IRL3200 Dissertation

Do Cooperatives as a Business Model form a Plausible Alternative to Mainstream Capitalism. What is the Role of the International

Political Economy?

Thomas Winters

10347611

Dissertation Supervisor:

Patrick Holden

13,194 words

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Contents

Abstract - 4

Introduction - 5

Chapter 1 - 8

Chapter 2 - 14

Chapter 3 - 20

Chapter 4 - 28

Conclusion - 36

Bibliography - 39

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Abstract

The purpose of this dissertation is to provide a potential base to reforming mainstream

capitalism based around the dominance of worker cooperatives. This work will aim to

explain the plausibility of an economic model that enhances the free market system

whilst extending the arm of democracy to working life. This argument concludes that the

implementation of a ‘cooperativist’ model can be achieved through national political

structures and to some extent through international structures, whilst the economic

consequences of implementation imply positive effects to employment, technological

progression, worker income and price stability.

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Introduction

The recent political and economic context of the Northern Atlantic economies following

the 2008 crisis has began to unleash a variety of new ideas and alternatives to the current

mainstream capitalist system. Although this dissertation doesn’t aim to provide solutions

or hindsight alternatives that could had prevented the crisis, it does in fact raise important

questions over elements of the capitalist system which have been widely overlooked by

mainstream academia. The ownership and management of firms has often been viewed as

a minor microeconomic component that has little to offer for wider economics, politics or

indeed international relations. This research claims to prove otherwise. Cooperatives, or

more precisely, worker cooperatives, offer an alternative to investor or state ownership

and management, and instead offers an alternative that gives the workers of firms the

opportunity to determine their own economic future. This work will also explain how

consumer cooperatives do not share the distinct comparative advantages held by worker

cooperatives, in response to the recent turmoil at the Co-operative Group.

This dissertation includes four chapters that aim to provide a ‘cooperativist’ approach to

political economy and later into international political economy (IPE). As stated in the

methodological analysis, this research will provide mostly interpretivist and qualitative

research into what is essentially a highly theoretical topic area with limited empirical

examples. However, substantial literature on cooperatives and their experiences within a

capitalist economy exists with some theory beginning to look ahead to cooperatives as

the main mode of production and distribution. A variety of theoretical resources will be

used, from the early cooperativist theory of Dr William King (1828) to the more

contemporary works of those such as Mellor et al (1982) and Karlyle (2005). The

economic theory behind cooperatives will also be analysed, with major contributions

from those such as Smith (1994), Pencavel et al (2006) and Burdín and Dean (2009) for

example.

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The first chapter will provide working definitions of cooperatives, corporations,

capitalism and will give meaning to the word cooperativism. The primary purpose of this

chapter is to understand the relationship between a capitalist model and what can be

considered a cooperativist model. The second chapter provides a more historical

approach to the successes and experiences of cooperatives and how they have developed

in changing political-economic circumstances. The history of the theory is also

imperative, as a cooperativist economy can only offer a plausible alternative if

cooperatives can function and sustain themselves as efficiently as conventional corporate

firms. The histories of consumer and worker cooperatives will be examined separately, as

both have developed their own particular circumstances. The theoretical and often

ideological side of cooperativist thought must also be considered, as many theorists such

as Marx (1894) and Potter (1904) apply the use of worker cooperatives to potentially

offer wider economic models.

The third chapter will evaluate the likelihood of implementing a cooperativist economy

from both a political and economic perspective on a national level. To begin with, an

evaluation of the pressures that affect government policy as well as public consciousness

will be explored, as this is a pivotal part of implementation. Those representing the

holders of capital and those representing labour will be assumed the most pertinent.

Media reception and wider discourse will also be examined as this will most likely affect

public consciousness. Once the top-down and bottom-up pressures of implementation

have been understood, the likely policies government could enact to promote

cooperativisation will be explored. The economic results of implementation requires a

more intuitively based approach, as all the resulting consequences and economic

pressures cannot be easily derived. Despite this, the aggregated affect on employment,

prices and wages, and technological progression can to much extent be derived and the

effects of which can then be taken into chapter 4. The last chapter will take the

assumptions made in chapter 3 and apply them to the international level. This will be the

first time cooperativist thought will be applied to the contemporary international arena,

entering the field of IPE. The pressures and relations between nation-states and

multinational organisations, as well non-governmental actors will first be examined. The

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role of multinational corporations and financial institutions also play an important role

here. The likelihood of achieving an international agreement or consensus based on

cooperativist principles will be the main objective to work towards in this section. In

terms of economics, the global affects of implementing cooperativist ideals between

multiple nation-states will be explored. Similarly to chapter 3, although all the aspects

cannot be derived, many of the effects to much extent can. The global effects on

investment will be imperative, as well the aggregated effects on prices and wages. The

differentiation between developed and developing countries will be required, as the

effects on export-dependent countries are likely to differ. The dissertation will then

conclude by summing up the research results and answering the dissertation question

with a conclusive and direct response.

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Chapter 1

This first chapter will focus on the main and key concepts of the dissertation. Unlike

other terms and concepts, the definition of a cooperative tends to be less controversial,

and most credible definitions are universally accepted and widely accurate in defining

this key term. According to the International Cooperative Alliance (1996) a cooperative

can be defined as “an autonomous association of persons united voluntarily to meet their

common economic, social and cultural needs and aspirations through a jointly-owned and

democratically-controlled enterprise”. The Rochdale Pioneers, who will be examined in

more depth in chapter 2, who are often considered the founders of the modern

cooperative movement, originally published 7 main principles of which any cooperative

must abide to. Below are the principles, as interpreted by Lambert (1959).

The Rochdale Principles (Lambert, 1959)

1. Democratic control2. Rules governing the accumulation and distribution of the surplus (profit) and the

treatment of the net assets: distribution of the surplus among the members in proportion to their

purchases payment of limited interest on capital sale at market prices dispersal of the net assets without profit to the members in the event of

dissolution of the society spirit of service (promotion of the members’ interests only in so far as the

latter are consistent with the general interests of the community)3. Freedom for new members to join (principle of the open door)4. Voluntary membership5. Cash purchase and sale6. Political and religious neutrality7. Education of the members8. Determination to take over the world’s economic and social system and to

reorganise it on co-operative lines (i.e. to achieve the “co-operative commonwealth”)

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Some of the principles above are already accustomed to traditional firms and

corporations, such as cash purchase and sale, whilst the last principle as interpreted by

Lambert (1959) plays a more radical political economic role, and was not included in the

original Rochdale Principles (Rochdale Pioneers Museum). Despite this, Lambert’s

(1959) last principle indicates that whilst the original principles which were focused

primarily on social and economic grounds, the principles could easily be implemented

within a political ideology. These principles above are also mainly intended for consumer

cooperatives, under a producer/worker cooperative on the other hand, the role of the

consumers would be replaced with the workforce, and member purchases would be

replaced with labour supplied. Lambert (1959) was himself, a supporter of consumer

cooperatives, and advocated the concept of ‘cooperative federalism’ (otherwise known as

secondary cooperatives), a system where individual cooperatives have shared ownership

of a wider cooperative that may supply its products (Potter, 1904). As a result Lambert’s

(1959) 8th principle was thus largely due to a more expansive nature of cooperative

thought, one which started to look beyond the more communal and isolated forms of

cooperative societies and towards a more broader and unified model. The differences

between consumer and producer/worker cooperatives will now be explained more

thoroughly.

Although the concept of a cooperative is relatively simplistic, the main two forms of

cooperatives are often confused, and both are often commonly referred to as simply a

‘cooperative’ despite the fundamental differences. These two types of cooperatives are

the consumer cooperative, and the producer/worker cooperative. A consumer cooperative

is essentially owned by its customers, who are offered a share in the firm, receive a

shared profit and have a casting vote in the firms key decisions (Mellor et al, 1988). An

example of a consumer cooperative would be the UK based Cooperative Group, made up

of subsidiaries such as the Co-op Bank and the Co-op Food for example. As it is loyal

consumers who tend to be offered a share in the cooperative, they are thus more likely to

take an interest in the firms wellbeing, especially as they wish their returns on investment

to be as high as possible. Although these types of firms are regarded as ‘cooperatives’,

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compared to a producer/worker cooperative, they are merely cooperatively organised

corporations, the reasons for this will be explained later. A producer or worker

cooperative, of which will be the main focus of the dissertation, can be defined as

“trading enterprises, owned and run by the people who work in them, who have an equal

say in what the business does, and an equitable share in the wealth created from the

products and services they provide” (The Cooperatives UK, 2012). More specifically, a

producer cooperative tends to focus on binding together individual economic agents, such

as farmers for example (Young et al, 1981). From these definitions it would appear that

the ownership of consumer cooperatives still remains within external hands, similarly to

conventional firms, whilst worker co-ops are owned by internal agents of the firm. A

prime example of a worker cooperative would be the Mondragon Corporation in Spain,

which will be the focus of a case study later on. Another example could be the John

Lewis Partnership, which is often seen as a hybrid cooperative as it doesn’t necessarily

adhere to all of the main cooperative ideals. A worker cooperative has a distinct

difference to all other forms of business models as it is the only model where internal

agents have direct ownership of their firm, where other models are owned by external

shareholders such as customers, investors, or the state.

In order to understand what type of business model dominates in a capitalist economy, it

is first important to define the term most associated with this model, the mainstream

corporation. Drucker (2008) refers to a corporation as a free enterprise that is managed

and owned by private hands who sell their products to a free and competitive market.

Although this definition is a fair interpretation, it does not further divulge into which

form of private management and ownership is preferable. Hansmann (1999) refers to

these types of enterprises as investor-owned business corporations, for the purpose of this

dissertation, these models will be referred to as conventional corporations/firms. These

types of models are often referred to as any firm whose shares are bought and sold by

private investors, primarily for profitable intentions, and whose business structure is

largely hierarchical. This helps to separate what is meant by a ‘corporation’ and a

‘cooperative’, and helps understand the key difference between a capitalist and

cooperativist economy. Assuming the cooperative principles outlined earlier, self-

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employed enterprises as well as family run businesses could also to some extent be

referred to as worker cooperatives, unless part of that business is controlled by external

actors or is managed undemocratically.

The title of this dissertation contained another key term which must be defined,

mainstream capitalism. Balaam and Veseth state that “originally, the term (capitalism)

described a political ideology that was identified with the capitalists, the owners of

capital. Today, however, it usually refers to a market-dominated system of economic

organisation based on private property and free markets” (1996: 450). From this

definition it would appear that a workers cooperative, as defined earlier, could easily

function within a capitalist economy and that an economy where worker cooperatives

make up the majority of firms, could essentially, still be defined as capitalist.

Cooperatives still function within a free-market system where property remains privately

owned. Despite this, although the ownership of firms can be considered as private

property, a workers cooperative restricts the majority ownership of firms to its workforce,

the firms internal rather than external agents. As a result, although a cooperative could

still be considered capitalist, it can only narrowly be recognised as such.

Historically, cooperatives have often been identified with socialist or Marxist ideologies,

and have been perceived to be tied with command economies, primarily for historical

reasons which will be identified in chapter 2. One element in which the capitalist model

and socialist model have in common is that, in reality the ownership and control of the

majority of firms tends to be held by a small elite. Although the socialist model in theory

emphasises a more collective model of ownership, in reality the vast majority of the

decision-making process was held by a bureaucratic elite (Balaam and Veseth, 1996).

This elite, which was often left unaccountable, was often seen as an unintended result of

the socialist model. Brown (1984) implies that Marx and Engel’s talked of economic

planning, but not of control transitioning from one de facto elite to another, but instead,

control to a wider collective of workers. The ‘command economy’ stage was only meant

to last as long as the revolutionary transition, as a means to an end rather than an end in

itself. As this transitional stage did not transpire in reality, an economic and bureaucratic

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elite did emerge, and is now commonly seen as a fundamental component of the socialist

model. In the Road to Serfdom, Hayek (1944:18) uses a quote by Alexis de Tocqueville,

stating that “Democracy extends the sphere of individual freedom, socialism restricts it.

Democracy attaches all possible value to each man; socialism makes each man a mere

agent, a mere number.” (1866:546). Hayek (1944) used this quote to discredit the

socialist command economy, yet the same logic could be applied to a worker of a modern

day corporation, many of whom could be recognised as a mere agent or a mere number.

Where democracy has been implemented vastly through the political arena, Hayek (1944)

as well as other neo-liberal economists talk very little of economic democracy and focus

on the failures of the hierarchy of political regimes rather then the hierarchy of the

modern day corporation. Although the role of the state to its citizens and the role of a

business to its workers may differ, their similarities are substantial, as both have an

interest/incentive in insuring their nation/business remains functional and successful. It is

important to assume all actors are rational and educated decision makers, in an open, fair

and inclusive form of democratic decision making. In reality this may not be the case, but

for simplicity it must be assumed that this is the case for the majority of the time. From

this stage it would seem that where a cooperative functions in a largely efficient and

democratic environment, a mainstream corporation does not, despite most modern-day

capitalist nation-states being considered economically efficient and democratic in nature.

As a result, if a firms major decisions are coordinated and enacted through the workers of

that firm, they are most likely to make the decisions which are most rational, thus

benefiting the firm and ultimately the workforce themselves. It could also be argued that

expanding economic democracy will most likely lead to further political democracy, and

may enhance it further. Ratner (2009) argues that “the politics of cooperativism

emphasize that gender relations (and other single-issue oriented problems) can be

improved through participating in cooperative social relations in cooperative institutions”

(2009:62-63). By reiterating the inclusiveness and democratic tendencies of

cooperativism, it can begin to withdraw from previous perceptions of it belonging to a

closed or commanded economic model.

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The last important term to define is the concept of the ‘cooperativist economy’. Although

there is no working definition at large, by looking at the types of business models that

predominately make up a capitalist economy (investor-corporations), a definition for a

cooperativist economy could follow in the same manner. A cooperativist economy could

thus be described as an economy where the majority of firms are considered to be

cooperative in nature, and thus adhere to the main cooperative principles described

earlier. Karlyle (2005) reaffirms this, by referring to a cooperativist economy as an

economy where cooperatives are the dominant mode of production and distribution. As

seen earlier, a capitalist economy and a cooperativist economy could be considered as

two separate entities due to the narrow yet substantial differences in terms of ownership.

One aspect that unites both models is that they are both market economies. Cohn defines

a market economy as “an economy in which the market coordinates individual choices to

determine the types of goods and services produced and sold as well as the methods of

production” (2008:397). As a result, cooperatives compete with one another in the open

market for profit, similar to conventional firms. Market economies are distinct from

planned economies, such as that of the Soviet Union and its satellite states, where the

state coordinates the production and distribution of goods and services, and where the

profit motive is excluded (Barratt Brown, 1984). In most circumstances the majority of

market-economic systems are considered capitalist in nature, and as a result the terms

‘free-market economy’ and ‘capitalism’ are often considered as one and the same. A

cooperativist economy is thus one of the rare known examples of a market-economy

which could be considered distinct from becoming another neo-capitalist or state-centric

model. Karlyle confirms this, by stating that “a cooperative economy is a market

economy, but it is not a capitalist market economy” (2009:8) Although the two models

are narrowly distinct in theory, chapters 3 and 4 will attempt to understand the

differences in reality.

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Chapter 2

The theory behind cooperatives as a business model can not to much extent be considered

a modern theory. The purpose of this chapter is to understand the historical process of

how the theory behind cooperatives has developed, and to begin to understand why no

practical model based around cooperatives has been previously developed.

The beginnings of the cooperative movement were largely in response to the industrial

revolution, a period of mass technological innovation leading to changing modes of

production and distribution, as well as a changing labour structure. In what was seen as

the birth of modern capitalism, was also a period new ideas and concepts hoping to tame

the capitalist system and an optimism to find a more labour-centric rather than capital-

centric model (Vieta, 2010). Cole (1944) implies that the early pioneers of the

cooperative movement go back well before the times of Owen and Rochdale, and in fact

can be traced back to the mid-18th century. Early cooperatives were formed during this

period mainly in response to local monopoly control of mills and bakeries, as a response

many of these societies were sabotaged and destroyed leaving little historical impact

(Cole, 1944). Due to these isolated and often experimental models failing at an early

stage, the cooperative movement in the early industrial revolution could to hardly any

extent be considered a ‘movement’. As a result, one of the first common-known pioneers

of the cooperative movement was Robert Owen, a British industrialist who is often seen

as the “Father of Cooperation” (Harrison, 1969:2) due to his radical ideas to implement

social change during a period of vast industrialisation. Owens main premise was that

giving workers a better working environment can bring them out of desperation and

increase productivity. Owens renowned social experiment was at New Lanark, a small

community where workers lived and worked together, and where social provisions such

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as education and healthcare became universal (Harrison, 1969). Although Owen was a

keen advocate of consumer cooperatives, in reality New Lanark, as well as the failed

experiment in New Harmony, USA, were little more then isolated communities where

workers both produced and sold their products to one another. Although this experiment

would go on to be more inspirational for utopian socialists such as Marx, it was seen as

an important step that led up to movements formalisation in Rochdale some years after.

Although consumer cooperatives have been functional before Rochdale, as we have seen,

many of the early experiments and commentators had been of a utopian nature, and

functioned as mere experiments. Cole states that “The Rochdale Pioneers themselves set

out originally to create, not a mere shop for mutual trading, but a Co-operative Utopia”

(1944). Although this maybe the case, The Rochdale Society of Equitable Pioneers

(RSEP) was to much extent the first successful consumers cooperative, and whose main

importance to the movement was to show that cooperatives could function successfully in

a wider society, rather than the isolated communities proposed by those such as Owen.

The reasoning behind Rochdale’s symbolism, according to Fairbairn (1994), was due to

the heavy presence of Owenites that were already established in Rochdale during this

time. The early successes of RSEP helped to manifest a greater cooperative movement.

One of the most renowned consumer cooperatives in the UK is the Co-operative Group,

formerly known as the Cooperative Wholesale Society (CWS). The Co-operative Group

itself, after various mergers, only became known as such in 2001 and is now considered

one the largest consumer cooperatives in the world. Today the group is jointly owned by

over 6 million members as well as 80 other cooperative societies (The Co-operative

Group). Despite the groups optimism towards democratic accountability, it is still

important to consider the fundamental flaws of consumer cooperatives. As discussed in

chapter 1, consumer cooperatives are still effectively owned and managed by external

actors. Mellor et al confirms this, by stating that “CWS production was owned and

managed in a similar way to private firms and several worker cooperatives were formed

during industrial disputes with the CWS” (1988:17). Due to external ownership and

management, it could be argued that consumer cooperatives are less likely to function as

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effectively as the workers, who may acquire better information on how the firm should be

managed. This democratic deficit could thus be the main source for many of the Co-

operative Groups issues over the past. The current crisis at the Co-op being a prime

example, where the Co-operative Bank in particular is currently facing a liquidity crisis

(Peston, 2013b). Such crisis resulted in the bank having to openly sell its shares on the

open market (Peston, 2013a), a grave violation of its cooperative principles. This leads

the question as to whether the Co-operative Bank would have made such decisions if it

had been a worker-owned cooperative.

The early history of worker cooperatives had taken a very different journey contrast to

the heritage of consumer cooperatives. Most of the early theory behind workers

cooperatives developed in the same period as when consumer cooperatives were being

established. Early anarchist thinkers such as Proudhon had begun to speculate as to

whether the capitalist system could be replaced without economic centralisation and

commanded economic planning. Proudhon eventually developed and advocated an

economic system known as mutualism. Mutualism to much extent shares many

characteristics with early communism, both defy the centralised state, the monopoly of

power, etc, yet whilst communism focuses on the superiority of the collective, mutualism

focuses on the reliance of the individual (Swartz, 1927). Mutualism maintains the

assumption that only through voluntary actions can the individual achieve true liberty,

whilst worker-owned cooperatives could act as a means to achieve this. Carson (2007)

builds on this idea by reaffirming the desire for a free market system, and that a

reformation based on worker and consumer cooperatives could help the state to ‘whither

away’ into a new anarchist phase. Mutualism is unique, as it remains the first economic

model to advocate the use of worker cooperatives, yet despite this a number of issues

persist. First is the assumption that humanity can function without higher centralised

institutions to provide public welfare and security. Mutualism also discourages the use of

political means to meet its ideological goals, Carson states that “Many anarchists oppose

in principle such use of the political process for anarchist ends” (2007:361). As

mutualism also rejects the notion of ‘money’, i.e. wealth derived from an instrument with

little practical or tangible value, it would seem unrealistic to store wealth using any other

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instrument that could easily function within the current international economy. As a

result it would appear that many of the arguments against the Mutualist model are also

apparent in the arguments against anarchism in general, as well as many elements of

communism. Mutualisms use of cooperatives for more radical ends does offer an insight

into how they might function in a system of which they dominate, yet the context of

which they are used, and the greater ends anarchists wish to achieve, render this model

unrealistic and somewhat utopian.

Marx’s perspective of worker cooperatives differed substantially from anarchist theorists.

Originally, Marx had viewed workers cooperatives in a positive light, stating “the co-

operative factories of the labourers themselves represent within the old form the first

sprouts of the new … they show how a new mode of production naturally grows out of an

old one, when the development of the material forces of production and of the

corresponding forms of social production have reached a particular stage” (Marx,

1894:305). Marx (1894) goes on to imply that co-operatives will lead to a transition that

has the potential to extend to a national level, similarly to the transition from privately

owned capitalist enterprises to the joint-stock enterprises that remain most common

today. Despite Marx’s initial optimism, Jossa (2005) claims that Marx had lost

confidence in the cooperative movement, mainly due to the assumption that the

cooperativist model was a bourgeois or conservative form of socialism, that it retained an

anarchical free market system, and possibly due to the failures of many worker

cooperatives at the time. For Marx, worker cooperatives provided an evolutionary stage

between capitalism and socialism, a stage which was for Marx, pessimistic at best,

largely due to the very nature of capitalism to begin with (Jossa, 2005). As a result,

although Marx had envisioned the possibility of a cooperativist political economy, in the

wider context Marx had expressed the necessity for revolutionary and wide systemic

change over an evolutionary and reformist agenda. Potter (1904) also critiques worker

cooperatives, implying that workers essentially become their own capitalists, and that

such organisations divide communities into entities which compete and conflict with one-

an-other. Potter goes on to state that “an industrial organisation which substitutes for one

profit-maker many profit-makers, is not a step forward in the moralisation of trade”

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(1904:155). Although Potter favoured consumer cooperatives, as well as being renowned

for excelling the cooperative movement in Britain, Mellor et al (1988) states that Potter

would go on to celebrate state socialism and the central planning model of the Soviet

Union.

Untimely, it was the rise of state socialism that left most cooperativist theory disregarded

until the 1980’s. State ownership was the only mainstream alternative considered from

the period of the rise of the Soviet Union to its eventual demise (Balaam and Veseth,

1996). In fact, most contemporary literature on workers cooperatives, and their potential

to replace investor or state ownership, arose during the 1980’s. In increase in interest

towards this potential may had been founded by the increasing awareness of

contradictions in the state socialist model. Despite the substantial interest and subsequent

literature, no direct political-economic model was ever developed, possibly due to the

apparent successes of the neo-liberal/Washington consensus that thrived at the time

(Woods, 2011). After the 2008 financial crisis more interest in the theory had grown,

with some preliminary interest in developing a more unified model, which will be

analysed in the succeeding chapter. Such interest often focused towards the historical

countercyclical successes of firms such as the Mondragon Corporation.

As seen so far, the history behind consumer cooperatives has evolved from a radical

opposition towards industrialisation into a more moderate element within today’s

essentially capitalist political economy. Worker cooperatives on the other hand, have

been torn between idealist and often utopian theorists who either endorse or reject worker

cooperatives as a means to establish a more communal and arguably isolationist form of

political economy. The Mondragon Corporation offers an insight into how a workers

cooperative can function within a capitalist economy without the idealist and utopian

intensions of those of the past. Mondragon cooperatives were established with the

founding of the ULGOR workers cooperative in the Basque region of Spain in 1956

(Whyte and Blasi, 1982), and today has evolved into a greater entity encompassing 110

individual cooperatives, 147 subsidiaries as well as many other organisations and

societies (Mondragon). Mondragon is a federation of worker cooperatives, in effect, a

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cooperative made up of cooperatives, similar to the beliefs of Lambert (1959) discussed

in chapter 1, but in this case the members are also the workers of cooperatives inside the

federation, thus remaining internal rather than external actors. The organisation as a

whole specialises primarily in industrial goods, with individual cooperatives producing

different products such as kitchen appliances, building materials, auto components, etc.

Individual cooperatives within Mondragon share a similar structure, each are organised

with their own General Assembly, Governing Council and Social Council (Morrison,

1991). Advisors from outside the company may also be invited to attend, but are not

considered members and thus cannot vote in the co-ops affairs or accept dividends

(Whyte and Whyte, 1991). In order to become a member, a worker must make a capital

contribution to the firm via their own capital account, where later profits can be added, or

losses deducted (Whyte and Whyte, 1991). Capital contributions of workers, as well as

investment into new cooperatives can be provided by Mondragon’s bank, the Caja

Laboral Popular, a bank owned by its own workers as well the workers of Mondragon as

a whole (Wiener and Oakeshott, 1987), who are essentially the banks customers. This

institution offers an interesting hybrid cooperative that is ran by both its workers and its

members/customers, Whyte and Whyte (1991) state that this ‘second degree cooperative’

was an essential part of bringing Mondragon’s cooperatives together to form the

cooperative federation that exists today. The case study of Mondragon is considerably

substantive, as it provides an important step in realising the typical firm that would exist

within a cooperativist system.

In general, the history of the cooperative movement from both a consumer and worker

perspective, has shown the diversity of ideological pressures that have influenced the

cooperative movement, as well as cooperativist theory in general. From the early

experiments of the 18th and 19th centuries, to the later works of Proudhon and Marx, it

would appear that the main unifying element that has been persistent throughout the

history of the movement is the distaste towards the capitalist political economy, and the

appetite to reform or even perhaps replace it altogether. With the image of Mondragon as

the typical and preferred business model of which to proceed, it is now appropriate to

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move onto the intuition behind the plausibility of a cooperativist political economy, from

both the perspective of its implementation as well as its performance in reality.

Chapter 3

With the definitions used in chapter 1, as well as the history learned in chapter 2, it is

now possible to ask whether a cooperativist model could be applied, whether it would

function as well as mainstream capitalism, and how it would come about. This chapter

will focus on the experiences of implementation on the national level, which will then be

applied to the international level in chapter 4. To recap, we assume that a cooperativist

model is an economy made up primarily of worker cooperatives functioning in a free

market system, where government intervention remains largely limited and market forces

and pressures remain a principle economic element.

Before analysing the economic effects, it is first important to understand the political

conditions of implementing this model. A good place to begin would be to analyze the

pressures that affect government policy and public consciousness. Dahl (1982) looks at

the effects of organisations on democratic processes in particular. Assuming that

organisations such as business groups, trade unions, etc, often play a key part in the

decision making processes of government, Dahl (1982) argues that organisations with

greater resources are more likely to have greater influence. If such organisations were

substantially influential enough to distort or influence government policy, any

implementation of cooperativist policies would likely require the support from various

organisations from political parties, pressure groups, trade unions, etc. Dahl (1982) goes

on to imply that in situations where such organisations have a fixed or heavy position in

the decision making process, these organisations are more likely to push harder for their

agenda as their bargaining position is not at risk. This is an important aspect to consider

later when analysing the effects of organisations from both a bottom-up and top-down

perspective.

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Major political-economic changes have historically come with democratic mandates, the

rise of Keynesianism in the 1930/40’s promoted by figures such as Roosevelt (Barrett

Brown, 1984), the Neo-classical emergence of the 1980’s led by figures such as Thatcher

and Reagan (MacEwan, 1999), etc. Although such reforms may had been influenced

through other channels, they still never the less achieved the required consent of the

electorate. As a result it would thus be rational to evaluate as to whether a cooperativist

model could be justified via a democratic mandate and implemented through top-down

policies. Assuming an existing or new political party/coalition supports the

implementation of this model, it would first need to gain the support of the electorate, and

thus those organisations who influence the electorate. The first influences to analyse are

those representing the holders of capital and those representing labour. Those holding

capital could be described as the ‘capitalists’ as defined by Balaam and Veseth (1996)

earlier in chapter 1. As a cooperativist model would essentially redistribute the ownership

of capital from the capitalists to the workers of the firm, it would thus seem rational to

assume that such individuals would oppose this transition. Organisations representing

businesses and employers in the UK, such as the CBI for example (CBI, 2013) may

attempt to lobby political parties and attempt to influence the electorate to oppose

policies in favour of worker cooperatives. Although this is largely hypothetical,

organisations like the CBI have previously been active in other political debates, such as

the UK’s relationship and membership of the European Union for example (Pagano,

2013). Those representing the interests of labour may also oppose this. Workers taking a

greater responsibility in the decision making process of their firms, as well as taking

command of wages and working conditions, etc, could render organisations such as trade

unions obsolete (Burdín and Dean, 2009). Mellor et al (1988) reaffirms this, implying

that many British trade unionists during the 1980’s were sceptical of worker co-ops as a

means of privatising state sectors. This aside, Mellor et al (1988) goes on to state that

many worker-members of cooperatives see a positive role for unions, in offering

managerial advice, providing legal information and mediating disputes between workers.

Gaining support from unions in general, will thus largely depend on the views of their

members, and whether unions would be willing to subdue their leading role in labour

relations as a result.

21

Another major political actor to discuss is the media. Performing discourse analysis on

media responses to worker cooperatives is complex, as very little in the recent media has

been discussed on worker co-ops specifically. Although examples from newspaper

sources show that there exists an element of intrigue and curiosity towards worker

cooperatives. An article in The New York Times by Folbre (2009) emphasises the

successes of various American worker cooperatives, and implies that a lack of interest

from economists remains a considerable obstacle. An article in the Financial Times by

Dembosky (2012) and another by Brown (2014) of The Independent focuses on smaller

worker co-ops in the UK, again emphasising their successes. The only main criticism

outlined by both Folbre (2009) and Dembosky (2012) was the difficulty to borrow capital

from financial institutions, whilst Brown (2014) mentions the controversy over the Co-op

Bank and fails to distinguish between the managerial differences of consumer and worker

cooperatives. As a result it would appear that although curiosity exists over worker co-

ops, their absence from mainstream political-economic debates in the press, and from

economists and social commentators in general, it would seem that support from the

media towards a cooperativist agenda remains largely questionable. Yet if this curiosity

were to develop more substantially in future, the support for such an agenda could

potentially become more catalysed within the public consciousness.

Assuming now at this stage, that the current or perhaps new administration decides to

implement a cooperativist agenda, it is important to recognise which tools policymakers

would use in order to implement it. Karlyle states that “for a cooperative economy to

work efficiently, political reform is also necessary” (2005:8). In terms of legality, as

many Western countries and indeed many developing countries already have functioning

worker cooperatives, much of the legal framework is already in place. Mellor et al (1988)

describes the UK’s former Cooperative Development Agency which had supported

funding for early cooperatives during the 1980’s. This agency was often considered

under-funded, no preferential tax or contracting arrangements were provided, and little

desire existed for transitioning existing corporate firms (Mellor et al, 1988). Although

this agency was eventually disbanded in 1990 (Department for Employment, 1990), it

22

does provide a good historical structure to re-establish if a cooperativist economy was

sought after. Although credit for cooperatives should preferably remain in private rather

than public hands, any new agency or department could also develop tax structures that

incentivise existing corporate firms to evolve into worker cooperatives. One possible tax

instrument to use is corporate tax. By introducing a cooperative tax rate, encompassing

worker cooperatives currently banded within corporate tax rates, the government could

increase corporate rates whilst decreasing cooperative rates, thus incentivising

cooperativisation. Although corporate firms may reduce labour or increase prices as a

response, assuming easy market entry, new worker cooperatives could take advantage of

corporate firms reduced output or over-valued prices, thus cooperativising part of that

particular market. Worker ownership requirements could also be introduced, ensuring

that employees own a minimum amount of their firm, this minimum could then be

increased over time. This stage would help introduce and eventually accustom workers to

the notion of employee ownership and decision-making practises, as well as preparing

investors to eventually relinquish their ownership and managerial responsibilities to the

worker-members. Although capitalist enterprises could still exist within a cooperativist

economy, the demand for workers to work in such firms, especially compared to worker

cooperatives, would likely remain insufficient.

Assuming instead, that no new administration comes about to actively implement

cooperativist policies, it is wise to examine the grassroots, or bottom-up pressures, that

could encourage cooperativisation. Assuming trade unions decide to endorse

cooperatives, they could be used as an instrument to bargain with corporate firms for

increased ownership and managerial responsibilities for the workers. In Germany for

example, unions have a key and constitutional role in bargaining national wage levels

(Ulrich, 2002). As implied by Dahl’s (1982) argument earlier, an organisation such as

this will most likely become successful in achieving its aims. As a result, if such unions

reformed their primary objective to furthering cooperativist objectives, the bottom-up

pressure to reform conventional firms could be intensified. Although trade union

influence could be potentially beneficial, in countries were unions and other organisations

have limited influence, or are not permitted at all, a much larger social campaign must

23

exist in order to achieve change. Using elements of the media, in particular social media,

workers can begin to understand the variety of business models that exist, and begin to

question the current state of affairs. Either through unions, or social structures within the

firm, workers may begin to put pressure on the firm’s management and may begin to

lobby government to enact similar policies described in the preceding paragraph. In

reality the workers and management may negotiate a middle ground, where workers are

given limited ownership and a stake in the decision making process. A resulting

consensual arrangement may persist in a similar manner to that of Germany’s, yet

between the firm and its workers rather than the firm and the union. If this were so, the

comparative advantages of worker ownership and worker management discussed later in

this chapter, may continue and intensify the pressures that will extend worker ownership

and management further in such cases.

Now the basic political obstacles of a cooperativist economy have been considered, it is

now important to locate the various economic conditions of implementing such a model.

The best place to begin would be the aggregated affect on employment. Preferably a

cooperativist economic model should be able to retain a similar or better rate of

employment then the current system, but although employment is an important economic

factor to consider, it remains important that other factors such as price competitiveness

and efficiency are not spared at the expense of greater employment. Effects on

developing countries specifically will be explored in chapter 4. Ward (1958) originally

implied that if the market price for a good increases, unlike a conventional capitalist firm,

a co-op may not increase its labour, so that the existing workers retain a larger share of

the profits. Even though less labour would account for less output, the existing members

would still acquire greater dividends on the firms profits (Pencavel et al, 2006). Although

this may be the case in theory, Burdín and Dean (2009) state that in reality co-ops are less

likely to vote for redundancies for personal as well as economic reasons. Non-member

workers, which usually cannot exceed a certain amount compared to members, can also

be used for seasonal work (Burdín and Dean, 2009), and can be used to equal out

temporary demand for labour. It is also worthy of noting that under a free market system,

competitors will likely supplement any demand that has caused prices to rise too far,

24

reducing output or labour would thus be just as irrational in a workers cooperative as it

would be under a conventional firm. Pencavel et al goes further than this, and states that

“furthermore, employment is expected to be more responsive to transitory product market

shocks experienced by the capitalist enterprise than to those experienced by the co-op”

(2006:38). Pencavel et al (2006) implies that co-ops are more likely to alter wages and

profit distributions during adverse shocks, rather than acquitting worker-members.

Although sympathetic members may be more reluctant to let workers go, in reality, most

cooperatives such as Mondragon, will try to maximise employment to the extent where

the firm has reached optimal efficiency. As a result, Burdín and Dean argue that in

general, under adverse shocks, cooperatives reach “smooth employment levels”

(2009:524), as opposed to mainstream capitalist firms. As a result, a cooperativist model

in general may become more generous towards employment and worker retention,

especially opposed to the more volatile labour markets of capitalist economies.

As more stability in the labour market could be assumed in a cooperativist economy, the

next major factors to consider are the affect on prices and wages. The incentive for

workers to increase their personal output can be applied when assuming workers wish to

maximise their personal dividends. As worker co-ops organise their own wages, they

must achieve a balance between offering competitive prices for their goods and services,

whilst being able to provide a sufficient wage for their workers. As profits are shared

among workers rather than distributed according to investment (Mellor et al, 1988), in

theory a wider pool of the population are more likely to be awarded dividends, thus

increasing the income (and savings, if co-ops profits are retained) to all those employed

within a profitable workers cooperative. This equates to a de facto redistribution of

wealth from investors to workers. Although profits could potentially increase workers

longer term income, the effects on shorter term income, wages, must also be considered.

Pencavel et al (2006) implies that workers earnings (if profits are to be distributed) are

likely to be linked with the market conditions of the goods they produce. Where

conventional capitalist firms are more likely to reduce their employment rather than

bargain with workers for lower wages, cooperatives are more likely to alter wages in line

with the firms performance. As a result, a cooperativist economy could experience more

25

volatile wage rates, and consequentially, more risk adverse workers may wish to save

their aggregated profits to equal out any wage change that could lead to an insufficient

standard of living.

Regarding technological innovation, the methods used by conventional capitalist firms

can be equally applied to cooperative firms. Despite this, Smith and Rothbaum (2013)

talk of a technological comparative advantage that lies exclusively with worker

cooperative firms. Unlike capitalist or state enterprises, worker cooperatives hold a

unique feature where workers have a financial incentive to advance technological

innovation and reduce production costs (Smith and Rothbaum, 2013). In reality, workers

in the production line may be able to innovate new techniques or envisage better

technological components that could transcend into lower production costs or other

technical advantages over competitors. The democratic structure of worker cooperatives

will complement the willingness for workers to derive new technologies or techniques.

The question then arises, as to what would happen if such innovations would render a

large part of the workforce obsolete. Would workers vote to implement new efficient

processes or technologies that would reduce the amount of labour required? Smith (1994)

argues that, under a capitalist economy, cooperatives may have to specialise in order to

compete with capitalist firms if this problem arises. Yet in a cooperativist economy, this

problem could once again be solved via market pressures. If co-ops fail to initiate labour

saving procedures, then new competitors may enter the market that will initiate such

procedures, and take advantage of its rewards. If the co-op does choose to initiate such

procedures, assuming easy market entry, the worker-members that leave the co-op could

form a new firm in competition, or may be reallocated to different sectors of the original

co-op, as practised in Mondragon (Burridge, 2012). Another technological advantage of

worker cooperatives could be their intrinsic nature to share knowledge with other

cooperatives. Smith (1994) considers the importance of cooperative leagues, alliances or

federations that can allow smaller co-ops to achieve scale economics, to share technology

or to pool resources for greater projects. Federations such as Mondragon, which has its

own university (Whyte and Whyte, 1991), can cooperate to achieve greater technological

innovations. Smith (1994) highlights the importance of cooperation between cooperatives

26

within a capitalist economy, in a cooperativist economy however, although there lies

advantages in sharing technologies, the risk of potentially sharing technology with a more

efficient firm may pose more of a threat then an advantage. As a result, the question as to

whether co-ops would share technology with their competitors in a cooperativist

economy remains highly debatable, but if this were the case it could have major

implications for technological progression.

One distinctive feature examined throughout this chapter, is that many of the issues

surrounding the cooperativist economy can often be cured by market forces. To much

extent, the notion of competition within a market will ensure that competitive prices,

efficiency and the willingness to innovate will remain as prevalent within a cooperativist

economy, as they are currently in a mainstream capitalist economy, if not more so. In

terms of implementation, although the top-down and bottom-up approaches may seem to

provide two contrasting approaches, in reality both approaches may be necessary in order

to complement each other. Any top-down approach may require the support of existing

cooperatives, movements and social structures, whilst any bottom-up approach may need

support from central government in order to ensure existing cooperatives don’t become

unnaturally outdone by their mainstream capitalist counterparts. To conclude this chapter,

it would appear at this preliminary level, a cooperativist economy could be implemented

and function as successfully, if not more, than the current mainstream system.

27

Chapter 4

This last chapter will move the discussion from political economy to international

political economy. Similarly to the previous chapter, this chapter will analyze the

political pressures of implementing a cooperativist agenda and the likely economic

consequences as a result. It is worthy of reiterating that a cooperativist agenda is simply

the pursuit of implementing policies aimed at transitioning to an economic model

consisting primarily of worker cooperatives. As the literature on cooperativist political

economies on a national level is limited at best, the literature on its international

dimension is even scarcer. Yet despite the lack of empirical examples, the assumptions

made in chapter 3, as well other relevant materials on IPE, will render an intuitively

based outlook on this area achievable.

In order to understand how decisions are made on an international level, it is first

important to appreciate the actors that influence the main decision makers. The existing

international political and economic system, according to Aggarwal and Dupont (2011) is

made up primarily of interdependent nation-states functioning within a largely globalised

and liberalised marketplace. Although economic liberalisation has largely averted

international conflict, economic competition between states could be considered an

important aspect in understanding international processes. Nation-states can use

economic policy as a foreign policy instrument, often implemented over the domestic

affairs of a particular nation-state (Mastanduno, 2012). Existing cooperativist nation-

states may be subject to economic sanctions or coercion if other nation-states see it in

their vested interest, for example if large multinationals are required to implement worker

ownership requirements. Sanctions, embargos and investment restrictions are often

considered the main as the main policy instruments for economic statecraft (Mastanduno,

28

2012), and must be considered by cooperativist nation-states when competing

economically in the global marketplace. Other than national governments, other actors

exist in the international system that could carry considerable influence, such as

multinational corporations, intergovernmental organisations, non-governmental

organisations such as charities or other interest groups (Willetts, 2011). Such

organisations are also considered an intrinsic part of the existing international political

and economic system (Ravenhill, 2011), and whose influence is often equally weighted

against that of individual nation-states, and in some circumstances more so. Where

smaller organisations lobby government on a national level, these actors often pursue

influencing multiple governments and appropriate actors on an international level.

As in chapter 3, the owners of capital, and their subsequent representatives, can be

generally assumed to be against the notion of cooperativising capital towards their

workers. As a result, multinational corporations might thus attempt to influence

international decision makers against a cooperativist model. Falkner states that “the

business sector possess superior financial resources and strong organizational capacity …

and is well placed to exploit the privileged access it has to key governmental actors”

(2009:19). Falkner (2009) goes on to imply that although such actors do not always

achieve their goals, they do possess much greater influence compared to other non-state

actors. This is an important aspect to consider when attempting to build an agreement or

framework via international actors. Any non-state actor attempting to formulate such an

agreement, such as multinational cooperatives or cooperative societies, would need to

possess the similar qualities enjoyed by multinational corporations. Such actors are

currently inadequate in number, and may require the support of states with existing

cooperativist economies in order to gain greater influence. The role of international

finance is also important. Strange states that “a speculative market … requires

uncertainty” (1986:111), this being in respect to investment and credit markets. If this is

the case, financial markets may react negatively to the pursuit of a cooperativist agenda,

and may inflict considerable internal economic damage that such an agenda is reversed or

averted. Pulling out foreign direct investment and dumping stocks and shares as well as

sovereign currency may become the unintended consequence of attempting to shift

29

capital ownership from investors to workers. As global markets are now so intertwined

and unitarily connected (Strange 1986), the pressures of the global marketplace pose a

substantial force to be reckoned with, even with popular consent from the electorate at

home.

A top down approach from an international level, we assume, will likely require existing

cooperativist economies to share their individual experiences and requirements for future

success. The types of principles agreed upon will also largely depend on the level of

enthusiasm from other nation-states towards pursuing an international cooperativist

agenda. One basic principle would be the international recognition of worker

cooperatives as separate business entities. More specifically, existing cooperativist

economies may wish for other nation-states to recognise their economic structures and

foster links with foreign governments, cooperatives and societies to enhance rather than

isolate domestic co-ops in the international economy. Countries such as China already

have such links in place, despite adhering to a different economic model. The

International Committee for the Promotion of Chinese Industrial Cooperatives is a prime

example of enhancing cooperativist ideals through international networks and processes

(Gung Ho-ICCIC, 2012). This could be seen as the international equivalent of the UK’s

former Cooperative Development Agency discussed in chapter 3. Although such an

organisation may have little relevance in China’s economic circumstances, within

cooperativist economies the importance of international recognition and networking will

develop greatly if domestic co-ops are to integrate into the international political

economy. If larger enthusiasm exists within the international community, more

substantial principles could be agreed upon. Nation-states could agree to enact similar

proposals to those proposed in chapter 3 for the national economy, such as worker

ownership requirements or tax reform to favour worker co-ops. In reality more

substantial economic agreements of this level are likely to come through more integrated

intergovernmental organisations such as the European Union for example. Other

organisations such as the IMF use political conditionality as an instrument for economic

reform in specific nation-states (Vreeland, 2007). Reform to IMF or EU conditionality

towards a cooperativist agenda could be considered, although Vreeland (2009) argues

30

that conditionality often entails negative economic consequences as a result. Now the

basis for international reform has been considered, it is now important to consider the

likelihood of achieving an international agreement.

The 1944 United Nations Monetary and Financial Conference, also known as the Bretton

Woods Conference, was one of the first international agreements that determined the

future structure of the international political economy (Ravenhill, 2011). Although this

system eventually broke down in 1971 (Balaam and Veseth, 1996), it provides a

noteworthy example of how key norms and values can be constituted on the international

stage. It could be argued that the contemporary structure of the international political

economy is based more on a consensual basis. The Washington Consensus, as coined by

Williamson (1990), was a widely accurate account of what Western nation-states and

intergovernmental organisations recognised as the best policies for less developed

countries. The policies outlined in the consensus were mainly of a neo-liberal nature, and

promoted values such as limited state intervention, fiscal discipline and the privatisation

of nationalised industries (Williamson, 1990). Although such policies were not directly

certified compared to the agreement at Bretton Woods, many of these policies formed the

main principles and structures of the international political economy at this time. As a

result, future cooperativist economies could create a new consensus based on the same

foundations as the Washington Consensus, or perhaps even Bretton Woods if most major

economies come to a direct agreement. Whether such an agreement is possible will

remain highly dependent on the bottom-up pressures from each nation-state. The types of

intergovernmental organisations that would be used to precede a cooperativist agenda

will depend largely on the individual states that support it. More highly developed nation-

states may use organisations such as the OECD for example, as a platform for

implementation. Jackson (2013) argues that the OECD’s role is to “discuss and develop

key policy recommendations” as well as to “analyze economic and social policy and

share expertise and exchanges” (2013:2). Assuming the economic assumptions made in

chapter 3 come to fruition for national economies, this organisation could present a viable

platform for highlighting these successes. For less developed nation-states, organisations

such as the G-77 or perhaps specific regional entities could discuss policy options of a

31

cooperativist nature, similarly to the OECD’s role. If existing organisations fail to

accommodate discussion on cooperativist ideas, new organisations could be established

to do so. Previous examples such as the Council for Mutual Economic Assistance

(Comecon) for the socialist command economies during the Cold War (Barratt Brown,

1984) show how nation-states often cooperate and coordinate economically on

ideological grounds. The South American organisation ALBA, which promotes a more

diluted form of socialism, can be used as a more contemporary example (Plummer,

2013). As a result, it would appear that any international agreement or consensus based

on cooperativist values would likely require the support from existing cooperativist

economies, as well as strong bottom-up support from various other nongovernmental

organisations and societies. Yet the likelihood of achieving this alone remains largely

pessimistic in the short to medium run.

The first economic aspect to consider in terms of implementation is the effect on

international capital, yet in order to do so, it is fist imperative to recognise where worker

cooperatives acquire credit. Contemporary capitalist corporations, whether they are

national or transnational, often sell shares of their company in order to raise liquidity

which can be used for investment (Waldmann and Smith, 1999). As understood in

chapter 1, the owners of this capital invest in such firms to achieve a profit through

dividends or higher share prices that can be sold back into the stock market. In a

cooperativist economy, where the majority of firms shares can only be sold to their

workers, the role of the stock market would become heavily diminished. The

consequential debate as to how cooperatives raise capital as a result is often referred to as

an investment dilemma, yet multiple plausible alternates exist. Pencavel et al states that

“in a worker co-op, capital is borrowed from financial intermediaries or provided by the

workers who act as holders of the equity” (2006:23). Internal investment can come about

through capital contributions from new worker-members, or existing reserves which are

invested back into the cooperative. The case study of Mondragon shows that cooperative

federations can create their own financial institutions which can invest in current or new

co-ops. Despite this, in reality more extensive capital may be required from external

providers. Dickstein (1991) argues that in the current capitalist environment, banks will

32

be more hesitant to invest in co-ops due to their unique structure. Under a cooperativist

economy, the willingness for banks to invest in worker co-ops is unclear, yet a much risk

adverse option may prevail. Instead of issuing shares on an open market to acquire

liquidity, co-ops may prefer to release bonds. A bond is simply a debt obligation, where a

firm sells coupons for a certain price (the principle) which pays back interest over time

and repays the principle once the bond matures (Office of Investor Education and

Advocacy). This form of obtaining credit is already practised by firms such as John

Lewis, which offers investment/partnership bonds to customers as well as worker-

members (BBC News, 2011). Co-ops could also release bonds on to the open market

similarly to the mainstream stock market, although investors will simply hold an IOU

rather than direct ownership of the firm and the ability to influence management. As a

firms debts are thus owned by multiple actors, such as individual investors, banks,

workers, etc, the risk of the firm defaulting on its debts will not be burdened by a single

actor, but by multiple actors which may hedge a variety of bonds.

The effect of cooperativisation on a single or perhaps multiple number of nation-states

will have a somewhat blurred affect the role of international capital. In terms of inward

investment, Dickstein’s (1991) theory may also apply on the international level, implying

that foreign banks in capitalist economies may be more hesitant of investing in

cooperatives abroad. This may be due the perception of increased risk or perhaps a banks

hesitance to invest in an economy where capital has already been shifted from investors

to workers. As explained earlier, this process would largely be interpreted negatively by

banks, as they can often be considered as large scale capital holders themselves (Strange,

1994). If this were the case, investment capital in cooperativist economies may begin to

flow outwards. Despite this, investment and capital movements between cooperativist

economies should remain at current levels. In terms of outward investment, cooperatives

looking to expand into foreign markets are also more likely to export their business

model. Mondragon for example could be considered a multinational cooperative, as it

produces and distributes into a number of foreign markets (Mondragon Corporation).

Assuming that foreign capitalist economies openly allow inward investment from

multinational corporations, as many currently do (Balaam and Veseth, 1996), there is no

33

apparent reason for worker cooperatives not to follow suit. If multinational cooperatives

do export their business model, this would likely benefit the bottom-up approach to

promoting cooperativisation, assuming foreign markets have the necessary laws in place

to allow worker cooperatives to operate.

The effect on prices and wages in the preceding chapter indicated that wage levels may

become more volatile whilst price levels are likely to remain competitive. Although this

may be the case for developed countries transitioning to a cooperativist model, for

developing countries that may be export dependent, there are other factors at play.

Another assumption made in chapter 3 was that workers had to balance competitive

prices with sufficient wages, although currently in developing countries, wages may be

insufficient whilst prices are low enough to have a monopolising effect in the

international marketplace (Pugel, 2012). As a result, cooperatives within developing

countries may wish to increase their wages even if price increases risk their

competitiveness. Export dependent countries must also appreciate that if labour costs

increase too much, foreign firms may outsource to other countries with lower labour

costs, or to their country of origin. As a result, the need to achieve a balance between

competitive prices and sufficient wages becomes even more imperative in developing

countries, especially if co-ops are to compete with large multinationals. In reality

however, the distribution of profits to workers may provide a sufficient standard of

living, thus relieving the need for price increases. Regarding developing countries that are

not export dependent, there may be a greater incentive to increase wages further with

subsequently higher price levels, creating a domestic inflationary spiral. Despite this,

assuming bonds function as the main instrument for investment in a cooperativist

economy, if inflation becomes too high, the returns on bonds would deteriorate,

potentially threatening the likelihood of future investment. This process would prevent

developing countries trying to equilibrate wages and prices with developed countries to

quickly, and would instead sustain an evolutionary process that reduces volatility. As a

result, in general, the equilibration of prices and wages in a variety of open economies

may become intensified if such economies are dominated by workers cooperatives. This

is in contrast to the apparent race to the bottom where multinational firms currently locate

34

to economies with the cheapest labour (The Economist, 2013). Although multinational

cooperatives may also outsource to economies with cheaper labour, the need to balance

competitive prices compared to conventional firms with an ethical and adequate wage

level for its workers, may help to equilibrate global price and wage levels in the longer

run.

In general, although cooperativisation could be promoted through international processes,

the likelihood of this in reality remains highly unlikely at the current stage. In order to

reach the stage where international implementation is possible first requires the hurdles of

national implementation to be jumped. The economic prospects of an international

cooperativist consensus indicates that wage and price levels may equilibrate much faster

under cooperativist conditions. The reforms to investment also present a practical and

realistic alternative to the current stock and share orientated forms of investment that

currently prevail. In reality much more research is required, especially on international

processes, before the assumptions made in this dissertation can be taken as given. Yet

despite this, intuitively it would appear that regardless of outcome, a cooperativist

approach to international political economy could develop to become a substantial

alternative to the current neo-liberal economic consensus that currently prevails. The role

of the structures of the current international political economy could make

implementation possible, but only through sustained bottom-up pressures with reasonable

clout, and an enthusiastic and optimistic stance from top-down actors such as

participating nation-states.

35

Conclusion

This dissertation has sought to explore as to whether cooperatives, or more specifically

worker cooperatives, as a business model could pose a plausible alternative to

mainstream capitalism. The assumptions made in chapter 1 indicated that cooperatives

themselves can function as a plausible alternative to the mainstream conventional firms

that are owned and managed by workers rather than investors. A historical and theoretical

evaluation in chapter 2, as well as a brief case study of the Mondragon Corporation

displayed an empirical example of how worker cooperatives can develop and sustain

themselves within a capitalist economy. As both capitalism and cooperativism can both

be considered free market economic models, the role of economic agents within the free

market is debatably the main aspect that renders a cooperativist model as either a

differing brand of capitalism, a type of ‘Capitalism Lite’, or whether the two approaches

can be considered separate yet closely related. Although despite this, I have attempted to

argue towards the latter as opposed to the former, as their roles for ownership and

management are so substantially contrasted.

The type of preferred cooperative has also been imperative. Another important principle

argued in this work has been the assumption that only a workers cooperative can be

considered as owned and managed by internal agents, whereas firms owned and ran by

investors, customers or the state hold an intrinsic disadvantage. The role of incentivising

worker-members towards greater productivity has often been preached as an inadvertent

method of workers enslaving themselves, especially by more utopian socialists such as

Potter (1904) and Marx (1894) in his later writings. Despite this, by analysing the

economic theory of those such as Smith (1994), Pencavel et al (2006) and Burdín and

Dean (2009) in chapter 3, workers are more likely to sustain employment as well as to

enjoy the fruits of their work in the form of dividends. Also, although wages and

dividends are more likely to be tied with the market conditions for the goods and services

36

they are providing, this would ultimately become a more effective state of being

compared to the often lagged and inconsistent state of the collective bargaining system

often practised by conventional firms. The rate of technological progression also has the

potential to substantiate with worker participation and innovation. Historical evidence

and economic intuition indicates worker cooperatives are most vulnerable within

capitalist economies, in a cooperativist economy however, their unique structures and

processes complement each other within an efficient and effective market economy.

Worker cooperatives will rise and fall in any type of free market economy, whether it be

capitalist or cooperativist. Yet the hierarchical and authoritarian nature of many

mainstream firms only serves to exasperate the effect of the business cycle, whilst the

downfall of worker cooperatives will most likely be demand driven, rather than by the

outcomes of internal power struggles or irrational decision making. Market pressures in

aggregate, are thus equally as imperative to cooperativist economies as they currently

remain in capitalist economies.

Attempting to understand the likely economic consequences on a national level without

substantive empirical examples is in itself a substantive task, on an international level this

becomes a truly gargantuan task. The most important assumption to be understood from

this research is that a transition from a capitalist to cooperativist economy would have a

considerable effect if translated onto the international level. Initial changes in the role of

investment and investors, as well as the effect on equilibrating global price and wage

levels are simply a few of the large and the potentially many economic consequences that

would occur. This in itself answers the second question of the dissertation title, as to

whether the there is a role of the IPE in the process of cooperativisation. Yet the

economic consequences must first be the consequences of the political environment.

The important assumption made in chapter 3, and reiterated in chapter 4, was the need to

establish a balance between bottom-up and grassroots pressures on firms, governments

and other relevant entities, with coordinated and effective top-down policies that can

complement the process of cooperativising the economy. The works of those such as

Dahl (1982) and Strange (1986, 1994) have explained the role of institutions such as

37

large corporations, financial institutions and other representatives of the holders of

capital. The role of unions has also been examined, albeit with a rather inconclusive role

depending largely on the perceptions of its members. Internationally, the role of specific

nation-states as well as multinational institutions also has an important role to play.

Although more specifically, the plausibility of achieving a fixed agreement or consensus

would largely depend on the willingness of specific nation-states, as well as the influence

held by those who are most likely to oppose and deter such an agreement. As a result the

political role of the IPE will largely depend on the same bottom-up pressures that are also

required for implementation on a national level, along with the international top-down

structures required to complement it. Ultimately, from a political perspective, Lamberts

(1959) 8th principle discussed earlier rightly reiterates the potential for worker

cooperatives to hold an ideological as well as economic and social foundation.

In reality this topic area requires much more substantive research, in both predicting the

economic consequences, as well as the route to go about implementing such a model if it

is indeed worth implementing at all. Yet this dissertation has aimed to bring together the

various literature that exists, and has existed for a many number of years, and to

formulate an intuitively based approach that has brought together such literature for the

first time. In a period where questions are being raised over the effectiveness and ethical

controversies that have plagued capitalism for so many years, this research has worked to

provide a plausible alternative that can potentially enhance the free market system and

extend the arm of democracy to all those who wish to seek it.

38

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