Property Rights, Distribution of Value Added, and Accumulation of Capital in Labour Managed Firms

Ermanno Tortia

Economia politica, 2003, issue 2, 251-286

Abstract: The literature concerning labour managed firms (LMF) started in 1958 with the neoclassical contribution by Ward. The development of the Ward model led to interesting but limited and controversial results in the study of the reaction of LMFs to market stimuli (variations in the product price and in the cost of capital). This work concentrates on themes that do not lie strictly within the scope of the neoclassical tradition. Firstly, the treatment of the problem of ownership in labour managed firms is still underdeveloped, though important authors, for example Hansmann and Putterman, dealt with it. Various contributions in the field by students of the former Yugoslav system, by the property rights school, and by institutional economists are reviewed. The versions of ownership that seem to be most promising and suitable to a correct working of LMFs are introduced and discussed. Secondly, the paper surveys the literature concerning the problem of incentives and productivity in LMFs. The results of the neoclassical model are taken into account. Beyond them, other contributions more eclectic in character are introduced. LMFs are characterised by greater variability in members' income and less fluctuation in employment as compared to what we observe for employees in capitalist firms. Furthermore, individual compensation, career advancement and financial participation are likely to improve members' results. The third topic taken up is the accumulation of capital in labour managed firms. After a review of the most classical results, first of all those concerning the Furubotn-Pejovich effects, the externally financed LMF proposed by Vanek together with some of its developments is discussed. Though Vanek's solution is too simple in its original form, developing the idea of the introduction of some form of divisible reserves seems to be a promising solution.

Date: 2003
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