To Reinvent Labor Law, We Should Look to the Roots of the Labor Movement: Economic Democracy

Martin Drake

Martin Drake is a student at Harvard Law School.

This past summer, law professors, labor activists, and union organizers on the cutting edge of their fields gathered at Harvard Law School to answer an ambitious question, put forth by Harvard Law Professor Benjamin Sachs:  “If we were to build labor law in 2018, how would we build it?”

The gathering was the launch of the Harvard Labor and Worklife Program’s 18-month effort to fix our broken labor law system, entitled “Rebalancing Economic and Political Power: A Clean Slate for the Future of Labor Law.”  This comprehensive overhaul of labor law has been much called-for in the labor community, as the post-New Deal labor law regime has allowed business interests to run roughshod over workers and society at-large.

Of course, envisioning labor law from a “clean slate” has been done before.  Early labor organizers, newly introduced to broad-scale industrial employment, had a vision for worker power that rejected the employer-employee system altogether.  They wanted to replace these new industrial firms with institutions where workers control both the means and profits of their labor, without power ultimately resting in the hands of capital investors—a vision of what famous Yale political theorist Robert Dahl called economic democracy.

This vision of worker power was thoroughly endorsed by the Knights of Labor, the largest labor organization of the late 1800s and the first post‐Civil War labor organization open to all laborers, including blacks and women.  In their “Declaration of Principles” the Knights clearly stated their goal “to establish co‐operative institutions, such as will tend to supersede the wage system, by the introduction of a co‐operative industrial system.”  This “labor republican” vision as it’s been called by historian Alex Gourevitch, went as far as the CEO of General Electric, Owen Young, who in 1927 called for a day when “great business organizations will truly belong to the men who are giving their lives and their efforts to them…Then we shall dispose once and for all, of the charge that in industry organizations are autocratic and not democratic. Then we shall have no hired men.”

Our concept of ownership was, in some sense, at the core of labor republicanism.  They dreamt of replacing the typical industrial corporation with institutions where two key pillars of modern ownership—control of profits and control of firm leadership—are in the hands of workers.  With workers in control of profits and leadership, it would be an impossible task to sacrifice the needs of workers for the sake of shareholders.  Outsourcing, wage cuts, layoffs, dangerous working conditions, and even lobbying would all be in the hands of the workers or their representatives; it would be hard to think of a more ideal version of worker power.  Most modern leaders of the type of “co‐operative institutions” envisioned by the Knights of Labor, i.e. worker cooperatives, would argue the same, and many co-ops go beyond simple election of firm leaders to various forms of direct and participatory democracy.

It was decades after the Knights that the labor movement transformed into something more familiar to modern observers. The more conservative American Federation of Labor (AFL) rose to prominence—bolstered by support from Democratic Party elites—pursuing labor organizing confined to individual industries and firms, and firmly rooted in the wage system.  A conservatized vision of organized labor was then codified into law through FDR’s Wagner Act, the founding legislation of modern labor law.  The earlier labor republicans would have balked at where their movement had gone, as they saw “an inevitable and irresistible conflict between the wage-system of labor and the republican system of government.”

Now we’re seeing that conflict play out.

Autocratic organization of the corporate firm allows a handful of wealthy investors to wield massive amounts of economic power—power gained from the labor of their workers (in the form of company profits).  They’ve used that worker-produced power to undermine labor organizing, along with most other forms of popular political organization.  Undermining popular political organization—in a system where political organizations are crucial determinants of policy outcomes, according to recent scholarship—has further concentrated political and economic power in the hands of the wealthy.  The marginal amount of economic power extracted by union organizing has proven inadequate over the past 70 years to combat the wealth gained by employers through the nature of the employer-employee relationship.

Given the slow failure of worker organizing as a countervailing force to the corporate firm, a serious effort to re-invent labor law must grapple with the arguments of the labor republicans.  Rather than attempt to re-invigorate the countervailing power model, only to see it once again be overcome by an inherently unequal employer-employee relationship, perhaps it is time that labor law rejects the (relatively recent) assumption that wage-employment is an acceptable state of worker power.  Rather than commit to a possibly unwinnable fight with the owners of companies, why shouldn’t workers own and control those companies themselves?

Some think they should—scholars, organizers, and businesspeople that believe in this vision are pursuing worker-owned firms at this moment.  The most promising scalable model of worker-owned firm has come through a semi-obscure benefit model called Employee Stock Ownership Plans (ESOPs).  ESOPs give business owners a tax-exempt mechanism to sell their company to their employees.  All told, 14.4 million employees in close to 7,000 companies benefit from ESOPs.  This is comparable to the 14.8 million unionized employees in the U.S., despite ESOPs only being codified into law in 1974.

Not all ESOPs are created equal, though.  Whether an ESOP conversion includes 100 percent worker-ownership and democratic decision making structures is dependent on the details of the transaction—the fledgling worker cooperative movement is likely more representative of the ideals of democracy and worker empowerment championed by the Knights of Labor.  However, the large scale and speed of ESOP creation represents an important pathway to democratic worker ownership, even if their structures need refining. Hopefully the labor law community is up to that task.  Regardless, both ESOPs and co-ops are examples that could guide activists and lawyers who want to create self-sustaining worker power that can’t be overrun by the bosses—because the workers are the bosses.

Worker-owned firms also tend to make more economic sense than traditional firms.  Worker-owned firms have significantly higher survival rates than their traditional counterparts in the same industry.  Worker-ownership also brings faster employment growth, and greater employment stability.  ESOP firms also see an average 4-5% productivity boost (an increase of more than twice the average annual productivity growth of the U.S. economy).

The success of worker-owned companies shows that workplace democracy not a naïve or overly utopian goal for the labor movement; firms are proving as we speak that workers can be successful owners and decision makers in the corporate firm, without oversight from capital owners.  It remains to be seen if the organizers, activists, and academics in the labor movement will embrace a truly transformative vision of worker power as their north star, or if they will attach their hopes to an employment structure that, at its core, empowers the wealthy at the expense of workers.

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