A worker cooperative is a cooperative owned and self-managed by its workers. The meaning of this control varies by definition; it may mean a firm where every worker-owner participates in decision-making in a democratic manner, or it may refer to one in which management is elected by every worker-owner, each of whom has one vote. Worker cooperatives may also be referred to as labor-managed firms.
Worker cooperatives appeared as part of the labour movement in reaction to capitalism and the Industrial Revolution. Such organizations began in the 18th century and developed further throughout the 19th century with groups such as the Rochdale Society of Equitable Pioneers, who established the Rochdale Principles to guide cooperative management.
Compared with traditional investor-owned firms, worker cooperatives tend to have greater longevity, higher levels of trust, and higher job satisfaction. Cooperatives also tend to be less competitive and profitable. Productivity results are mixed and vary by location and sector. They tend to have more volatility in wages, but less wage inequality, and employment tends to be more stable.
Definition
Although there is no universally accepted definition of a workers' cooperative, they can be considered businesses that make a product or offer a service to sell for profit in which the workers are members or worker-owners. Worker-owners work in the business, govern it and manage it. Unlike conventional firms, ownership and decision-making power of a worker cooperative should be vested solely with the worker-owners, and ultimate authority rests with the worker-owners as a whole. Worker-owners control the resources of the cooperative and the work process, such as wages or hours of work.
CICOPA, the International Organisation of Industrial, Artisanal and Service Producers' Cooperatives, gives an eight-page definition in its World Declaration on Workers' Cooperatives, which was approved by the International Co-operative Alliance General Assembly in September 2005. Below is the section on the basic characteristics of workers' cooperatives:
They have the objective of creating and maintaining sustainable jobs and generating wealth, to improve the quality of life of the worker-members, dignify human work, allow workers' democratic self-management and promote community and local development. The free and voluntary membership of their members, in order to contribute with their personal work and economic resources, is conditioned by the existence of workplaces. As a general rule, work shall be carried out by the members. This implies that the majority of the workers in a given worker cooperative enterprise are members and vice versa. The worker-members' relation with their cooperative shall be considered as different from that of conventional wage-based labor and to that of autonomous individual work. Their internal regulation is formally defined by regimes that are democratically agreed upon and accepted by the worker-members. They shall be autonomous and independent, before the State and third parties, in their labor relations and management, and in the usage and management of the means of production.ICA (2005) World Declaration on Worker Cooperatives, Approved by the ICA General Assembly in Cartagena, Colombia, 23 September 2005 .
As mentioned above, most, if not all, of the workers in a given worker cooperative enterprise are worker-owners, although some casual or wage workers may be employed with whom profits and decision-making are not necessarily shared equally. Workers also often undergo a trial or screening period (such as three or six months) before being allowed to have full voting rights.
Participation is based on one vote per worker-owner, regardless of the number of shares or equity owned by each worker-owner. Voting rights are not tied to investment or patronage in the workers' cooperative, and only worker-owners can vote on decisions that affect them. In practice, worker cooperatives have to accommodate a range of interests to survive and have experimented with different voice and voting arrangements to accommodate the interests of trade unions, local authorities, those who have invested proportionately more labor, or through attempts to mix individual and collective forms of worker-ownership and control.
In short, workers' cooperatives are organized to serve the needs of worker-owners by generating benefits (which may or may not be profits) for the worker-owners rather than external investors. This worker-driven orientation makes them fundamentally different from other corporations. Additional cooperative structural characteristics and guiding principles further distinguish them from other business models. For example, worker-owners may not believe that profit maximization is the best or only goal for their cooperative or they may follow the Rochdale Principles. As another example, worker cooperatives' flattened management structure and more egalitarian ideology often give workers more options and greater freedom in resolving workplace problems.
Profits (or losses) earned by the workers' cooperative are shared by worker-owners. Salaries generally have a low ratio difference, which ideally should be "guided by principles of proportionality, external solidarity and internal solidarity".
Theorists and practitioners believe the importance of capital should be subordinated to labor in workers' cooperatives. As such, Adams et al. see workers' cooperatives as "labor-ist" rather than "capital-ist":
Nevertheless, recent developments in the cooperative movement have started to shift thinking toward multi-stakeholder perspectives. This has resulted in repeated attempts to develop model rules that differentiate control rights from investment and profit-sharing rights.
Internal structure If exercised directly, all members meet regularly to make and vote on decisions on how the cooperative is run. Direct workers' cooperatives sometimes use consensus decision-making to make decisions.How to set up a Workers' Co-op by Radical Routes Direct worker control ensures a formally flat management structure instead of a hierarchical one. This structure is influenced by activist collectives and civic organizations, with all members allowed and expected to play a managerial role. Such structures may be associated with political aims such as anarchism, libertarian socialism, distributism, and participatory economics.
Among anarchist traditions, views of worker cooperatives differ largely over market dynamics and property rights. Left-leaning anarchists and libertarian socialists have historically viewed worker cooperatives as an alternative to capitalist hierarchies, arguing that democratic worker self-management is necessary for economic liberation. By contrast, right-libertarian and Austrian economic scholarship views worker cooperatives primarily in terms of private property rights and voluntary contract. Philosophers like Robert Nozick emphasize that individuals are free to form democratically run cooperative firms, but those firms must compete voluntarily in the market. In a laissez-faire framework, such firms are legitimate and must attract enough consumer support to succeed. If they cannot sustain themselves without outside intervention, they may fail.
Some workers' cooperatives also practice job rotation or balanced job complexes to reduce inequalities of power and give workers broader exposure to the different jobs in the workplace, enabling them to participate more effectively in decision-making. This has proved sustainable with workforces as large as 300 workers, at Suma Wholefoods.
The term "worker collective" is sometimes used to describe worker cooperatives which are also collectives: that is, managed without hierarchies such as permanent manager roles.
Common ownership The principle of common ownership was codified in UK Law in the Industrial Common Ownership Act 1976 which defines a "common ownership enterprise" as:
The principle is typically implemented by inserting two clauses in a company's memorandum of association or an industrial and provident society's rules: The first provides that the company's assets shall be applied solely in furtherance of its objectives and may not be divided among the members or trustees. The second provides for "altruistic dissolution", an "asset lock", whereby, if the enterprise is wound up, remaining assets exceeding liabilities shall not be divided among the members but shall be transferred to another enterprise with similar aims or to charity. A significant early influence on the movement has been the Scott Bader Commonwealth, a composites and specialty polymer plastics manufacturing company in Wellingborough, Northamptonshire, whose owner Ernest Bader gave to the company to the workforce in installments through the late 1950s to early 1960s. Contrary to the popular concept of common ownership organizations as being small organizations, this is a high-technology chemical manufacturer whose turnover has exceeded £100 million per annum since the early 1990s with a workforce of hundreds. In London, Calverts is an example of an established worker cooperative with a policy of pay parity. One of the most successful ventures of the collective movement is Suma Wholefoods in Elland, West Yorkshire.
Labor-managed firms Economists have modeled the worker cooperative as a firm in which labor hires capital, rather than capital hiring labor, as in a conventional firm. The classic theoretical contributions to such a "labor-managed firm" (LMF) model are due to Benjamin Ward and Jaroslav Vanek. In the neoclassical version, the objective of the LMF is to maximize not total profit, but rather income per worker. While such a scenario implies "perverse" behavior, such as laying off workers when output prices rise so as to divide increased profits among fewer members, evidence supporting such behavior is lacking. A review of the empirical economics literature can be found in Bonin, Jones, and Putterman. Alternative behavioral models have also been proposed. Peter Law examined LMFs that value employment and income. Nobel Laureate Amartya Sen examined pay according to work and according to need. Nobel Laureate James Meade examined the behavior of an "inegalitarian" LMF.
Leagues Economists have explained the clustering of worker coops through leagues or "supporting structures". Jaroslav Vanek termed such leagues "supporting structures". Large clusters of worker cooperatives supported by leagues are found in Mondragón, Spain (especially the Mondragon Corporation), and in Italy, particularly Emilia-Romagna. Leagues provide various kinds of scale economies to make coops viable, but since leagues need coops to start them, the result is a chicken-or-egg problem that helps explain why few coops get started.
Financing Internal Capital Accounts/Member Buy-Ins Internal Capital Accounts (ICAs), also known as Member Buy-Ins, are shares of capital distributed equally and exclusively to workers. They act as a mandated buy-in loan to the cooperative that generates a financial return over time in the form of interest. ICAs are typically equal to a specific term's wages, such as an annual salary, and are given a fixed rate of return that is not directly tied to the cooperative's losses or profits.