Academic journal article The American Journal of Economics and Sociology

Worker Cooperatives and the Business Cycle: Are Cooperatives the Answer to Unemployment?

Academic journal article The American Journal of Economics and Sociology

Worker Cooperatives and the Business Cycle: Are Cooperatives the Answer to Unemployment?

Article excerpt

I

Introduction

THE ARGUMENT that worker cooperatives can make a useful contribution to social and economic development is as old as the history of the cooperative form of organization. More recently, some observers have gone as far as to suggest that cooperatives are the cure-all for social and economic problems, that "cooperatives are flexible enough to both carve out niches in less attractive industries and exploit opportunities in more attractive industries" (Canada Consulting Group, 1986: 13). It has also been said that the "workers co-operative option is an attractive third option to the other (private and public ownership) alternatives in that the indissolubility of cooperative assets provides for an economic accountability to community expectations for stable employment" (Government of Newfoundland and Labrador, n.d.: 12). Similar voices are heard in Western Europe, where in recent years many governments have initiated research reports and conferences on the potential of cooperatives, echoing the popular assertion that cooperatives "can play a vital role in overcoming the effects of economic recession" (ILO, 1990: 59).

The objective of this paper is to guard against unreflected optimism. Worker cooperatives are not always innovative and flexible; they are generally small, frequently employ only part-time and volunteer workers, and they often require ongoing technical assistance. Because newly-founded cooperatives may displace existing businesses, their contribution to job growth in local markets may be insignificant. Also, there is little previous systematic empirical evidence supporting the assumption that cooperatives plays a counter-cyclical role by absorbing unemployed or displaced workers during times of economic stress. In this paper, new data are offered on the performance of cooperatives, as measured by founding and failure rates in the complete population of worker cooperatives in Maritime Canada from 1900 to 1987. The analysis suggests that cooperatives were founded and survived independently of changes in general economic conditions.

II

Previous Research and Theoretical Framework

ORGANIZATION THEORISTS and those familiar with the cooperative movement have tended to argue that the organizational form of worker cooperatives, based on value-rationality, equality, and workplace democracy (Rothschild-Whitt, 1976), is particularly suitable to employment creation and maintenance. Indeed, the main objective of worker cooperatives, in contrast to that of other forms of cooperatives (credit unions, consumer cooperatives, etc.), is to create employment and retain control over labor power (Aldrich and Stern, 1983). Levin (1984: 21), for example, suggested that "the organizational behavior of producer cooperatives tends to create more jobs per unit of output and to require less capital for the creation of each job than do the underlying dynamics of capitalist firms." It is thought that worker cooperatives "can create jobs more cheaply than capitalist firms by mobilizing workers' effort, wage flexibility and perhaps even their savings" (Estrin, 1985: 367).

One of the features of worker cooperatives is to eliminate the conflict of interest between worker and capital owner which is hypothesized to alleviate asymmetries of information, opportunistic behavior, and structural organizational inflexibilities. This is expected to confer advantages upon cooperatives relative to capitalist firms, especially under adverse economic conditions when employment opportunities are scarce and income levels are falling (Ben-Ner, 1987).

Another feature of worker cooperatives is that labor is employed primarily for its use value, and the membership is motivated by purposive and solidarity incentives, in contrast to the "profit nexus" and material incentives found in the typical conventional capitalist organization (Aldrich and Stern, 1983). The logic of the cooperative "market" is to absorb redundant or dislocated labor and to offer job security even under adverse economic conditions (Polanyi, 1944). …

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