I’m on my way to the University of Leicester to present at an event on economic democracy.
Reading Workplace Democratization by Paul Bernstein on the way, after meeting him last month, I learned of the astonishing story of the Czech shoe company Bat’a in the 1920s. The firm had suffered huge debts after being taken over during World War 1 by the Austro-Hungarian Army and from a dramatic warehouse fire one year after the war. By 1922, with high unemployment and inflation, the company did something different.
Rather than lay off workers and raise prices, as other firms were, Bat’a decided to cut the selling price of the product by almost half (46%) and to lower wages of all staff, including management, by 40%. To make the difference, the owner decided to cut internal costs and waste by turning over the firm to the workforce.
After a test with one production unit, the firm reorganised on the basis of self managed workshops. The price cut had caused a surge in sales, as people always need shoes even in a recession, and the new production model proved far more successful in meeting the new demand. One year on, Bat’a was able to cut prices again by 17% and to raise wages by 25%. The model of self administration was extended across all areas of the company, including accounting, sales, procurement.
By 1926, only four years after of the start of the plan, wages in the firm had risen on average by 44% while the average price of shoes to the customer had been cut by 40% beyond the initial price drop.
The key to this was a reorganisation based on what worked, with incentives flowing to those who helped to raise the production and quality of the shoes. The share of the profit of the workshops rose from 50% to 80% while central company operations now received only 20%.
Such was the success that the country passed legislation to make it easier to bring in employee self administration and ownership in the same decade, perhaps helping to explain a culture in which the Czech cooperative sector, from furniture to jewellery, is still one of the most admired worldwide.