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The Relative Survival of Worker Cooperatives and Barriers to Their Creation
Abstract
PurposeThe purpose of this paper is to demonstrate that the conjecture that worker cooperatives (firms that practice participatory management and share profits broadly) suffer a competitive disadvantage relative to conventional firms is not supported by existing empirical research. It also considers alternative explanations for why such cooperatives are rare.
Design/methodology/approachHistorical analysis, literature survey, and survival analysis.
FindingsStudies of worker cooperatives in a variety of national settings indicate their failure rate is lower than conventional firms at least in the short and medium term. This contradicts the proposition that they are rare because they suffer a competitive disadvantage and focuses attention instead on their low formation rate.
Research limitationsThe “liability of newness,” wealth and credit constraints, entrepreneurial rents, and collective action problems are cited as important barriers for the creation of worker cooperatives de novo, but these factors should be greatly reduced for those created through the conversion of an existing firm. Paradoxically, the overwhelming majority of cooperatives are created from scratch, and hence this explanation remains incomplete.
Practical implicationsExisting policies incentivizing the creation of worker cooperatives, and current initiatives to promote them, do not encourage the creation of inferior economic institutions.
Originality/valueThis paper contradicts the widely held belief that the distinctive features of worker cooperatives (participatory management and broadly shared profit) place them at a competitive disadvantage in a market economy. It also provides insight into why cooperatives are rare by challenging explanations based in presumed inefficiencies and focusing attention instead on barriers to creation.
... As posited by Lemma 1 and based on empirical evidence, we reject the colloquial suggestion that LMF are less efficient than CF. Olsen and Poznik assert that "research consistently finds that (a) worker cooperatives are at least as productive as similar conventional businesses, if not more so (Perotin 2012 and 2016), and (b) once established they survive as well as or better than conventional businesses (Olsen 2013)." (Olsen and Poznik, 2018) Kruse states generally that, "Employee ownership has attracted growing attention for its potential to improve economic outcomes for companies, workers, and the economy in general, and help reduce inequality. ...
... Credit constraints are reduced because the equity of a successful existing firm provides collateral; the elevated hazard associated with new firms is greatly reduced because a WC created through a conversion is not a new firm. . . " (Olsen, 2013) Yet, why is this likely to be missed opportunity? Why are entrepreneurs not convinced of the benefits of LMF and interested in conversion of their going concerns, as opposed to closure of operations? ...
... (Jensen and Meckling, 1979) Helpfully, Olsen states that ". . . the collective action problem involved in the transition of an existing firm is lower than that associated with founding a new firm. . . " (Olsen, 2013) As follow-on and perhaps indirectly, but not to be discounted, the 'horizon problem' greatly complicates both LMF launch and later stage conversions. Various worker-members enter the LMF at different points in time, with different expectations for exit. ...
The aging workforce and population decline give opportunity to increase the share of labor managed firms in the U.S., such as employee stock ownership plans. Yet why are labor managed firms not a natural and organic solution to the above workforce and population challenges, instead becoming a contemporary political talking point for the likes of Senator Bernie Sanders? At a minimum, labor managed firms are economically equal and socially preferable to conventional firms. Yet labor managed firms exist in far fewer numbers than conventional firms. Why is this? Earlier arguments that labor managed firms were less efficient, less productive, and less survivable have been convincingly countered. So, deduction suggests they are simply created far less frequently than conventional firms. This author finds three primary hypotheses for why this imbalance exists. First, that there is broad lack of awareness of labor managed firm options and benefits. Second, that entrepreneur self-interest shows preference for conventional firms over labor managed firms. And third, that co-determination complicates labor managed firm creation, in turn promoting conventional firm creation. This piece follows a logical form to engage a subset of relevant literature in investigation of the dearth of labor managed firms.
... In 2013, the United States was home to fewer than three hundred worker cooperatives with an average size of eleven workers per firm (Personal Communication with Tim Palmer, Democracy at Work Institute, December 2016). Previous studies posit low formation rates as a key constraint (Olsen 2013) in addition to cultural individualism (Corcoran and Wilson 2010), lack of financing (Gintis 1998), and degeneration of democratic decision-making structures (Hansmann 1996). Advocates of the USW-Mondragon model claim that union involvement in the establishment and growth of worker cooperatives will help mitigate these constraints. ...
... A growing interdisciplinary literature documents their benefits in the workplace and beyond. For example, worker loyalty and cooperative values of democracy and equity are especially pronounced in democratic worker-owned firms (Hoffmann 2006b;Malleson 2014). 2 Overall, worker cooperatives have more equal internal wage structures and higher employment stability than conventional counterparts (Bonin, Jones, and Putterman 1993;Olsen 2013). They can also promote wealth accumulation for marginalized groups and yield positive spillover effects in civic participation and social capital (Gordon Nembhard 2014; Majee and Hoyt 2010). ...
... First, low formation rates appear to inhibit sector growth. Citing evidence that European worker cooperatives have higher survival rates than comparable conventional firms, Erik Olsen (2013) suggests that entrepreneurs rarely form worker cooperatives because they are unfamiliar with the business model and unlikely to extract entrepreneurial rents from a collectively owned enterprise. Second, worker cooperatives typically face higher capital costs than conventional counterparts due to widespread unfamiliarity with the cooperative business model, worker equity underinvestment, and limits to external investor control over business decisions (Bonin, Jones, and Putterman 1993;Gintis 1998;Olsen 2013). ...
In 2009, United Steelworkers (USW) and Mondragon signed an agreement to promote union co-ops: firms that combine democratic worker ownership and union membership. Eleven U.S. initiatives now seek to implement the USW-Mondragon union co-op model, prompting a debate about whether unions and worker cooperatives are stronger together. This article draws on a case study of the first such initiative in Cincinnati, Ohio, to put claims about the model in dialogue with aspirations and experiences of people on the ground. I synthesize six possibilities and dilemmas of union involvement in worker cooperative formation and argue that these considerations should structure the future debate.
... A well-established body of literature establishes that employee-owned businesses, predominately ESOPs in the U.S., tend to stay in business longer than comparable non-cooperative companies (Blasi et al., 2013;Kruse, 2002). A growing body of literature suggests the same is true of worker-owned cooperatives (Burdin, 2014, p. 202;Olsen, 2013;Pérotin, 2020, pp. 14-17). ...
... Worker owned co-ops do not fail at higher rates than traditional businesses as some scholars initially hypothesized accounts for their relatively low prevalence in the U.S. (Olsen, 2013;Landín, 2018, p. 5). Instead, they must overcome significant barriers that other forms of business do not face when starting up. ...
This article provides a case study, based on original author research, about the start of the union co-op movement in Cincinnati a decade ago. The author views the formation of initial union co-ops through the lens of social movement theory. Doing so identifies mechanisms critical to the success of a local union co-op movement, including the following: emulation – where a group of people model their work on that of others; social appropriation – where a group of people involved in an organization with one purpose utilize the organization for a new purpose; diffusion of information – sharing knowledge to wide networks; brokerage – relying on known individuals and organizations to connect with other potential allies and supporters; and resources, such as amassing pooled cash, recruiting government support, and locating meeting space. Additionally, those involved in a successful union co-op movement must be adaptable, draw on a wide variety of experts, aggregate information, and engage in long-term planning. Leadership and a substantial commitment of time to the movement by the leaders was repeatedly recognized by the interviewees as crucial to success.
... Teniendo en cuenta todas las ventajas, tanto económicas como sociales, que se atribuyen a la Economía Social, sorprende en la literatura el escaso peso de este tipo de empresas en las economías frente a otras formas de organización. Según algunos autores (Pérotin, 2006;Olsen, 2013), atendiendo al caso concreto de las cooperativas, la razón por la que existe un número reducido de este tipo de empresas no es porque sean menos eficientes ni porque sobrevivan menos sino, fundamentalmente, porque se crean pocas, esto es, se prefieren otras formas de organización. ...
... Si los emprendedores de las cooperativas de trabajo asociado suelen adelantar su propia y limitada riqueza para capitalizar la empresa, tendrán más aversión al riesgo que los emprendedores individuales y serán más vulnerables al desempleo (Pérotin, 2006, p. 298). Por esta razón, el nivel de riesgo puede ser una limitación importante para la creación de nuevas cooperativas propiedad de los trabajadores (Olsen, 2013). Podivinsky and Stewart (2007), con datos del Reino Unido, encuentran que existe una relación negativa entre la entrada de empresas propiedad de los trabajadores y la ratio capital/trabajo y, también, con una medida del riesgo de la industria. ...
Resumen. Las cooperativas están siendo objeto de estudio por su clara contribución a la consecución de los Objetivos de Desarrollo Sostenible (ONU). En este trabajo, comparamos la creación de cooperativas en las regiones españolas con las empresas mercantiles, subdividiendo la muestra (2007-2020) en función de los años de crisis económicas. Para contrastar las hipótesis planteadas inicialmente, elaboramos un modelo econométrico con datos de panel, que estimamos por EGLS con efectos fijos regionales. El principal resultado obtenido es que se crean más cooperativas en las regiones con mayor desempleo y mayor PIB per cápita. Palabras clave: Creación de cooperativas, CC. AA., modelo econométrico, datos de panel. JEL Classification: C23, J54, P13. Abstract. Cooperatives are being studied for their clear contribution to the achievement of the Sustainable Development Goals (UN). In this work, we compare the creation of cooperatives in the Spanish regions with the capitalism firms, subdividing the sample (2007-2020) according to the years of economic crisis. To contrast the hypotheses initially proposed, we developed an econometric model with panel data, which we estimated by EGLS with regional fixed effects. The main result is that more cooperatives are created in regions with higher unemployment and higher per capita GDP.
... The democratic governance model is more difficult to achieve and maintain over time compared to more hierarchical models. The model also sets limits to growth as members cannot sell shares to finance new ventures, they rely on loan finance, and they lack access to external finance (Olsen 2013, Diamantopoulos & Bourgeois 2014. ...
... In Europe, they outperformed their counterparts during and after the financial crisis (Birchall & Ketilson 2009). Similarly, recent studies find that US and Canadian cooperatives have longer survival rates and are more resilient than comparable small for-profit businesses (Olsen 2013, Abell 2014. Thus, cooperative growth appears to depend less on survival rates and more on barriers to entry-that is, whether the institutional conditions exist to support their adoption-particularly financing in the early years. ...
... Webb and Webb, 1920;Meister, 1984). Current literature contends that workers' cooperatives are more efficient ( Pencavel, 2014) and resilient ( Olsen, 2013) than conventional businesses, although the prevalence of capitalowned firms in the actual market economies is undeniable. The case of the Mondragon cooperative complex in the Basque Country has been paradigmatic: since their foundation in 1956 the Mondragon cooperatives have shown tremendous capacity for economic growth and long-term survival, while maintaining their democratic character and social commitment ( Whyte and Whyte, 1988). ...
... However, evidence on the comparative efficiency for cooperatives and conventional firms, referenced in Bonin et al. (1993) or in Pencavel (2014) reach conclusions that give a more positive view of the performance of worker cooperatives. The literature also suggests that democratic organizations survive rather better than conventional firms ( Perotin, 2004;Olsen, 2013;Burdin, 2014). Some attributes of worker cooperatives' governance, such as the internalization of conflict between workers and owners and better flow of information, profit sharing and participation, workers' stability and improved human capital appear to improve organizational performance and productivity ( Ben-Ner, 1984). ...
This article presents a case study of the rise and fall of the Mondragon cooperative Fagor Electrodomésticos (1959-2013). Fagor, after playing a key role in the creation of the Mondragon cooperative experience, had been transformed into a multinational corporation competing in the global home appliance market. Given Fagor’s role as a leading cooperative, the general question of the viability of workers’ cooperatives is also at stake in its failure.
... The ownership structure of investor-oriented firms (IOFs) does not seem to impose such high ownership costs to its patron-owners (Hansmann, 1996). Why, then, agricultural cooperatives are characterized by much higher survival rates when compared to IOFs? Numerous studies provide empirical evidence on the significantly longer average lifespan of cooperatives in comparison to IOFs (e.g., Olsen, 2013;Monteiro and Stewart, 2012;Knight, 2014). For example, in the U.S., the average lifespan of corporations has dropped in recent years to, approximately, 18 years (Reeves et al., 2016;Daepp et al., 2015). ...
The current paper is motivated from and inspired by Michael L. Cook's seminal contribution to the study of cooperative organizations in agriculture. I delve into the cooperative lifecycle framework introduced by Cook in order to address the issue of cooperative longevity. Despite several organizational design inefficiencies identified in the literature, empirical evidence suggests that agricultural cooperatives have a much longer lifespan than investor-oriented firms that are not supposed to incur lower ownership costs. This paper argues that this is so because agricultural cooperatives have been effective in ameliorating the negative consequences of high ownership costs, by designing and adopting successful tinkering and reinvention solutions. I describe and analyze such solutions, and provide real-world examples. The paper concludes by deriving key observations and proposing topics for fruitful future research on Cook's cooperative lifecycle framework.
... This is also due to the fact that southern regions have experienced a surge in the number of WCs in recent years, especially following the 2008-2010 crisis and its long-term consequences (Vita, 2018;Cori et al., 2021). WC start-ups may suffer from liabilities of newness and underperform compared to older WCs (Olsen, 2013). The increase of WCs in South Italy is also linked to the enactment of several legal acts supporting and financing the development of cooperative enterprises in these regions and the spread of cooperative know-how in the area. ...
Purpose-In Italy, worker cooperatives (WCs), whose workers hold major control rights over collectively-owned assets, are the leading vehicle for the promotion and development of employee ownership. Worker cooperatives are present in all regions and in most economic sectors, employing about 506,000 workers and generating a turnover of about V22 bn. Despite their history and diffusion, the high prevalence of WCs in Italy is under-researched and-thematised and requires new research. Design/methodology/approach-The paper leverages unpublished primary and secondary data from Centro Studi Legacoop databank, the Aida-Bureau Van Dijk databank and the Cooperative Registry of the Ministry of Economic Development (CRMED) to explain the spread of WCs in Italy. Findings-This paper reveals descriptive statistics of WCs and investigates their distribution across economic sectors and regions, their economic and financial performance and gives an overview of the relevant legislation. The paper indicates that older small-and medium-sized cooperatives located in central and northeastern Italy perform best economically. However, in recent years, an increasing number of young cooperatives has emerged in South Italy thanks to favourable legislation, cooperative finance and the diffusion of cooperative know-how. Limitations to such results are reported in the conclusions. Originality/value-The paper sheds light on past and recent development trends of WCs in Italy, highlights their growth in South Italy and revitalises the debate on the drivers, structures and rationales of employee-owned enterprises in Italy. Findings generate implications for research and practice. Given the tendency of WCs to better protect jobs than investor-owned enterprises, the spread of these enterprises may help workers find better and more stable jobs, counter-cyclically mitigating the dangerous effects of macro-and meso-economic fluctuations and instability.
... Yet significant challenges persist in terms of economic performance, the integration of democratic participation with empowerment, and the extension of benefits to workers across race/ethnicity, class, and gender (Russell, 1984;Hacker, 1989;Kasmir, 1996;Hernandez, 2006;Gordon Nembhard, 2014;Miller 2012). While the early warnings of cooperative "death or degeneration" may have dramatically overestimated the risk of death-worker cooperatives are no less likely to fail than similarly small non-cooperative businesses (Jones, 1979;Dow, 2003;Olsen, 2013)-the Webb and Webb (1897) degeneration thesis has proved more prognostic. Financial success and longevity have not consistently been correlated with lasting shop-floor democracy or reductions in workplace inequality (Taylor, 1994;Russell, 1995;Stohl and Cheney, 2001;Flecha and Ngai, 2014), although it has also seemed to be that stratified degeneration and egalitarian regeneration are perhaps more reversable and overlapping processes than once claimed (Bretos, Errasti and Marcuello, 2020;Arregi, Gago, and Legarra, 2022). ...
Worker cooperatives—firms owned and governed by their workers—have experimented with organizational structure in aid of greater equality. Gender theorists and cooperativists have argued that bureaucracy produces inequality, but bureaucracy has also demonstrably reduced organizational inequality. By unpacking “bureaucracy,” both discrete and mutually reinforcing effects of authority and organizational formalization are revealed. Using a comparative study of two highly formalized worker cooperatives, the inequality effects of formalized hierarchical and distributed management are identified: while formalization of managerial bureaucracy amplifies biases and intensifies inequality regimes, formalized but distributed participatory bureaucracy mutes and transforms biases and creates more egalitarian outcomes.
... Despite well-documented challenges, alternative work organizations can achieve stability (Chen and Chen 2021;Olson 2013;Pencavel 2014). While some studies of labor-managed firms find no significant difference in survival rates compared to conventional firms (Bartlett et al. 1992), others show that worker-managed businesses actually have higher survival rates due to their greater employment stability (Burd ın 2014). ...
It is widely accepted that economic indicators like efficiency, productivity, and profitability are key to explaining why some work organizations survive and others do not. Yet not all businesses ascribe to capitalist assumptions about ownership, authority, and even what constitutes success itself. Worker-recuperated businesses (WRBs) in Argentina—organizations closed by their private owners, occupied by their workers, and restarted as worker cooperatives—offer one such example. While research has documented the operational and financial challenges these businesses confront, we know little about why some survive and others do not. This article draws on qualitative and historical research in two WRBs in Buenos Aires: one that survived (Hotel Bauen) and one that closed (FORJA San Martín). Comparing the organizations’ trajectories, we argue that labor process, geographic location, and political networks are key to understanding their survival. We find that different types of labor in industrial and service workplaces in conjunction with their geographic locations impacted efforts to develop networks with political actors, consumers, and social movements that provided legitimacy and resources to enable their continuity over time. The article discusses the contributions of these findings to theories of organizations and the implications for studying alternative work organizations.
... For the purpose of this study, the Jharkhand Women's Self-Supporting Poultry Cooperative Federation Ltd (JWSSPCFL) is taken as a case study and examined in some detail. It is argued that workers' cooperatives are more efficient and robust than conventional businesses (Olsen, 2013;Pencavel, 2014). However, the dominance of capital-owned firms in market economies is an undeniable fact (Errasti, Bretos, & Nunez, 2017). ...
The Sustainable Development Goals (SDGs) are considered worthy successors of the Millennium Development Goals. Generally accepted as one of the foremost priorities for most nations, the effort is to attain them in a time-bound manner. One important first step toward reaching the SDGs would be to lift people out of poverty and create an environment of socioeconomic empowerment. Achieving economic empowerment of the marginalized social groups through community-based initiatives is very crucial. Many such initiatives have been operationalized in different regions of India through cooperative movements and self-help groups. In this context, we have attempted to examine and analyze the Jharkhand Women’s Self-Supporting Poultry Cooperative Federation in Jharkhand, which is a resource-rich but economically backward Indian state.
... For instance, worker loyalty has proved to be higher in worker cooperatives than in other businesses ( as seen in the different studies by Hoffmann, 2006 andMalleson, 2014 andHuertas Noble, 2016). The higher resilience of worker cooperatives has also been studied in different countries: (Olsen, 2013) surveyed studies that evaluated the probability of a coop not surviving the midpoint of a 12-month period in comparison to other companies. Because this data is not available in the United States, the research relied on studies from the UK, Canada, Israel, France, and Uruguay. ...
Worldwide interest and support for worker cooperatives at all levels, from global to local are increasing. The 2030 UN Agenda, Goal 8 aims to promote "sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all". Even so, worker cooperatives are still rare in the United States. Unfortunately, as there is no comprehensive regulatory framework for worker cooperatives in the USA or a minimum legislation covering their concept at a federal level, the study is conducted through the judicial interpretation of sections 1381 through 1388 in subchapter T to the Internal Revenue Code. Nonetheless, a clear pattern and conclusions can be deducted out of it. The obsolete, partial, incomplete and inadequate regulation calls for a revision as it hinders potential worker cooperatives from getting the strength and resilience they need. This paper seeks to explore the reasons for this relative neglect, looking at a) the meaning of worker cooperatives at a federal level in the US, b) their possible separate regulation and federal/States competence issues, and c) possible ways of promoting worker cooperatives through US tax law complying with the 2030 UN agenda.
... (Dastur 2012, p. 8). It has been recently shown that research in various countries about worker coops shows that the failure rate in the short-and medium-term of worker cooperatives is lower than conventional businesses (Olsen 2013). The worker cooperatives shown to be efficient run private firms with their own managerial hierarchy (Fields 2011, p. 83). ...
Inequality is growing within and between countries. Tourism is a growing sector affecting lives, with a vibrancy of its own and malleable structures that can benefit a majority, if social justice and equality are the goals. Cooperatives are one of these structures, and have the potential to drive a development trajectory that delivers a just tourism. We define just tourism as a form of tourism that delivers the most benefits to its members-for themselves and by themselves-representing a form of accumulation from within. This article is based on secondary data and is a conceptual paper. It posits a coop hotel model, which harnesses the hope of spreading the cooperative model for its finer qualities of providing job security to workers, happiness, democratic participation, decision making functions, self-governance, empowerment, openness, retention of capital within the community, the pursuit of both economic social goals, resilience, and importantly, the emphasis on community contribution and matters of sustainability. Community-based tourism and cooperatives have interlocking values such as local control, local/self-management, and being steeped in the local context. The coop hotels model, which is the main contribution of this article, suggests the creation of mother hotel coops, with coop sisters and coop children in pursuit of social justice for a just tourism.
... (Dastur 2012, p. 8). It has been recently shown that research in various countries about worker coops shows that the failure rate in the short-and medium-term of worker cooperatives is lower than conventional businesses (Olsen 2013). The worker cooperatives shown to be efficient run private firms with their own managerial hierarchy (Fields 2011, p. 83). ...
Tourism is an important sector in many countries. For the Seychelles, it is the lifeblood of the economy. This article critically examines the Seychelles tourism sector. Using mainly secondary data available in the published material, it finds that most hotels and resorts are owned by foreign transnational hotel chains with a propensity to import personnel, technologies, food and drink. The consequences have been stunted by the growth of local businesses and precarious employment. The article suggests the adoption of the concept of luxury Community-based Tourism (CBT) which could be used as a mechanism to localize the ownership of hotels and to address inequality and promote social justice. Luxury CBT would involve a novel community-based boutique tourism (CBBT) industry that takes into account the Seychelles’ islandness.
... Having a say in decision making enables workers to improve their working conditions. It can also foster worker loyalty and a willingness to make sacrifices to help the company weather storms better than similarly positioned conventional firms (see Olsen, 2013). For example, worker-owners of Union Cab in Madison chose to give themselves a series of pay cuts to help the company cope with competition from TNCs, which had driven revenue down by 20% (Union Cab board member, interview with author, March 2017). ...
... Second, and more importantly, however mitigating these factors or the social and economic factors mentioned above might be, they are likely to remain constant across democratic firms in which ownership and control rights are formally separated and those in which they are not. It may be objected that this not always holds true, for cooperatives have been shown to exhibit higher survival rates, at least in the short and medium term (Olsen 2013;Park, Kruse and Sesil 2004). Accordingly, it may be argued that, if the probability of job loss is lower in coops than in codetermined firms, employees in the latter should be more risk averse and less, rather than more, prone to opportunistic exercise of control rights, other things equal. ...
Workplace democracy is often defined, and has recently been defended, as a form of intra-firm governance in which workers have control rights over management with no ownership requirement on their part. Using the normative tools of republican political theory, the paper examines bargaining power disparities and moral hazard problems resulting from the allocation of control rights and ownership to different groups within democratic firms, with a particular reference to the European codetermination system. With various qualifications related to potentially mitigating factors, such as workforce and shareholder composition or risk aversion and reallocation, the paper contends that forms of workplace democracy in which workers control and own the firm, such as cooperativism, are preferable to other forms, such as codetermination, in which ownership and control rights are formally separated.
... Having a say in decision making enables workers to improve their working conditions. It can also foster worker loyalty and a willingness to make sacrifices to help the company weather storms better than similarly positioned conventional firms (see Olsen, 2013). For example, worker-owners of Union Cab in Madison chose to give themselves a series of pay cuts to help the company cope with competition from TNCs, which had driven revenue down by 20% (Union Cab board member, interview with author, March 2017). ...
Transportation network companies (TNCs) such as Uber and Lyft have drawn scrutiny for the way they have upended urban transportation systems and heightened the precarity of taxi drivers. Less attention has been paid to their implications for democratic workplaces. This article provides a comparative study of Uber and Lyft's impacts on taxi worker cooperatives in three cities: Philadelphia, Denver, and Austin. Drawing on interviews with drivers, regulators, and other transportation stakeholders, we observe three major effects. First, TNCs have opened doors for cooperatives by undercutting taxi oligopolies and lowering regulatory barriers to entry. Second, they have intensified market pressures that make it difficult for start‐up co‐ops to survive. Finally, competition from TNCs has led co‐ops to shift resources away from democratic decision making and toward financial bottom lines. These findings paint a complex picture of workplace democracy's potential and limits as a response to the sharing economy's competitive and neoliberal underbelly.
... Often worker cooperatives are formed when privately owned companies are taken over by workers (CTWs) to save their jobs (Meira 2014;Paton 1989), making their survival harder than that of traditional capitalist firms (Kandathil 2015;Bhowmik and Sarkar 2002). Yet, some of them survived the financial crises better ) and showed better resilience (Olsen 2013) and efficiency than traditional capitalist firms (Pencavel 2014). ...
This paper seeks to join studies which have drawn attention to the ethical reflexivity of
research and the research enterprise in the organizational studies field. Towards this
end, we review OB, HRM and IR studies on direct employee participation in
organizations post -1990s to examine their normative underpinnings. Using Fox's
(1966,1974) three frames - unitarist, pluralist and radical - we compare the
underpinnings within and across the chosen disciplines to bring ethical reflexivity to
studies in this area of inquiry. Implications are drawn out to take forward the quest for
more ethically reflexive employee participation research.
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... Just as the post-bureaucratic corporate team structure seemed unable to fulfill the promise its advocates envisioned, the cooperative version of worker participation also encountered challenges of its own. While the often-cited "inefficiency" of distributed decision making seems not to have actually harmed worker cooperatives' finances (Jones 1979;Olsen 2013), some have argued that democratic organizations' egalitarian aims were undermined by their "structurelessness" (Freeman [1970(Freeman [ ] 1984, by the lack of identifiable authority positions and formal policies to visibly assign or remove organizational power, and the persistence of informal power networks and operations (in contrast, Leach 2016 makes an argument in this volume for why this is not the problem it seems). Empirical studies found such organizations offered members of dominant groups more opportunity and reward by concealing their cultural capital advantages and routing power through circuits of social capital favoring privileged groups (Jackall and Crain 1984;Ferguson 1991;Sirianni 1993;Kleinman 1996;Polletta 2002). ...
Two major shifts in contemporary work organizations—“employee participation” and “diversity management”—have typically been studied in isolation from one another. Building on theoretical work by Acker (2006a,b), we ask how the interaction of these two constructs has affected the pursuit of workplace democracy at two worker cooperatives in Northern California. Using qualitative methods, we find that distinct “diversity regimes” have emerged at these establishments, substantially affecting the configurations of inequality that evolved. We distinguish two types of diversity regimes—“utilitarian” and “communitarian”—which operate either to obscure the workings of inequality or to foster attention to their presence. Our results suggest that how sociodemographic differences are managed has material consequences for the development of egalitarian structures at work.
Cet article s'inspire de la contribution fondamentale de Michael L. Cook à l'étude des coopératives agricoles, notamment son approche du cycle de vie des coopératives, afin d’aborder la question de leur longévité. Bien que la littérature ait identifié des dysfonctionnements dans leur conception organisationnelle, les données empiriques indiquent que les coopératives agricoles ont une durée de vie beaucoup plus longue que les entreprises axées vers les investisseurs (IOF), dont les coûts de propriété ne sont pas moins élevés. Cet article explique par le fait que les coopératives agricoles ont réussi à atténuer les effets négatifs des coûts de propriété élevés, en élaborant des solutions de réajustement qui ont fait leurs preuves. Enfin, l’auteur ouvre des pistes de recherche prometteuses sur l'approche par Cook du cycle de vie coopératif.
This Chapter, Economic PlanningEconomic planning in Various Settings, provides an overview of the varieties of modern economic systems in terms of ownership forms and decision-making mechanisms. Not all capitalismsCapitalismor socialismsSocialism are alike across countries and over time. It is now a cliché that really-existing economies are varying admixtures of plan-led and market-led resource allocation and distribution mechanisms. Therefore, we need to identify the factors that underlie the institutional diversity of economic systems, especially the prominent three in the twentieth century.
This thesis investigates the potential of the worker cooperative model as the basis for a sustainable mode of production. We explore the economic, social, and environmental sustainability of the worker coop enterprise form vis-à-vis the conventional capitalist firm; as well as the political-economic barriers to scale confronting sustainable worker coop development. We review the international literature on worker coop development, noting that questions of social and environmental sustainability are relatively underresearched, when compared with the extensive literature on the economic sustainability of worker coops. Furthermore, the relationship between worker coop development initiatives and macro-level political-economic transformation is also relatively understudied. The gaps in the literature call for a greater consideration of the social relations established both within worker coops, and between worker coops and the wider community. A qualitative case study of the worker coop development experience in Ireland during the neoliberal era is carried out on this basis. Our methodological approach encourages a dialogue between the international literature on worker coop development and our case study results, as mediated through a Marxist political economy lens. We find evidence to support the contention that, in contradistinction to the capitalist firm, worker coops have at least the potential to institute sustainable development. But this ultimately requires the establishment of democratic planning mechanisms between, as well as within, individual worker coops. In terms of the worker coop movement reaching scale, while the economic policy literature emphasises the importance of “getting the (legal, technical, and financial) institutions right”, and the political economy literature emphasises the primacy of the political struggle over state power in this regard, we find that neither branch places sufficient emphasis on the political-cultural movement required to carry through any such transformation. This insight places grassroots worker cooperatives as counter-cultural institutions, and, hence, the primary instigators of cooperative political-economic change.
Purpose
The purpose of this paper is to give an updated overview of the research on employee ownership. What does the scientific literature reveal about advantages and disadvantages? What can be learned from different models used in Italy, France, Mondragon (Spain), UK and US with many employee-owned firms in contrast to Denmark.
Design/methodology/approach
A structured review of the literature on employee. The paper identifies different mechanisms leading to effects on productivity, job stability, distribution, investment etc., and reviews the empirical evidence. The main barriers and drivers are identified and different models for employee ownership in Italy, France, Mondragon (Spain), UK and US are reviewed to identify potential models for a country like Denmark with few employee-owned firms.
Findings
The article gives an overview over the theoretical predictions and the main empirical evidence of the effects of employee ownership. The pros are greater employee identification with the firm and increased productivity reinforced by increased participation. Employee-owned firms have more equal distribution of wages and more stable employment, and they have greater mutual control between employees and fewer middle managers. The motivation effects may be smaller for large firms and lack of capital may lead to lower levels of investments and capital per employee.
Originality/value
Comprehensive and updated literature review on the effects and successful formats of employee ownership to identify models for implementation in countries with few employee-owned firms.
Purpose
Various theories predict that firm buyouts survive longer than newly created firms. The study aims to know whether it is the case for worker-owned firms (WOFs), i.e. firms owned and controlled mostly by their workers.
Design/methodology/approach
The author conducted a comparative survival analysis of French WOFs distinguished by their entry mode (i.e. newly created, worker buyouts (WBOs) of sound conventional firms, WBOs of conventional firms in difficulty or WBOs of non-profit organizations).
Findings
The hazard of exit is 32% lower for WBOs of sound conventional firms than newly created WOFs, 18% for WBOs of conventional firms in difficulty and 64% for WBOs of non-profit organizations. The current study confirms that WBOs, even of conventional firms in difficulty, have on average a survival advantage over newly created WOFs. Surprisingly, the author also shows that this survival advantage is similar across sectors with different knowledge intensity but is lower in high capital-intensive sectors than in low capital-intensive ones.
Research limitations/implications
Endogeneity issues limit the scope of the results and should be tackled in future research. Overall, these findings show that WOFs are composed of groups with different survival likelihoods that are obscured if one only looks at the aggregate population.
Practical implications
With caution, support agencies could foster WBOs of firms in difficulty and of non-profit organizations as viable forms of entrepreneurship.
Originality/value
The current study offers the first survival analysis distinguishing four modes of entry among WOFs.
Worker cooperatives have regularly been seen by workers as an institutional choice during hard times. When workers face massive unemployment with few alternatives for work, they have often adopted cooperative solutions, either by purchasing workplaces or by creating alternative firms. In emerging economies like India where the role of the state in economic life is diminishing and privatization has become the preferred route, cooperative enterprises are ideally placed to provide sustainable employment for large numbers of people, even though they are not on a level playing field. One of the most celebrated cases of success of worker cooperatives in India in the recent past, is the Transport Cooperative Society (TCS), Koppa, which throws open a new area of inquiry in industrial relations. Established in March 1991, with the sole aim of providing livelihoods to the suspended employees of a private transport unit, TCS has withstood many challenges to carve out a niche among cooperatives in India. Its challenges are not over yet, and innovative strategies are called for to hold on to its place in the market. But the collective strength of the workforce and their desire to stand together to save their jobs and protect their families, has not only made this cooperative grow into an enterprise with a fleet of 70 buses and more than 244 employees, but due to its competitive strength the private transport house that once used to exploit them, has closed its operations. Apart from highlighting its genesis and operational success, this chapter also throws light on the current difficulties faced by TCS, and the strategies thought out to overcome those difficulties.
This chapter maps existing patterns of broad-based worker ownership and control in contemporary advanced capitalism and considers future possibilities for expanding democracy within firms. Section one discusses worker ownership and control arrangements in relation to different theories of the firm and shows how these arrangements map onto different national systems. Section two compares Germany, which is characterized by worker control without ownership, and the United States, which is marked by worker ownership without control. Section three explores three pathways through which broad-based worker ownership and control might be deepened and more strongly coupled in the future.
Shared entrepreneurship (SE) is becoming recognized as an organizational model that can succeed in a rapidly changing global marketplace where the hierarchical command and control model cannot.1 Hierarchical command and control stifles innovation and often fails to reward those who are responsible for an innovation.2 Innovation, whether product, process, or organizational, is the driver of success. This has always been true, but it is more critical today than ever before because of rapidly changing technological advances and consumer preferences. The academic evidence is sketchy because shared entrepreneurship is an emerging and growing practice although a limited number of organizations have been using it for 50 or more years. Those that do practice shared entrepreneurship appear to have a better chance of survival than those that don’t.3
Traditional command and control organizations have often displayed an inability to adapt to rapidly changing technological and global forces. In contrast, the authors have studied a number of companies that practice innovative organization-wide entrepreneurial approaches and are consequently more responsive and capable of renewal. Some of these are high technology companies and some aren’t. Some are multinational and some aren’t. What sets these firms apart are their unique organizational processes. No one company does it the same as any other. Yet underlying all of them is an overall approach that we refer to as Shared Entrepreneurship which involves an empowering, ethical, dynamic and freedom-based process of collaborative innovation. In this article, some primary principles we have discovered in studying these exemplary organizations will be examined, drawing on over 25 years of first-hand experience. In addition, we explore how these principles systematically work together to produce long-term results.
Historical research identified only 595 producers' cooperatives in the United States between 1835 and 1935. Given the attention the cooperative movement received during that period, we are led to ask why so few were actually created. Our answer to this question focuses on the development of monopoly capitalism and the mobilization of political and economic resources. Political ideals expressed in populist and trade union movements provided some resources for cooperation, but these resources were not sufficient to promote cooperation over the emerging individualistic incentives of monopoly capitalism.
The paper explores the pattern of early closure risks for worker cooperatives, whether this pattern involves a “liability of newness” or a “liability of adolescence” and whether it applies identically to coops created from scratch, to rescues of failing firms and to conversions from sound conventional businesses to the cooperative form. Non-parametric hazard curves are estimated using data on the 2,740 worker cooperatives created in France in 1977–1993, 1,660 of which exited during the period. Comparisons are drawn with conventional French firms whenever data for the same cohorts are available.
The authors are grateful to the French worker cooperatives federation, Confédération Générale des SCOP (CG-SCOP) for communicating the data on cooperatives and to Jean-Marie Collache and Alain Schlecht for transferring and documenting the data; and to Aurélie Charles for her excellent assistance in mounting one of the data sets. Participants in an ERMES seminar, in the IAFEP Conferences at Halifax (Canada) and Mondragon (Spain) in the European Productivity Conference in Espoo (Finland) in the Shared Capitalism session of the Academy of Management meetings at Anaheim (CA, USA) and in the ICA Research Conference at Riva del Garda (Italy) provided helpful comments on earlier versions of this work. Parts of this research were carried out while Pérotin was visiting ERMES and while Gago was visiting Leeds with funding from the Spanish government's José Castillejo Program. The mounting of one of the data sets was funded by a seedcorn grant from Leeds University Business School.
Research on employee ownership has focused on questions of productivity, profitability, and employee attitudes and behavior, while there has been little attention to the most basic measure of performance: survival of the company. This study uses data on all U.S. public companies as of 1988, following them through 2001 to examine how employee ownership is related to survival. Estimation using Weibull survival models shows that companies with employee ownership stakes of 5% or more were only 76% as likely as firms without employee ownership to disappear in this period, compared both to all other public companies and to a closely matched sample without employee ownership. While employee ownership is associated with higher productivity, the greater survival rate of these companies is not explained by higher productivity, financial strength, or compensation flexibility. Rather, the higher survival is linked to their greater employment stability, suggesting that employee ownership companies may provide greater employment security as part of an effort to build a more cooperative culture, which can increase employee commitment, training, and willingness to make adjustments when economic difficulties occur. These results indicate that employee ownership may have an important role to play in increasing job and income security, and decreasing levels of unemployment. Given the fundamental importance of these issues for economic well being, further research on the role of employee ownership would be especially valuable.
We consider two reasons why firms should be owned and run democratically by their workers. The first concerns accountability : Because the employment relationship involves the exercise of power, its governance should on democratic grounds be accountable to those most directly affected. The second concerns efficiency : The democratic firm uses a lower level of inputs per unit of output than the analogous capitalist firm.
The population of worker-owned firms is likely to grow countercyclically: in contrast with capitalist firms, many worker-owned firms are born during recessions, frequently out of capitalist firms, and are transformed into capitalist firms during economic booms. There exists an offsetting tendency as worker-owned firms are formed during periods of sustained increase in the standard of living and are dissolved during economic decline. These are some of the conclusions of a theoretical analysis of the obstacles to the formation and relative efficiency attributes of worker-owned and capitalist firms carried out in a dynamic framework emphasizing the influence of changes in the environment on organizational life cycles.
The paper analyzes the available quantitative information on worker-owned and capitalist firms in a few industrialized countries in an attempt to draw a comparative profile of their respective sectors. The population of worker-owned firms is found to be heterogeneous, changing over time, and significantly different from the population of capitalist firms. Worker-owned firms are smaller, concentrate in a few industries, and since the mid 1970s have higher birth rates and lower demise rates than capitalist firms. These findings are interpreted with the aid of a theoretical framework and in a broad historical context.
This paper tests a number of hypotheses about the failure rates of worker cooperatives created in Atlantic Canada between 1940 and 1987. The event-history analysis shows that failure rates vary significantly by organizational age, sectoral location, and period of organizational founding, reflecting the effects of the business cycle and organizational population dynamics. In contrast to most conventional business organizations, worker cooperatives are not likely to fail during their early years of existence, but are most vulnerable in their fifth year.
Is it a viable, efficient, and stable organizational form for the equity of an enterprise to be all or substantially owned by employees? The question is part of a long debate about the nature of capitalism and the way in which capitalism distributes the economic gains from production. In this paper, we take on a seemingly very simple set of empirical questions that we hope will shed light on whether employee ownership of firms "works" in some sense. We do this by examining the actual track record of the 27 publicly-traded firms that we were able to identify for which approximately 20 percent or more of their stock was held by or for employees in 1983, and compared the experience of these firms over time (through the end of 1997) to that of a control sample of 45 firms that were similar in size and in similar industries as of 1983. Our results suggest that, far from being an unstable form, or a form used primarily for transitions, the ownership of a substantial block of shares by employees appears to be a relatively stable arrangement. Indeed, it may be an arrangement that "stabilizes" the firm itself, by making it less likely that the firm will be acquired, taken private, or thrust into bankruptcy. The form may also be associated with more stable employment levels. And it appears to achieve this without cost in terms of productivity or financial performance, and may, in fact, enhance performance.
Most large firms are controlled by shareholders, who choose the board of directors and can replace the firm’s management. In rare instances, however, control over the firm rests with the workforce. Many explanations for the rarity of workers’ control have been offered, but there have been few attempts to assess these hypotheses in a systematic way. This book draws upon economic theory, statistical evidence, and case studies to frame an explanation. The fundamental idea is that labor is inalienable, while capital can be freely transferred from one person to another. This implies that worker-controlled firms typically face financing problems, encounter collective choice dilemmas, and have difficulty creating markets for control positions within the firm. Together these factors can account for much of what is known about the incidence, behavior, and design of worker-controlled firms. A policy proposal to encourage employee buyouts is developed in the concluding chapter.
Under plausible conditions, in a market economy with both democratic and capitalist firms, credit market imperfections imply that the fraction of workers in democratic firms is an increasing function of the share of worker wealth. Our analysis addresses two agency problems that all firms must solve: eliciting effort from a team of workers and choosing the appropriate level of risk, in a situation where neither effort nor risk is contractually specified. The democratic firm enjoys a relative advantage in dealing with the agency problems surrounding labor, while the capitalist firm has a relative advantage in dealing with agency problems involving risk-bearing.
ALAN THOMAS AND CHRIS Cornforth are with the Co-operatives Research Unit at the Open University, England. There has been a good deal of theoretical debate and general speculation about the performance of worker co-operatives. However, there has been a shortage of good empirical work has been restricted to case studies or surveys of producer co-operatives formed during the early years of the century in Britain. This paper helps to rectify that situation. It draws upon a complete database of all worker co-operatives formed between 1946-86 in the UK to detail their spread and distribution, and goes on to analyse the survival rates of worker co-operatives, and briefly, their growth rates. Contrary to much of the speculation it concludes that co-operatives have similar survival rates and patterns of growth to those of other small businesses. However, co-operatives tend to be concentrated in certain sub-sectors and their survival rates also vary between sectors, tending to confirm those writers who suggest that despite good performance once set up, co-operatives will tend to have a limited role in the economy.
Though it is routinely posited that organizations with different property rights will not exhibit the same responses to changes in their economic environment, compelling evidence of such behavior is difficult to find. The authors collected observations on two types of firms--conventional proprietorships and worker-owned cooperatives--operating in the same industry, in the same location, and at the same period of time. They compare the firms' reactions to changes in their input and output prices and ask whether their reactions are consistent with orthodox models of profit and dividend maximization. Copyright 1994 by University of Chicago Press.
Using meta-analytic techniques, the author synthesizes the results of 43 published studies to investigate the effects on productivity of various forms of worker participation: worker participation in decision making; mandated codetermination; profit sharing; worker ownership (employee stock ownership or individual worker ownership of the firm's assets); and collective ownership of assets (workers' collective ownership of reserves over which they have no individual claim). He finds that codetermination laws are negatively associated with productivity, but profit sharing, worker ownership, and worker participation in decision making are all positively associated with productivity. All the observed correlations are stronger among labor-managed firms (firms owned and controlled by workers) than among participatory capitalist firms (firms adopting one or more participation schemes involving employees, such as ESOPs or quality circles). (Abstract courtesy JSTOR.)
A fundamental question for economics is why large firms in market economies usually assign control rights to capital suppliers rather than labor suppliers. A diverse collection of answers can be found in the literature. But unfortunately little theoretical consensus has emerged, and few attempts have been made to resolve this issue through systematic empirical investigation. This paper reviews a number of different hypotheses clustering around work incentives, the financing of firms, and collective choice. We identify the strengths and weaknesses of each approach, filling in theoretical gaps where necessary, and conclude with some suggestions for empirical research.
- Jackall R.