Economic Democracy vs. Organizational Pluralism

Like social clubs, churches, and universities, businesses are voluntary associations organized around a particular goal, or what Oakeshott called “enterprise associations.” Businesses influence the work experience of most people in society, and the identities they cultivate form distinctive communities (these communities often raise outsiders’ eyebrows, as the recent New York Times piece on Amazon’s corporate culture illustrates). Like other civil society groups, businesses have an ambivalent relationship to the state that’s both rivalrous and complementary.

Analyzing the firm as an intermediate group brings useful insights from the study of civil society to the study of business. In particular, one question that can benefit is the relationship between employee’s economic freedom and membership in a business. Is joining a hierarchically-organized firm an exercise of a worker’s economic freedom, or a restriction of it? This question looks awfully similar to one in the study of intermediate groups–whether groups’ internal rules can ever restrict freedom.

Jacob Levy’s Rationalism, Pluralism, and Freedom distinguishes two approaches liberals might take to the question of freedom in intermediate groups. On the “pure” theory, group membership is not an infringement on members’ freedom because individuals freely waive their rights against the group by associating with it. The pure theory relies on the principle of volenti non fit injuria–no failure of consent, no crime. Because individuals freely constitute the group by waiving their rights, and because they are free to exit the group at any time, the group cannot violate their freedom. The second theory, what Levy calls the “congruence” theory, the same norms that apply to states apply to groups. Groups can violate their members’ freedom, and members thus require the same protections against groups as against states.

The parallel to the case of business should be clear. The “pure” theory parallels the view (especially among libertarians) is that businesses cannot violate employees’ freedom so long as the employee freely consents to work. By contrast, the “congruence” theory parallels the view of leftists and left-liberals that businesses should be organized as “economic democracies,” with substantial constraints on management.

Levy persuasively argues that the pure theory is inadequate, for several reasons: groups can create local monopolies that trap members, groups’ secondary rules can violate the rule of law, and groups can possess forms of authority that raise political questions. But the congruence theory also fails, because it does not take freedom of association seriously. As Levy notes, a liberal society is committed to protecting the right of persons to form groups with thicker rules than a liberal state allows for itself. Individuals should be free to waive certain rights against groups by joining them, such as the right to evangelize heterodox beliefs.

The general implication of reconceptualizing the place of the firm within debates about civil society and intermediate groups is that a single theory of the justly organized firm is unsustainable. Just as liberals have come to understand the pluralist principle that a liberal society contains a variety of organizations, not all of which organize along liberal democratic norms, so liberals should understand that this pluralism protects firms as well.

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