Volume 3, No. I June 2000

A Postmodern Theory of Industrial Democracy

by
Omid Nodoushani
Southern Connecticut State University, USA
and
Patricia A. Nodoushani
University of Hartford, USA

This paper argues that the greatly increased emphasis in our civilization today on expanding one of the oldest and most basic values, the idea of democracy, has given the public an interest in wanting more participation in the decision-making processes that vitally affect their welfare. It is the thesis of this paper that an extension of participative decision making into capitalism could develop what is called a postmodern theory of industrial democracy. At the same time, such a theory redefines the discourse on empowerment.

INTRODUCTION

Management thinking is undergoing a profound transformation, a change caused by the global thirst for democracy. The new world order is driving our civilization toward an even greater upheaval-a unified global order. The wave of change is the beginning of a transition to remarkably different social order. This process carries an unprecedented move toward implementing democracy into the livelihood of humankind. The same forces, William Halal and Alexander Nikitin have noticed, are extending democracy into capitalism by developing participative relations with workers, clients, other firms, and government (Halal & Nikitin, 1990: 12).

Nowadays, for the expansion of capitalism, it has been said that democracy is necessary because the only system that can successfully cope with the changing demands of contemporary civilization in business as well as in government is the democratic system. Yet, despite universal acknowledgement of democracy, Philip Slater and Warren Bennis argue that we have a long way to go for fully implementing democracy into the corporate world because as some cynical observers have always been fond of pointing, business leaders who extol the virtues of democracy on ceremonial occasions would be the last to think applying them to their own organizations (Slater & Bennis, 1990: 167).

Indeed, to respond to such a challenge we are faced with a trend which advocates the implementation of democracy into the working structure of corporations since modern democracy and capitalism proceed from identical historical impulses (Novak, 1982: 14). To do so, the thinking goes, corporate America needs to introduce internal markets, a phenomenon that is often called Perestroika in the American corporations-a restructuring movement that should aim at a democratic organizational design for corporate America (Carroll, 1990: 16). Often the idea of Perestroika in many big firms means to reconsider the implementation of internal markets through the concept of profit centers (Halal, 1994: 69). The ultimate goal is to re-create within big corporations small entrepreneurial enterprises able to reap the advantages fostered by the market while minimizing risk, conflict, and other disadvantages (Halal, 1990: 45). Subject to minimal constraints, profit centers should have the freedom to buy any service or product they want from whatever source they want, and, to sell their outputs to whomever they want at whatever price they want or are willing to accept (Ackoff, 1993: 242).

On the other hand, we are left with an important discourse that we can call the industrial democracy discourse (Ackoff, 1994). This discourse aims at the social, political, environmental, and organizational challenges that corporate America has gone through since the 1960s, a phenomenon that Russell Ackoff has labeled as the role of business of business in a democratic society (Ackoff, 1990a: 341-342). In fact many advocates of industrial democracy argue that employee rights of participation in decision-making provides a profound challenge to traditional organizations of work (Hodson, 1996: 719).

In this respect, the industrial democracy discourse begins with the role of management in contemporary society. The emergence of management in every advanced country is associated with the development of a society of organizations. A service-oriented knowledge society organizes every major task, whether it be concerned with economic development, health care issues, education, the protection of the environment, the pursuit of new knowledge, or defense through big organizations. Such an historical transformation, in the meantime, means an institutionalization of democracy through a society of organizations resulting in a different form of class structure, one in which the professional salaried middle class has gained the new majority (Drucker, 1992b: 92).

Today, management as a profession has become the pervasive universal institution of modern society and there is as much management outside business as there is in business and maybe more (Drucker, 1987a: 13). The universal institutionalization of management through the rise of the corporation is what Peter Drucker has called "a post-business, post-capitalist, knowledge society" (Drucker, 1993). Characteristic of such a society is dependence on the knowledge and skills of professional groups. This means that the professional middle class is rapidly becoming the representative and most important group in business and in society. According to Drucker, the "knowledge society" is a society of large organizations-government and business-that necessarily operate on the flow of information. In this sense, as Drucker asserts, all advanced societies of the West have become "post-business or post-capitalist," with business no longer being the main avenue of advancement in society (Drucker, 1989: 23). In a knowledge society, Drucker argued, knowledge is the primary resource for individuals and for the economy overall. Moreover, the traditional economic factors such as land, labor, and capital have become secondary to the specialized knowledge which is organized through a blending of the corporation and democratic organizational structures (Drucker, 1992: 95).

THE RISE OF POSTMODERN CAPITALISM

To make a stronger case for the industrial democracy discourse some management researchers are also pointing out the postmodern condition and its impacts on capitalism. What is called postmodern capitalism still obeys the laws of classical capitalism, namely the primacy of industrial production and the omnipresence of class struggle. Moreover, postmodern capitalism manifests another stage in the evolution of capital-a pure stage highlighting a transition from market capitalism to monopoly capitalism and now toward a late or consumer capitalism (Jameson, 1984: 78).

All that is a product of the capital accumulation process, embracing a sea of change in the development of capitalism after the 1973-75 recession. Entering a period of difficult readjustment, sparked by low growth rates, high unemployment and inflation, as well as the breakdown of U. S. hegemony, capitalist restructuring has resulted in technological change, reorganization of production techniques, financial shake-ups, product innovation, and massive expansion into cultural and image production (Harvey, 1991: 66).

Amid all that, postmodern capitalism raises concern about a shift from an era of organized to disorganized capitalism (Lash and Urry, 1987). The contemporary social system has been transformed into a disorganized capitalism by three simultaneous processes: globalization of the economy, decentralization of managerial decision-making processes, and disintegration of the corporation, all of which have created a much broader set of changes that are taking place within Western Europe and North America (Urry, 1988: 33). Consequently, disorganized capitalism has witnessed the beginning of an erosion of the cultural foundations of the contemporary social system in contrast to an era of organized capitalism which began at the turn of the twentieth century and which entered into crisis in the 1960s and 1970s (Lash, 1987: 146-147).

In an era of disorganized capitalism, the production of social differences is the most pressing hallmark of the postmodern drift in economy. The high-tech revolution, time-space compression, and the effects of globalization of business are not only causing greater instability, but they are also producing a social condition in which the ability and means for people to define themselves differently from one another has dramatically increased (Brown, 1992: 388). In this respect, postmodern capitalism presents both the fears of greater divisiveness, fragmentation, insecurity, and turmoil, and, paradoxically, the opportunity for mobilizing greater democratic decision-making. Yet, this is a sea of change within the parameters of consumerism, profit-oriented growth, and wage-labor (Brown, 1991: 1101).

As a concept which addresses the end of an organized economy, postmodern capitalism is also clearly linked to the decline of economic modernity-that is, the notion that business activities can be unified around a single logic of organizational rationality devoted to industrial progress through the medium of "big business" (Daly, 1991: 87). The logic of economic modernity, as formulated by the meta-history of industrial manufacturing since 1800, nowadays has been eroded due to the end of the mass production era (K. Williams et. al., 1987: 409).

Culminating in a shift from mass production to flexible specialization, postmodern capitalism looks into a transition from "fordism" to "postfordism". The prevailing model of industrial efficiency for most of the 20th century, "fordism" is based on the mass production of homogeneous products, using the rigid technology of the assembly line with dedicated machines and standardized work routines. But, following the logic of economic scale, "fordism" works only if there is a mass market for standard goods. Yet, in a period of fragmenting and differentiated markets where firms produce for changing demands on a world scale and must respond to competitor's product innovations rapidly, mass production is more often than not a liability (Hirst and Zeitlin, 1989: 168).

In contrast, under flexible specialization or "postfordism", a combination of universal equipment and versatile workers can produce a wide and changing range of semi-customized goods while reducing the cost of differentiated products through economies of scope. Reiterating the call for the model of a flexible firm, "postfordism" is linked to a new form of artisan production made easily adaptable to the changing needs of the market (Hirst and Zeitlin, 1991: 2). In the meantime, the sweeping changes stemming from "postfordism" entail the functional disintegration of "fordist" big corporations into a plethora of smaller firms (Lash, 1991: 104).

But, the collapse of big business seems to be tied to an institutional crisis within the contemporary economy. As the central institution of modern economy, the disintegration of fordist big corporations will bring fundamental changes. Prior to the development of big business in the late 19th century, the economy was primarily dependent upon the price system to coordinate the market and maintain macroeconomic balance. With the rise of big business, the market has been increasingly controlled by the direct efforts of large enterprises as the central institution of modern capitalism (Piore, 1987: 26).

Embracing changes in the areas of consumption, work, and technology, the postmodern drift in capitalism reverses the role of big business through invigorating the institution of the almighty market and the increasing quest for industrial democracy. No wonder that the worldwide move toward privatization within the era of disorganized capitalism reaffirms that the postmodern method of allocation of scarce resources is based on the "laws" of laissez-faire rather than organizational rationality of big business along with the further implementation of workplace democracy (Oglivy, 1989: 21).

Replacing the visible hand of managerial capitalism with the invisible hand of the market and workplace democracy, disorganized capitalism also means "the second industrial divide". The second industrial divide primarily points to one kind of crisis, easily visible, and marked by the realization that giant corporations can no longer secure a workable match between the production and the consumption of goods. A turbulent situation which is neither temporary nor an aberration, the big corporation as a solution to the organizational problems created by the rise of mass production, is dismantling in favor of the strategy of craft production (Piore and Sable, 1984: 73). Most notably, the strategy of craft production claims to open up greater opportunities for small and "dynamic" firms. Replacing the notion of industrial dualism (i. e., big business vs. small firm), the strategy of craft production is drastically changing the role of small size firms because we are moving away from a situation where the small company was typically subordinated to the big company and largely operated at its direction (Piore and Sable, 1985: 36).

In doing so, a reversal of the logic of economic modernity takes place. Since the core of economic modernity is the idea that an increase in productivity depends on increasingly specialized use of resources, the logic of mass production relies upon an economy of size and scale as the price for industrial progress. Instead, the strategy of craft production relies upon an intimacy between the small firm and the market forces through the notion of craft (Sable and Zeitlin, 1985: 136). In this respect, the strategy of craft production becomes handy especially in the light of a long debated concern over the alienation of the workforce under the system of mass-production and an entrepreneurial explosion since the 1980s. To respond to both, postmodernism raises the possibility of the democratization of economy in an era of disorganized capitalism.

THE INDUSTRIAL DEMOCRACY DISCOURSE

How can postmodern capitalism be tied to the idea of industrial democracy? To answer this question we must go back to the failure of big firms in directly involving their employees in the general affairs of the organization-that is, the discourse on empowerment. No matter what type of short term solution is adopted by the big firms, in the long term, a sustainable productivity relies on the degree of employee participation in the corporation. Or, as Paul Blumberg once put it, the failure of the public corporation suggests that direct involvement of employees is essential if the meaning of work is to be changed (Blumberg, 1968: 4).

By "industrial democracy" or "workplace democracy" some researchers mean all substantial shift of power from management to employees insofar as worker participation in the decision-making process is concerned (Lane, 1985: 624). While more than any previous time, the language of industrial democracy is spoken by members of the business community and academia these days (Fraser, 1983: 99), and often the call for industrial democracy grows out of a concern about job dissatisfaction and alienation of both blue-collar and white-collar workers (Wrenn, 1982: 23). In a way, much of the corporate activity and experimentation in the area of work humanization relates to the call for industrial democracy and the paradox of enterprise authoritarianism operating within a formal democratic political system in the United States (Greenberg, 1980: 552).

Time and again, it has been said that democracy is inevitable because this is the only system that can successfully cope with the changing demands of contemporary civilization in business as well as in government. Despite universal acknowledgement of democracy, as Philip Slater and Warren Bennis have argued, we have a long way to go before democracy is fully implemented into the corporate world. While business leaders extol the virtues of democracy on ceremonial occasions, often they would be the last to think of applying them to their own organizations because of a peculiar attitude which claims that democracy is a nice way of life for nice people, yet a kind of expensive and inefficient luxury for managing an organization (Slater and Bennis, 1990: 167).

Traditionally, the democratization of business is linked to the question of corporate control or who has power within the corporation. There are three possible explanations for dealing with the question of corporate control. First, the theory of family control suggests that the large corporations are controlled by the members of upper-class families with large stockholdings in those corporations. Second, the theory of financial control presumes that the large corporations are controlled by large financial institutions through the combination of stockholdings and debtholdings. Third, the theory of management control maintains that the large corporations are controlled by the professional managers (Allen, 1978: 512-513).

Both the theory of family control and the theory of financial control treat the question of corporate control within the Marxist paradigm of "monopoly capitalism," which at best is satisfactory for the conditions of late the 19th century. Although the theory of management control became one of the most, if not the most, influential interpretations of the nature of 20th century capitalism (Ayala, 1989: 99), recent corporate restructuring has led some management researchers to claim that the present day revolt of corporate shareholders signifies that management's total control over the large corporations has come to an end (Useem, 1990: 701).

Due to the contemporary battle between shareholders and management, some management researchers also argue that corporate control should be placed within "the stakeholder theory of the firm." For the stakeholder theory of the firm advocates that decisions regarding corporate control should be made from the perspective of society. In this respect, the stakeholder theory of the firm links the question of corporate control to the role of business in a democratic society and the call for industrial democracy (Ackoff, 1990a: 341). Since the essential characteristic of democracy is the absence of an ultimate individual authority, the idea of industrial democracy aims at the implementation of democracy within the firm-among its parts, while the stakeholder theory of the firm emphasizes the link between the firm and the larger containing whole of which it is a part-society (Ackoff, 1990b: 431-432).

The inability to achieve a democratic system within the company often is attributed to the need for exercising authority from the top down due to the maxim of efficiency (Cochran, 1956: 43). Yet, the recent rise of the stakeholder approach suggests that managers more than ever need to enhance democratic citizenship of the corporation and its members and avoid the drift to authoritarianism because many have come to recognize that the fruits of capitalist enterprise should be distributed across society (Henzler, 1992: 60). As Robert Bellah and William Sullivan have argued, the tendency toward despotism inherent in a profit-oriented bureaucratic corporation could be muted at the "bargaining table of society" where wages, work conditions, everyday participation in decision-making processes, and corporate-community partnerships have all become subject to quasi-political negotiations between the firm and its various stakeholders (Bellah and Sullivan, 1981: 45).

At the same time, the stakeholder theory of the firm raises another important issue concerning the idea of industrial democracy-property rights and transferring control to employees. Often, the idea of industrial democracy is objected to on the grounds that it would violate the right of owners to use their property as they choose (Dahl, 1984: 54). However, if a right to property is understood in its fundamental moral sense as a right to acquire the personal resources necessary to political liberty and a decent existence, then the idea of industrial democracy could be easily justified through "the pension fund revolution."

The pension fund revolution is an "unseen" revolution that has transformed corporate ownership in the United States. The rise of pension funds as institutional investors controlling close to 40% of the common stock of America's large corporations and many midsize firms represents the most startling power shift in economic history. In a way, as Peter Drucker once noted, the pension fund revolution has created an alternative explanation to the traditional reasoning concerning industrial democracy (Drucker, 1976: 6). This power shift has led to an unnoted transformation in terms of ownership of corporate America through which employees have become the owners of America's means of production. But their ownership is exercised through a fairly small number of very large "trustees" known as the pension funds (Drucker, 1991a: 107).

The pension fund revolution demonstrates that the old relationship between the institutions of property and the individual has broken down. The specific reasons for this breakdown are too complex to describe in a short article but many researchers agree that the split of ownership from control in America's big business economy has also caused a shift from "private" to "corporate" ownership, which sociologically means a shift in the power structure of capitalism. In organizational terms, the pension fund revolution extends the democratic process of governance that capitalism has introduced beginning with the Age of Enlightenment. The hereditary basis of rule is no longer believed to be the source of legitimacy. As Talcott Parsons once argued, this has confronted the capitalistic business firm which traditionally is being ruled like a "petty monarchy" with the extension of democracy in a deeper sense. In this respect, the idea of industrial democracy advocates that the ultimate source of organizational authority must rest on a democratic basis (Parsons, 1957: 132).

As radical as the idea of industrial democracy may appear, recent events in the structure of our economy have pushed many corporate managers to rethink the maxim of democracy once again. We are today on the rising slope of a third technological revolution, the postindustrial economy requires passage from the plus-minus stage of innovation into the crucial period of diffusion in which a new challenge of productivity must be addressed (Bell, 1989: 164). No wonder that the single greatest challenge facing managers in the developed countries is to raise the productivity of knowledge and service workers (Drucker, 1991b: 69).

To address the new productivity challenge, some management researchers suggest that we need to overcome the dominant organizational structure which seems to be responsible for outdated practices. The idea of industrial democracy complies with a growing concern for the humanization of organization by bringing organizational objectives into accord with individual objectives and with giving members of organization a voice in its control (Ackoff, 1972: 12). Organization theorists Russell Ackoff, Peter Drucker, Chris Argyris, Warren Bennis, and Daniel Bell have been suggesting the need for a more free-form, humanistic, and democratic organization that provides greater scope for personal fulfillment as well as productivity. The new information-based organization of the postindustrial economy requires clear, simple, common objectives that translate into actions by a self-disciplined and responsible workforce (Drucker, 1988: 47).

The key to such a system is in decentralizing the organization into autonomous units which are capable of doing research, development, manufacturing, and marketing. Facilitating a shift, the information-based organization of the knowledge specialists introduces innovation through an organized entrepreneurship and by implementing industrial democracy. Indeed, such a transition from command-and-control autocracy to a circular information-based democracy, enhances an organization's readiness, willingness, and ability to change (Ackoff, 1989: 11). In this respect, a circular organizational design make it possible for the discipline of innovation to embrace the highest form of ethical-moral judgment: a democratic decision-making process (Ackoff, 1987: 187).

Since in a democratic decision-making the way a choice is made is critical, the design of an effective process of facilitating participation requires understanding of the systemic characteristic of an enterprise. Put another way, the idea of industrial democracy refutes the myth of entrepreneurial hero in favor of an organized entrepreneurship because the performance of an enterprise is never equal to the sum of the performances of its parts taken separately; it is the product of their interactions (Ackoff, 1985: 28).

All that, says Drucker, represents a unique historical opportunity in order to restore the legitimacy of corporation because this is a system of ownership interest which a democratic society will accept as legitimate (Drucker, 1976: 20). In so doing, the question of corporate legitimacy is twofold in nature. There is the internal issue of the mode of governance of the corporation, i. e. the basis of the authority of managers to make decisions, and the external issue of legitimacy that deals with the relationship between the corporation and other participants in society.

CONCLUSION

In this paper we have focused on the United States experience in discussing how an interest in the theory of industrial democracy should be linked to some fundamental theoretical issues concerning the function of the corporation and management, the changed nature of capitalism, and a new social system centered around the professional middle class. Although no one can deny the existence of national as well as regional differences when one speaks of these issues, we believe that these universal attributes prevail everywhere and particularly the idea of industrial democracy. The wealthy industrialized nations that are often called the triad market (U. S.A., Canada, Europe, and Japan) share much in common in terms of their institutions of livelihood and citizenship.

The quest for industrial democracy for the advanced economies of our civilization is a tangible factor which has historical roots in their social systems. In the developing economies of the world, the quest for industrial democracy could act as a categorical imperative (a central value) which should guide further expansion of capitalism. In a word, the field of comparative international management could use the guiding principle of industrial democracy for its future studies of both developed and less developed economies of the world where no exception would be granted on the basis of cultural, social, or political diversity.

In conclusion, this paper argues that the idea of industrial democracy may be the locus for emerging knowledge society and the subsequent structural chages within big firms in the global economy. Given the rise of a new technological reality, more than ever before, many big firms are forced to push for a decentralized power structure in which their knowledge specialists are encouraged to participate within a circular democratic organizational order. In a post-capitalist workplace, the professional workforce require little direct supervision from managers and more participation in the decision-making processes (Mintzberg, 1998: 141).

Furthermore, the discourse on industrial democracy enhances empowerment of employees in the light of fundamental changes within the structure of contemporary economy, due to the pension fund revolution and its profound impacts on the polity of a democratic society (Argyris, 1998: 98). By answering this challenge we can settle accounts with an emerging discourse concerning what scholars in different countries and disciplines have called the post-modern, post-fordist, or even post-industrial capitalism (Harrison, 1990: 8).

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