Workers' Participation And Self-management In Developing Countries

Janez Prasnikar

• Publisher: Routledge
• Year: 2019
• Print ISBN: 9780367213930
• eBook ISBN: 9781000011012
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: International Relations
• Index: Politics & International Relations

Drawing on his background as an economist and a specialist on the Yugoslav system of workers' self-management, Janez Prasnikar analyzes an extraordinary amount of dispersed information on the experience with workers' participation in thirteen developing countries.

1
The Overview of Theoretical and Empirical Literature Concerning Workers’ Participation and Self-Management

Theoretical Findings on Workers’ Participation and Self-Management

Industrial Sociology and Industrial Democracy

Theory of Industrial Democracy. Recently there has been increasing interest in the concept of industrial democracy. Outmoded organizational theories¹ have tended to be replaced by newer theories, which are based upon the idea that human beings must be an active element in the production process. This viewpoint is reflected in The Human Relations Theory, which is based on the categorization of human needs as expressed in Maslow’s writing, where work is considered a fundamental human need that must be taken into account in improving working conditions and working relations. This theory suggests that workers should be included in the management decision making process. The Human Relations Approach is the key for improving motivation and developing each human being’s greatest potential.² Socio-technical Theory and Job Redesign³ established that workers’ participation is a crucial element in increasing workers’ trust in management and decreasing their alienation — thus increasing their motivation and economic efficiency. Both approaches sought to demonstrate that more harmonious relations between workers and capital, along with a general increase in social welfare,⁴ would result from the increase in worker’s participation in management.⁵

Contrary to the theory of limited participation, or partial control, the theory of self managed decision-making⁶ considers the removal of the hierarchy in the political sense — a result of introducting equal rights for workers. However, the hierarchy is still maintained within the technical division of work. This theory employs self-management as a means for decreasing alienation, while building a freely managed society in which each person can develop his or her personality.

Forms of Workers’ Participation. Clarke et al.⁷ distinguishes between participation concentrated on work tasks (work-centered participation) and participation concentrated on the distribution of power (power-centered participation). The former is described by the Human Theory Approach. The latter is focused on the control of workers in decision-making and in the distribution of power.

Bernstein outlines the degree of workers’ control and the forms in which control is executed.⁸ He distinguishes between four degrees of participation. At the lowest degree of participation, workers merely provide written or oral suggestions, which are later reviewed by management. Management can ignore or act on these suggestions. The second form involves discussion between workers and management. The workers have the right to be informed, to discuss their interests, to protest, and to offer suggestions through employee coinfluence. However, the management structure still makes the final decisions. The third form is joint management, or co-determination, in which both of the parties have the right to veto decisions or form joint-decision committees. The most advanced form is self-management, which provides for the full participation of all of the members of the firm, with workers having total control over decision-making. Vanek (1971)⁹ develops six characteristics of the self-managed enterprise:

1. There must be total workers’ participation in all levels of the organization;
2. All workers have the right to decide how net income will be distributed. There tends to be a higher level of equality in wages among workers in a self managed firm than there is in a capitalistic firm;
3. The means of production are owned by the workers; are socially owned; or are rented from external institutions (state, union or private owners);
4. The enterprise maximizes the welfare of its workers;
5. Profit, which is the residual after covering all expenses, is kept by the enterprise until the workers decide how to allocate it. The profits can then be distributed to the workers, used for collective consumption, or reinvested;
6. If in a democratic organization the workers rent the capital, a real positive interest rate on borrowed capital should exist. The firm is considered to be a labor-managed firm if the workers pay a capital rent on invested capital to the owners of capital. It is a worker-managed firm if workers do not pay a capital rent in the context of socially owned capital. It is important to distinguish between these two types of participatory enterprises, as each type represents a different form of social ownership.¹⁰ Both types of enterprise as well as the production cooperatives can be put in the same group of self-managed enterprises if they each fulfill the criterion of democratic control by the workers.

Internal Requirements for Feasible Democratic Organization. In order to attain genuine workers’ participation in the management of a formally organized democratic enterprise, Bernstein (1976) suggests five requirements:¹¹

1. Workers must have adequate access to information. There must exist a mechanism to guarantee a proper flow of correct information;
2. Basic political freedoms must be extended to all workers (freedom of speech, security in complaining, secret voting, a fair defense in legal cases, the right to dispute job displacement). Organizational by-laws must be accepted by a two-thirds majority of the workers. Finally, political freedom should be a long term goal and guarantee of this type of society;
3. Independent judgement must be provided to secure the rights of individuals. Judgement must work in accordance with the rules which guarantee justice, guarantee the basic individual rights of workers and ensure that the firm’s activity follow the organizational bylaws;
4. Confidence must be built into participation and democracy. In this respect the following must be avoided: rigidity of thought; indifference; emphasis on extreme loyalty; intransigence; and excessive short-term orientation. It is important to develop an environment which encourages freedom of thought and creativity;
5. All workers must participate in making decisions about income distribution with additional income offered as a bonus payment. As a motivational factor, the bonus must be directly related to work done; distributed according to the written bylaws (otherwise there may be manipulation of the distributions); available to all workers, (otherwise there may be workers’ segregation); separated from personal income and can be paid in the form of collective consumption of workers. The amount of the bonuses is the ultimate recognition of the workers’ success.

However, Bernstein and others have discovered that formal ownership is not related to the degree of worker participation in decision-making.¹² Rather, the package of rights that workers possess in the enterprise determines their level of participation in the decision-making process.

Advantages and Disadvantages of Democratic Organization. Industrial sociology analyzes the advantages of the democratic organization when compared to the traditional hierarchical firm. Because of the collective spirit of the democratic organization, there is a marked increase in the motivation of workers, the probability that workers will develop themselves in other fields as well as a decrease in the need for control and internal competitive behavior. These characteristics of democratic decision-making lead to decreased conflicts and absenteeism, which in turn lead to increased economic efficiency. In addition to economic efficiency, democracy in decision making decreases alienation and fosters the development of the following altruistic values: social welfare (sufficient employment, environmentally sound ventures); production of socially valuable goods; and fulfillment of collective needs of workers (collective consumption for cultural enrichment, recreation, etc.).¹³

The literature on industrial sociology highlights the various problems associated with the implementation of democratic management:

1. The length of time needed to make decisions in democratic organizations is greater than that which is required in hierarchical ones;
2. Democratic organizations require a higher degree of homogeneity than do hierarchical institutions. This is especially true if the cooperative enterprise is located in a nondemocratic environment;
3. Restrictions in the organization are especially pronounced when the functions of self-management and control (day to day management) are not suitably separated.¹⁴ In these cases the question of accountability arises. Moreover, difficulties arise as a result of the fragmentation of members and of the acceptance of inconsistent decisions;
4. Factors such as the lack of motivation for making democratic decisions and the lack of knowledge which limit members’ capabilities to choose individual paths of development and values hamper the successful growth of democractic forms;
5. Based on individual relations between members, democratic management may increase the volatility of personal emotions and thus lead to conflicts which are difficult to overcome; and
6. The possibility exists that individuals or groups of individuals will manipulate the decision-making process for their own benefit.

Basic Findings of the Economics of Self-Management

The breadth of literature on the working of self-managed enterprises is so wide that it is impossible to introduce it all in this short volume. Therefore, the focus of this study shall be limited to the three basic categories which present the heart of the discipline of self-management: economic efficiency of self-managed enterprises; sufficiency of the self-managed national economy; and empirical findings on the nature of the working of self-managed production units.

Findings on the Efficiency of Self-Managed Enterprises.¹⁵ The aforementioned potential reasons for the inefficient operation of self-managed enterprises are not the sole focus of the economics of self-management. This economic theory develops a much more elegant way of explaining cooperative production. Instruments which were developed in neoclassical theory for analyzing the efficiency of the capitalist firm are employed to analyze self-managed firms. However, in the case of the self-managed firm, the maximization hypothesis is transformed: instead of maximizing profits the firm maximizes net income per worker. Moreover, it establishes the framework for the comparison of efficiency between self-managed and capitalistic enterprises.

This analytical framework was first developed by Ward in his famous article in 1958. In this study he discovered the perverse response of the self-managed firm to changes in market parameters. In his model of the Illyrian firm, an increase in the product price leads to a decrease in employment and production. On the other hand, a decrease in the product price leads to an increase in employment and production. Self-managed firms therefore respond differently to price changes than do capitalistic firms. Later it was discovered (Meade, 1972) that optimal economic allocation does not arise in economies in which firms are earning different incomes, because workers in high-paying enterprises will not admit workers from low-paying ones. In addition, assuming that self-managed enterprises are financed internally, there will be less investment (and therefore less growth) than in capitalistic enterprises (Furobotn, 1979). These results of the comparison of efficiency between self-managed and capitalistic enterprises prove that the self-managed firm and the self-managed economy are less efficient than the capitalist alternatives.

It was soon recognized that the above conclusions are based on the assumption on which specific models are built. Instead of using the very simple model of a self managed firm in which there is only one variable factor and only one product (Ward’s model), one can use a more complicated model of a self-managed firm in which more variable factors and products are involved. Moreover, if group solidarity exists, the cooperative firm can collectively decrease the number of hours worked instead of laying off workers. Furthermore, taking compensation for workers who leave a self-managed firm becomes more efficient as it was assumed in the pioneering models.¹⁶

An active branch of economic theory has grown out of the discussions on the efficiency of the self-managed firm. However, there is a great deal of literature which can be classified as too abstract for use in the real analysis of contemporary world events. Because of this, we will not delve to deeply into a discussion about whether or not the self-managed firm is more efficient than the capitalist firm. However, a theoretical discussion about the behavioral responses of the self-managed firm is not without use in the understanding of the operation of this type of enterprise in the real world. At least four topics¹⁷ address new questions which are important for understanding the results of workers’ participation and self-management in the real world. Therefore these topics will be analyzed in more detail.

Employment Policy of the Self-Managed, Firm. The first models of the self-managed firm (Ward 1958, Domar 1966, Vanek 1970) explicitly assumed that the firm responds to certain changes in market parameters by varying the number of workers employed. In the last few years the theory has focused on more practical questions, such as what can be done if market conditions require a decrease in production and employment? How can the firm increase the number of employed workers without damaging efficiency? In studying these problems, Horvat (1986) explained that workers in a self managed firm hire capital and do not fire fellow members. If market conditions deteriorate, the workers decrease the number of hours worked or produce for inventory purposes. If market conditions improve, members’ working hours are increased or seasonal workers are employed. However, Horvat’s assumption is that it is always possible to find technology which preserves the competitiveness of the firm, while maintaining employment of an equal or even increasing number of workers. Yet, they may have to quickly adjust employment due to a decrease in demand, which requires closing the production line. What can be done in this situation? Which workers should stay and which should leave the firm? The literature on the subject suggests different possibilities. Meade (1972), for example, suggests that younger workers should exchange employment today for continuous employment later, which they will obtain when they are older. Steinherr and Thisse (1979) support the idea of randomly selecting workers to leave the firm in such a crisis. Bonin (1984) and Spinnewyn and Svejnar (1990) analyze the met...

Table of contents

• Cover
• Half Title
• Title
• Dedication
• Copyright
• CONTENTS
• List of Tables and Figures
• Foreword
• Acknowledgments
• Introduction
• 1 The Overview of Theoretical and Empirical Literature Concerning Worker’s Participation and Self-Management
• 2 The Evolution of Workers’ Participation and Self-Management in Some Developing Countries
• 3 Institutional Structure of Participation and Self-Management in Developing Countries
• 4 Practice of Participation and Self-Management in the Developing Countries Under Study
• 5 Conclusions
• References
• Index