Hierarchy, equality, or democracy: Examining the tradeoffs in the governance of economic organizations

This paper investigates the Standard Hierarchical View – the perspective that the only way to satisfactorily organize business entities in the modern world is through a hierarchical governance structure. Although this view is dominant across sociology, it is in need of serious revision. Whereas the Standard Hierarchical View assumes that there are only two fundamental possibilities for organizing economic enterprises – firms can be efficient-and-hierarchical or inefficient-and-egalitarian – we show that the universe of possibilities for organizing economic firms is better understood as a spectrum characterized by three ideal-types: conventional hierarchical firms, egalitarian collectives, and democratic worker cooperatives. In order to assess the pros and cons of democratizing the economy, the paper engages in a comprehensive evaluation of the performance of these three organizational types in terms of: productivity; survival; ability to grow and spread; innovation; ability to minimize domination; respect and dignity; distributive equality; job security; and job satisfaction. We find that both hierarchical firms and egalitarian collectives have major disadvantages (domination and inefficiency, respectively). Overall, the evidence suggests that the Standard Hierarchical View is wrong: worker cooperatives, though far from perfect, generally perform better than the other two possibilities in terms of avoiding their major pathologies. Democracy, not hierarchy, should be the default form of economic organization.