In the false dichotomy between the “neoliberal” free market and “communist” state socialism, modern critics of capitalism present a middle way based on common property: firms are owned by their workers, or even by their customers, and together they decide democratically the firm’s policies. Such democratic firms are expected to behave more responsibly with regard to society and the environment.

The idea is less far-fetched than it might seem. For decades, the Basque Mondragon conglomerate has served as the classic example of a democratically managed enterprise. I also know a private firm in The Netherlands of which the shares are owned by all employees, and where managerial positions rotate between staff. I don’t know whether such firms pursue structurally more social and green policies, but I don’t dismiss the possibility either.

Some champions of collective firms go further. In his book Ecoliberalisme, the Dutch teacher and writer Kees Klomp argues that an economy of collective enterprises can fully replace the free market. I’m not buying that.

In his essay I, Pencil, Leonard Read describes how even a simple object such as a pencil is the product of a complex process that brings together wood, lacquer, graphite, metal, and rubber. In the free market there is a market and a price for all these materials; under state socialism bureaucrats coordinate their production. If we exclude these two mechanisms, how does society decide how many pencils to produce and who will provide the necessary wood, graphite, and other materials?

Collective firms are particularly prominent in anarchist thought: especially during the Spanish civil war anarchists have experimented with collective factories. Let’s look at some of the alternatives put forward by prominent anarchists.

Mikhail Bakunin and Pierre-Joseph Proudhon proposed a central bank of commodity exchange that rewards every product with coupons representing the amount of labour to produce it. As far as I know it has never been applied in practice, but I wonder how one prevents some jerk from claiming months of work for the production of a leaky bucket that nobody wants.

Bakunin also speculated about agreements between worker collectives. This would mean that the workers of the collective pencil factory negotiate with the forestry and graphite collectives, who negotiate with the collectives producing axes and saws, and so on. Think about the complexity of our current economy and this model becomes a nightmarish forest of agreements and meetings.

Peter Kropotkin suggested to organise central depots where everybody could bring anything they wanted to contribute, and take anything they needed. The workers of the collective pencil factory would bring their pencils, and do their groceries at the food department where collective farms, again voluntarily, contributed their crops. I foresee a serious shortage of dentists and a surplus of mediocre paintings.

All in all, I don’t dismiss the possibility that democratic firms offer societal advantages, but when it comes to the overall coordination between any kind of firms, no system can connect demand and supply as efficiently as the free market.