Cooperatives - Discussion

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Discussion on Cooperatives

Separating Ownership from Voting Rights

Presented as a solution to the degeneration problem (i.e. coops turning into for-profit enterprises):

"The Mondragón co-ops avoid this degeneration by separating ownership, which varies in value, from voting, which is strictly equal. Instead of buying stock, new applicants advance labor to pay the membership fee. Roughly a year's salary, this loan by members starts an "individual capital account" (ICA) to which monthly and year-end profits and losses are credited or debited. (Thomas & Logan 1982, p. 136) Unlike stock shares, ICAs are neither accumulable nor sellable and carry only one vote. Being both individually recoupable upon leaving yet available meanwhile for collective investment, they constitute a sort of bank inside each co-op. Rights attach solely to membership and terminate when members retire or leave. There being no non-worker owners, co-ops remain whole solely in the hands of their active workforces, avoiding the Rochdale error. A co-op could be sold, but only by a hard-to-muster two-thirds of a general assembly vote, and this has never happened.

The "salary" spread from lowest to highest, currently 1 to 6, is based on an agreed job rating index. "Salary" is in scare quotes since members, not being employees, receive no wages or salaries. Rather, they have the following rights of owners and managers: 1) monthly and annual profit distributions; 2) 6% annual interest on their loans to the co-op; 3) a vote on undistributed funds; 4) access to all records; and 5) a vote on policy and managers.

Mondragón has outlasted Olympia as a co-op by 20 years, due partly to separating voting rights from ownership rights." (

How is Cooperative Production related to P2P?

Michel Bauwens, comparing p2p and cooperatives:

"1. P2P is based on cyberspace and therefore it has a global scale and cooperatives are designed for a physical (and therefore inherently more local) production system.

2. P2P belongs to all while cooperatives belong to an specific collective (workers or consumers)

3. P2P produces use value in a commons; while cooperatives run in the marketplace and, because of that, they are geared towards the creation of exchange value.

4. P2P is emerging as a phenomenon supported by online world, are emerging as more productive that other forms of production, while cooperatives have traditionally been marginalized in our capitalist world.

5. P2P is a system where anyone contributes but without any exigency of return and cooperatives are based on reciprocity.

6. They can be complementary in the following way: 1) globa-local Open Design communities create a Commons for the global development of the knowledge; 2) local cooperatives work in the marketplace, using the open designs, and are themselves contributing to it.

7. Cooperatives are a more equity-based approach to working with peer communities, than for-profit institutions, and therefore may be preferable as a format for the marketization of the exchange value that is derived from the P2P-commons"

More Discussion on this topic via the following Blog entries:


Data on the Higher Labor Productivity of Cooperatives

Mira Luna:

"As to the efficiency effects of greater worker participation, the HEW study of 1973 concludes, “In no instance of which we have evidence has a major effort to increase employee participation resulted in a long-term decline in productivity.” Nine years later, surveying their empirical studies, Derek Jones and Jan Svenjnar report, “There is apparently consistent support for the view that worker participation in management causes higher productivity. This result is supported by a variety of methodological approaches, using diverse data and for disparate time periods.” In 1990, a collection of research papers edited by Princeton economist Alan Blinder extends the data set much further and reached the same conclusion: worker participation usually enhances productivity in the short run, sometimes in the long run, and rarely has a negative effect. Moreover, participation is most conducive to enhancing productivity when combined with profit sharing, guaranteed long-range employment, relatively narrow wage differentials , and guaranteed worker rights (such as protection from dismissal except for just cause)- precisely the conditions that will prevail under Economic Democracy.[1]

As to the viability of complete workplace democracy, we note that workers in the plywood cooperatives in the Pacific Northwest have been electing their managers since the 1940s, workers in the Mondragon cooperatives in Spain since the 1950s. There are some twenty thousand producer-cooperatives in Italy, comprising one of the most vibrant sectors of the economy. The Swedish cooperative movement is also large and impressive. Needless to say, not all self-management ventures are successful, but I know of no empirical study that even purports to demonstrate that worker-elected managers are less competent than their capitalist counterparts. Most comparisons suggest the opposite; most find worker self-managed firms more productive than similarly situated capitalist firms. For Berman, on the plywood cooperatives, states:

“The major basis for cooperative success, and for survival of capitalistcally unprofitable plants, has been superior labor productivity. Studies comparing square-foot output have repeatedly shown higher physical volume of output per hour, and others…show higher quality of product and also economy of material use.” [2]

And Thomas on Mondragon:

“Productivity and profitability are higher for cooperatives than for capitalist firms. It make little difference whether the Mondragon group is compared with the largest 500 companies, or with small- or medium-scale industries; in both comparison the Mondragon group is more productive and more profitable.” [3]

There is also the example of Weirton Steel. In 1982, following a mediocre year and facing bleaker prospects, National Steel offered to sell its Weirton, West Virginia plant to its 7,000 workers. The deal was completed in 1984. Weirton proceeded to post eighteen consecutive profitable quarters- at a time when many steel firms suffered steep losses, including two of Weirton’s competitors, who were forced into bankruptcy.[4] United Airlines, now majority owned by its pilots and technicians, has survived the intense competition that has brought down so many conventionally owned carriers." (


  1. Citations in this paragraph are from US Dept of Health, Ed, and Welfare, Work in America(Cambridge, Mass: MIT Press, 1973), 112; and Derek Jones and Jan Svenjar, eds., Participatory and Self-Managed Firms: Evaluating Economic Performance (Lexington, Mass: Lexington Books, 1982), 11. See also Alan blinder, ed., Paying for Productivity: A Look at the Evidence (D.C.: Brookings, 1990), especially the contribution by David Levine and Laura Tyson.
  2. Katrina Berman, “A Cooperative Model for Worker Management,” in the Performance of Labour-Managed Firms, ed. Frank Stephens (New York: St. Martin’s Press, 1982), 80.
  3. Hendrik Thomas, “The Performance of the Mondragon Cooperatives in Spain,” in Participatory and Self-Managed Firms, ed. Jones and Svenjar, 149.
  4. For more on Weirton, see James Lieber, Friendly Takeover: How an Employee Buyout Saved a Steel Town (New York: Viking, 1995).

Cooperatives, Productivity, Innovation

Kevin Carson's fifteenth draft chapter of Organization Theory goes into a detailed comparison of the productivity of cooperatives vs. business enterprises. It shows, how the meta-system is skewed against the cooperative format, despite their higher productivity.

One subsection discusses the issue of Innovation:

"Critics of worker cooperatives frequently charge that they skimp on capital investment in order to maximize employment. But to put it in less value-laden terms, that simply means that cooperatives economize on capital at the expense of labor efficiency. Capitalist enterprises, on the other hand, do just the opposite: they pursue a strategy of capital substitution in order to maximize labor efficiency, reduce labor costs, and minimize agency problems associated with labor--even when it means relying on the relatively wasteful use of large capital and energy inputs.

What's happened in the United States is that we have displaced those ways of producing goods which are efficient in using energy, efficient in using capital, and inefficient in using labor with the reverse, and the upshot is that we tend to waste energy, to run out of capital, and to run out of jobs.

What's the difference between the two approaches? The difference is that we are conditioned to see the maximization of utility by owners of capital as the normal purpose of economic activity, but to dismiss maximization of utility by labor as "malingering."

Barry Stein, as we have already seen, argues that incremental improvements in the production process, cumulatively, have more of an effect on productivity than do generational changes in production machinery.

Jaroslav Vanek makes the distinction between major and minor innovations. While major technological innovations,

"if profitable, will generally find outlets into productive application whatever the economic system, the minor ones may or may not depending on the environment in which they are made. ....[T]he labor-managed form of productive organization is highly conducive to minor innovative activity within the firm...."

Probably the best way of distinguishing between what we have termed major and minor innovations is that the latter generally cannot be the subject of a full-time professional occupation. Rather, they will arise as an externality... of an activity whose primary purpose is something else than to innovate--generally to produce or contribute to the production of some good or service. More concretely, ...a repeated act of production will stimulate reflection on how that act could be facilitated, or done more efficiently....

Clearly... the situation most conducive to the application of minor innovations is one of an individual self-employed producer, provided that he is not constrained by financial limitations. As far as conduciveness--or the incentive--to innovate goes, the labor-managed firm is the second-best solution.... First of all, the self-management structure... provides an excellent channel of communication, unparalleled in any other firm, between those who have innovative ideas, those who decide on an procure the capital implementation, and those who incorporate the innovation into the income-distribution scheme of the firm. Second, the innovator in the labor-managed firm need not worry that the capital owner will exploit the innovation and leave him with only a small part of the gain.

The reference to developing ideas for minor innovation as a side-effect of production, by the way, is reminiscent of Jane Jacobs' theory of technical innovation as finding new uses for the waste materials of an existing production process, or spinning off production techniques from existing products (for which the new techniques may not even be suitable) to new product lines. A good example is 3M (originally Minnesota Mining and Manufacturing) corporation's lines of adhesive tape (including Scotch tape), which were an offshoot of an unsuccessful experiment in developing adhesive backing for sandpaper in their primary business line.

According to Barry Stein, the cumulative effect on productivity of small, incremental innovations (i.e., Vanek's "minor innovations") is as great as that of generational leaps in technology. He cites a 1965 study of DuPont rayon plants by Samuel Hollander, which found that "'minor' technical changes--based on technology judged relatively 'simple' to develop... and usually representing 'evolutionary' advances... accounted for two-thirds of the unit-cost reductions attributable to technical change at most of the plants considered."

Such incremental changes made it possible "to incorporate within a given structure sufficiently productive technology to permit an older plan to produce almost as efficiently as a newly built plant"--and "the sum total of the outlay needed to accomplish the alterations at the older plant [would be] relatively small."

Stein echoes the insights of Vanek and Jacobs about innovation as the byproduct of the production process.

It has already been noted that much of the technological progress within a firm is the result of a series of small innovations.... The primary source of all innovations is derived from the recognition of a need, rather than from technical opportunity, as such.... In one study, only 21 percent of the successful innovations stemmed from technical sources; 30 percent were a response to perception of a need/opportunity in manufacturing; and fully 45 percent were due to market factors. Such recognition of a need, whether within the firm or with respect to the outside market, becomes possible only under conditions in which workers... are more generally knowledgeable about the organization, its operation, and its relationship to its environment.

Likewise, the most successful product innovations often result less from generational changes or fundamentally new technologies than from tinkering with existing products.

Tom Peters, in his observation of the corporate world, found numerous examples of the phenomenon.

As we already saw in Chapter Five, Hayek argued for the role of the distributed knowledge of those engaged in the production process in making such incremental process and product improvements. Let's repeat his earlier quote: To know of and put to use a machine not fully employed, or somebody's skill which could be better utilized, or to be aware of a surplus stock which can be drawn upon during an interruption of supplies, is socially quite as useful as the knowledge of better alternative techniques....

Is it true that, with the elaborate apparatus of modern production, economic decisions are required only at long intervals, as when a new factory is to be erected or a new process to be introduced? Is it true that, once a plant has been built, the rest is all more or less mechanical, determined by the character of the plant, and leaving little to be changed in adapting to the ever-changing circumstances of the moment?

The fairly widespread belief in the affirmative is not, so far as I can ascertain, borne out by the practical experience of the business man. In a competitive industry at any rate--and such an industry alone can serve as a test--the task of keeping cost from rising requires constant struggle, absorbing a great part of the energy of the manager. How easy it is for an inefficient manager to dissipate the differentials on which profitability rests, and that it is possible, with the same technical facilities, to produce with a great variety of costs, are among the commonplaces of business experience which do not seem to be equally familiar in the study of the economist.

Innovation in an economy where self-employment and worker ownership predominates would likely include efficiencies which presently go unrealized because of the special agency problems of absentee ownership and hierarchical authority." (