Equality, Participation, Transition: Essays in Honour of Branko Horvat

158 Self-Management, Employee Ownership and Transition
circumstances, the first task of new owners of transition firms will be to
address the labour hoarding problem.
Personally, I am very nervous about the establishment of any sort of
employee ownership in this context. The workforce is placed in the situation
of resolving potentially irresolvable problems, without recourse
to any new capital which might ease the path or point to a new strategic
direction. Worker ownership has much less to offer a firm in this
situation; the problems are in the area of what the firm sells, how it
sells it, and how it makes the product. The workers might be able to
contribute by proposing process improvements, but if these are labour
productivity increasing, they will merely add to the problem of overmanning
if the ultimate constraint is on the product demand side.
Worker owners might also assist the short-term survival of the enterprise
by offering wage cuts (or wages arrears, as has occurred across the
former Soviet Union). But long-term solutions will almost certainly
require the injection of new capital and, as discussed above, employee
ownership is not the ideal form to deliver this.
I am also worried by the demonstration effects from employee ownership
of slowly-dying firms. We can imagine a dismal picture of
worker owners implementing wage cuts or refusing to pay wage arrears,
then cutting employment to keep a non-viable enterprise afloat. These
actions will ultimately reduce solidarity, undermine morale and prevent
exploitation of productivity gains. Cut off from capital markets
because of agency problems, such employee owned firms would go on
a downward spiral of slow exit. This is a clear danger under labourmanagement
because, as Vanek (1970) noted, it is hard to define the
exit point for a labour-managed firm because labour costs are determined
endogenously. In principal, provided workers will accept zero
wages, the firm can survive if revenues exceed or equal non-labour
costs. The firm will therefore only close when earnings are driven
below the level available through other sources, for example unemployment
benefits, income in hand from working on private plots, and
so on. The exit process for the labour-managed firm is therefore likely
to be long and protracted, driven by the pace of quitting by disenchanted
workers. This contrasts with the capitalist case, where exit is
likely to follow when price falls below average variable cost (including
wage costs set at a market level). Because average variable costs by
definition exceed average non-labour variable costs, such exit is likely
to be sooner as well as being determined by an external set of owners
rather than the dwindling residue labour force. The negative demonstration
effects from employee ownership presiding over widespread