Labor-managed firms

Although the traditional theory of the firm gave little attention to institutional detail, the common assumption about the units that engage in the production and sale of goods and services was that they are owned and controlled by individuals who provide risk-bearing capital and who hire the services of workers as one among several variable inputs. Worker-run cooperatives had existed in small numbers at least since the industrial revolution, but the study of such firms using formal analytical tools awaited the added stimuli provided by the challenge of understanding collective farm performance in the Soviet Union and China and Yugoslavia’s experiment with worker-managed market socialism. The models developed in the late 1950s and thereafter were subsequently applied not only to those cases but also to understanding worker-owned firms in industrial market economies, to investigating hypothetical economies consisting exclusively of worker-run firms, and to attempting to explain why worker control is relatively rare. As studies on the topic multiplied, the term “labor-managed firm” came to be used by economists to describe an enterprise that operates under the ultimate control of those who work in it.