Landermore & Ferreras (2016) - in Defense of Workplace Democracy

In Defense of Workplace Democracy: Towards a Justification of the Firm–State
Analogy
Author(s): Hélène Landemore and Isabelle Ferreras
Source: Political Theory , February 2016, Vol. 44, No. 1 (February 2016), pp. 53-81
Published by: Sage Publications, Inc.
Stable URL: https://www.jstor.org/stable/24571680
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Article
Political Theory
2016, Vol. 44(1) 53-81
In Defense of Workplace © 2015 SAGE Publications
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DOI: 10.1177/0090591715600035
Justification of the ptx.sagepub.com
§>SAGE
Firm-State Analogy
Hélène Landemore1 and Isabelle Ferreras2
Abstract
In the wake of the 2008 global financial crisis, an important conceptu

battleground for democratic theorists ought to be, it would seem, th
capitalist firm. We are now painfully aware that the typical model o
government in so-called investor-owned companies remains profound
oligarchic, hierarchical, and unequal. Renewing with the literature of the
1970s and 1980s on workplace democracy, a few political theorists hav
started to advocate democratic reforms of the workplace by relying on a
analogy between firm and state. To the extent that a firm is an organizati
comparable to the state, it too ought to be ruled along democratic lines.
Our paper tests the robustness of the analogy between firm and state by
considering six major objections to it: (I) the objection from a difference in
ends, (2) the objection from shareholders' property rights, (3) the objection
from worker's consent, (4) the objection from workers' exit opportunitie
(5) the objection from workers' (lack of) expertise, and (6) the objectio
from the fragility of firms. We find all of these objections wanting. Whil
the paper does not ambition to settle the issue of workplace democracy a
once, our goal is to pave the way for a more in-depth study of the ways in
which firms and states can be compared and the possible implications thi
'Department of Political Science, Yale University, New Haven, CT, USA

^University of Louvain/FNRS, Louvain-la-Neuve, Belgium
Corresponding Author:
Hélène Landemore, Department of Political Science, Yale University, I 15 Prospect Street,
New Haven, CT 06520, USA.
Email: helene.landemore@yale.edu

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54 Political Theory 44( I)
may have for our understanding of t

the governance of firms.
Keywords
firm, state, workplace democracy, fi
In the
wake of the 2008 global finan
tleground for democratic theorists o
firm. This crisis has indeed brought
always present but did not seem to r
growth was supporting the stability
investor-owned model of the firm, w
the United States and other industri
aware that the typical mode of gove
hierarchical, and unequal. As a result
certain boards of directors from awa
pensation while at the same time
Meanwhile, employees have little to n
sions made in or about the firm, whe
personnel, safety or work hour regul
tegicinvestment decisions or the dist
Inequalities in decision power, sta
problem from an efficiency point of
otherwise. But they ought to raise at
view of justice. To the extent that
justice,"1 like any other domain of hu
scarce goods is at stake, it has a mor
that point of view, the unequal distr
an environment where individuals sp
facie both undemocratic and unjust.
Traditionally, though, the focus of
where. For deliberative and participa
deepening the democratic nature of
state, from the level of grassroots as
resentative institutions.2 Cosmopolit
been focused on justifying the democ
the global level, with a focus on inte
great work of political theory of the
Rawls's Theory of Justice—is virtuall

154.59.124.141 on Wed, 23 Aug 2023 15:30:57 +00:00
Landemore and Ferreras 55
workplace, it is no surprise that

little to say on the matter.4 As a
place is not, today, "a forgotten
To be fair, the political theor
silent on the question. Going b
early twentieth century, one f
lectual movement in favor of "
kens back to the thought of ea
or Sidney and Beatrice Webb in
liberal John Stuart Mill, who w
envisioned a future economy d
owned businesses.7 In the 1970
movements taking place in vir
of theorists (e.g., Carole Patem
called for more citizen participa
specifically arguing for the
democracy at work.8 Recent ye
favor of democratic reforms of
firm to a greater number of em
bicameralism" in the firm to
even inversing the relation be
economic investments and ma
Even the great economic bes
Century, contains brief but in
firm governance as a pre-redistr
massive economic inequalities i
Few of these authors, howeve
underpinnings for workplace d
question of power, justice, and
distinct from the question of
notable exception is McMaho
authority should not be though
rather as an authority meant
among employees with different
What is still missing in our vie
Ferreras calls a "political theor
theory of the corporation."15 I
ments of such a theory by test
the face of common objections.
ratization of firm governance
reform proposals implicitly de

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The analogical reasoning involving f

goes something like this: Despite obvio
firm is like a state in a number of ess
the only legitimate form of governmen
legitimate form of governance in the
four terms: the firm, the state, an agen
or function in the state that is inferred
of the similarity between the first tw
the firm is compared with the governm
firm are compared to the citizens in
gests that to the extent that their vo
directors, employees in a classical cap
chised citizens in an undemocratic state.
The firm-state analogy, we believe,
tions this article aims to answer are, H
state and firm? What are the most pow
are these objections? It is true that if
only certain categories of its "citizen
trol rights (such as voting rights), w
particular—are entirely deprived of a
among shareholders are themselves d
times called a "corporate democracy"—
another recent characterization, a "sh
would seem to compare at best with t
which various categories of individua
erty owners—were legally disenfranc
however, argue that the analogy does
example, is that there is a logic to th
maximization of shareholder value
the political logic of the state, which
"the common good" irrelevant to the c
In order to assess the soundness of t
negative route, testing its robustness
could find. We find this negative rou
of the analogy more promising than t
directly. In making this choice, we ar
democracy have proceeded in the past
mately making obsolete, all kinds
and equality, whether based on app
or instrumental concerns. Our goal is th
study of the ways in which firms and

154.59.124.141 on Wed, 23 Aug 2023 15:30:57 +00:00
the democratic implications this

nature of managerial authority a
This paper includes six sections
against the analogy between stat
from a difference in ends, (2) th
rights, (3) the objection from wo
ers' exit opportunities, (5) the ob
and (6) the objection from the frag
A brief word about our use of t
the following, we use the term
loose, generic terms referring t
presumably risky, undertaking t
we use the term "corporation"
legal structures through which
can be brought together to prod
Specifically, a corporation is the
of the firm.20 The corporation a
render the activities of the firm
legal person is chartered by th
entity separate from its share
main characteristics of the cor
ing, and limited liability—all pr
investors' risk and capital requ
key to maximal productivity.21
contracts, and appear in court in
of natural persons, whether the
not).
Finally, we use the term "firm" as more general in meaning than "corpora
tion." Broadly used across all social sciences and dating back to Coase's
seminal economic "theory of the firm,"22 the term "firm" denotes the institu
tional form of economic coordination alternative to the market. Specifically,
we take it to mean "an organization within which authority is being exercised
to coordinate the production and/or the distribution of goods and/or ser
vices."23 Thus understood, the firm is a concept that invites natural compari
sons with the state, when the latter is understood as what unifies a given
community of interests and allows it to achieve self-rule. Like a state, a firm
can even be seen as a "political coalition."24 In this paper, we take a view
clearly sympathetic to definitions of the firm as a political institution.25 But
since we do not want to prejudge the question of the exact nature of the firm,
the review of arguments that will follow starts from an agnostic point of
departure.

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The Objection from a Diffe

A first, classical objection to the firm
states and firms pursue radically dist
classic view by Milton Friedman that
to increase its profits."26 The obje
whereas the point of the state is to
including when it violates some effici
to aim primarily for the maximization
profit and, more specifically, sharehold
other contributors such in the firm,
only instrumentally (i.e., to the exte
shareholder value, etc.), not as an en
does not conflict with this bottom lin
between firing workers to maintain
latter to preserve jobs, the former alt
This argument about the ends of a f
two different ways: either the end to
in the case of the firm as in the case
"welfare") or it is of the same nature
ered a kind of welfare or at least an i
ency is not
the same in both cases. I
shareholders' profit or welfare that m
of all citizens. The contrast here is no
rather between the profit or welfare
the profit or welfare of all—or at lea
the firm.
In the context of capitalism, it is e

profit and welfare. Welfare is a rathe
sure the health, level of development
in a given state. It is usually measure
the poverty line), and a common assu
ated through simple monetary trans
cally fraught concept, which tends t
self-reproducing entity—money prod
The point of profit, as Marxist critic
increased, and ever more accelerated
not just "welfare" and much less "sur
If, however, we strip the notion of pr
reduce it to its trivial reality—the dif
the amount spent in buying, operatin

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can be made for the relative sim

firm and welfare in the contex
amount of profit is the condition
nization. In that sense, the state i
growth is arguably the condition
state, as is possibly the long-term
could say that the same way tha
of profit that ensure its competit
ensure a minimally stable budg
the long run.
The second version of the objection to the end of the state points out that
even if profit can be envisioned as a kind of welfare, the only welfare that
matters is that of the shareholders, never directly that of any other possible
stakeholder. This view is captured by the common belief that corporations are
legally required to maximize shareholders' profits and can even be sued for
failing to do so. This belief is rooted in a controversial 1919 judgment by the
Michigan Supreme Court in the infamous Dodge v. Ford Motor Co., in which
the Dodge brothers sued Henry Ford, then CEO of Ford Motor, for not maxi
mizing their profit. The Michigan Supreme Court held that Henry Ford was
obliged to operate his business to profit his shareholders, rather than the com
munity as a whole or his employees.
The shareholder-centric perspective, however, takes an overly narrow
view of the firm. Historically, it is worth remembering that petitioners to the
right of creating a corporation only received a charter from the state if they
made a good case that the corporation would advance the public good. As
Henry Carter Adams put it in 1866, "A corporation ... may be defined in the
light of history as a body created by law for the purpose of attaining public
ends through an appeal to private interests."29 This historic function can be
observed from the birth of corporations through the dark age of robber bar
ons' capitalism to today's notion of Corporate Social Responsibility (CRS) or
the phenomenon of "social enterprises" that have a triple bottom line (profit,
people, the planet). In all such cases, while profit remains an essential end of
the firm's governance, it need neither be the only end nor the most important
one. As for the Dodge v. Ford legal case mentioned above, while it has yet to
be overruled, it has stopped representing the law in most states, and legal
scholars have generally presented it as "a mistake" and "a doctrinal oddity
largely irrelevant to corporate law."30 This case notwithstanding, legal schol
ars concur that "there is no legal duty to maximize profits provided for by
company law."31
The objector might reply that this historical and legal evidence does not
prove that the end of the firm shouldn't be, normatively speaking, solely the

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60 Political Theory 44( I )
maximization of shareholders' profit.

social responsibility or social enterpri
extent that they serve a particularly cl
caring for goals beyond profit making
indeed it is often the case that talks o
social and environmental issues are ins
constraints on—more profit-making.
son to care only about the maximizatio
the objection from ownership, which c
private entity belonging exclusively to
The Objection from Propert

The objection from the firm as private
versions. The first version denies the
siders that the relevant difference is
anyone in particular a firm is the prope
shareholders (in contrast with employ
ers, or even citizens at large). The best
objection is, again, Milton Friedman.3
compared with the state, which is, arg
whereas the firm is a private object.
Notice that the parallel might still ho
hasn't always been, or seen as, a res pu
(and still is, in a number of countries p
was considered the property of the pr
cases, was simply to maintain and pos
property. Recall for example the famo
power to protect money"—the latter b
power helped the Medici family get
Meanwhile, subjects of the prince cont
tion (including children) to the wealth
say in the organization, distribution, and
view of the state as a single individua
exist with or evolve towards the repub
mon object—and even a common objec
form of government—at least suggest
in the case of the firm or, rather, a re
entity chartered by the state for the
argument and hope of advocates of
Progressive era (e.g., the League for I

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The second version of the object

on shareholder value, implicitly a
support the concept of "sharehol
seem to be that, in the same way
"own" their state and should be g
holders of a company "own" the f
over it.33 This second version of
made in Western countries trans
teenth to the twentieth century
owners, were legitimately entitled
true stakeholders of society. By c
rial stakes in the game—non-land
be trusted to take care of the co
control over it. In other words, t
of only a subcategory of its citiz
some part of the country). Furt
plural voting by which the prop
votes (e.g., the United Kingdom u
1948), in a way comparable to the
The objection from property rig
category mistake, that of applyi
Despite our linguistic usages, the
it exists above and beyond the m
that partly define it. Though the
"capital-owned" firms versus "la
want to resist the conceptual con
métonymie contagion (from the i
to the idea of owning the firm itse
holds, no one is really in a positi
American citizens can be said to own the French or American state.
What is it then that shareholders in the corporate firm or partners in a private
partnership can be said to own if not "the firm"? In the case of the corporate
firm, some answer that capital investors (shareholders) own "the corporation."
But this formulation too—"shareholders own the corporation"—is misleading.
The corporation itself is not an object or a thing; it is a legal person (and here
we take full advantage of a legal definition that is highly problematic in other
respects). As such, it has some of the attributes of a moral person, namely, the
inalienability of its person and the ability to bear rights, including property
rights.34 Ownership of the firm's assets thus lie with the legal person of the
corporation—not the shareholders or the Board of Directors—as is absolutely
clear in the law and notwithstanding the voluminous (but by no means

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62 Political Theory 44( I )
unanimous) commentary to the contr

fessors, and journalists.
Of course, since the corporate entity
intangible, and incapable of acting on i
Board of Directors, with authority fro
to exercise control, in the absence of
however, cannot even be said to posse
Only the corporation can be said to ow
have no right to use or possess corpora
can be said to be owners of are shares
some legally defined rights to some c
with the activities of the corporation,
be redefined.35
Ownership in private partnership and
bit more straightforward. In private par
physical assets associated with the fir
they "own" the firm itself, which tra
necessary for it to exist in the first p
ment of workers). Even in the case of
person is at the same time the inve
employee, it does not seem conceptua
the firm.
In any case, one does not need to buy the argument that applying the con
cept of ownership to the firm per se is a category mistake to resist the claim
that ownership entails an exclusive right to control and define what a thing is
for (e.g., profit), which is the gist of Friedman's argument. In order to under
stand why, we need to scrutinize more thoroughly the definition of owner
ship. What does it mean to "own" something? Does ownership imply full and
exlusive control of the thing that is owned and the exclusive right, for exam
ple, to define what it is for?
Ownership is a complex concept with multiple meanings depending on the
context. It is only for a certain class of physical objects that ownership is rela
tively well defined. When I say I own a table, for example, it means I have the
exclusive right to do whatever I want with it—use it, carve it, break it, burn
it—for as long as I live. Similarly, when I say that I "own" an acre of land, it
means that I have the right to possess and dispose of that asset as I please—I
can plow it or grow trees on it—as well as claim the proceeds from the sale of
the asset or the returns generated by it (I can sell the acre of land or the wood
I grow on it). In the latter case, however, all of this is true only as long as I do
not violate any law or infringe on anybody's rights and bear the associate costs
and responsibilities if I do (e.g., if instead of trees, I grow marijuana). For

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more abstract objects, like int

For example, copyrights, when
Property is thus best define
dle of rights and responsibili
other people.36 While in the m
rights of possession, the righ
from the asset are bundled to
ties is a matter of legal and so
these rights are de facto unb
Indeed, as Berle and Means ap
control is inherent to the nat
enjoying the benefits of the a
day-to-day control belongs t
discretion. In some legal conte
shares of the corporation is n
power over the decision maki
ing shares are commonplace, t
and do not raise complaints of
the point is that if separation o
ration, there seems to be no
further40 so that residual con
the firm, or investors of diffe
The case of private partnersh
distinct issues from those of t
assets had full control of thes
they still have full control of t
is why classical partnerships
It would be hard to deny that
workers would be an expropri
profit.41
A famous U.S. case, United States Steelworkers of America v. U.S. Steel,
however, casts some doubt on the general validity of this reasoning. The case
involves a corporation but the relevant aspects would apply to a private part
nership and sole proprietorship as well. In this case, the U.S. Steel decision to
close its plants in Youngstown, Ohio, caused the demise of the town. Ten
thousand steelworkers lost their jobs, and the area's unemployment rate
soared to more than 13 percent, causing massive spikes in a wide range of
social illnesses. The union sued the company to keep the steel plant open and
for the right to buy back the company. They claimed that the decision to close
the plant was violating property interests that they had in their jobs. Although
the Unions didn't win, their case was not without legal merit, as evidenced by

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the fact that Judge Lambros, the p

facie plausibility of workers' claim
ning legal development, Judge Lam
the Unions' view in the pretrial con
It would seem to me that [. . . ] a prop

long-established relationship between
an institution, the community in You
and the Mahoning Valley in having
industry. Perhaps not a property righ
compelling U.S. Steel to remain in
recognize the property right to the
Mahoning Valley and the Youngstow
completely abandon its obligation to
rights have arisen out of this long rel
According to legal commentators, t

had invested their human capital in
investedother resources, they cou
Ultimately Judge Lambros, "with h
theory on the technical ground tha
new property right f . . . ] is not n
nation."44 But union activists from
called, set a precedent for a new kin
Beyond the law, which in this ca
considerations of (a higher order)
"owners" of any kind of firm tha
grant other stakeholders some con
undeniably the moral conviction
Closing a plant in a town whose en
depend on the existence of the firm
in the decision-making process no
and the local citizens as well.46
Observing that legal property righ
control rights is an important step
why capital investors or their rep
decision-makers. This is true, we ar
well as in the case of private par
response to Friedman, concurring
that just because you have owners
exclusive right to control it and d
profit).

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Critics may want to argue that own

exclusive control, means at least re
in terms of residual right of contr
ership used in the context of the e
dominant law and economics schoo
conventional and can be changed, i
holders own the firm because own
trol will not do. It would be like e
saying that he is unmarried—entir
the work that can be done by a def
that "taking "ownership" as the st
governance, a point from which ce
low, is "quite problematic" and that
are the owners' of large corporati
often does more to obscure the imp
Both versions of the objection fro
category mistake in assuming that t
an acre of land can be owned. Cap
something more limited than the
case of private partnerships and sh
trol in the case of the corporate fir
settles the questions regarding co
rights are conventionally defined
human rights (perhaps) are, and as
etal and legal redefinition.
The Objection from Cons

The objection from consent relies
tary, in contrast with a view of cit
is enough for individuals to be born
employees sign an actual and explic
are hired. They renew it tacitly ev
work. As long as they stay in the jo
it and the conditions associated with
The irony, of course, is that this
source of the normative authority o
relationship between the subject of
ling it. Social contract theory is th
cal obligations towards the state by
to its authority. Social contract th

154.59.124.141 on Wed, 23 Aug 2023 15:30:57 +00:00
at the foundational moment and tacit

mate political authority. Tacit consent
individuals do not walk away from the
rebel against the government that repr
Social contract theory, however, was
still authentic states of nature in the
trolled by any state, so that there were
unwilling to consent to and obey the
Very quickly though, critics of social
that no citizen of any existing state ha
laws he or she was born under,49 and
an argument for state authority felt
always a somewhat implausible notion
became less and less meaningful with
of nature or "state-free zone" on the
rebelling against one's government rem
too undermined the meaning of tacit
contract theories thus all but vanishing
cal contract theories,50 where consen
event, but as a mere thought experime
political theories of political legitimac
By contrast, advocates of the labor
best locus for the application of actu
There is a genuine expression of consent
tacit renewal of consent as long as the
of course, particularly true in situation
however, in a context of mass unempl
and for certain types of jobs ('dirty' on
older ones). Further, only theorists of
normative authority would argue that
Others would grant that one cannot co
sent may be invalidated in some cases,
however, is only the far extreme on a
consented to. David Ellerman has prov
body is not acceptable, neither is renti
into a employee-employer relationshi
should be considered as genuinely cons
It is thus possible that at the time o
dynamics are such that workers do no
the objection from consent insists they
tacit consent may just be an expressi

154.59.124.141 on Wed, 23 Aug 2023 15:30:57 +00:00
the fact that quitting one's job is

nomic domination. Even actual c
resignation to the fact that there
or one's family.52 All of these a
against a thin, negative conceptio
them to be rather noncontrovers
At the level of the state, where
ticularly meaningless, the probl
the rise of democratic representa
even indirectly, some degree of
citizens have no choice but to exp
state over them, the social contrac
zens can at least hope to shape th
turn, however, is precisely one th
justify shareholder and manageri
take. Using the Hirschmanian dis
claim that even if workers did not
they need not be given a say in th
they always have the option of le
The Objection from Exi

According to this objection, the
into account the fact that contrary
born into, employees are always
words, workers need not be give
state, they already and always ha
feet.' Let
us call this argument th
On the face of it, this objection i
cally less trapped in a job than citi
order to leave a job, you do not ne
you need to have another job line
find another job quickly in order t
is, strictly speaking, no obstacle
another one. In order to leave a c
permission of both the state that
entering. In other words, when it
two ways. Add to the administra
sonal costs of starting a new life
in comparison changing jobs with
This lack of symmetry would see

154.59.124.141 on Wed, 23 Aug 2023 15:30:57 +00:00
be given a voice, while workers in a com

the possibility of an exit.
In reply to this objection though, one
asymmetry does not always hold. For so
firms with a high level of expertise wh
sea branch while retaining their functio
might actually be easier (with the help
ing jobs within the same country. Woul
people, who have such easy exit opportu
voting rights as citizens? Conversely, do
a voice in their company to compensate f
sometimes firm-specific, skills make it p
a comparable job outside the compan
Arguably, this situation only concerns a
specialized employees but it raises an int
that exit is easier with respect to firms t
Second, no matter how much 'easier' i
to leaving a state, it still is far from ea
ees with high salaries or jobs attached to
ployment benefits, reskilling training,
have the economic freedom to quit the
resent the rules under which they have
times of economic recession or situation
have been common in Western countri
and intolerable abuse, employees might h
out the option of a voice and with only
might be thus necessary to revisit wha
consider whether these opportunities are
Third, if the availability of an exit mak
it would seem that justice does not requ
traded companies a voice either, since
option that consists in selling their shar
easy, if not easier, to unload a bunch of
ness is partly a function of the personal
argue that an investor with a diversified
whose sole investment is in the job he h
he developed over time for it or, to pu
source of revenue is the wage he receiv
where workers and shareholders seem t
the firm is when the latter is not publicly
might find it a difficult task to sell the

154.59.124.141 on Wed, 23 Aug 2023 15:30:57 +00:00
option. It is, however, fair to con

endure less difficult consequences
Of course one may argue that ther
of exit: a welfare state that soften
that the costs of exist are extern
democratize internally. There is an
namely the lack of flexibility typi
ocratic states. Moreover, from an
that social-democratic post-redistr
as pre-distributive ones. It might b
of the dignity of individuals to lim
have some voice in the firing proces
are simply owed a severance pack
The Objection from Expe

Another objection to the analogy b
latter can tolerate a certain level of
the government they elect, the fi
competence as of its management,
shareholders. The idea of democra
involving workers in the same way
only in the selection of representa
against what can be called the Ob
This objection makes us go from p
desirability to more instrumenta
instrumentally desirable to involv
or their representatives in the gove
A variant of this objection can be
Expertise: even if they do have so
inferior to that of an oligarchic m
investors, and so, in a competitiv
decision-making process will ultim
of the objection states that even if
patory decision-making is time co
the competitiveness of the firm. L
from Efficiency.
The objection from expertise or
like the one used, at the level of t
kings or other enlightened elites o
was a time in history where the

154.59.124.141 on Wed, 23 Aug 2023 15:30:57 +00:00
claim that government is a matter of

crucially dependent on having wise m
tise dropped out of the picture after d
of the people to self-rule. It turned out
and burn but they actually multiplied
the second half of the twentieth cen
allowed incompetent citizens to make
sequences, it looked as if they learne
the face of it, one could argue that the
out not to be decisive in the case of s
case of firms. To be fair the wind of h
and far from pulling in the direction
tions may well point us toward less de
point is that there is a precedent for m
case of state organizations. If the fir
could happen for economic organizati
In any case it is doubtful whether th
settled from observing the functionin
context. Without real accounting and
information, as Piketty observes, "it i
representatives are insufficiently info
ing the firm to participate in investm
perfectly possible that in a different
transparency and availability of infor
ment would be as competent, if not m
Indeed, to the extent that expertise m
the narrow group of professional ma
to shareholders focused on the bottom
wisdom of other firm actors, specifica
like users of the firm's products and
Democratic decision-making procedur
this kind of wisdom than the tradition
current oligarchic model. The same w
are now being used to support the col
a state,60 a case could be made for th
sourced decisions in the firm.
In fact, there seems to be abundant
ticipation in firm governance, directly
levels of management (through repre
firm profitability and on the contrar
been shown to enhance worker produc

154.59.124.141 on Wed, 23 Aug 2023 15:30:57 +00:00
sharing, job security, narrow

rights.62 There are examples of
firms, such as the Mondragon Gr
successful complex of cooperat
Plywood cooperative in the Unite
the United Kingdom.63 It does not
skilled), the sector of the industry
tive contribution of employee
innovativeness.64
The third issue, the Objection fr
the main problem with worker-o
lective decision-making in light o
From the point of view of democ
of the heterogeneity of interests a
ers' participation is needed.66 But
nomic efficiency, Hansmann's arg
be solely based on the assumption
weeded out worker-owned firms
reason why there are so few wo
economies is that their inefficien
petition. This quasi-Darwinian arg
an illusion that came crashing do
tion of capital-owned firms may
rather than their superior effici
scape dominated by capital owne
owned and managed firms have a
investments in cooperatives are r
cooperatives might be due to col
from ignorance of the cooperative
viduals to pool their resources, a
obstacles that could in theory be
of cooperatives once created.
There is, further, no clear empir
ital-owned firms are more efficien
to a strictly economic understand
investments. As already pointed
conclusion that alternative organ
in which employees are involved
production process, increase emplo
of the corporation.71 Were we to t
for example the reported rate of sa

154.59.124.141 on Wed, 23 Aug 2023 15:30:57 +00:00
that democratically structured firms

we were to use another standard of
standard of the "common good," dem
It has for example been argued that
deliberative conception of democracy
situated to fill in for the state's regu
definition of and compliance with high
To be sure, it is likely that democrati
challenges that their autocratic or
Richard Wolff likes to envisage wha
prises," in which employees would sp
ings in order to educate themselves a
strategic decisions about it.74 Even u
racy, like the one characterizing the
employees need to find the time to
Democracy, as we know, is time-con
well be worth it, even from a sheer b
or not fully, one may nonetheless wa
which labor-managed firms must
should dictate the kinds of concerns
t
might well be costs of competitivene
processes of firm governance—but
according to a viable principle of just
The Objection from the Fr

Small to Be Democratic")
Another common objection to the parallel between firms and states points out
a difference deemed crucial in their respective size and vulnerability. Whereas
states are large and perennial entities, robust in particular to occasional gov
ernance mistakes, firms, by contrast, are relatively small and do not have a
very high life expectancy. Because firms do not have the stability of states,
granting control rights to employees would jeopardize the life of the firm in
a way that universal suffrage never really endangered states.
It is probably true that the life expectancy of firms is shorter than that of
states. Still, there are a number of public corporations and privately held com
panies that have outlived the political circumstances they were born into, and
the specific form that the state had at the time they were founded. To mention
a few: the giant Japanese Sumitomo Corporation, which started as a mining
business in 1615; the agro-food corporation Van Eeghen Group, which was

154.59.124.141 on Wed, 23 Aug 2023 15:30:57 +00:00
founded in Amsterdam in 1662; t

founded in 1733 and currently run
the French-turned Swiss bank B
Belgian car-dealer D'leteren estab
It is possible that in the early s
cratic governance is not a good i
emphasis on the perhaps—nascen
been left in the hands of a few r
however, is that democracy shou
nomic development, dependent a
disposition that can't be willed in
grown and nurtured from the be
probably easier to run on democr
up co-ops and employee owned o
rate of default than start-up share
In this paper, we have restricte
firms. These also raise issues disti
the founders and growers of firm
preneurship (how to incentivize
they do best).78 Once they have
relatively stable. Some of them
state is forced to rescue them, a
industry during the 2008 crisis,
industry in
continental Western
Some of these companies, in fact
states around the world. In 2011,
Vietnam's GDP, Walmart's was
than Morocco's, Microsoft's was
bigger than Bangladesh's, Gener
Fannie Mae's was bigger than Pe
Republic's, and Exxon Mobil's wa
companies could sustain a transi
cal question that we cannot answ
indicate that the loss in efficienc
tiveness of the firm. This argum
may constrain but not determine
latter point of view, we share Ch
matters and that issues of politic
entities regardless of whether or

154.59.124.141 on Wed, 23 Aug 2023 15:30:57 +00:00
Conclusion
Our paper has questioned the most common objections to the firm-state ana
ogy. In doing so, we wanted to assess the robustness of the arguments dis
missing calls for the democratization of the firm on the grounds of a
inadequate analogy. Our conclusions invite the reader to consider that the tw
kinds are more similar than commonly thought and that it is at least concept
ally possible to think of the legitimacy of firm governance in the same dem
cratic terms as that of the state.
This review, conducted from the perspective of the political theory of the
state, constitutes one piece of a much-needed political theory of the firm. Ou
primary goal with this essay is to clear the space for more constructive arg
ments about the value of this analogy and, more broadly, the governance
reforms that they suggest. Questions that should be addressed in a construc
tive manner concern the actual nature of the ends of the firm. If they are not
as we argued, merely the maximization of shareholder's profits, what are
they, or rather, what should they be? If it is possible to speak of a societa
good as the end of the firm, whose interests are included in it? Those of th
workers, in addition to those of the shareholders, or those of an even large
constituency—for example, the consumers, users, subcontractors, citizens o
the society in which the corporation is embedded, or even the citizens of th
world? On the basis of what criterion (contribution or affected interest) ough
this constituency to be defined? If the ends of the firm can be redefined more
inclusively, what are the institutional implications and plausible reform pro
posals that should ensue?
Acknowledgments
Landemore thanks the audiences of political theory workshops at Columbia University
(seminar of Jon Elster and David Johnston), the University of Virginia, Vanderbilt
University, the CNISS Political Economy seminar at the University of Washington at
St Louis, and the moral philosophy working group at Yale University. Ferreras thanks
the audiences at the Society for the Advancement of Socio-Economics annual confer
ence (MIT, Cambridge, MA, July 2012) and the workshop on the Constitutionalization
of the firm held at the Collège des Bernardins, Paris, June 2014 (organized by Jean
Philippe Robé and Stéphane Vernac). We also thank Chris 'Think by analogy!'
Mackin for encouragement, Auriane Lamine, and Daniel Viehoff for very useful com
ments on the property rights section. Finally, we thank two anonymous reviewers for
Political Theory for extraordinarily detailed and constructive comments.
Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research,
authorship, and/or publication of this article.

154.59.124.141 on Wed, 23 Aug 2023 15:30:57 +00:00
Funding
The author(s) disclosed receipt of the following financial support for the research,
authorship, and/or publication of this article: Isabelle Ferreras gratefeully acknowl
edge funding support from the Fonds de la recherche scientifique/Fund for Scientific
Research, Brussels, Belgium. Hélène Landemore received no financial support for the
research, authorship, and/or publication of this article.
Notes
Michael Walzer, Spheres of Justice (New York: Basic Books, 1984).

E.g., Joshua Cohen and Joel Rogers, Associations and Democracy (New
York: Verso, 1995); Archon Fung and Olin E. Wright, Deepening Democracy.
Institutional Innovations in Empowered Participatory Governance (London:
Verso, 2003).
E.g., Archibugi, The Global Commonwealth of Citizens: Towards Cosmopolitan
Democracy (Princeton: Princeton University Press, 2008); David Held,
Democracy and the Global Order (Cambridge: Polity Press, 1995).
Rawls and many of his followers tend to favor an ideal of property-owning
democracy, which is in theory fully compatible, as Rawls himself remarks, with
the ideal of worker-managed firms. But while Rawls briefly entertains the pos
sibility that workplace democracy might ultimately be a normatively preferable
and economically sustainable form of organization and acknowledges that "these
questions call for careful examination" and that "the long-run prospects of a
just constitutional regime may depend on them," he ultimately claims to have
nothing to contribute to the debate (John Rawls, A Theory of Justice (revised
edition), Cambridge: Harvard University Press, 1999: 178-79). Even in the stel
lar and recent edited volume on the topic of economic justice by O'Neill and
Williamson, Property-Owning Democracy: Rawls and Beyond (Oxford: Wiley
Blackwell, 2012), only one of the contributors (Schweickart) argues that Rawls
should have been committed to a form of "economic democracy" involving a
profound structural change in the governance as well as ownership structure
of businesses, particularly large ones. O'Neill himself (2008) has separately
argued for a Rawlsian defense of economic democracy (Martin O'Neill, "Three
Rawlsian Routes towards Economic Democracy," 2008. Available at http://
www-users.york.ac.uk/~mpon500/TRRTEconomicDemocracy.pdf.
David Ellerman, "The Workplace: A Forgotten Topic in Democratic Theory?"
Kettering Review 27, no. 2 (2009): 51-57.
Herbert Croly, Progressive Democracy (Memphis, TN: General Books, 2010
[1914]), chap. 18; John Dewey, Political Writings, ed. I. Shapiro (Indianapolis,
IN: Hackett, 1993), 121-24.
John Stuart Mill, Principles of Political Economy with Some of Their Applications
to Social Philosophy 752, 9th edition, ed. W. J. Ashley (New York: Longmans,
Green, 1915 [1848]).
See Carole Pateman, Participation and Democratic Theory (Cambridge: Cambridge
University Press, 1970); Robert Dahl, A Preface to Economic Democracy

154.59.124.141 on Wed, 23 Aug 2023 15:30:57 +00:00
(Berkeley: University of California P

"A Political and Economic Case for th
and Philosophy 9 (1993): 70-100; Jos
Deliberative Democracy," Social Phil
see also Ian Shapiro, Democratic Just
Press, 1999), Chap. 6; and Carole Gould
Social Cooperation in Politics, Economy
University Press, 1988), Chap. 4 and Gl
(Cambridge: Cambridge University Pre
E.g., Nien-hê Hsieh, "Workplace Demo
Economic Democracy," Revue de Ph
57-78; Nien-hê Hsieh, "Justice at W
Democracy," Journal of Social Philosop
Isabelle Ferreras, Gouverner le capitali
(Paris: Presses Universitaires de France
Gar Alperovitz, America Beyond Cap
Liberty, and our Democracy (New Jersey
After Capitalism (Plymouth: Rowman
Democracy at Work: A Cure for Capita
E.g., Thomas Piketty, Capital in the 21
University Press, 2014), 570.
Christopher McMahon, Authority a
Government and Management (Princeton
Christopher McMahon, Public Capitalism
Executives (Philadelphia: University of
Ferreras, Gouverner le capitalisme?
For Ciepley (David Ciepley, "Beyond P
Theory of the Corporation," America
[2013]: 139-58), we need a political theo
liberal, contractual one, because corporat
the state (as opposed to private bodies
Ferreras, however, calls for a political
that the firm is a political entity, whether
ration (Ferreras, Gouverner le capitalis
We are excited to see that others are inv
converge towards similar conclusions (
Democracy," Law, Ethics, and Philosoph
Another use of the analogy could run the
similarities between firm and state to th
model of the capitalist firm, by increasi
decision-power or putting at the helm
use of the analogy was at least suggest
tions, where the Republican candidate
ity to run the state as efficiently as he

154.59.124.141 on Wed, 23 Aug 2023 15:30:57 +00:00
of The Economist dated January 14,

most promising candidate for the Re
"America's next CEO?"). Donald Tru
same exact premise that his business
Ciepley, "Beyond Public and Privat
Margaret M. Blair, Ownership and
for the Twenty-First Century (Wash
Jean-Philippe Robé, "The Legal Struc
and Law 1, no. 1 (2011); "Being Do
Economics, and Law 3, no. 3 (2012)
According to Ciepley, the main char
in,entity-shielding, and limited liab
decrease investors' risks and capital
key to maximal productivity (Cieple
R. Coase, "The Nature of the Firm
386-405.
Robé, "Being Done with Milton Friedman."

James G. March, "The Business Firm as a Political Coalition," The Journal of
Politics 24, no. 4 (1962): 662-78.
E.g., Isabelle Ferreras, Gouverner le capitalisme? Pour le bicamérisme
économique (Paris: Presses Universitaires de France, 2012); McMahon,
Authority and Democracy; McMahon, Public Capitalism.
Milton Friedman, "The Social Responsibility of Business Is to Increase Its
Profits," New York Times Magazine, September 13, 1970.
We thank an anonymous reviewer for this point.
This point can be made notwithstanding the fact that certain states—rich, indus
trialized Western democracies for the most part—have been able to survive
low-growth and sometimes no-growths or even recession stretches, as well as
run massive deficits for extended periods of time. For all we know, the viabil
ity of post-Second World War Western economies is only rendered possible by
very specific historic, economic, and geo-strategic circumstances. Should those
change, however, nothing guarantees that the situation is tenable, as the situation
of Southern European countries would seem to suggest at the moment.
Cited in Ciepley, "Beyond Public and Private," 142.
Lynn A. Stout, "Why We Should Stop Teaching Dodge v. Ford," UCLA School
of Law, Law&Econ Research Paper No. 07-11, 2008. 14pp, SSRN website,
http://ssrn.com/abstract=l013744, 3.
Robé, "Being Done with Milton Friedman," 8.
Milton Friedman, Capitalism and Freedom (Chicago: University of Chicago
Press, 1962); Friedman, "The Social Responsibility."
Of course, shareholder democracy is "democratic" in a peculiar sense since its
logic consists in giving each share one vote, rather than each shareholder one
vote, so that not all shareholders have equal power. Such a notion of democracy
does not square with the definition we use in the first section, but we can let this
approximation slide for now.

154.59.124.141 on Wed, 23 Aug 2023 15:30:57 +00:00
34. See also Robé, "The Legal Structur

Cf. W. Clay Jackson Enterprises, Inc. v
463 F. supp. 666, 670 (D.P.R. 1979) stat
independent right which is violated by
ration's property."
Mikhail Xifaras, La Propriété: Etude
2004).
Blair, Ownership and Control, 4.
A. A. Berle and G. C. Means, The Modern Corporation and Private Property
(New York: Macmillan, 1932).
German Mitbestimmung (co-determination) is a legal regime under which work
ers are granted some participation rights next to those of investors.
See also Cohen, "The Economic Basis of Deliberative Democracy."
We thank an anonymous reviewer for raising this important objection.
Cited in Harris Freeman, "The First of Thousands? The Long View of Local
1330's. Challenge to Management Rights and Plant Closings," 7 Unbound
(2011): 55-62, 57, our emphasis.
Karl Klare, "Teaching Local 1330—Reflections on Critical Legal Pedagogy,"
Unbound 1 (2011): 58.
Ibid.
Freeman, "The First of Thousands?"
One could even go further and argue that in certain cases, expropriation, while
illegal, is the right thing to do. As the great legal scholar Cohen Morris who
worked on the notions of sovereignty and ownership in the context of the corpo
rations already wrote in 1927: "History is full of examples of valuable property
privileges abolished without any compensation, e.g., the immunity of nobles
from taxation, their rights to hunt over other people's lands, etc. It would be
absurd to claim that such legislation was unjust" (Morris R. Cohen, "Property and
Sovereignty," The Cornell Law Quarterly 13 [1927]: 8-30, 26). See for recent
examples of seemingly "just" expropriation, the recovered factories movement
in Argentina. Esteban Magnani, The Silent Change: Recovered Businesses in
Argentina (Buenos Aires: Editorial Teseo, 2009).
Paul Milgrom and John Robert, Economics, Organization, and Management
(Englewood Cliffs, NJ: Prentice Hall, 1992), 289.
Blair, Ownership and Control, 4; see also Jean-Philippe Robé, L'entreprise et
le droit (Paris: Presses universitaires de France, 1999), and Jean-Philippe Robé,
"The Legal Structure of the Firm," Accounting, Economics, and Law 1, no. 1
(2011): article 5.
David Hume, Hume's Ethical Writings, ed. Alasdair Maclntyre (Notre Dame:
University of Notre Dame Press, [1752] 1979), 258-59.
E.g., Immanuel Kant, Metaphysics of Morals (Cambridge: Cambridge University
Press, 1996 [1797]); John Rawls, A Theory of Justice (Cambridge, MA: Harvard
University Press, 1971).
David Ellerman, Property and Contracts in Economics: The Case for Economic
Democracy (Cambridge, MA: Basic Blackwell, 1992).

154.59.124.141 on Wed, 23 Aug 2023 15:30:57 +00:00
Ellerman goes as far as arguing that

gerial authority that is only accountab
corporations, is akin to the myth of s
Both contracts are "alienist" (David
Classical Liberals and Libertarians" [W
ference of the International Associat
NJ, July 12-13, 2012]) in the sens
autonomy. The only non-alienist con
maintain personal autonomy, and th
to the employees themselves, throug
of the employees. See David Ellerm
(London: Unwin Hyman Limited, 19
in Economics.
See also G. A. Cohen, "The Structure of Proletarian Unfreedom."
Albert O. Hirschman, Exit, Voice, and Loyalty: Responses to Decline in Firms,
Organizations, and States (Cambridge, MA: Flarvard University Press, 1970).
See also Gosseries Axel, "La propriété peut-elle justifier la primauté actionnar
iale?," in L'entreprise, formes de la propriété et responsabilités sociales, ed. B.
Roger (Paris: Lethielleux, 2012), 439-67.
Cohen, "The Structure of Proletarian Unfreedom."
See also Dahl, A Preface to Economic Democracy, 115.
Since the early twentieth century, the question of expertise has made a signifi
cant return in the context of government and policy making, with the explosion
of technological development and scientific knowledge as well as the profes
sionalization of policy research and analysis and the resulting devolution of
public authority to administrative agencies. See Theodore J. Lowi, The End of
Liberalism (New York: Norton, 2009 [1969]).
Piketty, Capital in the 21st Century, 570.
E.g., Hélène Landemore, Democratic Reason: Politics, Collective Intelligence,
and the Rule of the Many (Princeton, NJ: Princeton University Press, 2013).
See Pateman, Participation and Democratic Theory, Henry Hansmann, The
Ownership of Enterprise (Cambridge: Belknap Press, 1996); Richard B.
Freeman and Steve Medoff, What Do Unions Do? (New York: Basic Books,
1984); Ricardo Semler, Maverick! The Success Story behind the Worlds Most
Unusual Workplace (London: Arrox Books, 1999); Brian Carney and Getz Isaac,
Freedom Inc. : Free Your Employees and Let Them Lead Your Business to Higher
Productivity, Profits, and Growth (New York: Crown Business, 2009); Dan Pink,
Drive: The Surprising Truth about What Motivates Us (New York: Riverhead
Books, 2009).
David I. Levine and Laura D'Andrea Tyson, "Participation, Productivity,
and the Firm's Environment," in Paying for Productivity, ed. Alan S. Blinder
(Washington, DC: Brookings Institution, 1989); and Weitzman and Kruse
1989, cited in Justin Schwartz, "Where Did Mill Go Wrong? Why the Capital
Managed Firm Rather Than the Labor-Managed Enterprise Is the Predominant

154.59.124.141 on Wed, 23 Aug 2023 15:30:57 +00:00
80 Political Theory 44(I)
Organizational Form in Market Econ

(2011): 219-85, 230n38.
David Erdal, Beyond the Corporation
Head, 2011).
Frederic Laloux, Reinventing Organizations (Brussels: Nelson Parker, 2014).
Hansmann, The Ownership of Enterprise.
Shapiro, Democratic Justice, chap. 6.
Jon Elster, "From Here to There: Or, If Cooperative Ownership Is So Desirable,
Why Are There So Few Cooperatives?" Social Philosophy and Policy 6, no.
2 (1989): 93-111; David Erdal, Beyond the Corporation: Humanity Working
(London: Random House, 2012).
Christopher K. Dow, Governing the Firm: Workers ' Control in Theory and
Practice (New York: Cambridge University Press, 2003), 234-59.
It is striking, in that respect, that highly successful worker cooperatives, such as
the Spanish Mondragon group with its more than eighty thousand employees,
were strategic enough to develop their own savings and banking system. See W.
F. Whyte and K. K. Whyte, Making Mondragon: The Growth and Dynamics of
the Worker Cooperative Complex (New York: ILR Press, 1991).
David Schweickart, After Capitalism (Plymouth: Rowman & Littlefield, 2002);
Schwartz, "Where Did Mill Go Wrong?"
Alex Bryson and Richard B. Freeman, "How Does Shared Capitalism Affect
Economic Performance in the United Kingdom?," in Shared Capitalism at Work:
Employee Ownership, Profit and Gain Sharing, and Broad-Based Stock Options,
ed. Douglas L. Kruse, Richard B. Freeman, and Joseph R. Blasi (Chicago:
University of Chicago Press, 2010), 201-224, 206; Douglas et al., Shared
Capitalism at Work.
See Rafat Soboh, Alfons G.J.M. Oude Lansink and Gert van Dijk, "Efficiency
of Investor Owned Firms and Cooperatives Revisited," European Association of
Agricultural Economists (113th Seminar, 3-6 September 2009, Crete, Greece),
No 58132. Available at http://econpapers.repec.org/paper/agseaall3/58132.htm.
Cohen, "The Economic Basis of Deliberative Democracy," 110-13.
Wolff 2012
Wikipedia (http://en.wikipedia.org/wiki/List_of_oldest_companies) mentions

5,586 companies older than two hundred years. These above-mentionned exam
ples come from the international association of bicentenary family companies
(http://www.henokiens.com).
See also Dewey, Political Writings, 121-24.
Dow, Governing the Firm.
The worry about the financial rewards legitimately expected by and due to the
founders might be set aside since founders would still get the major pay-off
of receiving blocks of stock in the IPO. It just wouldn't be voting stocks. It is
unclear that this would make any difference to the founders, since non-voting,
also tellingly called "preferred," stock tends to trade at a higher price on average
than voting (or "common") stock. Though the higher value of this aristocratic

154.59.124.141 on Wed, 23 Aug 2023 15:30:57 +00:00
stock is due to its superior protec

holders do not necessarily place a
79. From http://www.businessin
2011-6?op=l.
80. McMahon, Public Capitalism
Author Biographies
Hélène Landemore is associate pr
isthe author of Hume. Probabilité
de France, 2004) and Democratic
Rule of the Many (Princeton Univ
Collective Wisdom: Principles and
Isabelle Ferreras is tenured fel

Brussels, Belgium), so professor of
senior research associate of the L
She is the author of Critique Po
2007) and Gouverner le capitalism
2012) forthcoming in English.

154.59.124.141 on Wed, 23 Aug 2023 15:30:57 +00:00

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Hélène Landemore1 and Isabelle Ferreras2

In the wake of the 2008 global financial crisis, an important conceptu

'Department of Political Science, Yale University, New Haven, CT, USA

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Declaration of Conflicting Interests

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