Labour Management and Commitment: Reply to Furubotn

When writing our contribution on the commitment problem, we contrasted the systems of capitalist management and of labour management in order to learn something about the comparative advantages and shortcomings of the two systems and to improve our understanding of both of them by noting their differences as well as their fundamental similarities. In particular, we got the impression that each of the two systems has its strong points as well as its particular drawbacks and one cannot claim superiority for one of them under all conceivable circumstances (Schlicht and v. Weizsacker [1977] p. 65). In his recent comment, Professor Furubotn has pointed out two additional difficulties of labour management which he deems so severe as to "make it possible to conclude that the emphasis on the "commitment mechanism" may not be appropriate" (Furubotn [1979] p. 217) and that /'something more than labour immobility is required to guarantee rational policy by the labourmanaged firm" (Furubotn [1979] p. 226). These difficulties are first: the possible irrationality of democratic decision-making within the firm; and second: the allocative inefficiency caused by labour immobility. We would like to comment very briefly on these two issues and will deal with the more fundamental points thereupon. With regard to the irrationality of democratic decisionmaking it is to be remarked that similar problems arise under many circumstances, and also within the very framework of the capitalist firm, e.g. at the stockholders meeting. These problems are very severe, no doubt, but they can be mitigated by various means, i.e. by a (written or unwritten) constitution or by representative democracy. It is very difficult to give precise recommendations here, but one can argue that an optimal form of organization might evolve from competition just in the same way as one thinks the specific features of the capitalist firm we encounter today have evolved as answers to specific problems Adam Smith has not dreamt of1 . Furthermore, democracy has its advantages too, which might be valued for the sake of their own, and might even translate into efficiency advantages if