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Mutualist Blog: Free Market Anti-Capitalism

To dissolve, submerge, and cause to disappear the political or governmental system in the economic system by reducing, simplifying, decentralizing and suppressing, one after another, all the wheels of this great machine, which is called the Government or the State. --Proudhon, General Idea of the Revolution

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Location: Northwest Arkansas, United States

Saturday, October 14, 2006

When Do Co-ops Work? When They're Allowed To

At Stumbling and Mumbling, Chris Dillow asks "(When) Do Co-ops Work?" The answer:

The great merit of worker co-ops is that they can solve the problem of how to motivate workers. In businesses where workers can't be monitored closely, giving them a share of profits can inspire them to work hard, and to encourage their colleagues to do so....

There are (at least) three drawbacks to co-ops.

1. They don't work in physical capital-intensive firms where worker effort can be monitored. Here, the key to success is getting machinery to run well, rather than getting workers to do well. Car plants, for example, are better run by capitalists, not workers.
This depends, arguably, more on the size of the enterprise or the work unit than on capital-intensiveness as such. For one thing, capital-intensiveness itself is not a given: the production of a given commodity is artificially skewed toward more capital-intensive forms of production by state intervention.

For another, the very reference to work-effort being monitored suggests that especially capital-intensive forms of production reflect strategic priorities of management (namely work-discipline) rather than the inherent needs of production. The Fordist assembly line was adopted precisely as a way to reduce the element of discretion in human labor, use machines to pace and organize work, and thus overcome the problem of opportunism--which suggests that manufacturing might be organized along different lines if its strategic priorities were set by self-managed workers.

And as Barry Stein argued in Size, Efficiency and Community Enterprise, the best way to make machinery run well is for the workers engaged in the process to be directly empowered to alter the production process and to internalize the benefits from improvement. Incremental process improvements raise productivity more than big generational changes in productive technology. And workers possess the distributed knowledge that such improvements depend on.

So cooperative ownership, seemingly, has the potential to cut through several of these concerns simultaneously like a Gordian knot.
2. Co-ops have less incentive to expand, because the profits from expansion are spread more thinly. It's probably no coincidence that the Co-op (a consumer, not worker co-op) has lost market share....
As I argued in the comment thread: Much of the expansion that currently takes place among conventional enterprises involves growing beyond optimal economy of scale. If it weren't for the possibility of externalizing the diseconomies of large scale on the taxpayer, and the effect of regulatory cartelization and other forms of legal privilege in reducing the competitive disadvantage of inefficiency, there would probably be a lot more, and smaller, firms. Besides, if most production were small-scale and for local markets, the size of the local market would set a built-in limit to firm size except in those cases where economies of scale absolutely required larger market areas.

3. Co-ops' often lack access to capital with which to expand, even if they want to. This is because they work best in human capital intensive businesses. But such businesses find it hard to post collateral and so get bank loans.

Like smaller size, differential access to capital is less a disadvantage of cooperatives than a structural disability built into the system.


Anonymous Anonymous said...

I've actually made a bit of a study of this. It appears that co-ops are most useful and viable when they do downstream value adding for individual upstream enterprises that own the facilities, i.e. producer co-ops. In fact, I used one as my main assignment topic for my MBA, the Australain Rice Growers. You can contrast this with the outcomes for, e.g., Australian sugar cane growers who have to on sell to separate mills/refiners.

It's not a motivation thing for most co-ops (apart from Hawthorn Effect), and there is a tendency to, as it were, demutualise any co-op - but the downstream co-ops are already owned by a group outside the entity, so you can't get the Branson/Virgin evolution.

Though of course it got the government's nose out of joint when it couldn't organise "help" for the rice growers, so they aren't a priority when it comes to input to the rules for water allocation when those get changed under them...

I owe you a catch up of the last few posts, particularly the chapter critique. I hope to get around to it...

October 15, 2006 8:01 AM  
Blogger Larry Gambone said...

So coops don.t work eh? Telll that to the $100+ billion Dejardins credit union of Quebec or Mongragon of Spain. I suspect this idea is more USian provincialism.

October 16, 2006 8:27 AM  
Blogger Laurent GUERBY said...

peterl, is your study online?

I've always been surprised about the total lack of serious analaysis of natural experiments of coop vs firms (more so when everyone talks about CEO pays and corporate profit concentration).

October 16, 2006 4:10 PM  
Blogger Kevin Carson said...


How does the cooperative ownership upstream relate to that of the smaller co-op?


Not to mention Emilia Romagna: an entire regional cooperative economy of small enterprises interacting through the market.

October 19, 2006 12:19 PM  
Anonymous Anonymous said...

I don't see anyone saying co-ops don't work. Even my post only described where they seemed to work best (and it cannot be US-centric, considering my background). Incidentally, Mondragon flourishes in a situation which makes it hard to unpick what is driving what (the area always had a local economy gaining trickle down from smuggling).

My study was done in the early '90s, and although I have it on disk somewhere (if it's still readable), I'd have to rake it out and reformat it - I think I had some hand-drawn diagrams in there as well. The material predates most people's access to the internet, including mine. There is a chance that Monash University has made its archives accessible, though.

I was looking specifically at the rice growers. My observations don't relate to inter-relations among upstream and downstream co-operatives, but downstream co-operatives that add value for member/owners who - in their own right - are individual participants in the wider economy. Other examples are wine making co-ops in Italy, working for the individual grape growers, and so on. But of course I didn't look at them in detail.

October 22, 2006 7:47 PM  
Anonymous AUgust said...


Ver interesting blog post!

I have a question: Are they any good examples of working capiytal intensive workers cooperatives? In Mondragon there are some capital intensive firms, righT?

April 19, 2010 8:39 AM  
Blogger Kevin Carson said...

There's quite a bit of fairly heavy manufacturing in Mondragon--stoves, refrigerators, and other household appliances, as I recall, but I don't remember what other kinds of things are also manufactured there.

And on the other side, technological developments are making manufacturing progressively less "heavy" by reducing the cost of machinery for garage factory production and eroding the whole capital-intensive vs. nonintensive distinction.

April 19, 2010 10:08 AM  
Anonymous August said...


Why do they say that it's hard for worker cooperatives to get successfull in capital intesive sectors then?

April 19, 2010 11:46 AM  
Blogger Kevin Carson said...

It probably is harder, comparatively speaking. Mondragon is something of an outlier, compared to the vast majority of co-ops that are in retail and service businesses. But the implosion of capital outlay costs required for manufacturing is changing this, IMO.

April 19, 2010 1:56 PM  
Anonymous atw said...

Ok, but what's the main reason why coops are hard to run in capital intensive sectors? Because they cannot issue stock etc?

April 24, 2010 10:54 AM  
Anonymous august said...

ok! But the main reason why coops are hard to run in capital intensive sectors is, for example, that they cannot issue shares to finance new investment, right?

April 24, 2010 11:07 AM  

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