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Cooperatives: Are They Anti-capitalist?

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I want to know the Objectivist opinion on cooperatives. I have very little knowledge of business, but I was intrigued a while back when I was first introduced to cooperatives, mostly because it was a "different way of doing business" (I'll admit it: I like novelty).

My current conception of cooperatives is a business not owned by shareholders. That usually means they are owned by the customers or workers. The most obvious advantage of this that I can see is pointed out by this article:

Shareholder owned companies are subject to agency costs, the inefficiencies caused by the conflicts of interest between the shareholders and the managers. There are also other costs caused by conflicts of interest between other groups of people involved in a business. Customers, suppliers, employers shareholders and managers are all affected by the decisions made by (or more accurately for) a business.

. . .

There are similar advantages to workers' cooperatives. Much of management theory is concerned with how to motivate people. It is generally agreed that people are likely to work harder if they identify with the interests of the firm. This is often achieved through various types of share option schemes. This incentive would be even stronger in a workers cooperative where all the profits went to the workers. It is also generally accepted that people feel more satisfied where they have a autonomy in their work and a say in the firm they work for, again this is likely to be greater in a cooperative than even the most democratically run shareholder owned business. Workers cooperatives (especially if they are not very large) should be less susceptible to heavy bureaucracy and unfair management as workers would be in a far more powerful position to alter processes and policies.

That article goes on to say that cooperatives suffer are downside: They are "limited to the capital that those actually involved in the business are able to put in and what they are able to borrow." Shareholder companies, on the other hand, "have a number of mechanism available to them that allow them to raise enough money to expand very quickly." He suggests that the solution is for the cooperative to offer non-voting stock to non-members, so it can still raise money while keeping the ownership within the company.

Now comes the politics. Half-way through the aforementioned article, the author says: The "market liberal" position is the the profit motive is always the best basis on which to run anything, a point of view that requires a blind faith in the efficiency of markets. He is clearly a mixed-economist. He wants state-funding for industries that do not "serve any identifiable group that should own the process or pay for it". He then thinks that stable, labor-intensive industries should be worker-owned, and high-risk, capital-intensive industries should be shareholder-owned. He ends the article thus: We need to move away from an unthinking ideological commitment to pure capitalism to a more rational hybrid system that would not only be more efficient but would also allow the social advantages and intrinsic fairness of worker, social and consumer ownership to more people.

The evidence of the thoroughly altruistic character of cooperatives becomes even more apparent when you study its most successful example: Mondragon. Mondragon is a popular cooperative conglomerate in Spain. It is the unity of several cooperatives, including a very successful bank, many in industrial areas like automotive parts and stoves, etc. The leader (Don Jose Maria) apparently attributes part of his success to the fact that he didn't make the mistake that his social activist forebears did when starting a cooperative: Replacing commitment to profitability and rigorous management efficiency with ideological enthusiasm.

But don't let that or their claims of political neutrality fool you; Mondragon is BRIMMING with altruism and anti-capitalism. This was confirmed yesterday, when I read through most of From Mondragon to America. The author says that the basis for Mondragon's success is "its basis in Judaeo-Christian values" (pg.14). The evidence he gives for this seems to lie in Mondragon's "interconnectedness", whereby the bank (the perceived center of Mondragon) detects when individual cooperatives are struggling and immedietly rallies other cooperatives to help them out financially. This sounds reminiscent of the highly-effective Japanese Keiretsu system, which I haven't heard touting itself as "altruistic and community-oriented" like Mondragon has. Further evidence of Mondragon's Judaeo-Christian roots might be found in its commitment to "deliver" the unemployed masses of Spain by its constant re-investment in itself to start new cooperatives: It would be very easy for the very successful Fagor Electronic companies to vote themselves higher wages and forget about the rest of the unemployed workers in their country. For Don Jose Maria this would be capitalism under the cooperative name. (pg.89)

My question is as follows: Does this altruistic thinking form the very essense of cooperatives -- is the aim of cooperatives, as this website says, "not to make a profit, but to be of use to its members and defend their interests"? Or am I throwing the baby out with the bathwater -- can this system ever work for a greedy capitalist like myself?

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They aren't anti-capitalist. In a capitalist society, they would be perfectly free to operate.

But lots of things would be "perfectly free to operate" in a capitalist society yet still not project capitalist values; the legal may not always be the moral.

On the other hand, they generally are not very competitive in a free market in my experience.

I don't think this applies to Mondragon, which has yet to experience any bankruptcies. The book points out: When Spain entered the European Common Market, critics said the Mondragon system would not survive in such tough open competition. On the contrary, Mondragon has prospered and expanded, more than doubling its exports between 1991 and 1996. (pg.35)

This leads me to believe I could make the cooperative system workable, I just worry what kind of political beliefs I would be propagating in the process.

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Your characterisation of a cooperative as a business not owned by shareholders is mistaken; that would include single proprietorships and even Google up until a couple of weeks ago. A single proprietership is not a cooperative.

Obviously no blanket statement about cooperatives can be true because there are a lot of kinds of cooperatives. I have various experiences with good cooperatives, which reflect good capitalist values, in particular individual greed. Purchasing co-ops are good because if the economy of scale thing: you can deal directly with the wholesaler or manufacturer and get a significantly lower price for the item(s), since you're not paying the overhead of a retail outlet (not to mention whatever necessary profit that the owner requires in order to stay in business). There's nothing wrong with the other guy making a profit selling those widgets as his means of survival, but his survival is not my primary value. I only care about getting the widget as cheaply as possible.

A variant selfish motivation for a purchasing co-op is that it may give you the power to purchase things that you could not otherwise get (i.e. you go to the store and they say "Nah, we don't have that, there isn't enough demand", a situation that a co-op can solve).

I recently had wiring done by an electrical co-op: their motivation was pretty much analogous to mine in the purchaser's co-op. The independent contractor makes more money than the employee, for a given job, because some of the money paid to the guy goes to the boss. The co-op structure increases their individual profit (which is good for them, and actually for me too since they charged me less).

The capital limitations of cooperatives are not limitations of cooperatives, but are because they don't sell shares as a way of generating money. A lot of companies which are not cooperatives do not sell shares. So that's a non-argument.

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Obviously no blanket statement about cooperatives can be true because there are a lot of kinds of cooperatives.

So you disagree with the statement made in the website I quoted, that the aim of cooperatives is "not to make a profit"? This, along with the book I mentioned, which talked of "progressive" co-op activists who scorned Mondragon for working with capitalist corporations, gave me the overall picture that co-ops were some kind of collectivist experimentation. I have to say I'm relieved that you're saying the contrary because as an aspiring entrepeneur I really wanted to use some of Mondragon's policies that made it so successful.

The capital limitations of cooperatives are not limitations of cooperatives, but are because they don't sell shares as a way of generating money. A lot of companies which are not cooperatives do not sell shares. So that's a non-argument.

What do you think about the belief that stable, labor-intensive industries should be worker-owned (co-ops), and high-risk, capital-intensive industries should be shareholder-owned?

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So you disagree with the statement made in the website I quoted, that the aim of cooperatives is "not to make a profit"?

Purchasing co-cops don't have profit (in the normal sense) as the motive, they have reduction of cost and maximization of value for the member as their principles. With that caveat, I disagree with the statement (with the understanding that it might turn out that as a statistical matter, co-ops of the socialist-altruist variety might actually manage to predominate, statistically speaking). That's not a fact about the idea of cooperation, but about a specific historical implementation.

What do you think about the belief that stable, labor-intensive industries should be worker-owned (co-ops), and high-risk, capital-intensive industries should be shareholder-owned?

Crazy. I don't see any reason to prefer that particular correlation. My initial feeling is that stable, labor-intensive industries should be shareholder-owned and and high-risk, capital-intensive industries should be worker-owned. The details of the business would be important, but I don't see any good reason to expect any such simple correlation between sharaholder / worker owning and the su-called labor / capital distinction.

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If capitalism is defined as the only form of society that is based on the recognition of individual rights, that means that any activity where no coercion is involved, is capitalistic by nature. That even extends to communes, which might be seen as anti-capitalist in spirit, but not in fact so long as individuals are not being coerced. That's the contradiction at the heart of all "communes" in free societies.

If that condition is met, it's just a question of what makes the most economic sense, and in that domain I don't see how the concept of "anti-capitalist" can apply, assuming the context of a free society. It's all just means to ends at that point, and the moral questions simply pertain to the question of whether the chosen activity serves the relevant interests of the particular individuals involved. If those "interests" are altruistic, as appears to be the case with Mondragon, then you've got an issue, but that seems to be a problem with the stated ends for which a particular co-operative is formed, rather than the means chosen for those ends, which is the co-operative.

It has always been my conviction that a truly capitalist society would give birth to many different forms of economic associations in addition to the normal ones we now take for granted. And many of them would not be "profit-driven" in the normal sense of monetary gain, simply because "gain", or purpose, is by no means limited to the monetary form in a capitalist society.

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