Worker co-operatives in the capitalist system (2024)

From the May 2024 issue of the Socialist Standard

Proponents of capitalism would have you believe that there is no alternative, that the free market provides the most efficient system of exchange and that any deviation risks endangering freedom and prosperity. This is a falsehood, for humans have demonstrated throughout history a remarkable capacity to co-operate without private ownership and the insatiable need for profit. Closer examination of worker co-operatives, despite their long-standing orientation towards generating wealth within the capitalist system, offers a glimpse at how humanity may one day succeed in recasting incentivisation to meet people’s needs rather than to make a profit.

The history of worker co-operatives and self-management is deeply rooted in the 19th-century efforts to address the socio-economic challenges brought about by the Industrial Revolution. Robert Owen, a visionary social reformer and industrialist in the early 1800s, laid the groundwork for the co-operative movement. Owen championed the idea that workers should collectively own and manage the means of production to ensure fair wages and better working conditions. His experiments at New Lanark in Scotland and later at New Harmony in the United States provided early models of co-operative living and working. Others like Charles Fourier, a French social theorist, contributed to the co-operative movement by proposing the concept of phalansteries—self-sustaining communities where individuals could live and work co-operatively. Although Fourier’s ideas were not widely implemented, they inspired later developments in the co-operative movement.

Elsewhere, the Rochdale Society of Pioneers, formed in 1844 in England, played a pivotal role in shaping the co-operative principles that persist today. They established a successful consumer co-operative, emphasising open membership, democratic control, and distribution of surplus based on patronage. Indeed, the so-called ‘Rochdale Principles’ became a blueprint for subsequent co-operative endeavours.

The modest successes of the co-operative movement led Marx to pronounce that worker self-management proved the superfluousness of capitalist managerialism; a statement ostensibly corroborated decades later during the Spanish Civil War (1936-1939). Worker co-operatives and self-management gained prominence across the Republican zone as a means for labourers to assert control over their workplaces. In Catalonia, particularly in the city of Barcelona, workers took over factories and implemented self-management practices. Notable examples include the textile industry with enterprises like Fabrica de Hilaturas Fabra i Coats and the metal industry with companies like Talleres Roca. These initiatives were characterised by worker assemblies, decision-making through consensus, and the elimination of hierarchical structures. The success of these worker co-operatives during the Spanish Civil War was evident in increased productivity and improved working conditions. The textile co-operative, Fabra i Coats, for instance, not only maintained production levels but also witnessed enhanced efficiency under worker control. Similarly, in the metal industry, Talleres Roca thrived under self-management, showcasing the viability of co-operative principles in sustaining economic activity during a tumultuous period.

Contradictions

However, the existence of worker co-operatives within a capitalist system has inevitably led to certain contradictions. Notwithstanding the inculcation of workplace democracy and equality, the necessity to compete and accumulate in the broader system persists, and in face of these structural demands, worker co-operatives have often proven ineffective and unreliable.

Despite his visionary ideals, Owen’s experiments at New Lanark and New Harmony faced internal strife and financial difficulties. The co-operative model struggled with issues of governance, as decision-making by consensus often led to slow and inefficient processes. In New Harmony, the lack of a clear organisational structure and the imposition of Owen’s communal ideas contributed to the ultimate failure of the experiment.

Similarly, during the Spanish Civil War, worker co-operatives in Barcelona faced both internal and external challenges. While some co-operatives thrived, others struggled with management issues, as decision-making by assembly sometimes hindered effective responses to rapidly changing circumstances. Even the relatively successful Fabrica de Hilaturas Fabra i Coats faced difficulties due to disagreements among workers on key decisions, highlighting the challenges of implementing democratic practices in high-stakes situations. External factors too, such as wartime pressures and political instability, also impacted the sustainability of these initiatives. The Barcelona co-operatives, despite notable successes, faced challenges in the broader socio-political context of the Spanish Civil War, ultimately contributing to their limitations and demonstrating the complexity of implementing worker self-management in tumultuous times.

Mondragon

That said, worker co-operatives endure today. The Mondragon Co-operative Corporation, based in the Basque region of Spain, is an often-cited example. Founded in 1956 by a group of visionary individuals led by Father Jose Maria Arizmendiarrieta, Mondragon has grown into one of the world’s largest and most successful co-operative networks. Proponents point to the active participation of employees in decision-making processes through a system of co-determination, where major decisions are made collectively by the workers and management, as well as the commitment to equality of income. While wage differentials exist based on skills and responsibilities, the ratio between the highest and lowest-paid worker is significantly lower than in traditional corporations. This approach promotes a more equitable distribution of wealth among the co-operative members. In terms of profit distribution, a portion of the profits is reinvested in the co-operative, another portion is allocated to social and cultural activities, and the rest is distributed among the members.

Critics, however, argue that Mondragon, while often lauded as a successful worker co-operative, still operates within the broader capitalist system, raising concerns about its limitations and contradictions. One major criticism is that, despite its co-operative structure, Mondragon has adopted certain hierarchical elements, resembling a conventional corporation. While the co-operative members elect management, there exists a professional managerial class that holds considerable decision-making power, potentially diluting the essence of true workplace democracy.

Additionally, Mondragon’s global expansion has led to accusations of replicating conventional corporate practices, including outsourcing and wage differentials, especially in its international subsidiaries. Critics contend that this compromises the co-operative’s commitment to equality, as the wage gaps between the highest and lowest-paid workers have widened in some instances.

Furthermore, the co-operative has faced challenges in maintaining its founding principles as it expanded. In certain situations, Mondragon has implemented cost-cutting measures and layoffs, contradicting the ideal of job security within a co-operative framework. The co-operative’s financial structure has also been a subject of scrutiny, with some arguing that it still operates within the capitalistic framework, reliant on traditional banking and financial institutions. These criticisms highlight the complexities and challenges of attempting to establish a fully co-operative model within the capitalist system, revealing that Mondragon, despite its successes, does not represent a complete departure from capitalist structures and practices.

World co-operative commonwealth

Thus, it is evident that simply introducing a system of worker co-operatives cannot expunge capitalism. The worker co-operative in its current form is not a panacea. Like other workplaces it is geared towards the generation of wealth within the capitalist system. However, the worker co-operative endures as an ideal, an alternative framework where decision-making is collective and understanding one’s role in a larger societal context becomes paramount, fostering a spirit of co-operation and shared responsibility.

If humans across the globe were to adopt worker co-operatives within the confines of capitalism, it would likely serve to mitigate some of the exploitation associated with the current economic system by redistributing wealth and cultivating workplace democracy. That said, an integral component of the capitalist system would remain in the form of surplus value and money exchange, and so there would persist a means to profit through the exploitation of workers. The ideal of a global system of co-operatives could only reach its full potential on the basis of world socialism, a system in which production is geared not towards sale and the accumulation of private wealth but towards using one’s abilities to meet both individual and community needs.

John Elliston

TV Review: Worker co-operatives (1981)

TV Review from the January 1981 issue of the Socialist Standard

Worker co-operatives

“They have abolished the distinction between capital and labour” was the outlandish claim made recently by a BBC Horizon documentary, The Mondragon Experiment. The people in question were the workers in a conglomeration of about 80 “industrial co-operatives” in the Basque country. Commodities such as refrigerators and washing-machines are manufactured for sale at a profit as elsewhere, but the internal organisation is somewhat different.

Each worker joining a co-operative provides £2,000 for the company’s funds. This is increased by 6 per cent each year from the wealth the workers produce. They then receive a standard monthly salary. The higher paid workers may receive up to three times as much as lower paid workers. Then 10 per cent of the profits is spent on schools and so on, 20 per cent is paid pack, into company funds and the other 70 per cent is divided among the workers. There are two significant features of this “distribution of profits”. Firstly, these profits are allocated in the same proportions as the salaries The workers who were paid three times the wages of their colleagues each week are also allocated three times as much profit. Secondly, none of these “profit bonuses” can be withdrawn from the company capital (including the £2,000 original contribution) unless the worker leaves the co-operative.

Capital is wealth used to make more wealth; it is an accumulation of labour used to employ more labour, in order to realise a profit. In capitalism, wealth takes the form of commodities, articles produced for sale in the market at a profit. Capital is by definition divided from the labour it consumes. Workers receive wages or salaries which are generally just enough for them to replenish their energies and live in a way which is determined by place and time. They are then able to produce wealth greater in value than that represented by their wages or salaries. In a week a worker can make more than he himself requires. This surplus wealth created belongs to the employer, to capital.

This process can clearly be seen in Mondragon. The salaries paid were said by the reporter to be the “going rate for the job in the Basque country”, in other words, co-operative workers “pay themselves” just enough to live like other workers. The surplus they create is accumulated as capital. They can only get hold of their individual small share of that capital by leaving their job, and even then, the workers on higher salaries have much larger shares of it. Managers are elected by all workers, but so is a Social Council whose job it is to negotiate with the managers over wages, conditions and so on, just as trade unions do elsewhere.

There are some similarities between this form of capitalism and state-capitalist nations like the USSR. In both cases, the old set-up of private shareholders has been replaced by a complex bureaucratic structure, where specially inflated salaries for certain managers are used as a means of channelling the wealth to a privileged minority. In both cases the world market system of capitalism remains, so in periodic recessions production is restricted. But in Mondragon they are not made redundant. “Instead they send them back to school” said the reporter. In Russia they can put them in the army. The restrictions of the profit system remain. Both Russia and Mondragon are examples of capitalism where no specific shareholding capitalists are clearly in evidence.

These industrial co-operatives are said to be more successful as capitalist enterprises than other companies, firstly because almost all the resources are ploughed back without any dividends being paid, but also because the workers supervise themselves, without having to employ any foremen. So most of the workers are directly productive.

What if the co-operative workers democratically vote one week to pay themselves twice or three times as much, of the wealth they create? The frantic process of capital accumulation would be held up and the co-operative would lose ground in the vicious rat-race of capitalism. This is unavoidable in a worldwide system of buying and selling, or production for profit.

The way in which these workers are searching for co-operative work, though, and the degree to which they have succeeded in organising themselves without external investors or directors, is certainly a hopeful sign. It shows how the working class of the world can organise itself to produce wealth. But why retain this system of wages and profits, labour and capital? What is needed is a global political movement to replace the whole market system with planned production, co-operative production, without the fetters of wages, prices and profit.

Miss World contest

In this age of mass commodity consumerism, beauty is definitely NOT in the eye of the beholder. It is in the hands of the mass media. In commercial society, where commodities and money are mystified and personified, and where people are turned into objects, physical beauty is defined by conformity to a norm. Fashions, from lipstick to stilettoes, complete the conveyor-belt conversion in which workers are forced to go and sell themselves, as objects, to employers.

A few weeks ago, the ITV cameras were present in the Albert-Hall, where sixty-seven “beautiful girls”, representing sixty-seven nation-states (Warsaw Pact countries were excluded) were assembled to compete for the absurd title of "Miss World”. As with other sports, the spirt of fierce nationalist competition was in evidence, with the first stage of the contest consisting of a parade by the participants in their “national” costumes. Regional culture transformed into national rivalry. The trade figureheads parade past like plastic marionettes. “Miss Bolivia, Miss Turkey, Miss Zimbabwe, Miss Chile, Miss Jamaica . . .” While in each of these countries hundreds of people are dying in the political wranglings of the demagogues who own the resources, these painted puppets, moulded by a depraved society, stroll up and down smiling in their desperate efforts to conform to the norm. Red lips, blue eyelids, high heels and a frozen smile. This is a beauty contest, don’t forget. Place your bets. You can’t guess wrong, because whoever gets the prize, capitalist normality will have won.

The most touching moment was when all the participants sang together:

I’d like to teach the world to sing, in perfect harmony,
I’d like to hold it in my arms, and keep it company.
I’d like to see the world for once, standing hand in hand
And hear the echo through the hills of peace throughout the land.

Sexual preoccupations are created and encouraged with promises of a “swimsuit” parade to come later. “Miss India” dances in a talent contest and Anthony Newley comments: “Makes you sorry we lost India doesn’t it”. The only thing he’s ever lost, as we were to find out subsequently, is his singing voice. Workers owned India no more than they own Ireland or ICI. Then the judges are wheeled on. Alan Minter, boxer, Denis Waterman, actor, Bruce Forsyth and the wife of the Swaziland High Commissioner. We don’t know where she came from, perhaps a friend of the organiser, Eric Morley. Presumably these people are trained experts on the oppressively narrow conception of “beauty” inculcated through constant exposure to media and advertising. We live more than ever in a social system which is insidiously restrictive. Individuality is stamped out. Social conformity is stamped in, at an early age, through what they call “education”. Beauty becomes a convention, a composite moulded from the mix of a million faces. And this is the very ideal to be attained in schools and in discotheques as much as in “Beauty” contests.

Out of the blue, Dame Vera Lynn appeared on the screen singing, “When you’re smiling . . . the whole world smiles with you”. Then, when called upon to actually speak, the beauty queens mouthed typically constricted ambitions such as “travelling” or “speaking a language”. In a co-operative system of society, individual and cultural development will be fostered, free from the prejudiced moral constraints imposed when social power is concentrated in the hands of a minority. Until real social democracy is established, with no class division or national frontiers, it will be true to say “When you’re different . . . the whole world sneers at you”.

Clifford Slapper

All Together? (2012)

Book Review from the December 2012 issue of the Socialist Standard

The Co-operative Revolution: a Graphic Novel. New Internationalist on behalf of The Co-operative Group. £5.99

2012 has been the UN International Year of Co-operatives, marked by a Co-operatives United World Festival in Manchester at the end of October and start of November. This book charts the origin and history of the co-operative movement and its current size and influence. In a rather pointless future section, the Rochdale Aerotech Co-op is shown providing the parachute for a Mars landing. There is also a section that looks at co-operation in nature, e.g. among bees.

The co-operative movement began in Rochdale in 1844, many of its first members being Chartists. According to figures given here, there are now 1.4 million co-operatives in the world, with over 100 million employees and nearly a billion members. In Britain there are over 18,000 organisations in the ‘mutuals sector,’ which includes housing associations and NHS Trusts.

So immediately we come up with a problem that is not addressed here at all:  what counts as a co-operative?  One definition (adopted by the International Co-operative Alliance in 1995) is ‘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 notion in practice covers a wide range of entities, from The Co-op (staple of British High Streets) to Barcelona Football Club, Best Western hotels and Ocean Spray soft drinks, in addition to genuine small worker-owned enterprises. These may all have in common that they are supposedly owned and run by their employees and other members, but they differ in many ways and they all have to compete in the capitalist market place. For instance, The Co-op’s posh new headquarters in Manchester has been put on the market on leaseback terms (once finished, the building will be sold and leased back in order to obtain finance to invest in the next stage of the development). And no form of employment under capitalism is voluntary in the terms of the definition above.

Nothing sponsored by the UN can be seen as any kind of threat to the status quo. The Mondragón Co-operative in Spain, usually cited as one of the movement’s success stories, was set up under the Franco dictatorship, despite the oppression suffered in other parts of the Basque Country, so it was hardly any kind of radical undertaking. And, as made clear in the useful timeline at the end of the book, The Co-op contributed to the British military machine in both world wars, such as by making military clothing and even weapons. Furthermore, it supports the Co-operative Party (‘the political arm of the co-operative movement’) and hence the Labour Party. 

There is nothing at all wrong with workers getting together without bosses to organise production and distribution. But by no means everything that calls itself a co-op should really be counted as such. And the view taken in the book, that the Rochdale pioneers made a revolution, is, unsurprisingly, not argued for at all.

Paul Bennett

The Mondragón co-operatives (1984)

From the July 1984 issue of the Socialist Standard

In face of the popular belief that co-operatives are ineffective and mostly doomed to failure, the workers’ co-operatives founded in Mondragón in the Basque region of Spain have been held up as an example of how successful workers’ control of industry can be. Only one of these co-ops apparently ever failed.

In 1982 there were 85 industrial cooperatives with around 20,000 members. The first one, ULGOR, was founded in 1956 under the guidance and inspiration of a Catholic Priest, Father Arrizmendi, by five of the first pupils to go to the technical training school he started with the help of local townspeople. Here Father Arrizmendi taught his ideas of “dignifying the role of labour” and “democratising the workplace”. ULGOR is today the leading Spanish producer of electrical goods like fridges, washing machines, cookers and dishwashers.

Several claims are being made about these types of co-operatives. David P. Ellerman in his papers The Socialisation of Entrepreneurship and What is a Worker cooperative? defines a co-operative as a firm “controlled and operated by the people who work in it”, and says that it is “neither privately nor publicly owned . . . . It is not owned at all; it is a democratic social institution”. There are, it is claimed, no “wages” and no “profits” in a worker cooperative, only “labour income”. Another claim made is that in a workers co-operative, “labour hires capital” instead of the other way round.

The structure of the Mondragón workers’ co-ops is different from other types of co-operatives. First of all, any new member wishing to join has to pay a membership fee of between £2,000/£2,500. This is more than most workers can afford so they put about 25 per cent down and the remainder is deducted from their pay over a two-year period.

Having paid the membership fee, the new member is automatically allocated one share in the firm on a one share/one vote basis. The members, through the General Assembly, elect the Board of Directors who in turn appoint the management. The shares are just membership certificates and do not carry the net worth of the company’s assets plus the accumulated retained profits; these are allocated to the so-called Internal Capital Accounts (or Internal Accounts)—a system invented by the Mondragón co-operatives. Seventy per cent of the co-operative’s profit is credited to the members’ Internal Accounts according to the formula “equally per hour worked or equally per dollar pay”; similarly, if the company makes a loss, this is deducted from the Internal Accounts. The difference between the allocation to the highest and lowest remunerated member is 3-1. Should members wish to realise their capital, they normally have to wait until retirement when the firm pays it out over a period of years. If they have to leave the co-op earlier “for reasons beyond their control”, their capital will be cashed but if they leave to work for a competitor, 30 per cent of the value of their Internal Accounts will be deducted.

It is claimed that the “members” of a co-operative are not paid wages as such. Ellerman describes it as follows:

The net value accruing to the workers is the value of their product less the non-labour costs. Some of that value is paid out during the year (the closest analogy to “wages”), some is paid out at the year’s end (bonuses), and some is retained in the co-operative. Since the net amount is not known until the end of the fiscal year, the amount paid out during the year is an advance or an anticipation (anticipos) of the workers’ income.

The group headquarters of the Mondragón co-operative movement is the Caja Laboral Popular (Bank of the People’s Labour) whose main role is to be a credit institution for the associated co-operatives. Apart from the Banking Division it also has an Empresarial Division which concerns itself with the launching of new co-ops, performs feasibility studies into new market possibilities and keeps these on file for the use and further exploration of people planning to start new co-ops. The Caja Laboral Popular assigns a “godfather”, usually an experienced manager from within the group, to keep an eye on and advise the fledgeling co-ops. The Empresarial Division stays in close contact with the research and development institute, Ikerlan. which is an offshoot of the Polytechnical College of the Mondragón group.

What are the reasons behind the apparent "success" of these co-operatives? One factor is the economic upturn in Spain in the 1960s which resulted in heavy demand for household electrical goods. Another could be the tightly woven net comprising the co-ops; the double function of the Caja Laboral Popular: Ikerlan and the Polytechnical College. Perhaps most importantly, the willingness of workers (or "members") in co-ops to accept smaller wage rises and more spartan working conditions, as they believe they are working in their own firms and therefore have to keep an eye on costs. A further strengthening of worker solidarity in this region could be Basque nationalism.

So where does control, and thereby ownership, lie in the Mondragón co-operatives? The key question is whether the workers can actually directly gain access to their capital and decide what to do with it. They cannot; in fact the whole system seems to operate like a pension scheme, as the members have to wait until retirement to realise their earnings and even then they do not get it paid out in one lump sum. Most effective control and decision making is carried out by management, who in this case would be the de facto owners of the co-operatives.

It must also be remembered that cooperatives are integrated into the market system and subjected to the same economic laws as other firms. Should Spain eventually join the Common Market and the high protective import duties imposed to protect Spanish produced goods be removed, the Mondragón co-ops might face very strong competition from foreign produced goods. The claim that "labour hires capital” does not hold up as there must be something in the kitty to pay new members their wages (or "anticipos").

The argument is often put that it is possible to establish "little islands of socialism—workers co-operatives — within the framework of capitalism, thus making a revolutionary, world-wide change from capitalism to socialism unnecessary. But socialism means common ownership and free access to everything that is produced. Such a social system does not exist in the Mondragón co-operatives or anywhere else in the world. The rigorous economic law of profitability at all costs imposed by the market must be supported by defenders of co-operatives; if. under capitalism, you don’t observe this law you very quickly go out of business.

Torgun Bullen

Cooking the Books: Co-ops Again (2014)

The Cooking the Books column from the January 2014 issue of the Socialist Standard

Despite the capture of the Co-operative Bank by hedge funds and the exposure as hypocrisy of its claim to be more ‘ethical’ than other banks, there are still those who stubbornly argue think that co-operative enterprises could be a viable alternative to capitalism. Supporters of capitalism, however, have a more realistic view of co-operatives and what they can and cannot do within capitalism.

One of the arguments put forward in favour of co-operatives is their democratic management structure. They certainly are more democratic than any normal capitalist enterprise which are anything but this. The moment an employee enters the doors of the office or the gates of the factory where they work they cease to be ‘free citizens’ with a right to vote and become subjects who have to carry out the orders of the unelected managers who are running the business on behalf of its owners.

Under capitalism, however, not being undemocratic is a handicap for an enterprise. Even a nominally democratic structure hinders the emergence of the type of ruthless top executive needed to engage in the struggle with rivals with any chance of success.

This was spelled out clearly in an editorial in the business section of the  Daily Telegraph (20 November) commenting on the Co-operative Bank and the Co-operative Group generally:

‘Its democratic structure, with a Byzantine relationship between area committees, regional boards and the group board, was held up as a paragon of virtue. It was, as has been proved, a recipe for disaster … It is difficult to imagine any corporation of this magnitude being governed by archaic governance standards more suited to a village charity than an organisation with its sites on major expansion.’

Like it or not, it’s true. The sort of decisions that the top executives of an enterprise engaged in the competitive struggle for profits have to take are impeded if they are subject to any degree of democratic control. A democratically-run enterprise just wouldn’t survive in the capitalist jungle. If you want to compete with the other beasts in the jungle you’ve got to behave like one of them.

This has been candidly recognised by the president of the much-touted Mondragón co-operative group (one of whose flagship enterprises has since gone under), Txemia Gisasola, when he told Miles Johnson the Financial Times (21 March):

‘We receive visitors from many companies and many countries, and some come here with a magical idea of what Mondragón is. This is not magic. We are in this market, competing in the capitalist world, and the only difference is how we do things and why we do things. We have to be competitive, we have to be efficient, we have to have quality in our products and give satisfaction to our clients, and we have to be profitable. In that sense we are no different from anyone else.’

This does mean that there is no place at all for co-operatives within capitalism. There are some niches for a few of them, but they can never spread to take over the whole economy as their more romantic supporters envisage. As the Times put it (18 June), ‘co-operatives are a model for a few companies, but not for an entire economy.’ Co-operatives are in fact not at all an alternative to capitalism, just one form of capitalist enterprise and a not very efficient one at that.