Inštitut za ekonomsko demokracijo

Covid-19 and NYT made it clear – The future is in worker-centered models

27 Day Cash Buffer

A recent op-ed in The New York Times discusses the blow that the restaurant sector received by the COVID-19 virus. In it, authors argue that the solution to the symptoms of our disfunctional system is a worker-centered organization. NYT is absolutely right. But it should not have to be restaurants only.

OECD predicts a 6% drop in global GDP by the end of 2020. If hit by the second wave (which right now seems very plausible), the drop could raise up to 7,6% on average with some countries declining in double digits.

The sector of small and medium-sized enterprises (SMEs) is worst off; facing liquidity constraints, which it cannot afford. This is expected to continue and even worsen in the following months. OECD (2020) used a cross-section sample of close to one million European non-financial firms in 16 countries. The report shows that without any government intervention, 20% of firms would run out of liquidity in one month, 30% in two months, and 38% in three months. After seven months, more than 50% of firms would experience solvency issues.

Now consider the fact that SMEs in Europe employ roughly 70% of the population. Taking conservative estimates, the anticipated economic downturn may imply tens of millions of jobs lost.

If the major problem for the SME sector is low cash-buffer days and, with it, insolvency, we should try to find models that provide liquidity, while at the same time prevent the re-establishment of business as usual.

Business as usual are concentrated capital ownership structures that keep the economic – and political power – in the hands of the few. It should be very clear by now what the social and material consequences are for the working case when the crisis hits our economic system (which is, in the last 50 years on average, every 4-7 years).

What are the alternatives? There are two very interesting examples in Spain (‘Sociedades Laborales’ or SLs) and Italy (Marcora legislation).

The general idea is to use the anticipated unemployment benefits in a lump-sum as a buy-out or a start-up capital. The recipients are either workers of insolvent companies or people already receiving the unemployment benefits. The caveat is that the business enterprise that is set up or restructured becomes worker-centered, employee-owned enterprise.

In this way, the legislation in Italy and Spain not only uses the expected welfare benefits to re-activate economic activity of the vulnerable groups of workers, but also builds socially-responsible enterprises that are more resilient and worker-friendly in times of crisis.

Marcora and SLs saved tens of thousands of jobs for workers of failing SMEs, and saved tens of thousands from the social stigma and psychological weight of unemployment. It is time that other EU institutions and nation states start to think about how to adapt and where to take this excellent practice.



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