Thomas Piketty on corporate co-determination

I’ve written a good bit about Thomas Piketty’s new book.  Click on the Capital and Ideology tag to read my previous posts about it.  In this post, I’m going to discuss his ideas on corporate governance.

Great corporations typically begin with an individual who has a vision—a Steve Jobs, a Walt Disney, a George Eastman, a Henry Ford, a Soichiro Honda or a Jack Ma.

The drive and creativity of the individuals make the companies what they are.  Over time, though, the companies devolve into authoritarian bureaucracies, little junior watered-down versions of the Soviet Union.

Click to enlarge.  Source: Oxford Law Faculty

The goal of reform would be how to prevent corporate abuse without stifling enterprise and beneficial innovation.  Piketty’s solution is to adopt German-Scandinavian co-determination, under which corporations of a certain size have to allow employees to choose a certain number of corporate directors.

In Germany, according to Piketty,  all firms with more than 2,000 employees must reserve half the seats on their oversight committees to worker representatives.  All firms with 500 to 1,999 employees must reserve a third of their oversight committee seats to worker representatives.  There also are factory committees with union representatives who have a say one work rules and training.

However, in Germany, the oversight committees only supervise day-to-day operations of companies.  Policy is set by directorates, on which workers have no representation.

Other countries reserve one-third of seats for workers on companies of a certain size.  In Sweden, the threshold is 35 employees; in Norway, 50 employees; in Austria, 500 employees.

In April 2018, according to Wikipedia, U.S. Senators Tammy Baldwin, Elizabeth Warren and Brian Schatz sponsored the Reward Work Act,  which would amend federal legislation to require all companies listed on national stock exchanges to have one-third board representation for workers.  Polls showed majority support among Americans for the measure.

In August 2018, Elizabeth Warren sponsored a new Accountable Capitalism Act that would require 40 percent of the board of directors be elected by employees in federal corporations with taxable incomes over $1 billion.

In Britain, the Bullock Report in 1977, during the Harold Wilson administration, called for co-determination in big businesses based on the formula 2x + y. In this, workers and stockholders would have equal representation on boards of directors, but there would be two government representatives to break a tie.  It never became reality.

In practice, even though workers have a voice, the final authority rests with the owners.  I think there still is a benefit to having worker representatives.

Employees usually know things about how companies operate that the top managers don’t.  This can be valuable in avoiding the Stupidity Paradox, in which layers of bureaucrats demand good news and truthful information doesn’t filter up.

It’s also good for employees, especially union representatives, to have access to the same information that top management has.  Of course all these desirable goals can be thwarted by a sufficiently cunning and authoritarian management.

Piketty noted that, in the early 19th century, corporate charters limited the voting rights of individual shareholders.  Someone might own 51 percent of a company’s stock, but there might be a ceiling of 10 percent on the individual’s voting rights.  This is an idea worth reviving, he said.

Logically enough, he is strongly in favor of worker and consumer co-operatives.  But he thinks a hybrid entrepreneurial-cooperative system might be possible.

Suppose someone starts a restaurant, and puts her heart and soul into making it succeed.  It is not reasonable to expect her to bow to the wishes of employees who may not have a stake in the continued existence of the restaurant.  Piketty thinks forms of cooperative governance may be possible in which everyone has a vote, but those who invest in the enterprise have extra votes.

I am in favor of co-determination in the weak form in which it now exists.  I am open-minded about true co-determination, and would like to see it tried.

I think the most important thing is to have strong labor unions, strong consumer advocates and strong community organizations to hold business executives and also government officials accountable for what they do.  Here is my personal agenda for reform in the USA.

  • Stop committing crimes (i.e., military aggression, torture, assassinations as well as financial fraud).
  • Indict high-level criminals and sentence them to prison when found guilty.
  • Stop bailing out financial institutions that fail because of the recklessness or criminal behavior of those who run them.
  • Enforce the anti-trust laws.
  • Restore and update the financial regulations that inhibit reckless speculation.
  • Encourage labor unions.
  • Encourage worker and consumer cooperatives.
  • Enact Medicare for All.
  • Make higher education free or affordable to all who are capable of doing college work.
  • Raise the minimum wage to at least $15 an hour and index it to inflation.
  • Reduce the military to what’s necessary to defend the homeland.
  • Launch a Green New Deal to build the necessary infrastructure to deal with catastrophic climate change.
  • Make full employment a national goal.

LINKS

Education and Property for All: Thomas Piketty on Capital and Ideology, an interview for Toqueville21.

Good for Governance: Erzberger’s TUI AG and the Codetermination Bargains by Evan McCaughey for Oxford Law Faculty.

Co-determination takes the spotlight in the US by Steven Hill.

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2 Responses to “Thomas Piketty on corporate co-determination”

  1. Fred (Au Natural) Says:

    It is amusing how we have so many different principles that point to how large hierarchical systems fail yet hierarchical systems are usually completely adverse to learning from them.

    Stupidity paradox, Goodhart’s law, the Peter Principle, even Murphy’s law weigh heavily on any organization’s ability to perform efficiently and yet they gain their prominence because they are deeply entrenched almost everywhere. This may be the inevitable fate of all large bureacracies.

    Liked by 1 person

  2. Thomas Piketty on corporate co-determination | fadingsunsjvj Says:

    […] via Thomas Piketty on corporate co-determination […]

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