Classical Liberalism and Workplace Democracy

This is a paper coauthored by Tej Gonza for the European Liberal Forum, the foundation associated with the Lib-Dem parties of the EU in the EU Parliament.

Classical liberalism has always emphasised the agency and empowerment of individuals to help themselves as opposed to government organisations ‘doing good things for people.’ The usual imagery is an individual acting as a ‘sovereign’ in the marketplace. But there is a tradition of democratic classical liberals, represented by Alexis de Tocqueville, John Stuart Mill, John Dewey, and James Buchanan, who have also emphasised the agency and empowerment of individuals in organisations such as the workplace. In an insider-owned organisation like a family firm or farm, there is a natural self-regarding incentive for social responsibility since people are inclined not to ‘foul their own nest.’ But much of modern industry is characterised by absentee ownership where the decision-makers do not face the adverse consequences of their decisions. Within the tradition of democratic classical liberalism, there is, however, the recurrent theme of employee ownership which restores the natural incentives for social responsibility. After outlining these arguments in the first part of the paper, we turn to the rather recent social invention in America of the Employee Stock Ownership Plan or ESOP that has proven an effective way to increase employee ownership (e.g. 10% of the private US workforce work in ESOPs). There is now a generic model of the ESOP that can be implemented in Europe or other private property market economies, which presents a complementary tool for succession or ownership change.

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