From Paucity to Inefficiency: The Case of Democratic Governance

The participatory governance on the workplace remains rare. Control does not follow ownership by logical necessity; why, then, is the capitalist enterprise so prevalent? Oliver Williamson, Michael Jensen, Henry Hansmann and some other scholars take the paucity of labour-managed firms (i.e. the prevalence of capitalist firm) as the evidence for the inefficiency of democratic governance. For support to this proposition, they turn to the early characterization of the evolutionary dynamics on competitive markets by Armen Alchian (1950). He argues that firms are selected for according to their relative profits, and that the relatively profitable production behaviour prevails on the markets. Similarly, the Efficiency Branch argues that it is the relatively efficient organizational form that prevails on the markets. Thus; if we observe an organizational form to be rare, this means that it is relatively inefficient. In my thesis, I show that the evolutionary argument employed in support of this proposition is incomplete. Prevalence consists of both differential survival and differential birth, therefore, we should also be able to explain how different organizational modes enter the markets. I introduce the appropriation hypothesis that suggests that capitalist enterprise is formed more often because it allows easier appropriation of benefits for certain groups, and not necessarily because it is technologically superior. As long as we define inefficiency in the terms of technological inefficiency, we cannot take the paucity of labour-managed firms as the evidence for their inefficiency.