Cooperatives : An Introduction

In the past the Isocracy Network has had some association with the cooperative movement. It is not without reason that we are meeting at the New International Bookshop, which is a cooperative (and we have a member on the bookshop board). At our 2012 Annual General Meeting our guest speaker was Race Matthews, the former state and federal minister and author of "Jobs of Our Own", who spoke on the cooperative movement. Tonight we have a representative of the Earthworker's Cooperative who will speak on the mission of that organisation in responding to climate change and helping the establishment of worker's cooperatives throughout Australia with sustainability-focussed industries.


A cooperative is defined as non-profit organisations and businesses that exist for the mutual benefit of the members. Some for-profit entities are very close to cooperatives; sole traders and partnerships are an example as the members (even in the case of one) receives equal benefit to all other members. Other non-profits are also close insofar that they have equitable management, or provide member benefits, such as trade unions, incorporated associations, charities etc.

Strict cooperatives can be differentiated by the people who equal membership and mutual benefit franchise system (a retailer cooperative), those who use a service (a consumer cooperative, leveraging economies of scale)., the people who work there (a worker's cooperative, using democratic-workplace management), the people who live at a location (a housing cooperative, a specialised consumer cooperative), with hybrid and multi-stakeholder combinations (e.g., a labour-managed credit union).


Informal cooperatives have existed whereever there has been any situation where people have cooperated with equal benefit. The first formal cooperative was established in Fenwick, Scotland, in 1769, "The Fenwick Weavers Society", a consumer cooperative. In a barely funished cottage, starting with a single bag of oatmeal, they sold the contents piecemeal to members at a discount. One can only imagine the sort of impoverishment that required such inventiveness.

Cooperatives grew significantly in the 19th century, especially in the UK, France, and Germany. They were particularly influential in establish credit unions, friendly societies, building societies, mutual savings banks etc, with an international association established in 1895. Two important contributions in the period included Robert Owen's cooperative societies and Rochdale Society of Equitable Pioneers. Robert Owen was a wealthly owner of a industrial textiles but also practised philanthropy and eventually became an advocated for what would be called 'utopian socialism'. His cooperative community experiment, New Harmony in the United States, was a failed experiment due to poor regulative policies. In contrast, the Rochdale Society operated with very precise and useful rules (including, appropriately at the time, no meetings in public houses). Their principles of open membership, democratic member control, and equitable distribution and proceeds. Their principles were adopted by the International Cooperative Alliance in 1937.

In the UK, a Cooperative Party was established in 1917 to represent various cooperative interests in parliament. It has an electoral pact with the Labour Party (and the SDLP in Northern Ireland), established in 1927, and some MPs are co-members of both parties. It currently has 24 members in the House of Commons.

Curently some of the most well-known conumer and retailer cooperatives include:
- the Best Western international hotel chain and E.Leclerc, a department store and supermarket, as examples of retailer cooperatives
- The Cooperative Group (UK) (a consumer cooperative, includes the UK's fifth largest supermarket chain),
- University Co-operative Bookshop Ltd (a consumer cooperative for an Australian context),
- Coop (Italy) (a groceries consumer cooperative, representing 17% of the total market),
- Co-op Kobe (consumer cooperative, Japan, 1.7 million members largest in world, with a fairly explicit left-social orientation, noting its involvement in anti-war and socialist movements).
- As an example of housing cooperatives if one looks at the Manhatten skyline along Central Park West, there is a range of housing cooperatives; The Majestic, The Dakota, The Langham, and The San Remo.

It is worth pointing out that retailer cooperatives are quite different to consumer, housing, or worker cooperatives. These are a body set up by for-profit businesses who seek to employ economies of scale through purchaing power on behalf of their members. The largest cooperative in Australia, Co-operative Bulk Handling Ltd., is an example of such a body. Their relationship with consumer, housing, and worker cooperatives is pretty alien to say the least.

Workers Coooperatives

Karl Marx, in his 1866 'Instructions for the Delegates of the Provisional General Council' of the International Workingmen's Association, provided he following comments on workers cooperatives.

"We recommend to the working men to embark in co-operative production rather than in co-operative stores. The latter touch but the surface of the present economical system, the former attacks its groundwork."

A worker cooperative is a cooperative owned and managed by its workers (this can mean a hybrid and multistakehoder models where at least 50%+1 falls under an equitable worker-ownership). Workers' co-operatives are organised to serve the needs of worker-owners by generating a variety of benefits (which may or may not be profits) for the worker-owners rather than (or in addition to) external investors. Workers cooperatives are closely tied to the economic theory of mutualism (Pierre-Joseph Proudhon) and the integral establishment of mutual-credit banking. There are other forms of worker participation in management which are not cooperatives (e.g., European-style Works Councils, union negotiation etc), as they do not reach this definition. Management can be representational (workers elect a representative board of directors, or elect managers), participatory (where all workers engage in the managament decisions), or a combination thereof. Some tendencies include (a) low wage differentiation (b) reduced alienation (c) higher productivity (d) networking with other cooperatives.

Largest and most successful worker cooperatives today include the Indian Coffee House chain, Mondragón Cooperative federation primarily in Basque county of Spain (7th largest company in the country, 19 billion in sales 2012, 80000 worker-owners), the UK retailer John Lewis Partnerships. Venezuela has, in the past fifteen years, directed a great deal of its oil revenue in establishing local cooperatives which are included in the constitution. They are explicitly seen as a means to decentalise the state and to democratise capital.

Criticism of Workers Cooperatives

In workers cooperatives, the importance of capital should be subordinated to labour, which has lead to a description of them being "labourist" rather than "capitalist" (Daniel Egan, Bruno Jossa). Some economists model the worker cooperative as a firm in which labor hires capital, rather than capital hiring labor as in a conventional firm. (e.g., Benjamin Ward, Jaroslav Vanek).

In neoclassical economics, the objective of maximising income per worker suggests perverse behaviour, such as laying off workers when output price rises so as to divide increased profits among fewer members. However in practise this does not happen (c.f., Bonin, Jones, and Putterman) as the behaviour can be to maximise employment (Amartya Sen)

Some Marxists are critical of workers cooperatives arguing that workers are less class-conscious as a result of their participation (Sharryn Kasmir), noting that the cooperatives still operate within a dominant capitalist system and with capitalist exchange relations (Rosa Luxemburg) (e.g., Mondragon outsourcing work to low-wage developing economies by the late 1990s). Whilst workers' democracy is seen as essential in a socialist system, within a capitalist system they are seen as a distraction. Others point out that the cooperatives were celebrated in some fascist states (Mussolini's Italy, Franco's Spain, Salazar's Portugal - all of which had a significant Roman Catholic orientation) as worker syndicalism.

Rosa Luxemburg was very much a critic of workers cooperatives, arguing in her classic text, 'Reform or Revolution?', that cooperatives in a capitalist society were doomed to failure;

" capitalist economy exchanges dominate production. As a result of competition, the complete domination of the process of production by the interests of capital - that is, pitiless exploitation - becomes a condition for the survival of each enterprise."

In response to these criticisms I would argue that (a) workers may appear to less class conscious because there is less class conflict in the organisation and (b) the problems supposed by exchange relations are more to do with technological development and product complexity; as technology raises both the complexity and output per worker, older technologies are moved to lower-wage and less complex economies (e.g., old manufacturing being shifted to Indonesia, China etc). What Mondragon should have done was to seek out worker cooperatives in Thailand etc, instead of engaging in simple outsourcing.

This does however raise a new challenge for cooperatives; as production becomes more capital-intensive and the labour productivity increases there is an increasing capital barrier to entry. I leave the latter point for a particular item of discussion; how do you introduce cooperatives in a economy where production requires high initial capital investment in order to be effective?

Leaving that question for discussion I will conclude on one from the same delegate instructions by Marx previously referenced. It remains one of his more "libertarian socialist" remarks:

"We acknowledge the cooperative movement as one of the transforming forces of the present society based upon class antagonism. Its great merit is to practically show that the present pauperising, and despotic system of the subordination of labour to capital can be superseded by the republican and beneficent system of the association of free and equal producers."

Presentation to the Isocracy Network, June 20, 2015

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