Does the Firm Hire the Workers, or Do the Workers Hire the Firm?

Here is a brilliant post by Steven Landsburg. Even more brilliant is how he distills his point down into a few short lines in the comments:

When labor and management work together to produce an outcome, you can say that the labor hired the management or you can say that the management hired the labor. The fundamental arrangement remains the same regardless of what words we use to describe it.

I love this. Suppose we started out in a socialist utopia. Independent, self-employed artisans selling their wares to willing customers, who are themselves all self-employed artisans. This wouldn't last long. Some of them would realize they'd be more prosperous if they banded together and realized the efficiencies of division of labor. Before long, they'd realize they could hire some highly skilled managers to organize this division of labor. A highly skilled boss with a grand vision for enhanced productivity, plus a track record of delivering on his promises, would make them all much richer. They'd have to pay him a cut of their sales, but with the added revenue gained through organizational efficiency it would be easy to finance this payment.

It's easy to see the world as it is and take it far too literally. "The pizza place 'sets a price' and the customer buys at that price." Well, the price is very much constrained by competition. The pizza place can't just set any old price. It must be within a narrow range such that they'll actually sell some pizzas (not too high) and still cover their operating costs (not too low). Likewise the relationship between employer and employee looks superficially like a power relationship. "The employer offers the worker a salary, hires him, then tells him what to do." It looks to the casual observer like the employer is calling all the shots, but really the salary and working conditions are the result of a delicate balancing act and a series of negotiations of the terms. (This negotiation is sometimes explicit, sometimes implicit.) Employers are paranoid about losing their best employees, and employees are always leaving for better jobs at other companies. They have the power to unilaterally end the relationship if the employer is too abusive or simply not generous enough. If you can only directly observe your world and literally interpret what you see, you might think that businesses and employers set the terms of exchange and tell the customers and employees to "take it or leave it." But if you could also peer into the alternate universe, with initial conditions set to "independent artisans" and watch it break down, you might end up thinking, "Apparently labor and management come together to produce a product in any conceivable reality. No one's really calling the shots, because a similar equilibrium is reached regardless of who initially 'hires' whom."

Think of a stable of professional mixed martial arts fighters. Is the head coach "hiring" these fighters and bossing them around with grueling training regimens? Or are the fighters "hiring" the head coach, paying him for the use of his gym, access to his expertise, access to other top fighters and other coaching staff, and the "brand" of being with a top-notch stable? You can view the head coach as hiring the fighters or the fighters as hiring the head coach, but the reality is that fighter and coach come together to produce a product. (That being exciting MMA competitions.) You may look at the details of these arrangements and say, "In the real world, the fighter almost always approaches the stable and offers them a percentage of each purse," or "The stable almost always scouts out the talented fighters and extends them a deal to train with the stable for a percentage of each purse." The actual details of the arrangement are irrelevant. People are coming together to jointly produce a product and share the revenue they generate together.