If Not Labor Exchanges, Then What?

 

Gustave de Molinari’s proposals to expand the reach of markets deserve our unqualified praise, even if we might be inclined to proceed in ways different from those he suggested. In particular, Molinari’s entrepreneurial attempt to conceive of institutions that might help to better the competitive position of labor in the market reflects his concern with an issue of crucial importance.

The labor exchanges Molinari envisioned might well not have been practical. But his goal in proposing them—to help foster a seller’s market in labor—was important. Achieving it could help significantly to improve the well-being of workers within a genuinely freed market. While ensuring workers’ access to the kind of information about job opportunities that Molinari’s labor exchanges would have offered might make a difference, more radical free-market reforms could help to do so more effectively.

Many workers in our society may conclude, not unreasonably, that while their material standards of living are higher than their peers’ were in previous generations, they still lack freedom and dignity in the workplace. Their capacity for independent judgment may be ignored; they may be dismissed capriciously; and they may be treated with disrespect.

People like being treated well. And they can thus be expected to gravitate toward jobs featuring attractive working conditions. They may, of course, opt for pay over dignity, as they should be free to do. But workers will likely choose greater freedom and dignity when they can. Thus, in a competitive labor market, firms that want to attract workers will be incentivized to offer greater freedom and dignity as means of securing the best employees. By contrast, of course, in a not-so-competitive labor market, like the one we in fact have now, firms will have little incentive to institute policies that safeguard workers’ freedom and dignity as a means of recruiting effectively.

Attracting desired employees isn’t the only reason to treat workers well, obviously. A fair, morally decent employer will regard respecting workers’ freedom and dignity as worthwhile for its own sake. And even less morally sensitive employers may recognize that one way of respecting workers’ dignity—empowering them to make as many decisions as possible—can substantially enhance productivity.

Large hierarchical firms seem likely to be beset by the incentive and knowledge problems that complicate the lives of state central planners. As economists have known for much of the 20th century, top-down control over an economy is certain to lead to poor performance. Hierarchical firms can be expected to encounter the same problems.

The larger an organization, the more likely it is that managers will lack crucial information. This is both because there will be multiple layers separating various actors with relevant information (with institutional pressures impeding accuracy) and because there will be no system of prices encoding the information and usable for calculation.

In addition, the principal-agent problem besets large firms at multiple levels, fostering inefficiencies as workers—whether senior managers or front-line employees—seek their own goals rather than firm profitability.

Thus, it seems fairly clear that, all other things being equal, the smaller and flatter a firm is, the better the information available to participants will be. The more production decisions are based on actual market prices rather than on simulated intra-firm transfer prices, the more efficient and responsive to reality they’re likely to be. And the more a worker has skin in the economic game, the more likely she will be to make prudent, profit-maximizing decisions.

This means, then, that discernible economic pressures might be expected to lead existing firms to adopt flatter structures in which front-line workers were better able to use the knowledge available of them to make important decisions, and to make newly established firms more likely to feature flat organizational structures. Thus, firms that treat workers better by offering them more opportunities to make decisions and subjecting them less frequently to arbitrary managerial authority should do better in the marketplace than their hierarchical competitors. Market forces might be expected to lead to the emergence of firm structures in which workers could use their knowledge and skills effectively and in which they were treated with respect: Smaller, flatter firms could be expected to outcompete larger, more hierarchical ones.

But we don’t see lots of smaller, flatter firms in the marketplace. Does this mean that, contrary to expectations, larger firms really are more efficient?

Whether this is so will depend in significant part on empirical questions that can’t be sorted out a priori. But it does seem as if several factors in our economy might tend to help large firms ignore the diseconomies of scale that would otherwise render them unsustainably inefficient. Tax rules and regulations tend to encourage capital concentration and thus increased firm size. Subsidies reduce the costs inefficiently large firms might otherwise confront—and large firms can more readily mobilize the resources needed enable them to extract wealth from the political process than small firms. Eliminating these factors seems likely to make alternatives to the large corporate firm significantly more viable.

In addition, workers often lack access to the resources needed to start firms precisely because of state-sanctioned theft and state-secured privilege. Massive, ongoing robbery and asset engrossment by states and their cronies has played a crucial role in creating a class of economically vulnerable workers. Reversing this process can help to enrich workers and give them the economic leverage they need both to create new firms and to opt for self-employment as an alternative to work in hierarchical businesses.

To the extent that such alternatives are more viable, they can be expected to be more common. Freedom from arbitrary authority is a consumer good. Given the disgust and frustration with which many people view the petty tyrannies of the contemporary workplace, I suspect it’s a consumer good many people would like to purchase. At present, the price is high; there are very few opportunities to work in partnerships or cooperatives or to choose self-employment. So the question is: what might reduce the price?

The price is partly affected by the relative frequency of hierarchical versus nonhierarchical workplaces. So eliminating props for hierarchy ought to put more alternatives on the table. At the same time, people often don’t choose such alternatives because of the risks associated with doing so. Saying goodbye to corporate employment means taking responsibility for one’s own medical care and retirement (if, of course, you’re a worker who even has these options in the first place, as many purportedly part-time workers don’t), requires one to front the capital required to make startup operations possible, and forces one to confront the spectre of unemployment if one’s startup business fails. But medical care and retirement are associated with corporate employment primarily because of the current tax system; and medical care, in particular, would be more affordable by far in the absence of state regulation and state-driven cartelization. So the challenge of caring for one’s health in connection with a mutual-aid network, say, would much less daunting than at present. Startup capital would be more available if state-confiscated resources were marketized and state-engrossed land available for homesteading, and less necessary, in any case, if state regulations didn’t drive up capitalization requirements. And unemployment would be more affordable if state regulations didn’t raise the minimum cost of living, and could be manageable by means of the support offered by mutual aid.

Furthermore, it’s not clear that it would be impossible to raise money in equity markets and from investment banks for partnerships, cooperatives, and solo ventures. There are ways to secure investments that don’t involve participation in governance—and of course significant quantities of stock for sale today doesn’t necessarily come with voting rights.

Thus, people who wanted to opt for boss-free workplaces would find it easy to do so in the absence of state-driven props for hierarchy and state-driven barriers to self-employment and employment in partnerships and cooperatives. And the fact that they did so, making boss-free options increasingly visible and numerous, would have consequences for boss-dominated workplaces, too. The availability of alternatives that offered people more dignity, more predictability, more security, and more opportunities for participation in decision-making would exert market pressure on conventional corporate firms, encouraging them to make theoretically boss-dominated workplaces more like those at other kinds of firms. The differences wouldn’t disappear, but they might be meaningfully reduced.

In addition, boss-dominated firms might experience greater pressure to democratize in virtue of unionization. To the extent that the state’s bargain with unions has been, all things considered, bad for collective action in the workplace, eliminating state labor regulation could open up opportunities for Wobbly-style direct action that could increase unionization and offer workers resultingly more extensive workplace protection. Again, even in nonunionized firms, there would be market pressure to mimic at least some features of unionized firms, both to avoid losing workers to those firms and to forestall union organizing efforts.

Moral suasion typically shouldn’t be seen as the primary driver of social change. But active advocacy on behalf of workplace dignity and fairness could obviously lead to changes in social norms and expectations that would further reduce the perceived legitimacy of bossism and encourage the flourishing of alternatives.

A free society wouldn’t and couldn’t eliminate investor-owned or boss-dominated firms—nor should it, not only because violent interference with these patterns of ownership and control would be unjust but also because workers might often benefit from the ability to shift risk onto employers and investors. But structural changes could create significantly greater opportunities for self-employment and work in partnerships and cooperatives.

Molinari rightly sought to increase the competitiveness of the labor market in the interests of workers. Sharing information, as his labor exchanges would do, could be very useful. Eliminating state-secured privilege and remedying state-sanctioned and state-perpetrated injustice could be even more useful.[1]

[1] I happily acknowledge my dependence throughout on the work of Kevin Carson; see Kevin A. Carson, Organization Theory: A Libertarian Perspective (Charleston, SC: BookSurge 2008); Kevin A. Carson, “Left-Libertarianism: No Masters, No Bosses,” Center for a Stateless Society (Molinari Institute, Nov. 16, 2012) <https://c4ss.org/content/14459> (April 5, 2013.