Meeting the challenge of economic development: Productivity, efficiency, and participation in employee-owned firms in New York State

This study addresses issues of economic growth and urban economic development policy and recommends a feasible model of enterprise development based on worker owned self-managed firms. Ultimately the success of an economy or an industrial sector is based on the success of the firm. Worker ownership, linked to democratic participation, represents an approach to firm organization that could be significant in achieving higher levels of productivity and economic efficiency than investor owned firms. By uniting ownership and control, worker owned self-managed firms transform the adversarial relationship between management and labor. This relationship has historically defined social relations within the American workplace, and resulted in enormous costs from strikes, absenteeism, and other actions associated with worker dissatisfaction. Through democratic decision-making worker owned self-managed firms can minimize these costs and create a more cooperative relationship between labor and management. Secondly worker owned firms may have stronger incentives to remain within local communities given that labor is less mobile than capital. Thus in the aggregate worker owned firms could contribute to regional economic growth through increases in per capita income, employment, and tax revenues. An economic sector based on these firms could contribute to capital retention, stabilization of the urban economy, and the alleviation of urban poverty through job creation and a reduction in the demand for social welfare services. This study presents the results of research on productivity, economic efficiency, and participation in employee owned firms in New York State. Empirical research included a database of approximately 225 ESOP firms and three case studies of worker owned firms in New York State, and examined the relationship between employee ownership, democratic participation, and economic performance. Based on theoretical and empirical results, the study recommends the implementation of urban economic development policy initiatives based on the creation of worker owned firms.