Rethinking Labor and Capital

[Ser Scot A Ellison]

So, we've had quite a lot of discussion about Unions on the board recently. With the protests in NYC and other cities. With the stuff in Wisconsin. I have to wonder if it is possible to change the relationship between Labor and Capital from one of adversaries to one in which each side sees that they are necessary parts of the same equation. That their relationship should not be considered parasitic but symbiotic and synergistic?

Capital needs labor. It cannot exists without labor. Labor needs capital investment and will not be able to function without businesses providing jobs. Each side needs the other for the opposite number to exist yet they are at each other's throats. Why?

What if a new model were forwarded one wherein Labor is seen as a necessary element of the unified whole? Where Labor is giving a set portion of revenues the business takes in so that they are rewarded for the work and effort they bring to the business as a necessary consequence of their work rather than simply paid a set sum regardless of their effort and time? This puts Labor into a position where they are truly seeing the fruits of their efforts where they are, at least partially, owners of the means of production. This would mean Capital investors would see somewhat lower profits but wouldn't it also mean a more contented work force in the first place making the markets more stable overall and better able to withstand downturns because Labor would also bear some of the cost and difficulty of those downturns?

Other than getting people out of their long entrenched positions what is wrong with this idea? I'm sincerely curious to see discussion of my proposition. Can or cannot employee owned and operated businesses go a long way to end existing labor strife in the U.S. and perhaps around the world without empowering government to be the big brother owner of all means of production?

[The Kassi (mark two)]

This might be a viable idea if you can find workers who are willing to invest time and effort into a company while going without compensation unless/until the company becomes profitable. That is after all the way investment works.

I however do not foresee workers who are willing to take the risks investors do jumping all over such opportunities.

[Lummel]

You are not alone with your thoughts on this Ser Scot.

A collaborative model with unions and employee representatives on works councils, at least for large industrial businesses, has been the predominant model in the former West Germany and in the united Germany in the post war period, although I think post 1989 what with one thing and another this has probably changed.

The John Lewis partnership is a well known co-op in the UK. All employees from the grandest director to the humblest in-store cleaner are partners and eligible for profit sharing - its also fairly big with I think in the region of a half dozen to a dozen department stores and a supermarket chain.

In a slightly different way empoyee involvement was a big part of the Toyota industrial style which manifested itself in some US businesses in the form of quality circles - but this was more about involving employees as partners in developing the business and solving problems rather than in in formally sharing ownership.

The big advantage of partnership models is that you get employee buy-in rather than having to waste time and energy on conflicts. I imagine that one of the big reasons why they aren't more widely spread is that it does mean that management and the owners have to be able to compromise - culturally that can be difficult if you think in a command and control way or are certain that you know best.

[Hereward]

The John Lewis partnership is a well known co-op in the UK. All employees from the grandest director to the humblest in-store cleaner are partners and eligible for profit sharing - its also fairly big with I think in the region of a half dozen to a dozen department stores and a supermarket chain.

It's much bigger than that. It has 32 department stores and 240 supermarkets.

[Arlingzen Bill]

This might be a viable idea if you can find workers who are willing to invest time and effort into a company while going without compensation unless/until the company becomes profitable. That is after all the way investment works.

I however do not foresee workers who are willing to take the risks investors do jumping all over such opportunities.

Doesn't that scenario play out in the start up world? But there the capital costs are lower than in a manufacturing situation. Asking workers to forgo pay until a new factory is paid for isn't going to happen, but a fair profit sharing plan might help.

[Former Lord of Winterfell]

Profit sharing and gainsharing are fairly common concepts, but the extent to which they are practiced varies pretty widely. Usually, the greater the gainsharing or profit sharing, the higher the average productivity and wages. Some companies in my area have incredibly high profit sharing, sometimes nearly 100% of wages.

The problem comes about during hard times, when profit-dependent labor finds paychecks that have shrunk rapidly, and go below what other workers in the industry receive.

[Shryke]

To reflect a bit more on FLOW's point above:

Labour, in generally, does not want to be an investment class. People value a steady, reliable income.

Especially when your income and wealth aren't high.

[Mlle. Zabzie]

I believe that profit sharing is the law in several countries at least for certain kinds of businesses(I think Mexico and France are examples - but someone should confirm).

[Former Lord of Winterfell]

Heavy profit sharing models work if you have a particular workforce or national culture that emphasizes the importance of savings, and generally avoids personal debt. In that case, the workers can weather the ups and downs, and benefit from higher average wages over time.

[Former Lord of Winterfell]

Scot, the model you are looking for already exists, to some extent. The paradigmatic example of that is a local company called Lincoln Electric, with which I'm quite familiar. It has been the subject of tons of case studies at B-schools all over the country. A fascinating story, and I think you'd enjoy this article.

http://www.ethikospublication.com/html/lincolnelectric.html

[Mlle. Zabzie]

Cocoa, I know what you are trying to say, but that's a VAST over-simplification.

[Datepalm]

I have to wonder if it is possible to change the relationship between Labor and Capital from one of adversaries to one in which each side sees that they are necessary parts of the same equation. That their relationship should not be considered parasitic but symbiotic and synergistic?

Ser Scot fails capitalism! It must be Thursday.

I gotta say, I think you're being kind of naive. Co-op models can be a good idea, and theres some great examples out there, but they're hard to get. I don't mean the running of it, but, well, the process of ejecting the parasitical owner class. (yes, yes, i'm a radical militant communist, etc, blah. Thems still the facts.)

I also think Shryke has a good point re stability. (although worker-owned can be salaried and not some sort of everyone-gets-a-percentage model.) Theres a sort of cheery fantasy where the end of poverty is by having everyone become some bubbly small business owner with sprightly grannies selling knit socks over the internet or whateverthefuck, (Microloans in the developing world, for an extreme example though I swear I read someplace they're using a model developed for, like, Bangladesh in the US these days. Maybe i'm misremembering though. /digression) but more and more, it seems to me, that this is merely more of the same old capitalist machine and is not managing to replace what we lost when they took away the things that came with strong unionization - wage, pension, insurance, respect, etc - and no, I don't see the owner-class providing any of those things out of the goodness of their heart or their understanding that 'they need labour.' Sure they need labour - thats why they want it cheap.

Sorry. They need to go.

[Lummel]

In the old anglo-saxon model of capitalism I don't think the problem is so much the ejection of the parasitical owner class but rather the role of the stock market . Co-ops, mutuals firms committed to employee engagement tend to be more conservatively run, more risk adverse and slow burners. The stock market loves it's Colourolls and Hansons and rock star CEOs and the rollercoaster of risky and short term decision making.

Also the problem of staff vs management relations is deeper than just one of ownership. Great chunks of UK industry was stateowned prior to Mrs T, but that wasn't a time when industrial relations were characterised by managers and workers feeling united by their common role as providers of labour to UK plc.

[Former Lord of Winterfell]

Exactly. People generally want to be paid a stable wage and have a stable job. Capital, by definition, doesn't care about those things.

Actually, capital tends to value stability in terms of employment and wages. It's not the most important thing, but it is something that generally is valued.

Labor and business will always be opposed because that's the only way that it works.

That's sort of meaningless, because you could say the same about any voluntary transaction. When you go to the grocery store, you want to pay as little as possible for what you get, but the grocer wants to charge you as much as he can. But there is a commonality in that you both have an affirmative interest in the transaction occuring, because he needs money and you need food.

It's the same with capital and labor. Capital wants to keep labor costs as low as it can consistent with maximizing profits, and labor wants to maximize compensation. Yet, both benefit by coming together on an agreement.

[Former Lord of Winterfell]

All you of :commie: :commie: types really should give this a read. It's a model where good treatment of workers is a priority, wages are significantly above the industry average, there has been a no-layoff policy in effect for more than 75 years, and the company still makes a good return on investment.

http://www.ethikospublication.com/html/lincolnelectric.html

[TerraPrime]

It's the same with capital and labor. Capital wants to keep labor costs as low as it can consistent with maximizing profits, and labor wants to maximize compensation. Yet, both benefit by coming together on an agreement.

This sort of balance works out okay for some labor, but not most others. Many jobs tend to not need high degrees of skill, so labor becomes expandable. The power balance shifts in favor of capital a lot more than the other way around. This is doubly true when capital can simply circumvent local labor demands by overseaing their operations. What power do the U.S. manufacturing labor have in negotiating with capital when the capital can simply set up shop in Indonesia and pay 10% in labor cost when compared to U.S. labor?

[Spaceman Hobbes]

Labor and business will always be opposed because that's the only way that it works.

I don't think that's the case. I work in the service industry(from what I've seen you would qualify that as labor) and frankly I've had a much better experience in the union-less company that give full benefits to part-time employees than the company with a union.

[Former Lord of Winterfell]

This sort of balance works out okay for some labor, but not most others. Many jobs tend to not need high degrees of skill, so labor becomes expandable. The power balance shifts in favor of capital a lot more than the other way around. This is doubly true when capital can simply circumvent local labor demands by overseaing their operations. What power do the U.S. manufacturing labor have in negotiating with capital when the capital can simply set up shop in Indonesia and pay 10% in labor cost when compared to U.S. labor?

That's going to be true in some industries where you're talking low skill labor, low transportation costs, etc. We just can't compete. But there are a great many industries where that need not be the case.

Very often, it is not just the wages that are the problem, but a ton of other factors as well. Nobody wants to read my Lincoln Electric article, but there you have a company that is the cost leader in an industry where virtually every other American competitor has gone belly up, despite the fact that LE actually pays higher wages. Their advantage is that they are far more productive, in large part because of their work rules and structure.

Just because we can't compete on everything doesn't mean there aren't a lot of things on which we can still be cost competitive, and without bottoming out wages.

[Altherion]

Very often, it is not just the wages that are the problem, but a ton of other factors as well. Nobody wants to read my Lincoln Electric article, but there you have a company that is the cost leader in an industry where virtually every other American competitor has gone belly up, despite the fact that LE actually pays higher wages. Their advantage is that they are far more productive, in large part because of their work rules and structure.

I read your LE article. It would be nice if more businesses operated like this, but such management is extremely rare and it's only possible at all because the owners are not willing to compromise on their religious beliefs for the sake of additional profit. Also, that article is a reprint of one from 1988. If you read their more recent history, you will see that starting in the late 1990's, practically every new factory they have opened is located overseas. They have not laid off their American employees which is good of them, but it doesn't look like they have contributed much to job growth in the US.

[Former Lord of Winterfell]

I read your LE article. It would be nice if more businesses operated like this, but such management is extremely rare and it's only possible at all because the owners are not willing to compromise on their religious beliefs for the sake of additional profit. Also, that article is a reprint of one from 1988. If you read their more recent history, you will see that starting in the late 1990's, practically every new factory they have opened is located overseas. They have not laid off their American employees which is good of them, but it doesn't look like they have contributed much to job growth in the US.

They've actually made some purchases and expansions here in the U.S. as well.

There are a couple of reasons the LE experience is so hard to replicate. The first, as you point out, is that you need a management/ownership willing to go that route. A lot of them aren't. But I can say that a lot of other companies have sent folks out there to see if they can duplicate it, so there is definitely interest in doing so. Because despite it's considerate view to its own employees, it does make a very good return on investment.

The second problem is the labor force. For a company that offers such stable, well-paying employment, the drop out rate during their probationary period is very high because they really do make you work. If your line is slow, you may be told to go cut some grass or paint, etc.. I've been in there. If your coworkers think you are slacking, they will let you know about it. Alot of people don't like that. And if you ever go in there, it is easy to get struck by the sense of urgency with which most of them work. I've never seen another place quite like it.

And the truth is that just as a lot of owners aren't willing to organize that way, so too are a significant percentage of workers unwilling to work that hard.

All this means that you cannot operate a company the way they work with a union, which is why domestic expansion has been limited to right to work states. That's why GM and the other automakers (all of them, BTW) who have gone out there trying to learn things can't make the conversion. The labor/managmeent relations are just too toxic in some places, and the expectations on both sides are unreasonable.

But what LE does provide is a model for how American companies can be more competitive.