Can democratic capitalism (workers coops) benefit investors?

In the traditional capitalist idea of the absentee investor who receives financial benefits as a right of ownership without doing any work, the answer is no.

But, the very model of democratic capitalism through workers’ coops redefines who are and are not investors. When the investors are also employees, the answer is yes.

First, some definitions

Capitalism

Capitalism is an economic system that recognizes that owners, investors, and employees are different roles within an enterprise, and generally considers those roles to be fulfilled by different people, which is not a requirement but is common.

Some of the underlying concepts of capitalism are the idea of private property and the ability of people to own parts of a company.

Workers cooperative

A business structure where the above roles exist, workers own the firm, are sometimes investors, and participate in the making of significant decisions through a democratic process where one worker has one vote.

In workers cooperatives, workers vote for the board of directors as well as hire, evaluate, and if needed, fire managers. Workers also vote on major decisions that in other firms are only voted on by board members, such as what to make, how to make it, where to make it, etc. This is why they’re called democratic capitalism.

The interesting thing to me about workers cooperatives is that while they are based on the ownership of private property, they simply distribute ownership of the firm to workers, rather than absentee owners and investors.

The interesting irony of the “free-rider” problem

One criticism of workers cooperatives is what is called the free-rider problem.

The basic idea is that if workers are not individually vested in the success of the venture, they’ll slack off and let co-workers “carry the load” as it makes no difference to them, and as this attitude spreads through the enterprise, the enterprise will fail.

The irony is there is no greater “free-rider” than the absentee owner/investor, be they an individual, a hedge fund, a private equity firm, etc, that imposes conditions on the firm whose objective is to extract money from the enterprise in exchange for ownership rights while doing no useful work.

In general, capitalism includes highly centralized decision making

One thing we can learn from the TV show “Undercover Boss” is that the bosses are constantly surprised to learn details about what front-line workers in their companies do and deal with.

If you ever needed evidence that headquarters, as a general rule, is disconnected from “the real world”, this TV shows provides it.

Yet, our dominant organizing structure for companies is that remote owners, investors, board members, etc, make all the significant decisions without having first-hand knowledge of what it takes to provide products and services and make customers happy.

Are workers cooperatives for real?

The short answer is yes, but bear in mind there isn’t one universally accepted definition of what a worker’s cooperative is. As a result, the setup and structure differ some from country to country and state or province within a country.

Having said that, in any country, state, province, what have you, that recognizes this organizational structure and allows them to be set up, they’re for real.

Both the United States and Canada have organizations whose missing in life is to help people better understand and form workers cooperatives.

Are workers cooperatives truly democratic capitalism?

They sure look that way to me, although they’re often embraced by people who self-identify as being “on the left” who see them as a form of socialism.

I guess whether workers cooperatives are democratic capitalism or socialism depends on what you think those terms mean.

Workers cooperatives are based on shared and partial ownership of private property, specifically in this case ownership of shares of a company.

That sounds like capitalism to me, although capitalism where the rules as to who can and who can not purchase shares are different from the rules used for most firms.

Not only are the rules for who can and can not own shares different, but it’s also easy to argue they’re better, as in a workers cooperative the financial rewards of the capitalist firm go to the people who made it profitable, rather than absentee investors.

When and where did they start?

There appears to be a bit of Anglo-American disagreement here.

One claim is that Benjamin Franklin formed a cooperative fire insurance company in Philadelphia in 1752. Maybe this was not a worker’s coop per se, but rather a coop of customers.

I say this because the International Cooperative Alliance identifies the Rochdale Pioneers as the first workers cooperative that formed in 1844 in Lancashire, England.

But either way, they’re not new.

What types of industries do they work in?

According to the Democracy at Work Institute in the United States they tend to exist in the service and retail sectors:

  • Accomodation and food service
  • Health care
  • Manufacturing and engineering
  • Technology
  • Design

According to the Canadian Worker Cooperative Federation, the situation is similar in Canada.

  • Services
  • Production/Processing
  • Retail/Wholesale

How many are there?

In the USA, almost 400 employ about 6,700 people.

In Canada, about 380 and I was not able to find current information on how many people are employed in one.

How big do they tend to be?

They tend to be small. To use the USA numbers above, 6,700 people working in 400 firms is an average headcount of 17 people per worker’s coop.

Having said that, the occasional large one skews the numbers

Ocean Spray, the cranberry and cranberry juice company is a workers coops with approximately 2,000 team members, as they call their employees.

When we recalculate after removing them, the revised average is 12 employees per worker’s coop.

And of course, no discussion of workers cooperatives is complete without mentioning the Mondragon Corporation of Spain, which is arguably the world’s most successful workers’ coop.

It was started in 1956 with six people and have since grown to 95 cooperatives employing 80,000 people at 141 production plants in 37 countries and selling product in 150 countries.

Democratic capitalism can be done within large enterprises, it’s just hasn’t often been done.

How are they governed and managed?

Like all corporate entities, there are founding documents that describe how they’re organized and governed.

They have bylaws and operating agreements, which spell out the rules for governance.

You can find a set of sample documents in the Resource Guide of the Democracy at Work Institute website.

What criticisms of them exist?

As you might imagine, there are people who are strong fans of the idea of democratic capitalism through workers’ cooperatives.

But, they are not without their critics.

The criticisms I found fall into two broad categories, each of which is represented by one example below.

The strangest (at least to me) criticism I found is one where the criticism is that democratic capitalism is still capitalism. I find that strange because, in my mind, that’s the point of them. They’re capitalist business structures that distribute the ownership of the firm to the employees, which is the most democratic form of capitalism that I think can possibly exist.

Another common criticism is that by prioritizing employment over economic efficiencies, workers’ cooperatives will not be able to compete with more pure capitalist business structures that will take advantage of automation.

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