What about efficiency and productivity? There are two theories, here. One theory -- which comes from one of the greatest minds of the nineteenth century, John Stuart Mill -- is that the members of a cooperative, since they would be working for themselves, would work harder and smarter and more productively than would employees of conventional corporations or state enterprises. This idea was followed by Richard Ely, the American economist for whom the annual distinguished lecture at the conference of the American Economic Association was named. The other theory, which has been stated by a number of scholars who, while quite important, would not work but shirk, so that productivity would be poor. Of course, as great as Mill was, he was human and might have gotten it wrong. This is an issue that can only be settled on the evidence. As it happens, the cooperators in the Rochdale movement, and other philanthropists and idealists and ordinary people, have founded hundreds (if not thousands) of cooperative enterprises over the last century and a half, and some have continued for decades. So we have a good deal of evidence to consult. Among a wide range of carefully studied examples, the complex of cooperative enterprises at Mondragon, Spain, is widely thought of as a model which embodies many successful principles; but there are many other examples worthy of studylist or state enterprises, on the average. The cooperatives can often achieve higher productivity even when their equipment and conditions are worse. Furthermore, the better the organization approximates the cooperative ideal, the better the productivity.
The earliest modern statistical studies of industrial cooperatives were devoted to some little-known American cooperatives, including several in the plywood industry. These studies indicated that the cooperatively organized enterprises had higher labor productivity, on the average, even though they had less and worse equipment, on the average, than investor-owned companies; and the more thoroughly cooperative the organization, the higher the productivity. Evidence for Britain pointed in the same direction. I believe I was the first to attempt to explain these results in terms of economic theory. In the 1980's, the evidence on this point began to build up, with studies of Yugoslavia, Poland, Germany, Denmark, Sweden, France, and the United States again, as well as a Western European survey. While there are differences of detail and a few qualifications, all of these studies point in the same direction: labor productivity is higher in more cooperatively organized enterprises. This is remarkable serendipity -- that a form of organization designed to liberate labor from dependency in fact enhances the productivity of labor.
Before leaving this subject, it is important also to mention two other points. One is the experience of codetermination in Europe, and especially in Germany. It seems not to be widely known, but in Germany, large corporations are required to seat elected representatives of the employees on the corporate board of directors. This is not new -- it has been the case in West Germany since the late 1940's, and was an aspect of the "economic miracle" that restored West Germany to prosperity after World War II. In the heavy industries since the 1940's, and in other big German corporations since the 1970's, the law has required that the employees and the shareholders be equally represented. The seating of employee representatives on a corporate board of directors is called "codetermination" in English, and "Mitbestimmung" in German. When the employees are equally represented, it is "paritätisches Mitbestimmung," codetermination with parity. Codetermination also plays a major role in Netherlands corporations and some role in several other prosperous and efficient European economies.
Corporations under codetermination share some characteristics of employee cooperatives, in a qualified or compromised way. We might expect that the codetermined corporations might favor cooperative production and thus higher labor productivity, as the other semi-cooperative and cooperative enterprises do. It has proved infeasible to make a statistical estimate of the impact of German codetermination on labor productivity -- the problem of comparing apples and oranges, always a difficult one in economic statistics, has proven just too troublesome, here. Qualitiatively, though, it is hard to see German corporate industry as anything other than a success story. German corporations have been strong, world-class competitors, and while the German economy has been plagued with high levels of unemployment since 1980, and increased difficulties since reunification, Germany has stood out and continued to stand out specifically for increasing labor productivity.
In the nineteen seventies, while economic-statistical research on cooperative and semi-cooperative enterprises was still in its early stages, other researchers were exploring other issues by similar statistical methods, and one other remarkable discovery from that research will be important for our purposes. The discovery was made by Harvard researchers Freeman and Medoff. Freeman and Medoff studied the comparative labor productivity of American companies that were unionized and others that were not unionized. After adjusting for other differences they found -- again surprisingly -- that the unionized enterprises have, on the average, higher labor productivity. Freeman and Medoff considered only companies with peaceful labor relations -- of course, strikes and labor strife do not enhance productivity -- so we could put their finding in this way: companies with collective bargaining agreements have higher labor productivity than companies without unions, other things equal.
Freeman and Medoff seem to have been unaware of the parallel between their discovery and those made by the students of cooperative enterprises; they did not make the connection. But we shall. In the context of the Principle of Cooperation, Freeman and Medoff's results can be interpreted in this way: a formal agreement with the elected representatives of the employees, even in the context of the threat of strike and reprisal, can enhance cooperative production sufficiently to lead to higher productivity.
All in all, the role of democratic representation of employees in enhancing labor productivity seems to be as well established on the evidence as any proposition in economics.
This question recalls a favorite economist joke"
"How many economists does it take to change a light bulb?"
"None. If the light bulb needed changing, someone would have found it profitable to change it already."
In many ways, cooperatives are more successful than "capitalist" profit-seeking corporations. So why hasn't cooperation taken over? Such classical economists as Mill and Ely had hoped that the cooperative movement would overcome capitalism by outgrowing it. But the opposite happened --corporate capitalism outgrew cooperation. There are several reasons for this.
The coops had to rely on their own savings, while the corporations had access to much larger funds of investment capital -- including the investment funds that workers themselves began to build up! The pioneer coops had to rely on their own saving, and anyway they did not wish to have "speculators" involved in their enterprises. But, meanwhile, the modern "capitalist" corporation was being invented. This new form of social organization -- quite utopian in the early 1800's -- had its great success in raising, and effectively mobilizing, the savings of an anonymous mass of capitalists -- and increasingly, in the twentieth century, of workers' pension funds. For a variety of reasons related to their inability to do this, cooperative enterprises were pushed to the margin and (much worse) largely forgotten.
At the same time, coops simply do not have the expansionist bias that capitalist corporations do. As Jaroslav Vanek discovered about 1970, expansion for its own sake is just not in the interests of a group of employees in the way it is in the interest of capitalist shareholders. And as Vanek observed, this is not a bad thing. "Big Business" has its own problems and small can be beautiful. But it meant that cooperation was all the less likely to outgrow the profit-seeking corporations. And their failure to mobilize anonymous capital investment compounded this tendency to remain small.
Some industrial cooperatives died as a result of their success. The children of the founders got educations and did not aspire to take their parents' places as industrial workers. Rather than finding other recruits, the founders set themselves up for retirement by selling their successful enterprises to profit-seeking corporations.
Because employee cooperatives did not grow large, the cooperative movement had to rely on the foundation of new cooperative organizations in order for the movement as a whole to grow. But coops are not particularly easy to start. They are a bit more complicated than profit-seeking corporations and probably a bit harder to start than profit-seeking corporations. So, although there have been many hundreds of employee cooperatives founded, these foundations could never have kept up with the rapid growth of the profit-seeking corporations.
Legislatures dominated by employers and bosses have not created a favorable environment for cooperatives by any means. In many jurisdictions, there is no provision for cooperatives to be formed routinely, as corporations can be, Sometimes cooperatives have been actively suppressed, because the profit-seekers don't want the competition.
Finally, the cooperative movement was nonpolitical. They did not want under any circumstances to make cooperation a mandatory form of organization.
The idea that cooperation could simply win out in competition with profit-seeking economic organization is a little like thinking that goldfish could outcompete sharks and drive the sharks into extinction. Goldfish are pretty.
