Economic Bicameralism and the Firm

Book: Governing Capitalism: Economic Bicameralism in the Firm. Isabelle Ferreras. PUF, 2012

URL = http://www.isabelleferreras.net/Books_gouverner-ENG.html

French publication: Gouverner le capitalisme? Pour le bicamérisme économique. PUF, 2012

Description

"Everyone knows that a job means more than a paycheck, particularly in a service-based economy, where workplaces are the locus of constant interpersonal interactions. And yet the predominant theories of the firm, whether economically liberal or Marxist, all fail to acknowledge this crucial fact. They do not account for the degree to which individuals’ conception of justice informs their experience of work. In other words, these classic theories do not account for the ways in which work may be considered a political activity that mobilizes people accordingly. Governing Capitalism? offers a more accurate understanding of the firm as something more than a simple economic organization. The book argues that firms are institutions that combine two rationalities: on the one hand, instrumental rationality, which is displayed largely by capital investors motivated by a desire for efficiency, and on the other, the political rationality of labor investors, which is rooted in the standard of democratic justice. Once we have acknowledged this definition as accurate, the fact that labor investors’ rationality is not represented in firm government becomes problematic, on the grounds of both justice and efficiency. And yet contemporary firm government is organized around and justified with regard to instrumental rationality alone, which continues to be seen as the unique logic of the firm. The continued application of this outdated mindset has now brought us to a crisis point.

A look at the history of Western society reveals that this is not the first time such an imbalance has existed ; indeed, today’s capitalist firms resemble the West’s pre-democratic societies, governed by families, clans, or dynasties according to their own rationalities and interests. As far back as ancient Rome, democratization has begun with a “bicameral moment” in which a given society recognized the existence of two constituent bodies and acknowledged the need for these bodies to govern together: the bicameral moment is the moment in which a society acknowledges it must take two specific – and incommensurable – rationalities into account, or face the end of its prosperity. The best known of the modern era’s bicameral moments is the development in Britain of the House of Lords and the House of Commons, which this book will use as a reference point to explore the application of bicameralism in an economic setting.

Today, the prosperity of our advanced democratic societies depends on the advance of the knowledge economy, on smart workers mobilized to serve customers, solve problems, and innovate. Capital owners rely on these workers to help drive this new economy. Rather than risk loss of motivation in the workplace, gridlock, or even collapse, would it not be preferable for capital investors to share power with their counterparts? The time has come for our democratic society to acknowledge that the investment of labor in a firm has at least the same importance and legitimacy as the investment of capital.

The efficiency of bicameralism has been tested throughout history in what have traditionally been defined as political institutions. Applied to capitalism’s central institution, the corporate firm, it would involve the institution of two representative bodies to govern firms in the interest of labor and capital investors alike, through an executive government named by and representative of both bodies. Under such a system, the contemporary firm’s board of directors would become a Capital Investors’ House of Representatives, while labor investors would elect a Labor Investors’ House of Representatives. A firm’s executive management (the current management committee or board) would then be elected by a majority in both Houses, whose approval would be required for all major decisions affecting the firm. Historically, this has been seen as the necessary condition for the reasonable, legitimate and intelligent government of nations – why not of firms, then, especially since their scale and influence now rival that of nations?

Would Economic Bicameralism be the first step in an unacceptable power grab by workers? Or, on the contrary, in a knowledge-based economy, at a time when global firms escape accountability while relying more and more on the intelligence, dedication, and motivation of their employees, would it be a bridging institution, the first step toward building firms that fit the democratic ideal of our society? This book opens the door to these questions. You decide." (http://www.isabelleferreras.net/Books_gouverner-ENG.html)

Review

Version française

"Revolution in the Firm"; Book Review by Philippe Arnaud in Le Monde, Paris, Cahier Economie et entreprise, October 9, 2012

"Are we on the cusp of a revolution in the firm? A new book by Isabelle Ferreras seeks to revive the debate over corporate governance with a bold idea, which she calls “economic bicameralism.”

Ferreras, a professor of sociology at the University of Louvain [Belgium] and an associated researcher at Harvard, explains that the firm is now one of the institutions occupying the most space in our daily lives.

But democracy stops at its doorstep. In some ways, she observes, firm relations recall feudal relations, where some partners are “more equal than others.” The capitalist firm remains the locus of “instrumental rationality;” that is, of a logic that wants actions to be taken with regard to an end – maximizing profit for shareholders. It is not instrumental rationality itself that Ferreras is contesting, but the idea that capital investors are its best guarantors. If employees are suffering today, she writes, it is because they are torn between their aspirations for justice in the workplace and a “system of unilateral governance.” If the social contract is to be rebuilt, then capital owners must forge a new compromise with what Fererras calls the firm’s “capital investors.”

In a learned detour, the author recalls the English invention of modern bicameralism, the condition for a “legitimate, reasonable, and intelligent government.” In the 17th century, Montesquieu described bicameral government thusly: “The legislative body being composed of two parts, the one will check the other by their mutual preventive faculty.” He added: with the executive, “they will be forced to act in concert.”

But how, in concrete terms, would bicameralism function in a firm? The author imagines a two-branch government, composed of a Capital Investors’ House of Representatives and a Labor Investors’ House of Representatives. “No decision could be made without the agreement of at least 50 % + 1 of employees representatives.” Ferreras does not skirt around potential objections to her idea, which she covers one by one at the end of her work, in particular describing what distinguishes bicameralism from German-style “co-management,” or Mitbestimmung (codetermination), which remains “unicameral.” Ferreras argues that bicameralism would not be a factor for gridlock. To the contrary, it would foster the participation of all stakeholders in the firm.

Is it the vocation of employees to take on part of the firm’s managerial power, or at least to establish a firm balance of power within it? Is it normal, in the 21st century, for employees to have no say over the tools of their trade? Whatever the answer, this significant essay gives us food for thought." (http://www.isabelleferreras.net/doc/121009-Gouv-review-lemonde-ENG.html)

About the author

Isabelle Ferreras:

'My focus is on understanding the logic of work in the context of Western capitalist democracies. At a time where more than 70% of jobs are in the service industries, it is crucial to better understand the logic of work from the perspective of those who perform it as its consequences on the way work is managed, and firms are governed could not be higher. This decade long research endeavor has led me to develop an exploratory agenda around the different dimensions of what I call the ‘capitalism/democracy contradiction’, i.e. the potential problems that arise when we organize our economy along capitalist terms while, at the same time, nurturing as our political ideal the democratic creed that assumes the equality of all. I pursue both the normative and the efficiency issues that this situation generates, combining empirical, sociological research with political theory. I am committed to help address the current economic and democratic crisis, and at an academic level, to make a contribution to the critical, political sociology of the economy."