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

8 Horvat’s Contributions to Economic and Social Theory
hoarded longer, sequestered while the council waits out the economic
downturn. This does not necessarily mean that labour is idle. As in
Germany until their depression in the 1990s, the firm can use the surplus
labour time to invest in human capital upgrading so that its
labour force is better positioned to respond to the eventual economic
upturn. In the revival, however, a labour-managed enterprise will have
a tendency to meet renewed economic activity with investment in new
technologies, instead of hiring more labour, when contrasted with a
capitalist-managed firm. This apparent counter-intuitive anomaly will
be taken up later.
The consequences for the self-managed firm and for policy therefore
are, first, that less pressure is placed on macro policy adjustments from
the central bank and from fiscal policy. Fewer unemployed produce
less political clamour for attention via fiscal and monetary policy. This
is a mixed blessing, however, because too much responsibility may be
placed on enterprises that are not in a position to absorb the shock of
labour redundancy. Firms that have to absorb this shock may have little
cushion to do so, and a tendency can develop for central banks to
bail out firms by continuing to support employment with injudicious
loans. Curiously, it may be better for markets to work their will and displace
labour in order to gain the attention of macro policy makers. I
return to this point more generally later in this essay when I take up
the potential problems in a worker-managed system.
Economists in the United States devoted most of their attention to
the differing micro implications of a capitalist and worker-managed
system, even though the macro distinctions may be as interesting. In
the late 1950s Benjamin Ward instigated the debate with his article on
the firm in Illyria. 4 Ward asserts that the worker-managed firm will
seek to maximize the average income per worker in the enterprise, the
contractual wage plus bonuses. With this optimizing function, he
shows that the firm will react to a price increase in the market by lowering
output, thereby producing a downward sloping supply curve. The
essential explanation for this is that the worker-manager, as stake
holder to a claim on the enterprise’s surplus, will confiscate higher
earnings by voting for higher returns per employee. They will be averse
to hiring more employees to expand output, because that would dilute
each of the insider’s share of profits. In this reasoning higher shortrun
profits from higher prices are seen as a one-time windfall by the
worker-managed enterprise. If the worker-managed enterprise has a
target profit perspective, instead of some optimization of absolute profits,
it can attain those profits with lower output levels when the rate of