If codetermination boosts output, will start-ups use it?

Think of codetermination as requiring that say 40% of the board seats be given to workers and broad-based worker representatives (not just founders!), as in the new Elizabeth Warren bill.

Sometimes it is claimed that codetermination would limit capital returns, but boost the firm’s investment in labor, and thus possibly boost productivity.  Let’s say a firm with codetermination would produce 10, and the same venture without codetermination would produce only 8.

If you are initiating a start-up, it seems the codetermined firm is more competitive, plus you still could bargain for some share of the extra 2 in output, albeit a smaller share of the initial 8.

A priori, this could work out as either board form proving more profitable for capital.  Still, if you think of most start-ups as being quite desperate to make it at all, I would think the productivity boost would militate in favor of the codetermination form in at least some cases.  After all, your higher productivity means you will be able to capture the market with lower prices, right?

If you don’t see much voluntary codetermination, one logical conclusion is that codetermination will decrease output.  Will anyone tell me by how much?

Addendum: Here is Ryan Decker: “Interesting thing about the Warren idea is that it mainly applies to large firms. The Vox write-up did not mention the voluminous literature on size-dependent distortions. Also did not mention the literature on the large firm wage premium.”

And Adam Ozimek: “Giving workers board seats may reduce more “fissured economy” stuff at existing big companies, but will probably lead to more of at it tomorrow’s big companies.”


Forget start ups, just compare GM to Daimler. Not that the Daimler Betriebsrat was able to stop Daimler's management from stupidly deciding to acquire Chrysler (with the top Daimler management getting hefty financial rewards for causing billions in losses).

'If you don’t see much voluntary codetermination, one logical conclusion is that codetermination will decrease output.'

An even more rational explanation is that those with power have to be forced to share it, as they will never give up even the slightest amount of power voluntarily.

Agreed. Anytime you can take decision-making authority from experienced managers and turn it over to assembly line workers, you should do it.

Since that's not what this is, the real thing must be harder to attack.

No, prior is on the right track. What you want to do is take power from those with a real incentive to exercise it responsibly and redistribute it to a broad class of people so that responsibility is diffused among people with less of a stake in the outcomes of the decision-making process.

In what way do workers have "less of a stake" in the outcomes of decisions? If anything they have much more of a stake, being lower paid, more constrained by geography when looking for employment alternatives, and having less savings and assets. High-level managers, CEOs and board members frequently bounce from one failed endeavor to another and make enough money to ease the transition period.

Were the unions in Detroit careful to never ask for too much? The union leaders were as comfortable as the corporate leaders from their bad decisions.

I'm not defending corporate management. Having seen it up close, it is often a complete pile of garbage full of principal-agent problems, but most outsiders trying to fix it would just increase those problems.

♫ But they've taken all the coal from the ground ♪
♩And the union people crawled away ♪

High-level managers, CEOs and board members frequently bounce from one failed endeavor to another and make enough money to ease the transition period.

That probably represents a small fraction of the total -- boards that repeatedly hired people who were likely to fail would tend not to prevail in the market. In fact CEOs in the top 10,000 are probably considerably more likely than their workers to be company lifers, often with large amounts of their personal capital tied to the business.

Most lottery winners and pro athletes go bankrupt, because managing capital is not something very many people can do well, if at all, even through representatives (witness our various governments' voter-mandated dances with insolvency). Does codetermination increase returns, or just lower the usefulness of capital? Lower P/E ratios in Germany suggest the latter.

This is not direct democracy by "assembly line workers." This is a representative system, for board members. A minority membership, even.

Now, to really drive that home, do you think "assembly line workers" should be able to vote in any elections?

Or is your clear elitism that they are just grist for the capitalist mill?

Obviously, direct democracy would be the best system, because the rank and file outnumber management and really, why shouldn't the janitorial staff have just as much say over the company's capital structure or transfer pricing decisions as anyone else?

The problem I see is that with a representative system, whoever's elected to represent the employees, if they're a minority, might be bought off by the other directors. For example, they may be pressured to accept stock options, grants, or other types of equity-based compensation, which could lead them to make decisions that, rather than maximizing employment and compensation costs like they ought to if they're representing the interests of the workers, they'll start making decisions that maximize long-term value for shareholders, which is a chilling thought.

"why shouldn't the janitorial staff .."

He just can't stop hating the workers.

'Obviously, direct democracy would be the best system'

No it wouldn't, that is simply absurd.

Possibly the idea that a Betriebsrat is one of those famous 'stakeholders' that so many companies talk about just might assuage your angst.

'why shouldn't the janitorial staff have just as much say over the company's capital structure or transfer pricing decisions as anyone else'

Because, using one simple example that essentially everyone in a German company, from CEO to janitorial staff would accept, the people best qualified to make such decisions can actually show their education and experience in making such decisions.

This is considered so basic to such discussions that one demonstrates a certain lack of awareness of how a well run German company works. You might as well say that Porsche should allow non-engineers to vote on engineering questions, such as cooling system trade-offs - the ridicule you would receive for making such a stupid analogy would be equally obvious.

Well, you can be as elitist as you like, prior, but that doesn't change the facts on the ground, and those are clearly in favor of more of a democratic voice for workers. Look at how this has meant such well-funded retirement programs for public school teachers in Chicago as a perfect example.

'Well, you can be as elitist as you like, prior'

No, as noted by what I wrote, this is how things actually work in terms of your examples in a country with co-determination - 'everyone in a German company, from CEO to janitorial staff'.

'but that doesn't change the facts on the ground'

Facts you seem strikingly ignorant of, to be honest. Though you do seem to have fun making up whatever it is you want - for example, comparing public employer practices when talking about private companies.

"Now, to really drive that home, do you think "assembly line workers" should be able to vote in any elections?

Or is your clear elitism that they are just grist for the capitalist mill?"

It's that continuing penchant to cast opposing points of view as fundamentally malevolent that contributes to the low quality of your posts.

I think you have your hat on backwards. I am not the one disparaging either group is inherently more good or evil the other, workers or management.

"I am not the one disparaging "

You certainly disparaged Leonard Smalls motives.

Reference: ""Or is your clear elitism that they are just grist for the capitalist mill?" ..."He just can't stop hating the workers."

I'm curious are your comments purely for rhetorical effect or do you actually believe that anyone opposing you must have evil intent?

If you're implying that someone who hasn't gone to college might be less educated than someone who hasn't, then certainly you are disparaging people.


I thought that was what this was, too. Since Anonymous is clearly here to be a troll, rather than contribute anything meaningful or intelligent, can someone give me an ELI5 on this?

It is not really that hard to follow. The question play is whether the right can support worker populism and billionaire capitalism at the same time.

When the right starts to disparage "assembly line workers" a rift might be starting to form.

Don't most startups already issue equity incentive to employees? (I don't know, but this was my impression).

Also, I'm interested in comments from those with perspective on how this works (or doesn't) in Germany, and how it has contributed to manufacturing success.

'and how it has contributed to manufacturing success'

Basically, the Betriebsrat is a brake on the idea of unlimited management power, by forcing management to have to deal with those actually doing the work that allows a company to sell a product. In a sense, it ensures that the idea of winner take all can never become a corporate goal restricted to a few people at the top.

But as with so many things in Germany, the idea that this would work in the U.S. is illusory. Especially after a generation long dedicated effort to destroy the very idea that workers are entitled to a say in how a company is run, based on laws that prevent management from abusing workers. Laws which the Betriebsrat ensures are applied in a society that does not worship at the altar of CEO celebrity.

What makes the Betriebsrat interesting is that this is not another term for union. Unions and Betriebräte are two distinct things (in similar fashion to how a company's board of directors and a company's management are two different things - theory and practice can vary), and it is quite possible for all members of a Betriebsrat to not belong to any union at all.

Essentially, unions represent workers as a group with multiple employers, while the Betriebsrat represents the workers of a single company. However, it is the Betriebsrat that has formal legal power, not the union.

Leaving aside the formal legal right to strike in the framework of union activities that represent the union's members. A right that is written into the German Grundgesetz, in Article 9, section 3 - '(3) The right to form associations to safeguard and improve working and economic conditions shall be guaranteed to every individual and to every occupation or profession. Agreements that restrict or seek to impair this right shall be null and void; measures directed to this end shall be unlawful. Measures taken pursuant to Article 12a, to paragraphs (2) and (3) of Article 35, to paragraph (4) of Article 87a, or to Article 91 may not be directed against industrial disputes engaged in by associations within the meaning of the first sentence of this paragraph in order to safeguard and improve working and economic conditions.'

And how is that working out for Germany? https://data.worldbank.org/indicator/SL.GDP.PCAP.EM.KD?locations=DE-US&view=chart

@edgar Do you have the data related to wage per person employed?

One may do comparative studies, as with Germany, but I don't think anyone can reason from first principles that this would or would not increase efficiency.

It immediately becomes a just so story, where either the Workers o the Executive Suite are looting, one more than the other.

Misplaced, sorry.

If it were more efficient we would see it in places where it is NOT legally mandated.

Which, if it literally requires a fucking law to force companies to do it, means that even Politiburo First Citizen Warren knows it’s less efficient.

Some people see freedom as an unfortunate thing they have to deal with in order to have enough wealth to seize. Stationary bandits indeed.

You assume that the Corporate Suite is acting perfectly for shareholders rather than their own interests?

To be honest here, I think the insight in Warren's argument is not that workers are inherently better than management. It is that they all have self interest which can be balanced. And obviously shareholders will always have a strong place in any board. They have a tremendous ability to sell shares and punish workers and management both.

Vox is claiming (or conceding) that the idea is a major taking from shareholders:

"But for billionaires with huge stock holdings — and for CEOs with compensation packages tied to share price performance — it would be a disaster. "

The implication is that the idea would be an equally big disaster for workers with 401k accounts. The problem with American business is management looting the shareholders. This bill does nothing to address that, rather it adds another predator.


I'm always creeped out by this sort of thing - redistribution and "diversity" legislation is one thing, but the insistence that companies would benefit from having their autonomy stripped away like this smacks of fairytale logic.

"If codetermination boosts output, will start-ups use it?", asks Tyler. To which the answer is - almost certainly - "If codetermination boosts output, start-ups are already using it."

In a start up, how would co-determination create different incentives than present equity incentives (stock/options)? (Is it the same thing by different name?)

**should be "present employee equity incentives (stocks/options)?"

Options, which I understand are more common incentives for start up than stock, does not confer any voting rights, let alone 40% of board seats.

In most of the start up option schemes I have seen the shares allocated to employee option programs are far below 40% of total. Once you account for vesting and the ability to exit from them, it probably becomes trivial.

In startups, there is a negotiation in each financing round to determine board representation. Founders negotiate with each other board representation and equity split when they set up the firm. To attract VC investment, however, they typically need to offer new investors board representation because people often are reluctant to hand over millions of their own dollars without some way of monitoring and governing how their money is spent. It's also possible for old investors and founders to lose board seats during a financing round. The way this is effectuated is that new share classes are issued each financing round to reflect the agreed upon investment terms. When founders set up the firm, they give themselves common stock, but VC investors get preferred share classes that not only grant board representation but also reflect all sorts of negotiated terms and conditions, e.g., liquidity preferences, anti-dilution provisions, rights to participate in future financing rounds, etc.

Similarly, every time a firm wants to hire a new employee, it must negotiate terms of employment. Typically, employees care mostly about compensation, benefits, work-life balance, commuting time, opportunities for advancement, etc. They usually are willing to accept common stock or even an employee share class that has different rights than the founders' share class to gain along the dimensions that employees care most about.

The main way that negotiated investment and employment terms differ from the Warren proposal is that negotiated terms reflect distributed and localized knowledge about market participants' preferences, including workers' preferences. The Warren proposal overrides those preferences by government diktat even though the government lacks such localized knowledge.

'but the insistence that companies would benefit from having their autonomy stripped away like this smacks of fairytale logic'

Don't let VW, the world's largest auto company, hear that, as they tried to offer their American workers the sort of representation that VW management considers normal for a successful car company. They, instead, were told this in response their attempt to give their workers the sort of voice typical in other VW facilities (like Porsche's factory, for example) - 'The crusade by anti-union forces in Tennessee, including the state's governor and senior senator, is as much a fight with Volkswagen management as with the UAW.

Not only are Republican legislators accusing Volkswagen of backing the UAW, some of their leaders on Monday threatened to withhold tax incentives for future expansion of the 3-year-old assembly plant in Chattanooga if workers vote this week to join the UAW.' https://eu.usatoday.com/story/money/business/2014/02/11/tennessee-volkswagen-uaw-incentives-threat/5388341/>

yes VW is my go-to example of good corporate governance.

'good corporate governance'


Do you think that the Betriebsrat or union was informed that VW was breaking the law? In comparison to top management, of course.

And that clashes with my point how exactly?

I would be very surprised if codetermination was always good or always bad - surely it depends on the company in question, external circumstances, etc. And the company would know these things better than either Elizabeth Warren or Tennessee Republicans - if what you say is correct (I didn't check), they are both engaged in the same evil, i.e. taking away of corporate autonomy.

Whoops, meant to reply to clockwork_prior's comment above.

I think that your analysis is deficient because it reifies companies as if they are an individual thing, instead of trying to analyze the incentives and behavior of individuals like senior managers, board members, institutional investors, etc. I find it plausible that granting workers representation on the board can make companies more efficient, because workers have different incentives (and insight) than managers, institutional shareholders, and board members. To put it simply, workers are much more invested in how the company will be doing in 10 years than almost any other stakeholder (i.e. management, the board, investors). At the very least that is the argument that I would expect the left to make. I would expect that conservatives would have a retort about how that is an inaccurate account of the incentives and behavior of each group of people. Additionally, there are large sectors of the economy that operate (or did operate) as large partnerships (and hence in practice have a degree of worker representation). Law firms and accounting firms are this organized this way, as are a lot of medical practices. Investment banks used to be organized this way, and it certainly isn’t a strange opinion for someone to believe that Wall Street worked better for the economy when the major firms were organized as partnerships. I guess all that I am saying is that for established firms it is a very good thing to have leadership that views its role as stewardship, as opposed to a focus on short term growth.

Law firms and accounting firms are horrible examples: partners grind employees into the ground.

"workers are much more invested in how the company will be doing in 10 years than almost any other stakeholder"
This largely untrue. The average time at a company for workers is less than 10 years and dropping.

To align incentives, give them shares, but not too many (Enron).

From my perspective as a board seat member of an SV startup about to get series A, my worry would be the potential negative impact of this on fundraising.

How will it work for multinational corporations with factories in, say, China? Will they have to incorporate into their boards local workers, who will be most certainly selected by the Communist Party of China local committee, or they'll only have to give voice to American workers (mostly managers) and ignore everyone else?

America is becoming a kind of Índia:a country divided between an impoverished, enslaved majority and a tiny minority seekiny for justification for preying on its brothers and sisters.

Such is life in Temer's Brasil

No, it is not. It is life in Amerika.

"If you don’t see much voluntary codetermination, one logical conclusion is that codetermination will decrease output. "

If you don't seem much voluntary liberation of slaves, one logical conclusion is that free labour will reduce output relative to slave labour.

"If you don't seem much voluntary liberation of slaves"

Where is this slavery you speak of?

The subject at hand is about fact, not value.

Codetermination may or may not be morally superior, but that is independent from the question of whether it is competitive.

Codetermination may or may not boost productivity, but absence of evidence is not evidence of absence. Show me the failed attempts, not some BS invocation of an all-knowing, all-testing invisible hand.

No one using fiat currency in 1800. Guess that's not a competitive idea.
Didn't see a lot of corporations in 1450. Guess they aren't a competitive idea.
No central banking in the year 800. Guess a central bank is a competitive idea.
No democratic governments around in 1500 BC. Must not be a competitive idea.
No one choosing to farm in 30,000 BC, so that must not be a competitive idea.
Not many mammals around in 500 million BC, guess that's not a competitive idea.

Today I learned no one in America has tried a workers coop.

Jesus Christ.

Whoops! Forgot about all the billion-dollar worker's coops that have failed!

Yes it is interesting that no worker co-ops have reached the 1 billion revenue mark.

Or it’s not. At all.

The incentives of a worker co-op are dysfunctional enough that they never get off the ground. The incentives are to maximize worker pay, benefits, and work rules which apparently drives the company into bankruptcy.

The analogy isn’t Germany, which has a large scale industrial policy, a high trust culture, and a tracking education system to support it.

The analogy is public sector pension and benefit systems, where workers have a large say in how money is disbursed, and somehow it always ends in tears, dysfunction, and illiterate children and violent police.

200 public companies in America generate 100% of the profits of all public companies. The remaining roughly 3,700 public companies generate a net zero. Will codetermination fix that?

Kara Swisher: "But I will say that this whole debate [about Elon Musk] brings to mind something that an angel investor named Pejman Nozad said to me offhand many years ago, when he was bemoaning all the stupid start-up ideas that he saw littering the landscape. Silly social networks, dumb photo filter apps, yet another delivery service for millennials. “Silicon Valley,” he said, “is a lot of big minds chasing small ideas.”' Ouch!

Ms. Swisher is praising Mr. Musk as someone in Silicon Valley with big ideas rather than just another one of the small ideas that dominate the culture in Silicon Valley. Indeed, a lot is riding on the fate of Tesla, a lot more than one company: if the Tesla experiment fails, then what if anything can Silicon Valley do besides produce more nonsense. Codetermination won't save Silicon Valley from itself. Here is the link to Ms. Swisher's piece about Musk: https://www.nytimes.com/2018/08/16/opinion/elon-musk-crazy-tesla.html

A VC fund that invests in 20 companies will often see 90+% of their net value come from just one corporation. Paul Graham is a quarter-billionaire because YC gave AirBnB a shot.

I don't know if this is good or bad, but it's why they chase a lot of oddball ideas. MoviePass sure looked dumb, but there was at least a 1% chance it could have been a billion dollar company.

VC incentives are poorly aligned with founder incentives. Codetermination might help, if you could legally force all the VCs to do it, but this isn't something to do lightly. The fact that the anti-capitalists think it's a good idea is a bad sign.

This is a silly statistic. Yes, some companies generate losses. And the total amount of losses generated is equal to the total profits generated by some other selected set of companies. However, adding those two numbers together illustrates exactly nothing.

The 200 doesn't tell anything either. It could mean that the top companies are raking in money, while the rest are not, or it could mean that overall corporate profit margins are low. Who knows?

The concentration of profits in a few companies is part of the larger story of the shrinking stock market. Here is the link to the article in the NYT (I overstated the number of remaining public companies - there are less than 3,300 not 3,700): https://www.nytimes.com/2018/08/04/business/shrinking-stock-market.html

Those figures purport to show concentration at the top, but they don't.

Suppose you had 1750 companies with a net profit of 1 million and 1550 companies with a net loss of 1 million. The quoted statistic would be true in this case, even though profits were spread equally across more than half of companies.

Profits may be concentrated, but meaningless statistics in which some profit-making and some loss-making companies are lumped together don't demonstrate it. Also, how concentrated should profits be in a healthy market? Unclear.

The story's discussion of the decline in the number of companies on the stock market is interesting, but it doesn't mention a single concrete negative consequence of this trend. The U.S. is "in bad company...just ahead of Venezuela,”--oh no! But the U.S. economy is good in a global context by any measure. So what exactly does this tell us?

"The story's discussion of the decline in the number of companies on the stock market is interesting"

A logical reaction to goofball ideas coming from the likes of Elizabeth Warren perhaps?

Doesn't the NYT fact check anything? A simple Google search finds 7,000+ public companies just between NYSE and NASDAQ.

"There’s a broader problem. Our visibility into the inner workings of public companies isn’t great, but we know far more about them than we do private companies, which aren’t required to disclose nearly as much information. And these changing dynamics mean we know far less about many of the creators of American profits and jobs than would otherwise be the case."

From now on, anyone who creates a job or makes a profit will be tagged with an internal RF chip, equipped with an always-on bodycam, and fitted with a shock collar controlled by the media.

The NASDAQ itself lists a total of about 7K across the three major US exchanges.

World Bank is apparently the source for the claim, but it's not clear what criteria they applied.


Not sure how you did that search TallDave but the decline in number of listed companies is very real:


Maybe the Google search counts different share classes of the same company, or preferred shares, etc.

Just seems like a non-issue. Listed companies per million of population is back to 1980 level after jumping since then. I don't think there's some "magic" ratio here.


Globally the number appears to be rising since 1980, unsurprisingly. Globalization is going to result in a lot of domestic companies being absorbed by foreign entities and delisted in their former homes.

Also, I'll bet that the number of required attestations has increased faster than the number of companies has fallen. Companies have more and more reasons to avoid listing if equity can be raised elsewhere (just ask Elon Musk).

Vanguard suggests nothing is really changing, start-up wise. Instead of going IPO, they're just being bought up by already established players. https://personal.vanguard.com/pdf/ISGPCA.pdf

Co Determination has been in place in Germany for quite sometime. I'm not sure if Startups would be the best place for it. Once it is established, the German standard is 500 or more employees, then yes CD is a good idea. One thing often overlooked, who exactly depends on the Companies success more? The worker or upper management and the board.. One needs the company to sustain a living the other carpetbags from one board to another.... Warren is on to something here... Also look at the VW/Tennessee fight. VW wanted to bring the UAW in and the State fought it.... CD will go a long way towards Labor capturing more gains from productivity increases, where now it loses...

"VW wanted to bring the UAW in and the State fought it.."

LOL, that doesn't seem particularly accurate.

"After company executives declined to negotiate a labor contract with the skilled trades workers, the National Labor Relations Board in April 2016 filed an unfair labor relations complaint.

In response, VW sued the NLRB in January. The lawsuit asks a federal appeals court to overturn the complaint and reject the NLRB’s approval of the union. VW says the 162 skilled trades workers are scattered across the plant, do not interact regularly or share a common supervisor. The lawsuit is underway in Washington.

On Wednesday, Casteel sought to bring public pressure on the automaker. He emailed UAW members throughout the nation, urging them to sign a petition opposing VW’s stance with UAW Local 42, the name of the bargaining unit at VW Chattanooga.

“For months, Volkswagen has used every stall tactic available to avoid recognizing workers’ right to form a union and negotiate a contract,” Casteel’s email says."


'LOL, that doesn't seem particularly accurate.'

Because American labor law does not legally allow what VW wanted to do. That VW does not care much about UAW is true - VW essentially wanted a Betriebsrat, not a union. This German language article gives a good overview of the cultural aspects - https://www.n-tv.de/wirtschaft/Wie-VW-einen-Betriebsrat-gruenden-wollte-article12304246.html

However, this nugget in English provides a fairly succinct description of the situation 5 years ago - 'Volkswagen of America has looked at various options that might satisfy the works council but so far haven’t found a mechanism that would satisfy the German unions, American labor law and Tennessee.

UAW president Bob King said in a recent union the UAW has been. “We have been getting great support from the German union,” King said. The UAW also has threatened to sue if it sets up what describes as a “company union,” which is outlawed by the National Labor Relations Act.' http://www.thedetroitbureau.com/2013/09/volkswagen-talking-with-union-about-works-council-in-tennessee/

Notice the irony of UAW suing if VW were to give American workers representation in VW management. American unions are a disaster, to be honest, but then, considering the sort of American management they normally have to deal with, it might be at least a bit understandable.

Essentially, in German eyes, unions and Betriebsräte are two different things (obviously, both are associated with the rights and interests of workers). The Betriebsrat is for the employees of a single company, and a union if essentially for the workers in an industry.

I have seen VC start-up boards pull complete bullshit that ought to be illegal, and probably is illegal, but there would be no point in suing because the pie isn't worth it.

One example is a board of 5 people, 3 from VC companies A, B, and C, and two founders. The board has a fiduciary responsibility to all shareholders. The company is in trouble and the company sells out for $37,200,000. Which, by weird coincidence, is exactly the amount needed to cover the investments for VC companies A, B, and C. Any additional dollar of sale price would go to the shareholders. (The founders are hired on to the new company with enhanced titles.)

There are lots of ways to improve corporate government, so "well if it's better someone would have done it" rings hollow. If you don't trust Elizabeth Warren to find the better way, that's pretty smart, but that doesn't mean this is an efficient market. The fact that a start-up entered the space and ate someone else's lunch is proof that the markets weren't previously efficient.

Here is an excellent piece by Will Wilkinson that gets to the heart of the actual debate we should be having (the piece is in Vox, but remember that Wilkinson is a libertarian): https://www.vox.com/the-big-idea/2018/8/16/17698602/socialism-capitalism-false-dichotomy-kevin-williamson-column-republican-ocasio-cortez

but remember that Wilkinson is a libertarian

Someone forgot to tell Wilkinson: http://bleedingheartlibertarians.com/2012/01/why-im-not-a-bleeding-heart-libertarian/

This idea would be a great way to kill the golden goose. Thank goodness the Chinese won't be bothering with any of these silly ideas - presumably the technology frontier would move there anyway as their economy becomes the dominant one due to shear numbers. But this will just accelerate the process. The US will end up like Italy I guess, the whole economy bogged down by all the various competing agents such that nothing other than the most basic agriculture or industrial stuff can be done. At least Italy has a good tourist industry to fall back on.

"Thank goodness the Chinese won't be bothering with any of these silly ideas."
Yeah, when in doubt, ask what China would do? Starve peasants, murder students, invade Korea, India, Vietnam, Tibet and the Soviet Union? Persecute Chrisrians and Muslims?

"At least Italy has a good tourist industry to fall back on."
Evidently, people only visit the USA to see Juiceros.

"Thank goodness the Chinese won't be bothering with any of these silly ideas."
Yeah, when in doubt, ask what China would do? Starve peasants, murder students, invade Korea, India, Vietnam, Tibet and the Soviet Union? Persecute Chrisrians and Muslims?

"At least Italy has a good tourist industry to fall back on."
Evidently, people only visit the USA to see Juiceros.

Geez Chris.

"First, the top 12 Chinese companies are all state-owned. They include massive banks and oil companies that the central government controls through the State-Owned Assets Supervision and Administration Commission of the ruling State Council (SASAC), which appoints CEOs and makes decisions on large investments. Of the 98 Chinese companies on the list, only 22 are private."

It is a prediction not a description of current reality. Today tge technology frontier is clearly in the US and China is a middle income country with a mixed state and privately controlled economy. In say 30 years China will be a rich country with more than three times the people than the US. And I would bet their private companies will be a much larger share of the economy. I have observed a distinct lack of sentimentality in most Chinese people that I have worked with so I doubt that they would fall for the kind of rent seeking currently being discussed in the US.

Companies should put shareholders first because shareholders are generally the residual claimants and therefore have interests that are most closely aligned with the companies as a whole. Shareholders enjoy the marginal profits and losses of a company, whereas workers generally get paid regardless of company performance. A director who represents employees will always be torn between doing what is best for current employees versus the company, while a shareholder’s representative has no such conflict of interest in most situations because shareholders are the company.

Actually, the problems in corporate governance usually come from some employees, namely top executives, enriching themselves at the expense of the company because the large but diffuse shareholders cannot adequately supervise them. Codetermination will simply expand that opportunity for corruption to more workers.

A director who represents employees will always be torn between doing what is best for current employees versus the company,

Directors are beholden to the CEO who nominates them to the board. That they represent shareholders is a pleasant fiction.

A director who represents employees has to use slightly different lies when talking about how the plan to enrich himself will benefit the people he represents.

They will have to search-and-replace "shareholder" with "employee" in their corporate glurge.

I am not for Warren's co-determination stuff but I do wonder how companies are going to deal with a long term lower Labor Supply in the US. I do find it interesting that unions were most powerful in the 1950s even after Taft-Hartley in 1947 and long term lost power since the 1970s which had the highest job growth in post ww2 era. I have always assumed Union power peaked in the 1950s due to low increase of labor supply. (The 1950s created less jobs than any other decade, which will likely include 2010s, except the 2000s which neatly fit between Dotcom highpoint and Great Recession lowpoint.)

Right now we are hearing the lack of good workers all over CNBC and the lack of worker loyalty which makes me wonder how companies will deal with this reality. We are living a very grumpy 4% unemployment and at this point it appears inflation is controlling real wage increases and increasing profits. (OK a lot of this is oil related and oil based inflation will slow down next year.)

Probably the biggest reason start-ups have issues with co-determination in 2010s is the best and brightest are moving towards building a career at large successful company.

At lot inflation since the 1970's is in housing due to local slow growth policies.

"Can anyone tell me how much?"

Codetermination requirements vary by jurisdiction so it all depends on what one compares. The EU, for example, has been considering imposing German-style codeterminatin requirements on member states but has been unable to get enough support. GDP per hour worked in 2015 was about US$65.5 in Germany and US$68.3 in the US, a difference of $2.8 per houraccording to the OECD. There were about 243,000 million hours worked in the US according to FRED, so we can get a rough idea of the economic cost of the Warren bill at about $680,400 million dollars per year.

Of course Massachusetts does have a codetermination law in place since 1919 but it is voluntary and applies only to manufacturing firms. Yet, firms seem to prefer Delaware corporate law.

Of course by federalizing corporate law, the Warren bill would shift the choice of corporate law market outside the United States. Expect to see even more firm headquarters departing the US for Canada and the U.K. Canada and the UK already offer superior corporate law alternatives and will be the primary beneficiaries if the Warren bill is enacted. See: https://fisher.osu.edu/supplements/10/9860/200625.pdf

Neither the UK or Canada have codetermination requirements.

But I am no expert. If anyone is really interested in this topic, the person to read is Professor Bainbridge who has been blogging on it this morning.

"Will start-ups use it?"

Offering equity as compensation is a common practice in start-ups. Many firms offer hourly employees stock options. These are forms of codetermination. Which would you rather have, a share or a representative on a corporate board?

a share or a representative on a corporate board?

First a board seat. As you must know SV is famous for scheming to deny rank and file employees the options they've accumulated. Once the board seat is secure then we can talk about options.

Offering equity as compensation is a common practice in start-ups

and a bad deal for the employee. There are lots of ways the company can exit, and even lots of the happy endings end up with the rank-and-file engineers getting $0.

This could be improved by giving those minority shareholders protections against walking into work one day and finding out that the board has issued 500% more shares, re-upping the people they like and oh you weren't on the list sorry.

Increasing the cost of accessing capital markets, and raising the relative value of alternative forms of incorporation, accelerating the trend of de-listing / privatisation / PE buy-outs and the death of the index fund.

What's not to like for dyed-in-the-wool capitalists, and how does this benefit the working classes?

Does this mean that pension fund would now be kept in house? Didn't think so.

Employee lose the jobs if the company fails. Investors lose their investment. Is this some way to ensure employees have more stake in the companies they work for, or is it simply a way to allow enjoys to spend the investor's money?

I think Oscar Wilde had the ultimate argument against this type of thing when he said that the problem with socialism is that it takes too many Monday evenings. Are employees really interested in more politics in their work place?

How many startups reach a billion in revenue in the first year, or ever?

Warren's bill is a marker, not anything that would become law.

The list of entities included likely includes those with no employees, existing as holding companies of taxable earnings and tax credits. Congress has created tax credits to promote investment instead of giving cash grants, for investments that are as likely to be public investments. Congress has promoted governments selling the tax credits, e.g., energy conservation for public buildings like schools.

Given Congress will create more such fake businesses because conservatives don't consider tax spending as spending, the law needs lots of qualification to limit the scope to businesses that produce stuff, excluding production destroying rent-seekers.

But in any case, no "startup" will be subject to this rule during its initial five years or so, if ever. Tesla, selling a luxury product in volume took a decade to reach a billion in annual revenue, with probably $2 billion investment.

Amazon took 5 years to get to a billion in revenue without "producing a product", "just reselling" stuff.

Google took 5 years to get to a billion in revenue after it spit from the university research institution, ie, it was up and running before it started.

I don't see the word "monopoly."

Isn't one argument that large companies, especially monopolies, use market power more than innovation, and therefore a curb on their power increases opportunities for nimble startups?

That would be framing it as a sort of win-win. Sure large and successful companies are burdened by taking care of their employees, but that's fine because nimble startups need a shot.

Consider Uber. Maybe when they are young crazy they should be given free rein, but when they are old and calcified, maybe they should be just taking care of the drivers.

In other words maybe there is thought behind Warren's division between large and small companies, and the answer to trailer's question is "because big companies really are different."

Isn't the obvious reason why startups don't do this that while codetermination very well may increase total output, it definitely shifts a lot of power over the disposition of that output from owners to workers? If 40% of the board is able to get workers anywhere near 40% of the company's surplus allocated to benefit them it'd be likely to far outweigh any boost to total output.

Got to remember company owners are maximizing their own benefit, not the company's.

Tyler doesn't believe there is such a thing as economic power, because the economy is efficient and people are rational actors. The fact that the C suite only elects to offshore other people's jobs, but somehow never their own, must be because only jobs outside of the C suite can be done equally well for cheaper overseas. Similarly, if there were a benefit to the long-term performance of the company for the directors to allow workers to vote, even if it meant giving up their own power, in this fantasy world the directors would happily vote themselves into obscurity.

The Warren bill is Mussolini style party takeover of private industry.

Instead of government representatives, Democrat proxies [unions] will represent the interests of the Democratic party.

I do not like laws that exempt some firms or some workers. Like PPACA mandates that employers with more than 50 employees must buy insurance for them and full time employee must get insurance but not part time. If it is important enough to employers of more than 50, why not with less? As far as full time/part time why not make them contribute a percent based on typical hours worked.
Or better yet get rid of the employer mandates all together.
Same with this if it good for big then it should be good for small.
Because there is an optimal size for a business, favoring one size over another reduces efficiency.

Somebody once wrote that this blog is making old ideas seem new again. How is 'codetermination' any different from "employee owed companies" that were supposed to marry communism and capitalism for the benefit of both? Popular idea (never put into practice, except maybe in Sweden) in the USA back in the 1950s and 60s.

Yeah, I remember the co-op grocery store from college; slightly higher prices, slightly less variety, slightly dirtier than the nearby Jewel.

I have seen this vision implemented. Meh.

Anecdotal evidence is everybody’s favorite trump card. Here’s some from me: when I used to live in Dubai, my folks liked to shop at (among other places) a consumer cooperative supermarket. Aisles and aisles of good-quality stuff, fresh vegetables, and a section for Italian gourmet food items (some courtesy of Italian cooperatives).

Pwned you.

Some employee owned businesses are well-run and have good means of financing (although, for obvious reasons, financing is a weighty problem for coops in particular), some aren’t and don’t. Just like all businesses. Why don’t people look at badly- run corporations, with their principal agent problems and huge kafkaesque bureaucracies, and wonder why they do so well?

Here's another way to ask this: imagine that there was *absolutely no difference* in the overall average performance of companies if they were to switch to codetermination, just in the distribution of benefits. What does economics say will happen then? Because I know what behavioral science says will happen, and it's already reality.

Why bother with empirical when you can just troll? It’s so much easier. Significant employee input helps companies.


So you didn't read the study.


Maybe you’d like to share what you feel OP missed in the article? I know I read it.

It's an interesting idea, and would mitigate some of the drawbacks of the current setup where ownership takes actions that destroy the company long-term but deliver massive short-term gains to management and the shareholders.

However, I can see that this would also turn large corporations into quasi-guilds, in the sense that the members of a business will protect their own interests, which would have some of the same problems traditional guilds have. How much say would workers have over hiring decisions, for instance? If I knew that hiring more people when the company needs them would keep my pay steady, but not hiring when needed would make my pay go up, I think a lot of people would opt not to hire.

Codetermination?! Lol. One cannot be a fte and an independent impartial shareholder's representative at the same time. A man needs to eat first and foremost. The current board structure encourages personal enrichment first and foremost and secondly, ultimate personal job preservation. Absolute power corrupts obsolutly.
I would just get rid of the board of directors completly and have a single external supervisory board only. Let the ceo, cfo, and the rest of them join the workers union and present their demands, dreams and aspirations before the board like everyone else.

This is insanely the stupid. The one time you don't want labor on the board, when you need to cut the amount or pay of labor in order to survive, is the one thing labor mosts want to be on the board to interfere with.

This is a really terrible take.
"Sometimes it is claimed that codetermination would limit capital returns, but boost the firm’s investment in labor"
Why would it boost the firm's investment in labor. It would instead be used to divert more of the gains to additional pay for the existing labor that has representation, rather than being used to hire more labor or invest in technology to replace labor.

This clearly reduces productivity.

I've been talking about this concept for a while now with great interest, but haven't heard it referred to as co-determination before.

I see 3 main reasons why it hasn't taken hold already.

1. People say that they'd like to work for co-determined firms, but when they're the ones starting the business venture, they'd rather take on more of the risk and reap more of the return themselves. Maybe it's a coordination problem: it's far better to be a low-ranking worker of a co-determined firm, but much better to be an executive/owner of a more traditional corporation, so co-determined firms are less likely to exist. This is related to:

2. Rank-and-file employees are likely to have families and financial commitments which aren't compatible with taking on extra risk (even though larger co-determined corporations shouldn't be much riskier than a similarly sized hedge fund). One good thing to remember about wealth inequality is that risky investments (usually) have a higher average return, even accounting for that risk. This leads to a situation where those who would most like the money find themselves in situations where they can't afford to take the risks that would net them higher returns. In addition to this, larger pools of money have access to riskier ventures (private equity etc) and are also seen as more appealing, so they tend to soak up the riskier opportunities on the market. In order to be willing to take on the risk of co-determination, workers must already be upper middle class, and have a contingency plan in case the corporation folds.

3. Social inertia. It's not currently the way we do things, and there are transition costs on the margin. Also there is the risk of blame. I think Eliezer has mentioned this failure mode at some point, but managers very rarely get in trouble for failing, so long as they used conventionally accepted methods. Taking a corporation in a more co-determined direction is a lot of risk for not much personal reward to the executive who pushes for it. Not only this, but there is a signalling cost to consider as well. In a world where co-determination isn't the norm, it raises alarm bells when firms ask us to put our own skin in the game in order to work with them.

Despite these roadblocks, I've been convinced for a long time that somewhat co-determined structures are better, and are likely to take hold in the long run, at least in some sectors which aren't too risky for the workers to consider being stakeholders.

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