Three Themes About Democratic Enterprises: Capital Structure, Education, and Spin-Offs

30 Pages Posted: 26 Oct 2013

Date Written: October 24, 2013


The purpose of this paper is to delve into three side-arguments or themes about democratic enterprises (as opposed to considering first principles).

Approach: 1) The first theme is the question of capital structure where labor-managed firms are often pictured as having "horizon problem." Yet this is only a minor technical problem which is solved by the system of internal capital accounts as in the Mondragon cooperatives. 2) The second theme concerns the attempt to implement participative management and the related ideas of active learning in educational theory in the workplace. The point is that the democratic firm is the natural setting to implement these ideas, not the conventional firm where the staff have the legal role of "employees" rented by the company. 3) The third theme is the old canard the cooperatives are incompatible with entrepreneurship. My rethinking of the issue was inspired by the analysis of the late Jane Jacobs who emphasized that the primary means of growing economic "biomass" is through economic offspring (e.g., spin-offs) — in analogy with the biological principle of plentitude. Yet the conventional form of ownership operates as a fetter on this process since the ownership and management wants to expand its empire and maintain "ownership" of any potential offspring. But that constraint against spin-offs is absent in democratic firms, and the Mondragon complex has indeed illustrated how to catalyze this process of growth through offspring.

Social implications: A public policy to encourage all companies to grow by affiliated and perhaps democratic spin-offs would create more jobs (through filling extra niches) and more stability (through the agility of separate companies).

Keywords: capital accounts, participative management, spin-offs

JEL Classification: J54, L2, M13, P13

Suggested Citation

Ellerman, David, Three Themes About Democratic Enterprises: Capital Structure, Education, and Spin-Offs (October 24, 2013). Available at SSRN: or

David Ellerman (Contact Author)

University of Ljubljana ( email )

School of Social Science
Ljubljana, CA


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