human behaviour. This research suggests that organisations can use four simple principles and freely available design and communication tools to ensure that power is equitably distributed at an early stage.
WHAT DO WE TALK ABOUT WHEN WE TALK ABOUT WORKING?
When we talk about our colleagues, our office neighbours, our bosses and our subordinates, what are we talking about? When we are upset that a recommendation we made was not put into practice, when we feel pleased that our manager gave us a raise as a result of hard work well performed, when we are dismayed that an employee isn’t putting in as much work as their colleagues and that they must be disciplined, what are we talking about?
There is always the naive-realist response (Liberman et al, 2011), that we are just talking about what we are talking about and that is simply all there is to it. That all these myriad conversations are no more than idle gossip with no bearing on the work processes functioning later or earlier.
Closer to the truth is the idea that these conversations are functions of and exercises in workplace power. The stories we tell are narratives of power used to good effect or misused by others to sabotage our own efforts. We tell self-aggrandising tales of overcoming the incompetence of all-powerful managers by subverting work structures towards more productive ends (there is a popular subset of stories on social media site reddit.com which details the fortunes of people who have automated the unpleasant aspects away from their office jobs and simply while away the hours playing videogames on work time, as here: https://www.reddit.com/comments/tenoq). We establish the necessity of our use of disciplinary force to control workers through threat of termination, because they clearly weren’t working hard enough before and something had to change. Invariably the moral of these stories is one of two things: either “if I had more power, things would be much better run”, or “if you were in my position, you would have done exactly the same thing”.
All of these narratives are shaped by, and themselves shape, the distributions of power within (and surrounding) workplaces. These stories are mythologies that reinforce and legitimise our self-image which we use to justify past and future actions. They are themselves shaped by dominant ideologies and cultural norms, the limits of our rationality strictly bounded by acceptable social action and historically effective limits of the use of power on subordinates and peers.
WHAT IS POWER?
Power can be reasonably seen as the discretion and means to asymmetrically enforce one’s will over others (Sturm & Antonakis 2014). It is a fundamental force of interpersonal relationships (ibid), situated in social science in a comparable way to energy in physics (Russell 1938), playing a vital role in social, political and organisational life (Fehr, Herz, & Wilkening 2013; Rucker & Galinsky 2008).
Power is not simply control over resources, as early accounts had it. It can be informal and conversational, resultant from symbolic or reference sources (Etzioni 1961). Those with power can induce those who follow them to act and do things they would not otherwise do for reasons of intrinsic motivation (Sturm & Antonakis 2014); those followers can have the will of the powerful exerted onto them without ever being aware or conscious of the referent power used (French & Raven 1959). We can have extraordinarily powerful individuals, institutions and organisations who have little in the way of control over means of production, capital good or military strength. Within working teams non-managerial staff can have significant power over a decision making process, through informal social bonds or individual expertise or past experience, despite a lack of formal hierarchical control over other workers.
Much of the literature on organisational and managerial power (as well as capital power and interpersonal power) has focused on the question: “What is it like to have power?” (Sturm & Antonakis 2014). There are clear results here; power increases stereotyping (Fiske 1993; Fiske & Dépret 1996; Overbeck & Park 2006; Vescio, Snyder, & Butz 2003; Weick & Guinote 2008), induces changes in information processing resulting in higher esteem held in single sources and ease of retrieval of information (Goodwin, Operario, & Fiske 1998; Lammers & Stapel 2009), and prevents attention being paid to details (Smith & Trope 2006). Increasing power makes people more likely to use universal (rather than individuated) reasoning in decisions (Erber & Fiske 1984) — while this prevents ‘special cases’ being made and could result in greater moral judgement over individual cases, it also results in powerful individuals not taking the perspectives of others into account in decision making (Galinsky, Magee, Inesi, & Gruenfeld 2006). The axiom guiding thought in this paper is Lord Acton’s famous formulation; power corrupts, and absolute power corrupts absolutely.
CAPITAL AS POWER AND THE INEVITABILITY OF CORRUPTION
We begin […] by tracing the origin of mechanization to the ancient power civilizations of the river deltas, where the first giant machine was invented. This early machine, though, was not material, but social. It was made not of physical components, but of human beings. And its ultimate purpose was not production, but the exertion of power for the sake of power. Capital, we argue, is a modern incarnation of this mega-machine, a mechanized social structure driven by power for its own sake. From this viewpoint, the architecture of capitalism is better understood not as a mode of production, but as a mode of power.
So begins Nitzan & Bichler’s (2009) magnum opus Capital as Power, an assessment and reformulation of capital, previously seen by neoclassical economists as abstract symbolic entities of utility (measured in ‘utils’) and by Marxians as abstract representations of labour, as a purely financialised mode of power. Contrary to pre-agricultural neolithic societies, civilisations throughout recorded history have emerged with one aim — the use of social power and control for it’s own ends. The earliest machines did not arrive with the industrial era — they were constituted of humans, orchestrated into strictly specialised roles (the example given is that of Egyptian mining expeditions, which had up to 50 different job descriptions), uncompromising discipline and punishment, strict regimentation and division of labour, and the prevention of workplace flexibility and initiative under military guard. Mumford (1967) and Nitzan & Bichler see these parts fitting Reuleaux’s definition of a machine, as “a combination of resistant parts, each specialised in function, operating under human control, to utilise energy and perform work’” (Nitzan & Bichler 2009).
Capitalism, like the kingships of the river deltas of ancient civilisations, is a system predicated on power for it’s own sake. Operating through capitalism today is a system of capitalisation — the financialisation and commodification of expected incomes in all walks of life. This is possibly more obvious now that it was even in 2009 — the ascent of the digital technology startup whose value is calculated more in how much venture capitalists take them to be worth in terms of predicted future income than the actual value they produce has become the norm. Nitzan and Bichler point to broader macroeconomic trends — conflicts in oil-producing states are predictable based on whether large multinational oil producing companies beat the market average for the prior year.
This reading of capital, as a machine for power, has a substantial effect on how we should consider creating and developing organisations in future. This is because of the inherent corrupting nature of power combining with the nature of capitalism as a system of increasing control of capital-power by a few absentee owners rather than many (per Piketty 2014) through it’s tendency towards capital concentration.
Nitzan and Bichler argue that power (as capital, or political power, or interpersonal power, etc.) is not absolute, but differential — it is used not purely in pursuit of hedonic pleasure (per liberal economics) but so as to purchase goods that others cannot. This is the core of conspicuous consumption and the global economy. Investments and capital goods are meaningless, they argue, unless compared against the investments and capital goods of others around you.
Power itself corrupts and shapes individuals, even at relatively low levels (well below, say, political office or senior management positions) towards the demand for greater and greater power. Rosenblatt (2012) documents several of the ways in which providing increased power within a social hierarchical setting shapes thinking about structural equality and corrupt practices — the greater your perceived position within an extent social hierarchy, the greater the incidence of corruption in your practice. More startlingly, the more stratified and codified the difference between groups within the hierarchy, the less willing those ‘lower down’ will be in reporting malfeasance and corruption to external authorities. Both of these activities are justified by each actor as being simply part of the hierarchy — those with power see any use of that power as being a priori justified by their membership of a powerful group, and those without see the misuse of power of those above them in the same way. Rosenblatt puts these behaviours down to shared legitimising myths, collective beliefs and ideologies that systematically and reciprocally reinforce post-hoc justifications. These myths are further entrenched as power concentrates (as capital does) at the tops of organisations, and these legitimising beliefs are actively reconstructed as necessary to justify misuses of power and shape the context of action (Meyer & Rowan 1977).
In firms the division of labour and institutionalisation and diffusion of ‘scripts’ further limits the information available to rank-and-file members. Further, the longer this process goes on, the less and less likely individuals are to report wrongdoing — Rosenblatt points to ‘person-environment fit’ and socialisation, that members who stick around are personally more predisposed to allow for malfeasance and instances of corruption.
Bacc (1996) additionally demonstrated that corruption is prevalent at the tops of organisations, rather than at the bottom — that as they continue to climb the ladders of hierarchy their game-theoretical incentives to properly oversee and monitor the activities of those below them begin to fall away, leading to increased susceptibility to bribery and graft. That these characters can survive to climb these ladders within an organisation is unsurprising, per Rosenblatt:
[In] hierarchical structures, where a group of subordinates is monitored by a dishonest superior, honest subordinates who may be harassed by the dishonest superiors may find that they are not free from penalty for corruption, while dishonest subordinates may find that they may avoid the penalty by paying a bribe to the superior
This atmosphere advances the number of corrupt subordiates, who may also be promoted to corrupt supervisors, contributing to the persistence of corruption. Even the use of auditing in hierarchies may result in a greater chance of corruption because the increasing cost of being caught for the individuals makes collusion (or bribery) more attractive, raising a question of ‘‘whether it is possible to police the police without falling into an infinite regress’’ (Kofman and Lawarre 1993; Mishra 2006 )
This effect is not limited to intra-firm behaviour, either — democratic political office is also an area of potential corruption. Besley & Prat (2006) find that there is a significant correlation between corruption and longevity in office, coinciding with studies by Ferraz & Finan (2011) and Gagliarducci (2012) that increased length of tenure is connected to the likelyhood of corruption. In the former case, it was found that Brazilian mayors who had won a second election were considerably more likely to be corrupt than first-termists; in the latter, that the longer a mayor served a particular constituency, the less effective they were are cost-efficiency in procurement.
Bendahan et al (2015) devised a landmark study to test the practical effects of increasing power in a game-theoretical setting. Previous literature in the field was, they assert, limited by either a hypothetical nature or their proneness to demand effects. Methodological issues (that, for example, imagining having had power or having it in future) are not the same as experiencing such power for real.
In the first, they tested whether leaders with more power will act in a more corrupt manner than those with less; that is, those with more followers to whom they can distribute shared reward, or more options available to them in distributing that reward (i.e. more room to operate outside convention). In the second, they test the impact of individual-personal factors on susceptibility and magnitude of corruption.
The findings are neatly summarised as startling — leaders given more power are more likely to violate social norms. As power increases, so too does a willingness to break not only social norms, but also prior statements of one’s beliefs — 13% of people who had previously suggested that a leaders should distribute acquired resources equally went on to choose the antisocial option in the test when given high levels of power. Of the personality variables tested, we could reasonably predict that otherwise honest individuals would be likely to remain steadfast against corruption; this is true to a point. Eventually, given enough power, antisocial and hypocritical decisions are taken by even honest individuals at the expense of social norms and groups.
WHAT IS DEMOCRACY
It is hard to imagine somebody living in an OECD country that would disagree with the statEment ‘democracy is a good thing’. Politically democratic control over legislative, executive and even some judicial function is the norm and entirely within expectations for membership of various supranational bodies — indeed, in the last few years Turkey has had it’s potential membership of the European Union called into question owing to irregularities in it’s civic processes.
Democracy is a structure of power whose central principle and most readily understood definition is drawn from its roots in Greek, as “the people hold power” (demokratia). In practical terms this means that power (typically statist-political, which is to say legislative, executive and disciplinary power) is legitimised by the consent of those over whom that power has jurisdiction, typically through a popular vote for representatives rather than through directly voting on proposed measures.
Political democracy is now so widespread across the world that at various points figures on the left and right of the orthodox political spectrum have declared this the end of history, with Western models of representative democracy combined with neoclassical economics seen to be the final phase of social, economic and political development (Fukuyama 2006).
Given the general corrupting effect of power on individuals (even those with exceptional honesty and integrity), is a wider distribution of power a more effective way to manage and design productive organisations in future?
MACROEFFECTS OF DEMOCRATIC RIGHTS
The precise mechanisms by which institutional organisation and political structure on a macro-scale affect capital and managerial control are unknown, but there is robust evidence that political-institutional arrangements have profound effects on the distribution of wealth, capital and power in a given economy.
Of particular interest is Dani Rodrik’s (1998) longitudinal study of the effect of democratic rights on wages in manufacturing. The effect, he writes, “exists both across countries and over time within countries — that is, in panel regressions with fixed effects as well as in cross-section regressions”. The example given to demonstrate the impact of the effect is Mexico — if we were to expand the level of democratic rights (which is to say, formal de jure rights enshrined in law) to parity with the United States, we could expect a manufacturing wages to increase between a range of 6% and 38%.
The historical record, too, provides examples of the impact political democratisation has on the distribution of returns on capital — in Portugal, Spain and Greece, the immediate periods of democratisation and subsequent periods of constitutional democracy all increased labour’s share of manufacturing value added of several percentage points. More pertinently, the exact opposite is true in cases of countries experiencing reductions in political democratic rights, with sharp reductions in labour’s share of manufacturing returns.
Rodrik also highlights an interesting (and counter-intuitive) product of political democratisation. The intuitive rationale for the restriction of democratic rights, across the twentieth century and into the early years of the twenty-first, is an effort to restore order and produce economic stability. Indeed this has been the rationale for much economic thinking since the 2008 global financial crisis and the subsequent actions taken — bank bailouts were undertaken to restore stability to financial markets, the Bank of England releases regular reports on the greatest risks to economic stability, the Telegraph (and other right-wing British newspapers) directed readers to vote for the Conservative party on the basis of the economic stability promised in their manifesto, rather than the supposed “chaos” of the Labour party’s populist-democratic moves (like a tax on capital, through the ‘Mansion Tax’).
In fact economic stability and democratised political institutions have a strong positive correlation — that is, the greater the level of constitutional, formal democratic rights (economic and political), the more stable a given economy remains over time.
DEMOCRACY AND GOVERNANCE
So, democracy provides significant economic benefits on a macro scale. Does it function on the level of governance? That is to say, does more democracy equal better governance, or do polities in democracy, as critics claim, simply direct more resources to themselves and remain ignorant of the economic and system-level effects the laws they prefer have on living conditions?
The key item often used as a counter to the idea that direct democracy is a dysfunctional system (and indeed that ordinary people cannot be trusted to be given control of the broader political-economic structures they work within) is California’s Proposition 13. This ballot initiative, proposed and voted on by ordinary California citizens, permanently froze the property tax in California at 1%. Opponents pin the blame for myriad social ills on Prop 13 — reduced liquidity in the housing market, higher housing costs, increased inequality (the tax is regressive, and indeed affects individual and family buyers more than corporate and commercial interests who can easily create or split the distribution of purchase to fall below the 50% individual holding threshold for reassesment — in effect, dodging a reassessment in value, and an increase in the tax owed, by not having land in one person or company’s hands), increases in the rates of taxation levied in other areas, even a wholesale transfer of power from local government to state government (owing to local governments losing the power to fund new initiatives from property taxation) and resultant lack of oversight and improvement of local services, like schools.
These negative repurcussions are foremost in the minds of journalists and scholars when it comes to increasing the ability of the general public to inform policy more directly. As Matsusaka (2005) writes, “they worry whether ordinary citizens have the attention span or competence required to decide complicated policy issues — and if they are not competent, if they can be manipulated into passing laws harmful to the general public”.
In fact, Matsusake provides compelling evidence for the contrary — that “allowing the general public to participate in lawmaking often seems to improve the performance of government.”
Compared to representative democracy the results are mixed, but direct democracy has one significant advantage (made moreso owing to the methodologies and interdisciplinary nature of much modern “knowledge-economy” work). There is a widespread lack of knowledge (and particularly institutional-ideological knowledge) in representative and direct democratic action, displayed over decades of survey-taking (Matsusake describes this beautifully, stating that “voters are uninformed to the point of ignorance about public policy, politics and government in general”, making democracy in any case seem like “giving matches to children”), but in theory (and indeed in practice) this is no impediment to good policymaking being done through direct channels.
If good policymaking (under the neoclassical rubric) requires expertise and the ability to manifest accurate information into policy, direct democracy has a key advantage over representative forms — when the information required to make a decision is broadly dispersed over an audience or constituency, elected officials may make poor decisions owing to their relative specialism and inability to accurate poll opinion (surveys have been demonstrated to be unreliable predictors of voting intentions, per Matsusaka & McCarty (2001)).
Even in cases where information is difficult to get hold of in the aggregate, M atsusake demonstrates that the law of large numbers and a variant of Condorcet’s jury theorum can be used to show a high likelihood of voters in a given initiative making the ‘correct’ decision. Even if the chance of each individual voter making the ‘correct’ decision (assuming the initiative in place is divided on the basis of information rather than preference) is low, aggregating that likelihood by millions of voters means they can make an accurate choice (given informative signals by other voters).
There are several examples worldwide of widespread direct democracy, in the form of ballot initiatives on which ordinary citizens can propose and vote on new legislature; Matsusake points to Switzerland as a case study in the efficacy of direct democracy. In cantons (legal regional delineations) and cities with direct democracy, trash collection (one of the key municipal responsibilities of cities worldwide) was done for considerably less money than those without direct democracy.
Similarly, Feld & Savioz (1997) found that productivity increased in cantons with more direct democracy — Matsusake sees in this is a factor of increased incentive in public investment to find firms with good returns. The effect of direct democracy on broader economic health is not limited to Europe, either — compared to ordinary representative states, US states with direct democracy (in the form of a ballot initiative process) enjoyed higher output per capita (greater productivity per resident) and a superior growth rate over time. More impressively these factors held true despite emergent factors within the state system, like the overall capital stock (this is to say, direct-democratic states grew quicker and enjoyed greater productivity regardless of initial conditions and emergent market properties). Beyond economy, those Swiss cantons with direct democracy reported higher per capita ‘happiness’ levels than those without.
Of great concern worldwide whenever control of the levers of financial power is made more democratic is the impact on borrowing and credit — the assumption being that the lack of a single responsible figure would allow voters to appropriate money for extravagant social programs and simultaneously cut taxes, thereby creating deficits and reducing the creditworthiness of a given state. This is indeed a key concern of senior management in organisations — if ordinary employees were given control over their wages, or the amount of time they could work, they would simply take advantage and pay themselves inordinate sums for very little work. In practice this isn’t the case — initiative states are no more likely to borrow than non-initiative states. Matsusake even demonstrates that mandatory referendums on debt issues seem to reduce borriwing (per Matsusaka, 1995; Bohn and Inman, 1996; Kiewiet 1995; Feld and Kirchgassner, 2001)
A CLASS-BASIS FOR SUPPORT
To what extent is there a demand from employees for greater control in the workplace, then? And what are the reactions of managers — are any such worker demands for greater autonomy met with a willingness to share and redistribute managerial power, or with calls to expertise and justifications for control?
In examining the topic of class-based affiliation towards economic-political ideology it’s important to explore the nature of decision-making in these fields. In his meta-analysis of studies exploring cross-class support for workplace democracy, Ed Collom (2003) points to Kluegel & Smith (1981) for an understanding of the place dominant ideologies have in inequality. In Kluegel & Smith’s estimation people have the capacity for ‘split-consciousness’, a capability to simultaneously believe contradictory statements learned on the basis of collisions between personal experience and dominant ideological theory — that is to say, we can simultenously believe that economic inequality is a structural problem, and that their place in the top 10% of earners globally is entirely justified by their hard work. Their work forms part of a long history of macro approaches to investigating the productive, political and psychological legitimacy of material inequality. Later research, most notably by Lane (1986) focuses more on theoretical distinctions between market and political justice and deserts (Lane 1986; Castillo 2001). This research highlights the importance that one’s sense of justice has over action — Lane’s contention is that beliefs related to moral and ethical deserts influence people more than perceived self-interest. As such legitimation of market mechanisms (and subsequent inequalities of material wealth and managerial & capital power) is brought about not only by the rational self-interest of neoclassical models, but by ad-hoc and post-hoc rationalisations of one’s position within a given heirarchy.
This post-hoc justification for one’s position in a given power system is further evidenced by broader human post-hoc rationalisations for past behaviour and predicted action. As far back the 1950s and 1960s (Davis & Jones, 1960; Glass, 1964) initial research of the impact of a person’s behaviour on rationalisations was being undertaken. As per Jecker & Landy (1969), Davis &Jones (1960) and Glass (1964), we are disposed to make judgements of others depending not only on our estimations of their character and behaviour, but also on our own past behaviour towards them. In Jecker & Landy’s study, participants who had done a favour for a researcher reported liking the researcher more than the control groups (one who had received financial compensation and one not asked to do a favour at all). Psychological testing has also demonstrated the increased affiliation members feel towards groups with stringent, embarrassing or difficult initiations compared to those with simple or easy signups (Festinger, 1962) and how being asked to lie to colleagues can alter our feelings about past events (Festinger & Carlsmith, 1959).
As such the discussion with regard to class is coloured as such: both workers and managers can simultaneously see the rational statistical benefits that increased worker autonomy and internal labour flexibility can bring, but past behaviour from managers, entrenched institutional power, and the existing relationships between management and workers will have as great an impact as argument from statistics. If managers can identify or be pointed towards times when they have acted in an antidemocratic way, they will of course be less willing to experiment with democracy in future; their self-image is tied up in their being, fundamentally, good people (per Gino et al., 2012).
It’s also important to note, as Collom does, that what is presented in the term “workplace democracy” is wildly variant depending on time, geography, social status, type and manner of work, unionisation of industry, etc. In his review, Collom uses a broad range of measures to judge democracy as part of a continuum of worker participation, incorporating practices like self-directed work teams, total quality management, quality circles, etc. While not all of these would be typically counted as worker democratic (and some would be dismissed immediately as expedient to managerial control without serious worker direction over productivity, per Fantasia, Clawson, & Graham, 1988; Rundle & Bronfenbrenner 1998). Collom himself points out that the questions in the study and survey could “conjure up the respondents’ views about specific corporate programs and not worker participation in decision making per se”. While Collom sees this as limiting the relevance of the responses there is an alternate interpretation — for many employees the only plausible and reasonable short-term methods to increase their participation in any meaningful sense is likely through just such methods. Given the paucity of well-known and well-understood worker democratic companies ‘in the wild’ calls for increased participation will likely first be met either through new formulations of workplace power or through ‘tried-and-tested’ corporate participative structures.
Saying that, there are still interesting figures to be found in the meta-analysis, key among which is the split between managers and non-managers, the impact of firm size as a determinant of will for democratic engagement, and the impact of age and gender.
Firstly, and possibly predictably, non-managers are significantly more likely to want more engagement and control over their work than managers — cross-tabulations suggest a 6% difference between the two (Collom 2003). Saying this there is still a substantial majority of managerial staff who would support more participative measures within the workplace — 54% of managers questioned indicated they would support more employee involvement. Additionally, 40% of non-managers would not support further involvement over their work (though given voting patterns across democratic elections in the U.S. and Western Europe this is possibly to be expected — in the UK average post-millennium turnout for general elections is 63%, in the U.S. 55%).
Firm size is also a predictor for sentiment towards increased employee participation — workers in smaller firms (25–99 employees) were 17% less likely to respond favourably to additional workplace participative processes than those in large firms (>1000 employees). Occupation (“blue-collar” / “white-collar” labour) had no substantial effect on these attitudes. There is variation in support according to gender and age, however — the younger people are, the more willing to support workplace participative programs, and women are more likely than men to respond positively. Two of the factors that the study had predicted would be significant, education and income, were consistently found not to be. One of the cornerstones of broader economic democracy, capital ownership of the company, had inconsistent results across two studies.
CSR AND DEMOCRACY
Anjarna Hazarika’s (2013) study of the history and development of corporate social responsibility as it relates to workplace democracy sheds considerable light on the historical development of workplace engagement practice. CSR, claims Hazarika, is representative of a direct effort to improve aspects of the society in which the firm is situated; this is contrasted with the neoclassical understanding of the firm as representing a separation of private relationships (customer, investor, employee, etc.) from public social agency. Workplace practice (working hours, fraternisation, etc.) is thus represented as an “inevitable aspect” of corporate social responsibility (blurring the lines between the discrete relationships of neoclassical and marxist political economy).
Hazarika contrasts this theory with Braverman, whose “Labor and Monopoly Capital” positioned the expansion or contraction of workplace freedoms as being part of a process of control and cost reduction relating purely to the economic position of the firm and its position in history. Workplaces have in effect developed in only one ‘direction’ — the direction which reduces labor costs and increases managerial and capital control over workers.
This effort to recontextualise workplace democracy and worker decision-making as a facet of CSR practice is an interesting angle, but isn’t without criticism — from fellow democracy activists and from economists more broadly.
Dahl’s (nigh pre-emptive) critique of worker democracy as an extension of given rights within organisations is predicated on an macroeconomic reading of labour power and capital power. Dahl’s contention, that increasing concentrations of wealth and power by multinational corporations gave them disproportionate political and economic influence and generated huge social inequalities (this latter point was later proven correct by Piketty’s seminal Capital in the Twenty-First Century), raises the question of the means by which control would be devolved down into the hands of workers when increased wealth (and indeed power) seems correlated with increasing social and managerial control.
Indeed the moral legitimacy of democracy is also raised as a possible objection — previous work in the field (particularly Mayer (2001)) has seen that approaches to workplace power distribution in the same manner as political power distribution, examining the firm as an analogous body to a state with limited coercive powers. Mayer’s counter to this is emphatically libertarian — contracts entered into (such as terms of employment) are done on the basis of consent and mutual agreement, and the firm holds no legitimacy in the use of force over employees without their prior agreement.
Dahl’s counter-arguement (indeed the counter-argument of campaigners for fairer working practices within and external to organisations since the dawn of wage labour) is that such contracts are not precisely freely-entered-into, that decisions of employment, once made, may not be binding in the same way as those between actors and states (who can force compliance with the law with violence and imprisonment), but remain coercive in the sense that there are severe sanction for noncompliance with expected behaviour — wage deductions, suspensions, disciplinary labour, dismissal, etc.
Indeed this behaviour of labour coercion is central to most economic theory — the principle that workers must be controlled and ordered to feel at least a certain degree of threat in order to prevent absenteeism and shirking. Most recently in a broad macroeconomic sense this principle of the ‘non-accelerating inflation rate of unemployment (‘NAIRU”), dictating that some percentage of the population must remain unemployed for a sufficiently liquid labour market to exist, is a founding principle of much of the economic reforms of the late 20th century across the West.
In orthodox models an agent’s motivation for work is dictated (certainly in part, if not in the main) by the extent they feel threatened with dismissal and having to find new work and the personal (financial, emotional) costs that entails. The corollary here is that a workers security, confidence and control over their workplace is not only not beneficial to profiting from their labour, but is actively deleterious to their productive capacity and harmful to the prospect of hiring new workers. There is an assumption, even in newer macroeconomic models of labour, that any increased freedom over labour would be used by workers to shirk from their duties and abuse their new power (Shapiro & Stiglitz, 1984).
Here the threat (and reality of targeted rates) of unemployment is a safeguard on productivity.
Even before questioning the moral validity of threat as a method of workplace coercion and a guarantor of productivity, we can begin to test the validity of the claims themselves. A study by Forde, Slater & Spencer (2006) does just this — examining on a comparative basis the effects of threat and increased participation on workplace productivity.
While both high unemployment and high dismissals are both positively associated with higher productivity, the correlation is not significant enough to draw general conclusions — damaging the orthodox case for threat. Indeed the further one reaches into managerial practice the worse the picture looks — where workplace participation is low, high unemployment is negatively correlated with productivity. In workplaces with high levels of participation, managerial practice and threat are still, negatively correlated with reduced productivity — supervision of workers in high-participation workplaces significantly lowers productivity.
According to Forde et al., among the key determinants for workplace productivity is increased participation in training in communication, teamworking, and problem solving. Increasing levels of participation in workplace decisions and over your own work are strongly correlated with higher levels of productivity.
As such the case for increased managerial control isn’t well-founded on historical and economic evidence. The assumption that, given a secure and participative labour force, a lack of fear of dismissal or a broadly competitive labour market would drive workers to be more productive is untrue — worse, in select cases, it is damaging of productivity.
Forde et al’s study also examines the impact on workplaces of temporary labour (in this cases defined as ‘agency workers’, those provided on a temporary contract by an employment agency). These were found to be negatively associated with productivity (though admittedly the result is weakly significant). The researchers place this phenomenon at the hands of conflict between agency staff and those on longer-term contracts — this is something to bear in mind as a variable in future explorations of worker organisation.
LESSONS FROM LABOUR FLEXIBILITY PRACTICE
So democracy has plenty of evidence supporting its viability as a model of distribution of power in political and economic systems, and there is an axiomatic rationale (that power corrupts) for modifying our approach to business ownership and decision-making.
So what approaches can, or should, be used to promote the broader, democratic use of power in order to improve productivity and generate egalitarian structures of power within firms?
The key decisions made by businesses and firms (particularly small firms, which comprise >99% of British businesses) is in hiring and staffing. Ensuring that the work undertaken by the firm is of a sufficient quality that customers return and competitor businesses are beaten to clients or sales requires a capable, effective and motivated staff. Neoclassical (and especially nigh-hegemonic neoliberal) models place a key emphasis on labour market flexibility and liquidity — this is to say, the freedom of business owners, shareholders and executive staff to remove and bring in staff as and when required. The theory here is simple — it is more productive to bring in specialists only for the work which requires them, and not pay the wages they demand for specialised labour when lower-skilled workers can do it equally well for far less pay. It is to the benefit of all firms to have a liquid labour market; that is, one with plenty of excess labour (a large amount of unproductive labour) in reserve, ready to undertake productive work when necessary. This manner of thinking is so pervasive that it is effectively the orthodoxy in most Western economies — the dream of ‘full employment’ so often articulated in the immediate post-war era and throughout the Cold War, espoused by leftist political forces as well as workers movements and revolutionary bodies, is effectively forgotten outside of small factions within larger movements and fringe leftist groups.
That workplace threat has so little effect is unsurprising given the results of studies into workplace productivity relating to labour flexibility practices. Labour flexibility practice can be comfortably divided into two groups (Preenan et al 2015).
External labour flexibility is reacting to firm competitiveness and market trends, as well as demand for products and services, through the use of temporary and seasonal workers, short-term fixed contract workers, freelance work, agency labour, subcontracting, and homeworking (Atkinson, 1984; Preenan et al, 2015). More recently the proliferation of zero-hours contracting policy (wherein employees are given exclusive work contracts, but no promise of any particular number of hours during which they will work) is seen as the zenith of external labour flexibility, providing the firm with an exclusive pool of labour for their use (typically low-skilled) without the obligation of paying them when there is little productive labour for them to do.
Internal labour flexibility is characterised by adjusting to demand and market behaviour through the retention and reallocation of staff & personnel, recreating and redesigning jobs according to fluctuations in output demand and reskilling and retraining workers when new output demands are unmet. Internal labour flexibility also contains more autonomist practices, like self-management and job rotation (De Spiegelaere et al., 2014; Hammond et al., 2011; Shalley and Gilson, 2004; Shalley et al., 2004). These practices take place within the organisation without reference to external agents (that is, not taking into account external labour market liquidity).
There is considerable evidence that internal labour flexibility has a positive relationship with employment growth and firm sales — that is, the greater the level of practice of autonomous work practices, the higher the retention and reskilling of staff, the more firms respond to output demand changes with internal reform, the greater the returns on investment and the more people are employed in such firms (Kleinknecth et al., 2006). Additionally there is significant evidence that internal labour flexibility is a key determinant of innovation performance within firms — firms that retain and continue to train new staff (among other internal labour flexibility processes) are more likely to develop new-to-market products, enjoy higher labour productivity, and have higher per-employee sales. (Arvanitis, 2005; Kleinknecht et al., 2006; Zhou et al., 2003)
Evidence suggests that this effect is not only true on the firm level, but also on the individual level — workers in firms utilitising internal labour flexibility practices display more innovative and creative behaviour, and managers report greater employee-driven innovation. (per Chen et al 2011, De Spiegelaere et al 2014, Hammond et al 2011, Pot et al 2009). Given the increasing importance placed by firms and academics on innovation as a motor for business growth, these effects shouldn’t be understated. If the capacity and capability for innovation is the most important determinant of firm performance in the market (Dess & Picken 2000, Mone et al 1998, Tushman & O’Reilly 1996), improving labour productivity in these areas is vital.
Internal flexibility (as opposed to external) is connected to innovative and productive practice through organisational trust (per Buchele and Christiansen, 1999a, 1999b). In organisations with high levels of employee trust (that is, trust that their services will be retained, that they will not be punished disproportionately for business mistakes, employees “dare to take on risky and innovative projects and are willing to share their ideas” (Preenen et al, 2015). A meta-analysis undertaken in 2011 found that worker autonomy is among the variables most strongly associated with employee innovation.
To an extent this is predictable if it is taken to be the case that power (in this case managerial and capital power over labour flexibility) corrupts organisation leaders. In each instance of internal labour flexibility practice we find a varying degree of control handed from managerial and board level down to worker and employee level. The most obvious example here is in worker autonomy, in allowing individual employees or teams the flexibility and freedom to establish their own working practice and develop modes of production outside established firm norms (Axtell et al., 2000; Spreitzer, 1995).
LESSONS FROM UNIONS AND PARTICIPATION PROGRAMS
So to what extent has labour- and worker-focused organisation within workplaces been successful in the past? Given the interests labour and craft unions have historically displayed in the past in the realm of participative decision-making and worker ownership (Heckscher, 1996; Kochan 1984), examining the effects of union control over collective bargaining — and the variables that affect this success — can point towards helpful clues for designing new methodologies and organisational design practices.
The typical association in the minds of the general public is put across by Freeman and Medoff (1979): they are a “monopoly” who don’t work much further than is required to “raise the wages of their members”. Indeed such framing has been used in much of the industrialised world over the last few decades to paint unions as self-serving and hostile to the wider economic concerns of firms and states more geneally — as a factor slowing both firm and country-level GDP growth.
In fact several studies have shown that even those unions who do, in fact, simply maintain monopoly control over wages actually have a positive effect on productivity. Kaufman (2004) suggests this is owing partly to the increased morale and cohesion that increased pay (and pay equity and compression) have on workforces.
Yet more studies have failed to find any strong association between productivity and union procedures typically associated with failing industries — union labour rates, bargaining centralisation and coordination, and combinations of the two are yet to be shown to show links to workplace productivity in a significant sense (Aidt & Tzannatos, 2008; Nickell & Layard, 1999; Traxler 2003).
So how to explain popular preconceptions of unions as productivity-retarding? Fernie & Metcalf (1995) find that while productivity is associated with productivity growth (in the period 1987–90, in the UK), they also find weak associations between union recognition in a workplace and managers’ subjective ratings of productivity levels — that is to say, even on occasions where productivity is actually increasing per-worker or per-firm, managers in unionised workplaces will still see it as falling or flat.
Possibly this is owing to the historical preservations of occupational boundaries undertaken by British craft unions (Sorge & Streeck 1988). Vernon & Rodgers (2013), citing Metcalf (2003) and Terry (1994) suggest the predominance of craft unionism in the UK has retained an adversarial, fragmented and deleterious work structure — that craft unions “have more incentive to pursue restrictive practices likely to to impede productivity growth as they seek to protect certain occupational interests and inherited job territories”. Shop stewards are effectively tied to existing divisions of labour, preventing evolutionary or revolutionary change even when it could improve productivity.
Contrasting to this is the experience of industrial unionisation in the U.S. and Western Europe. Meta-analysis by Doucouliagos & Laroche (2003) show a generally positive relationship between union presence and productivity levels in the U.S., as predicted by Metcalf (2003) as a function of the substitution of capital for labour.
Freeman & Medoff’s 1984 study of union activity and “worker voice” is unequivocal in highlighting a key factor in the difference between productive and unproductive unionisations — management response. Bryson et al. (2006) suggest that managerial response is not only a factor in productivity gains relating to worker voice and union activity, but is in fact the key determinant in labour relations — that the mode or method of worker organisation is effectively subordinate to the bounded rationality of managers. They find a strong and positive relationship between worker perceptions of managerial responsiveness and managerial perceptions of worker productivity, and no evidence that one kind of worker voice (union, non-union, direct or mediated) is more effective than another.
WHAT MOTIVATES PRODUCTIVITY
If threat is an insignificant motivator, what actually drives productivity in participative organisations? We have seen the importance of participation in the workplace (in the form of communication tools, HR training, etc.), but what impact does the capital-side of worker democracy have on participation?
In a study by John Logue and Jacquelyne Yates (2005), the answer appears to be ‘not much’ — at least, without active involvement in governance and management. Much of the operations supposedly under worker control through worker ownership of capital is purely nominal; they point to the examples of former state-owned enterprises in Eastern Europe and the former Soviet Union as being primarily exercises in ownership in name only, with day-to-day managerial control and high-level strategic governance being undertaken by the ordinary forces of mangers and wider capital. Stock ownership plans, common in Silicon Valley as incentives to work in startups and increasingly part of mid- to senior-level compensation packages (often used for the express purpose of avoiding taxation in a given jurisdiction, as was the case with Facebook in 2014 in the UK), are also too indirect to offer genuine control over the workplace.
For Logue and Yates the answer lies in worker-owned cooperatives — seen by them to be “the only hope of amassing sufficient capital to create small businesses and decent shelter”. Their impact in the developing world is an alterantive to the glacial pace of capital development in many rural areas across the globe. Indeed they place the benefits of the worker-owned cooperative as going beyond economic life — they generate improvements in quality of life and develop skills in participation and self-government.
In the (so-called) developed world, institional factors will still play a large role — per Schwettmann (1997), many of the industries which could feasibly benefit from worker democracy are traditionally split between labour and management in a formalised and unionised setting. Schwettmann points out that the historical record contains examples of unionised factories preferring confrontational models of organisational design (i.e., management and labour presenting opposing demands, on wages or working hours for example, and horse-trading for privileges or cuts) rather than models where management is constituted by workers (or elected, or selected through sortition, etc.).
NECESSARY BUT INSUFFICIENT CONDITIONS
So why push for worker democracies rather than continue down a path of developing closer relationships between separate classes of worker, owners and managers? Why not continue developing tools and methodologies for effective communication, improved managerial response and a less adversarial system?
Capelli & Neumark (2001) would suggest that the particular form of worker participation tying most closely to productivity is variant from industry to industry; that is, what works for American steel manufacturing won’t necessarily work in Apple or Zenefits. Repeated attempts to find cross-country and cross-industry statistical relationships between given forms of participation and productivity are inconsistent owing to this, as well as structural flaws in understanding the position and power of capital in these areas.
In those areas where, for example, cooperatives are directly comparable to competition (usually same-country, same-industry comparisons), the results are encouraging. Pencavel’s (2001) study of coop plywood firms in the Northwest U.S. demonstrate, using sophisticated econometric models (Levin 2006), there was a 13.5% difference in output between cooperatives and unionised firms with similar production inputs — that is, coops were significantly more productive than comparable firms with seemingly-adequate measures of worker participation (through unionisation). Pencavel notes that with this difference in productivity coop workers could work seven fewer weeks every year for the same output as the unionised firms. This was not down to higher effort but more effective collaborative decisions in the selection of raw material and plant, as well as better judgements on the use of labour. Levin puts these factors down to being “a response to incentives of workers when they own the firm and benefit from their success”, but it seems eminently possible that the psychosocial operation of decision and capital power, the problem of diffuse information (cf ‘Direct Democracy’) lead to inefficient decision making in fields where coops can reduce the risks of small-scale corruption and use collective intelligence to overcome a lack of individualised knowledge.
This is not only true in “thriving” or “surplus” industries. Despite much of the arguments for macroeconomic labour flexibility (and wage-reducing austerity) in recessions resting on restoring the ability of business owners to run businesses efficiently, those businesses who share their decision-making and capital ownership equally are more effective. A study by Martin (2003) comparing cooperative firms in Spain with conventionally-owned and operated companies found cooperatives routinely outperformed traditional hierarchical business models over a six-year period.
As an example of the level of difference between the companies in the study it is interesting to look at the example of Mondragon, the largest cooperative in the world. It’s own literature suggests one of the keys to its continual success is in its pay structure. Workers are not paid a flat-rate for a given job title, but recieve pay “according to the hours of work and the rating of jobs according to skill and difficulty” (Levin 2006). Additionally workers are given an investment account, which grows with the distribution of financial surpluses created within the company. Both of these methods of remuneration are based on the job rating described above.
There is also an extraordinary parity in pay — where the typical ratio of maximum salary to minimum salary in the U.S. ranges from 200:1 to 300:1, at Mondragon the ratio is set at 6:1. This results in a set limit to the capital power of senior workers.
Participation is a necessary but insufficient condition for workplace democracy (Adams and Hansen, 1992; Cheney, 1995; Foley & Polanyi 2006). Workplace democracy exists at the intersection of employee control over both the strategic and organisational goals of the organisartion, and in the distribution of internal and capital power within the company. Foley & Polanyi (2006), in their review of the literature on worker democracy, point to several relevant findings.
Key among these is a general paucity of studies on workplaces that contain both capital, managerial and decision making distributed to workers or employees. Citing Appelbaum & Batt (1994), they state this is likely owing to methodological difficulties in engaging in fieldwork in these environments. That aside (and taking into account calls for further research), they still find a selection of findings that should influence organisational design in future.
The range of participative techniques that exist have varying degrees of influence on productivity — they also have varying degrees of influence on morale (Sagie & Koslowsky 2000). The reasons for this are elucidated further in Sagie & Aycan (2003) — the two key dimensions related to the success or failure of participative decision-making (in the sense that employees are actually participative) are power distance and individualism — the former a facet of organisational design, the latter a cultural factor.
Power distance is a factor of the distinction between different sets of employees — Sagie & Koslowsky describe a high power distance as implying “a sharp distinction between superiors whose role is to ‘think’ and subordinates whose role is to ‘do’ (Miles 1975)”, bringing about “tight leaders and employees who believe that participation is beyond their work rights”. Low power distance is “associated with more occurrences of genuine power-sharing between management and employees (or their delegates)”. Individualism, as a cultural or subcultural norm within teams, results in managers undertaking decision making with individual workers rather than with teams as a collective. These two modes of cultural distinction, more than any other, determine which type of participative decison-making will be effective.
Among an exploration of the arguments for and against workplace democracy are also two key studies on the results of participative workplaces on physical and mental health. Karasek et al (1981) find that the prevalence of heart disease symptoms among a sample of working men from Sweden was highest among those employees who described their working lives as both psychologically demanding as low on participative decision making. Very demanding physical or psychological work (so long as it is not excessive) were found to be less of a risk than lacking control over precisely how a worker uses their skills to complete assigned tasks. Stress-related illnesses at work were also linked to low decision latitude (Foley & Polanyi 2006). Job strain, a function of a lack of job control as well as other factors (Jones et al., 2001; Karasek & Theorell, 1990; Schnall et al., 1994), are critical determinants of whether jobs that have physical, psychological or social demands lead to ill health — they are found to affect a range of negative health outcomes involving mental health, cancer, and coronary heart disease.
3-BODY PROBLEM & 3–4–3
It should be stated here that I there is no ideal state for a team or organisation — in this respect the lineage of thought is based on a kind of Burkean pragmatism and an understanding of the complexity of systems — a kind of ‘3-body problem’ for organisational design. The 3-body problem is a way of explaining the limits of prediction models in seemingly simple systems, and the barriers to prediction on ‘scaling-up’ models which function perfectly well in one system to a slightly larger one.
Consider the case of a planet orbiting a sun — it is entirely possible to model this planet’s orbit to an incredible degree of accuracy, knowing precisely where that planet will be in millennia to an accuracy of centimetres. One would be forgiven for thinking that adding merely one more planet would not increase the difficulty of simulation significantly, the intuitive thought being that all the “hard work” of orbital physics had been overcome in completing the first simulation; in fact, the opposite is true, and the complexity introduced on three bodies acting on one another is incalculably difficult to simulate.
Personally the example that demonstrates this most effectively in teams is contained in the community of the best-selling computer game Football Manager, in which players act as the manager of one of thousands of football teams across the globe. While the game includes detailed simulations of ‘managerialism’, like press conferences, team-talks, meetings with more senior management, player transfers, fining players for misbehaviour, etc., the core of the game is creating a tactical system which brings out the best in your players and watching them play against other teams over the course of the season.
Naturally this is difficult — it requires a detailed understanding of the importance of dozens of players individual statistics (ranging from the obvious, like their passing ability or strength or speed, to the more obscure, like their determination, aggression or work rate). Given this difficulty and the level of time investment required to succeed there is a proliferation of ready-built ‘plug-and-play’ ‘supertactics’ online, created by experts and designed to fit into any given arrangement of players and any quality of team.
These tactics, predictably, don’t always work as advertised. There are constant reports on forum posts that such tactics are poor in defence, not scoring enough, or too quick to give up possession in midfield — functionally, they are broken. They fail to account for the emergent properties of complex systems, the variety and difference between actors in said systems, and indeed (as many do) confuse causal relations between the action on the simulated pitch and the instructions given to players.
There are of course ‘market’ responses to these tactics (quasi-RCTs in leagues of computer-generated ‘average’ players, head-to-head battles between tactics with teams of identical players, replication of results with different teams in ‘real-world’ seasons, etc.), but for the most part they spread in the same way snake oil does. Criticisms of the tactics, or evidences of their weaknesses, are written off summarily as each individual reporting player having done something wrong — set the wrong training regime, used the wrong instructions for marking the opposition, using the wrong players, etc. Similar thought is totally par for the course across political and economic theory, typically associated with the ‘no true scotsman’ fallacy — that any attempt at a given political ideology or economic theory that fails is owing to it’s implementation not having gone far enough, or being ideologically divorced enough from an initial philosophical position as to ‘not count’ as an instance of theory in practice.
TOWARDS ITERATIVE ORGANISATIONAL DESIGN
None of this is to say that explorations of better models for workplace organisation and structuring / ordering power is a fruitless exercise– this is simply to say that utopian organisations cannot exist owing to the unpredictability of human behaviour and the emergent properties of complex systems.
More to the point even if such a system were to be designed, likely it would be difficult, if not impossible, to replicate — the number of variables (and indeed their degree of variability) requires us to develop model elasticity (rather than traditional managerial stringency) to accommodate for different personalities, variability of physical or cognitive function, etc.
Instead, on finding what appears to be an ideal system (which again I should stress is not the aim of this paper but could potentially become a focus of research depending on its outcomes) we should interrogate it (and its constituents — actors and environment) for space in which it can expand and contract as a framework depending on different variables. Systems tend toward certain outcomes — liberal market economic systems tend toward an unequal distribution of wealth (per Piketty 2014) in the same way managerial-bureaucratic systems tend toward resource waste (per Schumpeter).
RECOMMENDATIONS & TOOLKIT
Democracy is not only an effective and stable way to maintain an organisation — it also has the potential to improve productivity, is preventative of the accrual of power leading to systematic corruption, and leads to better decisions made with a collective intelligence that take into account multiple perspectives and a variety of expertise.
My proposals from the research are as follows.
Organisations should be designed rather than emerge organically from dominant ideological structures of power, capital wealth and managerial norms; that is, extant company structures should not be adapted for ease owing to hugely increased risks of power-related corruption
The initial organisational design process should be collaborative and participative, involving all workers; it should not be the job of one or a cadre of ‘designers’ invested with constitutional power.
The organisational design process should be iterative, and open to challenge and reconfiguration by workers and managers across all areas of the organisation.
Ownership of organisations should be meaningfully democratically distributed.
These principles are not significantly removed from the principles adopted by the International Cooperative Association (2015):
Voluntary and Open Membership
Democratic Member Control
Member Economic Participation
Autonomy and Independence
Education, Training and Information
Co-operation among Co-operatives
Concern for Community
But there are key differences — given that the present study was focused on the link between economic productivity and democratic participation and ownership, there was no evidence in the literature on democratic participation that supported the idea that concern for community, economic cooperation between cooperative enterprises, or voluntary membership constituted productivity gains (which is not to say they can’t or won’t, but that it wasn’t an aim to uncover evidence of such). Additionally the importance of participation would suggest that simply taking on these principles as founding orders is insufficient — workers should be involved in the process of choosing such foundational principles and have the ability to challenge them through the existence of the firm.
There already exist a number of tools that have the potential to democratise aspects of organisational design immediately:
Loomio:Developed by a worker-owned cooperative and taking cues from decades of experiential learning and academic insight into what makes for effective communication in democracy technology, Loomio is a decision making platform that radically redistributes power across all members of a given organisation.
One Click Coop: Part of the Cooperatives UK suite of digital tools, One Click Coop allows unincorporated business to become a cooperative in just a few minutes.
IDEO Design Kit: Developed as part of their effort to spread design thinking methodologies more broadly than the design community, the IDEO Design Kit walks users through design processes to develop new products and concepts through human-centredness. Many of the tools in this kit can be used as organisational design techniques.
As it stands however businesses and organisations wishing to undertake this kind of work are effectively on their own. Despite the widespread proliferation of cultural artefacts related to self-direction and autonomy at work, like Valve’s (2012) Employee Handbook, there has been no formal industry-focused work to develop such a toolkit in a self-contained, user-centred, FOSS package.
Plans for this research included testing these proposals at a London startup accelerator for education technology companies. Unfortunately this testing period was cancelled at the last minute and no suitable replacement could be found at short notice, and as such these recommendations remain untested.
Maybe democracy works. The literature is clear that it provides tangible benefits to organisations and individuals — increasing health outcomes, more evenly distributing financial power and wages, increasing productivity and increasing general political participation. Democracies are better governed, more productive and less corrupt than autocracies. Autonomous workers are more able to deal with complexity and uncertainty, more creative and innovative, and more productive than their micromanaged colleagues. Cooperatively-owned organisations are more resilient in down economies, have happier workers, and are more equitable in their resource and wage distribution (likely leading to less corruption and mismanagement down the line).
Despite this an overwhelming majority of new businesses in this and coming years will be organised around a central cadre of senior managers who have significant differential power and control over their subordinates. They will be susceptible to the corrupting nature of power, which only grows with greater success and a greater number of employees. The tendency for capital to concentrate will solidify the power of these individuals further, entrenching their ability and desire to become yet more powerful over the years.
Democracy should be seen as an effective competitor to hierarchical management in the minds of founders of new businesses — particularly those in creative and digital industries, where the division of labour is less stark and the education involved to learn new tools is significantly cheaper and more widely-available than in, say, architecture or materials science. Companies should take advantage of freely-available digital tools like Loomio to improve their decision-making through power redistribution, and continually iterate their organisational design and take advantage of the productivity benefits of internal labour flexibility.
It is obvious that further, practical research is necessary to interrogate the circumstances and variables that dictate when democratisation is plausible and successful. There are significant barriers in the way of this research, however — key among which is the nature of power itself. Concentrations of power and capital in the hands of those whose prior experience is purely autocratic means funding and support for cooperative, participative and worker-owned enterprises is limited. Standard advice from venture capital firms in the tech sector is to dole out as little equity as physically possible to employees and pay significant salaries instead — this is deliberately a method of controlling organisational power and implementing external labour flexibility.
Hope for the cultural impact of democratically-organised companies rests on new businesses. The relative ease of developing a saleable product in the twenty-first century has allowed more people than ever to work for themselves. 2015 is predicted to have seen a record number of new startup companies (Anderson 2015) — how many of these will crumble, not as a result of a bad idea, or poorly-trained or inefficient staff, or lack of motivation or willpower, but because of the innate human response to significant power being invested in them?
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