Article

The relative survival of worker cooperatives and barriers to their creation

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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.

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... 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). ...
Article
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.
... 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. ...
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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.
... 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). ...
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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 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. ...
... 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. ...
Article
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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.
... 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). ...
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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.
... 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). ...
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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. Click here for full text: http://rdcu.be/GbIz
... 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). ...
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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.
... 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). ...
... (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). ...
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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.
... (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). ...
Article
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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.
... 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. ...
Article
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.
... 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). ...
Article
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.
... 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). ...
Article
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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.
Article
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.
Chapter
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.
Chapter
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.
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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.
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