Most large enterprises in the developed world are controlled by shareholders, who choose the board of directors and can therefore replace the firm's top management. But in a few firms, control rests with the employees, who have an analogous right to choose the board of directors and hire or fire top managers. Why is the first pattern so common and the second so rare? Economists have had surprising difficulty in framing a satisfactory answer to this seemingly straightforward question.

Because economists have no generally accepted explanation for the prevalence of capitalist firms, they lack a good explanation for the persistence of capitalism itself. They have also been obliged to remain largely silent on various contemporary policy debates. Should employees be represented on a firm's board of directors? Does it make sense to subsidize stock purchases by employees? Should governments encourage worker buyouts of closing plants or failing firms? Most economists could undoubtedly formulate opinions on these matters, but they would have trouble locating a systematic body of theoretical or empirical research with which to inform their opinions. With or without participation from economists, however, policy issues of this sort have become increasingly prominent across Europe and North America.

This book seeks to explain why investor-controlled firms are common and worker-controlled firms are rare. The answer is not as simple as the question, but one can develop a theoretical story that is logically coherent and accounts for a good deal of the empirical evidence.