Author: Elena Galevska, Economist at IED
While capitalism surely leads to inequality and imbalanced wealth distribution among the cities and the villages, as well as among the social classes, it does spur innovation like no other system. So, is there a way to avoid the negative consequences of capitalism without getting rid of its positive sides?
Apparently, there is. A different kind of economy, where the power is held by a broader group of people, would take away the focus from short-term profits no matter the cost in the long-run, and will instead be concerned about communities and empowering people.
To strain from the overly general statements, which sometimes lose meaning due to their generic nature, here is an example of this different type of economic model. The Devon-based farmer, Guy Singh-Watson, who built a company worth more than £20 million, realized that leaving the company in the hands of the employees is the best decision for its long-term future. Contrary, he says that selling to venture capitalists or competitors who would only strive to maximize short-term profits would be like “selling one of my children into prostitution”.
Guy Singh-Watson isn’t the only one to hand over the firm to the employees when he decides to retire or exit the business. The model where the shares of the company are held by a trust and the profits are directly shared with the workers becomes increasingly interesting for many business owners. Employee ownership becomes ever more popular in Great Britain, with more than 50 % of its growth occurring after 2017.
Research after research shows that productivity, staff morale, and profits are increased when the employees become co-owners. This doesn’t seem like a surprise if we consider the fact that being directly involved in the decision-making related not only to profit sharing but also other relevant decisions that impact every employee aligns people’s personal interests with the organization’s goal. It’s in human nature that having a stake in the company leads to behaving differently and caring more about the company’s performance. For instance, although Guy Singh-Watson is the founder of the company, he makes the decision regarding profit investments side by side with the employees, as rightful co-owners, but they also get to actively take part in the discussing the cons and pros when it comes to working from home versus from the office. They will together decide how and when to come back to office life after the pandemic is officially over.
People want to feel like their voice is heard and employee voice is naturally most heard in companies that they co-own. Just like people feel suppressed in dictatorships, employees start to disengage with their work in workplaces where they feel like their ideas are never taken into consideration. Working in companies organised as functional democracies will enable employees better understand the importance of their contribution and will hence change the bad feeling in the stomach that many people feel on Monday morning when they know they must spend another week doing a job they don’t find meaningful.
The rising popularity of employee ownership, as well as the increasing strength of co-operatives and community businesses, expresses the people’s desire for change, where the locals can be in control of the matters they are affected by, instead of depending on the decision of third parties who have no stake but hold all the decision-making power. With the number of community businesses doubling since 2014, and them spreading through various sectors, it becomes obvious that “community businesses manage to make business models work when the private nor the public sector don’t”. In the end, a community should be given the right tools to the problems it faces without having to wait on a government, an institution or a market force to do that for them.
Although still seen as a daydream idea by many, others argue that economic democracy is politically urgent. While seemingly interested in ideas related to empowering individuals and local bodies, as well as supporting collective local actions, politicians are still largely ignorant when it comes to employee ownership. The idea is such, that parts of it find support by the philosophies of both the left and right parties, but at the same time, it is part of none of their agendas or policies. Perhaps the change will instead start from the collaborative efforts of innovative and responsible business owners who want to ensure a good future for their organizations even after they exit them.