The Economics of Workers’ Enterprises

The economics of labour management and producer cooperatives began in earnest with Ward’s celebrated paper in 1958 (Ward, 1958). The Wardian theory of the labour-managed firm (LMF) was extended in the early contributions of Domar (1966), Vanek (1970) and Meade (1972) to a general theory of labour-managed industries and economies. A basic characteristic of this literature was the maintained assumption that workers in the LMF would maximize dividend per worker-member, defined as the value added per worker. Thus, the LMF chooses inputs in the long and short run so as to maximize 1<math display='block'> <mrow> <mi>v</mi><mo>=</mo><mfrac> <mi>V</mi> <mi>L</mi> </mfrac> <mo>=</mo><mfrac> <mrow> <mi>p</mi><mi>Y</mi><mo>&#x2212;</mo><mi>r</mi><mi>K</mi> </mrow> <mi>L</mi> </mfrac> <mo>=</mo><mfrac> <mrow> <mi>p</mi><mi>F</mi><mo stretchy='false'>(</mo><mi>K</mi><mo>,</mo><mi>L</mi><mo stretchy='false'>)</mo><mo>&#x2212;</mo><mi>r</mi><mi>K</mi> </mrow> <mi>L</mi> </mfrac> </mrow> </math>$$v = \frac{V}{L} = \frac{{pY - rK}}{L} = \frac{{pF(K,L) - rK}}{L}$$ where V is value added, L is labour, K is capital and p is the market price for the firm’s output Y = F(K, L), r is the rental price of capital, and F is the firm’s production function which is assumed to exhibit positive and decreasing marginal products of capital (∂F/∂K) and labour (∂F/∂L)