A critique of the ideas of U.S. cooperative leaders such as Richard Wolff and Gar Alperovitz:

Excerpted from Sam Gindin:

“If state ownership is rejected as a proxy for the commons and if ownership in worker-controlled enterprises is in the hands of the workers, then these groups of workers essentially become their own capitalists. They have ownership rights, mobilize their own finances, and control and reinvest “their” surplus for their own advantage.

The significance of having legally authorized property rights was driven home in the aftermath of Argentina’s 2001 economic crisis. While workers took over shuttered factories, they needed the clear collateral of property rights to avoid being denied financing and credit to purchase components and supplies in advance of sales.

The state gave into this demand, but only on the condition that the workplaces become co-ops, meaning workers inherited the debts of the “recuperated” factories and were also responsible for their losses.

The most militant workers balked at such an arrangement. They wanted a role in managing the workplaces, but argued the state should legally take them over, finance their renewal, and link them together in a plan across workplaces. Those demands were generally defeated.

So workers ended up with co-ops and were triply undermined as competitors within capitalism: they started with facilities capitalists had left undercapitalized and uncompetitive; they were saddled with debt; and they had to put their own savings into the facilities or accept lower wages to address the issues of debt and new investment.

The case of Argentina casts doubt on the notion that having more worker-controlled workplaces or co-ops readily translates into an increasingly egalitarian social order.

Without an alternative institutional mechanism for coordinating productive activities, competitive markets — which Hahnel described as “the cancer of socialism” — transform differences in assets, skills, locational advantages, and product valuation into stark inequalities between workers and communities.

The negative impact of such inequalities on social solidarity was made painfully evident in the former Yugoslavia, which had implemented full market socialism. The uneven distribution of historic and geographic advantages meant that inequalities across firms were also expressed regionally.

Where this overlapped with ethnic and clientelist political structures, it dangerously aggravated ethnic tensions. And as northern Yugoslavia developed closer economic ties with Europe, these inequalities were amplified.

One of the most important of the inequalities generated by competition — an inescapable part of capitalism — is unemployment. If successful enterprises drive unsuccessful ones out of business and if worker collectives prefer not to hire and share profits with workers just entering the workforce, what happens to workers left without a job?

Wolff has pondered this question, and acknowledges that an economy populated by WSDEs would require state intervention to fight unemployment. But his antipathy toward the state leaves him with a surprisingly naïve answer: “Instead of a period of receiving regular unemployment payments, [workers] could choose to get the total payments in advance as initial capital for a WSDE.”

Sending workers who have failed to find jobs back into the competitive jungle, or offering workers just entering the workforce a chance to compete with those already established, sounds a lot like solutions offered by the libertarian right. And it ignores the fact that the one place with such a program — Italy — has unemployment rates double those of the US.

One model that appears, on the surface, to better address the problem of fragmented working-class ownership is the Quebec Solidarity Fund (QSF) — one of the examples of “real utopias” that Wright praises.

The QSF is distinct in that the state subsidizes workers to invest in a “solidarity fund” and places ownership and investment decisions not in the hands of dispersed workers or sub-groups of workers but in a larger collectivity — in this case, a central union body.

While Wright acknowledges that the QSF doesn’t challenge capitalism, he still seems to believe it can contribute to the larger project of doing so. This is mistaken. Putting labor leaders in charge does not in itself guarantee a better politics. Indeed, the QSF was originally designed to divert populist attention from radical demands like control of private financial institutions — not to democratize the economy.

In reality, worker participation in the QSF consists mostly of sharing in the uniquely high tax breaks granted to those who contribute to the fund (a benefit that has helped mute criticism of corporate tax breaks). The QSF also provides the Quebec Federation of Labour with clientelist opportunities such as high-paying jobs at the top and remuneration for activists who sell the program in workplaces.

Above all, the fund’s concern for high returns and legitimacy in investment circles has prevented it from using its funds to favor unionized firms, refraining from investments in anti-union firms, considering creative conversions, or showing any significant affinity for social investments.

In this regard, Wright’s misleading identification of Quebec as a “social economy” seems to reflect a tactical determination on the Left to find positive examples that spur optimism. To its credit, Quebec has introduced progressive programs like child care.

But the overall story is not all that different from other jurisdictions. Students and unions have been marching in the streets against tuition increases, public-sector cutbacks, wage freezes, and environmental degradation. Yet in Quebec, as elsewhere, no “social economy” has replaced the set of policies we identify as “neoliberalism.”

More ambitious proposals that slowly collectivize property without directly limiting capital’s power are even more likely to come up against serious barriers. The Meidner Plan in Sweden is a useful illustration.

The Meidner Plan, designed by the LO (Sweden’s labor central) in the 1970s, proposed an annual levy on profits that would then be converted into shares and placed in a central fund controlled by unions (which at the time represented over 80 percent of workers).

The funds could be democratically allocated to regional and sectoral development and, over time, majority ownership of the nation’s productive assets would shift from private owners to the Swedish working class.

But the issue of time turned out to be a major problem: throughout the transition, the Swedish economy would remain dependent on the same private corporations the plan sought to expropriate.

Warning that they would instinctively hold back long-term investment if their property rights were threatened, and arguing that efficiency, stability, and even living standards would suffer irreparable damage if the transfer of ownership took place, corporations mobilized aggressively against the Meidner Plan.

Countering business’s threat demanded a broad, aggressive response, including blocking corporations from running down their assets or leaving the country. But such a dramatic rupture with capitalism was not on the agenda, and the LO’s proposal — elegant in theory but contradictory economically and politically — went down in defeat and was never revived.

A sober assessment of the successes and failures of experiments in worker ownership is essential. Unfortunately, the weakness of the Left has reinforced a tendency to exaggerate the significance of promising struggles.

Desperate for good news, activists wildly applaud each worker takeover or “breakthrough.” But as the novelty fades, what we get is not hardheaded analysis but a shift in attention to the next inspiring action — and then the next.

A case in point is Republic Windows in Chicago. After an announced closure, a sit-down, a change in ownership, and another announced closure, workers — with no hope of finding another owner — courageously took the step of establishing a workers’ co-op. A flurry of enthusiastic articles followed, with the hope that it might spur a long-awaited resurgence of the labor movement.

But when that didn’t quickly come to pass, Republic dropped off the Left’s radar. There was almost no discussion about the distressing eventual outcome: of the original 240 workers who faced the first closure announcement in 2008, only 17 remain, and due to competitive pressures, they pay themselves near or below the minimum wage (as “co-owners,” they’re not covered by minimum-wage laws).

The tragedy of Republic Windows highlights the limits of sporadic, more or less arbitrary takeovers, especially when — as is the norm — the factory in question has been spurned by capital but remains subject to the same competitive relations between enterprises.

Though admirable as defensive measures, factory takeovers are not inherently threatening to the status quo, nor do they necessarily lead to the deeper understandings, commitments, and strategic capacities that could provide the basis for a future challenge to capitalism.

A more dramatic illustration is the wave of takeovers in Argentina, which sparked especially intense excitement on the international left.

Buoyed by the support of surrounding communities; the solidarity of workers from other taken plants; and the piquateros (mobilized groups of unemployed workers), workers successfully blocked state attempts to evict them from their recuperated factories.

Moreover, in the process of operating these workplaces, workers learned new skills, a higher priority was placed on health and safety, workers tended to be more flexible in sharing workloads, and hierarchies within the workplace and income stratification were substantially flattened (particularly where struggles to keep workplaces open were most acute).

As in past moments of profound political turmoil, the actions of workers confirmed the radical potential and centrality of the working class. Marina Kabat, a close observer of these developments, rightly characterized the Argentinian events as “one of the greatest achievements of the workers’ movement.” But Kabat also counseled caution: “To overlook their limits and contradictions will not help to preserve them [nor] develop their complete potential for the future.”

Though these actions represented concrete alternatives for particular groups of workers and their communities — and left important legacies — they did not develop into an alternative model for society as a whole. Plants were taken over out of desperation, not strategic preference.

Without a conscious strategy for overall social transformation, especially the need to go further and win state power in order to support, expand, and coordinate the takeovers and eliminate competition as a driving force, a break with capitalism was never a genuine possibility.

Takeovers remain on the agenda in Argentina today, but their growth has slowed amid a fall in closures. As of 2014, there were some three hundred worker-owned operations covering nearly fourteen thousand workers — a fraction of Argentina’s two hundred thousand registered businesses and less than one-tenth of the country’s workforce. Worker takeovers haven’t touched prosperous workplaces or the “commanding heights” of the economy.

Another popular micro-alternative is the co-op, a form of business based on the egalitarian principle of one member, one vote. There’s no disputing the achievements of co-ops, but it’s important not to exaggerate their significance.

While Marx famously praised worker cooperatives as “represent[ing] within the old form the first sprouts of the new,” he also insisted that “they naturally reproduce, and must reproduce, everywhere in their actual organization all the shortcomings of the prevailing system.”

Formal equality in co-ops doesn’t necessarily mean that everyone participates equally; as in electoral democracy, bureaucracies and elites (and indifference) readily thwart the promise of equal voting rights. Additionally, over 90 percent of co-ops are consumer co-ops, meaning the main owners aren’t the people who work there.

Even in worker–owned cooperatives, membership and employment don’t always coincide: at Cooperative Home Care Associates, America’s largest worker-owned cooperative, only half the workers are co-op members. This isn’t unusual: many co-ops are co-ops in name only, and some large ones even openly encourage special stock ownership that weakens membership control.

Co-ops are also not nearly as autonomous from capitalism’s dictates as advocates imply. Credit unions — the most prevalent kind of co-op — have had to enter financial markets to raise the funds to service their base, and are therefore effectively integrated with Wall Street. Some were even implicated in the 2008 financial crisis.

A look at Mondragon, the iconic, six-decade-old co-op in the Basque Country, reveals the limitations of co-ops. Boasting a workforce of 80,000, and operating on a global scale through 150,000 companies with annual sales of $16 billion, Mondragon is a living demonstration that it is possible to run a business that has a formally democratic structure, a significantly flattened income and power structure, and a humane, planned layoff model.

Still Mondragon falls far short of Albert and Hahnel’s ideal. While the executive-to-worker income ratio is 6.5:1 — a fraction of the 350:1 in the US — it still leaves top managers inhabiting a different world than workers. And, as Sharryn Kasmir has shown in her research, participation in decision making has primarily been of interest to lower-level management — not workers.

Recent developments have brought additional troubles. Competitive pressure drove the closing of one of Mondragon’s largest operations (Fagor, an appliance manufacturer with 3,400 workers), and the co-op finds itself increasingly reliant on temporary workers at home as well as growing production abroad that uses workers who are hired labor, not co-op members.

In short, co-ops, once an integral part of radical political movements, are now largely integrated into the capitalist order. They may lobby for particular changes, but they no longer mobilize alongside those fighting capitalism.

Instead, the main interest of co-op members is generally no more radical than getting a higher selling price or lower buying price in the market — nothing to scoff at, but also nothing to make capitalists sweat.

Even with these shortcomings, takeovers and co-ops do have some positive strategic attributes. The enthusiasm for employee stock-ownership plans, in contrast, is downright puzzling. Under ESOPs, workers are partially compensated through company shares that are held in trust until they retire or leave. A notable proponent, Alperovitz concedes that ESOPs are far from perfect but still cites them as evidence of “evolutionary reconstruction” in the advance of democracy.

Yet ESOPs were introduced to undermine workplace democracy and worker power, not enhance it. Corporations like Proctor and Gamble, IBM, Coca-Cola, and UPS chose employee stock-ownership plans for the tax breaks and to help keep unions out (or at least limit their mobilization against wage or benefit concessions by offering a partial “offset”).

As a Federal Reserve paper examining the relationship between union bargaining and ESOPs concluded, “ESOPs create incentives for unions to become weaker bargainers.” From the perspective of challenging capitalism, ESOPs aren’t prefigurative, but integrative. The stock holdings offered to workers involve no redistribution of power, and what workers generally “share” in terms of corporate revenue is merely a slice of what they recently gave up.

In attempting to establish the hegemony of the idea of ESOPs, Alperovitz coyly quotes none other than former president Ronald Reagan: “I can’t help but believe,” Reagan said in a speech in 1987, “that in the future we will see in the United States and throughout the western world an increasing trend towards the next logical step, employee ownership.”

But far from suggesting the power of an idea whose time had come, Reagan’s endorsement (as the full speech makes clear) signaled his comfort with a mode of organization that no longer threatened the establishment.

My point is not to dismiss the importance of strategies designed to increase worker control and ownership. In general, factory takeovers and co-ops should be enthusiastically supported.

But what’s missing in so much recent analysis is a sober, comradely investigation of their strengths and weaknesses so that, over and above solidarity, we can learn from them rather than add to existing illusions — thereby gaining a better appreciation of what transforming society would really require.”

Photo by Visit Húsavík

6 Comments Worker ownership and cooperatives will not succeed by competing on capitalism’s terms

  1. Michael LewisMichael Lewis

    Excellent critique that raises important questions that worker-owners need to reflect if their efforts and to have broader community – societal benefits in the longer term. We have too many examples of inspired beginning and atrocious endings that are seldom analyzed.

  2. John Atherton

    Long on critique, short on solution as ever. I’m tired of radicals picking holes in everything, when their/your intellectual energy would be better spent on helping people find real solutions to their day to day misery.

    In the UK worker co-op movement we have a small but growing number of good quality worker co-ops who live up to right ideals, pay decent wages and fully compete in free market economy such as http://www.suma.coop. Yes they are not perfect but nothing is.

    There is never going to be a grand revolution, the only way people will better themselves is through competing against capitalist businesses and winning and they need all the help they can get.

  3. Michael LewisMichael Lewis

    I think your comment John is warranted. However, having worked with diverse types and scales of business and ownership models, and having been involved as a worker owners as well, the challenge is how to design into a social change oriented business the means by which community benefit features in the mission do not get displaced. In our worker co-op an attitude developed over time that workers should not have to absorb the opportunity cost or slightly reduced incomes associated carrying out the non-paying social change work or the support of others to do so.

  4. Douglas F. Jack

    Thank you Michael Bauwens for this analysis of Worker Co-ops worldwide such as Argentine, Spanish Mondragon examples, as well as the John A & Michael L.’s following salient comments. I’m involved since 1968 in the development of student, worker, consumer & solidarity co-ops & multi-stakeholder (Founder, Worker, Supplier & Consumer) progressive-ownership participatory businesses as well as unions as a Shop-Steward & representative at Canadian British-Columbia & Quebec provincial levels in Pulp & Paper for Pollution-Control & Forestry for Health & Safety. 1969-80, I lived & worked among pacifist: Dukobour, Mennonite, Quaker & 1st Nation communities continuing.

    Like Frederick Engels & Karl Marx & other 19th century researchers such as Petr Kropotkin, my attention for sustainable full-participation economy is drawn to pre-colonial ‘INDIGENOUS’ (Latin ‘self-generating’) ‘ECONOMY’ (Greek ‘oikos’ = ‘home’ + ‘namein’ = ‘care-&-nurture’) from which both ‘capitalism’ (L ‘cap’ = ‘head’ = ‘wisdom of contributors’) & ‘socialism’ (‘associate’) are derived.

    Engels & Marx draw upon the writings of Lewis-Henry Morgan’s ‘Origins of the Family, Private Property & the State’. Morgan bases his study upon the Haudenosaunee Confederacy of 1st Nations in New York, Quebec & Ontario. Kropotkin in ‘Mutual-Aid’ draws upon 1st Nations across Russia & Production-Society/Guild economic organization. Indigenous progressive-ownership participatory domestic, industrial & commercial economy integrates what are the dysfunctional-fragments of accounting, organization & trade lost in the colonial brutality of monetary capital & social economy.

    Indigenous economy includes accounting for collective aspects of domestic-economy contributions in ~ 100 person Multihome-Dwelling-Complexes (Longhouse/Apartment, Pueblo/Townhouse & Kanata/Village). 70% of the world’s population today, live in ~ 100 person Multihomes. In order to re-establish full-participation economy, we need to start with all contributors such as those women who some of whom, manage the domestic family & community tasks as our core economy. By re-incorporating ‘community’ (L ‘com’ = ‘home’ + ‘munus’ = ‘gift-or-service’) domestic ‘spending’ economy back into industrial-commercial ‘earning’ economy we actually ‘double’ community income & capital. Domestic economy enables us to multiply or recirculate dollars, time & resources among us. We bring the voice of organized women & all generations back into integrated whole-life economic governance. Indigene Community as a group would love to share these most successful & profitable existing indigenous participatory economic business models as well as multi-stakeholder Community-Economy software which, our master programmers are developing to facilitate multihome & participatory economy for everyone, everywhere with P2P. https://sites.google.com/site/indigenecommunity/relational-economy/8-economic-democracy

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