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Cooperatives as a Socioeconomic Alternative to the Mainstream: Are We Ready?
by Jacques Kaswan

Still Much To Figure Out

I agree with most of Frank’s and Len’s observations (GEO, winter, 1998) and particularly applaud their emphasis on the need for regional support arrangements in building a cooperative social economy. As Len notes, there are some examples of progress in the US development of worker ownership over the last 10 years or so. Progress, perhaps, but hardly much impact on the mainstream. But imagine that capitalism suddenly collapsed. Are we really ready with an alternative socioeconomic system? While we have learned much from our 150 years of experience, I suggest that we have a lot to figure out before we are ready to offer specific policies that will implement a cooperative commonwealth. For example:

Who/what are we?

It’s good that the old hatchets between different types of cooperatives consumer, worker, business have been buried. But what are the overlaps and differences in values, ownership, organizational practices and economic risks, costs and benefits, for stakeholders in these different types of cooperatives? What about similarities and differences between various forms of worker ownership? For example, even assuming the rare democratic ESOP, the financial outcomes for ESOP and co-op ownership are very different.1 We need to avoid contentious factionalism, but unless we become clearer about the above differences and similarities we confuse ourselves and others about who we are.

Worker cooperatives as democratic


As ESOPs show, worker ownership has no necessary connection with democratic governance or management. If workers do have control over their business, their success depends, as for other businesses, on making sound policy decisions and on effective management. It seems to me that for cooperation in the workplace to be meaningful, it should involve participation of workers in the operation of their enterprise. Partial models for such participation are available, but in my experience are rarely used effectively by cooperatives. For example, over the last 60 years American, British, Scandinavian and Japanese organizational theorists and practitioners have developed and successfully applied models of decentralized decision-making in a variety of capitalist settings. Although employee teamwork is usually used to increase productivity and typically limited to workplace teams, there are also examples of employee participation in decision-making at multiple levels of management.2 Also, one outgrowth of the 1970s efforts to democratize society is the development of sophisticated procedures for group facilitation and consensus decision-making. Small co-ops with less than twenty or so members often try to function consensually, usually without knowledge of techniques for making it work well. To my knowledge, most larger co-ops are managed hierarchically: like most corporations, the board of directors selects management which runs the day-to-day affairs of the company. This is so, even though the board is elected by the workers, who also may participate in major policy decisions. The Mondragon cooperatives, their “Social Councils” notwithstanding, are prime examples of hierarchic management—even “quality circles are the exception rather than the rule in most of their co-ops.

Obtaining capital?

American cooperatives face a double hurdle in trying to raise capital. Since most are small businesses with little equity or prior success, they have the same handicaps as other small businesses. In addition, most lenders are wary of dealing with organizations where, to them, nobody is in charge. Community loan funds are best for micro and small businesses, but are often reluctant to make loans without collateral. The National Cooperative Bank is, in fact, making loans and can make more to co-ops that can show competence and a track record. For example, we (the Association of Arizmendi Cooperatives) are replicating the baking products of a well-established co-op (Berkeley’s Cheese Board); NCB refinanced the first, successful replication and is capitalizing the second one. Government or Labor Union supported funding (as in Canada) can be helpful at times, but history shows over and over again that such funding comes and goes with political winds and should not be used as a primary resource. For example, the U. S. government helped to fund small co-ops during the 1930s, but the funding, along with most of the co-ops, disappeared with economic recovery. In many ways, the main problem in starting or expanding cooperatives is not the difficulty of finding capital but that of helping groups become competent to use the money effectively and prudently. Accordingly, startup and continuing technical support for small enterprises is likely to be the key to the success of small co-op development. Capitalizing large enterprises, like factories, is quite a different matter, and relates to the next issue.

Alternatives to loans?

Since Rochdale, one of the fundamental cooperative principles has been that, beyond being a medium for fair exchange, businesses can rent money by paying interest as they repay the principal. Investment itself has no ownership rights. Cooperatives seek to provide a decent living for all members but, as a matter of principle, offer no option for the accumulation of wealth by individuals or businesses. By contrast, the main goal of capitalism is to create wealth, slim as the chance to do so may be for most individuals in the casino society. One way of generating wealth is by turning businesses into tradable commodities whose value is determined by their prospective profitability. Owners and investors thus gain wealth not necessarily through profits from the sale of goods and services, but from the sale of the businesses they own. The other, related, way to generate capital is by issuing shares. Once the financial market considers a business to have the potential to be profitable, it can go public and, from the proceeds, enrich the founders, repay investors, and finance expansion. This capital is “free” in that it does not have to be repaid and requires only payment of optional dividends. Not having to pay interest or repay the principal obviously gives corporations tremendous financial leverage as ownership is split into tiny parts in the form of shares that can be traded in the speculative frenzy of the stock market. If we are to have a chance to compete on a larger scale, we need to develop investment mechanisms that will give us some such leverage. Savvy financial folks need to come up with a variety of options for raising large amounts of capital. For example, perhaps we could develop some sort of shares that surrender no control but only some portion of profit. Such shares would allow breathing room for larger businesses to grow and plow profits back into the business, instead of having to repay capitalization loans until the business is well developed.

Vision and strategy?

There are many attractive, reasonable visions of a more democratic, cooperative society and we progressives are experienced in jousting over the relative advantages and drawbacks of particular versions. Given the historical record of usually disastrous consequences when untried visions are translated into social and economic policy and practice, I am wary of joining in any strategy for implementing any vision, including ones I like (such as Frank’s)—unless it is grounded in empirically supported theory which provides evidence of its advantages and drawbacks in practice. I believe that we will make more progress by being clear about fundamental principles and by being flexible and pragmatic about the concrete forms for their implementation.

Thus, Fa. Arizmendi, the founder of Mondragon, stressed principles such as democratic worker control of production and distributional justice. The specific forms followed from the principles in ways adapted to the people involved and local conditions; we can learn much from the dilemmas Mondragon has encountered. For example, Arizmendi started with a goal of regional focus. But to become a significant player in their region and create a significant number of jobs, they developed factories and other large businesses that, to be successful, extended beyond their region and, in some cases, achieved national and even international importance. Now they have to compete with international mega-corporations to protect and expand their markets. To do so, they have made strategic alliances with capitalist firms. These have been severely criticized in GEO and elsewhere as abandonment of cooperative principles of control by workers. Perhaps so. What should they have done? On what basis should they have chosen differently? No other system of cooperatives can serve as examples for them. Should they have followed cooperative economic theory? What theory?

We need a usable theory of cooperative socio-economics

Mainstream economic theory is founded on the primacy of property ownership rights expressed in monetary value and fueled by the use of capital in the utilization of labor (as a commodity) and natural resources. Within this framework, prevalent economic theories consider the price and the availability of products and services as determined mainly by supply, demand, and competition. By contrast, “usufruct” cooperative principles assert that only users, the current members of a co-op, can share the risks and benefits of ownership, so that property rights cannot be sold. Similarly, co-op labor is not a commodity rented by employers from workers, but an investment on the part of workers in their business. While these are simplistic over-generalizations, they should suffice as illustrations of contrasting capitalist-cooperative principles.

Mainstream economic theories reflect and influence important aspects of economic life by rationalizing economic policies and practices. However, these theories also seek to explain the dynamics of supply, demand, and competition, and try to account for important outcomes such as productivity, net income and future trends by generating predictions that can be disconfirmed by data. In fact, the widespread failure of theoretical predictions has led many mainstream economists to recognize that some of the basic assumptions of capitalist economic theories are seriously flawed.

To my knowledge, we have little economic theory to guide us beyond Vanek’s work.3 His mathematical models are way beyond my understanding, but I dont believe that they (or other cooperative models) have been applied to major issues in ways that provide theories that can be falsified. For example, we have currently no conceptual or practical mechanisms to deal with the transfer of business ownership where a co-op wants to sell its business in a way that is consistent with usufruct ownership. Another example: for mainstream economics, the invisible hand of competition is supposed to be a self-correcting process in regulating supply and demand. It often isn’t, but do we have a comparable self-correcting process in cooperative economics? The record of state-sponsored or controlled economic enterprises (Marxist or otherwise) seems to me worse than capitalism, and most socialist theoreticians have thrown in the towel and argue for forms of capitalism vaguely regulated by supposedly democratic governmental arrangements.4

If economists are not already working on cooperative theory, we need to find some with a long-term commitment to do so. I hope that they will use major cooperative enterprises such as Mondragon, the participation of cooperatives in the economic revival of northern Italy, and the plywood cooperatives in the northwestern US to test the explanatory power of their work. We need to keep on building new cooperatives, while lending support to existing ones, as best we can. To do so, we need, as Frank and Len suggest, local support arrangements that assist existing co-ops, help to develop new ones, and facilitate inter-cooperative support. But I believe that we will greatly improve our chances of becoming a sustainable alternative to the mainstream if we can deal with theoretical issues such as those raised above.


1. Jaques Kaswan, (1992). Projecting the Long-Term Consequences of ESOP vs. Co-op Conversion of a Firm on Employee Benefits and Company Cash. Davis, CA: Center for Cooperatives, University of California.

2. C. Ichniowsi et al (1996). What Works at Work: Overview and Assessment, Industrial Relations, 35, 299-333.

3. Articulated by Jaroslav Vanek (1977). The Labor Managed Economy, and most clearly explained by David Ellerman in Worker Cooperatives: The Question of Legal Structure, most easily found as a chapter in R. Jackall and H. M. Levin (1984), Worker Cooperatives in America.

4. Ex. include J. Yunker (1993) Capitalism vs Pragmatic Socialism; A. Nove (1993) The Economics of Feasible Socialism Revisited; and P. Hirst (1988) “Associational Socialism in the Pluralist State,” Journal of Law and Society, v. 15.

Jaques Kaswan operated a small business, 1946-51 and was an academic from 1955-79, focusing on democratic organizational practice and community development during the last 15 years of that period. From 1979 to the present, he has functioned as a co-op developer and consultant, developing and assisting limited equity housing cooperatives, co-founding the California Mutual Housing Association and, during the last few years, working as a member of the Arizmendi Development and Support Cooperative. This cooperative serves as staff for the Association of Arizmendi Cooperatives which is currently replicating (second replication under way) the baking operation of Berkeley’s Cheese Board Collective; it hopes to build a base for a Mondragon-type association. For a list of his co-op relevant videos and articles (articles free via e-mail), contact Jaques at: jaka70@aol.com. Include the citation below and GEO Newsletter grants permission to copy, use, and distribute this article.
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