Bringing the Workers on Board

The Catholic Roots of Codetermination
Elizabeth Warren makes a campaign stop for her 2020 presidential bid at the Springs Preserve in Las Vegas, Nevada on February 17, 2019 (Damairs Carter/Media Punch/Alamy Live News)

Judging by the suite of bills Elizabeth Warren has introduced in the U.S. Senate over the past year, many of which have already been woven into the issue statements on her campaign website, the senior senator from Massachusetts is set to have one of the most creative and ambitious policy platforms of any contender for the Democratic presidential nomination in 2020. This is not necessarily saying much, since a good number of the eventual candidates are likely not to have any platform whatsoever beyond anti-Trump rhetoric. In Warren’s case, however, her legislative portfolio is in fact genuinely audacious.

Perhaps the most audacious item in that portfolio is the ACA: this time not the Affordable Care Act, but the “Accountable Capitalism Act,” which seeks to radically overhaul corporate governance in the United States and reorient big business away from its single-minded focus on maximizing returns for shareholders even when doing so comes at society’s expense. The audacity of the ACA lies not only in the magnitude of the legal and economic transformation it would bring about, but in what it says about Warren’s views on the ideological debates currently roiling the Democratic Party.

At a time when a resurgent socialist left is slowly but steadily gaining influence in American politics, Warren has gone out of her way to define her legislative goals and political identity in opposition to that movement. This despite the fact that she has advanced policy ideas, like the public manufacture of generic prescription drugs, that go just as far or farther than what many democratic socialists have called for. She made this explicit in front of one audience last year when she declared that “I’m a capitalist to my bones.” (Happily, she has refrained from trying to substantiate that claim with biopsy results.)

In reality, what the ACA seeks to do is not really “capitalist” or “socialist.” To understand why neither term quite captures the radicalism of Warren’s proposal, it helps to understand both what it would actually accomplish as well as its intellectual genealogy.

The core of the ACA is its stipulation that all domestic corporations with annual revenues of over $1 billion obtain a federal charter. These so-called “United States Corporations” would then be subject to a variety of requirements, including a legal duty to take account of the impact that their decisions have not only on shareholder value, but also on workers, local communities, and the environment. They would also be compelled to follow a rule that any corporate expenditures on political advertising be approved by a three-fourths supermajority of a board of directors.

Federal chartering of corporations would represent a significant departure from the status quo, under which incorporation is a matter left to the states. What Warren aims to do is disrupt the “race to the bottom” dynamic that has made it difficult for any one state to make incorporation conditional on an enforceable promise to meet standards of good corporate citizenship. As it is now, the state of Delaware’s relatively lenient incorporation statutes are a magnet for business: despite being the smallest state by area, more than half of all publicly traded companies are legally headquartered there.

Enactment of such reforms would certainly be a significant achievement, but none of them would be truly unprecedented. A number of states already allow for the creation of so-called benefit corporations, or “B-corps,” that permit firms to take into account the interests of a broader array of stakeholders than just their own investors. In theory, this allows managers to pursue objectives like environmental sustainability without having to worry about legal action from investors miffed that profits would have been higher if management hadn’t been such a bunch of tree-huggers. Regulation of corporate spending on “electioneering communications” is nothing new either: federal law explicitly restricted such spending prior to the Supreme Court’s notorious 2010 ruling in Citizens United, which claimed that these restraints violated the First Amendment.

The provision of the ACA that would be truly revolutionary is its mandate that 40 percent of the membership of a United States Corporation’s board of directors be elected representatives of the corporation’s own employees. At present, virtually all directors are elected by shareholders in mostly noncompetitive elections, with the candidates nominated by the incumbent board. These are less elections than de facto coronations.

Such a policy of requiring worker representation on corporate boards is known as “codetermination” because it creates a structure under which decisions are jointly hashed out by representatives of labor and capital. It is most often associated with Germany, which has some of the most extensive codetermination laws in the industrialized world, though similar policies are in effect across Europe and elsewhere. German law requires that corporations with more than two thousand workers have half of the members of their “supervisory boards” (the analogue of our boards of directors) elected by their employees, while those with between five hundred and two thousand workers have a third of their board members chosen by the same. In addition, German workers may also elect members of “works councils” to lobby employers about issues that arise in the workplace. (Trade unions in Germany tend to operate at the sectoral level rather than at the level of the individual company, as in the United States.)

 

We take for granted that political decisions ought to be arrived at democratically but that in offices and factories the boss is king.

Warren’s framing of codetermination as essentially capitalist has aroused ire on both the Right and Left. National Review’s Kevin D. Williamson painted the bill’s pro-capitalist packaging as subterfuge and hysterically warned that it represents a “batty plan to nationalize everything” and would “constitute the largest seizure of private property in human history.” Meanwhile, Jacobin editor Seth Ackerman panned the ACA as cynical, a “feint to the left” that “outbids even Bernie Sanders” while still allowing Warren to “present herself as a credible champion of traditional Democratic Party capitalist values” and “a bulwark against the party’s recent, inexplicable outbreak of ‘socialist’ madness.” “The irony is complete,” he writes, since “to position herself as the savior of capitalism, Warren has floated a measure that, in real life, has only ever been championed by socialists.”

The attempt to precisely situate codetermination within a capitalism-socialism binary is a mostly pointless exercise. If one defines capitalism as “private ownership of the means of production” and socialism as “social ownership of the means of production,” then it ought to be clear that codetermination is not quite either of those things. The problem is that ownership has multiple dimensions: it can entail control rights, or the power to make decisions about how to use or dispose of property, as well as residual claimancy rights, or the entitlement to the stream of profits generated by productive assets. Codetermination confers some measure of control rights on workers without necessarily making them residual claimants; it gives them voice in the workplace but need not guarantee them a cut of the profits.

In this sense, codetermination can be thought of as the inverse of profit-sharing plans or employee stock-ownership plans, which grant limited or no control rights but do provide some compensation that is tied to the firm’s performance. It can also be understood as a less complete form of worker ownership than that seen in worker cooperatives—businesses that are wholly owned and managed by the workers. And it should also be contrasted with labor unions, which confer no ownership rights but do let workers bargain collectively with their employers for higher compensation and better conditions of employment.

Williamson’s bleating about nationalization and state seizure of property is self-evidently absurd, but Ackerman’s more nuanced take also suffers from having been shoehorned into a reductive framework. In particular, his account of codetermination’s genesis as the work of socialists alone is at best incomplete and at worst misleading, since a number of its key early proponents drew their inspiration not from Marxism, but from the emerging tradition of Catholic social teaching.

Legal scholar Ewan McGaughey, citing the work of codetermination expert Hans Jürgen Teuteberg, identifies the German social philosopher and Catholic theologian Franz von Baader as “the first to affirm a legal claim for worker participation” as far back as the 1830s. The law would not vindicate such a claim until 1891, when the German government passed the first legislation granting workers the right to form “factory councils” that could offer (non-binding) input on decisions affecting the workplace. (Incidentally, that was also the year that Pope Leo XIII issued his seminal social encyclical Rerum novarum.) A young priest named Fr. Franz Hitze, who served as the first Professor of Christian Social Teaching at the University of Münster and who had written on the subject of capital and labor, was tasked by Kaiser Wilhelm II with assisting in the drafting of the law.

Hitze was again instrumental in the passage of a more ambitious 1920 law that mandated works councils in all businesses with more than twenty employees, as was another priest, the Labor and Social Minister Heinrich Brauns. Both saw the proto-codetermination embodied in their approach as a bulwark against the bolder demands of the Marxist Left. Theologian and social ethicist Manfred Spieker writes that it “was due to [Hitze and Brauns’s] influence that the radical socialist concept of the soviets did not come to bear on the Work Councils Law.” Spieker also points out that Pope Pius XI’s 1931 encyclical Quadragesimo anno cites Brauns, albeit not by name, as an exemplar of Catholic involvement in politics.

The basic contours of Germany’s modern codetermination regime came into being shortly after the Second World War. According to the American diplomat Herbert Spiro, it emerged as a pragmatic response to the monumental task that the Allied occupation faced in rebuilding the devastated German coal and steel industries. While socialists at the time demanded full-scale nationalization, the Allied command was reluctant to impose such a system without a democratic mandate, and many trade unionists were leery of effectively returning to the status quo ante. Because there was a critical need for technical expertise to guide the rebuilding effort, and because many of the former industrial managers and factory owners were exiled or in prison camps as a result of “denazification,” the only people left to turn to for expert advice were the leaders of the reconstituted labor unions, which had been largely suppressed under the Third Reich.

One steel manager who had never joined the Nazis and was therefore available to be consulted by the Allies was the Catholic Heinrich Dinkelbach, who ended up developing a plan for oversight of the revived industrial sector that involved 50-percent representation for the trade unions. Ewan McGaughey reports that Dinkelbach was later made a papal count for his efforts, suggesting that the Vatican thought highly of the results.

In 1951 Germany enacted additional legislation on codetermination that required half of the supervisory boards of coal, steel, and mining concerns to consist of elected representatives of the workers. Herbert Spiro claims that “it is doubtful whether Chancellor [Konrad] Adenauer would or could have gotten the then predominantly Catholic CDU [Christian Democratic Union] to vote for the special codetermination bill in 1951, if [a] doctrinal rationale had not previously been provided.” The unique historical circumstances that obtained in Germany after the war provided rich soil in which codetermination could take root, but it would never have fully blossomed without the fertilizing influence of Catholic social teaching. Pace Ackerman, socialists were not its only champions—and in many cases were not its champions at all.

The principles of codetermination have been consistently alluded to and affirmed in papal encyclicals since at least Quadragesimo anno, as Marymount University theologian Matthew Shadle shows in an August 2018 essay for Political Theology. Shadle explains how Pius XI developed Leo XIII’s simultaneous defense of both labor unions and private ownership of the means of production in Rerum novarum by insisting that workers ought to become “sharers in ownership or management or participate in some fashion in the profits received.” He also calls attention to how John XXIII’s discussion of the topic in Mater et magistra (1961) constitutes even further development, since it moves beyond Pius’s appraisal of worker ownership as a means of ensuring a “just distribution of goods” and toward an appreciation of the intrinsic value of a participatory workplace—one that becomes a “true human community, concerned about the needs, the activities and the standing of each of its members.” In economic terms, we might say that Pope John shifts the emphasis from residual claimancy to control rights.

This theme of participation is also taken up by John Paul II in Laborem exercens (1981), which speaks of “joint ownership of the means of work, sharing by the workers in the management and/or profits of businesses, [and] so-called shareholding by labor.” And when Benedict XVI writes in Caritas in veritate (2009) that “business management cannot concern itself only with the interests of the proprietors, but must also assume responsibility for all the other stakeholders who contribute to the life of the business,” he sounds an awful lot like a spokesman for Warren’s ACA.

 

Activists may not even be aware that the Catholic tradition has much to say about the relationship between labor and capital beyond its support for unions.

Given the support for some form of codetermination or worker ownership evident in the past century of papal writings, it is striking that the topic is hardly ever mentioned by Catholic labor activists or by the bishops—including the current Bishop of Rome. Most discussions of the church’s views on labor and the rights of workers begin and end with unions. A search of the website for the Catholic Labor Network, which strives to advance workers’ rights and to spread awareness about Catholic teaching on the issue, returns nearly two hundred mentions of the word “union” but not a single instance of “codetermination” or “worker ownership.”

Pope Francis, who has professed that “the union is an expression of the prophetic profile of society” and that “there is no good society without a good union,” does not appear to have ever made any public statement about codetermination or worker ownership as pope, notwithstanding a brief mention of ecologically minded cooperatives in the encyclical Laudato si’. Nor does the USCCB say anything about it on the page of its website dedicated to labor and employment. Its “Primer on Labor in Catholic Social Thought” quotes from the encyclicals and various pastoral letters of the U.S. bishops, highlighting in bold nearly a dozen mentions of trade unions. One could reasonably conclude from all this that the entirety of the church’s teaching on labor is its defense of collective bargaining.

One possible explanation for this strange silence is that explicit advocacy of codetermination by church leaders has been chilled ever since Pope Pius XII condemned a statement issued by the German Social Congress in Bochum in 1949 asserting that codetermination is a natural right. The pontiff rejected this claim as contrary to the argument of Rerum novarum, since it contradicted Pope Leo’s position that private ownership of the means of production is not inherently immoral. This might explain why subsequent pontiffs have been content to talk in broad generalities about “participation,” but have been hesitant to speak in specific terms about something resembling the German model.

But as Fr. Gérard Dion, SJ, explains in a commentary on Pius’s remarks, the pope’s intent was not to condemn codetermination as such, only to insist that “the contract of wages” (i.e. any employment relationship not involving worker ownership) was not intrinsically wrong, provided that a just wage was paid and the worker was not treated as an economic object. Nor is there any evidence that theologians interpreted Pius’s statement as a ban on discussion of the topic: the prominent German Jesuit Oswald von Nell-Breuning, a ghostwriter of Quadragesimo anno, published a book in 1950 that was actually titled Mitbestimmung (“Codetermination”).

The much more likely explanation is just that codetermination is relatively uncommon, with forms of worker ownership like cooperatives rarer still. The hierarchy is generally reluctant to ratify specific economic policies, preferring instead to offer generic moral criteria that such policies must satisfy; it is especially reluctant to comment on policies and structures that are otherwise little known. (Ironically, the largest federation of worker cooperatives in the world, the Mondragon Corporation in the Basque region of Spain, was founded in 1955 by a Catholic priest named Fr. José María Arizmendiarrieta, who was directly inspired by Catholic social teaching.) Consequently, activists may not even be aware that the tradition has much to say about the relationship between labor and capital beyond its support for unions. As the Compendium of the Social Doctrine of the Church puts it, “the Church does not intervene in technical questions…nor does she propose or establish systems or models of social organization. This is not part of the mission entrusted to her by Christ.”

 

In many societies throughout human history, the notion that the average person could take part in deciding the future of his or her city or country has been considered absurd.

But why is codetermination so uncommon, and why has it never been adopted at any meaningful scale in the United States? Neoclassical economists would insist that it must be because it is less efficient than traditional capitalist management, so that any firms that would voluntarily choose it would be put at a competitive disadvantage and quickly fail. From this perspective, the lack of codetermination in the United States is a reflection of the state of nature, while its widespread use in Germany is an artificial creation of law.

Yet there is no such thing as a “state of nature” in the economic realm. Any corporate governance regime or system of labor relations is necessarily a creature of the state (as are corporations themselves, as Warren’s push for federal chartering should remind us). Moreover, the claim that codetermination causes firms to be less productive appears to be false as an empirical matter. It certainly has not turned Germany into an economic backwater.

Instead, we should consider the possibility that we do not see more firms with codetermination because: (1) capitalists don’t want it, and have the power to stop it from being implemented; and (2) the legal regime we have developed in the United States has locked us into an inherently adversarial conception of the relationship between labor and capital, one based on bargaining between employers and unions.

In a study of German codetermination, economists Gary Gorton and Frank Schmid find that it does, in fact, alter the behavior of firms: those that make use of it seem to place relatively more weight on the interests of workers and relatively less on those of shareholders (by undergoing disruptive restructurings or mass layoffs less frequently, for example). In other words, the fact that firms almost never voluntarily adopt codetermination can be seen as evidence not that it is “inefficient,” but that it does meaningfully tilt the balance of power within the corporation toward labor, and this is why it is resisted by the owners of capital.

Another problem is that U.S. labor law, which has been defined since the 1930s by the National Labor Relations Act (NLRA), makes it difficult to “bring class struggle inside the firm,” as Gorton and Schmid put it. The NLRA explicitly forbids “company unions,” or labor organizations that have close ties to management, on the grounds that employers can use them to undermine the collective power of their workers. Some scholars have warned that this provision may create legal difficulties for any businesses that would try to adopt German-style codetermination. Warren’s ACA is silent on this issue. If it were ever enacted, it is possible that its opponents could use an existing law designed to protect workers’ rights in order to undermine a new one. 

 

One should not exaggerate the potential of codetermination, which has not put an end to all of Germany’s economic woes and will not put an end to all of ours. At a time when jobs that used to be handled in-house are now farmed out to independent contractors, codetermination may do little to help precarious workers who are technically not employed by the company for which they actually work.

Besides, under Warren’s plan it is only corporations with more than $1 billion in annual revenues that would be required to put employee representatives on their boards, so many workers would not even be covered. What will ultimately guarantee both a just distribution of goods and a just distribution of power in the workplace will be a mix of tools: greater cooperative ownership of small firms, strong unions negotiating employee stock ownership in midsized companies, outright public ownership of behemoths like Amazon. Unions in particular will continue to be key. As Seth Ackerman points out, a plan as bold as Warren’s ACA will never get anywhere without the backing of a revitalized labor movement. If there is a weakness in how the Catholic tradition has approached this subject, it is the unrealistic expectation that we can get from here to there through moral exhortation alone.

In the words of Fr. Gérard Dion:

Catholic social moralists all over the world are in agreement to favor various formulas, not to do away completely with the wage contract, but to modify it according to circumstances by elements borrowed from the partnership contract. They do not consider that this is a complete answer to all the social problems, a single cure, a panacea, but that it is a method which should be taken, along with many others, to reform our society.

In any case codetermination should not be assessed only in economic terms, but also in moral ones. The philosopher Elizabeth Anderson has decried the fact that many modern employers have effectively become “private governments,” exerting a level of control over the daily lives of their employees that would likely trigger outright revolution if even attempted by the actual government. We take for granted that political decisions ought to be arrived at democratically but that in offices and factories the boss is king.

To the extent that employer abuses like denying workers bathroom breaks or firing them for what they share on social media become issues of political concern, they are invariably treated as problems that can be dealt with only from without (through legislation, regulation, or unionization) rather than from within (by replacing capitalist management with worker control). The best we can hope for, it seems, is to contain the threat posed by concentrated economic power; we can hardly imagine it might be possible to redistribute that power from the inside. John XXIII’s talk of businesses becoming “true human communities” sounds downright ludicrous to late-capitalist ears.

But why should it? In many societies throughout human history, the notion that the average person could take part in deciding the future of his or her city or country has been considered equally absurd. Maybe if codetermination became a part of the corporate landscape in United States it would shift our conception of just how far democracy might extend. Bringing workers on board with the idea that democratic principles can govern not only their political communities but also their workplaces will not be easy, but putting them on boards would certainly be a good place to start. 

Published in the March 22, 2019 issue: 

Matt Mazewski is a Ph.D. student in economics at Columbia University and rapporteur of the University Seminar on Catholicism, Culture, and Modernity. You can follow him on Twitter at @mattmazewski.

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