Keeping Jobs at Home: Give the Workers Control

by John Peeler (originally published by the LA Progressive November 20, 2008)

Robert Reich, writing on the LA Progressive (November 19, 2008), calls for a “Bottom-Up Bailout,” by which he means not aiding the auto manufacturers, but rather providing direct credit and loan guarantees to small businesses and individuals, and supporting those big companies whose managers and workers are willing to put up their own resources and to restructure the companies. That approach would certainly be better than what we’ve seen from an administration that is as much lame-brained as lame-duck. But we can do still better.

To right this listing economy, we must do more than rescue large corporations that are “too big to fail.” We must redress a gross imbalance between management authority and worker rights, and to give the government a fundamental role in defending the public interest. Corporations are publicly chartered institutions that are supposed to serve the public interest even as they make profits for their stockholders. Obviously, the Big Three automakers-and hundreds of other corporations-have ill-served the public interest by making decisions like sending millions of jobs overseas, in pursuit of larger profits.

Rather than bailing out companies that have been consistently mismanaged and have failed to serve the public interest, and rather than just letting them fail, Congress should provide for the option of having the employees of the company take control, and reserving bailout funds as loans to worker-controlled corporations. In a bankrupt company, stockholders have already lost their stake, but employees have a very direct interest in correcting mismanagement in order to keep the company in business. In particular, employees have an interest in making management decisions that will maintain their jobs where they are, rather than sending them overseas. This might mean accepting lower wages or benefits in return for job security, but that would be a better bargain than workers now get, when they make concessions without any assurance that their jobs will thereby be saved.

There are obviously pitfalls to be avoided. The mere fact of worker ownership and control does not guarantee that management will serve either employee interests or the public interest. United Airlines, for example, came under employee ownership in an earlier crisis, but it was managed just the way other airlines were managed, and as a result continued to have poor relations with the employees who supposedly owned the airline! Go figure! What this means is that the leaders who are charged with managing the company need to be both competent and accountable.

Accountability is easy enough to arrange. The employees ought to have a direct, voting voice (one employee, one vote?) in selecting the chief executive, should receive regular, frank communication from the chief executive, and should have the right, under specified procedural conditions, to dismiss and replace the chief executive.

Competence is tougher. We know from our political system that democracy does not guarantee competence. If we didn’t know that before, eight years of George W. Bush should be convincing. But the right of dismissal allows workers who were manipulated initially to rectify their error after they have seen a chief executive in action. There is still a risk that employees would put short-term gains ahead of strategies intended to enhance long-term viability of the firm, but in this they would scarcely be any more short-sighted than the present management.

The government, as defender of the public interest, could have an important role as an external monitor of management competence. The Commerce Department, for example, could be vested with a seat on the board of the corporation, with the right to full information about its affairs, and the obligation to report both to the employees and to the public as to how well the company is being managed. The government representative could have the authority to order an employee vote on dismissing a chief executive.

Giving employees direct ownership and control of failed corporations, with government loans to let them regain their footing, is the best approach to a “bottom-up bailout.”

John Peeler