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Beyond the Corporation - Humanity Working. David ErdalOwning your workplace works!

Review by Penny Cole

The false orthodoxy that the shareholder model is the only possible way is based on prejudice rather than facts. Across the globe millions of people work in companies in which they share ownership and they are amongst the most successful, innovative and robust. They take tough decisions and combine self-interest with solidarity to good effect.

At a time when “the orthodox corporate economic model has taken such a battering, we must find a way to build humanity into the structure of employment”, says David Erdal who is on a mission in life to convert companies into worker-owned enterprises.

The conventional employment contract, and the framework of corporate law, developed over two centuries of capitalism, is based on the idea that workers have no right to share in the wealth they create.

In the capitalist corporation, employees’ welfare and opinions don’t count – only shareholder value. “We must look at how this model has come to dominate the economy and to seem almost natural, like a star or a mountain.”

And we must start to question it, he insists, because within this accepted framework, “having a job is a terrible way of being. A job is only worth having, because unemployment is worse”.

He  reached these conclusions as a result of fascinating personal trajectory. Born into a wealthy family which owned a paper mill in Fife, from an early age he felt ashamed that mill workers worked to enrich him and his family, and yet he made no contribution.

This sense of unfairness radicalised him, so that he decided to expand his life experience by becoming a worker himself. He got a job on a building site in London and was soon elected shop steward in the newly-formed construction workers union UCATT. With his workmates, he took part in the 1972 strike, the largest industrial action since the General Strike of 1926, with 350,000 building workers taking action across Britain.

Erdal joined the Workers Revolutionary Party for a time. Then, with his degree in Chinese in one hand and a copy of Mao’s red book in the other, became one of only a handful of foreigners working in China. From this first-hand experience he concluded that China was little more than a dictatorship where people lived in fear and where the economy was being ruined by bureaucracy and mistaken ideology.

He left China and enrolled at Harvard Business school:

“It was a defeat, in a way, I had concluded that successful revolution was not conceivable. But I felt that what I did in the future needed to make people’s lives better and I had seen that a productive economy was essential to that. At Harvard I learned what makes an economy tick and a business tick.”

But he continued to reject the standard shareholding model. His experiences had taught him that “people being empowered as workers is a bulwark against dictatorship as well as against getting screwed at work”. Over the coming years he learned that the economic orthodoxy that workers can’t successfully run a  company are wrong. “We must get rid of the idea that pure self-interest is the main driver for economic man and woman. It is true that we look after ourselves, but we also care about fairness.”

Erdal returned to Scotland and the paper mill, and with the support of an uncle who was then running the business, set about transforming it into an employee-owned firm. The company, in effect, bought itself, borrowing money to purchase shares from family members.

Tullis Russell has a hybrid ownership model where a percentage of shares are held in trust, as in the John Lewis Partnership, but the balance are distributed to employees individually. When an employee leaves the company the shares must be sold back to the trust, and when a new person joins they receive a percentage of shares. It is one of only four paper mills left in Scotland, where once there were hundreds.

When he embarked on this process, Erdal found plenty of bankers and lawyers who advised that it was madness and he began to wonder if he was on the right track. Then he met Philip Baxendale, the former owner of Baxi boilers, who had gone down the same route, and through him Erdal was invited to join a delegation from Scotland to the Mondragon Confederation of co-operatives employing thousands of workers in businesses in the Basque country and now across the world. Mondragon currently has 84,000 employees.

The businesses were thriving and innovative, and included a bank which helped overcome the biggest problem facing worker owners – getting their hands on capital to buy the business. And just by the way, when the financial crisis hit, Mondragon bank remained extremely strong, in spite of having to cope with exposure to Lehman Brothers.

The story of that trip, and of Mondragon’s founder, Father Jose Maria Arizmendiarrieta, are told in Erdal’s new book Beyond the Corporation – Humanity Working*.  He visited companies across the globe, large and small, and interviewed their worker-owners. He reviewed all the literature, and what he learned supports his own experience, that where workers own and control their company, they are more productive, work more effectively, live longer, healthier lives and contribute more to the communities where they live.

He shows with examples – from Zeiss in Germany to Arup in Europe to Sunderland Care Partnership – how workers given power constantly innovate and find ways to improve the business. The retailers that are most valued by customers in Britain and the USA are worker-owned – John Lewis Partnership and Publics.

In interviews, workers explain why their lives are better for owning their firm. They are not slow in making criticisms either, and use the chances they have to influence the way they work. And they are ready also to take tough decisions, if they are clear about the reasons and if they have access to all the operating and financial information about the firm and its market.

“The experience is that in company after company, it’s a revolution – it really is a revolution for people’s lives and for the distribution of wealth.”

He reports a study from Algoma Steel (now sadly back in private hands) in Canada which had been bought out by employees. It found that the skills and techniques people learned inside work – managing information, communicating, decision-making, arguing constructively and dealing with everyone’s views – were being used by the workers outside the factory, whether on the opera board or running the junior football team.

Erdal believes it doesn’t matter much if you talk about not-for-profit or “generating a surplus”. “If you take John Lewis, at the end of the year they tot up how much they need to invest to keep the business healthy, that’s the first priority. What remains is distributed amongst the employees. And once it has been distributed amongst the employees it is not profit. It is pay, or recompense, for their work.

“It is taken out before reported profit, so that looks much lower than competitors, when in fact they have generated as big a surplus – they have simply used it in a different way. For me the most important thing is that the firm must be able to work without subsidy, because in any economy, somewhere you must create the surplus you need for all the activities of society.

“Generating a surplus is central to any economy – and people are then free to do what they want with it, to invest where they want and spend it as they want. Not as individuals, but collectively. The 40% of the economy that is government spending must be created somewhere.”

Erdal is a strong champion of management expertise, and rejects the idea that employee-owned companies must have a purist approach to collective decision-making model.

“Some of the criticism of the book is that there’s an atmosphere of privilege in it because it talks about management, but I think expert management is crucial. I reckon that if you have genuine experts, they will be supported by those around them to make decisions.

“If you are making a marketing decision, you need a marketing expert – there is no point in having a vote on it with people who don’t have the expertise. But the key is that managers need to be controlled ultimately by the people, and can be sacked by the people, who own the company.”

Erdal spent some time chairing the Employee Ownership Association, trying to influence politicians to support a drive towards greater employee ownership rights, “but I hate that world – it simply doesn’t suit me”. 

Instead he believes that “once you have a flywheel built up, lots and lots of companies working well, it becomes impossible to ignore. That is my contribution – I don’t offer a wider political vision, but I want to make it impossible to ignore the evidence of success.”

29 September 2011

* Beyond the Corporation - Humanity Working. David Erdal, Bodley Head £14.99.

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