This page is made available for comment purposes only. The content is subject to change and may be deleted. It is a work in progress, and describes a concept for how businesses could be managed without exposing its membership to some of the risks that the current capitalist model entails. Comments should focus on the sorts of problems that could arise using this model. Whether or not it could actually be put into practice, that is, whether it’s politically feasible, is not relevant. So let us begin.
By “Company” I mean any entity licensed to do business by a municipal or regional government such as a county, township or parish, or a corporation as described by legal documents of incorporation. A company will be considered to be comprised of two subgroups: employees, also known as “the workers,” and management (which includes supervisors and foremen). In the traditional capitalist organization, there is an additional group who owns the company. The owner may be a single individual (“sole proprietor”), a partnership (“joint owners”), or a group of investors collectively known as the shareholders.
For the sake of clarity and simplicity, governmental organizations as sources of employment will not be considered until later. Many of the considerations that apply to the Company also apply to governmental organizations, but there are also important differences. It will be easier to identify points of similarity and difference once the main outlines of the Company have been set out.
Employees are the people who do the actual work of the organization, such as manufacturing, retail and distribution, or providing a service. The product can be tangible, such as automobiles, or intellectual, such as movies or books, insurance policies or investment instruments. Service organizations may be legal firms who provide consultation and representation for hire, medical clinics and hospitals, educational institutions such as universities, private schools, museums and planetariums, hair salons, lawn care services, automobile repair shops, broadcasting and communications services (“cable companies,” broadcast stations, etc.), and so on. In general, a company performs a function in return for compensation in the form of sales, which provides its primary source of income. It may also earn incidental income from investments, donations and bequests. The Company’s income must cover a number of expenses, the most important of which is compensating its employees for their labor. This compensation consists of wages and benefits. The amount of wages due an employee is negotiated between the employee and the Company, and is not necessarily related in any predefined way to the Company’s sales.
The modern structure of business is obviously very complicated, but it was not always so. In very ancient times, societies survived by hunting game and gathering edible fruits and vegetables, for which they were known as hunter-gatherer societies. These primitive types of societies still exist in outlying parts of the world. The core activity of such a society was the hunt, and it was performed by a hunting party. The hunting party was an informal group of men who organized in a simple flat structure usually with one leader who exercised basic management functions: calling the group together, polling the group to decide where to go hunting, for how long, and when to finish. Men joined the hunting party for a very good reason: to acquire food for themselves and their families. The hunting party was valuable for other reasons. It could give its members a certain boost in status. It provided entertainment in the form of travel, stories shared during encampments, and the comradery of shared activity. But these benefits were all secondary to the main reason for the party’s existence, and that reason was so strong that forming hunting parties was a regular necessity, and participating in the hunting party was essential to survival.
The company in modern society provides the exact same function as the hunting party in ancient times: it is a tool for survival. People join the company in order to provide the necessities of existence to themselves and their family and other dependents.
This is a crucial fact. People don’t join a company lightly or casually. Becoming successfully employed puts bread on the table, acquires clothing and shelter, and provides the means for sending one’s children to school and assuring their future. Everyone in a society needs either to be employed by a company or to be a member of a family with at least one employed member. Without such a status, survival becomes problematic. In this text, individuals who are neither employed nor members of a family with at least one employed member will be called “homeless,” even if they have temporary access to shelter, because they do not have the means to guarantee that access or to provide it for themselves.
We now come to the point of this discussion.
Given that employment in some company is the critical factor to ensuring most peoples’ survival (and this includes managers and business owners), what burdens, if any, does this impose on the structure and operation of companies? For society as a whole, we will also have to ask what burdens that society must assume for the support and accommodation of companies?
So what’s the Problem?
Clearly most companies could not exist without some number of employees. It’s like talking about a hunting party consisting of one person. A hunter working alone can capture some kinds of game, but he has a much more difficult job of it than a group of people working together. It’s the same thing with companies. One person working alone can be an independent business such as a plumber or an appliance repairman, a lawyer or a doctor, but big jobs like manufacturing require the concerted efforts of a number of specialists.
This is a critical point. Most companies are entirely dependent on their employees in order to function, and the only reason people volunteer to work for the company is to obtain the income they need to survive. Consequently, everything else in the company is secondary to its function of paying employees. If it can’t do that properly (and the meaning of “proper” requires clarification), then the company cannot justify its existence and will fail—people will leave because they can’t afford to work there, or will be laid off as a cost-saving measure, until there are not enough people remaining to sustain the company and it will be forced to close.
The products and services the company generates are not the justification for the company’s existence. People can do without almost anything companies produce except for the employment it generates, but that employment is the backbone of society. (In fact, there are many examples of entire towns that closed down, became ghost towns, when the local employer closed or moved away.) In that sense, it is correct to view business as one of the principal features of society. However, it isn’t what we get from the company as consumers and customers that matters as much as our participation in it as employees.
This implies that the value of any business is its ability to offer employment to the local population, and further, that any business which loses that ability loses its value to the local community. For that reason, we have to conclude that a company does not belong to anyone in the sense of private property; it is a community asset and belongs to the community where it is situated. If a company owns and operates branches in several communities, then each branch has to be regulated and managed as an integral part of that community, and can no more be removed or discontinued than can the community’s town hall.
This view of the company, as a hunting party, has its greatest significance for the owner class, because clearly the function of “owner” does nothing for the worker and adds nothing to help the manager either. In fact the need for ownership of the company becomes problematic. We no longer have a way to justify having owners at all.
We therefore arrive at the following Rules of Operation for companies.
Who owns a Company?
A company is owned by its local community. That is, a company does not have a private owner.
This rule is a safeguard against the types of dangers that can arise from privately held companies:
Unjustified termination. A private owner could decide to close the business, an office or a branch, regardless of its viability as an economic entity, for personal reasons. This would throw all of its employees out of work and threaten their economic viability, especially in those cases where the local community offers no other employment opportunities.
Relocation. Private ownership could, and frequently has decided that the current local of operation for factories, offices, outlets or stores is no longer economically justifiable, particularly when labor can be obtained at a cheaper price elsewhere. This type of action may be good for the company’s owners and top management, but it offers no benefit to retained employees and forces dislocation for staff at the discontinued location. As such it is seen to be a disservice to the affected community, in fact, and potentially dangerous for all locations where the company operates. This would be the definition of a renegade company.
Sale of the company. Private ownership makes it possible for the owner to sell the company to another owner who may have different objectives. The new ownership may opt to close the business, to change its management structure, to fire some number of existing managers and staff, or to take other actions that expose the existing employees to risk and dismissal. Some corporate sales are hostile, where the intention is to dismantle the company, once sold, by disposing of its real assets and terminating its employees and operation. This may be done, for example, by another company to eliminate a competitor.
Considering the business to be “owned” by its local community does not mean the local government should have the freedom to act as a private owner would. In particular, it should not have the authority to summarily close a viable business, force organizational changes on its management structure, relocate the business, or sell it to another agency. The local governments’ function is limited to regulatory actions which are deemed necessary or beneficial to the community.
We cannot exclude the possibility, however, that just as a local government might choose not to license a new business, it may also decide at a later time that the business would not be licensed if it were a new applicant, and that its operation should cease. This might be the case if the company’s operation were poisoning local resources, undermining civil order, harming its employees, or bringing harmful or criminal elements into the area.
Let it be understood that this deviates from the notion of employee-owned businesses. Although we will find that employees and staff have certain privileges and responsibilities for the operation of the company, it’s not the same as allowing majority vote by the employees to take an action which may be injurious for the local community. It remains the case that the company cannot be sold or consigned to outside parties, regardless of the wishes or votes of its employees.
How is the Company Managed?
Very small companies need not have explicitly designated managers, although it should have at least one “officer” who is entitled to act on behalf of the company in a legal capacity. Larger companies may require skilled, trained, and experienced managers to oversee its daily operation and do long-term planning.
If the company is not owned by anyone in the company, where does the management staff get its authority?
The management staff is authorized to act, implicitly, by the committee of the whole formed by its employees. The management may allocate salaries and wages, hire new staff, and terminate existing staff without consulting its employees for the permission to take these actions. This is for reasons of efficiency. We don’t want to force workers into the position of having to make a dreary and endless series of business decisions for which they’re not qualified and normally have no interest.
But there has to be a check on management authority. The committee of the whole consisting of all employees should have the power, by a preponderance of votes, to dismiss managers from the company if in their view they are corrupting the function of the company, for example, by allocating most of the company’s earnings to management staff keeping wages unnecessarily low, or by unwise or injurious termination practices—denial of health insurance benefits or withholding pension benefits, or any other type of action that the majority of employees feel is unfair and unwise.
Over time one should expect a mutual accommodation to develop between workers and management in which each group is mostly satisfied with the performance of the other.
Finally, it should be recognized that no set of rules and practices can guarantee the successful operation of the company. It’s conceivable that employees will be unrealistically critical of their leadership and through the application of unwise policy decisions over time, incapacitate management’s ability to maintain the effectiveness of the company, leading to failure. Similarly, management may succeed through subtle and gradual means to corrupt the company without being called out by its employees, again leading to failure.
The point here is not the perfection of the methodology, but the potential benefits of providing a secure environment for labor and providing checks and balances on each group.
How are Wages and Salaries Managed?
In the capitalist model, after paying vendors and employee wages, the remaining cash from sales of products and services are taken as profits. Since management staff is compensated by salaries, the profits are the owner’s earnings (which, in some companies, may be shared with managers in an arrangement called profit-sharing). In a publicly held corporation, there is no owner individual, but the shareholders (owners of stock) are the putative recipients of profits. The shareholders may agree to plow back some of their profits into the business to expand its operation, improve its product line, buy subsidiaries, and take such other economic actions as may seem advisable for the future profitability of the corporation.
In our business model, there are no owners, and so shares of ownership cannot be sold. There is no stock market, and the company cannot raise capital by selling shares that would dilute ownership. The only way to raise funds the company does not have is by selling promissory notes, essentially corporate bonds, which have a set interest rate and a fixed date of maturity (when they are paid off). Bonds are a type of loan, and as such, they are also liens against the company’s assets should it go bankrupt. Bond holders are much less likely to suffer severe fiscal losses than stock investors.
So what happens to the company’s profits, which could be substantial if its income considerably exceeds the cost of raw materials and wages?
There are really only two alternatives. It can be invested in company growth (upgrading equipment, expanding facilities, opening new branches or stores, etc.), or it can be allocated to employees as wage increases or bonuses.
This is exactly the idea of a hunting party, where the members of the party share in the take. It has been largely ignored in the capitalist economy because of the interest of owners in becoming rich. That is no longer possible, but if the company does well, employees and managers can both share a substantial income.
How Does a Company Get Started?
Getting a company started is a tricky job. Start-up capital has to be obtained, an work space has to be built or leased, equipment and supplies purchased, business licenses and permits obtained, and some number of workers may be needed. The business may also require legal counsel and will need regular accounting services. The most critical step is obtaining the start-up capital, since it will suffice to arrange all other needs.
There are three ways to capitalize a new business: private funding, issuing bonds, and subsidy.
Private funding is arranged when the principal founder, or a group of participants called “partners” puts up an initial amount of their own money to get the business started. This sum must be declared to the court when the business is registered and becomes an initial lien against the real value of the business. Should the business fail and go into bankruptcy, the proceeds of liquidation will be used to repay the original investors, and to cancel any residual debts the business may have incurred. A court bankruptcy hearing will need to establish the priority of payments. The net result should be that the initial start-up capitalization is effectively disposed as a loan to the new business, and that loan will be repaid either through normal operating income or, if the business doesn’t survive, through its liquidation. Of course, the amount of liability the business can incur will not legally exceed the amount of its capitalization; hence the partners will not be liable for more than their investment.
A bond issue is the normal way businesses will finance growth; stock cannot be issued because stock certificates represent shares of ownership in the company, and the company cannot be owned; in effect it is an unowned operation of the local community in the same way a fire department or police department is not privately owned. A bond is a certificate with a face value that is sold at a discounted price and repaid at a later stipulated date. In other words, the company must repay the certificate at a higher value than it obtained by selling it. The bond represents a loan that is repaid with interest at the end of its term. The interest is the difference between the issuing price and the face value. As usual, bonds can be externally traded, and may be rated according to the likelihood that the issuer will be able to redeem the bond.
If the company should halt operations (“go out of business”), its assets will be liquidated by the court of its registration. The proceeds will be used to repay any outstanding liens and debts; the remainder, if any, becomes the property of the local government and may be held in trust. The sum of such trusts held by the local government may be used to finance the start-up of proposed businesses, according to such priorities and intentions of the locality as it may have. Such funds made available to the principals of a new start-up constitute a government subsidy, and are treated the same way as an initial capitalization lien: the company will be required to repay the subsidy with normal income, or by liquidation in the event of bankruptcy.
The local government should not normally expect an interest return on its subsidies, as the purpose of the subsidy is to facilitate the start-up of new businesses that are perceived to have a general benefit to the people of the district. The district is not expected to profit as if it were an investor, since districts are funded by taxation and not by speculation (see also the chapter on “The Society”).
The basic theory behind these principles of start-up capitalization hinge on two propositions: first, that a business is a community asset which exists to serve the survival needs of the people of that community, as opposed to the traditional capitalist view that a business exists in order to enrich the owner; and second, that interest in that company cannot be sold or transferred. As a result, the only means available to finance the company other than self-financing is loans, and that even in the case of self-financing, the principal operator should be given some protection against financial loss in order to encourage new start-ups.
Why Adopt This Business Model?
Obviously starting and operating a business of this sort does not have the same attraction to entrepreneurs as the conventional capitalist model, where it is possible, in principle, to become arbitrarily wealthy. In the proposed business model, an initial operator does not stand to earn much more money than other employees, so why would he want to undertake the burdens of starting a company?
[This section is incomplete.]