Co-operatives are the key for an economy for the many

In the 2017 general election, The Labour Party put forward a vision for a different Britain. Corbyn’s vision of classic social democracy after years of Neo-Liberal governance has been extremely well received. When polled on policies alone the vast majority of Brits support the Labour Party’s vision.

However, it relies on using the state to bend corporations into a shape that can be used to help the people. Instead of looking to make corporations cuddly, we should look to replace them with a socialist alternative. The progressive movement should put its faith in co-operatives, and work to encourage their growth.

In the age of Neo-Liberalism on both sides of the Atlantic, left-wing parties gave up on helping those who needed them and instead angled themselves as the lesser of two evils. In the US this resulted in a corrupt corporate Democratic Party, and in the UK it was Blair and New Labour. With the defeat of state socialism in the Cold War and the seeming triumph of markets, the left seemed to run out of ideas. They certainly ran out of bold ones. Co-operatives should be there next bold idea.

We’re all aware of the problems caused by corporations. Allowing economic power to be in the hands of so few men has caused poverty, war, and greed to spread among society. However, we should not underestimate the power of the markets either. The solution therefore would seem to be a market system, where workers have democratic control of their companies and their products.

Co-operatives are simply companies run democratically by the workers or members. Workers elect their board of directors, instead of it being appointed by shareholders, who manage the company. The profit made by the company is kept by the workers.

Co-operatives should replace corporations, not just because of the problems corporate power causes, but also due to the fact they are a more efficient way of doing business. The advantages to the workers and the nation’s economy as a whole are truly vast.

Research done by Leeds University Business School on labour-managed firms concluded that giving workers direct stake creates a more efficient business model. The study concluded stating ‘worker cooperatives are more productive than conventional businesses, with staff working ‘better and smarter’ and production organized more efficiently.’

The superior efficiency of co-operatives is most easily seen by looking at the Employee Ownership Index (EOI). The EOI compares the share price of worker-managed companies with those on the FTSE companies. Since 1992, the worker-owned companies have outperformed corporations by an average of 10% a year.

As well as being more efficient, they are also more resilient than corporations, having a much higher survival rate than corporations. 10% of co-ops will fail in the first year. In comparison, 70% of corporations will fail. After 5 years in business, 90% of co-ops are still in operation, in comparison to 5% of businesses. Studies show that co-operatives are a far more sustainable way of doing business.

As well as being good for entrepreneurs, they are also good for the wider economy in a crisis. During a recession, the economy entering a decline is the main issue. As the economy slows businesses lay people off, which cuts out consumers, which cuts spending, which means more businesses lay people off. However in a recession, co-operatives do not ship jobs like corporations. 3.5 million people were made unemployed in Spain in the recession that followed the 2008 financial crisis. In Basque region, the largest co-operative in the world, Mondragon, fired zero workers as a result of the recession. They simply moved their workers around and lowered their profits. Studies in Uruguay have shown similar resilience against recessions. Co-ops are more willing to adjust wages rather than fire workers, and this allows them to keep workers on. This isn’t just good for the workers at co-ops, it’s good for the businesses where the workers buy things. It is the ideal business model in a recession. In a nation with a large co-operative sector, recessions may be much shallower and much shorter due to their ability to retain workers.

It is also worth noting that co-ops also means jobs don’t disappear abroad. In the age of globalisation, many people are worried about outsourcing. Jobs will not flee overseas if employees control the board. One could argue that co-operatives are a real answer to the wave of anti-globalist feelings that have swept western society. 

Another big advantage with co-operatives is they don’t avoid tax. Unlike corporations, who choose to hide their profits offshore, co-operatives are very good at paying the proper tax rate. In Germany, for every €1 billion in assets, co-operative banks pay €2.5 million in taxes. This is compared to big private banks who only pay €0.5 million.

Co-operatives generally have a much fairer pay system. In the average FTSE company, the pay scale ratio between the top and the bottom is 1:129. At Mondragon it is only as high as 1:8. This creates motivation to work hard and get promoted. It also means that unlike in some major corporations, employees are not left on food stamps whilst directors make millions. The average income per worker at a co-op, when compared to an equivalent corporation, is higher.

For a socialist, the true appeal of co-operatives is worker liberation. Finally the masses having a say in how our economy is run. In the current capitalist system, the fact that 1% of the population owns 2/3rds of all the shares creates a rigged game. It allows small numbers of people to control not only economics but politics as well, creating a system where they remain rich at the cost of the rest of us. Democratic controls at work will help the majority of people become better off, and will take back control not just of our jobs, but our society as a whole.

In small groups around the world, this is already occurring. The Basque country, Cleveland, and at home in Preston, have all used co-operatives to enhance their economy. Co-operatives brought £200 million to the Preston economy when their council established schemes to encourage their growth. It’s time we brought encouraging co-operatives to the forefront of the progressive agenda.

These ideas are popular. 76% of the public believe large employers should be required to share profits with staff. All in all, we have a business model that is more efficient, more sustainable, more resilient, pay more taxes, pays its workers more, and gives citizens real control of the economy.

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Iwan Doherty

Editor in Chief and Founder of The People’s News. Democratic Socialist

Iwan Doherty has 50 posts and counting. See all posts by Iwan Doherty

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