Cooperativization on the Mondragón Model As Alternative to Globalizing Capitalism
Betsy Bowman and Bob Stone
scholar-activists and co-founders of the Center for Global Justice
Our goal is more than simple options for individual improvement. It is more. If the co-operative enterprise does not serve for more, the world of work has the right to spit in our faces. – José María Arizmendiarrieta (Quoted by MacLeod 1997)
Globalization has failed humanity. In the sixty years since the launching of its main instruments, the World Bank and International Monetary Fund, global trade has expanded twelve-fold and economic growth fivefold, yet the gap between rich and poor also widened and the number of poor is greater than ever. To question globalization is to question capitalism, the former being a deepening of the latter. As a contribution to the ongoing debate we propose transforming globalizing capitalism into something much better by directly altering production relations, primarily by democratizing workplaces. Many critics of globalization who disagree on other matters endorse some form of workplace democracy as part of any viable alternative. Among available models of alternatives to capitalism, we have borrowed much from David Schweickart’s “economic democracy” and Michael Albert and Robin Hahnel’s “participatory planning.” We put a Schweickart-like democratization before processes like participatory planning. What may also set us apart is our claim that cooperativization can eliminate globalizing capitalism’s worst features.
We shall not defend all aspects of Mondragón. By “the Mondragón model” we mean the network of co-ops associated with the town of Mondragón in the Basque country of Northern Spain. “Model” for us primarily refers to its framers’ principles, which have made the network worth emulating. As it happens, deviations from some of these principles have also long been underway.
Mondragón can be sustainably generalized only if restored to its principles, we’ll hold. Invoking this rectified model as vanguard, we’ll argue such a democratizing movement can transform for the better the production relations underpining globalization. To liberate co-operative labor from capitalism itself, some options opened by cooperativization must be engaged in a second stage of “de-marketization.” After sketching it we’ll consider some objections.
1. Mondragón and the Degeneration Problem
Since the beginnings of capitalism worker co-ops have haunted it as its own built-in opposite, bearing hopes for a non-capitalist future. Relative to such hopes, they have inevitably “degenerated” by failing or by becoming capitalist. Mondragón is itself on the latter trajectory. The paradigm degeneration occurred in the Rochdale co-operative founded in England in 1844 when, to finance purchase of a new mill in 1859, it took on investor members. They outvoted worker members and in three years converted the co-op to a conventional firm. Carefully avoiding that form of degeneration, a more recent co-op fell into yet another.
In 1921, 125 dedicated Scandinavian cooperativists put up $1,000 for equal numbers of stock shares and started Olympia Veneer Company, the first of many plywood co-ops in the Pacific northwest. (Berman; Lutz & Lux, Ch. 8; Pencavel) Thanks to the efficiency of co-operative labor, share values skyrocketed. Instead of taking in new owner-members, however, they hired wage workers to work their individual shares. In 1954 the 23 remaining members voted to sell out, at around $625,000 gain each, to the U.S. Plywood Corporation, a conventional firm. A capitalist success, Olympia failed as a co-op, because of wage labor (violating the one-worker-one-vote rule) and because ownership was of individually sellable stock shares. So, despite its egalitarian impulse, Olympia’s self-destruction was present at the start.
The Mondragón co-ops avoid this degeneration by separating ownership, which varies in value, from voting, which is strictly equal. Instead of buying stock, new applicants advance labor to pay the membership fee. Roughly a year’s salary, this loan by members starts an “individual capital account” (ICA) to which monthly and year-end profits and losses are credited or debited. (Thomas & Logan 1982, p. 136) Unlike stock shares, ICAs are neither accumulable nor sellable and carry only one vote. Being both individually recoupable upon leaving yet available meanwhile for collective investment, they constitute a sort of bank inside each co-op. Rights attach solely to membership and terminate when members retire or leave. There being no non-worker owners, co-ops remain whole solely in the hands of their active workforces, avoiding the Rochdale error. A co-op could be sold, but only by a hard-to-muster two-thirds of a general assembly vote, and this has never happened.
The “salary” spread from lowest to highest, currently 1 to 6, is based on an agreed job rating index. “Salary” is in scare quotes since members, not being employees, receive no wages or salaries. Rather, they have the following rights of owners and managers: 1) monthly and annual profit distributions; 2) 6% annual interest on their loans to the co-op; 3) a vote on undistributed funds; 4) access to all records; and 5) a vote on policy and managers.
Mondragón has outlasted Olympia as a co-op by 20 years, due partly to separating voting rights from ownership rights.
The network started in 1956 with a small stove factory built by five former students of a vocational teacher, a priest named José María Arizmendiarrieta. Unions were banned but agricultural co-op laws allowed workers to own their workplaces. Basque solidarity facilitated fund-raising. The movement faced a crisis in 1958 when Madrid declared members to be self-employed, hence ineligible for state health and unemployment benefits. Turning adversity around they created their own cheaper system. (Huet) In 1959, with this system’s reserves, founders started the Caja Laboral Popular to give banking, entrepreneurial and health services to the four then-existing co-ops. (Since post-Franco Spain offered state health coverage, the network no longer provides its own health services.) Focusing on domestic appliances and machine tools for the protected Spanish market, the network steadily expanded. The network has repeatedly proved its value. In the 1980-83 recession, the Basque country lost 20% of its jobs. Nearby firms laid off massively or closed. Many co-ops took pay cuts up to 11%, and five co-ops closed. Yet, thanks to job transfers in the network, virtually no layoffs were made in the co-ops, stabilizing the region’s economy. (Clamp) The costly network-underwritten re-tooling was quite beyond the individual co-ops.
Then a one-two punch hit with opening of Spain’s market to Europe in 1986 and to the world in 1989. We visited in 1989. It was a decisive moment. Network appliances were suddenly up against major German and French brands. This presented a fateful choice: directly compete with multinationals or follow the Italian co-ops into niche markets? Re-tooling this time was judged too costly so in 1991 over 100 co-ops, organized up to then by regions and linked through the Caja, re-organized in three sectors as Mondragón Co-operative Corporation. This allowed speedy, centralized decisions typical of the multinational competition.
As of 2003, MCC had over 66,000 employees operating over 160 co-ops in three sectors: 135 industrial, 6 financial, and 14 distribution. In both sales and workforce, MCC is the Basque country’s largest business corporation and Spain’s seventh largest. The three sectors are backed by the Caja, housing, service, research, education and training co-ops. Mondragón University, founded in 1997, integrates technology with cooperativism in a multi-lingual environment for over 4,000 students. As a “second degree” co-op like the Caja its board is partly nominated by its own members (students and faculty), partly by the co-ops is serves. Other second degree co-ops include technology and management schools, and research institutes. Core industrial co-ops make an array of high-tech and durable goods for world markets including robots, machine-tools, appliances, auto parts, buses, and elevators. The network’s supermarket, Eroski, partnering with a French chain, has become Spain’s third largest grocery retailer and largest domestically owned one. Eroski’s hybrid equity structure joins employees with customers as co-investors. (MCC 2002) Typical of worker co-ops, and unlike most capitalist firms, all Mondragón co-ops devote 10% of all profits to community needs. With a few exceptions — the Fagor group with some 5,000 members — most successful co-ops “hive off” related progeny after reaching 500 or so members. Beyond that number economies of scale do not make up for weakening of face-to-face production. Progeny take their own collective risk but infra-network competition is foreclosed by contracts with MCC committing all new co-ops to uniform principles of job creation, shared capital, and democratic structure.
Usually “profit” is income after all costs, including labor costs. But in a worker co-op, profit is income after all non-labor costs. For labor is not a “cost” but a mutual sharing of each member’s capital. Since labor time is neither bought nor sold, a co-op’s workers together share all profit and losses. Not more than 30% of losses may be debited to a co-op’s undivided account. Democracy is central and turns on membership. Ultimate control of production, income spread, and board seats lies in the yearly general assembly. It elects the board of directors (consejo rectoral) which appoints management. The assembly elects a watchdog council (consejo de vigilencia) to monitor management and a social council (consejo social). Subject to board and management approval, the social council indexes jobs within the 1 to 6 spread based on demands for experience, training, responsibility, and hardship. In individual grievances over pay scale and social welfare its decisions are binding.
A Mondragón-like co-op re-unites in one person the functions of worker, manager and owner. Capitalism consigns these functions to three separate persons. To personify these functions is to impose on the three groups thus constituted an imperative that pits them against the other two. Re-uniting these functions in each member abolishes the conflict among the three groups. In this re-combination, however, one typical “function” does not re-appear when a firm becomes a co-operative: that of capitalist itself. Their only function is to “furnish capital.” But this is not a distinct contribution to production. Workers can exercise entrepreneurship and either hire capital or capitalize a Mondragón-like co-op with their own labor. Capitalists as such make no irreplaceable contribution, Schweickart notes (2002, p. 33), and since profits should go only to those who do, he concludes they deserve none. Thus while workers assume manager and owner functions, the capitalist side of the owner function — vestigial under capitalism — drops out altogether with cooperativization.
Finally Mondragón works better at the capitalists’ own game than do capitalist firms! Concluding his two-factor comparative study, Henk Thomas writes: “Productivity and profitability are higher for co-operatives than for capitalist firms. It makes little difference whether the Mondragón group is compared with the largest 500 companies, or with small-and medium-scale industries; in both comparisons the Mondragón group is more productive and more profitable.” (Thomas 1982, p. 149) Studies of job creation, worker compensation, and job security yield similar results. (Thomas & Logan; Bradley & Gelb)
Central to our argument for cooperativization, is the persistant indication in available research that the closer workplaces get to Mondragón-like co-operative labor, the more productive and profitable they are. Summarizing forty-three economic studies of self-management, Levine and Tyson conclude worker participation in management usually boosts productivity, but especially when combined with other elements of self-managed cooperative labor, such as: 1) profit-sharing; 2) guaranteed long-term job security; 3) small wage spread; and 4) guaranteed worker rights. (pp. 205-214) To these Mondragón adds the potent element of worker ownership. So, instead of tapping the power of liberated co-operative labor with one or two such elements, Mondragón unites all of them at once. Such co-ops outstrip all types of capitalist firms in productivity not in spite of being democratic but to the extent that they are.
But Mondragón has not been true to its impetus. Is it a model? Three sets of degenerative practices make it less worth emulating and endanger its economic superiority. The practices, and remedies, are:
(1) When demand increases, the co-ops often hire non-member wage labor. MCC recently persuaded local legislators to raise the ceiling on “contract” labor to 30%. (Köhler) And if a co-op applies, MCC may allow it up to 40% non-member workers. (Huet) Illegal “eventuales” or temporaries — mostly female — are not counted in the 30% quota for “contract” labor, and make up a substantial percent of workforces. In some co-ops over 40% of work may be done by non-members. The overall percentage is unknown since MCC no longer gives out membership figures. Collective exploitation of wage labor encourages more of it, membership limits, and sell-outs. Ruling out the false benefits of wage labor will in the long run be a benefit.
(2) MCC is using women as a reserve army of labor. True, on the gender division of labor women do slightly better at MCC than in capitalist firms (Hacker & Elcorobairutia) and have a major presence in management. But blue collar work remains largely male. This second-class labor pool is incompatible with cooperativism. Solutions include: observing the one-worker-one-vote rule, gender integration of all co-ops and jobs; and child-care in workplaces. (Ferguson, pp. 94-99) These practices would probably boost productivity by fully engaging women’s talents.
(3) There are unnecessary sacrifices of cooperativism. In 1999 external non-voting capital stakes were 13% of MCC equity. (Köhler) This is due to joint ventures and acquisition (or start-up) of many capitalist enterprises abroad, mostly in Latin America. Vague assurances that cooperativization is “on the agenda” are extended to such workers. (Logue) This perilous mixing of co-op with external investor capital contravenes co-operative principles.
Worker alienation is rampant. (Kasmir) Social councils are underutilized. (Clamp) Unionization is under discussion. (Huet) Work-floor democracy is a complex issue. In the mid-1960s the network studied Scandinavian work groups to replace Taylor’s “scientific management” — up to then dominant on the work-floor. Ironically Ulgor workers voted down the innovation in favor of the assembly line! (Thomas & Logan) In in89 Total Quality Management was introduced with other disempowering practices: just-in-time inventorying, work-movement monitors, and swing shifts. Studying effects, George Cheney concluded that the changes threaten Mondragón’s “organizational integrity” as a “value-based” rather than “market-based” firm. This “neo-cooperativism” trend “privileges an externally driven form of participation, in marked contrast with [one]…in which workplace democracy is justified primarily or significantly in terms of the benefits for the employees and the organization as a whole.”
Yet while members may not often exercise their powers over their work-lives and managers, they have them. In 2001 although the social council at Fagor — the largest and oldest co-operative — issued a blistering critique of MCC’s evolution, it continued. Centralized decision-making has made meaningful consideration of alternatives harder. An observer sadly concluded that the Fagor dissidents were “not confident [they] can provide an alternative — they worry MCC is correct that survival in the global market requires compromises of critical co-operative principles.” (Huet)
True, islands of cooperativization will be gradually re-absorbed. (Köhler) But global competitiveness does not demand wage workers or marginalizing women or preempting opposition. On the contrary, the more elements of liberated (self-managed) cooperative labor, the more productivity and profitability. MCC managers’ faith in the economic value of cooperativism waned, yet the evidence still suggests that the network could both compete globally and: stop all wage labor; introduce gender democracy; cease joint ventures with external capital; resume start-ups (e.g. by co-operativizing foreign subsidiaries); encourage unions for the external solidarity they provide; and allow social councils equal say with management in setting all work-floor regimes. Long-term competitive advantage would likely result. And the network would re-emerge as a model.
This model is for now salvageable. Worker co-ops survive as such “longer than comparable capitalist firms,” and Mondragón’s innovations have vastly lengthened their life-expectancy. But cooperativization will have enough time to construct “a better world” only if it is a part of building an alternative economy. For such co-ops usually become capitalist not because they are co-operative, but because, in isolation, they are not co-operative enough.
2. Unravelling Capitalism by Liberating Cooperative Labor
Mondragón leads three sets of movements that are already building the cooperative production part of that economy — despite being under siege and lacking in coordination.
In the vanguard with Mondragón are three other networks of co-operatives that engage all elements of co-operative production. In Italy’s Emiglia-Romagna region three networks represent some 2,700 co-ops of all kinds employing 150,000 worker-owners. (Rosen & Young 1991, p. 172; Melman p. 370) Europe generally is having a worker co-op boom: 83,000 such enterprises in 42 countries now employ 1.3 million people, well over double those so employed in 1982. (CECOP) Growing in Canada’s maritime provinces since fishing co-operatives were started in 1927, the Co-op Atlantic federation of 166 purchasing, retailing, producer, housing and fishing co-ops employs about 5,850 workers. (GEO #16 & #17) Japan’s Seikatsu network of consumer and producer cooperatives now includes 225,000 households. (GEO #12) National federations — including the new U.S. federation — are linking in a single body to facilitate global inter-co-operation. (CICOPA; GEO #60, 62)
A much larger set of movements engages some but not all elements of liberated co-operative labor. A growing number of trade unions demand worker participation in decision-making; Germany’s mitbestimmung laws require board representation of workforces. (Melman, Ch. 9 & 11) The vigorous ESOP movement, though U.S.-based, is now international. Since 1974, tax breaks go to U.S. firms that loan workers money to buy company stock, re-paying with earnings. Participants in ESOPs or other employer stock plans number 20.3 million or 15.8% of private-sector employees. (Kruse) There are related movements to open books and share profits, equity, and decision-making with workers.
Much larger still, a third tier embraces much of humanity’s rural half. Village-based agricultural and light-industrial production use social property. (Bayat) In a sample of Indian villages, 14 to 23 percent of all income came from use of common property resources, rising to 84 to 100 percent of the income of the poor. (Jodha) Also in this tier are: consumer, marketing, agricultural, electrical and housing, co-ops; community economic development initiatives; the community banking movement; the non-governmental organization sector; and the “social and solidarity economy” movement.
This last-named movement — called “the people’s economy” in Asia — unites the others. It aims to democratize not only production, but distribution, and investment. Some advocates envision “living in networks of solidarity economy,” in effect, leaving capitalism by: earning a living in a worker co-op, buying food in a fair-trade food co-op, saving and investing through a credit union, etc. At the 2004 World Social Forum at Mumbai, the movement declared the solidarity economy “is not a sector of the economy…but should be instead the subject and main agent of a social, economic, political and cultural transformation.” (www.alliance21.org)
Direct economic attacks against this movement are underway, especially in the campaign to dissolve socially-owned non-governmental property into exclusive private property. Indivisible joint property is the main resource for a range of associations from poor villages to wealthy first-world worker co-ops. But such resources threaten globalization by keeping cheap labor out of reach of multi-nationals, themselves offering autonomous alternatives to them. Typical of the attack was Mexico’s president Salinas de Gortari’s 1992 abolition of protection of ejidos, a communal land tenure form. In 1994 NAFTA’s opening of Mexico’s vast corn market to cheap, subsidized corn added the second pincer that has since been squeezing farmers off the land and into urban poverty. Mexico’s struggle to restore the patrimony of communal lands stolen in the conquest continues. Other weapons against social property include: biopiracy of genetic material, theft-by-patenting of indigenous medicine, and commodifying culture. Such “accumulation by dispossession.” (Harvey pp. 145-149) is being resisted in Mexico, Ecuador, Bolivia, Colombia, Nepal and elsewhere.
By “cooperativization” we mean not only intercooperation within and among the three tiers of the cooperative labor movement, nor only restoration of social property, but everywhere replacing the hierarchical and coercive relations typical of capitalist production and consumption by voluntary cooperative associations.
Cooperativization also advances from the consumer side. Conscientious consumers are drawn to “buy co-op.” The “fair trade” movement’s demand for democratically produced goods will in time elicit profitable production of them. Naomi Klein cautions however, that unless the fair trade movement demands improved labor conditions, it merely sanitizes the existing system. Supported by conscientious consumers the democratic economy can displace capitalist firms. And as it becomes obvious to workers that their own labor, not capital, creates profit. Subjection to capital will no longer be seen as a necessary condition for making a living. The spreading production relations, by directly meeting needs, will undo capitalism’s worst aspects.
This productivity advantage is likely due to harmonizing of conflicting imperatives. Absent rewards, workers in capitalist firms withhold their skills. By contrast workers in democratic firms, no longer pitted against each other, have strong incentives to share skills. And since effectively exercising collective creativity is pleasurable (Graeber p. 260), management supervision is less necessary, a big savings. (Fitzroy & Kraft) Also lifted is the even greater burden of supporting absentee shareholders. Co-ops thus have a flexibility, financial buoyancy, and re-investment potential lacking capitalist firms. (Jones & Svejnar, pp. 449-465) Members are not resentfully slow, care for equipment, avoid waste, and reduce downtime and absenteeism. Large-scale production still needs skilled managers, but direct market feedback, freed of “noise” from managers with inimical interests, allows faster remedy of management errors. (Estrin, Jones, Svejnar, pp. 40-61; Levin, p. 28)
If productivity increases along with greater workplace democracy, an important corollary follows: firms tapping more of the power of liberated co-operative labor will have advantage over those tapping less. The more elements of the rectified Mondragón model in workers’ hands, relative to non-co-ops, the greater their advantage, other factors equal. Less democratic firms will be compelled to democratize. Thus just by pursuing profit, capitalist relations of production will tend to unravel. Capitalists may be powerless to end such threats to their hegemony.
This self-undermining is afoot. Managements are doling out ESOPs and other tokens of self-management. More U.S. workers participate in ESOPs than do in trade unions. Yet ESOPs in which most stock is held by their workforces are a small minority and those allowing votes on boards much smaller. ESOPs make cheap benefit plans (Rosen & Young, pp. 5-14), and wed a worker-elite to new “flexible” technologies, replacing union with corporate loyalties. (Gorz, pp. 65-68) ESOPs, in short, are bait to raise profits and pacify militancy while yielding zero control. (Melman, Ch. 8) But eliciting co-operative labor’s power with phony self-management is inciting workers to demand votes for their shares. (Melman, Ch. 9) A Southwest Airlines female flight attendant told an interviewer: “Southwest is profitable because employees have given up wage and benefit increases to keep the airline competitive. I’m even willing to make further sacrifices. But I won’t do it without some equity and a say in how the airline is run in exchange.” This worker questions exclusive appropriation of profits by non-workers. This signals a paradigm shift in capitalism.
Co-operative labor was born with capitalism when the labor of strangers who had been pushed off the land was combined under private capital. The great productive power of such labor at first appeared as that of capital itself. But when high-skill, capital-intensive production took over, capital lost its magic. It now restrains co-operative labor’s power to meet needs. Self-management has been shown to be better suited to the new digital technologies. (Melman p. 245) Yet since the mid-1990s managements have undone worker participation regimes, accepting productivity losses just to re-take control of workfloors (Melman, p. 245; Edwards, Ch. 7) even ceding, in autos, a quality edge to Japanese brands. (Hardt & Negri, p. 290; Estey) The secret is out. Accumulation of capital by non-workers used to foster optimal productivity growth but as new technologies spread, workplaces liberated from absentee owners and their managers are demonstrating that this is no longer the case.
A perennial problem for cooperatives is finding enough capital.
External financing of start-up capital runs afoul of the Rochdale problem. And workers with limited equity either to invest or to offer as collateral for debt capital will avoid risking it, especially by putting their eggs in one basket. If they borrow they may face a higher interest than those with more liquid assets to loose, due to lenders’ moral hazard, which rises in proportion as debt rises relative to equity. Rosa Luxemburg thus concluded that co-ops cannot take over the capital-intensive centers of modern economies. (Ch. 7)
The case of MCC only partly refutes Luxemburg. Where, she might ask, are workforces at GE or Microsoft to find the liquid capital needed for a credible buy-out? Until they prove their productivity, banks will shy away from funding firms whose mere workers can vote out boards and managements. We offer three possible solutions.
First, movement self-financing. MCCs Caja could itself back a major buy-out offer. And Mondragón’s 10% self-tax ought as a community priority to first fund co-op start-ups and buy-outs. Other models are Canada’s union-sponsored venture capital funds such as Québec’s Solidarity Fund. (Krimerman)
Second, local government financing. Bologna and other towns in northern Italy offer local worker co-ops revolving loans, market research and other services. Krimerman — in his contribution to this volume — cites newer precedents of “participatory budgeting” in Brazil and Argentina in which the social economy is recognized as having a claim on tax support.
But such sources, combined, could not now underwrite buy-out of a multi-national. Hence our third solution: workers’ pension funds. One third of U.S. stocks is owned by these funds. Yet law forbids workers collective management of them. (Guinan) Instead, fund managers harm their owners by financing export of jobs, buy-outs that entail layoffs, and short-run profits over job-creating options. Democratic oversight could ensure these funds benefit the people and not just financiers. (Blackburn, p. 458) They could make available to workforces of multi-nationals the leverage to buy out their shareholders and cooperativize.
Such reform presumes backing by a major co-operative sector, to counter public relations blasts from multi-nationals. More modest policial reforms, like those in Europe, would help build such a sector. Uniform tax credits could go to Mondragón-type co-ops. (Ellerman 1984, p. 258) ESOP shares could carry full voting rights and ESOP tax benefits could be scaled to the extent of such worker control. Workforces could be given first refusal if their firm is up for sale. Democratic firms could be allowed preferential bidding on government and municipal contracts. Grants of $4 to every $1 could help the unemployed join or start co-ops.
Until a strong co-op sector can finance the political presence needed to hold a cooperativist majority, such measures may be reversed. This is why building economic strength takes a slight precedence. Workers in regular firms, observing co-op members with similar lifestyles but enjoying much more control of their work and usually more leisure, may demand similar control, endangering capital accumulation. When economic hegemony threatens to pass to the co-op sector there will surely be illegal economic attacks: denial of credit, boycotts, supplier “problems”, sabotage, etc. Since such methods will undermine the attackers’ legitimacy, cooperativizers, should scrupulously avoid responding in kind, letting the system collapse on its own.
As co-ops “short-circuit” multinationals with local markets (Douthewaite) and the strengthened “socially conscious” investment movements lends its weight to the democratic economy, cooperativization would accelerate. Consider: with the two-income family the “first world” norm, all working parents need quality child care. But such care involves too great an intensity of labor to be both universal and profitable. (Holmstrom 1981, p.171) Firms whose workforce’s own needs have first claims on profits or time could more easily respond, e.g. with on-site day care co-ops. As workers become parents, they will thus have strong incentives to move to worker co-ops, thus broadly advancing the unraveling.
3. Paradigm Shift
Worker co-ops are in capitalism but they are not of it. To form a co-op neither “investing” nor selling one’s labor is called for. It is rather to “throw in one’s lot” with chosen others, a “pooling” of living labors rather than of cash or “interests” — though these may also be pooled. Such intermixing makes identifying one’s own piece impossible. Co-op formation thus defies market “rationality.” One cannot calculate advantages of joining, even if one wanted to. The gap is between quantifiable items pooled — present or future labor time, liquid assets, in-kind goods, etc. — and expectable return. Thus a strong element of mutual gift permeates such pooling. Gifting imparts a duty to reciprocate, but not with a market equivalent. For the pooling is governed not by quantitative estimates but by qualities of human relations like trust. The co-op being held “indivisibly,” its revenues are received indivisibly, to be divided by agreement. A partnership of mechanics who keep their earnings and books separately but jointly own a garage is therefore not a worker co-op.
Cooperativization shifts the basic priority of society’s productive infrastructure from profits to needs. Making profits is a quantitative and infinite goal, meeting needs a qualitative and inherently finite one. The gigantic fortunes of the world’s elite far exceed any conceivable needs they could spend such sums on. Initially the needs a co-op serves are those of its own worker-members. But this already sets it radically apart. In capitalist firms worker needs figure marginally if at all and only if backed by tacit or explicit threats of strike. In shifting to need, the heart of an enterprise shifts from a non-moral to a moral bond. For in creating a co-op, each member gives their labor power to the others with a view to meeting the needs of all members, including oneself. Each member’s very economic life is given to the others in the expectation that the community thus constituted will in turn guarantee it. One aims to serve the co-op and thereby oneself in it. This reverses capitalist dogma by which pursuit of one’s anti-social interest magically yields the common good — aided by the market’s “unseen hand.” Co-op formation, instead of aiming first at one’s own good and secondarily at that of the collectivity, aims first at the good of the collectivity and secondarily at one’s own. Magical faith that selfishness will somehow benefit the collectivity, is replaced by the grounded experience of personally benefiting as a result of benefits to one’s church, block association, trade association, or service organization.
While the first aim of a co-op is meeting its own members’ needs, once those finite needs are met, any surplus, having been given to the co-op by each member severally, is already destined partly for other’s needs, and hence is in principle available for needs beyond the co-op. Giving to others beyond the co-op is a simple extension of members’ gift to each other that founded the co-op. Co-ops evince the economic rationality of what anthropologists call “the gift economy.” This names, we contend, not only a practice of the Trobriand and Papuan clans studied by Boaz and Malinowski in the late 1800s, but a dimension of contemporary life. We will outline this hypothesis in what might be called existential or lived economics.
We move daily between a gift economy and a money economy, though the latter claims to be the only one. We are born into the former. Mothers give their children milk solely because they need it and without expecting recompense. Dying, we seek to re-enter the gift economy so we can release our hold on life in the arms of loved ones. And beyond families we give without recompense to friends, churches, and institutions of civil society. Profit is often secondary. An example is Diane Elson’s case of a left journal’s newsstand price: aimed only incidentally at making money much less profit, it is an agreement among persons seeking social change. (Elson, p. 77) Artists give their works to humanity, given their usually paltry pay. Schools and hospitals aim only secondarily at making a surplus but could not survive at all in the money economy if teachers and nurses did not give “without counting.” Hard-nosed corporations would be unprofitable, Gibson-Graham notes, if value-based relations in them of trust, care, and reciprocity, did not let “the bottom line” come first. This sufferance could be withdrawn. Demands to rescind charters of corporations that fail to serve the public good testify to this possibility. Yet parading its false dominance, the money economy holds the gift economy in subjection and parasitizes it, often masking its exploitation in gender and racial divisions. Worker co-ops are resistant assertions of the gift economy within and against the money economy. That the solidarity of the former exists beside the suspicion of the latter testifies to our conflicting memberships and to the struggle of expanding the gift economy beyond the filial and affectional relations in which the dominant economy confines it.
Sociology and economics might ultimately dissent from this hypothesis, but it meanwhile helps explain several phenomena, such as why conscientious consumers prefer worker co-ops, why inter-cooperation among co-ops comes so easily, and why, among for-profits, they are so exceptional in community service. (Logue) It may explain the anguish of workers in capitalist firms why may deeply intend to serve the community but are compelled to observe how the system diverts that aim into merely enriching the capitalist. The two-economy story would also help us understand why, since co-ops aim first at their own members’ needs, they are at risk of placing the co-op above class or community and behaving like “collective capitalists.” (Ollman, 1998, pp. 102, 113-117) This risk of turning inward is acute when market pressures cause doubts about the power of co-operative labor. But such behavior is a money-economy deviation of the cooperative impulse though it is not, as with a capitalist enterprise, built into the very structure of a cooperative.
Our hypothesis gains in plausibility if we consider how artificial the self-interest motive is, despite claims by liberals and neo-liberals that it is “human nature.” Since explanations abound within history such speculations on extra-historical factors are unnecessary. At its beginnings, capitalism enclosed common lands, forcibly separating workers from the means by which they had autonomously met their needs, usually cooperatively. Meanwhile the means of production had become exclusive private property. Workers were allowed access to those means of meeting their needs only by contracting individually with their owners. Entering into such a contract required that they pursue their own good exclusively, and unemployment was understood by both parties to tacitly threaten death. Thus by separating workers from cooperative production and replacing it by one-on-one market extortion the self-interest motive is constructed and imposed.
Worse, made to seek her self-interest and hence pitted against other workers, the human needs that drove her into the labor contract are falsely re-inscribed as quantifiable “interests.” This allows them to be balanced against capitalists’ “interests” in a market of “free” and “equal” exchangers. (Gorz) But capitalist and worker are not equals exchanging equal things they own; a person’s whole capacity to work, to make a living, is not commensurate with the wage received. Social security laws, for example, are based on the principle that when bosses extort all fruits of a worker’s labor power — that is, her life-force itself — the community at large also benefits and hence owes recompense; a mere wage is not only insufficient, it misses the point. As David Graeber remarks: “If one gives one’s life, one’s life should be at least guaranteed.” (p. 162)
By contrast, those who form a cooperative hold at bay the compulsion to individually sell their various labor powers. Their own free association gives rise to cooperative labor which, instead of automatically benefiting capitalists alone, benefits whomever they choose. They no longer start work separated from the means of production.
4. Beyond Corporate Globalization
Cooperativization undoes globalizing capitalism by undermining and at the same time replacing and improving on its processes.
First, capital, in the form of the labor power of a co-operative workforce and the plant it owns, is tied down to a place in commuting distance of the workers’ homes. Since the co-op is for them a reliable source of livelihood, the “runaway” shop where capital seeks distant cheaper labor is virtually ruled out.
Secondly, even more important, when complete, cooperativization ends the accumulation of capital as social power. Thus in a co-op, the upward transformation of labor time into value and thence into profit and capital as social power is blocked, like a crimp in a water-hose. Profit goes no further up the social scale than the workforce whose labor time created it. This allows co-op members to “take” earnings either as money or as free time. For want both of inflows of finance capital and investment opportunities, Wall Street withers away.
Thirdly, cooperativization restricts spread of exploitation to new arenas by expanding exploitation-free social space with each new site of democratic production. Since the new single group of worker-owners thus created cannot exploit itself, capitalist exploitation, arguably the system’s main pillar and main evil, is abolished.
Still the drive to exploit, make war, and externalize costs remains in the system’s grow-or-die imperative. Unable to rest content with a market share capitalists must expand or loose to competitors. But an axiom of co-operative accounting decisively cuts this imperative. Consider: a capitalist employing 20 persons at a hamburger stand that earns $20,000 in annual profit, may, assuming double the demand, double that profit with a second stand, even if it means driving the competition out of business and buying their assets cheap. No such incentive exists for a co-op because per worker profit of two stands with 40 workers would be exactly the same as one with 20. Cancerous growth thus gives way to moderated competition. Co-operative workers, fearing loss of market share, will still be constrained to please customers, introduce technologies, and produce efficiently. But a cooperativized economy will necessarily be less competitive. (Schweickart p. 129, 157) “First” world co-ops can have no imperialist motive for spreading co-ops abroad since third world co-ops will retain profits locally. Yet they will have a defensive motive since capitalist competitors might otherwise use cheap labor to undersell them. As for militarism, Schweickart says of his model: “Investment funds under Economic Democracy don’t flow abroad in search of greater profits so there is no need to make the world safe for foreign investment.” (Schweickart 2002, p. 155)
Cooperativization may go over half way in transforming capitalism. Morally and practically primary, it still fails of its tacit goal of an inclusive human collectivity that freely reproduces itself.
Having gained the power of collective autonomy by abolishing the market in labor, co-operative workforces will not be willing to tolerate the loss of this autonomy in other forms of market exchange. Market prices are indirect, coded, false unities of the guesses two exchangers make regarding countless transactions taking place elsewhere. Prices mediate human relations between producers and users regarding resources, production capacities, and needs. What, then, would be direct, true communication and agreement on these matters? Albert and Hahnel put the interenet at the center of their post-market society. It allows massive virtual input by economic agents only symbolically guessed at in pricing. An iterated participatory planning, using the internet, is a natural second step after cooperativization. Indeed the same logic that led individuals to co-operativize and build the solidarity economy, hence to abolish the market in labor power, will lead co-operatives on to replace market distribution generally with communication and ever-wider intercooperation.
While cooperativization is a powerful job-creating engine it cannot by itself keep pace with record and climbing global rates of structural unemployment and marginal employment. (ILO) Indeed the very computerization of industry that demands workplace democracy for its optimal use also leads to wide-spread layoffs. (Rifkin, Ch. 1)
As cooperativization proceeds it will open the way to measures such as canceling third world debt, closing off-shore tax havens, and converting free trade into fair trade with long-term contracts. When complete it will make possible democratic control of investment. Schweickart’s proposal of a tax on assets with revenues diverted precisely to problems such as unemployment would become pertinent. And finally advanced cooperativization will allow control of capital at globalization’s own global level: a Tobin tax on international capital flows and a tax on multinational profits. Constructing a global body with taxing and enforcement power — impossible for the current United Nations — will be a simple extension of a global economy already under workers’ control
A basic guaranteed income, coupled to work-sharing due to reducing the workday, would complement cooperativization and largely resolve unemployment. An income floor would erase any coercion to form co-ops; it would let workers move between co-ops without catastrophic income loss; it would give co-ops more flexibility in work-sharing and job-creation; and it would facilitate socially useful work in political parties, neighborhood associations, child and eldercare co-ops, and the like. (Howard) But also: to assure all of the working population full membership in society’s material reproduction — in short, a job — shorter hours are needed as part of spreading useful work. Since under capitalism capital flight or strike could end such initiatives in a given country or region, global cooperativization will have to be completed as a condition for considering such measures.
Struggle should start at the site of labor’s original alienation and cooperativization can empower workers now. Waiting for capitalism’s final collapse in order to abolish all markets has failed and — absent grassroots democracy — may well invite chaos or fascism. (Schweickart 2003, p. 177) While such networks cannot guarantee a global democracy, it seems certain that without them there is little hope of replacing markets with inter-communication among workers and farmers — who together constitute the world’s vast majority. Cooperativization, then, is first on the agenda.
5. Objections and Replies
We have treated some objections. We’ll now look at seven more: first, objections on principle, then, objections on strategy.
1. Won’t the best rise to the top, upsetting co-op egalitarianism? A new version of this complaint holds that, since managerial talent is unequally distributed among workers, co-operatives, instead of competitively forcing capitalist firms to co-operativize, will themselves be forced to re-introduce hierarchy, rewarding scarce talent with political and ownership rights — enough to render co-ops indistinguishable from capitalist firms. (Arnold, pp. 23-48)
This competitive pressure is real. It has been met at Mondragón by collectively widening income spread to 1 to 6 from 1 to 3, with bonuses raising some to 10 to 1. But managers have not received greater political rights even after major accomplishments — such as surviving the 1980-83 recession. When co-ops dominate whole sectors, competitive pressures to reintroduce capitalist rewards will be greatly moderated. Since a cooperativized economy will necessarily be less competitive the risk inherent in competition will be correspondingly reduced. “With risk lessened,” Schweickart remarks, “managers would be less able to demand increased authority and income, even if…their talents are seriously in short supply.” (Schweickart 1987, pp. 311-312) As co-ops take over economies, the pressure to increase wage spreads will reverse, becoming pressure to narrow earlier spreads, since as capitalist firms fail, need, not profit, will become the dominant incentive for production. CEOs who attain this finite goal will not be able to justify the disproportionately high pay that may have seemed plausible when infinite accumulation of profit was the goal.
2. Turning the issue of egalitarianism around: does the egalitarian commitment of worker co-ops dull effort incentives? A majority of workers in democratic firms will benefit by making pay differentials smaller than differentials in productivity, Kremer holds, even if this transfers some returns from the most to the least productive members. Since ability and effort are hard to distinguish, the resulting taxes will dull efforts in high-ability members who will tend to flee to shareholder-owned firms that reward their marginal product. Hence co-ops are “rare.”
Were Kremer right, most co-ops would be plagued by weaker work incentives and lower productivity than shareholder-owned firms. But matching studies show co-ops to be more productive. (Pencavel) Totally flat pay “according to need” rather than work may have been a problem in some Israeli kibbutzim, but compressing earnings can boost morale. (Dow & Putterman) Retaining capable managers is a problem at Mondragón, addressed by widening the pay scale. But high-producing workers do not leave for rewards elsewhere, perhaps because of non-monetary recognition. What seems more important at Mondragón than exact monetary recognition is effective collective control of pay scales.
3. If overproduction is a problem of globalizing capitalism, how can an even more productive form help? The flood of products from worker co-ops will hasten the unemployment of their workers.
The question misses dynamics both of overproduction and of worker co-ops. Capitalism enters a crisis of “overproduction” not just by adding capacity, but by simultaneously depressing incomes of workers who otherwise could buy what they produce. But cooperativization narrows the income gap. The full range of commodities produced is thus at the disposal of a new, single class of worker-owners. And there will be overall less pressure to add capacity. A cooperativized global economy will thus clear markets of its own products, solving the problem of overproduction.
4. But can a fully cooperativized market economy expand to displace capitalist forms? Frank Thompson argues that co-ops, being slow both to hire and to fire, will loose out because less responsive to changes in demand. Given increased demand, the desire to individually capture super-profits will create pressure either against adding members who might boost output, but who will dilute per-worker profit, or for hiring wage labor, or both. Increased demand, unmatched by output, will thus lead either to a wealthy co-op sector amidst unemployment, or, if wage labor is used, one that is hardly egalitarian. Either co-ops risk being undersold by capitalist firms who profitably hire the cheap labor they excluded or they revert to capitalist firms. Either way the co-op sector, less nimble in responding to changes in demand, can’t be expected to displace capitalism over time.
Regarding profit growth, if higher prices, reflecting greater demand, are not met by higher output, resulting super-profits will indeed be captured by those presently employed. But co-ops just don’t behave this way. The risk of loosing market share deflates temptations at Mondragón to freeze production or membership. Wage labor has been overused but MCC also increases production, borrows members from other co-ops, and adding new members as real needs demand. Nor, given lowered demand, is MCC inefficiently slow to reducing output; unneeded workers are simply loaned to busier co-ops.
As for the slowness with which, given continued reduced demand, co-op networks actually lay members off, this “fault” helps stabilize not only employment but also demand itself. If mass layoffs and the reduced demand they create cannot be so freely used for a firm’s survival, then the broader downward spiral of reduced demand at the macro level will be slow to start its first down spiral. The speed with which a capitalist labor market responds to changes in demand exaggerates such cycles and is not a sign of efficient overall resource allocation. As cooperativization abolishes this market it dissolves the problem’s cause, the boom and bust cycle itself, by stabilizing demand. This is obviously a better solution.
5. Will workers in a co-operative, any more than those in conventional capitalist firms, have enough of a sense of solidarity to make the sacrifices needed in order to provide the public goods that any healthy society requires, such as universal health care?
Milton Fisk holds that co-ops, like capitalist corporations, have powerful tendencies toward market dominance and oligopoly pricing and away from regulation. He contends that “There is nothing inherent in workplace reform that leads to expanding the net of solidarity…. As a reform, co-operatizing is incomplete since it doesn’t address the class wide, the society wide, and the global issues that public goods address.” Co-ops want health care for themselves, and wealthy ones can provide it, “but how will that provide health care for all?” In short, “nothing in the structure of producer co-operatives calls for such an insurance scheme.”
The call is inherent in the structure. To fund community programs, MCC co-ops have always tithed 10% from revenues, recognized by post-Franco Spain’s 10% reduction of taxes on co-ops. Incapable of capital flight, co-ops are much more responsive to community needs than normal firms. Being constituted by sacrifice for the collectivity, solidarity is not, as Fisk implies, incidental to worker co-ops; they are on the contrary founded on it.
Regarding market dominance, we have shown worker co-ops have greatly moderated tendencies to dominate markets. And if MCC co-ops inherently resisted regulation they would not both accept external, network regulation of pay differentials, wage labor, tithing, etc. and bear individual economic risk. Rather, they would be constantly defecting to compete with their parent. When Spain, recognizing MCC as a public good, offered to bring it into the state health system, the network would have declined and kept its own cheaper system, avoiding sacrifices for the public good. That these did not occur is due to the fact, discounted by Fisk, that those who sacrifice to create a co-op are ready for “inter-cooperation” — mutual giving and regulation — among co-ops. This is reflected in cooperative principles and explains why co-ops rarely refuse to co-operate with other co-ops. The sacrifices that Fisk rightly says are needed to constitute a nation-wide or global public good are simple extensions of these same impulses. Indeed, we need rather to ask Fisk where the solidarity behind public goods might come from outside of the mutual giving typical of co-ops and similar groupings?
Fisk seems to assume that if property is not public it must be a private, exclusive resource for making profit. Nancy Holmstrom (2004), another defender of the public goods perspective, makes this error when she writes that “goods like education or health care are public — if they are — only because people have struggled to take them out of the private for-profit sector and make them available for all.” But cooperatives since Rochdale are committed, unlike private clubs, to open membership and aim primarily at meeting needs and only secondarily at profit. Beyond public goods and private property for profit there is a third possibility: non-exclusive social property used for the public good. Socialists and economic liberals both elide social property to the extent they both offer an either/or choice between socialism (as public goods) and capitalism.
In fact cooperativist and public goods perspectives complement each other. The public goods perspective is itself society-wide cooperativism. In turn, cooperativism is a necessary concretization of the public goods perspective in the large and small enterprises of an economy. Uprooted from their common origins in the gift economy, the sacrifices needed to constitute either co-ops or public goods appear as anomalous and irrational supererogations. The public goods perspective tends to regard workplace democracy as optional and, uncorrected by cooperativism, often denies it in practice. For its part, cooperativism, especially under market pressure, can overlook nation-wide and humanity-wide needs — which actually call for a broader cooperativism, not inwardness. Neither perspective can afford to loose sight of the other in their convergent struggles.
6. Socialists might contend that the slowness of cooperativization coupled with the obviousness of its social change agenda, will make it vulnerable to political and economic attacks. Since expropriation of capital all at once is needed there is no substitute for working for a socialist government that can give the means of production to workers and institute democratic planning.
To be sure, cooperativization demands political struggle. But if focus is on socialist political victory alone and victims of racism, sexism and the new imperialism have not been supported in daily economic struggles, the inevitably bureaucratic socialism bestowed on them will be taken (or given) back — as in Russia in 1917, China in 1949, Algeria in 1962. And which strategy is slower? Waiting for top-down socialism without asserting the collective autonomy of cooperativization is more dispiriting than risking failure by asserting it now. And absent preparation by grassroots economic struggle, new failures of top-down socialism are likely. We are not “market socialists” — a contradiction. Socializing daily life is less reversible than gaining “the commanding heights” of government. Socialists might thus reinvent themselves as cooperativists. If socialism is humanity directly producing itself by democratizing global economic life, then cooperativization, though not the easiest, is the surest way.
7. This scheme has no clear origins in indigenous or oppressed communities, the examples are as often first world as they are third (or fourth world), and it seems overall another presumptuous emanation from the same privileged Western perspective as that of capitalism itself, or for that matter authoritarian socialism.
This objection is the test we give ourselves. Envisioning alternatives to oppression demands some freedom from it; the issue is whether such a freedom enjoys its privileges as entitlements — which is real presumption — or uses them to build a humanity without oppression or entitled privileges. We focus on a social organization of production that works both in advanced first-world factories and in “undeveloped” third-world villages: cooperatives. This trusted way to meet needs, liberated both from absentee owners and from covetous governments, can help in the global struggle for a humanity that, no longer serving systems, uses them to produce itself. We undertake this act of faith to advance debate, soliciting any correction that gets us closer to the truth. So we ask: where have our privileges clouded our vision? What have we overlooked in indigenous or oppressed communities that shows the alternative we propose to be mistaken or useless? We admit to the privilege of being able to advance this faith. But the objection is incomplete. Shown our mistakes we will alter our faith, but not until then.
It would take only 51% of any Mondragón workforce to sell out, usually with a prospect of a life of some comfort. Why haven’t any done so? We got various answers at Mondragón. Some saw their co-op as patrimony to pass on. Others felt themselves a movement’s vanguard. Nobody said there had been no good offers. We came to believe our question missed the point. It assumes economic decisions express the self-interest of the money economy, overlooking the moral basis of Mondragón. Many workers transfer between co-ops; virtually none go back to capitalist firms. Complaints were many but never to the advantage of capitalist firms left behind. They cited what the co-ops could themselves be were they true to principles. Thus Mondragón workers seem to cross some inner rubicon. Finding true autonomy in their work for the first time, they want to go forward, not back.
This moral basis is at risk. To compete with multinationals Mondragón has come to resemble one. It is salvageable, but only if its isolation is ended. Advancing solidarity economics and other social movements can do that. Building on them, a peaceful transformation can replace globalizing capitalism with control of production from below by workers and farmers world-wide.
Apocalyptic revolutionism that followed “laws of history” to state power proved a disappointment. Cooperativization breaks our present impasse yet avoids the old errors. No utopia is before us and no reversal of gains is ruled out. But it seems to us there is a clear first step.