BetEl Factory 311.
(photo credit: Ariel Jerozolimski/The Jerusalem Post)
For a long time the Tadiran-Telecom corporation faced financial difficulties,
partially as a result of the woes of its parent company, Africa-Israel.
Tadiran-Telecom was recently saved from bankruptcy by a buyout led by its
workers. The workers, via a fund they had accumulated to weather a transition or
bankruptcy, acquired most of the company’s shares together with businessman
Last week the workers finally exercised their power of
ownership by appointing Moshe Cohen as CEO. This entire process has lessons for
the advantages and limitations of worker ownership.
The great vision of
socialism was an end to class distinctions between boss/owner and
employee/subordinate through worker ownership of the means of production. This
vision did not turn out to be very practical, but many individuals thought a
decentralized solution could solve the same problem: Within the regime of free
markets, workers could obtain ownership and control of their
This updated vision of worker ownership suggested many
advantages, both social and economic. The social advantage was supposed to be a
shortcut to the end of class distinctions.
No more would the worker be
just a cog in the wheel of industry – one more input in an impersonal production
function manipulated by management. He would be a genuine partner in the
workplace, share his ideas and wisdom with management and in return obtain a
share of the profits.
Worker ownership was supposed to mean the end of
workplace alienation. From an economic point of view, the theory was that a
worker who is a part owner will be motivated to work harder and better, while a
workplace that values the worker’s input will be managed more
Many countries legislated laws intended to encourage and
empower this vision of attaining the social benefits sought by socialism while
still enjoying the benefits of a free society. For example, the United States
has tax breaks for ESOPs (Employee Stock Ownership Plans), while the Basque
region of Spain has special legislation regulating the unique, gigantic
However, for a variety of reasons this approach
has failed to become a hit. Meaningful worker ownership is rare beyond the
sector of small start-ups, where it is really just a system of deferred payment
to solve cashflow problems.
Even when workers do acquire a significant
ownership stake, they seldom exploit it to influence management. When workers
obtain ownership, they usually hurry to return the authority, and often even the
ownership itself, to the hands of professional managers.
example of this was the proposals to give the United Auto Workers a controlling
stake in automakers GM and Chrysler as part of the bail-out program.
before the proposals were finalized, the UAW rushed to inform the public that
they had no intention of keeping the stock and intended to sell it at the first
The reason for this is simple: The main reason for the way
companies are organized and run has to do with competitive constraints, not
class conflict. Good relations with workers and proper appreciation for their
contribution are certainly valuable, but worker ownership is not essential for
attaining these goals. They are effectively achieved by other means, including
promoting from within and worker-participation schemes such as quality
There is some evidence that worker ownership improves
motivation, but the effect is small. One reason is that each worker has only a
tiny ownership stake, so it won’t have much influence on how his effort affects
his bottom line. Another is that even without a formal ownership stake, a worker
knows that his continued employment and promotion will be dependent on the
A prominent drawback of worker ownership is lack of
diversification. A typical worker has two sources of income: his job and his
investment portfolio. If the latter is dependent on the same firm as the former,
the worker is dangerously exposed to the vicissitudes of the market. It is much
more prudent to diversify by investing retirement funds in other assets.
Furthermore, most salaried workers don’t have huge amounts of financial assets
in the first place.
The Tadiran-Telecom story illustrates a number of
these lessons. The unique knowledge of the workers contributed to saving the
company, as their intimate knowledge of the industry helped convince them and an
outside investor that the company was worth saving.
One obstacle to
worker ownership, availability of resources, was overcome by the existence of
the special fund that had been set aside for coping with a crisis.
addition, far-reaching management changes were not made. The workers are not
running the company; instead, they swiftly appointed a professional manager to
their liking – a man who will now be their boss and their employee at the same
My expectation is that if the gamble succeeds, and the company gets
back on its feet, the workers will promptly sell much of their ownership stake
so that their financial future is not held hostage to the success of a single
firstname.lastname@example.org Asher Meir is research director at the
Business Ethics Center of Jerusalem, an independent institute in the Jerusalem
College of Technology (Machon Lev).