Stimulating Worker Cooperatives through Government Policy: an Analysis of Policies and Proposals to Foster Worker Cooperative Development

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Stimulating Worker Cooperatives through

Government Policy

An Analysis of Policies and Proposals to Foster Worker Cooperative Development

Master Thesis

Programme: MSc Political Science: Political Economy

Thesis Group: Alternatives to Capitalism: Models of Future Society Student: Joran Jelle Knol (ID: 12781428)

Supervisor: Dr. Annette Freyberg-Inan Second reader: Dr. Johan De Deken Date: June 5, 2020

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Abstract

Worker cooperatives are often looked at as a potential alternative to capitalist forms of production but remain rare in most economies. Government policies are sometimes designated as a means to change this, yet it remains understudied how this could be done effectively. Therefore, this thesis examines existing and proposed government policies to stimulate worker cooperative development, to see which policies are or could be successful. The development of the worker cooperative sectors in three selected countries which have used such policies are studied, to see what the effect of these policies was. Additionally, three policy proposals are discussed to explore what other policies could potentially be effective. These policy frameworks and proposals contain facilitating, stabilizing and expansionary policies; all three categories can be useful for worker cooperatives. The thesis finds that what specific policies are useful to foster worker cooperative development depends on the initial size of the sector. Countries that start out with a relatively small sector appear to require more practical support to kick-start the sector’s growth. In countries that have a larger sector, supportive legislation and financial structures seem to be necessary to make further growth possible. However, this only works to a certain point. Development to a point where worker cooperatives make up a substantial part of the economy likely requires more far-reaching policies than currently exist in any country.

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1. Introduction

Vast inequality, ecological devastation and the consequences of economic crises have caused many people to become disillusioned with capitalism as a politico-economic system. However, the economic and moral failures of state communism have deprived them of a clear alternative to organize economic relations, while other models tend to appear utopian and purely theoretical. Yet, there is an alternative model to capitalist production that has been tried successfully in the real economy, albeit usually on a small scale. Worker cooperatives (WCs), “firms owned and managed by their employees” (Craig and Pencavel, 1993, p. 289), have existed and thrived in many parts of the world. However, with some notable exceptions, such as the largest worker cooperative, the Mondragón Cooperative Corporation, they have remained minor phenomena in the economy. For this reason, some governments have tried to use policies to stimulate the development of WCs. Although the literature has often stressed the importance of such supportive policies for cooperative development (Adeler, 2014, p. 51), their effectiveness has so far barely been studied. This thesis aims to fill this gap in the literature by answering the following research question:

“How can worker cooperative development be stimulated through government policy?”

This thesis finds that three categories of policies can be distinguished: facilitating, stabilizing and expansionary policies. All three categories can be useful in various contexts. However, it seems that different initial levels of worker cooperative development require different policies within the three categories. In countries with very small worker cooperative sectors, hands-on policies that require little investment and pose little risk of negative side-effects can be very useful to kick-start the sector’s development. However, in countries in which the sector is already somewhat developed, more extensive supportive legal and financial structures appear to be necessary to allow for further growth. Still, these supportive policies can only facilitate growth to a certain point. If WCs are to become a major force in the economy, more far-reaching policies would be necessary than currently exist.

The remainder of this introductory chapter is built up as follows. Firstly, previous studies on this topic are discussed. Next, the second section explains what this thesis adds to this literature and how it is relevant for society as well. Subsequently, the used research methodology and case selection are set out. The introduction concludes with an overview of the rest of the thesis.

1.1 Previous studies

So far, there have been four major studies of the government policies supporting worker cooperatives (Adeler, 2014; Corcoran and Wilson, 2010; REVES, 2017; Rowe, Peredo, Sullivan, and Restakis, 2018). Although these scholars have refrained from assessing how effective certain policies to stimulate WCs are, they have described a number of policies that are perceived to have had a positive impact. For example, both Adeler (2014, p. 57) and Rowe et al. (2018, p. 1) emphasize the importance of legal recognition of worker cooperatives. Rowe et al. explain that this has the dual function of legitimizing the sector and paving the way for further legislative support. Other forms of state support are also seen to be promising. Providing access to finance to WCs is an important example (Rowe et al., 2018, p. 40). For instance, Corcoran and Wilson (2010, p. 32) explain part of the success of the Italian WCs on the basis of that country’s provision of capital funds and technical support to starting cooperatives. Another direction that has been taken by some governments that is seen as promising regards

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giving worker cooperatives preferential treatment by the state. This occurs in two primary forms. The first form consists of giving WCs certain advantages in public sector procurement, although this is not a widespread policy (Rowe et al. 2018, p. 41). The second form, favourable tax policies, is much more common. These exist in both Spain and Italy (Corcoran and Wilson, 2010, p. 7). Important to note is that governmental support need not always come from the national government. As REVES (2017, p. 22) mentioned, local and regional governments can also play an important role.

However, scholars have not only emphasized the importance of direct support by states for the development of worker cooperatives. Particularly Rowe et al. (2018) have emphasized the value of the support of organizations representing the cooperative sector for individual WCs. For example, social funds and cooperative federations fulfil important supportive functions for worker cooperatives in some countries. Obliging WCs to contribute a part of their profits to these organizations has been presented as a successful way to strengthen this type of structure (Rowe et al., 2018, p. 40). Besides the worker cooperative sector as a whole, individual WCs can also be an important source of their own capital. Legislation on so-called indivisible

reserves has been mentioned by multiple scholars (Adeler, 2014; Rowe et al., 2018; Corcoran

and Wilson, 2010) as an effective way to stimulate worker cooperatives to build up a sufficient amount of capital. Such legislation mandates that WCs place a certain percentage of their profits in these reserves, which cannot be paid out to their members (Rowe et al., 2018, p. 40). This makes this capital available for new investment or as collateral for loans.

1.2 Theoretical and societal relevance

This thesis contributes to the literature on worker cooperatives and specifically to the small literature on cooperative development. While, as discussed in the previous section, some explorative research into the use of government policies to foster cooperative development has been conducted (Adeler, 2014; Rowe et al., 2018; REVES, 2017), this has remained small-scale. Furthermore, these studies have focused on cooperative development in a broad sense, rather than on worker cooperative development specifically. This thesis for the first time conducts an in-depth comparison of these policies guided by the criterion of effectiveness in stimulating the development of WCs. Of course, observed levels of worker cooperative development do not only depend on implemented government policies, and similar policies may play out differently in different contexts. However, policies often play a major role in cooperative development, which means that the analysis provides important indications of the effectiveness of these policies for the same and similar contexts. This can also have important implications beyond academia. Since this thesis aims to show which policies are effective in stimulating WCs, it also provides possibilities to develop and evaluate new policies. This could have positive effects for worker cooperative development and thereby strengthen the cooperative movement.

1.3 Methodology

Having established why this topic needs to be studied, this section describes how this is done. To answer the research question, three empirical cases are examined in which government policy has been used to stimulate worker cooperatives. In addition, three policy proposals are analysed to also include ideas that have not yet been implemented. Based on the evaluation of these cases, conclusions are drawn as to which kinds of policies might be effective at stimulating WCs. Since the case selection is limited, generalization and definite conclusions about which policies are effective are impossible. However, the analysis does provide useful

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indications of the likely effectiveness of the studied policies in similar contexts. The research consisted of five stages, which processed various types of data from various sources. These consisted of (1) describing the selected existing policies, (2) evaluating these policies, (3) describing the selected policy proposals, (4) evaluating these proposals, and finally (5) answering the research question. Each of these stages required the use of a particular mix of different sources, as follows:

Describing and evaluating existing policies

The first stage of the research focused on describing the selected existing policies stimulating worker cooperatives and the WC-sectors in the selected countries. Government policy, also referred to as public policy, is here defined as “the set of activities that governments engage in for the purpose of changing their economy and society” (Peters, 2015, p. 1). Three types of sources were used to describe the selected policies. Scientific articles discussing the specific policies were the most important source. However, these were not always sufficient to provide a clear description of these policies. Therefore, the relevant laws were examined to get more information about the details. Furthermore, journalistic sources provided further context, especially regarding changes to and the implementation of these policies.

The second stage dealt with the evaluation of the selected policies. This evaluation can be seen as a form of product evaluation, which is to say it aims to evaluate the effectiveness of the policies (Swanborn, 2007, p. 36). This was done by looking at the development of the WC-sector in the area in which the policies were implemented, in the period since their introduction. To do this, two variables were examined to see whether there was growth: the number of WCs and the number of jobs in the WC-sector, both in absolute terms and as a percentage of the total number of firms and jobs. This development was compared to the development of the worker cooperative sector in the same region previous to the introduction of the policies. This helped to judge whether the observed effects in fact resulted from the policies, or whether they were merely a continuation of an already existing trend. It was (where possible) also compared to the development of the worker cooperative sector in similar countries, which helped to show whether the observed trends resulted from the policies or from other developments that influenced cooperative sectors in multiple areas. Since there is no comprehensive database on these figures, they had to be gathered from various sources. Another category of sources was formed by reports and scientific articles on the cooperative sectors of specific countries. Further information was gathered from journalistic sources, which were searched via Google and Nexis Uni.

Describing and evaluating policy proposals

The third stage focused on the description of the selected policy proposals. This relied on three types of sources. Naturally, the documents in which the proposals are described formed the most important source. Still, other sources were used as well, to provide some more context to the proposals. Analyses of existing policies that are similar to the proposals were used to extrapolate what the proposed policies could look like if they were implemented. The evaluation of these proposals formed the fifth stage of the research. Since these proposals had not yet been implemented it naturally was more difficult to evaluate them. Therefore, the thesis relied in this stage mostly on the evaluation of the actually implemented policies that are similar to the proposals. Another category of sources that was used consists of the reactions to the proposals, since those contained arguments against or in favour of them.

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Answering the research question

The final stage of the study consisted of answering the research question. This was done by using the conclusions of the evaluations of the existing policies and the policy proposals. Based on these findings, a conclusion was drawn up regarding which policies appear to have been or might be effective at stimulating worker cooperative development. Particular attention was placed on revealing different policies’ effects on countries with different levels of worker cooperative development.

1.4 Case selection

The research relies on six cases. These include three cases of already existing policy packages and three cases of policy packages that have been proposed. The existing policies are included because their effects can be studied empirically, which makes the analysis more convincing. They also function as a reference point in the assessment of the policy proposals. The proposed policies are included for two reasons. Firstly, they give insight in how the cooperative movement can proceed, rather than simply looking at what already exists. Furthermore, since the proposals come from countries with relatively undeveloped policy frameworks, they are applicable to different situations than the already existing policies.

The existing policies that are studied are the establishment of Cooperative Development Scotland (CDS) in Scotland and the more extensive supportive policy frameworks in Italy and Spain. These cases have been selected for four reasons. Firstly, they are among the most prominent policy packages regarding worker cooperatives. The Italian and Spanish policy frameworks are the most extensive, while the Scottish is the most ambitious among the newer policies. Secondly, they represent different approaches to stimulating WCs. Italy focusses primarily on providing financing through its capital funds, Spain stimulates workers and cooperatives to invest their own capital, and Scotland focusses on the provision of technical support through CDS. Thirdly, the cases include countries with different levels of worker cooperative development. The supportive framework in Scotland is still quite young, and its worker-owned sector is modest, whereas Spain and Italy both have a decades-long tradition of both strong worker cooperative sectors and supportive policies. Finally, because these policies are so prominent, there is a decent number of sources available on them, which makes it more feasible to study them. However, this case selection also has disadvantages in terms of its representativeness. Obviously, all of these policies are implemented in developed Western-European countries. Since these countries share a specific historical, cultural and economic context, this study and its policy implications are less representative for areas that are not in Western Europe, especially those that are less developed. Yet, the inclusion of more cases was not feasible within the scope of this thesis.

The policy proposals that were selected were made by the Labour Party and the New Economics Foundation in the UK and Sinn Féin in Ireland. These were selected because they are the most prominent, extensive recent proposals in the European context. Therefore, they are also quite easily comparable to the empirical cases included in this study. However, the proposals all originate from Ireland and the UK, two countries with relatively undeveloped worker cooperative sectors and with little policy on WCs. Therefore, their analysis is most useful for this type of countries.

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1.5 Thesis outline

The remainder of this thesis is built up as follows. The following chapter gives an introduction on the topic of worker cooperatives in general. It explains how they work, why policies are necessary to support them and why they are a model worth pursuing. Subsequently, chapter three introduces and evaluates the three selected existing policy frameworks. It thereby assesses the effects of these frameworks on the development of the worker cooperative sectors in Spain, Italy, and Scotland. After this, chapter four discusses the selected policy proposals and assesses their expected effects. Finally, based on the findings of these chapters, chapter five draws a conclusion and formulates an answer to the research question.

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2. An Introduction to Worker Cooperatives

Before strategies to stimulate worker cooperatives can be discussed, it is first essential to consider what they actually are. Where do they come from? How do they work? Are they a feasible model to run a company? Why should we care about worker cooperatives? These questions are discussed in this chapter. This is done in the following five steps. Firstly, the chapter starts by providing a conceptualization of worker cooperatives. Specific attention will be paid to how they differ from other forms of cooperatives and from conventional firms. Secondly, the chapter covers the history of WCs. Since this differs strongly between countries, it focusses on a limited number of countries. These were selected because they have been among the countries with the largest WC-sectors and represent different historical paths to worker cooperative development. Thirdly, this chapter describes how cooperatives work. This involves the discussion of issues like the ownership and governance of WCs, as well as practical considerations, such as how WCs are created. Fourthly, the chapter examines whether worker cooperatives are a feasible model for businesses, based on both theoretical and empirical considerations. Finally, the chapter concludes with a discussion of why WCs should be stimulated. This is done by first arguing why they are preferable to capitalist firms and then comparing worker cooperative development to other alternatives to capitalism.

2.1 Worker cooperatives: the basic definitions

This section introduces the concept of worker cooperatives by discussing the basic definitions. For starters, a worker cooperative is, as the name obviously suggests, a type of cooperative. As defined by the ILO, a cooperative 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” (Delgado, Dorion and Laliberté, 2014, p. 29). This also encompasses other cooperatives besides WCs. The most important other types of cooperatives include banking, producer, consumer and housing cooperatives. Taken together, all these cooperatives represent a substantial part of the global economy. A study by David Grace and Associates (2014, p. 1) found that, in total, there were more than one billion memberships and clients of over 2.6 million cooperatives globally in 2014. In some countries, like Germany, the Netherlands and France, cooperative banks like Raiffeisenbank, Rabobank and Crédit Agricole are among the largest banks. Therefore, they are in no way a marginal phenomenon.

Worker cooperatives are the most radical type of cooperatives, as they depart from the capitalist mode of production. Essentially, they are “firms owned and managed by their employees” (Craig and Pencavel, 1993, p. 289). However, CICOPA, the international representative organization of worker cooperatives, uses a more extensive definition. This definition is used in this thesis. CICOPA (2005, p. 2-3) defines worker cooperatives to have the following six characteristics:

1. “They have the objective of creating and maintaining sustainable jobs and generating wealth, in order to improve the quality of life of the worker-members, dignify human work, allow workers’ democratic self-management and promote community and local development.”

2. “The free and voluntary membership of their members, in order to contribute with their personal work and economic resources, is conditioned by the existence of workplaces.”

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3. “As a general rule, work shall be carried out by the members. This implies that the majority of the workers in a given worker cooperative enterprise are members and vice versa.”

4. “The worker-members’ relation with their cooperative shall be considered as different to that of conventional wage-based labour and to that of autonomous individual work.” 5. “Their internal regulation is formally defined by regimes that are democratically agreed

upon and accepted by the worker-members.”

6. “They shall be autonomous and independent, before the State and third parties, in their labour relations and management, and in the usage and management of the means of production.”

Worker cooperatives versus other organizations

These six points illustrate that WCs are a fundamentally different mode of organizing an enterprise than both the conventional capitalist firm and more common types of cooperatives, such as producer cooperatives. In producer cooperatives, members are often businesses with non-member employees that primarily cooperate in selling and marketing their products. This occurs often in agriculture, such as in the dairy cooperative FrieslandCampina in the Netherlands. The membership of conventional firms makes these cooperatives very different from worker cooperatives, as the ownership remains in the hands of few people (although arguably substantially more than in large corporations).

The fundamental difference between worker cooperatives and capitalist firms is similar, as it also has to do with ownership and power. As point 3 of the CICOPA definition described, a majority of the workers in WCs have an ownership stake in the firm, and, combined, this adds up to more than half of the ownership. This means that a substantial amount of the profit goes to the workers themselves and not to capitalist owners like in conventional firms. Furthermore, as point 5 stated, WCs are run democratically by the workers. This means that all worker-members can vote on how the enterprise is run, on the basis of a one-man-one-vote-principle. This shows that the power over the day-to-day lives of the workers inside the workplace lies with them and not with some external owner or group of shareholders. This democratic structure of power and ownership makes worker cooperatives fundamentally different from both conventional firms and other types of cooperatives.

Cooperative development

Another concept that is important for this study is cooperative development. Cornforth and Thomas (1990, p. 451) argue that there are two possible definitions of this concept. The first definition, which they describe to be the dominant one, described it as “the development of cooperatives, both the increase in their number and the growth and social development of individual cooperative enterprises” (ibid.). The second possible definition is “development through cooperatives and cooperative principles” (ibid.). This thesis focusses on the first definition. Specifically, this study is aimed at the development of worker cooperatives. Therefore, it uses the concept of worker cooperative development (WCD), which is to be understood as the part of cooperative development that involves worker cooperatives.

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2.2 The history of worker cooperatives

To truly understand worker cooperatives, it is essential to understand where they came from and how they have developed over time. Therefore, this chapter now turns to the history of worker cooperatives. Since it is impossible to give an exhaustive account of their entire history globally, there is a focus on specific countries in which the movement has been influential. First, the origins of the movement are briefly discussed. Subsequently, the history of worker cooperatives in the individual countries are examined.

Origins

Worker cooperatives have a long history, as the first recorded WC was already established in 1831 in France (Zamagni, 2017, p. 102). By 1848, the number had grown to 255 WCs in Paris alone. Yet, they did not remain a French phenomenon, as worker cooperative movements grew throughout the Western world in the 19th century. Especially between 1840 and 1880, at the height of the industrial revolution, WCs started to emerge in Europe and North-America (Rothschild, 2009, p. 1027). This was primarily caused by the worsening of working conditions in the capitalist factories that arose during this period. Industrialization caused a sharp increase of workers employed in these factories. Here, workers experienced “new forms of economic and social exploitation” (Smith, 2013, p. 279). As a response, workers started to organize themselves. This organization mostly took the form of trade unions, but there were also many cases in which workers united in worker cooperatives.

In the twentieth century, WCs continued to exist, but their importance started to vary greatly between countries. In some, like Italy and Spain, they grew to be a sizable minority of economic organisation. In others, they remained a marginal phenomenon. Because of these wide disparities, it is impossible to discuss the history of the worker cooperative movement as a whole. Therefore, the history of WCs in specific countries is discussed below. As it is not possible to discuss every relevant country, a selection has been made of the countries and regions in which worker cooperatives have played an important role in the economy.

Israel

One of the most famous worker cooperative movements in the world is the Israeli kibbutz movement. The kibbutzim are a radical form of agricultural worker- and consumer cooperative, in which people (originally) also shared many housing facilities, such as common dining rooms. Most kibbutzim were founded in the first decades of the twentieth century (Russel, 1995, p. 17). In this period, their founders had two main reasons to start worker cooperatives. Firstly, they had the economic goal to create employment in a new environment in which conventional employment was not yet available (ibid.). Secondly, they created the kibbutzim out of ideological considerations, based on a combination of socialism and Zionism. Russel (1995, p. 20) explains this as follows:

As socialists, they sought to create a Jewish working class in the new land, not another Jewish bourgeoisie. As Zionists, they were influenced by ideologists like A.D. Gordon, who saw work on the land as essential to the spiritual rebirth of the Jewish people. The kibbutzim proved to be able to survive for a long period and flourished for over half a century (Russel, Hanneman and Getz, 2013). However, by the 1980s specific circumstances had caused the kibbutzim to accumulate a large amount of debts. Firstly, increased efficiency in agricultural production had created the necessity to create more employment for worker-members who were no longer necessary for working the land (Rosenthal and Eiges, 2014, pp.

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13-14). This was done through the creation of industrial plants. However, these often failed, since kibbutz members were not skilled in running them. Secondly, the kibbutzim could borrow very easily, even for irresponsible consumption, because the state guaranteed their loans (Rosenthal and Eiges, 2014, p. 13). When in the 1980s an economic crisis hit, this resulted in the near bankruptcy of large parts of the kibbutzim movement (Ben Rafael, 2011, p. 82). This crisis was extra painful for the kibbutzim, as neoliberal policies of the new Likud government increased the interest rate and eliminated food subsidies (Rosenthal and Eiges, 2014, p. 12). This caused their debts to skyrocket, while their incomes decreased. This ‘kibbutz crisis’ pushed them towards reforms that in many cases led them to abandon much of their cooperative character. Yet, the kibbutz model continues to exist today, albeit in a reformed fashion, in which cooperative forms of production and ownership are combined with private forms (Rosenthal and Eiges, 2013, p. 34). In 2013, there were still 286 kibbutzim in Israel (ibid.).

Yugoslavia

While ideology was important in the development of the kibbutzim, this pales in comparison with the Yugoslavian experiment with market socialism. This case is unique for two reasons. For starters, it was the largest experience with worker cooperatives, as it comprised large parts of the Yugoslavian economy. Secondly, it differs from other cooperative movements, because it was implemented top-down by a communist one-party state. The system was introduced in 1951, after Yugoslav communist leader Tito had a falling out with Stalin (Schoon, 2012, pp. 48-49). This break effectively distanced Yugoslavia from the rest of Eastern Europe, both politically and economically. Yugoslavia turned away from Stalinist centralized communism and gave worker-managed enterprises control over the means of production (Schoon, 2012, p. 49). The ownership of these resources was not private but social, meaning it belonged to society at large (Schoon, 2012, p. 52). The system had mixed results. On the one hand, the economy grew substantially until the latter half of the 70s (Sapir, 1980, p. 295). On the other hand, high unemployment was a problem, as well as widening inequalities between republics (Medjaj, 2004, p. 294).

There are two main reasons why the system eventually disappeared. Firstly, the Yugoslavian economy started to struggle in the 1980s. However, it is not clear that this was a result of the worker cooperatives system. Schweickart (2002, p. 61) in fact argues that the major cause was the reduced autonomy of the cooperatives, combined with unsound monetary policies. Furthermore, the large role for the state created the possibility to let successful cooperatives pay for the losses of failing ones, reducing the incentives for individual cooperatives to become efficient (Markoviç, 2011, pp. 128-129). For these reasons, the cause of the decay can be found more in the governance of the system by the state, rather than an inherent flaw in the system of worker self-management itself. Secondly, Yugoslavia eventually fell apart as a result of ethnic tensions. After the death of Tito, the recession had intensified, while the state apparatus “concentrated on its own survival” (Medjaj, 2004, p. 294). As a result of this mismanaged crisis, many of the cooperatives were privatized in 1989 (Medjaj, 2004, p. 295). Subsequently, Yugoslavia dissolved during the 1990s during the Yugoslavian wars.

While the Yugoslavian experiment was certainly the largest experiment with WCs, it does not necessarily show what a worker cooperative economy would look like in other circumstances. As Pierson (1995, p. 139) argues, “workers’ self-management and the logic of the market were consistently undermined by the political considerations of the League of

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Communists and the delicate task of maintaining the nation’s federal structure”. Thus, it seems that the primary problems of the Yugoslavian model related to the undemocratic and ineffective nature of the communist state and not to the cooperative model as such. The real potential of a WC-dominated economy was overshadowed by the inefficiency of the authoritarian state.

Spain and the Basque Country

While the Yugoslavian system was very connected to its authoritarian regime, in Spain, a worker cooperative movement was able to develop independent of the dictatorial state. In the Basque Country, a network of worker cooperatives proved able to survive on its own: the Mondragón Cooperative Corporation (MCC). Having started out with one stove factory and five worker-members in 1956, it has grown into a vast network of more than 160 cooperatives (Bowman and Stone, 2004, p. 274-275). The group reported to have over 74,000 employees in 2015 (Mondragon Corporation, n.d.).

The key figure in the founding and development of the Mondragón cooperatives was José María Arizmendiarrieta, a Catholic priest. He started with the creation of a vocational school, to allow local workers to develop their skills (Clark, 2004, p. 5). The five workers that started the first of the cooperatives, Ulgor, were all alumni of this school (Clark, 2004, p. 4). Furthermore, Arizmendiarrieta also supported the creation of additional WCs and thereby helped the sector to grow (Wright, 2009, p. 169). Yet, his most important contribution to the Mondragón complex was his decision to start the Caja Laboral Popular, a bank that would become its centre (ibid.). Arizmendiarrieta reasoned that the cooperatives required capital to grow properly and that private banks were unlikely to supply this (Corcoran and Wilson, 2010, p. 15). The Caja not only provided them with capital but also with financial support when individual cooperatives were struggling. Eventually, it also started to offer technical assistance (ibid.).

As the cooperative complex grew, governance structures became more complicated (Wright, 2009, p. 169). To simplify this, the MCC was created in 1991 as an overarching organization. Internally, the MCC is governed by a combination of representative and direct democratic structures (Wright, 2009, p. 171). However, since the creation of the MCC, Mondragón has also been subject to an increased amount of criticism. Particularly its more centralized character and international expansion have given rise to the allegation that it is starting to look more like a capitalist corporation (ibid.). Primarily the fact that the workers in foreign subsidiaries are rarely members, causing the percentage of members to fall to under 40%, is worrisome (Wright, 2009, p. 172). Therefore, the development of the MCC has led to considerable differences inside it. On the one hand, the foreign subsidiaries differ little from capitalist enterprises. On the other hand, the cooperatives in the Basque country combine worker ownership and democratic decision-making with strong economic performance.

Although the MCC and the Basque country are the epicentre of worker cooperatives in Spain, the rest of Spain has also developed a sizable cooperative sector. During the Civil war, worker self-management had briefly existed on a large scale in the Eastern provinces, but this disappeared as a result of the same chaos that allowed it to arise (Lucas, 1994, pp. 130-131). However, it reappeared in the early 70s during the final years of the Franco dictatorship (Jensen, 2011, p. 703). During this period, worker-owned firms were created through worker take-overs of struggling firms. After the democratization of the country, the government started to become supportive of the take-overs (ibid.). This contrasts strongly with the experience of the

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Mondragón cooperatives, who relied more heavily on their own cooperative framework. However, the combination of these movements has led to a very strong sector of worker-owned firms, with 17,000 WCs (REVES, 2017, p. 3) and over 9,000 worker-owned Sociedades

Laborales1 (CEPES, n.d.-a).

Italy and Emilia-Romagna

State support was also important for cooperative development in Italy, where cooperatives have a long history. The first cooperatives were started in the 1850s, and the movement was quite successful for decades (Logue, 2006, p. 3). They started to organize already during this first period, as the first cooperative federation was founded in 1887 (Tereshtenko, 1944). Later, more federations would arise, which divided the movement into ideological factions, of which the socialists and the Catholics were the most important (Menzani and Zamagni, 2010, p. 104). Nevertheless, these organizations further facilitated their growth, which resulted in the astonishing number of around 19,500 cooperatives in 1921 (Tereshtenko, 1944). This period has also been called “the golden age of cooperation” (Menzani and Zamagni, 2010, p. 104). However, when the Fascists came to power, they “crushed them as independent organizations” (Logue, 2006, p. 3). Yet, things changed when democracy was restored. The cooperatives very quickly gained recognition and support from the government, beginning in 1947 (Corcoran and Wilson, 2010, p. 7). The cooperatives also experienced enormous growth, in terms of size and numbers, during this period (Orlando, 2015, p. 15). At the centre of this growth was the northern province of Emilia-Romagna. This region also experienced spectacular development itself. Since World War II, the region has grown from being among the poorest Italian regions into one of the richest (Corcoran and Wilson, 2010, p. 6). Worker cooperatives have played an important role in this transformation. In Italy as a whole, the cooperative development has produced the largest cooperative sector in the world, with a substantial role for worker cooperatives as well (Corcoran and Wilson, 2010, p. 6). In 2015, there were no less than 29,000 WCs in the country (Borzaga, Calzaroni, Carini and Lori, 2019, p. 68).

2.3 How do worker cooperatives work?

In the section on conceptualization above, it became clear that worker cooperatives theoretically create radically different power-relations within enterprises. Yet, is this also the case in the really existing worker cooperatives? To examine this, this section of the chapter dives deeper into the empirical reality of worker cooperatives. It discusses, for instance, how they are organized, how new WCs are created and how they perform compared to conventional firms.

Ownership

The ownership structures of worker cooperatives differ greatly from those of conventional firms. Worker-members have a majority ownership stake in their worker cooperative. However, it is important to note that in many WCs, not all workers are members (Pencavel, 2012, p. 12). The existence of members can have various reasons. For example, the high number of non-member workers in the MCC was primarily the result of rapid international expansion. According to the organization, this created many new employees that did not yet understand “the cooperative culture” and were not yet committed to it (Schoon, 2012, p. 43). A further problem was formed by the formation of joint ventures with capitalist firms. In other cases, cooperatives sometimes have restrictions on who can become a member (Artz and Kim, 2011,

1_{The concept of Sociedades Laborales and its similarities and differences with worker cooperatives will}

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p. 3). Membership may be restricted to full-time employees, and seasonal workers may be excluded. Workers may also be required to have worked a certain period at the cooperative before they are allowed to become a member (ibid.). Besides the fact that ownership is often not universal, in a number of cases workers do not own 100% of the firm. In some cases, investments from external investors may give them an ownership stake in the cooperative (Artz and Kim, 2011, p. 2-3). However, even in cases where workers do not own 100% of the firm and not all workers are members, the absence of a majority stake of capitalists means that power-relations are still fundamentally different from conventional firms.

Governance

Worker cooperatives are by definition governed in a democratic matter. However, there is a variety of forms in which this takes place (Pinto, 2018, p. 77). For example, larger WCs tend to make less use of “consensus and direct participation” (ibid.). Smaller cooperatives typically have a flatter structure and consensus-oriented decision-making (Artz and Kim, 2011, p. 3). As worker cooperatives grow, they often adopt hierarchical structures, including managers, that are common in conventional firms (Pinto, 2018, p. 78). These managers also are controlled by a board of directors. Yet, the fundamental difference is that the workers elect the board of directors. This creates a situation in which management is accountable to them, rather than being imposed on them by an owner or a group of shareholders. Still, the relationship between these boards and the managers varies. For example, managers that have worked in the firm longer before becoming manager tend to consult the board more often (Bataille-Chedotel and Huntzinger, 2004, p. 96).

Goals of cooperatives

Since worker cooperatives are governed by their members, their purpose is determined by them as well. Yet, there has been debate over what this means for the ultimate economic goal of WCs. As Craig and Pencavel (1993, p. 289) describe, it was long theorised that this goal was “maximizing income per worker”, as it is maximizing profit for conventional firms. However, when analysing the worker cooperatives in the plywood industry in the Pacific Northwest of the U.S., Craig and Pencavel found that this did not correspond with reality. In contrast, they found that “earnings, hours and employment all enter the cooperatives’ objectives” (Craig and Pencanvel, 1993, p. 307). They had already discovered earlier that when prices changed and the industry’s profits declined, the cooperatives were more likely than conventional firms to decrease wages, while protecting employment (Craig and Pencavel, 1992). A similar reaction occurred in the Mondragón Cooperatives, which adopted wage freezes and gave up bonuses to limit the number of dismissals during the financial crisis (Villafañez Pérez, 2011, p. 166). Thus, the idea that worker cooperatives are only focused on maximizing income per worker is not confirmed by empirical data. In reality, the interest of the workers is not only to make as much money as possible but also to not lose their jobs. In some cases, this may mean cutting their individual incomes to prevent job losses.

Establishing a worker cooperative

There are three ways in which worker cooperatives can be established: by starting a new firm as a cooperative, by being established by an existing cooperative, and by transforming an existing company into a worker cooperative. New WCs can be established from scratch. This can be done by workers themselves, although this does require a certain amount of capital and technical knowledge. In other cases, workers are stimulated and supported to set up a new worker cooperative by other organizations, such as trade unions or NGOs (Levinson, 2014, p.

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1). In some areas, government agencies are actively involved in the establishment of new worker cooperatives. An example of this is the Worker Cooperative Business Development Initiative that was launched in 2015 by the city of New York (New York City Small Business Services, 2020). In other regions, such as in France, networks of existing WCs have played an important role in providing capital to new cooperatives (Corcoran and Wilson, 2010, p. 27). A second way in which new worker cooperatives can be started is by investment from existing cooperatives. For example, in the Mondragón Cooperative Corporation, the Caja Laboral Popular has been involved in the establishment of new cooperatives (Thomas and Logan, 1982, p. 9).

Finally, a third way in which worker cooperatives can be established is through transforming an existing company into a WC. This process is often referred to as worker recuperation. There are two moments when this usually occurs: when the owner of the business retires or when a business has failed. Especially for small and medium sized businesses, succession can be a problem when business owners retire (Delgado et al., 2014, p. v). In these cases, worker recuperation can be a solution that allows the workers to retain their jobs, while providing the owner with a buyer. Once again, external organizations can help to coordinate this process. This can, for example, be done by trade unions (Delgado et al., 2014, p. 2). Governmental programmes have also been established to facilitate this process. Particularly Italy has a well-developed governmental framework to do this (Vieta, 2015).

Entering and exiting a cooperative

Since workers are usually also owners in worker cooperatives, entering and exiting them is more complex than in conventional firms. To become a member, a worker needs to buy into the cooperative. After all, he will become a co-owner of the firm. The way in which this occurs varies. For example, in the Mondragón cooperatives, as in many others, this can be done through payroll reductions over a larger period (Whyte and Whyte, 1991, p. 70; Schoon, 2012). In some WCs, the existing members have to vote before admitting a new member, whereas others allow anyone who fulfils the agreed upon criteria (Artz and Kim, 2011, p. 3). Since joining as a member is quite a commitment for both the cooperative and the worker, worker cooperatives generally also employ non-member workers. These can be hired and fired in the same manner that employees in conventional firms can. It differs between WCs whether they have to become members later on or whether they can continue to be non-members. For example, Schoon (2012, p. 165) describes a WC in San Francisco in which workers could be admitted as members after 9 months but had to be admitted as a member within 18 months, otherwise they were let go.

Exiting a worker cooperative is also different than in conventional firms, at least for worker-members. There are differences with regards to what happens with the capital investment when members leave. In the Basque country, worker-members get their capital investment back when they leave or retire (Zubiaurre Artola, 2011, p. 76). However, this is not the case everywhere. Regardless of whether this is the case, turnover is generally lower in worker cooperatives than it is for employees in conventional firms (Abell, 2014, p. 13). This has two main reasons. Firstly, worker-members are less likely to quit than in conventional firms, although this does not count for non-members (Artz and Kim, 2011, p. 21). Secondly, in larger cooperatives, rotation of workers often takes place during economic crises (Schoon, 2012, p. 221). By retraining workers for different functions, they can prevent having to lay workers off. Furthermore, as explained above, wages are often decreased in times of crisis to prevent lay-offs.

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2.4 Are worker cooperatives a feasible model?

Now that it has been established how worker cooperatives work and how they are established, it is time to look at their performance. How do they perform when they interact with the real economy? Answering this question shows whether WCs are more than simply a nice theoretical model and whether they constitute a viable alternative to capitalist firms. To assess whether this is the case, this chapter pays particular attention to their performance in comparison with conventional firms. Subsequently, the causes of the rarity of worker cooperatives in the current economy are discussed, as well as potential ways to deal with these causes.

Productivity

Compared to similar conventional firms, worker cooperatives generally perform slightly better in terms of productivity, according to Artz and Kim (2011, p. 15). The ownership stakes generally motivate workers to improve their effort, as part of the extra productivity benefits themselves. However, this can also create a free-rider problem when the fruits of extra productivity are divided among all workers (ibid.). A similar conclusion was reached by Pencavel (2012) and Pérotin (2012). Pencavel reviewed a number of studies comparing the productivity of conventional firms and worker cooperatives in terms of how much output is produced for a given input. While some of the studies he cites give a mild advantage to the productivity of WCs, most of the results do not reveal a notable difference with conventional firms. Therefore, he concludes: “There are enough instances in which co-ops seem no less efficient than capitalist firms that a presumption of co-ops’ relative inefficiency is not warranted” (Pencavel, 2012, p. 26). Pérotin (2012, p. 19) reviewed multiple studies on total factor productivity2 and found that worker cooperatives were never discovered to be less productive and that they were actually often more productive. She attributes this suspected productivity gain primarily to the fact that workers are engaged in the governance of the firm. Thus, overall the literature seems to give a slight advantage to worker cooperatives when it comes to productivity, in terms of both the amount of output for a given input and total factor productivity.

Growth and innovation

Assessing the growth rates (in terms of both number of employees and turnover) of worker cooperatives is difficult, as there is little scientific research yet in this area. Therefore, it is difficult to compare their record with conventional firms. However, there are some indications that growth rates are not too different from conventional firms. For example, in their analysis of a large dataset of French firms, Fakhfakh, Pérotin and Gago (2012) found that capital investment increases at least as fast in the worker cooperatives as in the conventional firms. Since sustained growth of capital investment requires growth, this suggests that growth levels were similar as well. Furthermore, the experience of successful cooperatives such as the MCC has shown that worker cooperatives are capable of impressive growth rates. However, there has historically been great variation in the growth levels of WCs (Dickstein, 1991, p. 19). This is both the case between worker cooperatives and between different time periods. Interestingly, growth rates of WCs have tended to be particularly high in times of economic downturns (Dickstein, 1991, p. 18). Therefore, it does not appear to be the case that worker cooperatives

2_{Total Factor Productivity (TFP) is “that part of growth in output which is not accounted for by capital}

and labour growth” (McDowell, Thom, Pastine, Frank and Bernanke, 2012, p. 518). This is caused by factors such as human capital and technological efficiency.

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have a disadvantage compared to conventional firms when it comes to growth, yet more research in this area remains crucial.

The same appears to be the case when it comes to innovativeness. Theoretically, WCs could be less innovative, because they have less easy access to capital and tend to be risk-averting (Basterretxea and Martinèz, 2012, p. 359). On the other hand, they have the advantage that they often cooperate more with one another, which can facilitate knowledge-sharing (Becerra and Thomas, 2017, pp. 105-106). This can actually benefit innovation. In practice, Basterretxea and Martinèz (2012) found that cooperatives were equally innovative as conventional firms, when comparing the two groups in the Basque Country. Therefore, WCs do not appear to be inherently less innovative.

Why are worker cooperatives so rare?

This chapter has so far argued that worker cooperatives can compete with conventional firms in terms of productivity, growth and innovation. However, if this is the case, one big question remains: ‘Why are worker cooperatives so rare in most economies?’. Kremer (1997) argues that this is the case because democratic decision-making leads them to adopt less unequal wage distributions. Kremer reasons that these are less efficient. Since more productive workers would not be compensated adequately, effort is rewarded insufficiently. This would give high-skilled workers an incentive to switch to conventional firms. Other scholars have also highlighted the problem of freeriding as a result of the public good character of profits in a worker cooperative (Dow and Putterman, 2000, p. 322; Ben-Ner and Ellman, 2013). However, as Artz and Kim (2011, p. 26) argue, pay is not the only factor that motivates workers in their choice for a job, as “they may value job stability, participatory decision making in the firm, and having a stake in the profits”. Furthermore, based on Kremer’s argument, it would be expected that existing worker cooperatives would generally perform poorly. Yet, as has been established in the beginning of this chapter, this is not the case. However, it could of course be that the problems described by Kremer have caused most WCs to fail and that there is somehow something exceptional about the ones that did survive. To test this hypothesis, the following section discusses the survival rates of worker cooperatives.

Survival rates

Empirical analysis by Burdin (2014) of new firm survival rates in Uruguay shows that new worker cooperatives had higher chances of survival than conventional firms. Even when he controlled for conditions that favoured WCs, such as the different tax regimes for cooperatives and the fact that they were less active in sectors with higher turnover, the chances of failure remained 29% higher for conventional firms. Of course, Burdin’s data focused only on Uruguay, so his findings cannot easily be generalized to WCs in general. However, Olson (2013) looked at a range of similar studies into this subject, analysing a range of countries. This provided similar conclusions as Burdin’s regarding failure rates of worker cooperatives. His combination of studies of multiple countries, including Canada, France and Israel, indicates that this is not just a country-specific trend. Therefore, the hypothesis that worker cooperatives are rare because of inherent flaws in their functioning starts to seem implausible. Yet, if this is not the reason for their rarity, what is? Two factors seem to play an important role in this: obstacles to creation and degeneration into capitalist firms.

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Obstacles to creation

Olson (2013, p. 85) suggests that the limited number of worker cooperatives is caused primarily by “obstacles to their creation, not their survival”. Two obstacles are mentioned specifically by Olson. The first of these is the existence of financial constraints that make it harder to start a WC (Olson, 2013, p. 101). In contrast with capitalists, workers generally do not have the capital necessary to use as collateral for a loan, which causes banks to be less likely to grant them a loan (Wright, 2009, p. 168). Furthermore, workers may be hesitant to expose themselves to the “undiversified financial risk” that accompanies investing in a cooperative (Pinto, 2018, p. 79). This constraint applies to both starting new firms as WCs and to worker recuperations. The second obstacle consists of the problems associated with starting a new business cooperatively (Olson, 2013, pp. 99-100). This involves investing or borrowing capital, assembling members and creating an organizational structure - all of which can pose collective action problems. This can make it more difficult for workers to do this collectively, than for a capitalist to start a conventional firm. However, these problems are not necessarily unsolvable and set in stone. As Pérotin (2014, p. 43) argues:

Public support at the stage of creation may make a significant difference to information and other barriers to entry, together with legislation that enables the worker cooperative to prosper as a stable business form (in particular by preventing degeneration and demutualisation). We also know that the density of worker cooperatives in an area, year and/or industry is an important determinant of further cooperative creation

Thus, these problems could potentially be overcome by governmental action, in the form of policies and legislation. Furthermore, the existence of WCs can be a stimulus for further worker cooperative development.

Degeneration thesis

Another important theory explaining the rarity of worker cooperatives is the degeneration thesis, as for example described by Ben-Ner (1984). His argument was that they lose their cooperative character over time. This can occur in both successful and unsuccessful cooperatives. For unsuccessful WCs, Ben-Ner expects that workers will leave for higher-paid work in conventional firms, resulting in the liquidation of the coop. On the other hand, he predicts that successful WCs will start to hire non-member workers. He assumes that worker cooperatives strive to maximize income per worker-member. As a result, he reasons, it would be in the interest of the worker-members to minimize the number of members, when income per member was higher than the market wage for a non-member worker. Therefore, successful WCs would have an incentive to hire non-member workers, rather than new member-workers. This would in time lead to the replacement of all worker-members by non-members, effectively degenerating the WC into a conventional firm.

The degeneration thesis is a more credible explanation for the rarity of worker cooperatives than the claim that they are inherently less competitive than conventional firms. The process that was described by Ben-Ner actually has taken place in reality, for example in the case of the Olympia Veneer Company in the U.S. (Pencavel, 2012, p. 11). Therefore, the question is not whether degeneration can occur, as the answer is obviously yes. The more important question is whether steps can be taken to prevent it. This seems to be the case. Governmental regulation has in many countries been successful at preventing degeneration in various ways. For example, in France WCs are required by law to give non-member workers an equal share of the profits (Pérotin, 2012, pp. 28-29). This removes the incentive for degeneration described by Ben-Ner, as the replacement of worker-members with non-members

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does not increase the income of members. In Italy, legislation is less strict but has similar effects (Pérotin, 2012, p. 29). Here, the amount of profits that can be paid out to members is limited, and tax concessions are provided to stimulate sharing the profits with non-members. Tax incentives were also used in Uruguay, where tax benefits are only available to WCs in which the number of permanent employees is less than 20% of the number of members (Burdin and Dean, 2009, p. 519; Pérotin, 2012, p. 29).

Preliminary Conclusion

In summary, there are two main reasons for the rarity of worker cooperatives. The first one is that it is more difficult to start a WC than a conventional firm. This has several causes, primarily financial constraints and collective action problems. The second is the risk of degeneration of existing WCs, transforming them into conventional firms. However, these problems are not unsolvable, and governmental policies have proved to be quite effective at dealing with them. Finally, the existing empirical studies of worker cooperatives overwhelmingly refute the claim that worker cooperatives are rare because they are inherently dysfunctional.

2.5 Why should worker cooperative development be pursued?

So far, this chapter has established that worker cooperatives can perform as well as conventional firms and have been able to survive in multiple countries for long periods of time. Yet, the fact that they can survive is not enough to justify the introduction of governmental policy to support them. Why should we focus our limited resources on WCs, rather than conventional firms? What is it about WCs that makes stimulating them so important? This section makes the case for worker cooperative development as a path to move beyond capitalism. However, it is important to note that the endpoint of that path is not set in stone. To effectively deal with the problems of capitalism, it should at least go as far as to make worker cooperatives the dominant force in the economy. Yet, an increase in their prevalence below this point would also have substantial positive effects. On the other hand, it is also possible this path would end in the total replacement of capitalist firms by worker cooperatives. How far worker cooperative development should go should be decided by further debate.

Self-determination and democracy

The major difference between worker cooperatives and conventional capitalist firms is that in WCs power and ownership lie ultimately with the workers. This supports a democratic way of running the economy, as opposed to the autocracy of capitalism. In capitalist production, a small minority of owners/shareholders makes the decisions about the firm, which affects all of its employees without them having a real say in this. In this sense, workers are unfree, as they are under the “arbitrary power” of their employers (Gourevitch, 2014, pp. 103-104). This democratic deficit would be fixed by worker cooperatives. WCs are focused on advancing the interests of their members, the workers. Therefore, their situation improves when they gain control over their own workplace. This, for instance, gives them control over their own working conditions (Abell, 2014, p. 12). While individual worker cooperatives already give the power over their own workplace to its workers, an WC-dominated economy would give workers democratic influence over the direction of the economy as well.

Ecological Sustainability

Worker cooperatives also make it easier to address environmental problems in society (Lawrence, Pindleton and Mahmoud, 2018, p. 3). However, the point here is not that WCs are necessarily eco-friendly but rather that capitalism is inherently not. Capitalist production is

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always aimed at growth, whereas for worker cooperatives the aim is to serve their members (Gunderson, 2019, p. 40). This means that their members can determine the goals of the cooperative.3_{This creates the option to adopt environmental goals as important cooperative}

goals, whereas capitalist firms always have profit as their core goal. While this does not necessarily mean that WCs will behave responsibly towards the environment, they have some features that makes this more likely. For example, they are expected to have a stronger link with the community that may be affected by pollution (ibid.). Furthermore, cooperatives often have established social goals (Phelan, McGee and Gordon, 2012, p. 421). Thus, theoretically worker cooperatives have the opportunity to be environmentally sustainable, in contrast with capitalist firms, that only have this opportunity when sustainability does not harm their profits. In reality, there have been accounts of WCs that included sustainability in their core values (Chacartegui, 2018, p. 104). Unfortunately, large-scale empirical analysis of the current environmental record of worker cooperatives is still lacking. Still, it is likely they would more often be ecologically sustainable than capitalist firms.

Reducing inequality

A third reason why worker cooperatives are worth pursuing is their effect on inequality in society. While inequality has been viewed by many as a problem throughout history, it has resurfaced as a major concern in the public debate in the last decade. During that time, prominent economists like Piketty (2014) and Stiglitz (2013) have warned about the threat it poses to society. A greater role for WCs would decrease inequality in society for two reasons. The first of these is their effect on ownership of the means of production and the division of profits that is linked to this. Since this ownership lies with a broad group of workers in worker cooperatives, rather than with a small group of capitalists, inequality of wealth would be reduced. This also has an impact on the inequality of income, as the profits of these companies are shared by this large group of worker-members, instead of being paid to the small group of capitalists while the workers get (next to) nothing. Therefore, inequality of income would be reduced as well. This process is strengthened by a second factor. As worker cooperatives are run democratically, workers are likely to decide on smaller wage differences (Kremer, 1997). In existing WCs in France and the Basque country, this has also been observed to be the case. In France, Magne (2017) found that lower-paid workers had somewhat higher incomes in WCs, whereas higher-paid ones had substantially lower incomes. This resulted in substantially lower wage inequality in WCs, compared with conventional firms. The same pattern has been found in the Mondragón cooperatives (Herrera, 2004, p. 62). Thus, increasing the role of worker cooperatives in the economy could substantially decrease inequality of both wealth and income.

Stabilizing Employment

Worker cooperatives also have a different relationship with employment than capitalist firms. They generally have a stabilizing effect on employment. This has to do with two factors. Firstly, employment growth in worker cooperatives has tended to be countercyclical, growing impressively during economic busts (Smith and Rothbaum, 2013; Navarra, 2013, pp. 2-3). This results primarily from the fact that more worker cooperatives are created during these periods (Pérotin, 2006, p. 35). One way in which this has occurred has been through worker

3_{Of course, worker cooperatives do in some cases need to focus on growth, to remain competitive with}

capitalist competitors. However, this only requires the amount of growth that is necessary to become more efficient. WCs never have to grow to increase the amount of profits for their shareholders, which is a constant necessity for capitalist firms.

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recuperations. This means that workers take over their company, which would otherwise have been closed in many cases. Because these worker buyouts prevent the firms from closing down, they prevent loss of employment.

Secondly, employment is more stable within cooperatives. One reason for this is the fact that worker cooperatives are more likely to cut wages than to decrease employment in times of economic downturns (Pérotin, 2014, p. 35). Another reason why employment is generally more secure in worker cooperatives is the existence of indivisible reserves4 in cooperatives in several countries. This gives WCs the possibility to deal with economic downturns, without cutting back on wages and employment (Navarra, 2013). During these times, they can use the reserve as a buffer to deal with decreased income. If the share of worker cooperatives in the general employment would increase, this would increase its stabilizing effect on employment and thereby indirectly on the business cycle.

Ending exploitation

The final reason why worker cooperatives are to be preferred to capitalist firms is that they make an end to exploitation. One of the leading advocates of WCs, Richard D. Wolff (2012, p. 98), even calls this “a defining point and purpose” of worker cooperatives. Exploitation takes place in capitalism in the form of “the production of a surplus appropriated and distributed by those other than its producers” (Wolff, 2012, p. 12). This is based on the Marxist argument that profit under capitalism is created because workers add surplus value to a product through their labour. Yet, this profit is subsequently allocated to the owners of the capital, causing the workers to be exploited by these capitalists. As workers are the owners of the capital in WCs, they also get to divide and decide over the profits they create (Wolff, 2012, p. 14). Therefore, worker cooperatives put an end to capitalist exploitation. Of course, they can only fully do this when there are no more capitalist firms. However, even when this is not (yet) the case, they stop capitalist exploitation within individual firms when they become worker cooperatives.

Why should we be interested in worker cooperatives instead of other

alternatives to capitalism?

In the paragraphs above, it has been argued why worker cooperatives are a model worth pursuing as an alternative to capitalism. However, similar arguments can also be made in favour of other alternative models. Other anti-capitalist thinkers, for instance, advocate Property Owning Democracy (POD) (O’Neill, 2014), Participatory Economics (ParEcon) (Hahnel, 2005) or Market Socialism (Schweickart, 2002). Why should worker cooperative development be pursued instead of these models?

For starters, the other models require a larger-scale restructuring of the economy and society, whereas worker cooperative development (WCD) only changes the restructuring and replacement of firms, accompanied by the introduction of a supportive governmental framework. Additionally, while the other models need to be implemented in the entire economy, WCD can be done incrementally. For these reasons, worker cooperative development is likely to cause less political opposition than a transition to an entirely different model. This makes it more politically feasible. Furthermore, the incrementality of WCD also allows for trial-and-error before the entire economy is organized in worker cooperatives. Therefore, any possible

4_{Indivisible reserves are reserves which cannot be divided amongst the members. Therefore, their}

existence makes sure that WCs always have a certain amount of capital available for investment or as a buffer in times of economic downturns. In some countries, it is legally mandated to place a certain portion of a WC’s profits into its indivisible reserve.

Stimulating Worker Cooperatives through Government Policy: an Analysis of Policies and Proposals to Foster Worker Cooperative Development