An interesting debate on the discussion web site Plastic about the viability of worker cooperatives (a business model that Michael Moore touted in Capitalism: A Love Story) encompasses economics, philosophy, and business ethics.

The initial post…

Not a Mere Factor of Production

There is this bookshop on 57th Street, South Side. Finding your way through the store is like a discovery in itself: secretly unfolding, a series of forking, book-lined paths winding around, crossing room after room after room (yellow Philosophy Room, blue Asia Room, blue History Room, back through the Table Room into the Green Corridor towards the Green Downstairs and further) filled with books, books, books: and the occasional, simple, wooden chair.

Tacitus’ Annales in Latin, Love All the People by Bill Hicks, Steinsaltz’ Talmud translation, A Gate at the Stairs by Lorrie Moore, a Hittite dictionary, all five volumes of Michael Spivak’s ‘Differential Geometry’, George F. Kennan’s memoirs, Carl Sandburg’s Life of Lincoln, Sara Paretsky’s essays, The Irony of American History (Reinhold Niebuhr): they’re all there.

If you ask the customers why they like coming here, some of them will politely mention that, by the way, this is the bookstore where Barack Obama is a member too. Yes, a member: for the most remarkable thing about this bookstore is that it represents an alternative economic model: it is a co-op, a cooperative business, with clients taking a direct share (and voting rights with that) in the company they’re buying from.

Cooperatives are more common than you might think.

The biggest bank in the Netherlands, Rabobank, is a cooperative, managing 1112 local offices. Another cooperative bank, Credit Agricole SA is the largest retail banking group in France, the second largest in Europe and the eighth largest in the world by Tier 1 capital. Austria’s Raiffeisen Zentralbank’s 55,400 full-time employees serve over 11.7 million clients in Central and Eastern Europe.

Both the largest (84,000 employees) and the second largest supermarket chains in Switzerland are run by cooperatives. The UK-based Co-operative Group, now managing the Somerfield supermarkets chain, has over 4.5 million members and 123,000 employees across all its businesses (which, among others, are active in funeral care and legal services). It is easily beaten by Italy’s Legacoop, with its 7,736,210 members and 414,383 employees.

Phoenix-based Best Western International, the world’s biggest hotel group, is a cooperative with over 4,000 hotels in nearly 80 countries. REI (Recreational Equipment Inc.), employing over 9,500 people, ranked as number 14 on the list of Top 100 Companies to Work for by Fortune Magazine in 2009; it has been on the list since 1998. Its Canadian counterpart, Mountain Equipment Co-op (MEC), is Canada’s largest supplier of outdoor equipment; it has over 2.9 million members (share holders).

I could go on with examples (engineering companies in Spain’s Basque Region, renewable energy cooperatives in Germany and Belgium), but I think you get the point: companies where both the producers and clients are direct stakeholders can be a viable economic model.

There is a twist though: while both a cooperative and an ordinary company issue shares, corporate shareholders expect the value of their shares to increase over time. This is not true with cooperatives: shares can be sold back, but at the original buying prize. The end result is that while corporations are managed with the goal of maximizing annual profits to pay increasing dividends year over year, a cooperative’s reason for existence is not to make profit, but to provide benefits to its members.

I could go on with examples (engineering companies in Spain’s Basque Region, renewable energy cooperatives in Germany and Belgium), but I think you get the point: companies where both the producers and clients are direct stakeholders can be a viable economic model.

There is a twist though: while both a cooperative and an ordinary company issue shares, corporate shareholders expect the value of their shares to increase over time. This is not true with cooperatives: shares can be sold back, but at the original buying prize. The end result is that while corporations are managed with the goal of maximizing annual profits to pay increasing dividends year over year, a cooperative’s reason for existence is not to make profit, but to provide benefits to its members.

Proponents believe this is the way forward for a more sustainable, as well as dynamic and social economy: do you?

Some responses…

To answer the final question, no. Some meld of cooperative and income trust will eventually replace corporations, but cooperatives aren’t attractive to investment.
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That depends on how aggressive an investor you are.

My own cooperative offers a yearly six percent rent (capped by law) — which is better than a savings account over here. The problem with using it as an investment tool is that the number of shares a single person can own is limited; end result being that if you want a decent return on your money, and invest in your community, you’ll have to spread your money over several co-ops. But it is possible to use co-ops as an alternative to a savings account (people used to think that was riskier, but that was before our little 2008 recession).
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I’m actually looking at it from the other angle.. that without investment you can’t easily grow the business, but as we’ve seen an over-reliance on investment leads to business that’s primary goal is to inflate stock prices.

Mutual and employee-owned models of business operate with longer time-horizons, achieving higher levels of performance and customer satisfaction. They nurture greater power for individuals over their economic lives and increase the accountability of managers.
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I worked at an employee-owned company for a few years early on, and only now appreciate its finer traits having worked at other companies that are much less fairly structured.

The company I worked at required vice presidents to own 100,000 dollars worth of stock. The company helped new VPs finance the 100,000 stock buying over a long period. However, this 100,000 investment in the company meant that VPs often worked as hard or harder than others to ensure the company’s success. Also, VPs and other higher-ups didn’t over-indulge themselves with expensive company-paid dinners. Of course, that also meant that the rest of us couldn’t either.

The company also had longterm employee stability. During the 6 years I worked there, there was never a large lay-off. Employees were very occasionally fired for mishandling their work. Even now, in the recession, that company didn’t lay off a single person.

However, the trade-off was that because hardly anyone ever left the company, there was very little upward mobility. Hence, the reason why I eventually left along with many younger people at that time.
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This absolutely makes sense to me. The goal of ever-increasing profit, whatever you use to represent that profit, is cancer functionality built into the very ideology of society. It’s unsustainable, and it grinds down the people it should be elevating.

But this? I like this. Appeals to the Taoist in me. If we ever make it to The Future (TM), these will be our little villages.
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I think Capitalism is a stepping stone on financial evolution of societies. Once we embrace a more global economy, it simply won’t be able to sustain itself and some sort of cooperative with incentives plan will have to be put in place to insure all boats rise. Naturally, some will be more successful or “profitable” if you look at it like that.

Read more here…

Posted on February 17, 2010 at 12:39 pm
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Categorised under : business , economic philosophy , economics , jobs and unemployment
Tagged with : jobs , worker co-ops