Why aren't there more co-ops?

Why aren't there more co-ops? Tyler Cowen says:

It is naive to think that liquidity problems [the difficulty of raising finance] are the major issues preventing workers from enjoying greater control rights.

He might be right. I reckon there are at least six other reasons why we don't see more co-ops.
1. Risk-aversion. A worker who owns part of his own company is putting all his eggs - his human and financial capital - into one basket. Risk-averse people will be reluctant to do this, even if they can borrow freely. External owners, however, can spread risks easier.
2. Demand for cash. Even where a co-op is thriving, its members might be happy to sell up for a few thousands. This isn't necessarily because of short-termism or a lack of desire for autonomy. They might think that paying off the mortgage or moving nearer to early retirement better increase their freedom.
3. The status quo bias. Unless things get really bad, people prefer the devil they know. So if capitalist ownership is mildly inefficient and repressive, there'll be little demand for radical change.
4. The myth of leadership. For centuries, we've been led to believe that we need leaders; as Joseph Schumpeter said, the feudal mindset can give ideological support to capitalism. Almost all political and managerialist discourse bolsters this belief. There's therefore a huge ideological weight against worker control.
5. Adaptive preferences. People want what they can get. So if they believe worker control is infeasible, they won't want it, whatever its actual merits. 
6. Markets in control are imperfect. Whatever your view about Tyler's claim, there's one area where we must agree that markets in control just don't work - state-owned organizations. But there might be a case for turning schools and hospitals into worker co-ops.
My hunch is that efficiency considerations aren't sufficient to explain why co-ops aren't more common.
That said, we mustn't under-estimate just how widespread they are. Quite a few people in London work in law firms, shop at Waitrose and Peter Jones and invest in hedge funds, and believe capitalism is wonderful.

Comments

[mat]

"Quite a few people in London work in law firms, shop at Waitrose and Peter Jones and invest in hedge funds, and believe capitalism is wonderful."

What? Aren't these all capitalist organizations?

capitalism (n): an economic system based on private ownership of capital

[Bob Deed]

Legal constraints exist too. There is a move to allow mutuals more flexibility. (I urge people to read and back it - see http://politicsforpeople.blogspot.com/2007/03/conservative-co-operates-for-mutual.html)

Bob

ps I am not sure that I would agree with a suggestion that professional firms are co-ops - generally only a minority of staff are "owners".

[luis_enrique]

how good are co-ops at firing people when that needs to be done? if for instance labour saving technology becomes available?

[ChrisA]

Coops will stop hiring and expanding before an externally owned enterprise, so will stay small. Effectively the existing members in a coop dilute their interest when they take on a new partner. Not only does the new partner get a free ride on the risks that the previous partners have taken but the dilution effectively increases the new employees wages above the market rate, so reducing the number of employees they can take on for any new enterprise.

[FH]

"For centuries, we've been led to believe that we need leaders" -- I suspect that that should be hundreds and millions of years -- evolution seems to favour this method of organising a group of social animals. Much of the world is still directly run by a hierarchy of leaders and even a modern urban American working an ordinary job and going to work on Sundays has to defer to a lot of "leaders". And just look at the god-like status given by many to the President of the United States -- Hail to the Chief!

I agree that we need more genuine teamwork, just don't underestimate the difficulties! (Note also that groups of women tend to be more collegiate and less hierarchical.)

[pseudonymous]

I think I would put my money on your first explaination.The other explainations would at most slow the spread of such organisations, and we have had about 200 years for them to spread.

[dearieme]

"Not only does the new partner get a free ride...": why? Surely the existing partners should be able to require the new partner to buy his partnership. Are there legal obstacles to that?

[ChrisA]

Dearieme
There are no legal obstacles to having new partners buy in to the coop, but that is going to slow the hiring rate as well, as only well off employees can be hired (or good credit risk ones). Obviously coop's can and do work, I was offering an explanation as to why they might grow slower than regular companies.

[Lars Smith]

ChrisA,

Cooperatives do not necessarily stay small. See e.g. Rabobank, Credit Agricole, or Coop Norden(sells consumer goods in Scandinavia, 64,000 employees).

[ChrisA]

Lars
I agree co-ops exist and can work well - I was trying to provide a hypothesis to answer Chris D's question as to why there were not more co-ops. Many co-ops (for example legal partnerships) restrict the creation of new partners for the reasons I give. The existing partners do not want to be diluted.

[Pete]

Funnily enough I work in a London law firm. I even shop at the Waitrose/John Lewis in Canary wharf.

Wouldn't say I worked in a co-op though. Like most firms, we have few partners and many associates. ChrisA's right - bugger all chance of making partner these days.

Now if you wanted to make the point about us being a closed shop union, there I'd agree with you.

[Martin]

It seems most of these comments are aimed at worker co-operatives, which doesn't reflect the whole co-op sector, or where it is moving towards. Nevertheless, a few more barriers to co-op development:

1. The visibility of the co-op model as a mainstream choice versus others in business schools, regional development agencies, the Small Business Service and related agencies. As has been mentioned, there are barriers to start-up co-ops, or council workers, say, gaining access to loans or funding to work up proposals, and little or no support or advice. The Co-operative Party and the think tank Mutuo have developed model guidelines and legal structures to shortcut the process somewhat. The Co-operative Group meanwhile is sponsoring secondary schools with the view to bring co-op models into the mainstream of education, starting in those schools. We've called on local councils and RDAs to bring in co-op development strategies and improve access to finance and support.

2. Co-ops are often seen as a way of reviving or rescuing failing businesses. Sometimes this works to a degree, such as Tower Colliery, Glas Cymru or Greenwich Leisure. Hopefully it will work again in the Burberry workers context. But often it cannot, because of the underlying reasons for company failure or market forces pushing jobs and industries overseas. It ghettoises co-ops as a model of last resort, and associates co-ops with failure. We need co-ops to be seen as a mainstream business model, to be picked as a first choice because of benefits to customers and employees.

3. Some legal and FSA constraints that effectively place greater controls on mutuals than other companies, particularly in the financial sector, and previously a risk to investment and an incentive to demutualise. Mutuo and the Co-operative Party have been able to introduce legislation to level the playing field, including one bill before parliament now. Meanwhile Labour Co-op minister Ed Balls MP has launched a review of co-op legislation to further bring it into line with company law.

Nevertheless, there are good signs of growth and mainstreaming, but perhaps not in the traditional worker co-op sector. Stakeholder co-ops are the current trend, more akin to Greenwich Leisure, and the ongoing outsourcing of public services locally and to some extent nationally provide real opportunities for proving the mutual model. Community co-ops and employee ownership could revolutionise healthcare, social care, education, transport and leisure, etc. These are big co-ops from the start and get round the problems mentioned above. A football supporters trust, foundation hospital or leisure co-op does not want to see a limit on members, beacuse members are customers and stakeholders, and even investors. The challenge is for co-ops and mutuals to segment their membership and provide different opportunities to different members according to their needs and desires, ensuring an engaged membership overall.

[Sam]

I must agree with Martin that in the context of this article "Co-op" seems to mean "worker co-op". There's a whole bigger movemnent out there guys! Consumer Co-ops (i.e. "The Co-op"), credit unions, agricultural co-ops, pub drinker's co-ops, supporters trusts, etc.. Workers Co-ops have certain difficulties associated with them, but when they do come off (e.g. Suma, the wholefood wholesalers), they can be terrific.

[joe]

In fairness, I think there are co-ops and there are co-ops.

At a base principle, a co-operative is more than just a worker-owned business (hence John Lewis is not technically a co-op) - but is a business with a heart, where there can be social priorities in addition to making money.

Different co-ops take this in different ways. Some - like the Co-op Group - try to influence wider society, for example with regard to Fairtrade products, sponsoring schools etc. But then, it must be realised that even these large co-ops have a minute market share compared to comparable businesses in their sector - which is interesting given the history of the co-op movement.

Those of us on the more radical end attempt to use the co-operative model to do the impossible, to go where other businesses would not dream of going.

As to the question of why there are not more co-ops, I think it is basically a combination of two factors.

First, a general lack of imagination. It is easier to build a charity in the social sector and collect donations to distribute than to think of a way to sell a product or a service and make money.

Second, a lack of people who are prepared to make it happen - or at least to give it a shot. This means that those who actually are involved in most co-operatives are radicals rather than businesspeople and are inclined to make a complete pigs-ear of the job - at least until they learn how to do it properly. The general life cycle of a co-op normally seems to involve this progression: idea-beginning-struggle-depression-struggle-near disaster-struggle-success and/or failure.

But then, when you are trying to do the impossible, it is no great surprise that it is quite difficult.

[Kevin Carson]

Part of it is path dependency. We live in the aftermath of a great historical robbery, in early modern times, where the producing classes were robbed of traditional property rights in the land and great amounts of wealth were concentrated in the hands of the owning classes. As a result, industrial capitalism developed with a structure of absentee ownership by rentier classes. The financial system is set up to enable the rentier classes to draw scarcity rents from their property, by making capital scarce and expensive--and hence inaccessible--to labor.

Start out from contrary premises (i.e., widespread ownership of property and vigorous competition in the supply of capital), and industrialization would likely have taken a far different path. We'd be asking, instead, why capitalist ownership is so rare and has so much trouble competing in an economy of worker-owned firms.

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