Worker Cooperatives, Consumer Co-ops, and Corporations

Each of this trio of structures pursue three different agendas for the benefit of three classes of people: shareholders, workers, and consumers. The class of people holding the power are thus directing priorities, which is primarily for the benefit of themselves. You end up with these three structures each optimising for different goals.

Before we break down those power dynamics though, it helps to define what we're talking about: "What even are worker cooperatives and consumer co-ops?"

At its most basic, a cooperative is an organisation that is owned by its members. It does not usually have investor shareholders like capitalistic corporations do. Many co-ops abide by one of the guiding principles of democratic control over the business under "one member, one vote."

Co-ops are also heavily involved in the welfare of their community, members, and other co-ops. Cooperation amongst co-ops is held as another principle. They also encourage worker training, development, and transparency. This makes them a dream for people seeking to participate in the economy in an ethical manner.

There are several types of co-ops, including the two we'll be focusing on today: consumer co-ops and worker cooperatives.

Consumer co-ops are perhaps the more readily accessible of the two cooperatives. In the U.S. all credit unions are financial cooperatives, which I'm a huge fan of. There's also relatively big name business cooperatives like REI, and many small grocery co-ops.

Basically consumer co-ops are businesses that are owned by the consumers that use them.

More specifically:

Consumer cooperatives are organized by consumers that want to achieve better prices or quality in the goods or services they purchase. In contrast to traditional retail stores or service providers, a consumer cooperative exists to deliver goods or services rather than to maximize profit from selling those goods or services.
– Co-oplaw.org

Despite also being a cooperative, worker co-ops are different because they are owned by the workers instead of the consumers. These forms of cooperatives are relatively rare as of now, but there's some small names floating around like Electric Embers.

Worker co-ops are more like traditional businesses, as they generally operate for profit by producing goods and services. The main difference between them and traditional enterprises though is that they participate in profit sharing. Instead of having outside shareholders who own the right to profits, worker co-ops are owned by workers and they may receive a patronage dividend for that ownership.

There are plenty of fascinating details worth delving into about worker co-ops, which I'm saving for a later article. Suffice to say that worker co-ops are generally more resilient for their employee-owners, as they are more likely to take pay cuts than to lay off people.

It's worth noting that multi-stakeholder cooperatives exist, such as a producer-consumer cooperative. They are also known as hybrid cooperatives. Worker-consumer co-ops are one such hybrid, but as worker co-ops are rare in themselves their hybrid is rarer still.

Thirdly is typical enterprise corporations, which are owned by the shareholders/investors. They operate for the profit of the shareholders, which are often members of the financial elite who do not contribute anything beyond their capital (and perhaps some direction for management).

To recap: for these three structures, there are three owner classes.

Consumer co-ops are owned by consumers, worker co-ops by workers, and corporations by shareholders. By consequence, consumer co-ops prioritise for consumer welfare, worker co-ops for worker welfare, and corporations for shareholder profits.

It's worth noting that whilst each structure has different priorities, for the vast majority of decisions they will all choose similarly. That is to say, most decisions benefit everyone most of the time, with some occasional divergent cases where one group may benefit at another's loss.

How these break down:

As each of these three structures aims for different goals and operates in different ways, you have several different failure modes to consider.

The first and most obvious failing for all three is failure to make a profit. Seeking profit in itself is not evil, and is in fact vitally necessary for the survival of a business. Without profits, a business cannot sustain operating costs without dipping into reserves. Some corporations can operate at a loss for years thanks to investor money, but in time they too shall either make a profit or crumple.

Which leads to the second failing: shareholder greed. Whilst the pursuit of profits is neither good nor evil, greed is a vice on the evil side of things. Shareholder greed in corporations is what leads to squeezing blood from stone and misusing corporate employees. The effects of greed are far ranging and often subtle. Sometimes greed merely is shortsighted pursuit of ever increasing returns, like cutting benefits from employees to make the quarterly report look good.

Breakdowns for cooperatives are numerous, despite how small a portion of businesses they represent.

One potential breakdown of cooperatives is small and selective membership. Workers may not be familiar with working for cooperatives and thus be unwilling to join one. Furthermore, even if the worker is willing, a co-op needs to ensure that every member embodies co-op values. Cooperation, for instance, or the ability to work in a collective/democratic workplace. There's also serious practical skills such as reaching consensus for decisions, and not getting caught up in the law of triviality.

Cooperatives also suffer from several communications problems, as detailed here. To quote:

Most cooperatives try to communicate the important fact that they are a great firm to do business with. They are somewhat less diligent in communicating the unique value of their business structure.
– https://cooperatives.extension.org/communications/

To summarise their findings: co-ops need to educate their members about business operations, to communicate the value of the co-op to members and potential members, and to convince the public that their business structure's benefits are valuable.

Finally yet another failing of worker co-ops is that of bookkeeping and business overhead. Simply put, being worker-owned also means workers need put in the work of managing the business. Often this involves participatory evening-time committee meetings, or other inconvenient arrangements. People take up their time in debate, voting, research, and all sorts of activities that don't necessarily generate a profit.

Closing thoughts

Despite focusing on ways co-ops can fail, I don't want to give the impression that they're frail. There are countless ways businesses can fail, no matter what structure they use.

In fact, research suggests co-ops tend to be more resilient than traditional businesses, since their focus is not on profits they are free to bolster resilience with decisions like pay cuts, larger cash runways, better employee retention, and more. Worker welfare as a goal necessitates consistent employment. Likewise consumer welfare requires a co-op to survive to serve them.

I hope this article sparks your interest in co-ops, since they're one of the coolest forms of mutual-aid I've seen in the business world.