You are here

The Political Economy of Workers' Cooperatives

Even with the global economic downturn due to the pandemic, there is a revived interest in workers' cooperatives as an alternative business structure. A great deal of the interest is simply factual. A summary of research [1] from Virginie Perotin of Leeds University Business School takes into account material from the past two decades and from across North and South America and Europe comes to the conclusion that productivity, employment, and employee well-being is typically improved in cooperatives than conventional businesses and that workers' cooperatives are more resilient. Whilst it is true that workers' cooperatives are a relatively small part of the global economy, they do raise some very interesting questions with regard to political economy: are workers' cooperatives a variation on capitalism, a type of socialism, or something else entirely? Do they represent some transitional state of affairs, and could society as a whole operate as one or many workers' cooperatives?

One must be careful to specify that that, in terms of political economy, that workers' cooperatives rather than cooperatives in general, are meant here. Cooperatives could mean consumer cooperatives, where consumer goods are purchased in bulk and then sold at lower than usual rates, or commodity or retailer cooperatives where businesses do the same. Another common misapprehension is that workers' cooperatives are limited in size or are only effective in a limited number of industries. With regards to size one needed only point towards organisations like the Mondragon Corporation in Spain and John Lewis Partnership in the UK, both of which have some 80,000 worker-owners. With regards to the variety of industries, one can refer to Scott Bader Commonwealth, composites and specialty polymer plastics. Danobat Group, sheet metal. Fagor Arrasate Group, machine tools. Isthmus, engineering and manufacturing. Earthworker, solar and heat pump hot water manufacturing. Motion Twin, video game studio, Swann-Morton, surgical equipment, Renew Development, construction, etc.

Pro-capitalist advocates, when confronted with the existence and effectiveness of cooperatives, sometimes like to argue that these institutions are capitalist because they are established voluntarily and owned by private individuals, rather than the State. The elements of these statements are all true enough, but perhaps the conclusion is not. If one is to apply fundamental principles of political economy, then the main distinctions are between the factors of production and sources of income; the landlord receives rent from owning land, the capitalist receives interest from owning capital, and the worker receives wages from owning labour [2]. An individual person can belong to multiple classes simultaneously, in proportion to their income; a person may work and receive wages for most of their income, receive interest on the shares that they have and the lease of a building, and ground-rents for the land the building is on. In this case, the worker-owner receives wages from the labour, obviously enough, but instead of a surplus profit going to the external owner of capital, it becomes part of the worker's increased income. There is no surplus value and no rate of exploitation.

This increase in income can be differentiated from capitalism-as-usual or "employee capitalism" as employee share ownership plans (ESOPs), not only in the fact that there is no capitalist-worker dichotomy but also, very importantly, that capital ownership in the business is egalitarian. Each worker is an equal member. Thus, much of the argument of whether workers' cooperatives are "capitalist" come down to relations of ownership to the means of production. All the other factors; that the workers are private individuals, that they have voluntarily formed an association, that they own capital, that they receive profits from participating in a market etc, are actually not essential features of capitalism in the sense of political economy, but rather expectations of business operations in advanced liberal democracies.

It is due to 20th authoritarian state-socialism that many see these features as being the antithesis of socialism, but in both theory and practice, this is not necessarily the case. It is notable that co-operative property is considered to be a different form from private and public (owned by state entities): "There are three broad forms of property ownership – private, public, and collective (cooperative)" [3] (one can note a further distinction between private property and personal property). Further, cooperative property is a type of social property: "In order of increasing decentralisation (at least) three forms of socialised ownership can be distinguished: state-owned firms, employee-owned (or socially) owned firms, and citizen ownership of equity."[4] In this basic definitional approach, co-operatives can be seen as a sort of non-state socialism, where workers own the means of production with equal shares. This is, of course, also common in sole traders and partnerships which begin a transition from being working-class to petty-capitalist when they start employing labour themselves. If one objects to this variety of types of socialism, one may mention by analogy that Cats can be grey, white, black, etc, but not green or blue (no, not even a Russian Blue); ownership through share capital, is definitely not socialism.

Nevertheless, many socialist advocates are uncomfortable with the concept that workers' cooperatives are meant to be a type of socialism. They will quickly point to the fact that they operate under a general capitalist system, which is certainly true, which means that they have to engage in competitive activity, which of course means organisationally acting like capitalist enterprises; the drive to produce more goods at lower costs, to drive out competitors, and to acquire monopoly position and monopoly profit in a market [5]. Even in the Soviet Union, however, cooperatives were a minor, albeit important, part of the economy especially in the agricultural sector, and witnessed significant growth under Gorbachev [6]. It must be noted, however, that the anti-competitive tendencies in organisations are the result of the evolution within markets; they may start off competitive, but over time the stronger and more successful drive their competitors out leading to less and less competition, a situation that can only change by disruptive technology or by anti-trust legislation.

Limited by the political requirements of state socialism or the economic requirements of market capitalism, workers' cooperatives have not had the opportunity to flourish as they would under a more ideal situation of market socialism, a more participatory stakeholder society [7], the sort of environment originally envisaged by Proudhon's mutualism. Marx, whilst very supportive of the example of cooperatives ("The value of these great social experiments cannot be overrated. By deed instead of by argument, they have shown that production on a large scale, and in accord with the behests of modern science, may be carried on without the existence of a class of masters employing a class of hands" [8]), emphasized their need to also develop a political perspective and to internationalise. To finish the triad of anarchism, socialism, and liberalism from the 19th century, John Stuart Mill saw workers' cooperatives as part of an evolution from capitalism ("the relation of masters and work-people will be gradually superseded by ... [an] association of labourers among themselves." [9]

Despite early positive developments, most of the 20th century was a rough time for workers cooperatives, with nationalistic wars, the Great Depression, the war against fascism, and the rise of authoritarian socialism and the Cold War. Nevertheless, despite all this workers' cooperatives not only survived but have thrived and now they are being looked at seriously again as a viable alternative organisational model. Would-be venture capitalists may have to swallow their pride a little and instead of shares of profit and ownership, they should be satisfied with interest returns from debentures. State socialist authorities must surely now realise that a "long leash" in the market of consumer goods is economically successful, and cooperatives provide an alternative that can harness this commercial energy whilst still expressing the core of social ownership. Who else knows a business better than the workers themselves? As one world leader has stated "only the wearer of the shoes knows if they fit or not" [10] Taken at their word, perhaps they too see the value of a society that organises production "on the basis of a free and equal association of producers" [11] through workers' cooperatives.


[1] Virginie Perotin, What do we really know about worker co-operatives?, Cooperatives UK, 2018
[2] Karl Marx, Capital, Volume 3, Ch52, 1894
[3] Paul Gregory, Robert Stuart. "The Global Economy and its Economic Systems". South-Western College Pub. 2013 p. 30
[4] Phillip O'Hara. Encyclopedia of Political Economy, Volume 2. Routledge., 2003, p. 71.
[5] Sharryn Kasmir, The Myth of Mondragon: Cooperatives, Politics, and Working-Class Life in a Basque Town, State University of New York Press, 1996
[6] D.M. Nuti, The role of new cooperatives in the Soviet economy, in B. Dallago., C. Ajani, B. Grancelli B. Privatization and Entrepreneurship in Post-Socialist Countries. Palgrave Macmillan, 1992
[7] Race Matthews, Jobs of Our Own: Building a Stake-holder Society : Alternatives to the Market and the State, Pluto Press, 1999
[8] Karl Marx, Inaugural Address of the International Working Men’s Association, 1864
[9] John Stuart Mill, Principles of Political Economy with some of their Applications to Social Philosophy Book IV, Chapter VII ('On the Probable Futurity of the Labouring Classes', 1848
[10] Xi Jinping at the Moscow State Institute of International Relations, March 23, 2013
[11] Frederich Engels, The Origin of the Family, Private Property and the State, 1884