A strange cognitive dissonance is pervading our social life: we regard it as our inalienable right to govern ourselves democratically in one social sphere, while in another we suddenly surrender these very rights unquestioningly. This shift occurs the moment we step through the factory door. Both the state and the economy imply government over others, but only the former is democratic. There are in fact governance relations within corporations, as they arrogate to themselves the authority to regulate employees’ behavior, backed by a vast arsenal of sanctioning powers, from demotion to dismissal. We should not ignore this simply because we are used to conflating “government” with “state.” If being subjected to state government requires democracy, so does being subjected to corporate government. This is the consequence from the analogy between the firm and the state.
The analogy between firm and state
In an important sense, firms imply stronger forms of government than states. Modern constitutional states largely only define boundaries of arbitrary choice within which individuals can do as they please, with the notable exception of the military. Government in corporations, by contrast, comes with the presumption of the right to steer and control the behavior of employees minutely and pervasively. Consider someone on an assembly line: their superior can dictate the same repetitive motion throughout the day, hour after hour. If a democratic state were to usurp such power over its citizens, it would amount to an outrageous scandal.
Republican unfreedom
Democratizing workplaces is particularly urgent because cooperation in modern firms requires coordination within hierarchical structures. Modern production heavily relies upon large-scale capital goods, and coordinating teams that use them requires clear authority. However, what this authority implies cannot be fully defined in advance, for example, because production methods will change or demand fluctuate. Yet with underdetermination comes discretion: management of corporations has arbitrary power over its employees. Managers may yell, humiliate, or stonewall, while employees have not right to complain or appeal, and they cannot hold managers accountable, much less remove them. All this means that undemocratic workplaces subject employees to a kind of “dictatorship,” as Elizabeth Anderson puts it, where employees are subject to the arbitrary will of powerful superiors. This is the argument from republican freedom, and to make subjects free in a republican sense requires workplace democracy.
Liberal objections
Liberal defenders of undemocratic workplaces argue that employment contracts are freely entered into and employees can exit at will. But quitting comes at high costs: employees depend on their income, they may lose claims to unemployment benefits, and they might have to leave their place of belonging to find another employment. More importantly, most people have no choice but to accept a job at another dictatorial workplace.
When it comes to the question of democratizing all workplaces, the liberal objection is that some may legitimately prefer undemocratic workplaces, among them capital suppliers, entrepreneurs, and even certain groups of employees. But it is hard to see why the mere fact of supplying capital or entrepreneurial input should suffice to entitle anyone to dictatorial powers over the many other members of firm who all make productive contributions. And certainly, employees with strong bargaining power, such as top managers, whose income can easily be 300 times higher than that of average workers, have a reason to object to democratic firm governance. However, this is surely far from a valid justification.
What about efficiency?
A commonplace argument for excluding democracy from the economy is the claim that democratic workplaces are less efficient than their undemocratic counterparts. This argument treats capitalism, particularly the profit-maximizing stock corporation, as a giant “engine” for prosperity. Supposedly, the democratic state, with its regulatory apparatus, can pull all the levers to steer the economic machinery, while working people are expected to become cogs in that machinery, especially by submitting to the dictatorship at their workplace. Whatever helps to increase output receives the seal of approval. This is an argument from economics, but it holds sway far into social-democratic traditions and also far into Rawlsianism, because of the difference principle: the bigger the cake we bake, the larger potentially the slice for the worst-off.
However, the evidence on the efficiency of democratic firm governance is mixed. There are significant indications that intrinsic motivation, and therefore efficiency, is higher in democratic firms. In contrast, undemocratic firms often appear more “efficient” simply because they can exploit workers more easily. Consider the U.S. poultry industry, where bathroom breaks were restricted up to a point that workers were forced to wear diapers. Obviously, this boosts output and cuts costs, but it is profoundly disrespectful and exploitative. And even assuming that workplace democracy results in some real efficiency losses, for example, because genuine democratic participation takes time, why should efficiency be the only, or even the most important, value in firm governance?
Nurturing democratic skills and virtues
There is yet another crucial reason for workplace democracy: the workplace is a key site for learning habits of thought and action. The social world of economic cooperation is a “gigantic school” that fosters certain personality traits and discourages others. This is where most adults spend five days of their week, almost the entire year, for many decades of their lives. No other social sphere is as essential, in the sense of being inescapable: economic cooperation is an external necessity that leaves us no choice but to participate, or at least this is true for the majority of society.
As workplaces shape our habits of thought and action, we should be particularly concerned about dictatorial hierarchies. What happens to our democratic skills and virtues when, in our everyday lives, we are drilled to blindly obey orders? What about our sense of justice, which is essential for a democracy aiming at mutual justification, when at work, we learn that powerful actors have carte blanche to capitalize on their threat advantages? While undemocratic workplaces may undermine and corrode political democracy, democratizing the economy offers the opposite promise: democratic workplaces can nurture democratic skills and virtues. This is the spillover-argument for economic democracy. A democratic firm allows its members to publicly appeal to their sense of justice, keeping their commitment to cooperative obligations vivid and strong.
What kind of workplace democracy?
Democratizing the economy is neither particularly extraordinary nor necessarily very radical. In Germany, the world’s third-largest economy by GDP, some form of workplace democracy has existed for decades through the codetermination system; half of the seats on the supervisory boards of stock corporations are held by worker representatives alongside shareholders. Thus, ownership and control can be separated in a way that employees gain partial control over the corporation. However, in the event of a stalemate between capital and labor, capital suppliers hold the upper hand.
A two-chamber model of corporate governance would go further in strengthening workers’ control rights. In that model, both capital and labor are represented in separate chambers within the company, and management would need the approval of both chambers, granting employees an effective veto right, unlike the German codetermination model. Other approaches argue that merely decoupling ownership from control is insufficient; true democratic control requires some form of shared ownership of corporate assets, whether through universal cooperative ownership or public ownership of some variety. Some proponents go even further, questioning the fundamental compatibility of markets and democracy and advocating for participatory forms of democratic planning.
Resigned realism
The more far-reaching the attempts to democratize the economy, the greater the political challenges. Unfortunately, even modest demands face enormous obstacles. When codetermination was introduced in Germany in the postwar decades, the rivalry with the “socialist” East forced western elites to make strategic concessions, trade unions were exceptionally strong, and capital controls were still in place. None of these favorable conditions exist today.
Attempts to democratize the economy could be more vivid if the political obstacles didn’t seem so insurmountable. There is a widely shared preference for democratic workplaces, but arguably many resign themselves to a cynical realism, believing that challenging the interests of large corporations and the super-rich is simply unattainable. There is some truth to this: wealth is highly concentrated in small segments of society; in the U.S., for example, the wealthiest 10 percent owned nearly 80 percent of the wealth in 2018. They can amass ever-growing fortunes, and they can do this basically by just sitting on their hands, or rather their corporate shares, while workers have to toil on the shop floor.
Any attempt to democratize corporations would curtail that power, and accordingly, the resistance will likely be fierce. To maintain their privileges, the elites have powerful tools at hand to lobby for their interests, for example through campaigns donations. They can threaten to move their capital abroad, putting workers at risk of losing their jobs and livelihood. This is the uphill battle faced in any effort to democratize workplaces.
The route from here to there
The primary remedy against resigned realism is to reignite a strong sense of shared collective agency, but this cannot be achieved at the push of a button. Democratizing the economy may also require bold political measures, such as reintroducing capital controls. This all points to significant challenges ahead.
In closing, however, a reason for cautious optimism should not go unnoticed. There are more gradual, pragmatic steps available, and they can proceed from surprising points of convergence, where the interests of workers and owners overlap, at least to some extent.
Most advanced capitalist economies still have a considerable sector of small to medium-sized firms. Many owners of these businesses struggle to find successors within their families, while they are also reluctant to sell to competitors or private equity firms, as these sales often lead to companies being gutted or shut down. Instead, many business owners wish to preserve their legacy, the company’s identity and culture. Transferring ownership to employees provides a viable solution.
In 2014, the U.K. passed a law providing a legal form and tax advantages for businesses to transition into Employee Ownership Trusts, where the owner receives the sale price in installments over time, drawn from the company’s future profit streams, not from the workers’ pockets. This initiative led to a drastic increase in the number of employee-owned firms, reaching over 1,000 by 2022 and expanding by 250 to 300 firms annually. While trust ownership can have limitations regarding workplace democracy—treating beneficiaries as if they were dependents—there are well-conceived and practical models to convert privately held businesses into worker cooperatives. This establishes democratic governance for all employees of the firm, supported by shared ownership of the company.
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