Annals of Public and Cooperative Economics 89:1 2018
THE THEORY OF THE LABOR-MANAGED FIRM: PAST,
PRESENT, AND FUTURE
Gregory K. DOW
Simon Fraser University, Canada
The economic theory of the labor-managed ﬁrm dates back 60 years.
Here I review the intellectual history of this ﬁeld, with critical remarks and propos-
als for future development. The decades of the 1960s–1980s saw a burst of theoretical
speculation that generally did not hold up well under empirical scrutiny. By the 1990s,
progress on the mainstream theory of the ﬁrm was overtaking some of this early re-
search. At the same time, a growing body of econometric work on labor-managed ﬁrms
was providing new stylized facts for theorists to explain. While the earlier period was
characterized by an excess supply of theories relative to facts, more recently the balance
has begun to tip in the opposite direction. I close by suggesting new theoretical direc-
tions that might shed light on the empirical asymmetries between capital-managed and
Keywords: Labor-managed ﬁrm, capital-managed ﬁrm, Ward–Domar–Vanek model, horizon problem,
membership markets, proﬁt maximization, alienable capital, inalienable labor, theory of the ﬁrm,
history of economic thought
JEL classiﬁcation: B21, D21, D23, P13
In the nineteenth century, John Stuart Mill (1848 , pp. 772–773) expressed the
belief that capitalist ﬁrms would eventually give way to ﬁrms in which workers enjoyed
democratic control over managers and owned capital collectively. Many reformers have
embraced this vision over the last two centuries, and it still has power today.
The year 2018 is the 60th anniversary of the ﬁrst serious effort by a mainstream
economist to study how a ﬁrm managed by its workforce might function (Ward, 1958).
Here I survey the key intellectual currents in the theoretical literature on labor-managed
ﬁrms (LMFs) since that time, and consider where this literature might go in the future.
Because useful theory must be constrained by facts, I also comment on some relevant
empirical ﬁndings along the way.
I deﬁne an LMF to be a ﬁrm where labor suppliers have ultimate control rights,
in the sense that workers can collectively hire and ﬁre the top managers. I contrast this
with a capital-managed ﬁrm (KMF), where capital suppliers have ultimate control over
2018 The Authors
Annals of Public and Cooperative Economics
2018 CIRIEC. Published by John Wiley & Sons Ltd, 9600 Garsington Road, Oxford
OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA