Chapter 2: The sociology and economics of worker cooperatives

[For the original footnotes, see the PDF file.]

The first question we have to answer is how to define a worker cooperative. Numerous definitions have been offered, all of which share the same intuitions about democratic ownership and control. Here is Derek Jones’s definition:

…an autonomous enterprise in which (a) many workers (or members) own stock, (b) ownership is widely distributed among the workers, who own much of the voting stock, (c) working-members participate in the enterprise’s management and control, and (d) they share in the distribution of the surplus, usually on the basis of work [rather than stock ownership].

Like most commentators, he distinguishes cooperatives from mere employee-owned firms, for instance those that have ESOPs, which do not require employee participation in their management.

As stated in the Introduction, the conceptual starting-point of the worker co-op is that labor has power over capital, whereas it is the reverse in a conventional business. That is, in a capitalist enterprise both ownership and control (and the right to a share in profits) ultimately belong to investors, and voting rights are proportionate to the number of shares of equity held. The more capital one owns, the more control one is supposed to have over the operations of the firm. In the co-op, control is not directly related to ownership: the principle is “one worker, one vote,” not “one share, one vote.” Moreover, all or the majority of shares—if stock exists at all—are owned by workers, not outsiders. Otherwise there would be the danger that investors could acquire all the power, which would lead to the business’s degeneration into a capitalist firm.

In a traditional business, the only consideration that really matters is the accumulation of profit. All else is subordinated to this goal. In a co-op, the dominant consideration is whatever the workforce wants it to be, for example the maintenance of steady employment, service to the community, or the accumulation of profit (to be allocated as the members decide). We’ll see below that, as a rule, workers prefer the continued employment of as much of the workforce as possible to the retention of high revenues, which in hard times means that they accept pay cuts in order to avoid layoffs.

The typical governance structure of a cooperative follows from what has been said. In large cooperatives, a board of directors, drawn from the ranks of the worker-members themselves, is elected by the workforce and managers are appointed by the directors (or sometimes elected directly by workers). Both directors and managers, therefore, have an incentive to treat “employees” well and respect at least some of their priorities, since if they don’t, they might be voted out of their position. Small co-ops, on the other hand, have little “governance structure” at all: they tend to operate by (near-)consensus and have no need of managers or directors. Occasionally there is a nominal “board of directors” for minor decisions or for administrative matters with which other members do not want to concern themselves.

Already, a major reason for the rarity of worker co-ops is evident: investors have a greater incentive to invest in firms that give capital control over labor rather than vice versa. Hence, it will frequently be the case that people cannot raise enough capital to get a cooperative started or to keep it functioning. Investors’ interest is in the extraction of maximum profit regardless of the will of the workers; indeed, the interest of the latter, as employees, is directly opposed to the interest of capital, since profit is inversely proportional to wages. Investors will therefore be reluctant to deposit their funds in a firm that gives control to its workers, who do not value the maximization of profit above all else.

At the same time, cooperatives are motivated, as I said, not to seek large amounts of outside investment, since then it might be difficult to prevent control from effectively falling into the hands of these investors, an eventuality that could lead to the erosion of the firm’s commitment to democratic ideals. The usual practice among co-ops is to rely primarily on initial investments in the firm by its worker-members (who thereby gain a share in ownership), in conjunction with loans from cooperative banks or other institutions ideologically committed to cooperativism. But it remains true, for the reasons mentioned and others to be examined below, that raising sufficient capital is one of the biggest obstacles to the spread of worker cooperatives—and, as a corollary, that cooperatives have preponderated in non-capital-intensive industries.

However, let’s consider these questions and others in more detail, drawing upon the scholarly literature. I will discuss small cooperatives, sometimes called “collectives,” first, since they are the most numerous.

Collectives

Organizational structure

Collectives approach most closely the participatory democratic ideal of cooperation. Being of fewer than, say, 40 people, often as few as 15 or less, there is a minimum of bureaucracy and a maximum of collective decision-making. The values of decentralization, spontaneity rather than bureaucracy, freedom and self-initiative rather than external imposition of rules, are the guiding lights. In a sense, the structure of collectives can be seen as the ideal that larger cooperatives try to approximate insofar as they are committed to cooperativism.

As already noted, the collectivist form of governance is directly democratic and usually consensual. Major decisions, and often minor ones, are approved of in meetings attended by all the members; the goal is to hammer out a policy on which everyone agrees. What makes this consensual decision-making possible, of course, is the small size of the collective. As one author states, “The face-to-face relationships and directly democratic forms that characterize the collectivist organization probably cannot be maintained if the organization grows beyond a certain size.” There is no absolute optimal size of cooperatives, though, since the proper size varies with the nature of the work and the technology available. Perhaps Jean-Jacques Rousseau’s criterion, suggested in The Social Contract, is best: “each citizen [must] with ease know all the rest.” One writer states bluntly that “democracy is inversely proportional to the size of the cooperative,” and he advises that co-ops not exceed a size compatible with a general meeting of the members.

For example, in the 1980s the small size (around 25 members) of the Cheese Board, a collective in San Francisco that was and is the leading cheese store in the area, made possible a largely consensual approach to decision-making, with no formally acknowledged “leaders.” Any leadership was informal, based on personality and perceived commitment to the co-op. As Robert Jackall noted in his 1983 case-study, when major matters had to be decided upon, “such as the long-term disposal of the growing surplus funds,” a consensus was required at one of the monthly meetings. For minor matters, though, a simple majority vote sufficed--or decisions could be made by the shift at the time that an issue arises. Achieving consensus was difficult and time-consuming, sometimes requiring many meetings over many months, as when the business decided to post a sign publicly proclaiming its status as a collective. This is one of the reasons why a constant practicing of direct democracy, especially of the consensual sort, is not feasible in large organizations; it would take too long to reach and implement decisions on even minor issues. Representative democracy and a degree of bureaucracy, i.e., of the centralization of power, become essential to getting things done in a timely manner.

(In fact, now that the Cheese Board has expanded to 50 members who also run a bakery and a pizza business, the old requirement of consensus has been partially abandoned. The new rule is that a kind of “modified consensus” is necessary for important decisions: members try to reach agreement, but if they can’t, a near-consensus suffices.)

So, the first constraint on democracy is size—of the business and of its market. Equal Exchange, a workers’ co-op in Massachusetts with over 100 members that did $51,046,000 worth of business in 2012, necessarily has more bureaucracy, more specialized jobs (including customer service, media outreach, etc.), and less democracy than Collective Copies, a copying center with 12 members in Western Massachusetts. The second constraint, mentioned already, is time. “Quite simply, a boss can hand down a bureaucratic order in a fraction of the time it would take a group to decide the issue democratically.” On the other hand, in the latter case the policy might be implemented more effectively, since workers presumably would be more committed to it. Indeed, ironically, the much-maligned inefficiency of bureaucracies is due in large part to their undemocratic nature, their inflexible, impersonal, atomized, uncommunicative, unaccountable, unresponsive-to-unforeseen-contingencies structure. As Michael Crozier says, “A bureaucratic organization is an organization that cannot correct its behavior by learning from its errors.” This is because in centralized organizations, change can come only from the top—but at the top are people who usually do not learn of “errors” at the bottom at all. Information does not flow efficiently: bureaucrats are isolated from the consequences of their actions and cannot see the broader picture, due to the atomized and diffuse nature of the organization, with each official performing a specialized function and no other, always waiting for dictates from on high in lieu of taking initiative. These failures, and others, of bureaucracy do not apply to democracy.

A third constraint on democracy in worker co-ops is environmental: larger structures in the society have inculcated behavior patterns of submission to authority, competition in the workplace, conformism, and passive atomization rather than active participation in decision-making. One finds in the scholarship descriptions of cooperators who simply do not have the desire to participate in the governance of the firm, who want only to get their paycheck and not deal with the challenges of deciding policy. This is one origin of the old elitist accusation that “the masses” want to be subordinate, that they have neither the capacity nor the inclination to exercise democratic self-control. However, as one sociologist concludes, “We learn to participate by participating… The experience of a participatory authority structure might be effective in diminishing tendencies toward non-democratic attitudes in the individual.” To say it in a different way:

If one accepts the assumption [that certain people “are not ripe for freedom”], freedom will never be achieved; for one cannot arrive at the maturity for freedom without having already acquired it; one must be free to learn how to make use of one’s powers freely and usefully…

As Kant goes on to say, the first gropings toward freedom and democracy by a people not used to it may be clumsy or ineffectual—especially if the experiments in freedom (such as worker cooperatives) are situated in a still-unfree society. Actually, a lack of involvement by some worker-owners in the affairs of governance is less a problem in collectives than in larger cooperatives. But the point holds: the cooperative’s structure and the expectations or pressures that go along with it are in tension with those of the broader society, and this fact can undermine the co-op’s smooth democratic functioning inasmuch, for example, as lazy and undemocratic attitudes have to be overcome, and individuals with competitive or authoritarian personalities have to be persuaded to soften their behavior.

One way to avoid these sorts of problems is to be selective in admitting new members. And collectives often are very selective indeed. The Arizmendi Bakery in Oakland, California is an example:

We watch how [prospective members] work and how they take feedback. We bring people in for twelve hours over several weeks. They shadow someone and try out different tasks and we evaluate them. Then we bring them in for a group interview. If we really connect with them, then we bring them on for a six-month trial candidacy. We train them on specific shifts, and they go to meetings related to the history and other ideas that are important for understanding the collective.

By the end of six months, there will have been three different evaluations, which are pretty intense. We give them constructive feedback, time for them to voice their concerns, feedback from their sponsor, who has been working alongside them. Then it goes to a full vote and the candidate has to get a 75 percent positive vote to be invited in.

Joyce Rothschild and J. Whitt go so far as to say that “consensus, an essential component of collectivist decision-making, may require from the outset substantial homogeneity among members. Participants must bring to the process similar life experiences, outlooks and values if they are to arrive at agreements.” To an extent this is obviously true, and the rigorous screening process at Arizmendi testifies to it. But the criterion of homogeneity can surely be overemphasized. For example, Red Sun Press, a printing-and-design cooperative in south Boston with ten worker-owners, has had a very heterogeneous workforce since its founding in 1973: young and middle-aged, highly educated and less educated, countercultural and mainstream, middle-class and working-class, whites and Hispanics. This fact has not prevented the business from lasting forty years and being financially successful.

Another factor that can interfere with participatory structures is the sheer exhaustion and stress that can accompany the fusion of “employer” and “employee” roles. This is exacerbated by the fact that cooperators, especially collectivists, sometimes receive less pay than their counterparts in conventional businesses. “Burnout” can set in: “the experience of feeling constantly overworked, of having too much responsibility and not enough organizational support to carry it out, of never having enough free time for personal pursuits, of constantly being hassled, of, in one worker’s phrase, ‘losing your soul.’” Similarly, in a directly democratic environment, where consensus may be required, interpersonal tensions are prone to flaring up. Disagreements can become personal, and general meetings can be quite stressful. Bureaucracy, therefore, is in some ways easier than democracy: the impersonal environment, the not-having-to-treat-people-as-people, can reduce the potential for emotional conflicts.

Again, though, qualifications are necessary. A member of Red Sun Press, in Boston, observed in an interview with the author that, contrary to what one reads in much of the scholarly literature, working in a co-op is not significantly more stressful than working at a traditional business. “In a conventional workplace,” she says, “some of the stress comes from having little power over your working conditions and business decisions. In a co-op, some of the stress comes from having the power—then you are responsible for what happens! Ultimately, having the power is the option I would choose.” Most cooperators, and probably most people, would agree with her.

Studies in the 1980s and earlier emphasized another manifestation of the collectivist commitment to egalitarianism: “deprofessionalization,” or the avoidance of professional specialization due to its bureaucratic, stratifying implications. “In the smaller worker cooperatives,” writes one author, “work roles are holistic, specialized knowledge is demystified, and there is frequent task sharing and job rotation.” The practice of job rotation (or, in a less extreme form, simply having the option to change one’s job) was in part a legacy of the radical origins of the 1960s’ and ’70s’ wave of collectives, but it also arose, and continues to arise, from the very nature of small-scale cooperative work. People working in a business often get bored with their routine and want to learn something new. This diversification of their skill-set, in fact, may be intimately connected to their sense of self-worth: the more routinized, bureaucratized, bored and detached from one’s activities one is, the less self-esteem one has. Humans crave new challenges periodically, and a life or a job bereft of challenges or opportunities for growth is a terrible thing. In capitalist businesses, where most employees have far less input than management in the firm’s operations, the desire for stimulating novelty is subordinated to the bottom-line. In collectives, by contrast, workers often give themselves the opportunity to change their roles, to learn new tasks.

For example, Robert Jackall notes that at the Cheese Board it was possible during the 1980s to switch jobs occasionally if one had enough initiative. Certain tasks were considered attractive, such as baking bread in the morning, and one could “win” these jobs at least temporarily if his coworkers respected his contributions to the store—in other words, if he “deserved” the job. In fact, a similar tradition continues today. It requires self-initiative, but the opportunity is there.

However, such deprofessionalization is not possible in all industries. Sometimes expertise is essential for efficiency, as in the printing-and-design and other high-tech industries. In these cases, job rotation is rare. What does happen, though, is that workers change their jobs if they so desire: e.g., at Red Sun Press, Nancy Nichols was the salesperson for seven years, then became the production manager, then did customer service, and now is the business manager. Still, to the extent that expertise in specialized tasks has become increasingly important in recent decades, deprofessionalization has declined. Similarly, the larger a cooperative is, the more difficult it is to organize job rotations, just as it is more difficult to institutionalize democracy.

Wages and employment

One of the ways in which cooperatives rectify the injustices of capitalism is by instituting a relatively equal compensation-scheme for their members. While in the U.S. the average ratio of CEO compensation in the Fortune 500 companies to the ordinary worker’s has recently been reported as 344:1, in co-ops the pay-differential between management and the average worker rarely exceeds 4:1. In collectives, like the Cheese Board, everyone is usually paid the same amount.

For example, a British study from the 1980s reports that all of the dozens of small co-ops it researched had lower pay-differentials than conventional businesses, and most had little or no differential at all. At Arizmendi Bakery everyone currently receives about 20 dollars an hour plus a percentage of the year’s profits. The worker-owners of Mondragon Bookstore and Coffeehouse in Canada earn the same rate of pay. At Equal Exchange, a relatively large co-op, there is a 4:1 pay ratio.

On the other hand, collectivists sometimes earn less than their counterparts in private enterprises. One study reports that at a cooperatively run newspaper called the Community News, which had a full-time staff of about 15 people, staffers made between 18 and 25 percent of what they could have made at comparable but “established” journalism jobs. Some workers in fact were paid nothing at certain times, while working a 40- to 60-hour week. At another co-op studied, a medical clinic, some staffers made about 50 percent of what they could have earned at other nursing or counseling jobs for which they were qualified. Volunteers also made up a significant portion of the staff. On the other hand, because of the substantial equality in salaries, such workers as secretaries often earned as much as their ‘capitalist’ counterparts.

Against examples of low pay must be set small co-ops like Home Green Home Natural Cleaning in San Francisco, which was established in 2009 to give employment and decent wages to low-income Latinas. In addition to the 50 to 100 percent higher earnings the women make at their new job than earlier, they have health insurance now and work in healthier environments, where the cleaning chemicals are not as toxic as in many conventional cleaning companies. A study reports that the worker-owners of another such co-op in California, called Natural Home Cleaning (started in 2003), have tripled their personal income and enjoyed an increase of 70 percent in their household income since they joined the cooperative. In some cooperatives wages might be low but because workers are owners they receive a share of annual profits, which, combined with benefits, often raises their income to above the level at comparable private firms.

The reason for the sometimes-low pay-levels of collectives is not too obscure: it is due to undercapitalization, which means that small cooperatives “sometimes generate little surplus to distribute among their members.” Especially in the early days of a cooperative, the lack of external capital might mean that wage-levels have to be kept low in order to capitalize the business. And in times of recession, cooperators usually choose to lower their wages if the alternative is to lay off members, which they are always extraordinarily reluctant to do. In conventional firms, by contrast, wages are “sticky,” hard to change; management typically chooses to lay off employees and let the remaining ones keep an income that is perhaps higher than that of the cooperators who have voted to cut their own wages. Thus, as one recent study sums up, cooperatives of whatever size tend to have more volatile wages than conventional businesses and less volatile employment.

These facts, of course, merely confirm what common sense would suggest. First of all, members of cooperatives tend to see themselves as part of a community of worker-owners, and they respect each other as belonging to this community. It is reported universally in the literature that the prospect of laying off or firing fellow workers is extremely painful. This is especially so in collectives, where the communities are tightly knit and people develop bonds of friendship with each other. Even in situations where close friendships do not develop, there usually remains mutual respect and a sense of obligation to each other—a sense of “we’re in this thing together.” In fact, historically one of the most important goals and functions of cooperatives has been “to provide employment security or to expand the employment base for the local population.” This was a key reason for the establishment of both the famous plywood co-ops discussed below and Mondragon, as well as the green cleaning cooperatives in San Francisco and the Evergreen cooperatives in Ohio (see the next chapter). Therefore, to lay off workers, even the least productive ones, during hard times would flagrantly violate not only the democratic, humanistic spirit of cooperativism but also one of its main economic functions in a society of employment insecurity.

In short, there is no question that cooperatives, even collectives, have potential for alleviating unemployment, and that this function is typically seen to take precedence over that of securing high wages—although the two are by no means always mutually exclusive.

Incentives, job satisfaction, productivity, and “the political effects of participation”

It should be obvious by now that a different set of incentives tends to operate in small cooperatives than in conventional businesses. Whereas the latter are typically structured primarily around the desire to make more money and get promotions faster than one’s coworkers, the internal dynamics of the former have more to do with interpersonal relationships, the desire to feel good about one’s work, the goal of maintaining a democratic workplace, and so on. Workers tend to have different expectations and want different kinds of rewards than they would hope for in a capitalist firm.

This is particularly true of collectives. As already stated, these are both the most numerous co-ops and, in general, the least remunerative: sometimes workers are egregiously underpaid compared to their counterparts in capitalist firms. But, as with all things cooperative, this is partly by choice. People choose to remain in a collective, they accept low pay in part because they value other things more than money. Study after study demonstrates that collectivists want most of all to be in control of their work, and that they find nothing more miserable than working in a bureaucratic setting with a boss who orders them around. The following statements are illustrative:

“You get a different feeling, working for yourself…” “You’re working more hours but you get more enjoyment…it’s your own.” “There must be many people who, like us, have been driven half-insane by the dehumanizing straitjacket of the orthodox working world and yearned to be part of something better, more fulfilling.” “There’s some scope for personal creativity.” “Not having someone who does not know the job telling you what to do…” “I believe now in my capability of being something. I’ve always felt impotent before about getting things done in the world. I believe I could start a business of my own if I wanted to. I’ve gotten practical knowledge and a sense of self as well that I couldn’t conceive of before.” “Every year I become a little more confident of myself as someone who counts.”

Having control over work is not the only benefit. Closely related to it is the satisfaction of believing in one’s work and lifestyle, being convinced of its moral worth. This is especially the case if the co-op exists in part to serve a broader social movement, whether it be through printing leftist literature, as Red Sun Press does, or through promoting knowledge of whole foods, as some food cooperatives do. Such ‘moral’ orientations may serve the same function of raising self-esteem as does the opportunity to control the actual work process.

Collectivists are usually, though not always, liberal, educated, young, middle-class, and white. There are many exceptions, but on the whole this seems, for now, to be the demographic most attracted to the collectivist experience. “The [potentially] low salaries and erratic uncertain career paths [of collectivists] exclude, by self-selection, most minorities and all but a handful of those from working-class origins.” Many of these young cooperators move on to more conventional jobs after a few years in a collective, desiring more money, new outlets for their ambition, and perhaps less labor-intensive, time-consuming work. But it is not uncommon to find middle-aged workers in collectives.

It is true that the sometimes-low pay can be considered a substantial cost, one of the most negative aspects of the collective experience. Tiredness due to long hours is also a common complaint, especially from workers who are very active in the business and feel that they are taking on an undue share of the burden. Resentment can arise toward less active members who are perceived as “free-riding.” On the other hand, the more active one is, the more influence one has and respect one commands—as long as other workers do not perceive one as domineering or undemocratic. As mentioned above, collectives tend to be more susceptible to interpersonal conflict than conventional businesses are, due to their open, democratic, personalized structure.

None of these costs, however, is irremediable. Wages usually get higher, sometimes to union levels or above, after the co-op has been in business for a while and has accumulated experience and expertise; it is in the early stages or during difficult times that wages are lowest. The other problems can be mitigated simply by communicating with other members, airing grievances during meetings and strategizing about how to deal with them. Most cooperators report that meetings can be confrontational, stressful, sometimes traumatic, intensely personal, excessively long; but in principle it is through the mechanism of periodic general meetings that the pitfalls of cooperation can be overcome, or at least mitigated so that the benefits of cooperation decidedly outweigh the costs (as almost all cooperators report that they do). It must also be emphasized, again, that strong bonds frequently develop between cooperators, indeed partly because of the relatively intense and sometimes difficult nature of the work. Apologists for capitalism point to this existence of conflict as a flaw, but in fact it ought to be considered a strength. For one thing, it indicates that workers are personally committed to their work, unlike in many private enterprises. Overt conflict (when it exists) is also more psychologically healthy than suppressed conflict, and it is more ethical, in that it results from adults’ treating each other as adults, with dignity. They confront their problems and try to solve them, which means they act as human beings rather than bureaucratic automatons who treat each other impersonally.

One source of “alienation” in conventional enterprises that cannot always be rectified in cooperatives is the intrinsically unpleasant nature of certain kinds of work. No matter what the social relations are, whether cooperative or competitive, sewing, for example, is not particularly fun. “It’s hard work…you have to concentrate, you can’t just gossip away and it can be boring,” reports one worker. Printing may involve “toxic chemicals, noise, oil vapor, carcinogens.” The industrial work of the old plywood co-ops is inherently monotonous: “It’s like being a zombie… You’re doing something that’s basically unpleasant. Most jobs are monotony and repetition. It can drive you nuts… I go through times when I get so depressed.” Even Karl Marx conceded that some kinds of work are inherently antithetical to freedom, the spontaneous creative expression of the human spirit:

…In fact, the realm of freedom actually begins only where labour which is determined by necessity and mundane considerations ceases; thus in the very nature of things it lies beyond the sphere of actual material production… [The realm of material production] remains a realm of necessity. Beyond it begins that development of human energy which is an end in itself, the true realm of freedom, which, however, can blossom forth only with this realm of necessity as its basis. The shortening of the working-day is its basic prerequisite.

Marx may even have exaggerated here the intrinsically alienating features of material work. But his broader point is correct: some activities will never, no matter how they’re organized, be the sort of thing one chooses to do for their own sake. This is one of the reasons why some collectives practice job rotation.

A problem that may afflict collectives, and to an extent larger co-ops, but does not affect private enterprises is conflict over goals. Workers have to decide whether their main objective is to have high wages, to provide employment to as many people as possible, to provide a cheap service to political and community groups, to grow as a business and spawn new co-ops, or any other objective to which some members may be committed. The potential for strife here is great. Moreover, even if the members reach a consensus on how to prioritize objectives, there remain external constraints on cooperative goals and values, such as the need to be efficient and competitive against conventional businesses that may not have the same problems with capitalization as co-ops do. This necessity is less constraining the more “marginal” a cooperative is—for example if it serves a niche market where there is not much competition from other firms—but co-ops will always have to act like a capitalist business to some extent, just to stay afloat.

Actually, labor productivity is usually higher in cooperatives than in conventional enterprises, for obvious reasons. I will return to this issue in the section on larger cooperatives; suffice it to say for now that cooperators have greater incentives to be productive than typical employees do. For one thing, worker-owners can directly appropriate, or do as they want with, profits, whereas in capitalist firms profits usually go to outside investors. Thus, the connection between the success of the capitalist business and the employee’s personal gain is not as direct as it is in a co-op. Cooperators will also exert peer pressure on one another to perform well, and the relatively high camaraderie present in the work process will have a productivity-boosting effect. The work itself, as stated above, is more intrinsically rewarding and self-actualizing, especially in collectives, and the democratic environment, which allows access to information that would be withheld from conventional employees, is empowering. Cooperators are not always more productive than regular employees, but the incentives for high productivity are great.

Another argument sometimes made by leftists in favor of cooperativism is that it encourages class-consciousness, participation in politics and social movements, and in general fosters a “proactive” transformation of individual character. The hope is that cooperators will carry over their work practices (insofar as they involve participation and engagement) into the outside world, and that the co-op itself might join and support progressive movements. Unfortunately, the data are mixed. With regard to collectives, few generalizations can safely be made. It is true that most collectivists report that their experiences have raised their self-esteem—especially if they used to work at a traditional company—and they certainly enjoy work more than most employees do. It has not been conclusively established, however, that membership in a collective inherently raises political consciousness or encourages political activity. While it is likely that collectivists have had a higher rate of political participation than the population as a whole, that is partly because the sort of people who join small co-ops are more likely to have a liberal activist’s temperament and values. Also, many such co-ops are explicitly political, such as radical printing presses and bookstores. Even food cooperatives are relatively political, since the distribution of food is a political issue. But cooperatives are also businesses, and as such might choose not to join a movement or even act contrary to progressive interests, for instance by negotiating deals with employers that are injurious to the latter’s employees. American history is replete with examples of cooperatives alienating the local labor movement. Co-ops also might be loath to offend their customers by taking overt political stances.

So, individually and collectively cooperators as such might be prone to progressive activism (see below) but are not so in any stunning way. It seems as though they should be because their workplaces are relatively egalitarian and empowering, but one must remember the lesson of Marxism: social dynamics are holistic, such that individuals and institutions are molded by pressures emanating from everywhere in the society. The social structure as a whole conditions entities to behave in certain ways, and in a sense it reproduces itself. Thus, the facts that co-ops have to survive in a capitalist context and that cooperators themselves have been shaped by broader patterns in the society tend to undermine whatever anti-capitalist and politically participatory implications there are in cooperative production relations. On the other hand, the latter’s political potential becomes more potent the more cooperatives colonize a given area, building up their own culture, and the more they network with each other—the more they establish federations, etc. For then they might develop political agendas, lobby together for favorable legislation, link up with other movements in similar structural locations and with similar interests and ideals. Such networking is arguably the most important element in any attempt to make society a more humane place.

Medium-sized and larger cooperatives

Organizational structure

In general, the larger an organization is, the more complex and less directly-democratic its structure is. Indeed, it almost necessarily becomes more bureaucratic and hierarchical, because in order to function smoothly some specialization of roles is required. A business with a hundred employees has to have a more differentiated structure than a business with fifteen employees; for example, it has to process much more information, of different kinds. With specialization and bureaucratization, however limited it may be, comes an element of hierarchy. There has to be a central organ that collects all the information and uses it to make decisions about the organization’s future and its relations with the outside world. Theoretically the entire body of workers could make these decisions collectively—perhaps everyone could receive a packet of information about the firm’s operations, study it for a week or two, and then congregate in a general meeting—but certain constraints make this unrealistic. As stated above, the time constraints may be prohibitive. Even in a collective, weekly meetings can last for several hours and it may take weeks or months for a single issue to be resolved. Also, the information that has to be digested may be so technical that most workers are unable or unwilling to absorb it, preferring to leave it to specialists who have been trained in the particular topic. Or they may simply be apathetic and too exhausted at the end of the day to devote hours to administrative matters.

For many reasons, therefore, some of which are not necessarily related to the nature of capitalist social structures, it may be necessary to have specialized professionals advising a board of directors. In a large cooperative, direct democracy will be the exception, representative democracy the rule. The board of directors will have to appoint managers—or they can be directly elected by the workforce, as the board of directors is—to ensure the smooth daily coordination of the business. Workers do monitor each other in many large co-ops, but it is not hard to imagine situations in which at least a few designated “superintendents” of some sort are necessary (and perhaps would be so even in a more egalitarian economy than the present).

The now-defunct plywood cooperatives of the Pacific Northwest, whose history will be discussed in the next chapter, illustrate these points. In the early 1980s there were eleven such co-ops in Washington and Oregon, each owned by between 100 and 300 workers. Christopher Gunn summarizes their governance structure as follows:

Owner-members elect their board of directors, and the firm’s general manager is appointed by that board. The board and the manager administer the routine operations of the co-op; policy decisions are made on a one-person, one-vote basis by all owner-members in semiannual or quarterly general meetings [where “there are discussions about everything from the manager’s performance to capital-investment decisions”]. Major decisions are discussed extensively by owner-members, who have full access to information concerning the co-op’s operation. The core of production workers in these co-ops essentially hires and fires its manager.

There is an element of hierarchy in production and decision-making on the shop-floor, but much less so than in comparable capitalist firms. The word “hierarchy” in fact is a bit misleading: plywood worker-owners take their “supervisor” much less seriously than in conventional mills because his continued employment depends on their goodwill, and it is very rare that he will try to fire one of them. (Sometimes he is an outsider who has been hired, sometimes a worker-owner himself.) There are also few supervisors in plywood co-ops, maybe one or two per shift, whereas in a private enterprise there have to be six or seven because the workers have less of an incentive to work efficiently. The co-op supervisor tends not to bother the workers but concentrates on “broader, plant-wide issues having to do with the flow of materials and machine-usage.”

Plywood cooperators, who often have semiskilled jobs that can easily be rotated, frequently organize informal job rotations to alleviate monotony or for some other reason. This is not done in conventional mills, where “jobs are assigned through precise and formal agreements made between management and the union.” Cooperators also initiate innovations in work procedures and have more flexibility in their tasks than at conventional mills.

Thus, while considerations of efficiency dictate that the consensual, spontaneous, “self-actualizing” form of collectives be limited in larger co-ops, it can still exist to a much greater degree than at private enterprises. One should not think, incidentally, that this presence of democracy constrains efficiency, that it signifies a compromise between freedom and productivity. Quite the contrary. The above description should already have helped dispel that impression; moreover, as I mentioned earlier, bureaucracy not tempered by democracy can be extremely inefficient, whether it’s in a government or a business. Therefore, to compromise between participation and hierarchy in a large organization is in fact to establish the greatest possible efficiency. I’ll return to this point below.

Companies in the Mondragon Cooperative Corporation, which have hundreds or thousands of workers, have a more complex governance structure than the plywood co-ops. The general assembly of all worker-members in each company meets at least annually to elect a governing council (similar to a board of directors) and to approve company plans and policies. Members of the governing council, who themselves are worker-members, have four-year terms; they are not paid for their council responsibilities but receive their regular salaries. The council appoints and can remove the CEO and must approve his choices for senior executives; it meets once or twice a month to monitor the management team’s and the company’s performance. There is also a “Social Council” that meets monthly, composed of representatives elected annually; its role is vaguely similar to that of a union, though it is supposed to be more cooperative than confrontational vis-à-vis the governing council and the management team. It serves as the voice of all the workers, communicating with management on such issues as working conditions, wages, and health and safety. This structure has worked for decades.

Each cooperative in Mondragon has its own workplace structure, though there are similarities and tendencies that most of them share. The firm called Irizar, which manufactures products for transportation, from luxury coaches to city buses, exemplifies these tendencies. To encourage innovation and the diffusion of knowledge, there are no bosses or departments in Irizar. Rather, it has a flat organizational structure based on work teams with a high degree of autonomy. (One study remarks that they “set their own targets, establish their own work schedules, organize the work process as they see fit, and so on.”) The teams also work with each other, so that knowledge is transmitted efficiently. Participation occurs also in the general assembly, which meets three times a year rather than the single annual meeting common in other Mondragon firms. Its subsidiaries in other countries have at least two general assemblies a year, where they approve the company’s strategic plan, investments, etc. These participatory structures have enabled Irizar to surpass its competitors in profitability and market share.

The cooperative in south India called Kerala Dinesh Beedi (KDB), which has had great success since its inception in the late 1960s, is worth describing because of its unusual characteristics. First of all, it is very large: at times having had over 35,000 worker-members, it currently has about 9000. It grew out of a conflict between the employees and owners of a private company, when the owners laid off 12,000 beedi workers in the state of Kerala. A left government had come to power in Kerala in 1967 and was committed to implementing recent national legislation that would regulate and improve the deplorable conditions of the beedi industry. Beedi employers were not happy with these developments; they wanted to continue using child labor and also institute a domestic “putting-out” system to fragment the workers, whose unions had been active in radical social movements for decades and were troublesome to the employers. One of the latter essentially declared war on the unions and the new leftist government: not only did it threaten to relocate to a different state if the government enforced the law, but it laid off 12,000 employees.

A months-long crisis ensued, until the government and the unions decided to create a new cooperative to employ the 12,000 laid-off workers. Cooperatives had been created before in Kerala, but not nearly on this scale. The workers could not afford to put up much capital, so the government lent them millions of rupees, in addition to helping the trade unions accomplish the monumental organizational tasks. Government officials even joined the board of directors. What is amazing is that despite all this political involvement, the government soon “withdrew from any active role in the running of the cooperative.” Even the endemic Indian problems of corruption did not arise, since the government was desperate for the cooperative to succeed.

One study summarizes the structure of KDB:

KDB is a federation of twenty-two “primary cooperatives.” Each of the primary cooperatives has six to fourteen shop floors. At each, there are generally between 75 and 125 beedi-rollers. Production takes place at the shop floor. Every worker directly participates, informally and continually, in the decisions about work arrangements at his or her shop floor. Each shop floor has a formal, general body meeting only about once every six months. At the general body meeting of each group of shop-floor workers (seventy-five to one hundred twenty-five people) everyone participates. These meetings are the fora for discussing complaints about conditions of work, disputes with supervisors, and problems with the behavior or productivity of individual workers. Every shop floor also has a “factory committee” that does the day-to-day supervision and management of the floor. This involves deciding on matters such as ventilation, entertainment, and break times.

Each primary cooperative has a board of directors elected by the members, which supervises the purchase of raw materials from, and the sale of finished beedis to, the “central cooperative,” which is the point of contact between KDB and the outside world. Its decisions are a function of market demand; it is in charge of quality control, pricing, marketing strategy, diversification, the overall structure of wages and benefits, etc. The central board of directors is elected by the primary cooperatives’ boards of directors. Workers participate regularly in meetings with their unions, which then negotiate wages and benefits with the central cooperative. There are annual meetings of representatives of all the primary cooperatives.

Shop-floor supervisors cannot hire, fire, transfer, or fine their worker-bosses, but they have power nonetheless. They are usually senior workers themselves; they’re promoted to their new position by the primary cooperative’s board of directors. The supervisors are supervised, in turn, by foremen who have been hired by the central cooperative. The main function of a supervisor is to help train workers whose productivity is low or whose beedis are of low quality, but he is also responsible for enforcing workplace discipline and, of course, for monitoring individuals’ productivity. Various positive incentives have been devised to encourage productivity, and as we’ll see, they have been quite effective.

In short, every worker cooperative has its own distinctive structure, but the egalitarian and participatory tendencies I have described characterize all of them to some degree. These are the most important features distinguishing them from capitalist enterprises.

Wages and employment

The pay scales at large cooperatives are either identical to those at collectives or somewhat more unequal due to competitive pressures. The plywood co-ops paid all their members equally, the major exception being the general manager, who was usually a hired outsider and received a higher salary than members. In the conventional plywood mills, by contrast, the wages of the highest-paid workers and the lowest-paid differed by a factor of about 2.5.

At Mondragon, until the 1980s the differential between the highest- and lowest-paid workers was fixed at 3:1. In recent years, with the pressures of globalization and the need to attract skilled managers who could receive much more money in private enterprises, some positions have been raised to a 6:1 ratio, while the CEO of the entire Mondragon corporation earns nine times more than the lowest-paid worker.

The fact that cooperative pay-scales are always relatively egalitarian is intuitive and uncontested. Less clear is whether ordinary workers in co-ops tend to be paid more or less than their counterparts in capitalist firms. It is known that, generally speaking, management is paid less than in capitalist businesses: this can be inferred from the smaller pay scale in co-ops. But the data on the wages of the average worker are less clear-cut. As we saw above, some collectives give their members higher pay and better benefits than in comparable private enterprises, while other collectives are unable to do so, especially if their capitalist competitors are unionized. Larger co-ops more regularly offer higher compensation, in many cases much higher than at comparable capitalist businesses—but, again, only for low-level or, sometimes, mid-level workers. David Herrera reports that “wages at Mondragon, as compared to similar jobs at local industries, are 30 percent or less at the management levels and equivalent at the middle management, technical and professional levels. As a result, Mondragon worker-owners at the lower wage-levels earn an average of 13 percent higher wages than workers in similar businesses.”

Kerala Dinesh Beedi is an even better example of high wages: workers earn over three times as much as those in other firms (including health benefits, maternity benefits, pensions, and paid holidays). While most beedi workers slave away in “small and dingy work sites that lack proper bathroom facilities and pose health hazards because of the way the tobacco is kept,” KDB members have work sites that are spacious, clean, well-ventilated, and even “have entertainment in the form of someone who reads stories or news articles to the workers as they are rolling beedis.” Managers, on the other hand, earn only about as much as the beedi workers themselves, whereas in a capitalist firm of comparable size they would probably make thirty or forty times that level, in addition to having luxurious perquisites not offered KDB’s managers.

Cooperative Care in Wisconsin, which provides care to the elderly, was able to give its 81 members in 2004 relatively high pay, workers’ compensation, ten days’ paid vacation, and 50 to 75 percent health insurance coverage, all only three years after beginning operations. Cooperative Home Care Associates in the Bronx, New York, founded in 1985, offers its 1700 members “significantly better pay and working conditions than most home health aides.”

How are cooperatives able to maintain high wages while competing successfully against conventional enterprises? The answer lies partly in their high productivity, which we’ll discuss below. Also, greater size leads to greater capital accumulation than in collectives, which leads to more revenue in a self-reinforcing cycle. Collectives often just don’t have enough capital to get the cycle started in a meaningful way—although, to repeat, when the annual distribution of profits and benefits is taken into account (in addition to wages), many collectivists do have a higher income than their conventional competitors.

As regards the trade-off in hard times between wages and employment, medium-sized and large cooperatives have the same priorities as collectives: they adjust pay rather than employment. The plywood mills, again, illustrate the point. A 1992 study compares the responses of three types of firms in the plywood sector—unionized, non-unionized, and co-ops—to adverse economic circumstances in 1980, as contrasted with the expansionary year of 1972. It finds that

employment in the union mills and in the classical [non-union] mills in 1980 averaged 83.6 percent and 51.3 percent of the 1972 values, respectively, whereas employment in the co-ops was 115.9 percent of the 1972 level; with respect to nominal average hourly earnings, earnings in the union mills more than doubled between 1972 and 1980, whereas earnings in the co-ops in 1980 were 183.8 percent of their 1972 levels.

Thus, employment shrank significantly in the conventional firms but actually grew in the co-op, while the earnings of the cooperative workers did not grow as fast as those of the union workers. This supports my earlier contention that cooperatives have even more potential for alleviating unemployment than for providing high incomes.

Incentives, job satisfaction, productivity, and the political effects of participation

Because sizable co-ops are usually less economically marginal, more “mainstream,” than collectives, and the people who work in them are more ordinary demographically and have more conventional expectations for their jobs, competitive success and high compensation are relatively important incentives. High profit-margins are valued so that members can earn more and (perhaps) the business can expand and invest in new technology. After all, most of these co-ops are founded solely to provide employment; the element of idealism or passion for a particular cause is rarely as significant as it is to many collectivists.

Owner-members of the plywood co-ops indicated in interviews that the reasons they joined the cooperatives were the potential for good income and job security. They have “individualistic, property-holding motivations” that do not change as they experience the cooperative relations of production. This is in marked contrast to most collectivists, who have precisely the opposite motivations—the inherently political desire to “escape the rat race” and do something they believe in. One obvious reason for the difference is that the plywood cooperators have a working-class origin and have known long periods of unemployment. They think of their participation in a co-op as a financial investment: buy a share and get a secure job.

However, they quickly come to appreciate the control they have over their work. While they remain less idealistic and enthusiastic than the average collectivist, their attitude certainly differs from that of the workforce in a conventional plant, which tends to suffer from a relative “deadening of the spirit, a sense of defeat, hopelessness, and abjectness.” The participatory environment of the cooperative “fosters an extremely strong sense of collective responsibility and mutuality,” which is antithetical to the structure of work in a conventional factory. As mentioned above, this sense of mutuality is manifested, e.g., in collective and self-supervision and the rather low number of designated supervisors. “Everybody pitches in and helps,” remarks one worker; “the people stick together, that’s the reason we’ve gone so far and production is so high, ’cause everybody works together.” Some workers even profess to enjoy their work, despite its repetitive and mechanical nature: “There is a certain feeling to know that you own part of what you’re working for… I’ve always gone to all the stockholders’ meetings and…I enjoy it. I’ve never had so much fun! Hell, we run this operation all by ourselves.”

One obvious supposed benefit of cooperatives is that there is less conflict between workers and managers than at conventional, hierarchical enterprises. Nearly all the data indicate that this is indeed the case. Consider, for example, a study published in 2001 that examines dispute resolution at a cooperative coal mine in Wales as compared to how it functioned when the mine was owned and operated by the British government, as it had been for years. In the early 1990s, with British Coal threatening to close it, 200 employees bought it and converted it into a worker cooperative. By law the company was required to have managers in charge of safety, finance, engineering and so on, but it hired only a third of the managers that had been employed by the government even though there was approximately the same number of miners. These managers retained significant power over the workers, but now their decisions could be overruled by the board of directors elected annually by the workforce.

When the mine was government-owned it was severely hierarchical and dispute resolution was confrontational: grievances, which cropped up continually, were resolved according to a rigid set of formal rules, and work stoppages instigated by either management or the union occurred frequently. Under cooperative ownership this all changed. Worker-owners were more flexible in upholding work rules, so that disputes were far less frequent. “Many current issues and conditions would have been formally contested under British Coal, warranting a grievance or other union action. Today, these potential disputes do not develop into grievances. Furthermore, these potential disputes are not…simply tolerated; instead, they are no longer seen as injurious experiences.” Miners were now not unwilling to work overtime without extra pay, or, for example, they would work at an undermanned site, whereas in the past that would have resulted in a grievance (because it entails extra work). In general, they were more willing to compromise, since their status as owners made them disinclined to stop work. Managers too were more easygoing and respectful, because power was more dispersed than in the past. One worker offers eloquent testimony:

Today, the manager will come out and talk to you. He very rarely goes through the pit without saying, you know, stopping and talking to everyone. Whereas before, the manager used to come down and he wouldn’t talk to you. He’d probably tell somebody else who would tell you to do something. They felt they were some super-human! You know, we were down there and they were up at the top like. And it was all, “Do this!” They tell you rather than ask you.

Today, now, the manager comes down and he’ll ask you, “Any chance you could?” You know? “Can you do me a favor?” Before it was, “Oh you get and do that!” And obviously the respect had gone from the men for the management under British Coal.

Now at the colliery the men have got a lot of respect for the manager, because, at the end of the day, he owns as much of the colliery as we do. We all have equal-share basis and he’s in it for the same reason we are: to get the best out of the colliery.

Admittedly, some research indicates worker discontent at some large cooperatives, including conflict between management and the workforce. Mondragon, considered an exemplar of large-scale worker cooperation, has not been immune to this. For instance, in 1989, at a typical co-op with 250 worker-owners, members reported to a researcher that they most definitely did not think the firm was democratic. They referred to themselves as “working stiffs” and called the managers “bosses.” “We are not different,” they said, “from other businesses in any way.” “It doesn’t matter how equal we are in theory, in practice we are not.” “What good does it do me that they call me a collaborator when they treat me like a subordinate… At least in a regular firm you can call the boss a son of a bitch.” Managers at this company considered relations between themselves and the workforce to be cooperative, respectful, and democratic; the workers, however, disagreed.

A study in the mid-1980s reported that Mondragon’s supervisory structures were virtually identical to those at nearby conventional firms, and observed that “the necessity to compete in national and international markets leaves insufficient space to implement alternative manners of work organization on a large scale.” Moreover, in recent years there have been major organizational changes considered necessary to maintain international competitiveness, so that now pay-scales are less flat, management councils have more power, and non-cooperative subsidiaries are being acquired in China, Brazil, and other countries.

There is no question that the need to compete in a capitalist world forces large co-ops to compromise with their principles. This has always been a criticism leveled at them by Marxists and other radicals. Nevertheless, it does not appear that they necessarily have to degenerate into semi-capitalist corporations, nor that they ever have the same adversarial relations between management and the workforce as conventional firms do. Even in the example mentioned above from Mondragon, the author of the study notes that relations are more harmonious in the co-op than in a comparable capitalist company. As long as most of the workers own the firm and participate in governance, and especially if efforts are made to instill a culture of cooperation at both the shop-floor level and the enterprise level, there will be meaningful differences between cooperative and conventional firms. These differences may even be strictly economic: the co-op will quite possibly be more productive than its capitalist counterparts, because of incentives and the diverting of resources away from unproductive supervision and the need to contain conflict (which is a constant imperative in the average capitalist business).

For example, I noted above that fewer supervisors were needed in the plywood cooperatives, and the worker-owners were unusually committed to the success of the enterprise. (The same was true of the cooperative mine just discussed.) This resulted in higher productivity-rates—measured by the physical volume of output per hour, the quality of the product, and economy of material input use—than in privately owned mills, as much as 50 percent higher. A relatively low amount of capital per worker was required, and the hourly return to workers was often 50 percent higher than union averages.

The case of Kerala Dinesh Beedi is even more impressive. Despite its competitors’ significantly lower labor costs, it has been able to compete successfully for decades. How is this possible? One area of advantage is its far fewer managers and their relatively low compensation. But KDB’s labor costs remain high even so. Another advantage is that there have been no major labor disputes in its history—a fact that is stunning in itself, since disputes are common and costly in the region as a whole. Also, as noted earlier, shop-floor conditions are very efficient, with workers monitoring each other and sharing information willingly. A particularly decisive strength is the uniformly high quality of KDB’s beedis, which customers appreciate. Workers at other companies have an incentive to be hasty and careless in their beedi-rolling because they are paid on a piecework basis, and monitoring is difficult. KDB workers, who are happier, healthier, and better-paid, are more careful.

Examples of such productivity could be multiplied. But that would merely provide further illustrations of the intuitively reasonable point that labor will tend to be more productive in co-ops than in conventional businesses. One author concludes, on the basis of a meta-analysis of 43 previous studies, that (1) worker participation in decision-making in co-ops has a “small, positive, and statistically significant association with productivity, rejecting the traditional view that democratic management of the firm is associated with reduced efficiency”; (2) profit-sharing in cooperatives is very strongly associated with increased productivity, while the association is less pronounced in capitalist enterprises; (3) worker-ownership in co-ops has a small but statistically significant association with productivity, whereas in capitalist firms there is virtually no correlation (probably because employees typically own only a small proportion of assets). A study in 1994 found that “employee involvement programs are invariably positively associated with desirable outcomes (such as greater work effort and higher productivity), whereas measures of performance pay are less robustly associated with these outcomes.” More recent studies have concluded that there is often a gain in productivity with employee stock-ownership plans—again, a result compatible with the hypothesis that worker cooperatives will tend to have high labor productivity.

A number of reasons can be thought of to explain these results, most of which have already been mentioned. Cooperatives have lower absentee rates and less worker turnover than their conventional competitors. (For instance, the annual rate of turnover in the Mondragon cooperatives in 1974 was two percent, while in comparable capitalist firms it was 14 percent.) Members show relatively high individual work effort, tending to act as their own supervisors, at least to a greater degree than employees do elsewhere. Job rotation, where it happens, enhances the attractiveness of the work. And there are greater incentives to help one another than in a competitive environment.

Does all this have implications for political consciousness and participation? It seems to, but less so than one might hope. I noted above that collectivists tend to be relatively politically conscious and active but that the reasons for this are not entirely clear. The situation is even more ambiguous with regard to larger cooperatives. Edward Greenberg’s conclusions about the plywood industry are illustrative. He addresses four claims made by leftists: “workplace democracy encourages participation in other social institutions outside of the workplace; helps create citizens who are endowed with a sense of their own political efficacy; increases participation in normal political life; and creates a sense of community and cooperation as well as a commitment to the public interest.” Few of his findings are encouraging.

For example, worker-owners were actually a little less likely to participate in organizations outside the workplace than conventional employees. This could be due to the fact that many of the latter belong to unions, unlike the former, which may foster political consciousness and activism. On the other hand, Greenberg finds that over time the cooperators did increase their participation in social institutions, though not to above the level of ordinary employees. They also didn’t have any greater sense of political efficacy than regular workers.

More encouragingly, members were significantly more politically involved than conventional workers and were more likely to increase their participation over time—but at the same time they were more likely to think that “Society is best off when each individual looks out for his own well-being and not the well-being of others,” and in fact to agree with this statement more the longer they worked in a co-op. So their political participation was not necessarily a sign of public-spiritedness. Nor were they class-conscious in a good way: they were relatively likely to call themselves middle-class rather than working-class, and a relatively high proportion identified themselves as Republican. (This was during the Reagan years.) Greenberg concludes:

Clearly…without powerful countervailing forces to the market mechanism, democratic, self-managed enterprises drift inexorably toward enterprise egoism and membership behavior as collective capitalists. Without a working-class party, a cooperative or egalitarian culture, a socialist ideology, a revolutionary movement, or a government committed to economic democracy, the logic of the market is determinative and blocks the larger promise of self-management…

Especially in a large cooperative, whose members are typically more concerned with having money and a secure job than collectivists are, the market mentality can prove stronger than the democratic, egalitarian, workers’ social-movement mentality.

As always, there are many counterexamples. Equal Exchange, with about a hundred members, is politically progressive, committed to such causes as Fair Trade (with Latin American coffee-growers). Inspired by Mondragon and the cooperatives of northern Italy, it has also begun donating a portion of its earnings to a fund for the development of new co-ops. Rainbow Grocery in San Francisco, owned by about 150 workers, likewise functions as a center of progressivism, in the tradition of many natural-food stores. Kerala Dinesh Beedi has a long history of radical political activism going back to even before its formation. The region of Kerala has bred left social movements since early in the twentieth century; KDB’s labor unions are militantly Marxist.

Such examples support Greenberg’s point that progressive political activism, while not guaranteed by a cooperative workplace, is not only compatible with it but potentially encouraged by it as long as the business either maintains ties with cooperative institutions or is run by workers committed to radical ideologies. Unionization of employees in conventional companies likewise fosters political consciousness and action; there is no particular reason, therefore, why cooperatives cannot affiliate with unions and assist them politically, and vice versa. This has been common practice in Europe for a long time, was so in the United States for much of the nineteenth century, and, as we’ll see later, is starting to become so again.

Other issues

I have yet to address a number of important matters in relation to cooperatives of all sizes. First, in what sectors is it most common to find them? All the research indicates that it is the labor-intensive, service areas of the economy. Food stores, bookstores, print shops, restaurants, repair services—all risky areas for small business. Historically, U.S. cooperatives have had “a strong craft orientation, with fields of activity including metal foundries, barrel-making, shingle-making, and plywood.” Many Western European cooperatives operate in construction and certain labor-intensive branches of manufacturing. Some Mondragon and Italian cooperatives, however, are very capital-intensive, which is possible because of the networks they have established with each other. Also, cooperatives are relatively common in the somewhat capital-intensive industry of transportation—a number of taxi companies have been cooperatives—which is probably because the physical assets needed (such as vehicles) can easily be resold at close to their purchase price if the business fails, so that there is relatively little risk in lending money to the co-op.

The main problem, then, is that most cooperators or would-be cooperators have limited access to financial capital. Why is that? Sometimes they decide to seek capital only from their members; in this case, the reason for undercapitalization is self-evident. One reason they might shun bank loans is if banks charge high interest-rates. Sometimes banks will require that each member provide collateral to guarantee the loan, a risk that some workers might not be willing to undertake. Two reasons why traditional lenders might be reluctant to lend to worker-run enterprises are

because of heightened levels of (a) moral hazard and (b) transactions costs. The moral hazard argument is that lenders bear most of the risk of failure in situations in which workers can easily move to new jobs in the event of the firm’s failure. As for the higher transactions costs, the argument is simply that it is easier and quicker to deal with a single borrower (or the borrower’s delegate who has authority) than to deal with a group that has to use a democratic process to make decisions.

Overseeing the activities of an enterprise with a small number of decision-makers is easier than if every worker is a director and owner. Even the initial loan is then relatively difficult to arrange: the bank has to deal with the elected board of directors, drawn from the ranks of the workers, who have often had no experience arranging bank loans. Sometimes “the bank must ultimately go to a shareholders’ meeting and explain the terms of a loan to them, an unfamiliar experience for the lending officer and not always a pleasant one.” Apart from this, “the bank’s worst fears are that the co-op will distribute the loan among its workers and then declare bankruptcy.” It is not surprising, therefore, that banks might attach onerous conditions to loans.

An additional advantage, from the perspective of lenders, of undemocratic firms is that it is easier for the lender to influence the policies of such firms, for instance by preventing them from undertaking excessively risky or excessively conservative projects. One author remarks that with cooperatives “there is no guarantee of a single owner or officer who always represents the workers, given the democratic management. As a result, the financial community cannot obtain the leverage over cooperatives seeking to borrow that they can over capitalist firms.”

Equity financing, on the other hand, is unappealing to cooperators because it may mean relinquishing control to outside investors, which is a distinctly capitalist practice. Investors are not likely to buy non-voting shares; they will probably require representation on the board of directors because otherwise their money could potentially be expropriated. “For example, if the directors of the firm were workers, they might embezzle equity funds, refrain from paying dividends in order to raise wages, or dissipate resources on projects of dubious value.” In any case, the very idea of even partial outside ownership is contrary to the cooperative ethos.

A general reason for traditional institutions’ reluctance to lend to cooperatives, and indeed for the rarity of cooperatives whether related to the difficulty of securing capital or not, is simply that a society’s history, culture and ideologies might be hostile to the “co-op” idea. Needless to say, this is the case in most industrialized countries, especially the United States. The very notion of a workers’ cooperative might be viscerally unappealing and mysterious to bank officials, as it is to people of many walks of life. Stereotypes about inefficiency, unprofitability, inexperience, incompetence, idealism, and anti-capitalism might dispose officials to reject out of hand appeals for financial assistance from co-ops. Similarly, such cultural preconceptions may be an element in the widespread reluctance on the part of working people to try to start a cooperative. They simply have a “visceral aversion” to, and unfamiliarity with, the idea—which is also surely a function of the rarity of co-ops itself. Their rarity reinforces itself, in that it fosters a general ignorance of co-ops and the perception that they’re risky endeavors. Additionally, insofar as an anti-democratic passivity, a civic fragmentedness, a half-conscious sense of collective disempowerment, a diffuse interpersonal alienation and mistrust saturate society, this militates against initiating cooperative projects. It is simply taken for granted among many people that such things cannot be done. And they are assumed to require sophisticated entrepreneurial instincts. In most places, arguably, the cooperative idea is not even in the public consciousness; it has barely been heard of.

Business propaganda has done its job well. But propaganda can be fought with propaganda. In fact, this is one of the most important things that activists can do, this elevation of cooperativism into the public consciousness. The more that people hear about it, know about it, learn of its successes and potentials, the more they’ll be open to it rather than instinctively thinking it’s “foreign,” “socialist,” “idealistic,” “hippyish.” If successful cooperatives advertise their business form, that in itself performs a useful service for the movement. It cannot be overemphasized that the most important thing is to create a climate in which it is considered normal to try to form a co-op, in which that is seen as a perfectly legitimate and predictable option for a group of intelligent and capable unemployed workers. Lenders themselves will become less skeptical of the business form as it seeps into the culture’s consciousness.

It’s true that people sharing a common culture or ethnicity, especially if they have emigrated to or live together in a diverse society, are more likely to start cooperatives. It was the Basques of northern Spain who started Mondragon, at a time when they were fiercely antagonistic toward Spanish (Francoist) society. The plywood co-ops were organized by Scandinavians in a community that benefited from high levels of trust. This theme of “cultural homogeneity” supports the hypothesis mentioned earlier that heterogeneity is not conducive to the formation and success of worker cooperatives. A heterogeneous co-op may succeed, but insofar as its heterogeneity undermines levels of trust, it threatens the co-op’s survival. Ultimately, though, the most important precondition, particularly in small cooperatives, seems to be that individuals have a democratic attitude, commitment to the project, and some degree of interpersonal skills.

One obstacle to forming a co-op is the challenge of gathering a group of interested, capable, and like-minded people, people interested in starting the same kind of business, who can work well together and have enough information and initiative to do the difficult preliminary work. A single entrepreneur is unlikely to want his business to be a cooperative, since that would reduce his revenue and control. Hopeful cooperators will probably be workers who place a high value on job-security or people committed to cooperation for ideological reasons. But such people are not likely to have a great deal of money to invest in a business, and they will be wary of putting thousands of dollars into one venture. Regular investors, of course, diversify their wealth for precisely this reason, this aversion to risk. It would seem, then, that risk-tolerant people would be most interested in forming a co-op—and such people are relatively rare.

Employee buyouts of capitalist enterprises are not very common either. They usually happen, if at all, only when a company is in financial straits and workers want to save their jobs. One possible reason they are somewhat rare even in the case of failing firms is that they are more likely to occur if the employees are unionized, and unionization rates are low in the United States. Buyouts require a lot of work from a few leaders. Also, workers might not be able to agree among themselves on the many decisions that have to be made, some preferring a cooperative and others control by outside investors. When takeovers do occur, often the company is in such bad shape that even in a restructured form it fails within a few years.

All these considerations are reasons why the formation rate of worker cooperatives is low. And this is the biggest problem for cooperatives, this low rate of formation. But once they do form, other problems can arise. A commonly cited one is that cooperators may lack business experience and know-how. Many of the co-ops formed in the 1960s and 1970s failed because they were started by youthful idealists who cared little about the technical details of running a business. They ignored accounting problems until it was too late. Even if the workers are competent, it might be difficult to attract managers or specialists if they are needed, since the pay is likely to be low. Another pitfall is that the stress and the personal intensity of work in cooperatives, especially collectives, might prove too much. People might find that they cannot work together or prefer an ordinary, less stressful job, and the collective may dissolve.

The severity of these problems is debatable—for example, Beatrice Webb was wrong to think that cooperatives will inevitably suffer from poor management because of an inability to attract skilled professionals—but other commonly cited hazards are in practice even less problematic. It does not appear to be widely true that democratic decision-making leads to great inefficiencies; on the contrary, I have argued that it can promote high productivity and work-discipline, and in those cases when direct democracy is impracticable it is easy to substitute representative democracy. Nor is it true that worker-owners tend to shirk or that monitoring is difficult; more often, the opposite is the case.

On the other hand, the possibility of degeneration into a capitalist enterprise is real. Ironically, this can result from the co-op’s success. If the business wants to expand it might choose to hire labor rather than admit new members, because, under certain legal structures, if it adds new shares (each of which is to be bought by a new member) that reduces the value of the current members’ shares. Ultimately, then, the co-op might end up having more wage-laborers than members. As we’ll see in the next chapter, some of the plywood cooperatives degenerated in this way. Others, and many co-ops in the nineteenth century, degenerated by being sold to outside investors. That is, as “members approach[ed] retirement age and [became] more interested in wealth maximization than working conditions or other consumption benefits derived from firm membership,” each member would sometimes sell his valuable share to an investor (because it was too expensive for less wealthy prospective workers to buy). Or, in some cases, the members collectively sold the whole business to investors.

The possibility of degeneration diminishes if the co-op uses the proper legal structure. The best structure is that of the Mondragon companies, which do not allow workers to own a tradable share of equity. Instead, in addition to their wages they each have an internal capital account the value of which depends on the business’s performance and on the number of hours the member works. A new member has to pay a large entrance fee, most of which is credited to his internal account. He receives interest at the end of every fiscal year, but he cannot withdraw the annually accumulating principal from his account until retirement. Almost all profits are divided between these individual accounts and a collective account that helps ensure the company’s survival. No buying or selling of shares takes place in this scheme, so that it is difficult for the firm to lose its worker-controlled status. Not until 1982, however, did the internal-capital-accounts legal structure exist in the United States (and then only in Massachusetts); prior to that, worker cooperatives had to make convoluted use of other categories, which sometimes made them vulnerable to degeneration.

In any case, the survival rates of contemporary cooperatives put the lie to traditional theories of cooperatives’ unsustainability, for they appear to have higher rates of survival than conventional firms. During the 1970s and early 1980s, the death rate for co-ops in France (due either to dissolution or to conversion into a capitalist firm) was 6.9 percent; the comparable rate for capitalist competitors was 10 percent. A study in 1989 found much higher failure rates for capitalist companies than cooperatives in North America. A study conducted by Quebec’s Ministry of Industry and Commerce in 1999 concluded that “Co-op startups are twice as likely to celebrate their 10th birthday as conventionally owned private businesses.” A later study by the same organization found that “More than 6 out of 10 cooperatives survive more than five years, as compared to almost 4 businesses out of 10 for the private sector in Québec and in Canada in general. More than 4 out of 10 cooperatives survive more than 10 years, compared to 2 businesses out of 10 for the private sector.” These data sufficiently demonstrate the viability of cooperatives.

Indeed, their viability tends to be proportional to their cooperativeness:

Broadly speaking, it is those clusters of producer cooperatives with the most cooperative features…that have the longest life, the best economic performance, and the best record of maintaining a cooperative structure over time… A great number of cooperatives succumb to the demands for efficiency by progressively negating their cooperative character. The historical record suggests that in the end these firms will end up with neither cooperation nor efficiency. The key to successful, long-lived cooperatives seems to be precisely greater cooperation and a concomitant responsiveness to the economic and labor conditions of the marketplace.

The reasons for cooperatives’ success should be obvious by now, but they are worth reiterating: “The major basis for cooperative success…has been superior labor productivity. Studies comparing square-foot output have repeatedly shown higher physical volume of output per hour, and others…show higher quality of product and also economy of material use.” Hendrik Thomas concludes from an analysis of Mondragon that “Productivity and profitability are higher for cooperatives than for capitalist firms. It makes little difference whether the Mondragon group is compared with the largest 500 companies, or with small- or medium-scale industries; in both comparisons the Mondragon group is more productive and more profitable.” As we have seen, recent research has arrived at the same conclusions. It is a truism by now that worker participation tends to increase productivity and profitability.

Research undertaken by Henk Thomas and Chris Logan corroborates these conclusions. “A frequent but unfounded criticism,” they observe, “of self-managed firms is that workers prefer to enjoy a high take-home pay rather than to invest in their own enterprises. This has been proven invalid…in the Mondragon case… A comparison of gross investment figures shows that the cooperatives invest on average four times as much as private enterprises.” After a detailed analysis they also conclude that “there can be no doubt that the [Mondragon] cooperatives have been more profitable than capitalist enterprises.” Recent data indicate the same thing. One particularly successful company, Irizar, which was mentioned earlier, has been awarded prizes for being the most efficient company in its sector; in Spain it competes against ten private enterprises, but its market share is 40 percent. The same level of achievement is true of its subsidiaries, for instance in Mexico, where it had a 45 percent market share in 2005, six years after entering the market. An author comments that “the basis for this increased efficiency appears to be linked directly to the organization’s unique participatory and democratic management structure.” A major reason for all these successes is Mondragon’s federated structure: the group of cooperatives has its own supply of banking, education, and technical support services. The enormous funds of the central credit union, the Caja Laboral Popular, have likewise been crucial to Mondragon’s expansion. It proves that if cooperatives have access to credit they are perfectly capable of being far more successful than private enterprises.

It is worth noting, incidentally, that most private corporations are fantastically inefficient, although their inefficiency is disguised by collusion with the government:

Contrary to their claims of efficiency, most large corporations…spend an inordinate portion of society’s resources on advertising, executive perks and salaries, transportation and communications to far-flung corporate empires, and lobbying expenses. Most depend for their profits and survival on a complex regime of public subsidies, exemptions, and externalized costs, including the indirect subsidies they gain when allowed to pay less than a living wage, maintain substandard working conditions, market hazardous products, dump untreated wastes into the environment, and extract natural resources from public lands at below-market prices. Ralph Estes…estimates that in 1994 corporations extracted more than $2.6 trillion a year in such subsidies in the United States alone—roughly five times their reported profits… It is one of the basic principles of efficient market function that the full costs of a product or service be borne by the seller and passed on to the buyer. Yet many corporations would be forced to close their doors or restructure if they had to bear the true full costs of their operations.

Americans sometimes think of large size almost as an end in itself, or at least as necessary for economic efficiency. But this is not always the case. In some industries, economies of scale do exist. But large size tends to entail bureaucratic inefficiencies, environmental destruction, allocative inequalities, political corruption, in general significant negative externalities. Consider, by contrast, the Emilia-Romagna region of northern Italy, “widely recognized as one of the world’s leading examples of a successful cooperative economy, with [40 percent] of the region’s GDP deriving from cooperative enterprises.” The region of four million people, one of the richest and most developed areas in Europe despite its poverty only a few decades ago, has between 10,000 and 20,000 cooperatives (accounts vary) and 400,000 enterprises, making for a dense network of small and medium-sized firms. The major sectors are retail, manufacturing, and construction. Emilia-Romagna’s success is due to the unique structure of its economy, sometimes called the Emilian Model: cooperative principles govern “the joint production and distribution of goods and services by private firms,” most of which are not themselves cooperatives. Highly specialized small firms cooperate to produce a given product; most of the firms are subcontractors for the one that produces the finished good. At the same time, Mondragon’s system of “secondary cooperatives,” such as the Caja Laboral, that provide support to primary cooperatives has been replicated, so that small businesses share “service centers” for “research & development, education & training, marketing & distribution, financing, technology transfer, workplace safety, environmental regulation, and a host of other services that help small and medium-sized firms to compete in a global marketplace. …What all these centres have in common is that they replicate the advantages of large corporate structures for the collection and application of global knowledge for production, while maintaining the strengths which are unique to small enterprise.” Long-term support from the historically leftist regional government has been essential to the development of the Emilian Model.

In short, there are many ways in which cooperatives can be made to work. Even isolated co-ops can be successful if they have access to capital. As we have seen, cooperatives typically fare as well as or better than capitalist enterprises in relation to longevity, productivity, wages (sometimes), working conditions, democratic organizational structures, the potential for ensuring long-term employment, and even profitability (if they have enough capital). Their rarity is due to their low rate of formation, which is due in large part to difficulties in securing capital, but also to a lack of will or knowledge among the populace. People have to be educated on the possibilities open to them, shown where to look for resources, how to start a business together. Starting a business is hard work; it requires initiative, resourcefulness, and intelligence. But it is done all the time, though usually by capitalist-minded entrepreneurs; there is no reason to think that a small group of cooperators cannot do the same thing, especially if assisted by any of the dozens of organizations in the U.S. that exist for this purpose. Policy changes would help too--and have been forthcoming recently, as when the Small Business Administration started providing loans to worker cooperatives. There is still a long way to go, though, especially considering that the hostility of the American government (on federal and state levels) as compared to the governments of Italy and France has historically been a major impediment to the formation of worker cooperatives in the U.S. Even today, the federally chartered National Cooperative Bank tends not to lend to worker co-ops. A priority of activists should be (and is) to change such policies. In fact, governments committed to the reduction of current high rates of unemployment would be well-advised to facilitate proactively the formation of cooperatives of all kinds.

I could go into more detail on certain matters, for instance the issues involved in employee buyouts of traditional companies, but the purpose of this chapter has been only to give an overview of the nature of the worker cooperative. Hopefully I have at least convinced skeptical readers that co-ops have great potential, and that if they are rare now it is not because of inherent flaws in the model. With education, technical support, policy changes, and capital—all of which, it is worth remembering, have been crucial to the global success of capitalist businesses—cooperativism could be the next great movement of American history, indeed of world history.