Reposted from Mar. 22, 2011.
During my own investigations into economic and political systems, I came across the idea of worker co-operatives. These are businesses which are collectively owned by their workers and democratically managed. When I first learned about these, I was stunned at how brilliant of an idea it seemed to be. It was something of a hybrid between a corporation and a partnership. As I investigated other issues, I kept coming back time and time again to this alluring concept that had never been taught to me in my classes on business or economics. It seemed to be an excellent idea, worthy of my support. And in the end, I based some of my own ideas on politics and economics around this concept. So in order to do what I can to support these co-ops, I want to spend a little bit of time talking about the benefits this form of business can have. I’ve divided the benefits into three main areas (though there is some overlap): economic, personal/social, and ethical. But first, let me describe in a little more detail what a worker co-op is.
What is a Worker Co-operative?
As mentioned above, a co-op is a business collectively owned by its workers. Instead of having outside shareholders, the capital of the business (land, buildings, machinery, etc.) is owned by the employees. In addition, co-ops almost always have a democratic management structure. It can take many forms: each worker may take part in every decision made, or there may be managers which are democratically elected, or there may be non-decision-making committees and work groups formed by the collective to handle specific issues. There may even be a combination of more than one of these. However, fundamentally, co-ops are run in a democratic fashion, with each worker having an equal say in the decisions that are made and the direction in which the business goes.
So what is so advantageous about a worker co-operative? Why do I like them so much better than traditional forms of business? Let me describe the benefits.
The literature is a little sparse on co-ops. This is partially because they tend to be smaller than regular firms; are fewer in number than their capitalist counterparts; and are also not as popular in the US where, of course, most research is done. So, some of what I mention here will be a little speculative, based on what seems reasonable given the nature of co-ops, but I’ve tried to back it up with research where I could.
1. Lower Unemployment
Co-ops typically experience less employee turnover than ordinary businesses.1 This makes sense, since people who are in control of their own business are less likely to fire themselves, or to make decisions that put their own employment on the line. Instead, the general trend of co-ops is to adjust wages during periods of low profits, rather than to lay off workers. Evidently, people will typically choose a lower-paying job over no job at all.2 What this means, then, is that if co-ops increased in market share, this could reasonably have the effect of lowering unemployment. Obviously this is not the only (or perhaps even the best) solution to unemployment, but it would certainly avoid the all-too-familiar massive layoffs that one sees in large corporations. At the very least, it would provide more stable employment, which is a benefit in itself.
2. Greater Equality of Wealth
Generally, the difference between the highest earner and the lowest earner in a co-op is much, much smaller than in a capitalist enterprise. After all, when everyone gets to vote on wages, things tend to remain fairly equitable. The CEO may earn more, but will not earn outrageously more—and the bonuses (if there are any) will be handed out more fairly as well. Moreover, when the workers are the owners of the firm, this means that the extra profit goes straight into the pockets of the owner-workers. In a corporation, that money would be handed out through dividends to the shareholders, who generally don’t work at the company or have any real stake in the business (apart from their investment, of course). Co-ops put more money in the hands of the people who actually do the work, instead of in the hands of the disconnected people who provided some capital at some point or another. Both of these aspects would quite clearly lead to a greater equality of wealth between the richest and poorest members of society. If co-ops increased in their market share, the rich and the poor would be pulled together—without any need for government intervention. There would be less of a need for forced redistribution of wealth. Instead, it would be handed out more fairly to begin with, right at the source (the workplace).
3. Ability to Compete with Capitalist Firms
This one is not so much a “benefit” but rather a necessity of co-ops. If a worker co-operative is not able to compete with capitalist firms, it seems doomed to failure. We have much experience with corporations, and we are comfortable with them—why switch to something else if it makes our bottom line worse off? Of course, I would argue that even if co-ops did decrease productivity or profits,3 it would still be beneficial for the other reasons I am outlining here. But still, the concern is an important one. So can co-ops compete? One can point to several examples of success. For example, Mondragón in Spain is a federation of co-operatives that includes a leading manufacturer of kitchen appliances; the largest tool-and-die maker in Spain; and much, much more. It even has its own co-operatively owned community bank, funds a pension and health-care system, and finances a co-operative school system.4 Another example is the Self-Employed Women’s Association (SEWA) of India, which now organizes almost a million women into local co-operatives. It offers its own bank which provides start-up capital, and has been held up by the World Bank as a model to be replicated. Or there is Kantega, a Norwegian software company that has been recognized on several occasions as one of the 100 Best Workplaces in Europe. There are others that could be named, but these examples make it clear that it is possible for co-ops to succeed. Certainly not all co-ops do (nor do all capitalist businesses), but a well-organized co-op does not seem to be at any inherent disadvantage to a well-organized corporation.5
In addition to monetary concerns, one also needs to consider the impact that co-ops have on the workers within them, and in conjunction, the broader social impact that co-ops have on society.
1. Reduced Alienation of Workers
Forgive me for the Marxist terminology here, but I think it’s appropriate. Marx talked about the alienation of workers from the means of production (roughly speaking, capital), as well as from the profits of their labour. Co-ops decrease both of these. The means of production are the land, the building, the machinery, etc. which are necessary for production to take place. In a corporation, these are owned by outside shareholders. And even a worker who has operated a machine for 50 years has come no closer to owning one piece of that machine than when he/she started. In a co-op, on the other hand, the capital is owned by the workers themselves. They have ownership of, and therefore control over, the means of production. And since having access to such capital is a necessity for their own well-being, this also gives them a measure of control over their own lives.
In addition to this, co-ops reduce the alienation from the profits of the workers’ labour. Let me illustrate with an example. Imagine a worker in a capitalist firm. He manufactures shoes every day. When he creates a pair of shoes, let’s say that it costs the business two dollars—one dollar for the materials to make the shoes, and one dollar to pay the worker. After the shoes are made, they are shipped off and sold for $80. Of this amount, the person who actually spent time and energy creating the shoes receives $1, and the other $78 (after the cost of materials) goes into the hands of the people who own the business. There’s some good old-fashioned alienation right there. The person putting in the work gets a tiny cut of the profits from his labour. In a co-op, however, the worker is the owner. When a pair of shoes is created, the profits will be distributed to the people who actually spent the energy making them. And that means that workers receive the fruit of their own labour.
2. Democracy in the Workplace
One of the most fundamental philosophies of the Western world is the need for democracy—the right of individuals to have a say in the matters which affect them. This is a right that Westerners fought long and hard to achieve, and is something they generally still desire today. Citizens demand that their views be heard by the government. Many take great pride in the right to vote. And yet, when it comes to the workplace, these same citizens seem all too willing to be a “cog in the machine” that has no influence over the direction their company takes. Most corporations have an authoritarian structure with decisions flowing down the hierarchy from top to bottom.6 What is praised as a virtue in the political realm is suddenly seen as unnecessary in the economic realm. Doesn’t this seem a little bit strange?
Co-operatives allow workers to make democratic decisions about the place at which they spend so much of their time and effort. The ability to have an influence over the decisions that affect one’s own livelihood creates an empowering atmosphere. It is an acknowledgement that the worker is capable of more than just inside-the-job-description thinking. In addition, the democratic style, which provides one vote for each worker, affords a great degree of equality. In a co-op, despite differences in seniority, experience, position, salary, etc., each person still contribute to decisions in an equal measure. For someone who advocates democracy in politics, the extension of these principles into the workplace should seem unquestionably obvious.
3. Higher Morale and Commitment
Common sense would suggest that a workplace that allows greater input into decision-making would lead to higher morale. Indeed, research has shown that co-operatives can lead to higher job satisfaction.7 And this, of course, would naturally lead to higher commitment and workplace loyalty.8 After all, who wants to leave a company that provides you with satisfaction? Of course, with more people involved in decisions, there is greater potential for disputes to arise, but I would argue that this can be a benefit as well, rather than a drawback. Greater participation can provide more diverse perspectives, which can enhance the level of input to decisions. As long as the company has a good dispute resolution process, co-operatives are not at a disadvantage. Instead, they are more likely to experience meaningful debate, discussion, and as a result, group cohesion. When everyone is involved in something, everyone feels a part of the group, and that plays a large part in fostering loyalty. Co-operatives are not just about protecting one’s self-interest, but standing together to benefit both self-interests and group interests. Workplace loyalty is an attribute that corporations try their hardest to create, but with co-operatives it is basically included as part of the package.
4. Support for Psychological Needs
In the 1980s, two psychologists named Deci and Ryan developed a model of psychological needs known as self-determination theory.9 It suggests three fundamental psychological needs: competence, relatedness, and autonomy. Competence is the need to feel effective in dealing with one’s environment; relatedness is the need to interact and feel connected to others; and autonomy is the need to be a “causal agent” of one’s own life and act in an integrated way. Deci and Ryan suggested that satisfaction of these three needs leads to optimal function and growth as a human being. I would argue that, although both co-operatives and capitalist firms fulfill these needs to an extent, co-operatives fulfill them much better than capitalist businesses do.
Competence is experienced in the workplace all the time, and is a sense of mastery over the actions one takes. Although this is affected by a number of different factors, the decreased alienation from one’s own work is a natural result of co-operatives and can thus fulfill this need much better. When people feel connected to their work, it is easier for them to see themselves as competent individuals who are capable of completing the task. Relatedness is also better served by co-operatives. Although capitalist businesses certainly provide outlets for socializing with colleagues, co-operatives provide this to a greater extent. The joint decision-making process allows for more connectedness with one’s fellow workers, as there is a greater sense of common goals and shared interests. Finally, autonomy is best served in a co-operative, which is seen in the greater influence each worker has in the decisions which affect his or her life. By having a say in these decisions, it is easier to feel like a causal agent, whose actions have an effect on the world.
The ethical benefits that result from worker co-operatives come out of the benefits which have already been mentioned above. I would like to argue that co-ops allow for the creation of a more just and equitable society, one that lines up with moral concerns that we as human beings find important.
1. Justice in the Workplace
In a co-op, profits are distributed to the people who actually expended the effort to create the product, instead of to those who simply own the capital. While there may be a role for private ownership in society, it still seems more just to give the money that is earned at the expense of someone’s labour to the person who laboured. The idea of capital ownership goes back at least to the feudal system, where lords would provide land for serfs to grow food in exchange for a certain percentage of that food. This broad type of ownership system has been challenged by some as unfair, who argue that use rights should trump ownership rights.10 While this is a separate debate which I don’t wish to get into at the moment, worker co-operatives solve the problem by making the owners and the users one and the same. Thus, the people who labour gain the maximum amount of the profits, even under a system which favours capital ownership.
2. Equality of Opportunity
Many who argue for “equality” argue for equality of opportunity. They do not believe that everyone should necessarily have the same amount of money, but rather that everyone should have equal opportunities to gain a reasonable amount of money. This goal, however, can be thwarted by privately-owned capital. To return to the example with the shoe manufacturer, it is clear that no matter how many shoes the worker makes, and how much money he earns as a result from that effort, the capitalist owners will always make more. In my fictional example, they will make 78 times more than he does. Capitalism allows people to make money off of money, which has the result of creating a feedback loop where the rich (who typically own capital through investments, etc.) get progressively richer. The money a non-owner earns will always be dwarfed by the money that a capital owner earns as a result of that non-owner’s labour. Thus, the only way to really ensure some measure of equality of opportunity is to allow better access to capital ownership. Co-operatives do just that.11 They allow workers to pool their resources and co-operatively own property which they can combine with their labour to earn meaningful profits. Certainly this is not the only way to decrease the barriers between the “haves” and the “have-nots”, but it can play a meaningful role in that process.
I’ve already touched on this from several angles, but I believe self-management to hold ethical value as well. The ability to have a say in the decisions which affect oneself is something I consider a fundamental right. Both the Canadian Charter of Rights and Freedoms and the US Declaration of Independence declare the right to life and liberty. Self-management finds itself in the legal system as the right to represent oneself in a court of law, as well as the right to legal representation. It is implicit within the concept of informed consent. And of course, it is found in ideal government democracy, where one has the ability to vote for representatives which carry out the will of the people.12 In short, representation in decisions which affect us is something which already is valued in society, and I would argue that self-management (which perhaps encompasses a little more than just representation) upholds ethical principles which respect the dignity of the person. Co-ops allow for self-management in this sense.
4. Respect for One’s Best Interest
Co-ops allow for a very flexible structure. Each can operate differently, according to the needs of the members which comprise it, and according to how the principles which they then agree upon. For instance, a co-operative might decide to create a pay scale based on seniority, or by amount of labour, or by individual need, or by merit. There is no inherently “right way” to do this, but the fact that co-ops rely on self-management means that this flexibility is possible. It is up to workers to decide what is in their (collective) best interest and create their system according to that. I would argue that an ethical system needs to be flexible enough to allow for differences in individual needs, and so a workplace which provides this flexibility lines up well with this ethical principle. The recognition that an individual is most likely to be aware of what is in his or her best interest is at least a reasonable principle to hold within the framework of an ethical system.13 Instead of forcing individuals or groups to conform to a rigid set of rules, it is best in most cases to allow them the freedom to make choices about the best way to allocate their resources and achieve their goals. And co-ops allow this to happen.
In summary, then, worker co-operatives allow for numerous economic, personal, social, and ethical advantages which are more beneficial than the current situation provided by traditional capitalist businesses. My support for co-ops is a result of this recognition, and I would encourage others to support co-ops as well. While they are not as popular here in North America, there are still co-ops which are popping up every day in the most unusual of places. If you are in the market for an organization to do business with, pay special attention to co-operative enterprises. If you are thinking of starting a business, get some friends in on it and start a co-op. Or at the very least, spend some more time investigating co-ops and then tell others about them! This is a real, tangible way of making the world a better place.
- Pencavel, J., Pistaferri, L., & Schivardi, F. (2006). Wages, employment, and capital in capitalist and worker-owned firms. Industrial and Labor Relations Review, 60(1), 23-44. The article is available here. See also Burdín, G., & Dean, A. (2009). New evidence on wages and employment in worker cooperatives compared with capitalist firms. Journal of Comparative Economics, 37, 517-533. The article is available here. [↩]
- And the difference in pay is not extraordinarily large. According to Pencavel, Pistaferri, and Schivardi (2006), co-op wages were about 14% lower than capitalist wages. [↩]
- Note that there is no evidence to suggest that co-operatives lead to a decrease in productivity. In fact, research by Levin (2006) suggests just the opposite: co-operatives can lead to higher job satisfaction, which in turn can lead to higher productivity. See Levin, H. (2006). Worker democracy and worker productivity. Social Justice Research, 19(1), 109-121. The article is available here. [↩]
- This example, as well as the following example, comes from the following article: Rothschild, J. (2009). Workers’ cooperatives and social enterprise: A forgotten route to social equity and democracy. American Behavioral Scientist, 52(7), 1023-1041. The article is available here. [↩]
- Let’s also remember another advantage of co-ops: no time lost to union strikes. When the employers and the employees are one and the same, there’s no need to negotiate using methods which waste time and money. [↩]
- Of course, some more progressive corporations allow room for their employees to exercise a degree of autonomy and have some say in decisions, but this still falls far short of democratic management. [↩]
- Levin, 2006. [↩]
- Hoffman, E.A. (2006). Exit and voice: Organizational loyalty and dispute resolution strategies. Social Forces, 84(4), 2313-2330. The article is available here. [↩]
- Deci, E.L., & Ryan, R.M. (1995). Human autonomy: The basis for true self-esteem. In M. Kernis (Ed.), Efficacy, agency, and self-esteem (pp. 3149). New York: Plenum. [↩]
- In other words, a serf who uses the land can claim ownership of the amount he/she uses, and cannot be forced to pay someone else for the use of it. [↩]
- Theoretically, of course, there are methods for lower-class people to gain capital. They could forgo food or clothing for the month and invest their money in the stock market. But this is hardly a realistic opportunity. Poor people need ways to make money that have a low level of risk, low investment input (they can’t necessarily purchase $1000 deposit certificates), and that don’t have extra costs like the services of a stock broker. For most people living in poverty, capital ownership is far removed from their access. [↩]
- Of course, whether this is indeed the case in practical terms is another matter entirely. [↩]
- There are, of course, situations where an individual is not necessarily aware of what is in their best interest. Children, the mentally challenged, the intoxicated, etc. are exceptions to the rule. But the presence of exceptions does not invalidate the general rule. [↩]