Notes towards a critique of ‘Labour Managed Firms’

We recommend to the working men to embark in co-operative production rather than in co-operative stores. The latter touch but the surface of the present economical system, the former attacks its groundwork. (Marx, 1866)

My previous post outlined the key points from my reading of Egan and Jossa. In these notes, I reflect critically on the significance of labour-managed co-operatives, which are at the centre of their respective and related arguments. ¹

Characteristics of a labour-managed co-operative firm

As previously outlined, Jossa identifies a specific form of producer co-operative as “revolutionary” and the institution of such firms at a national level as the actualisation of socialism. We need to be clear about the nature of this “revolutionary” institutional form, which, among other things, may provide a framework for a new model of co-operative university. In point 12 of my previous post, I encapsulated Jossa’s position as follows:

Labour Managed Firms “are cooperatives which fund themselves with loan capital and consequently draw a clear-cut distinction between incomes from work and incomes from capital or property.” (Jossa, 2005:14)

LMFs “effectively reverse the capital-labour relationship… the moment when cooperatives are prevented from self-financing themselves (i.e., provided they are organised as Labour Managed Firms (LMF) rather than Worker Managed Firms (WMF[/note], the description of producer cooperatives as firms run by workers as ‘their own capitalists’ will no longer apply. And as the LMF reverses the capitalistic relationship between capital and labour, it can without doubt be rated a genuine socialist enterprise in which workers cease acting as their own capitalists.” (Jossa, 2005:15)

Does this mean that the LMF abolishes the duality of concrete and abstract labour determined by capitalist wage labour and therefore the production of value based on the exchange of labour as a commodity? For Jossa, “The commodities manufactured by democratically managed cooperatives cease to be ‘in the first place an external object’ unrelated to our work … and turn into the product of free choices made by workers in association.” (2005:8)

It is worth quoting Jossa (2012a: 824-825) in more detail so that we are clear about the unique form of the Labour Managed Firm (LMF) – remember that the difference between the Worker Managed Firm and the Labour Managed Firm is, according to Jossa, “decisive.” ²

1. LMFs are publicly owned firms whose managers are elected by the members of the firm in line with democratic procedures.
2. Personnel can be freely hired and dismissed.
3. Each self-managed firm is free to distribute its surplus to the members or retain it for capital accumulation.
4. Given the ban on share issuance, LMFs raise capital resources either by contracting loans with banks or other credit institutions or by issuing bonds that can be freely placed on the market.
5. The division of labour is still applicable, but as it is governed by the decisions made by workers in individual firms, it will be less strict than in capitalistic firms, where it is framed by capitalists.
6. The interest that bondholders, the ‘capitalists’ of this system, cash on their loans is determined in accordance with methods consistent with orthodox theory.
7. Even financial companies may be self-managed by workers.
8. In Vanek’s approach, LMFs tend to maximise average member incomes; conversely, in later theoretical approaches the aim of an LMF is appropriately said to be maximising benefits of every type for the members through majority resolutions by the firm.
9. The State is allowed to intervene in the economy with the aim of redressing market malfunctions in full keeping with the rules governing parliamentary democracies in general.
10. Both for the sake of simplicity and because it is not easy to combine markets with planning it is assumed that public policy will not be centrally planned.

Briefly, an LMF can be termed an entity whose workers hire capital, remunerate it at a pre-fixed rate and apportion the firm’s earnings among themselves.

As a result, the firm models to be set against each other are capitalistic versus self-managed firms. In the former, capitalists or their representatives hire workers, pay them a fixed income (the wage rate) and appropriate the residual (the firm’s profit); in the democratic, cooperative or self-managed firm, workers (or their representatives) ‘hire’ capital (capitalists), remunerate it at a fixed rate of interest and appropriate the residual.

Hence, it is possible to describe democratic firms as non-capitalistic entities that reverse the typical capital–labour relation of capitalistic systems. This reversal is triggered by two main factors: (i) decisions are vested in workers, instead of in capitalists (as is the rule in capitalistic companies); and (ii) capitalists and workers switch roles, in terms that capitalists take the place of workers as fixed income earners and the variable incomes traditionally associated with capitalists are earned by the members of democratic firms.”

Jossa argues that this form of democratic, labour-managed, producer co-operative operates differently to a traditional capitalist firm by turning the relationship between capital and labour on its head.

However, what is crucial in this discussion is that on a number of occasions, Jossa emphasises that in his work “capital is defined in orthodox terms as the bulk of existing production means (not as a social relation).” (Jossa, 2012a: 824; 829; 2012b: 406) This conception of capital “as a material thing” (2012a: 829), and a “tool” (2012b: 413-4) has significant theoretical (and in my view practical) implications and we must start to unravel them with a discussion about labour. If a labour-managed co-operative is so distinctive from a worker-managed co-operative, what is “labour”?

Labour

Like his definition of capital, Jossa’s conception of labour is similarly orthodox. He recognises that when labour power is exchanged for a wage, it becomes a commodity and with that, the product from the socialisation of human creativity becomes the ‘property’ of the capitalist, the owner of the means of production. Although Jossa does not make a clear distinction between labour power and labour, we must assume that he understands labour power to be creative human potential and labour to be the application of that potential by the worker.

Jossa spends some time discussing abstract labour in the context of the labour theory of value where he is specifically concerned with the ‘problem‘, of transforming value into prices. Although he doesn’t define abstract labour in any certain terms, he eventually, and reassuringly, aligns himself with Bonefeld’s analysis. Unfortunately, he doesn’t seem to take very much from Bonefeld.

Jossa’s conviction is that in a labour-managed firm, labour power is not commodified and the duality of concrete and abstract labour (which Marx refers to as one of his two key contributions to political economy) no longer exists. We might expect that a post-capitalist form of labour no longer has the attributes of capitalist labour, as analysed by Marx, but in an attempt to avert “an insoluble contrast between Marxism and orthodox economic science” (2012a: 835), Jossa is willing to dismiss outright Marx’s dialectical method as well as his labour theory of value.

My reflections so far have provided evidence that—thanks to the demonstration that self-managed firms neither use labour power as a commodity nor, as a result, turn concrete labour into abstract labour—the theory of democratic firm management goes to refute the assumed link between the notion of commodity and Hegelian dialectics… Work becomes abstract when it is done in exchange for wages, and as democratic firms use no hired workers, such work as is done in these firms can never be abstract. As a result, the idea that the labour power-commodity identity is a dialectical contradiction is ruled out as a matter of course. (2012a: 836)

What is key here, is that Jossa thinks that abstract labour is determined by the wage. Without the wage, work “can never be abstract.”

Fine & Saad-Filho (2010: 20-21) provide a useful discussion of labour, which can help us understand Jossa’s views, without committing them to sharing his conclusions:

To distinguish the workers from their ability or capacity to work, Marx called the latter labour power, and its performance or application labour. The most important distinguishing feature of capitalism is that labour power becomes a commodity. The capitalist is the purchaser, the worker is the seller, and the price of labour power is the wage. The worker sells labour power to the capitalist, who determines how that labour power should be exercised as labour to produce particular commodities. As a commodity, labour power has a use value, which is the creation of other use values. This property is independent of the particular society in which production takes place. However, in capitalist societies use values are produced for sale and, as such, embody abstract labour time or value. In these societies, the commodity labour power also has the specific use value that it is the source of value when exercised as labour. In this, labour power is unique.

On the other side to the class of workers are the capitalists who control the workers and the product of labour through their command of wage payments and ownership of the tools and raw materials or means of production. This is the key to the property relations specific to capitalism. For the capitalist monopoly of the means of production ties the workers to the wage relation, explained above. If the workers owned or were entitled to use the means of production independently of the wage contract, there would be no need to sell labour power rather than the product on the market and, therefore, no need to submit to capitalist control both during production and outside, in society.

Jossa’s conception of capital and labour under capitalism accords with this description of labour and labour power in terms of the labour-capital property relation. In the passages above, all authors seem to align themselves with a material view of capital as a thing (i.e. property) which capitalists, a class of people who own the means of production, control.

In the absence of the wage-relation i.e. the LMF, workers sell the products that they created and own, rather than sell their labour for a wage. It seems that for Jossa, the key to the capitalist firm and therefore the ‘anti-capitalist’ LMF, turns on how property relations are organised. For Jossa, freedom from capitalism is equated with owning the means of production and from that “decisive” moment, a transition from the capitalist mode of production to the socialist mode of production occurs (Jossa, 2012b:405). For Jossa, once property relations are re-organised in favour of the worker, such that the wage can be abolished, labour is no longer a commodity and its value is no longer measured in abstract labour time because “work becomes abstract when it is done in exchange for wages.” (Jossa, 2012a: 836)

This view of capitalism and its alternative of socialism is common and can be considered the “orthodox” view. However, I think that despite the crucial importance to socialism of labour controlling the means of production, this alone is not a decisive characteristic of a new mode of production. Whereas Jossa argues that in the Worker Managed Firm the workers “are their own capitalists” and in the Labour Managed Firm, “workers cease acting as their own capitalists”, in my view both types of firm continue to operate in the capitalist mode of production, according to the law of value. In the passages quoted above, Jossa and Fine & Saad-Filho posit capital as a material thing and capitalists as controllers of the means of production and therefore of labour. This view is not objectionable and Marx discussed capital and capitalists in these terms, too. However, Marx and other later writers elucidated their conceptualisation of capital in much richer terms that, I think, deny the “decisive” significance of whether a wage is paid or surplus collective income is shared democratically. In both cases, capital and the law of value remains in control of both the workers and the capitalists. I discuss this next.

Value

What is “value”? If Jossa represents an orthodox view of Marxism, other writers such as Clarke, Elson and Postone offer a more radical and in my mind more convincing explanation of value and its role in capitalist society.

Simon Clarke (1979: 4)

The more radical interpretation of the concept of value gave it more than a strictly economic significance. Marx’s concept of value expresses not merely the material foundation of capitalist exploitation but also, and inseparably, its social form. Within Marxist economics this implies that value is not simply a technical coefficient, it implies that the process of production, appropriation and circulation of value is a social process in which quantitative magnitudes are socially determined, in the course of struggles between and within classes . Thus the sum of value expressed in a particular commodity cannot be identified with the quantity of labour embodied in it, for the concept of value refers to the socially necessary labour time embodied, to abstract rather than to concrete labour, and this quantity can only be established when private labours are socially validated through the circulation of commodities and of capital . Thus the concept of value can only be considered in relation to the entire circuit of capital, and cannot be considered in relation to production alone.

Elson (1979: i)

Why is Marx’s theory of value important? It is important because Marx’s theory of value is the foundation of his attempt to understand capitalism in a way that is politically useful to socialists. It is not some small and dispensable part of Marx’s investigation of capital; it constitutes the basis on which that investi­gation takes place. If we decide to reject that theory, we are at the same time rejecting precisely those tools of analysis which are Marx’s distinc­tive contribution to socialist thought on the workings of capital. The debate about Marx’s value theory is, in fact, a debate about the appro­priate method of analysis, about the validity of the concepts which are specific to, and constitute the method of, historical materialism. The outcome of this debate therefore has implications far beyond the way in which we understand prices and profit in the capitalist economy. It has implications for the question of how we should carry out our em­pirical investigations today of the international restructuring of capital accumulation; of new forms of class struggle, of the capitalist state; and of the possibilities for socialism. It has implications for the fundamental question of whether what is distinctive about Marx’s method of analysis is really of any use to socialists today.

Postone (1993: 188-90)

The abstract character of the social mediation underlying capitalism is also expressed in the form of wealth dominant in that society. Marx’s “labor theory of value” is not a labor theory of wealth, that is, a theory that seeks to explain the workings of the market and prove the existence of exploitation by arguing that labor, at all times and in all places, is the only social source of wealth. Marx analyzed value as a historically specific form of wealth, which is bound to the historically unique role of labor in capitalism; as a form of wealth, it is also a form of social mediation.

Marx explicitly distinguished value from material wealth. This distinction is crucially important for his analysis. Material wealth is measured by the quantity of products produced and is a function of a number of factors such as knowledge, social organization, and natural conditions, in addition to labor. Value is constituted by human labor-time expenditure alone, according to Marx, and is the dominant form of wealth in capitalism. Whereas material wealth, when it is the dominant form of wealth, is mediated by overt social relations, value is a self-mediating form of wealth.

What Jossa seems to overlook is that ‘value’, not the wage, mediates labour in a capitalist society.

According to Marx, labour in a capitalist society has two aspects: concrete and abstract labour. Concrete, physiological labour, produces an objective form of social wealth i.e. useful things: a chair, for example. Those things are valued because of their utility (‘use value’) and for their ability to be exchanged for other commodities, usually money. In a capitalist society, most things are made in order to be sold for a surplus compared to the total cost of producing them. In other words, almost all useful things are made primarily to be commodities. Therefore, a commodity, has both a ‘use value’ (the expression of its utility), and an ‘exchange value’ (the expression of its value).

I have said that ‘value’ is realised in the act of exchange, as ‘exchange value’, such that the product of labour has a use value and an exchange value. In order to have a value that is realised in the act of exchange, there must be a measure of equivalence so that the exchange value (value) of a commodity can be exchanged for another commodity, regardless of its utility. This is how we exchange the chair commodity for an ‘equivalence’ of the money commodity. This equivalence is an abstraction – not simply a mental, reasoned form of abstraction, but a ‘real abstraction’ where the desire or imperative for producing value creates a relation of abstract equivalence between different commodities. The thing or product, which is real and has ‘use value’, is exchanged in its abstract form i.e. value, expressed as exchange value.

The use value (the useful thing) is the product of concrete, physiological labour. It ‘contains’ that labour. Its exchange value is mediated by value, a real abstraction which is measured by ‘abstract labour’. Abstract labour is the labour ‘contained’ in the product when exchanged as a commodity. As most products are produced so as to be exchanged as commodities, we can say that the products of concrete labour in general, circulate in the exchange process as containers of abstract labour. Strictly speaking, a commodity is therefore nothing but abstract labour. Viewed as a social whole – a local, national and international market of commodity exchange – each commodity is, and expresses, a fraction of the abstract labour undertaken at the level of society as a whole. It is because of this, that like the equivalence of exchange, there is an equivalence of labour: abstract labour. If the equivalence of exchange is measured by the real abstraction of ‘value’, which mediates labour, how is the abstraction of labour measured?

Abstract labour is objectified as ‘value’, which is realised in the moment of commodity exchange. Money is a commodity, the most explicit expression of the equivalence of value. Labour is a commodity, because it is undertaken for money i.e. a wage.  The value of abstract labour is socially determined through the equivalence represented by the exchange value. What determines this equivalence changes constantly, based on a number of factors, such as the rate of productivity, the availability of skilled labour and ultimately the time it necessarily takes to produce the commodity using labour broadly understood i.e. mental and manual labour, living human labour and the ‘dead’ labour embodied in machinery. All of these manifestations of labour are related by the time it takes to produce the commodity. What may take living human labour to produce in two weeks, may take the ‘dead labour’ of machinery one minute to produce. Therefore, the value of abstract labour is determined by the ‘socially necessary labour time’ that it takes to produce commodities for exchange. Marx writes: “How, then, is the magnitude of this value to be measured? By means of the quantity of the ‘value-forming substance’, the labour, which it contains. This quantity is measured by its duration, and the labour-time is itself measured on the particular scale of hours, days, etc.”

From this analysis, we can say that the real abstraction of labour time determines value in capitalist society, and that because the majority of things are produced primarily for the purpose of exchange, socially necessary labour time determines the social and private lives of all members of that society. This includes the owners of capital, who themselves are governed by the same imperative: what Postone calls the ‘determinate logic’ of this value-creating process i.e ‘capital’.

A determinate mode of production

According to this view, capitalism is driven by a determinate logic expressed by the ‘commodity form’ (i.e. use value and exchange value). Regardless of whether the worker is paid a wage for the production of the commodity, if the commodity is exchanged (e.g. for money), it has an exchange value that expresses its value and therefore the value of its substance: labour. In capitalist society, value, the substance of which is (abstract) labour, is the dominant form of social wealth. Therefore, whether the worker is paid directly for their labour by the owner of capital (i.e. a ‘wage’), or draws her means of subsistence from the surplus value realised in the exchange process of commodities produced under conditions of production which she, on the face of it, controls; at the point at which the product of her labour, the commodity, is exchanged, its value is determined by the equivalence of socially necessary (abstract) labour time. As such, in the Labour Managed Firm, despite not receiving a conventional ‘wage’, and despite owning the means of production, the worker is “their own capitalist”, and remains dominated by the abstract ‘logic’ of value.

In order to be free from the domination of the logic of value, which mediates labour and therefore all social relations, it is not sufficient to control the specific means of production i.e. a ‘firm’. The problem must be tackled at all levels of society, locally, nationally and internationally, in order to overcome the overwhelming logic of this valorisation process located in both the production and the exchange of commodities, i.e. use values primarily produced for exchange value. Value is the form of social wealth in capitalism. What is the form of wealth ³  in a post-capitalist society where the imperative of creating value has been overcome? That is the question we are left with.

It is worth reiterating that the production of value fundamentally determines our lives: it is the organising principle of social relations. We know this because the majority of people need to sell their labour (‘labour power’) in order to survive from one year to the next. In many societies, there are ways of alleviating periods of unemployment (welfare, charity, loans), but this is not a solution to the problem of self-reproduction nor a socially acceptable form of subsistence. In the absence of a formal wage, as in the Labour Managed Firm, the worker still needs to draw an income from the surplus value created by the exchange of products they produced (i.e. the ‘commodity form’ still operates). As such, value and its real abstraction of equivalence between commodities and labour time remains the determinate of social relations.

However, despite our lives being fundamentally determined by the necessity to sell our labour as a commodity, within this overwhelming constraint, there is some contingency due to the dynamic, changing, social and ultimately contradictory nature of capital, expressed as value, the substance of which is human labour. Capital needs labour. Capital must confront labour.

Attacking the groundwork

Marx recognised that producer co-operatives, more so than consumer co-operatives, “attacked the groundwork” of capitalism. My notes above do not contest this, nor are they intend to dismiss the work of Egan, Jossa and the significant benefits of labour-managed co-operative production. Certainly, workers owning and democratically controlling the means of production is an essential part of the transition to socialism and both Jossa and Egan acknowledge that Labour Managed Firms are not the whole answer to achieving a post-capitalist society. Their work is very valuable in attacking the groundwork of capitalism, but in my view while the ownership of the means of production might change, the mode of production remains the same, determined by the law of value. The struggle to achieve a federation of labour-managed co-operatives on a national and international scale is as crucial today as it was in Marx’s time. In undertaking that struggle for the means of production, we must continue to critique the mode of production and recognise that despite the class opposition, both the worker and the capitalist remain unfree, bound to a particular mode of production that requires another strategy of theoretical and practical attack.

 

 

1. As always, the production of knowledge is a social, co-operative endeavour. I am grateful to my colleagues, Sarah Amsler, Richard Hall, Mike Neary and Gary Saunders for the discussions we are having in helping me further my understanding of these issues.
2. Throughout these notes, text in bold is my emphasis.
3. By ‘form’, I do not mean ‘type’, but use the word in the same way that Marx often used it to refer to a social ‘configuration’ or ‘arrangement’, i.e. value form, commodity form.