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From Here to There; or, If Cooperative Ownership Is So Desirable, Why are There So Few Cooperatives?

Published online by Cambridge University Press:  13 January 2009

Jon Elster
Jon Elster
Affiliation:
Political Science, University of Chicago
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Extract

In this paper I want to discuss a well-known but poorly understood problem: how can socialists reconcile the observed paucity of cooperatives in capitalist societies with their alleged superiority on normative grounds? If cooperatives are so desirable, why don't workers desire them? If one's ideal of socialism is central planning, it is clear enough that it cannot emerge gradually within the womb of the capitalist economy. If instead it is something like market socialism, it is not clear that a discontinuous transformation of society is required. If workers want (market) socialism, they can start up here and now. If they don't, doesn't it prove that they do not want it?

I shall proceed as follows. Section I argues that the usual explanation - that cooperatives are not economically viable or that workers prefer working in capitalist firms – is not necessarily correct. The explanation may lie elsewhere, in endogenous preference formation, adverse selection, discrimination, or externalities.

Section II is concerned with the variety of cooperative arrangements. Only rarely do we find cooperatives in their pure form, with all workers and only workers having equal ownership rights. Non-working owners, non-owning workers and unequal distribution of shares are frequent. When the deviations become sufficiently large, the firms cease to become cooperatives in any meaningful sense.

Section III extends the argument of Section I by surveying the causes of cooperative failure. Some fail by success: profitable cooperatives often attract or turn into private ownership. Others fail outright, partly because they tend to be established under unfavorable circumstances and partly because of intrinsic difficulties of management.

Type
Research Article
Information
Social Philosophy and Policy , Volume 6 , Issue 2 , Spring 1989 , pp. 93 - 111
Copyright
Copyright © Social Philosophy and Policy Foundation 1989

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References

1 This article draws heavily on the Introduction in eds. Jon Elster and Karl O. Moene, Alternatives to Capitalism (Cambridge: Cambridge University Press, forthcoming).

2 Around 1980, the Mondragon system included 70 cooperative factories with a work force of more than 30,000 cooperators, and a credit cooperative bank with 93 branches and 300,000 deposit accounts. See Thomas, Henk and Logan, Chris, Mondragon (London: Allen and Unwin, 1982), p. 1.Google Scholar

3 Letter from William Nuttall to Auberon Herbert (1877), cited after Jones, Benjamin, Co-Operative Production (London, 1894, reprint New York: Augustus Kelley, 1968).Google Scholar

4 Drèze, Jacques, “Some Theory of Labour Management and Participation,” in his Essays on Economic Decisions under Uncertainly (Cambridge: Cambridge University Press, 1987), p. 375ff.CrossRefGoogle Scholar

5 Williamson, Oliver, Markets and Hierarchies (New York: The Free Press, 1975)Google Scholar, ch. 3.

6 Alchian, Armen and Demsetz, Harold, “Production, Information Costs, and Economic Organization,” American Economic Review, vol. 62 (1972), pp. 777–95.Google Scholar

7 See my “Self-Realization in Work and Politics,” Social Philosophy and Policy vol. 3 (1986), pp. 97–126.

8 Thomas, Hugh and Logan, Chris, Mondragon (London: Allen and Unwin, 1982), pp. 155–58.Google Scholar

9 The studies surveyed in Kamien, Morton I. and Schwartz, Nancy L., Market Structure and Innovation (Cambridge: Cambridge University Press, 1982), pp. 76–84Google Scholar, indicate that there are clear economies of scale in innovation, at least up to a certain point. The patterns are complex, however, and there are many exceptions.

10 Cooperative firms usually have lower turn-over rates than capitalist firms. See Thomas and Logan, Mondragon, p. 48; Conte, Michael, “Participation and Performance in U.S. Labor-Managed Firms,” eds. Derek, Jones and Jan, Svejnar, Participatory and Self-Managed Firms (Lexington: Lexington Books, 1982), pp. 213–38.Google Scholar They have lower rates of absenteeism – see Thomas and Logan, Mondragon, p. 49ff; Gunn, Christopher, Workers' Self-Management in the United States (Ithaca: Cornell University Press, 1984), p. 143Google Scholar – and virtually no production losses from strikes. Other things being equal, all of these should increase productivity. Since other things may not be equal, we must turn to direct studies of productivity. Both the Mondragon cooperatives and the well-known American plywood cooperatives have an excellent record, superior to conventionally organized firms, over a long period (Thomas and Logan, Mondragon, ch. V; Conte, “Participation and Performance”). Similar but more ambiguous findings with respect to Britain are given in Derek Jones, “British Producer Cooperatives, 1948–1968: Productivity and Organizational Structure” in Jones and Svejnar, eds., Participatory and Self-Managed Firms, pp. 175–98.

11 Conversely, it could be that a cooperative performs better in a capitalist environment than in a cooperative one. It may be able to attract exceptionally motivated workers. It may receive assistance from ideological support groups. And it may be able to take a free ride on the innovative activities of capitalist firms. I neglect these possibilities here, not because I think they are unimportant, but because they cannot help us understand why there are so few cooperatives.

12 Putterman, Louis, “Some Behavioral Perspectives on the Dominance of Hierarchical over Democratic Forms of Enterprise,” Journal of Economic Behavior and Organization, vol. 3 (1982), pp. 139–60CrossRefGoogle Scholar, at p. 152.

13 De Tocqueville, Alexis, Democracy in America (New York: Anchor Books, 1969), p. 596.Google Scholar

14 To pursue the analogy, Tocqueville also notes that people who marry for love in societies where this is rare tend to attract hostility, which in turn generates bitterness and unhappiness.

15 Nozick, Robert, Anarchy, State and Utopia (New York: Basic Books, 1974), p. 252–53.Google Scholar

16 John Stuart Mill, as quoted in Jones, Co-Operative Production, p. 438.

17 If a supplier believes that the bank will discriminate against the cooperative, he will accept only cash on delivery. If the bank believes that suppliers discriminate, it will offer credit on less favorable terms. What a firm may not do out of ill-will, it may do out of (possibly unfounded) suspicion of the ill-will of others.

18 See my “Weakness of Will and the Free-Rider Problem,” Economics and Philosophy, vol. 2 (1985), pp. 231–66.

19 Jay, Peter, “The Workers' Cooperative Economy,” ed. Alasdair, Clayre, The Political Economy of Co-Operation and Participation (Oxford: Oxford University Press, 1980), pp. 9–45Google Scholar, at p. 40.

20 Pateman, Carole, Participation and Democratic Theory (Cambridge: Cambridge University Press, 1970).CrossRefGoogle Scholar

21 See ch. II of my Sour Grapes.

22 Sacks, Stephen, Self-Management and Efficiency: Large Corporations in Yugoslavia (London: Allen and Unwin, 1983), p. 76.Google Scholar

23 Jones, “British Producer Cooperatives,” p. 179.

24 Vanek, Jaroslav, “The Basis Theory of Financing of Participatory Firms,” ed. Jaroslav, Vanek, Self-Management (Harmondsworth: Penguin Books, 1975), pp. 445–55.Google Scholar

25 For details about ESOP, see Bradley, Keith and Gelb, Alan, Worker Capitalism: The New Industrial Relations (Cambridge: M.I.T. Press, 1983)Google Scholar and Note, “Worker Ownership and Section 8(a)(2) of the National Labor Relations Act,” Yale Law Journal, vol. 91 (1982), pp. 615–33.

26 This diagrammatic device is taken from Mygind, N., “Are Self-Managed Firms Efficient? The Experience of Danish Fully and Partly Self-Managed Firms.” Mimeo, Copenhagen School of Business, January 1985.Google Scholar

27 Gunn, Workers' Self-Management, ch. 3.

28 Note, “Worker Ownership,” p. 620.

29 “Utbyttedeling og medarbeidereie” (“Profit sharing and employee ownership”), Department of Economics, University of Oslo, 1987.

30 Jones, “British Producer Cooperatives,” p. 179.

31 Gunn, Workers' Self-Management, ch. 4.

32 In light of the current interest in proposals for profit-sharing, I list here some of the practices reported by Benjamin Jones. A fixed dividend to shareholders, ranging from 5 percent to 10 percent, was always paid before any further sharing. The remainder was often split three ways: between shareholders, workers and purchasers. Sometimes it was split two ways, between any two of these three groups. The split could be in equal absolute amounts (one-third or one-half of the dividendum to each group) or in proportion to the amounts represented by each group. In the latter case, a stock-flow confusion was often found: shareholders got the same percentage on their capital as workers on their wages. Sometimes, however, shareholders received the same percentage on their dividends as workers did on their wages or workers received the same percentage on the capitalized value of their labor as shareholders did on their capital. Bonuses could be distributed equally among the workers, or proportionately to their wages. In multi-plant cooperatives, the bonus was sometimes calculated on the cooperative as a whole, sometimes on each plant separately.

33 Mygind, “Are Self-Managed Firms Efficient?”

34 This is the practice followed by Jones, “British Producer Cooperatives.”

35 The last possibility might seem strange. Why would outside investors be attracted to a firm over which they have no control? For all they know, the cooperative might pay zero dividends year after year. A counterargument (Jay, “The Workers' Cooperative Economy,” pp. 14–15) is that the cooperative would be kept in line by the knowledge that it may need to attract capital in the future. Unless present shareholders are paid satisfactory dividends, future investors will not be forthcoming. Knowing this, present investors will not be deterred by the fact that the cooperative is formally free to reduce dividends to zero.

36 For the idea behind this intuition, see Roemer, John, A General Theory of Exploitation and Class (Cambridge: Harvard University Press, 1982).CrossRefGoogle Scholar

37 Jones, Co-Operative Production, chs. XI-XII.

38 Note, “Worker Ownership.”

39 Jones, Co-Operative Production, p. 454.

40 Cited after Jones, ibid., p. 284.

41 Thomas and Logan, Mondragon, p. 28.

42 Jones, Co-Operative Production, p. 443.

43 ibid., p. 262.

44 ibid., p. 263.

45 ibid., p. 402ff.

46 ibid., p. 481.

47 Miller, David, “Market Neutrality and the Failure of Cooperatives,” British Journal of Political Science, vol. 11 (1981), pp. 309–29.CrossRefGoogle Scholar

48 For this distinction, see my “Sour Grapes,” pp. 121–23.

49 For an elaboration of the following argument, see my “The Possibility of Rational Politics,” Archives Européennes de Sociologie XXVIII (1987), pp. 67–103.