1. IRL3200 Dissertation
Do Cooperatives as a Business Model form a Plausible Alternative
to Mainstream Capitalism. What is the Role of the International
Political Economy?
Thomas Winters
10347611
Dissertation Supervisor:
Patrick Holden
13,194 words
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4. Abstract
The purpose of this dissertation is to provide a potential base to reforming mainstream
capitalism based around the dominance of worker cooperatives. This work will aim to
explain the plausibility of an economic model that enhances the free market system
whilst extending the arm of democracy to working life. This argument concludes that the
implementation of a ‘cooperativist’ model can be achieved through national political
structures and to some extent through international structures, whilst the economic
consequences of implementation imply positive effects to employment, technological
progression, worker income and price stability.
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5. Introduction
The recent political and economic context of the Northern Atlantic economies following
the 2008 crisis has began to unleash a variety of new ideas and alternatives to the current
mainstream capitalist system. Although this dissertation doesn’t aim to provide solutions
or hindsight alternatives that could had prevented the crisis, it does in fact raise important
questions over elements of the capitalist system which have been widely overlooked by
mainstream academia. The ownership and management of firms has often been viewed as
a minor microeconomic component that has little to offer for wider economics, politics or
indeed international relations. This research claims to prove otherwise. Cooperatives, or
more precisely, worker cooperatives, offer an alternative to investor or state ownership
and management, and instead offers an alternative that gives the workers of firms the
opportunity to determine their own economic future. This work will also explain how
consumer cooperatives do not share the distinct comparative advantages held by worker
cooperatives, in response to the recent turmoil at the Co-operative Group.
This dissertation includes four chapters that aim to provide a ‘cooperativist’ approach to
political economy and later into international political economy (IPE). As stated in the
methodological analysis, this research will provide mostly interpretivist and qualitative
research into what is essentially a highly theoretical topic area with limited empirical
examples. However, substantial literature on cooperatives and their experiences within a
capitalist economy exists with some theory beginning to look ahead to cooperatives as
the main mode of production and distribution. A variety of theoretical resources will be
used, from the early cooperativist theory of Dr William King (1828) to the more
contemporary works of those such as Mellor et al (1982) and Karlyle (2005). The
economic theory behind cooperatives will also be analysed, with major contributions
from those such as Smith (1994), Pencavel et al (2006) and Burdín and Dean (2009) for
example.
The first chapter will provide working definitions of cooperatives, corporations,
capitalism and will give meaning to the word cooperativism. The primary purpose of this
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6. chapter is to understand the relationship between a capitalist model and what can be
considered a cooperativist model. The second chapter provides a more historical
approach to the successes and experiences of cooperatives and how they have developed
in changing political-economic circumstances. The history of the theory is also
imperative, as a cooperativist economy can only offer a plausible alternative if
cooperatives can function and sustain themselves as efficiently as conventional corporate
firms. The histories of consumer and worker cooperatives will be examined separately, as
both have developed their own particular circumstances. The theoretical and often
ideological side of cooperativist thought must also be considered, as many theorists such
as Marx (1894) and Potter (1904) apply the use of worker cooperatives to potentially
offer wider economic models.
The third chapter will evaluate the likelihood of implementing a cooperativist economy
from both a political and economic perspective on a national level. To begin with, an
evaluation of the pressures that affect government policy as well as public consciousness
will be explored, as this is a pivotal part of implementation. Those representing the
holders of capital and those representing labour will be assumed the most pertinent.
Media reception and wider discourse will also be examined as this will most likely affect
public consciousness. Once the top-down and bottom-up pressures of implementation
have been understood, the likely policies government could enact to promote
cooperativisation will be explored. The economic results of implementation requires a
more intuitively based approach, as all the resulting consequences and economic
pressures cannot be easily derived. Despite this, the aggregated affect on employment,
prices and wages, and technological progression can to much extent be derived and the
effects of which can then be taken into chapter 4. The last chapter will take the
assumptions made in chapter 3 and apply them to the international level. This will be the
first time cooperativist thought will be applied to the contemporary international arena,
entering the field of IPE. The pressures and relations between nation-states and
multinational organisations, as well non-governmental actors will first be examined. The
role of multinational corporations and financial institutions also play an important role
here. The likelihood of achieving an international agreement or consensus based on
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7. cooperativist principles will be the main objective to work towards in this section. In
terms of economics, the global affects of implementing cooperativist ideals between
multiple nation-states will be explored. Similarly to chapter 3, although all the aspects
cannot be derived, many of the effects to much extent can. The global effects on
investment will be imperative, as well the aggregated effects on prices and wages. The
differentiation between developed and developing countries will be required, as the
effects on export-dependent countries are likely to differ. The dissertation will then
conclude by summing up the research results and answering the dissertation question
with a conclusive and direct response.
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8. Chapter 1
This first chapter will focus on the main and key concepts of the dissertation. Unlike
other terms and concepts, the definition of a cooperative tends to be less controversial,
and most credible definitions are universally accepted and widely accurate in defining
this key term. According to the International Cooperative Alliance (1996) a cooperative
can be defined as “an autonomous association of persons united voluntarily to meet their
common economic, social and cultural needs and aspirations through a jointly-owned and
democratically-controlled enterprise”. The Rochdale Pioneers, who will be examined in
more depth in chapter 2, who are often considered the founders of the modern
cooperative movement, originally published 7 main principles of which any cooperative
must abide to. Below are the principles, as interpreted by Lambert (1959).
The Rochdale Principles (Lambert, 1959)
1. Democratic control
2. Rules governing the accumulation and distribution of the surplus (profit) and the
treatment of the net assets:
• distribution of the surplus among the members in proportion to their
purchases
• payment of limited interest on capital
• sale at market prices
• dispersal of the net assets without profit to the members in the event of
dissolution of the society
• spirit of service (promotion of the members’ interests only in so far as the
latter are consistent with the general interests of the community)
3. Freedom for new members to join (principle of the open door)
4. Voluntary membership
5. Cash purchase and sale
6. Political and religious neutrality
7. Education of the members
8. Determination to take over the world’s economic and social system and to
reorganise it on co-operative lines (i.e. to achieve the “co-operative
commonwealth”)
Some of the principles above are already accustomed to traditional firms and
corporations, such as cash purchase and sale, whilst the last principle as interpreted by
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9. Lambert (1959) plays a more radical political economic role, and was not included in the
original Rochdale Principles (Rochdale Pioneers Museum). Despite this, Lambert’s
(1959) last principle indicates that whilst the original principles which were focused
primarily on social and economic grounds, the principles could easily be implemented
within a political ideology. These principles above are also mainly intended for consumer
cooperatives, under a producer/worker cooperative on the other hand, the role of the
consumers would be replaced with the workforce, and member purchases would be
replaced with labour supplied. Lambert (1959) was himself, a supporter of consumer
cooperatives, and advocated the concept of ‘cooperative federalism’ (otherwise known as
secondary cooperatives), a system where individual cooperatives have shared ownership
of a wider cooperative that may supply its products (Potter, 1904). As a result Lambert’s
(1959) 8th
principle was thus largely due to a more expansive nature of cooperative
thought, one which started to look beyond the more communal and isolated forms of
cooperative societies and towards a more broader and unified model. The differences
between consumer and producer/worker cooperatives will now be explained more
thoroughly.
Although the concept of a cooperative is relatively simplistic, the main two forms of
cooperatives are often confused, and both are often commonly referred to as simply a
‘cooperative’ despite the fundamental differences. These two types of cooperatives are
the consumer cooperative, and the producer/worker cooperative. A consumer cooperative
is essentially owned by its customers, who are offered a share in the firm, receive a
shared profit and have a casting vote in the firms key decisions (Mellor et al, 1988). An
example of a consumer cooperative would be the UK based Cooperative Group, made up
of subsidiaries such as the Co-op Bank and the Co-op Food for example. As it is loyal
consumers who tend to be offered a share in the cooperative, they are thus more likely to
take an interest in the firms wellbeing, especially as they wish their returns on investment
to be as high as possible. Although these types of firms are regarded as ‘cooperatives’,
compared to a producer/worker cooperative, they are merely cooperatively organised
corporations, the reasons for this will be explained later. A producer or worker
cooperative, of which will be the main focus of the dissertation, can be defined as
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10. “trading enterprises, owned and run by the people who work in them, who have an equal
say in what the business does, and an equitable share in the wealth created from the
products and services they provide” (The Cooperatives UK, 2012). More specifically, a
producer cooperative tends to focus on binding together individual economic agents, such
as farmers for example (Young et al, 1981). From these definitions it would appear that
the ownership of consumer cooperatives still remains within external hands, similarly to
conventional firms, whilst worker co-ops are owned by internal agents of the firm. A
prime example of a worker cooperative would be the Mondragon Corporation in Spain,
which will be the focus of a case study later on. Another example could be the John
Lewis Partnership, which is often seen as a hybrid cooperative as it doesn’t necessarily
adhere to all of the main cooperative ideals. A worker cooperative has a distinct
difference to all other forms of business models as it is the only model where internal
agents have direct ownership of their firm, where other models are owned by external
shareholders such as customers, investors, or the state.
In order to understand what type of business model dominates in a capitalist economy, it
is first important to define the term most associated with this model, the mainstream
corporation. Drucker (2008) refers to a corporation as a free enterprise that is managed
and owned by private hands who sell their products to a free and competitive market.
Although this definition is a fair interpretation, it does not further divulge into which
form of private management and ownership is preferable. Hansmann (1999) refers to
these types of enterprises as investor-owned business corporations, for the purpose of this
dissertation, these models will be referred to as conventional corporations/firms. These
types of models are often referred to as any firm whose shares are bought and sold by
private investors, primarily for profitable intentions, and whose business structure is
largely hierarchical. This helps to separate what is meant by a ‘corporation’ and a
‘cooperative’, and helps understand the key difference between a capitalist and
cooperativist economy. Assuming the cooperative principles outlined earlier, self-
employed enterprises as well as family run businesses could also to some extent be
referred to as worker cooperatives, unless part of that business is controlled by external
actors or is managed undemocratically.
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11. The title of this dissertation contained another key term which must be defined,
mainstream capitalism. Balaam and Veseth state that “originally, the term (capitalism)
described a political ideology that was identified with the capitalists, the owners of
capital. Today, however, it usually refers to a market-dominated system of economic
organisation based on private property and free markets” (1996: 450). From this
definition it would appear that a workers cooperative, as defined earlier, could easily
function within a capitalist economy and that an economy where worker cooperatives
make up the majority of firms, could essentially, still be defined as capitalist.
Cooperatives still function within a free-market system where property remains privately
owned. Despite this, although the ownership of firms can be considered as private
property, a workers cooperative restricts the majority ownership of firms to its workforce,
the firms internal rather than external agents. As a result, although a cooperative could
still be considered capitalist, it can only narrowly be recognised as such.
Historically, cooperatives have often been identified with socialist or Marxist ideologies,
and have been perceived to be tied with command economies, primarily for historical
reasons which will be identified in chapter 2. One element in which the capitalist model
and socialist model have in common is that, in reality the ownership and control of the
majority of firms tends to be held by a small elite. Although the socialist model in theory
emphasises a more collective model of ownership, in reality the vast majority of the
decision-making process was held by a bureaucratic elite (Balaam and Veseth, 1996).
This elite, which was often left unaccountable, was often seen as an unintended result of
the socialist model. Brown (1984) implies that Marx and Engel’s talked of economic
planning, but not of control transitioning from one de facto elite to another, but instead,
control to a wider collective of workers. The ‘command economy’ stage was only meant
to last as long as the revolutionary transition, as a means to an end rather than an end in
itself. As this transitional stage did not transpire in reality, an economic and bureaucratic
elite did emerge, and is now commonly seen as a fundamental component of the socialist
model. In the Road to Serfdom, Hayek (1944:18) uses a quote by Alexis de Tocqueville,
stating that “Democracy extends the sphere of individual freedom, socialism restricts it.
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12. Democracy attaches all possible value to each man; socialism makes each man a mere
agent, a mere number.” (1866:546). Hayek (1944) used this quote to discredit the
socialist command economy, yet the same logic could be applied to a worker of a modern
day corporation, many of whom could be recognised as a mere agent or a mere number.
Where democracy has been implemented vastly through the political arena, Hayek (1944)
as well as other neo-liberal economists talk very little of economic democracy and focus
on the failures of the hierarchy of political regimes rather then the hierarchy of the
modern day corporation. Although the role of the state to its citizens and the role of a
business to its workers may differ, their similarities are substantial, as both have an
interest/incentive in insuring their nation/business remains functional and successful. It is
important to assume all actors are rational and educated decision makers, in an open, fair
and inclusive form of democratic decision making. In reality this may not be the case, but
for simplicity it must be assumed that this is the case for the majority of the time. From
this stage it would seem that where a cooperative functions in a largely efficient and
democratic environment, a mainstream corporation does not, despite most modern-day
capitalist nation-states being considered economically efficient and democratic in nature.
As a result, if a firms major decisions are coordinated and enacted through the workers of
that firm, they are most likely to make the decisions which are most rational, thus
benefiting the firm and ultimately the workforce themselves. It could also be argued that
expanding economic democracy will most likely lead to further political democracy, and
may enhance it further. Ratner (2009) argues that “the politics of cooperativism
emphasize that gender relations (and other single-issue oriented problems) can be
improved through participating in cooperative social relations in cooperative institutions”
(2009:62-63). By reiterating the inclusiveness and democratic tendencies of
cooperativism, it can begin to withdraw from previous perceptions of it belonging to a
closed or commanded economic model.
The last important term to define is the concept of the ‘cooperativist economy’. Although
there is no working definition at large, by looking at the types of business models that
predominately make up a capitalist economy (investor-corporations), a definition for a
cooperativist economy could follow in the same manner. A cooperativist economy could
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13. thus be described as an economy where the majority of firms are considered to be
cooperative in nature, and thus adhere to the main cooperative principles described
earlier. Karlyle (2005) reaffirms this, by referring to a cooperativist economy as an
economy where cooperatives are the dominant mode of production and distribution. As
seen earlier, a capitalist economy and a cooperativist economy could be considered as
two separate entities due to the narrow yet substantial differences in terms of ownership.
One aspect that unites both models is that they are both market economies. Cohn defines
a market economy as “an economy in which the market coordinates individual choices to
determine the types of goods and services produced and sold as well as the methods of
production” (2008:397). As a result, cooperatives compete with one another in the open
market for profit, similar to conventional firms. Market economies are distinct from
planned economies, such as that of the Soviet Union and its satellite states, where the
state coordinates the production and distribution of goods and services, and where the
profit motive is excluded (Barratt Brown, 1984). In most circumstances the majority of
market-economic systems are considered capitalist in nature, and as a result the terms
‘free-market economy’ and ‘capitalism’ are often considered as one and the same. A
cooperativist economy is thus one of the rare known examples of a market-economy
which could be considered distinct from becoming another neo-capitalist or state-centric
model. Karlyle confirms this, by stating that “a cooperative economy is a market
economy, but it is not a capitalist market economy” (2009:8) Although the two models
are narrowly distinct in theory, chapters 3 and 4 will attempt to understand the
differences in reality.
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14. Chapter 2
The theory behind cooperatives as a business model can not to much extent be considered
a modern theory. The purpose of this chapter is to understand the historical process of
how the theory behind cooperatives has developed, and to begin to understand why no
practical model based around cooperatives has been previously developed.
The beginnings of the cooperative movement were largely in response to the industrial
revolution, a period of mass technological innovation leading to changing modes of
production and distribution, as well as a changing labour structure. In what was seen as
the birth of modern capitalism, was also a period new ideas and concepts hoping to tame
the capitalist system and an optimism to find a more labour-centric rather than capital-
centric model (Vieta, 2010). Cole (1944) implies that the early pioneers of the
cooperative movement go back well before the times of Owen and Rochdale, and in fact
can be traced back to the mid-18th
century. Early cooperatives were formed during this
period mainly in response to local monopoly control of mills and bakeries, as a response
many of these societies were sabotaged and destroyed leaving little historical impact
(Cole, 1944). Due to these isolated and often experimental models failing at an early
stage, the cooperative movement in the early industrial revolution could to hardly any
extent be considered a ‘movement’. As a result, one of the first common-known pioneers
of the cooperative movement was Robert Owen, a British industrialist who is often seen
as the “Father of Cooperation” (Harrison, 1969:2) due to his radical ideas to implement
social change during a period of vast industrialisation. Owens main premise was that
giving workers a better working environment can bring them out of desperation and
increase productivity. Owens renowned social experiment was at New Lanark, a small
community where workers lived and worked together, and where social provisions such
as education and healthcare became universal (Harrison, 1969). Although Owen was a
keen advocate of consumer cooperatives, in reality New Lanark, as well as the failed
experiment in New Harmony, USA, were little more then isolated communities where
workers both produced and sold their products to one another. Although this experiment
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15. would go on to be more inspirational for utopian socialists such as Marx, it was seen as
an important step that led up to movements formalisation in Rochdale some years after.
Although consumer cooperatives have been functional before Rochdale, as we have seen,
many of the early experiments and commentators had been of a utopian nature, and
functioned as mere experiments. Cole states that “The Rochdale Pioneers themselves set
out originally to create, not a mere shop for mutual trading, but a Co-operative Utopia”
(1944). Although this maybe the case, The Rochdale Society of Equitable Pioneers
(RSEP) was to much extent the first successful consumers cooperative, and whose main
importance to the movement was to show that cooperatives could function successfully in
a wider society, rather than the isolated communities proposed by those such as Owen.
The reasoning behind Rochdale’s symbolism, according to Fairbairn (1994), was due to
the heavy presence of Owenites that were already established in Rochdale during this
time. The early successes of RSEP helped to manifest a greater cooperative movement.
One of the most renowned consumer cooperatives in the UK is the Co-operative Group,
formerly known as the Cooperative Wholesale Society (CWS). The Co-operative Group
itself, after various mergers, only became known as such in 2001 and is now considered
one the largest consumer cooperatives in the world. Today the group is jointly owned by
over 6 million members as well as 80 other cooperative societies (The Co-operative
Group). Despite the groups optimism towards democratic accountability, it is still
important to consider the fundamental flaws of consumer cooperatives. As discussed in
chapter 1, consumer cooperatives are still effectively owned and managed by external
actors. Mellor et al confirms this, by stating that “CWS production was owned and
managed in a similar way to private firms and several worker cooperatives were formed
during industrial disputes with the CWS” (1988:17). Due to external ownership and
management, it could be argued that consumer cooperatives are less likely to function as
effectively as the workers, who may acquire better information on how the firm should be
managed. This democratic deficit could thus be the main source for many of the Co-
operative Groups issues over the past. The current crisis at the Co-op being a prime
example, where the Co-operative Bank in particular is currently facing a liquidity crisis
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16. (Peston, 2013b). Such crisis resulted in the bank having to openly sell its shares on the
open market (Peston, 2013a), a grave violation of its cooperative principles. This leads
the question as to whether the Co-operative Bank would have made such decisions if it
had been a worker-owned cooperative.
The early history of worker cooperatives had taken a very different journey contrast to
the heritage of consumer cooperatives. Most of the early theory behind workers
cooperatives developed in the same period as when consumer cooperatives were being
established. Early anarchist thinkers such as Proudhon had begun to speculate as to
whether the capitalist system could be replaced without economic centralisation and
commanded economic planning. Proudhon eventually developed and advocated an
economic system known as mutualism. Mutualism to much extent shares many
characteristics with early communism, both defy the centralised state, the monopoly of
power, etc, yet whilst communism focuses on the superiority of the collective, mutualism
focuses on the reliance of the individual (Swartz, 1927). Mutualism maintains the
assumption that only through voluntary actions can the individual achieve true liberty,
whilst worker-owned cooperatives could act as a means to achieve this. Carson (2007)
builds on this idea by reaffirming the desire for a free market system, and that a
reformation based on worker and consumer cooperatives could help the state to ‘whither
away’ into a new anarchist phase. Mutualism is unique, as it remains the first economic
model to advocate the use of worker cooperatives, yet despite this a number of issues
persist. First is the assumption that humanity can function without higher centralised
institutions to provide public welfare and security. Mutualism also discourages the use of
political means to meet its ideological goals, Carson states that “Many anarchists oppose
in principle such use of the political process for anarchist ends” (2007:361). As
mutualism also rejects the notion of ‘money’, i.e. wealth derived from an instrument with
little practical or tangible value, it would seem unrealistic to store wealth using any other
instrument that could easily function within the current international economy. As a
result it would appear that many of the arguments against the Mutualist model are also
apparent in the arguments against anarchism in general, as well as many elements of
communism. Mutualisms use of cooperatives for more radical ends does offer an insight
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17. into how they might function in a system of which they dominate, yet the context of
which they are used, and the greater ends anarchists wish to achieve, render this model
unrealistic and somewhat utopian.
Marx’s perspective of worker cooperatives differed substantially from anarchist theorists.
Originally, Marx had viewed workers cooperatives in a positive light, stating “the co-
operative factories of the labourers themselves represent within the old form the first
sprouts of the new … they show how a new mode of production naturally grows out of an
old one, when the development of the material forces of production and of the
corresponding forms of social production have reached a particular stage” (Marx,
1894:305). Marx (1894) goes on to imply that co-operatives will lead to a transition that
has the potential to extend to a national level, similarly to the transition from privately
owned capitalist enterprises to the joint-stock enterprises that remain most common
today. Despite Marx’s initial optimism, Jossa (2005) claims that Marx had lost
confidence in the cooperative movement, mainly due to the assumption that the
cooperativist model was a bourgeois or conservative form of socialism, that it retained an
anarchical free market system, and possibly due to the failures of many worker
cooperatives at the time. For Marx, worker cooperatives provided an evolutionary stage
between capitalism and socialism, a stage which was for Marx, pessimistic at best,
largely due to the very nature of capitalism to begin with (Jossa, 2005). As a result,
although Marx had envisioned the possibility of a cooperativist political economy, in the
wider context Marx had expressed the necessity for revolutionary and wide systemic
change over an evolutionary and reformist agenda. Potter (1904) also critiques worker
cooperatives, implying that workers essentially become their own capitalists, and that
such organisations divide communities into entities which compete and conflict with one-
an-other. Potter goes on to state that “an industrial organisation which substitutes for one
profit-maker many profit-makers, is not a step forward in the moralisation of trade”
(1904:155). Although Potter favoured consumer cooperatives, as well as being renowned
for excelling the cooperative movement in Britain, Mellor et al (1988) states that Potter
would go on to celebrate state socialism and the central planning model of the Soviet
Union.
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18. Untimely, it was the rise of state socialism that left most cooperativist theory disregarded
until the 1980’s. State ownership was the only mainstream alternative considered from
the period of the rise of the Soviet Union to its eventual demise (Balaam and Veseth,
1996). In fact, most contemporary literature on workers cooperatives, and their potential
to replace investor or state ownership, arose during the 1980’s. In increase in interest
towards this potential may had been founded by the increasing awareness of
contradictions in the state socialist model. Despite the substantial interest and subsequent
literature, no direct political-economic model was ever developed, possibly due to the
apparent successes of the neo-liberal/Washington consensus that thrived at the time
(Woods, 2011). After the 2008 financial crisis more interest in the theory had grown,
with some preliminary interest in developing a more unified model, which will be
analysed in the succeeding chapter. Such interest often focused towards the historical
countercyclical successes of firms such as the Mondragon Corporation.
As seen so far, the history behind consumer cooperatives has evolved from a radical
opposition towards industrialisation into a more moderate element within today’s
essentially capitalist political economy. Worker cooperatives on the other hand, have
been torn between idealist and often utopian theorists who either endorse or reject worker
cooperatives as a means to establish a more communal and arguably isolationist form of
political economy. The Mondragon Corporation offers an insight into how a workers
cooperative can function within a capitalist economy without the idealist and utopian
intensions of those of the past. Mondragon cooperatives were established with the
founding of the ULGOR workers cooperative in the Basque region of Spain in 1956
(Whyte and Blasi, 1982), and today has evolved into a greater entity encompassing 110
individual cooperatives, 147 subsidiaries as well as many other organisations and
societies (Mondragon). Mondragon is a federation of worker cooperatives, in effect, a
cooperative made up of cooperatives, similar to the beliefs of Lambert (1959) discussed
in chapter 1, but in this case the members are also the workers of cooperatives inside the
federation, thus remaining internal rather than external actors. The organisation as a
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19. whole specialises primarily in industrial goods, with individual cooperatives producing
different products such as kitchen appliances, building materials, auto components, etc.
Individual cooperatives within Mondragon share a similar structure, each are organised
with their own General Assembly, Governing Council and Social Council (Morrison,
1991). Advisors from outside the company may also be invited to attend, but are not
considered members and thus cannot vote in the co-ops affairs or accept dividends
(Whyte and Whyte, 1991). In order to become a member, a worker must make a capital
contribution to the firm via their own capital account, where later profits can be added, or
losses deducted (Whyte and Whyte, 1991). Capital contributions of workers, as well as
investment into new cooperatives can be provided by Mondragon’s bank, the Caja
Laboral Popular, a bank owned by its own workers as well the workers of Mondragon as
a whole (Wiener and Oakeshott, 1987), who are essentially the banks customers. This
institution offers an interesting hybrid cooperative that is ran by both its workers and its
members/customers, Whyte and Whyte (1991) state that this ‘second degree cooperative’
was an essential part of bringing Mondragon’s cooperatives together to form the
cooperative federation that exists today. The case study of Mondragon is considerably
substantive, as it provides an important step in realising the typical firm that would exist
within a cooperativist system.
In general, the history of the cooperative movement from both a consumer and worker
perspective, has shown the diversity of ideological pressures that have influenced the
cooperative movement, as well as cooperativist theory in general. From the early
experiments of the 18th
and 19th
centuries, to the later works of Proudhon and Marx, it
would appear that the main unifying element that has been persistent throughout the
history of the movement is the distaste towards the capitalist political economy, and the
appetite to reform or even perhaps replace it altogether. With the image of Mondragon as
the typical and preferred business model of which to proceed, it is now appropriate to
move onto the intuition behind the plausibility of a cooperativist political economy, from
both the perspective of its implementation as well as its performance in reality.
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20. Chapter 3
With the definitions used in chapter 1, as well as the history learned in chapter 2, it is
now possible to ask whether a cooperativist model could be applied, whether it would
function as well as mainstream capitalism, and how it would come about. This chapter
will focus on the experiences of implementation on the national level, which will then be
applied to the international level in chapter 4. To recap, we assume that a cooperativist
model is an economy made up primarily of worker cooperatives functioning in a free
market system, where government intervention remains largely limited and market forces
and pressures remain a principle economic element.
Before analysing the economic effects, it is first important to understand the political
conditions of implementing this model. A good place to begin would be to analyze the
pressures that affect government policy and public consciousness. Dahl (1982) looks at
the effects of organisations on democratic processes in particular. Assuming that
organisations such as business groups, trade unions, etc, often play a key part in the
decision making processes of government, Dahl (1982) argues that organisations with
greater resources are more likely to have greater influence. If such organisations were
substantially influential enough to distort or influence government policy, any
implementation of cooperativist policies would likely require the support from various
organisations from political parties, pressure groups, trade unions, etc. Dahl (1982) goes
on to imply that in situations where such organisations have a fixed or heavy position in
the decision making process, these organisations are more likely to push harder for their
agenda as their bargaining position is not at risk. This is an important aspect to consider
later when analysing the effects of organisations from both a bottom-up and top-down
perspective.
Major political-economic changes have historically come with democratic mandates, the
rise of Keynesianism in the 1930/40’s promoted by figures such as Roosevelt (Barrett
Brown, 1984), the Neo-classical emergence of the 1980’s led by figures such as Thatcher
and Reagan (MacEwan, 1999), etc. Although such reforms may had been influenced
20
21. through other channels, they still never the less achieved the required consent of the
electorate. As a result it would thus be rational to evaluate as to whether a cooperativist
model could be justified via a democratic mandate and implemented through top-down
policies. Assuming an existing or new political party/coalition supports the
implementation of this model, it would first need to gain the support of the electorate, and
thus those organisations who influence the electorate. The first influences to analyse are
those representing the holders of capital and those representing labour. Those holding
capital could be described as the ‘capitalists’ as defined by Balaam and Veseth (1996)
earlier in chapter 1. As a cooperativist model would essentially redistribute the ownership
of capital from the capitalists to the workers of the firm, it would thus seem rational to
assume that such individuals would oppose this transition. Organisations representing
businesses and employers in the UK, such as the CBI for example (CBI, 2013) may
attempt to lobby political parties and attempt to influence the electorate to oppose
policies in favour of worker cooperatives. Although this is largely hypothetical,
organisations like the CBI have previously been active in other political debates, such as
the UK’s relationship and membership of the European Union for example (Pagano,
2013). Those representing the interests of labour may also oppose this. Workers taking a
greater responsibility in the decision making process of their firms, as well as taking
command of wages and working conditions, etc, could render organisations such as trade
unions obsolete (Burdín and Dean, 2009). Mellor et al (1988) reaffirms this, implying
that many British trade unionists during the 1980’s were sceptical of worker co-ops as a
means of privatising state sectors. This aside, Mellor et al (1988) goes on to state that
many worker-members of cooperatives see a positive role for unions, in offering
managerial advice, providing legal information and mediating disputes between workers.
Gaining support from unions in general, will thus largely depend on the views of their
members, and whether unions would be willing to subdue their leading role in labour
relations as a result.
Another major political actor to discuss is the media. Performing discourse analysis on
media responses to worker cooperatives is complex, as very little in the recent media has
been discussed on worker co-ops specifically. Although examples from newspaper
21
22. sources show that there exists an element of intrigue and curiosity towards worker
cooperatives. An article in The New York Times by Folbre (2009) emphasises the
successes of various American worker cooperatives, and implies that a lack of interest
from economists remains a considerable obstacle. An article in the Financial Times by
Dembosky (2012) and another by Brown (2014) of The Independent focuses on smaller
worker co-ops in the UK, again emphasising their successes. The only main criticism
outlined by both Folbre (2009) and Dembosky (2012) was the difficulty to borrow capital
from financial institutions, whilst Brown (2014) mentions the controversy over the Co-op
Bank and fails to distinguish between the managerial differences of consumer and worker
cooperatives. As a result it would appear that although curiosity exists over worker co-
ops, their absence from mainstream political-economic debates in the press, and from
economists and social commentators in general, it would seem that support from the
media towards a cooperativist agenda remains largely questionable. Yet if this curiosity
were to develop more substantially in future, the support for such an agenda could
potentially become more catalysed within the public consciousness.
Assuming now at this stage, that the current or perhaps new administration decides to
implement a cooperativist agenda, it is important to recognise which tools policymakers
would use in order to implement it. Karlyle states that “for a cooperative economy to
work efficiently, political reform is also necessary” (2005:8). In terms of legality, as
many Western countries and indeed many developing countries already have functioning
worker cooperatives, much of the legal framework is already in place. Mellor et al (1988)
describes the UK’s former Cooperative Development Agency which had supported
funding for early cooperatives during the 1980’s. This agency was often considered
under-funded, no preferential tax or contracting arrangements were provided, and little
desire existed for transitioning existing corporate firms (Mellor et al, 1988). Although
this agency was eventually disbanded in 1990 (Department for Employment, 1990), it
does provide a good historical structure to re-establish if a cooperativist economy was
sought after. Although credit for cooperatives should preferably remain in private rather
than public hands, any new agency or department could also develop tax structures that
incentivise existing corporate firms to evolve into worker cooperatives. One possible tax
22
23. instrument to use is corporate tax. By introducing a cooperative tax rate, encompassing
worker cooperatives currently banded within corporate tax rates, the government could
increase corporate rates whilst decreasing cooperative rates, thus incentivising
cooperativisation. Although corporate firms may reduce labour or increase prices as a
response, assuming easy market entry, new worker cooperatives could take advantage of
corporate firms reduced output or over-valued prices, thus cooperativising part of that
particular market. Worker ownership requirements could also be introduced, ensuring
that employees own a minimum amount of their firm, this minimum could then be
increased over time. This stage would help introduce and eventually accustom workers to
the notion of employee ownership and decision-making practises, as well as preparing
investors to eventually relinquish their ownership and managerial responsibilities to the
worker-members. Although capitalist enterprises could still exist within a cooperativist
economy, the demand for workers to work in such firms, especially compared to worker
cooperatives, would likely remain insufficient.
Assuming instead, that no new administration comes about to actively implement
cooperativist policies, it is wise to examine the grassroots, or bottom-up pressures, that
could encourage cooperativisation. Assuming trade unions decide to endorse
cooperatives, they could be used as an instrument to bargain with corporate firms for
increased ownership and managerial responsibilities for the workers. In Germany for
example, unions have a key and constitutional role in bargaining national wage levels
(Ulrich, 2002). As implied by Dahl’s (1982) argument earlier, an organisation such as
this will most likely become successful in achieving its aims. As a result, if such unions
reformed their primary objective to furthering cooperativist objectives, the bottom-up
pressure to reform conventional firms could be intensified. Although trade union
influence could be potentially beneficial, in countries were unions and other organisations
have limited influence, or are not permitted at all, a much larger social campaign must
exist in order to achieve change. Using elements of the media, in particular social media,
workers can begin to understand the variety of business models that exist, and begin to
question the current state of affairs. Either through unions, or social structures within the
firm, workers may begin to put pressure on the firm’s management and may begin to
23
24. lobby government to enact similar policies described in the preceding paragraph. In
reality the workers and management may negotiate a middle ground, where workers are
given limited ownership and a stake in the decision making process. A resulting
consensual arrangement may persist in a similar manner to that of Germany’s, yet
between the firm and its workers rather than the firm and the union. If this were so, the
comparative advantages of worker ownership and worker management discussed later in
this chapter, may continue and intensify the pressures that will extend worker ownership
and management further in such cases.
Now the basic political obstacles of a cooperativist economy have been considered, it is
now important to locate the various economic conditions of implementing such a model.
The best place to begin would be the aggregated affect on employment. Preferably a
cooperativist economic model should be able to retain a similar or better rate of
employment then the current system, but although employment is an important economic
factor to consider, it remains important that other factors such as price competitiveness
and efficiency are not spared at the expense of greater employment. Effects on
developing countries specifically will be explored in chapter 4. Ward (1958) originally
implied that if the market price for a good increases, unlike a conventional capitalist firm,
a co-op may not increase its labour, so that the existing workers retain a larger share of
the profits. Even though less labour would account for less output, the existing members
would still acquire greater dividends on the firms profits (Pencavel et al, 2006). Although
this may be the case in theory, Burdín and Dean (2009) state that in reality co-ops are less
likely to vote for redundancies for personal as well as economic reasons. Non-member
workers, which usually cannot exceed a certain amount compared to members, can also
be used for seasonal work (Burdín and Dean, 2009), and can be used to equal out
temporary demand for labour. It is also worthy of noting that under a free market system,
competitors will likely supplement any demand that has caused prices to rise too far,
reducing output or labour would thus be just as irrational in a workers cooperative as it
would be under a conventional firm. Pencavel et al goes further than this, and states that
“furthermore, employment is expected to be more responsive to transitory product market
shocks experienced by the capitalist enterprise than to those experienced by the co-op”
24
25. (2006:38). Pencavel et al (2006) implies that co-ops are more likely to alter wages and
profit distributions during adverse shocks, rather than acquitting worker-members.
Although sympathetic members may be more reluctant to let workers go, in reality, most
cooperatives such as Mondragon, will try to maximise employment to the extent where
the firm has reached optimal efficiency. As a result, Burdín and Dean argue that in
general, under adverse shocks, cooperatives reach “smooth employment levels”
(2009:524), as opposed to mainstream capitalist firms. As a result, a cooperativist model
in general may become more generous towards employment and worker retention,
especially opposed to the more volatile labour markets of capitalist economies.
As more stability in the labour market could be assumed in a cooperativist economy, the
next major factors to consider are the affect on prices and wages. The incentive for
workers to increase their personal output can be applied when assuming workers wish to
maximise their personal dividends. As worker co-ops organise their own wages, they
must achieve a balance between offering competitive prices for their goods and services,
whilst being able to provide a sufficient wage for their workers. As profits are shared
among workers rather than distributed according to investment (Mellor et al, 1988), in
theory a wider pool of the population are more likely to be awarded dividends, thus
increasing the income (and savings, if co-ops profits are retained) to all those employed
within a profitable workers cooperative. This equates to a de facto redistribution of
wealth from investors to workers. Although profits could potentially increase workers
longer term income, the effects on shorter term income, wages, must also be considered.
Pencavel et al (2006) implies that workers earnings (if profits are to be distributed) are
likely to be linked with the market conditions of the goods they produce. Where
conventional capitalist firms are more likely to reduce their employment rather than
bargain with workers for lower wages, cooperatives are more likely to alter wages in line
with the firms performance. As a result, a cooperativist economy could experience more
volatile wage rates, and consequentially, more risk adverse workers may wish to save
their aggregated profits to equal out any wage change that could lead to an insufficient
standard of living.
25
26. Regarding technological innovation, the methods used by conventional capitalist firms
can be equally applied to cooperative firms. Despite this, Smith and Rothbaum (2013)
talk of a technological comparative advantage that lies exclusively with worker
cooperative firms. Unlike capitalist or state enterprises, worker cooperatives hold a
unique feature where workers have a financial incentive to advance technological
innovation and reduce production costs (Smith and Rothbaum, 2013). In reality, workers
in the production line may be able to innovate new techniques or envisage better
technological components that could transcend into lower production costs or other
technical advantages over competitors. The democratic structure of worker cooperatives
will complement the willingness for workers to derive new technologies or techniques.
The question then arises, as to what would happen if such innovations would render a
large part of the workforce obsolete. Would workers vote to implement new efficient
processes or technologies that would reduce the amount of labour required? Smith (1994)
argues that, under a capitalist economy, cooperatives may have to specialise in order to
compete with capitalist firms if this problem arises. Yet in a cooperativist economy, this
problem could once again be solved via market pressures. If co-ops fail to initiate labour
saving procedures, then new competitors may enter the market that will initiate such
procedures, and take advantage of its rewards. If the co-op does choose to initiate such
procedures, assuming easy market entry, the worker-members that leave the co-op could
form a new firm in competition, or may be reallocated to different sectors of the original
co-op, as practised in Mondragon (Burridge, 2012). Another technological advantage of
worker cooperatives could be their intrinsic nature to share knowledge with other
cooperatives. Smith (1994) considers the importance of cooperative leagues, alliances or
federations that can allow smaller co-ops to achieve scale economics, to share technology
or to pool resources for greater projects. Federations such as Mondragon, which has its
own university (Whyte and Whyte, 1991), can cooperate to achieve greater technological
innovations. Smith (1994) highlights the importance of cooperation between cooperatives
within a capitalist economy, in a cooperativist economy however, although there lies
advantages in sharing technologies, the risk of potentially sharing technology with a more
efficient firm may pose more of a threat then an advantage. As a result, the question as to
whether co-ops would share technology with their competitors in a cooperativist
26
27. economy remains highly debatable, but if this were the case it could have major
implications for technological progression.
One distinctive feature examined throughout this chapter, is that many of the issues
surrounding the cooperativist economy can often be cured by market forces. To much
extent, the notion of competition within a market will ensure that competitive prices,
efficiency and the willingness to innovate will remain as prevalent within a cooperativist
economy, as they are currently in a mainstream capitalist economy, if not more so. In
terms of implementation, although the top-down and bottom-up approaches may seem to
provide two contrasting approaches, in reality both approaches may be necessary in order
to complement each other. Any top-down approach may require the support of existing
cooperatives, movements and social structures, whilst any bottom-up approach may need
support from central government in order to ensure existing cooperatives don’t become
unnaturally outdone by their mainstream capitalist counterparts. To conclude this chapter,
it would appear at this preliminary level, a cooperativist economy could be implemented
and function as successfully, if not more, than the current mainstream system.
27
28. Chapter 4
This last chapter will move the discussion from political economy to international
political economy. Similarly to the previous chapter, this chapter will analyze the
political pressures of implementing a cooperativist agenda and the likely economic
consequences as a result. It is worthy of reiterating that a cooperativist agenda is simply
the pursuit of implementing policies aimed at transitioning to an economic model
consisting primarily of worker cooperatives. As the literature on cooperativist political
economies on a national level is limited at best, the literature on its international
dimension is even scarcer. Yet despite the lack of empirical examples, the assumptions
made in chapter 3, as well other relevant materials on IPE, will render an intuitively
based outlook on this area achievable.
In order to understand how decisions are made on an international level, it is first
important to appreciate the actors that influence the main decision makers. The existing
international political and economic system, according to Aggarwal and Dupont (2011) is
made up primarily of interdependent nation-states functioning within a largely globalised
and liberalised marketplace. Although economic liberalisation has largely averted
international conflict, economic competition between states could be considered an
important aspect in understanding international processes. Nation-states can use
economic policy as a foreign policy instrument, often implemented over the domestic
affairs of a particular nation-state (Mastanduno, 2012). Existing cooperativist nation-
states may be subject to economic sanctions or coercion if other nation-states see it in
their vested interest, for example if large multinationals are required to implement worker
ownership requirements. Sanctions, embargos and investment restrictions are often
considered the main as the main policy instruments for economic statecraft (Mastanduno,
2012), and must be considered by cooperativist nation-states when competing
economically in the global marketplace. Other than national governments, other actors
exist in the international system that could carry considerable influence, such as
multinational corporations, intergovernmental organisations, non-governmental
organisations such as charities or other interest groups (Willetts, 2011). Such
28
29. organisations are also considered an intrinsic part of the existing international political
and economic system (Ravenhill, 2011), and whose influence is often equally weighted
against that of individual nation-states, and in some circumstances more so. Where
smaller organisations lobby government on a national level, these actors often pursue
influencing multiple governments and appropriate actors on an international level.
As in chapter 3, the owners of capital, and their subsequent representatives, can be
generally assumed to be against the notion of cooperativising capital towards their
workers. As a result, multinational corporations might thus attempt to influence
international decision makers against a cooperativist model. Falkner states that “the
business sector possess superior financial resources and strong organizational capacity …
and is well placed to exploit the privileged access it has to key governmental actors”
(2009:19). Falkner (2009) goes on to imply that although such actors do not always
achieve their goals, they do possess much greater influence compared to other non-state
actors. This is an important aspect to consider when attempting to build an agreement or
framework via international actors. Any non-state actor attempting to formulate such an
agreement, such as multinational cooperatives or cooperative societies, would need to
possess the similar qualities enjoyed by multinational corporations. Such actors are
currently inadequate in number, and may require the support of states with existing
cooperativist economies in order to gain greater influence. The role of international
finance is also important. Strange states that “a speculative market … requires
uncertainty” (1986:111), this being in respect to investment and credit markets. If this is
the case, financial markets may react negatively to the pursuit of a cooperativist agenda,
and may inflict considerable internal economic damage that such an agenda is reversed or
averted. Pulling out foreign direct investment and dumping stocks and shares as well as
sovereign currency may become the unintended consequence of attempting to shift
capital ownership from investors to workers. As global markets are now so intertwined
and unitarily connected (Strange 1986), the pressures of the global marketplace pose a
substantial force to be reckoned with, even with popular consent from the electorate at
home.
29
30. A top down approach from an international level, we assume, will likely require existing
cooperativist economies to share their individual experiences and requirements for future
success. The types of principles agreed upon will also largely depend on the level of
enthusiasm from other nation-states towards pursuing an international cooperativist
agenda. One basic principle would be the international recognition of worker
cooperatives as separate business entities. More specifically, existing cooperativist
economies may wish for other nation-states to recognise their economic structures and
foster links with foreign governments, cooperatives and societies to enhance rather than
isolate domestic co-ops in the international economy. Countries such as China already
have such links in place, despite adhering to a different economic model. The
International Committee for the Promotion of Chinese Industrial Cooperatives is a prime
example of enhancing cooperativist ideals through international networks and processes
(Gung Ho-ICCIC, 2012). This could be seen as the international equivalent of the UK’s
former Cooperative Development Agency discussed in chapter 3. Although such an
organisation may have little relevance in China’s economic circumstances, within
cooperativist economies the importance of international recognition and networking will
develop greatly if domestic co-ops are to integrate into the international political
economy. If larger enthusiasm exists within the international community, more
substantial principles could be agreed upon. Nation-states could agree to enact similar
proposals to those proposed in chapter 3 for the national economy, such as worker
ownership requirements or tax reform to favour worker co-ops. In reality more
substantial economic agreements of this level are likely to come through more integrated
intergovernmental organisations such as the European Union for example. Other
organisations such as the IMF use political conditionality as an instrument for economic
reform in specific nation-states (Vreeland, 2007). Reform to IMF or EU conditionality
towards a cooperativist agenda could be considered, although Vreeland (2009) argues
that conditionality often entails negative economic consequences as a result. Now the
basis for international reform has been considered, it is now important to consider the
likelihood of achieving an international agreement.
30
31. The 1944 United Nations Monetary and Financial Conference, also known as the Bretton
Woods Conference, was one of the first international agreements that determined the
future structure of the international political economy (Ravenhill, 2011). Although this
system eventually broke down in 1971 (Balaam and Veseth, 1996), it provides a
noteworthy example of how key norms and values can be constituted on the international
stage. It could be argued that the contemporary structure of the international political
economy is based more on a consensual basis. The Washington Consensus, as coined by
Williamson (1990), was a widely accurate account of what Western nation-states and
intergovernmental organisations recognised as the best policies for less developed
countries. The policies outlined in the consensus were mainly of a neo-liberal nature, and
promoted values such as limited state intervention, fiscal discipline and the privatisation
of nationalised industries (Williamson, 1990). Although such policies were not directly
certified compared to the agreement at Bretton Woods, many of these policies formed the
main principles and structures of the international political economy at this time. As a
result, future cooperativist economies could create a new consensus based on the same
foundations as the Washington Consensus, or perhaps even Bretton Woods if most major
economies come to a direct agreement. Whether such an agreement is possible will
remain highly dependent on the bottom-up pressures from each nation-state. The types of
intergovernmental organisations that would be used to precede a cooperativist agenda
will depend largely on the individual states that support it. More highly developed nation-
states may use organisations such as the OECD for example, as a platform for
implementation. Jackson (2013) argues that the OECD’s role is to “discuss and develop
key policy recommendations” as well as to “analyze economic and social policy and
share expertise and exchanges” (2013:2). Assuming the economic assumptions made in
chapter 3 come to fruition for national economies, this organisation could present a viable
platform for highlighting these successes. For less developed nation-states, organisations
such as the G-77 or perhaps specific regional entities could discuss policy options of a
cooperativist nature, similarly to the OECD’s role. If existing organisations fail to
accommodate discussion on cooperativist ideas, new organisations could be established
to do so. Previous examples such as the Council for Mutual Economic Assistance
(Comecon) for the socialist command economies during the Cold War (Barratt Brown,
31
32. 1984) show how nation-states often cooperate and coordinate economically on
ideological grounds. The South American organisation ALBA, which promotes a more
diluted form of socialism, can be used as a more contemporary example (Plummer,
2013). As a result, it would appear that any international agreement or consensus based
on cooperativist values would likely require the support from existing cooperativist
economies, as well as strong bottom-up support from various other nongovernmental
organisations and societies. Yet the likelihood of achieving this alone remains largely
pessimistic in the short to medium run.
The first economic aspect to consider in terms of implementation is the effect on
international capital, yet in order to do so, it is fist imperative to recognise where worker
cooperatives acquire credit. Contemporary capitalist corporations, whether they are
national or transnational, often sell shares of their company in order to raise liquidity
which can be used for investment (Waldmann and Smith, 1999). As understood in
chapter 1, the owners of this capital invest in such firms to achieve a profit through
dividends or higher share prices that can be sold back into the stock market. In a
cooperativist economy, where the majority of firms shares can only be sold to their
workers, the role of the stock market would become heavily diminished. The
consequential debate as to how cooperatives raise capital as a result is often referred to as
an investment dilemma, yet multiple plausible alternates exist. Pencavel et al states that
“in a worker co-op, capital is borrowed from financial intermediaries or provided by the
workers who act as holders of the equity” (2006:23). Internal investment can come about
through capital contributions from new worker-members, or existing reserves which are
invested back into the cooperative. The case study of Mondragon shows that cooperative
federations can create their own financial institutions which can invest in current or new
co-ops. Despite this, in reality more extensive capital may be required from external
providers. Dickstein (1991) argues that in the current capitalist environment, banks will
be more hesitant to invest in co-ops due to their unique structure. Under a cooperativist
economy, the willingness for banks to invest in worker co-ops is unclear, yet a much risk
adverse option may prevail. Instead of issuing shares on an open market to acquire
liquidity, co-ops may prefer to release bonds. A bond is simply a debt obligation, where a
32
33. firm sells coupons for a certain price (the principle) which pays back interest over time
and repays the principle once the bond matures (Office of Investor Education and
Advocacy). This form of obtaining credit is already practised by firms such as John
Lewis, which offers investment/partnership bonds to customers as well as worker-
members (BBC News, 2011). Co-ops could also release bonds on to the open market
similarly to the mainstream stock market, although investors will simply hold an IOU
rather than direct ownership of the firm and the ability to influence management. As a
firms debts are thus owned by multiple actors, such as individual investors, banks,
workers, etc, the risk of the firm defaulting on its debts will not be burdened by a single
actor, but by multiple actors which may hedge a variety of bonds.
The effect of cooperativisation on a single or perhaps multiple number of nation-states
will have a somewhat blurred affect the role of international capital. In terms of inward
investment, Dickstein’s (1991) theory may also apply on the international level, implying
that foreign banks in capitalist economies may be more hesitant of investing in
cooperatives abroad. This may be due the perception of increased risk or perhaps a banks
hesitance to invest in an economy where capital has already been shifted from investors
to workers. As explained earlier, this process would largely be interpreted negatively by
banks, as they can often be considered as large scale capital holders themselves (Strange,
1994). If this were the case, investment capital in cooperativist economies may begin to
flow outwards. Despite this, investment and capital movements between cooperativist
economies should remain at current levels. In terms of outward investment, cooperatives
looking to expand into foreign markets are also more likely to export their business
model. Mondragon for example could be considered a multinational cooperative, as it
produces and distributes into a number of foreign markets (Mondragon Corporation).
Assuming that foreign capitalist economies openly allow inward investment from
multinational corporations, as many currently do (Balaam and Veseth, 1996), there is no
apparent reason for worker cooperatives not to follow suit. If multinational cooperatives
do export their business model, this would likely benefit the bottom-up approach to
promoting cooperativisation, assuming foreign markets have the necessary laws in place
to allow worker cooperatives to operate.
33
34. The effect on prices and wages in the preceding chapter indicated that wage levels may
become more volatile whilst price levels are likely to remain competitive. Although this
may be the case for developed countries transitioning to a cooperativist model, for
developing countries that may be export dependent, there are other factors at play.
Another assumption made in chapter 3 was that workers had to balance competitive
prices with sufficient wages, although currently in developing countries, wages may be
insufficient whilst prices are low enough to have a monopolising effect in the
international marketplace (Pugel, 2012). As a result, cooperatives within developing
countries may wish to increase their wages even if price increases risk their
competitiveness. Export dependent countries must also appreciate that if labour costs
increase too much, foreign firms may outsource to other countries with lower labour
costs, or to their country of origin. As a result, the need to achieve a balance between
competitive prices and sufficient wages becomes even more imperative in developing
countries, especially if co-ops are to compete with large multinationals. In reality
however, the distribution of profits to workers may provide a sufficient standard of
living, thus relieving the need for price increases. Regarding developing countries that are
not export dependent, there may be a greater incentive to increase wages further with
subsequently higher price levels, creating a domestic inflationary spiral. Despite this,
assuming bonds function as the main instrument for investment in a cooperativist
economy, if inflation becomes too high, the returns on bonds would deteriorate,
potentially threatening the likelihood of future investment. This process would prevent
developing countries trying to equilibrate wages and prices with developed countries to
quickly, and would instead sustain an evolutionary process that reduces volatility. As a
result, in general, the equilibration of prices and wages in a variety of open economies
may become intensified if such economies are dominated by workers cooperatives. This
is in contrast to the apparent race to the bottom where multinational firms currently locate
to economies with the cheapest labour (The Economist, 2013). Although multinational
cooperatives may also outsource to economies with cheaper labour, the need to balance
competitive prices compared to conventional firms with an ethical and adequate wage
34
35. level for its workers, may help to equilibrate global price and wage levels in the longer
run.
In general, although cooperativisation could be promoted through international processes,
the likelihood of this in reality remains highly unlikely at the current stage. In order to
reach the stage where international implementation is possible first requires the hurdles of
national implementation to be jumped. The economic prospects of an international
cooperativist consensus indicates that wage and price levels may equilibrate much faster
under cooperativist conditions. The reforms to investment also present a practical and
realistic alternative to the current stock and share orientated forms of investment that
currently prevail. In reality much more research is required, especially on international
processes, before the assumptions made in this dissertation can be taken as given. Yet
despite this, intuitively it would appear that regardless of outcome, a cooperativist
approach to international political economy could develop to become a substantial
alternative to the current neo-liberal economic consensus that currently prevails. The role
of the structures of the current international political economy could make
implementation possible, but only through sustained bottom-up pressures with reasonable
clout, and an enthusiastic and optimistic stance from top-down actors such as
participating nation-states.
35
36. Conclusion
This dissertation has sought to explore as to whether cooperatives, or more specifically
worker cooperatives, as a business model could pose a plausible alternative to
mainstream capitalism. The assumptions made in chapter 1 indicated that cooperatives
themselves can function as a plausible alternative to the mainstream conventional firms
that are owned and managed by workers rather than investors. A historical and theoretical
evaluation in chapter 2, as well as a brief case study of the Mondragon Corporation
displayed an empirical example of how worker cooperatives can develop and sustain
themselves within a capitalist economy. As both capitalism and cooperativism can both
be considered free market economic models, the role of economic agents within the free
market is debatably the main aspect that renders a cooperativist model as either a
differing brand of capitalism, a type of ‘Capitalism Lite’, or whether the two approaches
can be considered separate yet closely related. Although despite this, I have attempted to
argue towards the latter as opposed to the former, as their roles for ownership and
management are so substantially contrasted.
The type of preferred cooperative has also been imperative. Another important principle
argued in this work has been the assumption that only a workers cooperative can be
considered as owned and managed by internal agents, whereas firms owned and ran by
investors, customers or the state hold an intrinsic disadvantage. The role of incentivising
worker-members towards greater productivity has often been preached as an inadvertent
method of workers enslaving themselves, especially by more utopian socialists such as
Potter (1904) and Marx (1894) in his later writings. Despite this, by analysing the
economic theory of those such as Smith (1994), Pencavel et al (2006) and Burdín and
Dean (2009) in chapter 3, workers are more likely to sustain employment as well as to
enjoy the fruits of their work in the form of dividends. Also, although wages and
dividends are more likely to be tied with the market conditions for the goods and services
they are providing, this would ultimately become a more effective state of being
compared to the often lagged and inconsistent state of the collective bargaining system
often practised by conventional firms. The rate of technological progression also has the
36
37. potential to substantiate with worker participation and innovation. Historical evidence
and economic intuition indicates worker cooperatives are most vulnerable within
capitalist economies, in a cooperativist economy however, their unique structures and
processes complement each other within an efficient and effective market economy.
Worker cooperatives will rise and fall in any type of free market economy, whether it be
capitalist or cooperativist. Yet the hierarchical and authoritarian nature of many
mainstream firms only serves to exasperate the effect of the business cycle, whilst the
downfall of worker cooperatives will most likely be demand driven, rather than by the
outcomes of internal power struggles or irrational decision making. Market pressures in
aggregate, are thus equally as imperative to cooperativist economies as they currently
remain in capitalist economies.
Attempting to understand the likely economic consequences on a national level without
substantive empirical examples is in itself a substantive task, on an international level this
becomes a truly gargantuan task. The most important assumption to be understood from
this research is that a transition from a capitalist to cooperativist economy would have a
considerable effect if translated onto the international level. Initial changes in the role of
investment and investors, as well as the effect on equilibrating global price and wage
levels are simply a few of the large and the potentially many economic consequences that
would occur. This in itself answers the second question of the dissertation title, as to
whether the there is a role of the IPE in the process of cooperativisation. Yet the
economic consequences must first be the consequences of the political environment.
The important assumption made in chapter 3, and reiterated in chapter 4, was the need to
establish a balance between bottom-up and grassroots pressures on firms, governments
and other relevant entities, with coordinated and effective top-down policies that can
complement the process of cooperativising the economy. The works of those such as
Dahl (1982) and Strange (1986, 1994) have explained the role of institutions such as
large corporations, financial institutions and other representatives of the holders of
capital. The role of unions has also been examined, albeit with a rather inconclusive role
depending largely on the perceptions of its members. Internationally, the role of specific
37
38. nation-states as well as multinational institutions also has an important role to play.
Although more specifically, the plausibility of achieving a fixed agreement or consensus
would largely depend on the willingness of specific nation-states, as well as the influence
held by those who are most likely to oppose and deter such an agreement. As a result the
political role of the IPE will largely depend on the same bottom-up pressures that are also
required for implementation on a national level, along with the international top-down
structures required to complement it. Ultimately, from a political perspective, Lamberts
(1959) 8th
principle discussed earlier rightly reiterates the potential for worker
cooperatives to hold an ideological as well as economic and social foundation.
In reality this topic area requires much more substantive research, in both predicting the
economic consequences, as well as the route to go about implementing such a model if it
is indeed worth implementing at all. Yet this dissertation has aimed to bring together the
various literature that exists, and has existed for a many number of years, and to
formulate an intuitively based approach that has brought together such literature for the
first time. In a period where questions are being raised over the effectiveness and ethical
controversies that have plagued capitalism for so many years, this research has worked to
provide a plausible alternative that can potentially enhance the free market system and
extend the arm of democracy to all those who wish to seek it.
38
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