Coops or co-nots: understanding the strengths and weaknesses of (worker) cooperative organization

Definitions

We should begin by defining what we mean by a "coop[erative]". First, the focus is on worker coops: a productive enterprise organized on cooperative lines.

Key features of worker coops are:

• Only active participants as members
• Owned by members i.e. only members have an economic stake
• Owned on egalitarian lines e.g. one member, one share or close to that
• Democratically controlled eg one person one vote

cf e.g. books/curl-2009-all-people-uncovering

Introduction

Workers coops are rare both in absolute terms and in comparison to other types of cooperatives (such as consumer or housing cooperatives): for example Curl estimates that in 2008 that more than "120 million people in the United States are members of 48,000 cooperatives, about 40 percent of the population. [however] … there were only approximately 300 worker cooperative businesses in the United States."

Many people, including those on the left have been highly sceptical/critical of the worker coooperative idea. For example, here is the judgment of the the prestigious social scientists and pioneering socialists Beatrice and Sidney Webb (see other excerpts below):

Of course, there are some famous and wonderful exceptions e.g. Mondragon (although they do now hire a substantial non-member workforce). However, these can seem like "exceptions that prove the rule", serving only to highlight the general absence.

Given, that cooperatives seem such a positive and aspirational model it is worth reflecting on why this is and on the strengths and weaknesses of cooperatives in general and their place in the wider space of organizational design.

Primacy of Being

My overall point would be a primacy of being point: the egalitarian nature of worker coops reflect a wonderful aspiration. However, they are also a structuralist approach to addressing the inequities and imperfections of our society. Without the relevant ontological work, this structure will be insufficient – and even potentially harmful, for example in terms of effectiveness/survival or because people will end up routing around the structure in unfortunate ways (e.g. politics happening behind the scenes)

Coop critique

What does an enterprise need to do?

• Investment: secure resources both human and capital to carry out the enterprise
• Production: work together to produce outputs and sell them
• Decision-making: make decisions about the above

Coops have serious problems on all of these dimensions.

TODO: can also frame this around question of how does an organization (or team) handle differential contributions. For example, how does one handle these type of differences in contribution:

• Capital vs labour: cooperatives tend to only recognize labour contribution. Capital can only be loaned or donated - there is no way to contribute capital in exchange for some general proportional claim on future surplus (i.e. equity).
• Different points of time (and riskiness): working on the start-up of an enterprise if very different from working on it later when it is established
• Quality: e.g. higher or lower quality/productivity. Coops can have pay differentials though they are normally lower than in non-coops reflecting the general egalitarian ethos.
• Talents: a more or less rare skill. Perhaps we have lots of facilitators and very few plumbers. In a non-coop we can attract plumbers by paying them more. However, in a coop that can be difficult or impossible to do.

A. Investment

The basic structure of coops mean that only active participants can be shareholders. This prevent them taking outside capital as equity investment. This means the only way to get capital are external loans which are generally hard to do at any scale at early stages of a business. This starves coops of capital to start and expand and tends to limit them to areas where capital needs are low (e.g. consulting of various kinds) or the capital asset is easily visible and mortgageable eg land or some kinds of industrial property. This excludes many areas where up-front capital costs are significant including most software or other information goods.

B. Production

Team work problem and residuals. Basic problem of all work which is how to allocate it fairly either in terms of rights in surplus or obligations in inputs. For simple, easily measurable things this is easy because measurement is easy: e.g. we are all picking oranges and we assess how many oranges we picked or how much time we worked.

But most actual work is not easy to precisely measurable. The classic solution has been to have a residual party the "owner" (or entrepreneur) who then negotiates (and monitors) with other parties over their inputs and remuneration. One could have this owner be the group but that takes one into the decision making item and has obvious risks of holdup and group breakdown (What happens if we collectively decide that Joe has not done his work and sanction him and he disagrees and gets upset. As a coop member he can't be easily removed and depending on the decision making structure may have significant ability to block things. And the less power he has to do this the more there is a risk of majority tyranny etc. You can't have your cake and eat it …)

Expanding production rapidly is hard without taking on non coop members as membership process is usually slow (given hard to remove members and egalitarian voting structure)

Let's look at an actual example, from books/curl-2009-all-people-uncovering

• Imagine that digging different ground is easier or harder. How do we account for this?
• What happens if some people are better diggers than others? Either way this can be problematic: on an inputs basic the better ditch diggers contribute more of the output yet receive the same remuneration. Conversely if we are doing output based approach what about the people who are poor ditch diggers: they have to work much more …
• We soon end up with an internal market (and inequality) OR we have from each according to their abilities, to each according to their needs (which without serious ontological and cultural work is unstable eg brain drain problem in Kibbutz etc etc)
• #todo work this through in more detail

C. Deciding

Note that techniques like sociocracy can ameliorate these but they struggle with scale.

Ultimately, coops with one member one vote are simple democracies with all the strengths and weaknesses of those. Strengths:

• egalitarian and transparently so
• participatory

There is also the security of membership which provides safety and confidence e.g. to speak up and speak out, to know you have a place etc.

Challenges

• (In)Efficiency
  • Direct democracy is time consuming
  • Without skill and ontological work can easily become dysfunctional
• Risk of passivity at scale and concomitant politics
• Because it is hard to remove members once they have become members can have problems with "bad apples" or fallings out
• Tyranny of the majority and dominance of the mediocre.

Coops and the broader context of organizational design

• Many dimensions of variation. Eg can have a company owned in whole or part by its employees. Many tech companies are. Landmark etc. But they are not coops.
• Governance and economic ownership dimension
• Profit and non profit dimension.

Taxonomy of organizational forms

Note: there is the question of the legal form and the practical form. A "corporation" in the sense of a company limited by shares can be structured in many different ways.

• Corporation
  • Employee-owned etc
• Asset-locked / Purpose-locked corporation
• Partnership
  • Differs from coop in allowing differential shareholdings among partners.
• Partnership with associates (ie. non partners)
• Cooperative
• Informal
  • Collectives
  • Association?

Inbox

Webbs on why abc/worker-coops don't work: either fail or starting hiring non-members and cease to be democracies

From books/whyte-whyte-1991-making-mondragon-growth

notes/worker-coops struggle because of lack of capital, lack of marketing and lack of discipline

From books/emelianoff-1948-economic-theory-cooperation#Why abc worker-coops struggle because of lack of capital lack of marketing and lack of discipline

Coops struggle in these three areas for clear reasons. First, coops have no way to take equity which makes raising capital hard. Second, marketing is hard both because of lack of capital, and, more significantly, the issue of how to capture and allocate value added in a team (marketing is something that benefits everyone but it is hard to assess). Third, the disciple issue relates to basic problem of teamwork in egalitarian teams.

p.24 of Theory of Cooperation