Employee Ownership and Participation

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    This document has been made available in electronic format
         by the International Co-operative Alliance ICA 
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                         June 1995

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               Employee Ownership and Participation
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                         by Benito Benati*

The experience of the Co-operative movement in Italy has given
rise over the last century (and especially over the last 50
years) to results of extraordinary importance from both an
economic and a social and human point of view.

However beautiful and exciting this experience may be, I am
interested from a human and social point of view in a more
advanced and complex problem than the Co-operative phenomenon:
I refer to the more general problem of worker (or rather,
labour) participation in the property, management and
enjoyment of the profits of the enterprise where they are
employed.

Well into the mid-80s, there was a widespread ideological
belief among the European Left and Western European trade
unionists according to which the capitalist economy was a
means for exploiting the working class, and should therefore
give way to a new economic and social order of a socialist and
collectivist nature.

The momentous events which took place at the end of the '80s
have once and for all historically proven an undisputable
truth: the free market economy is the only one really able to
function in a modern and evolved society; it is the only one
which can ensure welfare, progess and is the only possible
foundation for freedom, culture and respect for the
unalienable rights of the human person.

However, as the most eminent figure of the Catholic Church
authoritatively said "... (it appears) unacceptable that the
defeat of so-called real socialism should leave capitalism as
the sole model for the organization of an economy".

The capitalist economy as such cannot be accepted without
controls or corrections, totally at the mercy of so-called
"market rules".

If this should take place (and it is taking place in many
cases and countries) there would be serious harm to the basic
rights of the human person, unlimited enrichment and
unacceptable impoverishment, grave violations of the
unalienable freedom of man, inseparable from his very
existence.

This is why the more educated, evolved and socially sensitive
countries tend to introduce increasingly complex and
sophisticated balancing regulations in their legal system, in
order to govern a market economy by means of rules, offering
incentives or deterrents so as to assure increasing equity and
respect for the common good.

One factor which today appears both inequitable and laden with
dangers and malfunctions for the market economy itself, is the
property set-up of the capitalist economy.

In this moment in history, a rapid change in the balance of
the values which have till now typified firms is taking place.

Financial capital - however important and indeed indispensable
it may be in the initial setting up, in later developments and
in the management of an enterprise - is gradually losing
importance due to three main reasons:

(a)  the widening, evolution and globalization of financial
     markets;

(b)  the increasing complexity, specialization and consequent
     rigidity of the labour market;

(c)  the ever more complex and specialized functions,
     requiring increasing education levels, which
     technological progress demands from labour, be it
     intellectual or manual.

We are experiencing great abundance of capital around the
world, and its incredibly fast transfer from one market to the
other.

If a reliable entrepreneur owns a business based on a product
offering assured success and requiring capital, the world
telematic financial market can move millions of dollars from
Tokyo to Frankfurt in a few seconds.

What is much more difficult is ensuring a business with
positive prospects the necessary contribution of a manpower
which must have increasingly high levels of specialization. In
fact:

(a)  Manpower, above all in the more evolved countries, and
     when it already enjoys a satisfactory level of pay, tends
     to move as little as possible. This holds especially true
     for the new industrial countries, where conditions are
     often uncomfortable, but which are increasingly
     attracting the economical activities of the Western
     industrialized nations, and where the demand for
     highly-specialized manual and intellectual labour is
     greater.

(b)  The rapid development of technological research and
     scientific progress - and hence the growing technological
     content of labour - have made schools, universities and
     training systems of the enterprises lag far behind in
     teaching manual and intellectual labour compared with the
     needs of scientific progress. 

(c)  Yet another factor: a growing percentage of manpower
     (especially people aged between 45 and 60) is unable to
     move over to the new methods of production, and ends up
     by introducing further elements of disturbance and
     rigidity in the labour market.

Concerning this issue, one can say that the key factor today
in a capitalist enterprise is not so much capital (although
this of course is always necessary!) but management quality
and the quality, level and qualification of the manual and
intellectual manpower: a human factor, in other words, and not
one of financial capital.

However, and despite this, the property system of the
capitalist enterprise is still set up according to the
classical division of the end of the last century, when the
enterprise was something quite different from what it is
today; that is to say a place where the person with the money
(even if he has little brains) is inside and gets the profits;
while the person without the money (even if he has a lot of
brains) is shut out and only gets a salary.

In my opinion, this is a very serious and growing
contradiction which carries the risk of introducing elements
of crisis and conflict inside the enterprise.

In fact human capital - aware as it is of its importance
inside the enterprise - is less and less willing to accept
being cut out of three basic functions:

-    company property;
-    strategic management (which is something different from
     operational management);
-    company profits.

In fact, human capital is quite aware that the good results of
the company depend largely on its efforts.

Inside the company, the manpower is becoming increasingly
educated and schooled; there is a growing number of engineers,
university graduates, highly qualified technicians, highly
professional workers who are entrusted with managing machines
and installations of great value.

These people are demanding more and more participation in the
company: in its government, capital and results.

The Catholic Church, in the person of the present Pontiff John
Paul II, has taken a timely and very clear stand on this
issue. 

At paragraph 43 of the Encyclical "Centesimus Annus", he
wrote:
"(The Church)... recognizes (...) the legitimate nature of
workers' efforts to obtain complete respect for their dignity
and greater participation in the life of the company, so as to
be able to work in a sense "on their own" and using their
intelligence and freedom, while still working together with
others and being directed by others.

Integral growth of the human person on the job does not
contrast with greater productivity and efficiency of the job
itself, indeed it favours them, although this may weaken
established power structures. The company cannot be considered
a mere "society of capital"; it is at the same time a "society
of people" to which both those who furnish the capital
required for its activity and those who co-operate with their
work belong, in different ways and with specific
responsibilities. In order to achieve these aims, a great
movement of workers acting together for the liberation and
promotion of the human person is still required."

This is the position of the Catholic Church.

In my activity as a manager with the Imola Industrial
Co-operatives - the management of which is based on
responsible worker participation - I have been able to see
how, nearly always, when the worker:

-    knows and shares in company targets;
-    takes part in its strategic decisions;
-    is not abused by the management in basic decisions;
-    participates in the capital and profits of the company,

his job productiveness increases in a highly significant
manner and malfunctions, areas of inefficiency, carelessness
and irresponsibility are largely eliminated at the root.

To say it in a word: the company produces more, better and
with less costs.

Here and there around the world, awareness that responsible
worker participation is a positive factor for the company
economy - and for the market economy as a whole - is growing,
but, to say the truth, at a far slower pace than I think is
required.
Particulary far-sighted individual capitalists, scholars,
scientific institutions have confronted this issue and
initiated very significant experiences, well worth studying.

In this context, the experience of Job Ownerships - and the
laws regulating them - carried out first in the United States
and then in the United Kingdom, are a firm and important
launching pad for anyone intending to promote research into
and further development of this issue.
However one basic consideration is necessary: all the
experiences carried out so far concerning worker shareholding
in the companies where they work, have in one way or another
started as a response to contingent and specific requirements
of the company and/or workers, such as bankruptcy of the
preceding ownership and its replacement by the employees in
order to save their jobs, family problems connected to
generational turnover, privatization of some formerly public
activity, and so on.

As far as I know, none of these achievements are part of a
strategic design within the framework of a more global
economic policy, aimed at facing, in its more general
guidelines, the issue of "capital-labour" next to
"capital-finance" in company shareholding.

The idea I wish to put forward in this paper is that in these
days, on the threshold of the coming millennium, times are
ripe for setting ourselves the goal of reforming the
capitalist system from within, in order to avoid it
conflicting with the rules of a market economy, in order to
keep it in step with our times, and in order to modernize it
along the lines of the profound changes these last decades are
bringing about in society as a whole and in companies in
particular.

In the future, the market economy will be unable to function
properly if company capital is to consist entirely of
financial capital, excluding the human capital (or labour
capital) which contributes intelligence, creativeness, and
management quality and efficiency.

This is a necessary step if we wish to safeguard the market
economy from the overly absorbing and totalizing defects and
tendencies of financial capital: defending the market economy
and having it work properly implies the need to intervene
using rules and corrections each time an unbridled application
of the so-called "market laws" contrasts or conflicts with the
growth of a modern society.

Today seems to be a propitious moment for putting on our
agenda the issue of employee participation in the stock
capital, and hence in the management and in the profits, of
companies, within the scenario of Western capitalist
economies.

After the collapse of illusions about the possibility of
setting up an alternative, collectivist and socialist economic
system, neither the trade unions nor the European Left should
have any more doubts concerning the fact that market economy
is the only possible economic system, and that therefore it is
in the interests of each and all to make it work, keep it in
good health and, if possible, draw the best benefit from it.

At the same time, now that the spectre of communism has faded
away, entrepreneurs should no longer fear that the workers
want to enter companies the better to undermine them; on the
contrary, entrepreneurs should look favourably upon any
initiative tending to move the workers from an antagonistic
attitude towards the firm to an attitude of sharing in the
objectives and interests of the company.


This is the great problem lying ahead of us at the outset of
the third millennium. Problems however never go away by
themselves, and all the less so in this case, where colossal
economic interests, a different division of the wealth
produced by the firm, centuries-old habits, and above all, a
different way of sharing power within the framework of the
economy, are at stake.

It is no mere chance that the encyclical "Centesimus Annus",
in the part we quoted from, while introducing a notion which
for simplicity's sake we might call "revolutionary" (but which
is actually something far deeper), stresses how worker
participation in the life (including the economic life) of a
company "may weaken established power structures" and requires
"a great movement of workers acting together". 

It is therefore in this paper that I wish to make an appeal to
trade unions, to the parties of the European Left, to Catholic
and other Christian communities which are aware of the social
issues related to the economy, to scholars of social and
economic problems, inviting each of them in his or her country
to promote broad public opinion movements aimed at focusing
the attention of individual national Governments and
supranational economical and governmental organizations, with
special reference to the European Economic Community, towards
this issue.

It is necessary for the European countries to adopt laws and
regulations as consistent as possible with each other,
establishing the right of every worker - on a voluntary basis
and depending on his free opinion - to share, be it even in a
small way, in the ownership of the company for which he works,
in full respect of the laws of a market economy and offering
neither handouts nor "big government". 

Today, this right is hardly ever present nor can it be
concretely fulfilled.

It is necessary therefore to introduce laws within the legal
framework of each country, guaranteeing employees the right to
purchase shares - however small individually these may be - of
capital in the companies they work in.

It will also be necessary to study and introduce adequate
financing mechanisms in order to facilitate - where necessary
- such purchases, as well as creating a market for employee
stock (both inside and outside the company) so as to grant
working shareholders the opportunity of unfreezing their
investments when family or other circumstances should oblige
them to.

I also would suggest a suitable fiscal policy, favouring both
those workers who wish to become shareholders, and the
companies which facilitate such a policy.

Tax facilities in this case would not be a sort of hand-out,
but a duty-bound State financial allotment having the purpose
of introducing rules improving the efficiency and
productiveness of the market economy.

What could the impact and the consequences of such a "reform"
be in the economy of the individual countries involved?

I think it would be difficult to answer this on the basis of
macro-economic studies, nor would I in any case be able to do
it myself.

I have read the opinions of some on this issue: I agree in
part, in part, to be honest, I find them very abstract.

I restrict myself to expressing a highly personal opinion
based on my specific field experience and on common sense, a
resource which in economy, in the end, always has a certain
value.
In my opinion, worker involvement in the future of a company
and their being economically related to the results of the
company produces - generally - considerable improvement in the
economic efficiency of the company: production goes up, areas
of inefficiency (especially those managers never see, and
there are a lot!) plummet, labour costs and absenteeism are
cut down, profits soar.

We have witnessed all of this personally in our industrial
Co-operatives in Imola, which are based on worker
participation.
In the short term, employment does not go up, rather it tends
to go down.

However this tendency is reversed in the mid term, since the
company, having become more efficient and having therefore
improved the quality of its products, takes over new areas in
the world market; this implies an increase in production and
hence new investments and the creation of more jobs. My ideas
may certainly appear to be Utopian, and they actually well may
be so.
However, are not the growth of the modern world, scientific
progress, the social and the political achievements we enjoy
today, largely the outcome of ideas once considered to be
"Utopian"?

-    Human flight was certainly a Utopia once, but today
     millions of people fly every day;

-    Universal suffrage was certainly a Utopia once, but today
     it is a reality around the world;

-    The 40 hour week, paid holidays, old age pensions, health
     insurance were certainly Utopias once: yet today these
     achievements are almost universally present in Western
     economies.

I can add: who ever decided - or who ever could prove - that
the owners of capital are the best administrators of a market
economy? The labour world, in the most global sense, offers
immense intellectual potential which it is certainly
worthwhile tapping and empowering, not only in order to
improve the economy, but to help the growth of mankind, the
most precious thing there is in all creation.

Of course, nothing ever happens on its own, at least in this
sphere: I hope you will allow me to address a friendly but
very honest critique to labour unions, which too often
understand their own role in a reductive and overly routine
fashion: the time has come for them too to think more in terms
of projects and of the need to operate with greater courage
and imagination; in other words, "to fly higher".

It may come as a surprise that, with such a positive opinion
of the experience of Co-operative enterprises, I am not
entrusting these with carrying out my "projects" (actually
quite theoretical) for improving the efficiency of capitalist
enterprises.

Realistically, one should recognize that the Co-operative
institution cannot be, on a large scale, the means for
effecting the entry of workers into company capital.
This is due to several reasons, the main one I think being the
following:
The Co-operatives arose, mostly at the end of the last
century, as mutual-aid resources for certain categories of
workers, enabling them to obtain job opportunities or other
services for themselves. This means their capital was limited
to narrow groups of workers, within definite professional
categories. An iron working company, for example, if it is a
Co-operative, can have as its only shareholders, mechanical
workers working inside the company; this at least is the
"sacred principle".

It is clear that with such a restriction it is impossible to
handle complex issues, especially financial or management
issues, which affect present day economy, whose horizon is
necessarily the world itself.

There are of course contrary examples - like the Co-operative
where I work, and the Co-operatives of Imola in general - but
these are special cases which do not in my opinion change the
general rule.

Therefore, I believe that in the future the objective of
global employee participation in company capital, management
and profits needs to be achieved by means of a new kind of
legislation, as I have tried to outline in this speech.

The Co-operatives will certainly continue to play a
significant role in companies not requiring large financial
means and in areas where companies are prevalently typified by
service quality, by responsible human commitment and personal
involvement.
Worker shareholding over the next decades may perpetuate and
give historical development to the positive experience
achieved by company management through the economical and
juridical means of the Co-operative company.


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* This article was adapted for the Review of International
Co-operation from a speech by Mr Benati, Manager of the
Industrial Co-operatives of IMOLA (Italy) at the 5th
International Employee Ownership Conference, at Oxford-Merton
College, in January 1995.