The higher productivity and innovation potential of cooperatives

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.

We recommend you read sections A to D on this topic:

A. Self-Employment: Increased Productive Efficiency
B. Cooperatives: Increased Productive Efficiency
C. Innovation Under Worker Self-Management
D. Social Benefits of Worker Empowerment

One subsection, C, 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.

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.”

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