Search This Blog

Friday, January 17, 2014

Cooperatives: A Cure for Capitalism?

Co-ops-- cooperative economic enterprises-- have been embraced by significant groups of people at different times and places. Their attraction precedes the heyday of industrial capitalism by offering a means to consolidate small producers and take advantage of economies of scale, shared risk, and common gain.

At the advent of the industrial era, cooperatives were one of many competing solutions offered to ameliorate the plight of the emerging proletariat. Social engineers like Robert Owen experimented with cooperative enterprises and communities.

In the era of mass socialist parties and socialist construction, cooperatives were considered as intermediate steps to make the transition from feudal agrarian production towards socialist relations of production.

Under the capitalist mode of production, co-ops have filled both employment and consumption niches deferred by large scale capitalist production. Economic activities offering insufficient profitability or growth have become targets for cooperative enterprise.

In theory, cooperatives may offer advantages to both workers and consumers. Workers are thought to benefit because the profits that are expropriated by non-workers in the capitalist mode of production are shared by the workforce in a cooperative enterprise (less the present and anticipated operating expenses and investments, of course). Many argue as well that the working conditions are necessarily improved since workplace decisions are arrived at democratically absent the lash associated with the profit-mania of alienated ownership (though little attention is paid to the consequences for productivity and competitiveness against capitalist enterprises).

Consumers are said to benefit when they collectively appropriate the retail functions normally assumed by privately owned, profit-driven outlets. Benefit comes, on this view, by purchasing from wholesale suppliers, collectively meeting the labor requirements of distribution, and enjoying the cost-savings from avoiding a product markup (little attention is paid to limitations on participation dictated by class, race, or gender; the wholesale quantity discounts enjoyed by capitalist chains are also conveniently overlooked).

A case can also be made for the cooperator's dedication to quality, safety, and health- promotion.

In reality, cooperatives in the US are largely indistinguishable from small businesses. Like small private businesses, they employ few people and rely heavily upon “sweat equity” for capitalization. Like other small businesses, US cooperatives operate on the periphery of the US economy, apart from the huge monopoly capitalist firms in manufacturing, service, and finance.

Cooperatives as a Political Program

Since the demise of the Soviet Union and Eastern European socialism, many on the US Left have rummaged for a new approach to the inequalities and injustices that accompany capitalism. Where more than a decade of anti-Communist purges had wrung nearly all vestiges of socialist sympathy from the US psyche, the fall of the ludicrously-named “Iron Curtain” found Leftists further distancing themselves from Marxian socialism. Hastily interning the idea of socialism, they reached for other answers.

It is unclear whether this retreat was actually a search for a different anti-capitalist path or, in reality, grasping an opportunity to say farewell to socialism.

In recent years, several Leftists, “neo-Marxists”, or fallen Marxists have advocated cooperatives as an anti-capitalist program. Leading advocates include the Dollars and Sense collective centered around the University of Massachusetts, Amherst, GEO (Grassroots Economic Organizing), Professor Gar Alperovitz, Labor Notes, United Steel Workers of America, and media Marxist-du-jour, Professor Richard Wolff. Some are organizing around the idea of a “New Economy” or a “Solidarity Economy”, with cooperative enterprises as a centerpiece.

Now coops are not foreign to Marxist theory. After World War I, the Italian government sought to transfer ownership of unused land from big estates, latifondi, on to peasants, especially veterans. As much as 800,000 hectares were thus passed on to poor peasants. Through this process and land seizures, the number of smallholders increased dramatically. Socialists and Communists urged the consolidation of these holdings into collectives, agricultural cooperatives. Certainly more than 150,000 hectares ended up in cooperatives. In those circumstances, the rationale was to increase the productivity, to save the costs, to enhance the efficiency of peasant agriculture in order to compete with the large private estates. Cooperatives were not seen as an alternative to socialism, but a rational step away from near feudal production relations toward socialism, a transitional stage.

Likewise, in the early years of the Soviet Union, Communists sought to improve small-scale peasant production by organizing the countryside into collective farms, producers' cooperatives. They saw cooperative arrangements as rationalizing production and, therefore, freeing millions from the tedium and grind of subsistence farming and integrating them into industrial production. Through mechanization and division of labor, they expected efficiency and productivity to grow dramatically, speeding development and paving the way for socialism.

Again, cooperative enterprises counted as an intermediary for moving towards socialist relations of production. Thus, Marxists see the organization of cooperatives as a historically useful bridge between rural backwardness and socialism.

But modern day proponents of cooperatives see them differently.

The 'evolutionary reconstructive' approach is a form of change different not only from traditional reform, but different, too, from traditional theories of 'revolution'” says Gar Alperovitz of cooperatives and other elements of the “Solidarity Economy” (America beyond Capitalism, Dollars and Sense, Nov/Dec, 2011). Like most proponents, Alperovitz sees cooperatives as pioneering a “third way” between liberal reformism and socialist revolution. However, a minority of advocates (Bowman and Stone, “How Coops can Change the World”, D&S, Sept/Oct, 1998, for example) see cooperatives as the “best first step towards that goal [of a planned, democratic world economy]. They suggest that the correct road is through “spreading workplace democracy” and on to socialism.

Whether postured as a “third way” or a step towards socialism, it is difficult to get a clear picture of the extent and success of the cooperative movement; it is equally challenging to gather a sense of how it is suppose to function in a capitalist economy.

As for numbers, Alperovitz (“America beyond Capitalism”, D&S, Nov/Dec, 2011) muddies the waters by citing the numbers of “community development corporations” and “non-profits” (Alperovitz, 2011) as somehow strengthening the case for cooperatives. The fact that community development corporations have wrested control of neighborhoods from old-guard community and neighborhood groups and embraced developers and gentrification causes him no distress. Of course “non-profits” count as an even more dubious expression of a solidarity economy. In a city like Pittsburgh, PA, mega-non-profits remove 40% of the assessed property from the tax rolls. These non-profits not only evade taxes, but divide enormous “surpluses” among super-salaried executives. They beggar funding from tax shelter trusts and endowment funds, completing the circle of wink-and-a-nod tax evasion. Of course there are, as well, thousands of “non-profits” that pursue noble goals and operate on a shoestring.

Alperovitz alludes to credit unions as perhaps sharing the spirit of cooperation without noting the steady evolution of these once “third way” institutions towards a capitalist business model. Insurance companies also share this evolution, but they are too far down this path of transition to capitalist enterprise to be credibly cited by Alperovitz.

Alperovitz leaves us with “...11,000 other businesses that are owned in whole or part by their employees.” In this slippery total of whole or partial worker ownership are included ESOPs-- Employee Stock Ownership Programs, a touted solution to the plant closing surge that ripped through the Midwest in the 1980s. Alperovitz pressed vigorously for ESOPs in the steel industry in the 1980s as he does cooperatives today. When asked to sum up their track record, one sympathetic consultant, when pressed, said: “I don't think its been a real good record of success. Some have actually failed...” (Mike Locker, “Democracy in Steel?”, D&S, Sept/Oct, 1998). But we get no firm number for cooperatives in the US.

Another advocacy group for cooperatives gave a more candid picture of the cooperative movement in the Sept/Oct, 1998 issue of Dollars and Sense (“ESOPS and Coops”). A study by the Southern Appalachian Cooperative Organization claimed that there were 154 worker-owned cooperatives employing 6,545 members in the US. In sixty percent of the 154, all workers were owners. Median annual sales were $500,000 and 75 percent had 50 or fewer workers. Twenty-nine percent of the coops were retail, twenty-eight percent were small manufacturing, and twenty-three per cent food related businesses.

Interestingly, the same article claims that there were approximately 11,000 ESOPs in 1988 (source: National Center of Employee Ownership). If we take Alperovitz's 2011 claim seriously, there has been little growth in the ensuing thirteen years of “...businesses that are owned in whole or part by their employees...”.

From this profile, we can conclude that cooperatives in the US are essentially small businesses accounting for a tiny portion of the tens of millions of firms employing less than 50 employees. As such, they compete against the small service sector and niche manufacturing businesses that operate on the periphery of monopoly capitalism. Insofar as they pose a threat to capitalism, they only threaten the other small-scale and family owned businesses that struggle against the tide of price cutting, media marketing, and heavy promotion generated by monopoly chains and low-wage production. They share the lack of capital and leverage with their private sector counterparts. Cooperatives swim against the tide of monopolization and acquisition that have virtually destroyed the mom and pop store and the neighborhood business.

Some of the more clear-headed advocates acknowledge this reality. Betsy Bowman and Bob Stone concede the point: “...Marx argued in 1864 that capitalists' political power would counteract any gains that coops might make. This has proven true! When capitalists have felt threatened by cooperatives, they have conducted economic war against coops by smear campaigns, supplier boycotts, sabotage, and, especially, denying credit to them.” (Bowman and Stone, D&S, Sept/Oct, 1998).


Until recently, cooperators and their advocates had one very large arrow in their quiver.
When pressed on the apparent weakness of cooperatives as an anti-capitalist strategy, they would counter loudly: “Mondragon!”.

This large-scale network of over 100 cooperative enterprises based in Spain seemed to defy the criticisms of the cooperative alternative. With 80,000 or more worker-owners, billions of Euros in assets and 14 billion Euros in revenue last year, Mondragon was the shining star of the cooperative movement, the lodestone for the advocates of the global cooperative program.

But then in October, appliance maker Fagor Electrodomesticos, one of Mondragon's key cooperatives, closed with over a billion dollars of debt and putting 5500 people out of work. Worker-employees lost their savings invested in the firm. Mondragon's largest cooperative, the supermarket group Eroski, also owes creditors 2.5 billion Euros. Because the network is so interlocked, these setbacks pose long term threats to the entire system. As one worker, Juan Antonio Talledo, is quoted in The Wall Street Journal (“Recession Frays Ties at Spain's Co-ops”, December 26, 2013): “This is our Lehman moment.”

It is indeed a “Lehman moment”. And like the Lehman Bros banking meltdown in September of 2008, it makes a Lehman-like point. Large scale enterprises, even of the size of Mondragon and organized on a cooperative basis, are susceptible to the high winds of global capitalist crisis. Cooperative organization offers no immunity to the systemic problems that face all enterprises in a capitalist environment. That is why a cooperative solution cannot constitute a viable alternative to capitalism. That is why an island of worker-ownership surrounded by a violent sea of capitalism is unsustainable.

The failures at Mondragon have sent advocates to the wood shed (see Leading theoretical light, Gar Alperovitz, has written in response to the Mondragon blues: “Mondrag√≥n's primary emphasis has been on effective and efficient competition. But what do you do when you are up against a global economic recession, on the one hand, or radical cost challenges from Chinese and other low-cost producers, on the other?”

What do you do? Shouldn't someone have thought of that before they offered a road map towards a “third way”? Are “global economic recessions” uncommon? Is low cost production new? And blaming the Chinese is simply unprincipled scapegoating.

Alperovitz goes on: “The question of interest, however - and especially to the degree we begin to face the question of what to do about larger industry - is whether trusting in open market competition is a sufficient answer to the problem of longer-term systemic design.” Clear away the verbal foliage and Alperovitz is admitting that he never anticipated that open market competition would snag Mondragon. Did he think that Fagor sold appliances outside of the market? Did he think that Mondragon somehow got a free pass in global competition?

Of course the big losers are the workers who have lost their jobs and savings. It would be mistaken to blame the earnest organizers or idealistic cooperators who sincerely sought to make a better, more socially just workplace. They gambled on a project and lost. Of course social justice should not be a gamble.

The same sympathy cannot be shown for those continuing to tout cooperatives as an alternative to capitalism. If you want to open small businesses (organized as cooperatives), be my guest! But please don't tell me and others that it's somehow a path beyond capitalism.

Comrades and friends: It's impossible to be anti-capitalist without being pro-socialist!

Zoltan Zigedy


Walter Lippmann said...

Here in Cuba cooperatives are expanding all the time. The Cuban media regularly reports the expansion of cooperatives into areas which previously were state-owned.

The state simply cannot provide for every cup of coffee or sandwich made outside the home.

Furthermore, here in Cuba it´s been shown that state enterprises are subject to significant corruption. Workers steal from enterprises which belong to the state since they often see the state as something remote from themselves invidually.

Cooperatives are an advance over that in that workers, who know all the tricks about how to steal from the state can, hopefully, prevent one another from stealing because they know that they are, REALLY, stealing from each other.

Cooperatives are no solution to all problems in all times and places, but they shouldn´t be rejected for all times and places, either.


Walter Lippmann
Havana, Cuba

Walter Lippmann said...

Here in Cuba, new cooperatives are opening every day.

It´s fine for you to warn against illusions in capitalism, but don´t throw the baby out with the bathwater.

Here in Cuba cooperatives are being organized as a way to address problems which state-owned enterprises haven´t been able to solve.

Don´t go overboard in your opposition to cooperatives.


Walter Lippmann
Havana, Cuba

Carl Davidson said...

ZZ, you're setting up a straw man. Some cooperativists may have utopian 'third way' ideas, nor as any overall 'cure for capitalism.'

But most of us who argue for them see them as one more arrow in our quiver or tools to secure 'strong points' (Lenin's term) in a 'war of position' (Gramsci's term) with capital, along with unions, community groups, evening classes, political groups and so on. No one tactic is going to get you to a new order. But all of our arrows, taken together and fired appropriately, may get us over the top.

As for Mondragon, the fact that Fagor's 'white goods' arm was in trouble for some time was known to us. As with any network of businesses, even those owned entirely by workers, some will go under while others will be created. The test for MCC will be in its ability to transfer the Fagor worker-owners to one of the other 120 or so coops they have, or to design new ones.

In the US the small business failure rate is about 75%. In MCC's 50 year history, less than a dozen of the 120 or so have failed.

Not a bad comparison at all.

zoltan zigedy said...

Walter is a welcome commentator on my blog. He is the indefatigable editor of CubaNews which provides the broadest and deepest coverage of news about the first socialist state of the Americas. He recently celebrated his 70th birthday in Havana, along with some unusually chilly weather!

Regarding Walter's comments, I make no reference to contemporary cooperatives in socialist states. My target is narrow: those who project cooperatives as an alternative to capitalism, as a road "beyond" US capitalism.

Worker-owned cooperatives in a socialist state are-- if they are truly worker-owned-- a form of social and not private ownership. They may inject the element of competition which my prove to be problematic.

zoltan zigedy said...

Carl is a long-time advocate for cooperatives.

I combed through his comment and failed to find the dreaded s-word, "socialism". How does one reference Lenin and Gramsci without referencing the cause to which they devoted their life (literally, in the case of Gramsci)?

Is socialism the "new order" that Davidson desires? Or more small businesses? Or something else?

If Mondragon is best compared to small businesses, are we going to ride small businesses "over the top" (where ever that is)?

It's not a "straw man" that I'm chasing in my post; it's a shadow...

Carl Davidson said...

You missed the main title to my book on MCC and other aspects of the green and solidarity economies:


Charles Andrews said...

On the points from Davidson, Mr. Socialism-Will-Take-Centuries:

A trade union is a "strong point" for socialism to the degree that its leaders and activists help workers wage class struggle. Cooperatives in general do no such thing, and a good number of them are based on explicit visions of prospering without class struggle. Cooperatives might teach the staff how to do business and how investors allocate credit for maximum profit -- useful lessons for aspiring capitalists, but nothing that passes beyond economism to socialism.

Davidson is bipolar about Mondragon. On one hand, he claims that he and the leaders of Mondragon knew "for some time" that its Fagor appliance unit was hemorrhaging cash. What foresight! On the other hand, he tries to buy time against communist judgment of Mondragon by saying the test "will be" whether it finds profitable employment for Fagor workers elsewhere in the conglomerate. That is not much comfort to Fagor employees, who need to know now where they will get an income.

Carl Davidson said...

@Charles Andrews:

Actually, socialism can be achieved rather quickly, given political will and organization. It's the classless society of communism likely to take a century or two, especially on a global scale.

You think of Mondragon way too narrowly. Many within it see themselves as developing the economic base for an independent and socialist Euskadi.

Yes, we were told of Fagor's troubles, not only because of the shrinkage of the European housing markets, and hence markets for their 'white goods,' but also because of competition from China, who were approaching their levels of quality in the same goods sector. Their solution? Innovation in developing new coops with new products in new industries, mainly photovoltaics, health care, and robotics, to name a few.

The Fagor worker-owners do have a MCC-supplied cushion to ease the transition. It's called Lagun Aro, the second-degree worker-owned coop that provides their social insurance to see them through these difficulties.

Trade unions can help workers in class struggle to raise their wages and improve their conditions. MCC has a wider task, serving as a school whereby workers can learn first hand how they can be masters of their factories and their communities, without any need for capitalists, and to retain the surplus for the workers to develop as they see fit.

If you can't see how that aids us in a 'war of position,' you lack imagination.

In any case, MCC is only one piece of a puzzle, but a useful one. They inspired the workers of the former Republic Windows factory in Chicago to occupy it, and fight to take it over, now a New Era windows, owned by the workers. Was that not a part of class struggle too? Or should they have simply contented themselves with a better severance package.

Charles Andrews said...

Davidson assuring social democrats about "socialism" in 2009:
"...a protracted transition, over hundreds of years, to a future classless society where exploiting class privileges are abolished." The full document reeks of implied peaceful transition.
Davidson here, bowing and weaving:
"Socialism can be achieved rather quickly, given political will and organization. It's the classless society of communism likely to take a century or two, especially on a global scale."
Just will and organization? Is this before revolution, during a revolutionary moment as in 1917, or after? Generally, revolution disappears when Davidson talks about socialism.

"Many within Mondragon see themselves as developing the economic base for an independent and socialist Euskadi."
Let's take a word that simply means the Basque autonomous region of Spain and try to make readers think it is a vision of ... something.

As for Mondragon: "Yes, we were told of Fagor's troubles... also because of competition from China, who were approaching their levels of quality in the same goods sector. Their solution? Innovation in developing new coops with new products in new industries, mainly photovoltaics, health care, and robotics, to name a few."
The "solution" of climbing up the value-added ladder, going even more high tech, comes right from capitalist ideologues. For two or three decades they have promoted this drivel as the way to revive prosperity in the U.S., admonishing workers that they must scramble to wind up in the technical top ten percent who can partake. Reality begs to differ. Mass prosperity under U.S. capitalism is gone for good.

Z.Z. cited Gar Alperovitz: "The 'evolutionary reconstructive' approach is a form of change different not only from traditional reform, but different, too, from traditional theories of 'revolution'." Alperovitz made a tactical error of openly denying revolution. Davidson is more sophisticated; he babbles on about socialism and cooperatives, simply ignoring the issue of overthrowng capitalism (except when he lectures that a vote for Obama is a precondition for it).

Carl Davidson said...

'Just will and organization?' No, Of course not. There are objective factors as well--deep crises, wars, deadlocked political blocs on top, the need to split ruling parties.

But I stressed the subjective factors of political will and organization, since those are the ones we can most readily do something about. If you're trying to make a case that I'm a reformist or social-dem of some sort, lots of luck. But my main point remains--socialism is a transitional class society, with a different class setting the direction, but getting to the classless society of communism is going to take a long while, especially on a world scale.

(In one sense, since I'm now over 70, I'd love to be proven wrong on this. I'd love to see more of what I've been fighting for all my life before I move on. But if you expect to see it in, say, the next 10 years, would you like to make a friendly wager?)

You can diss MCC as much as you like. No skin off my nose. I've visited and studied there, and find them worthwhile, with all their strengths and a few weaknesses, too. MCC will go on, and it will likely continue to inspire some worthwhile projects here. If you don't care for them, that's your business.

And the socialisms that do exist in this world--China, Cuba and so on, they will continue visiting them and learning some valuable lessons for their own realities.