[Zzlist-deux] Cooperatives: A Cure for Capitalism?

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Cooperatives: A Cure for
Capitalism?<http://zzs-blg.blogspot.com/2014/01/cooperatives-cure-for-capitalism.html>
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 Co-ops-- cooperative economic enterprises-- have been embraced by
significant groups of people at different times and places. Their
attraction precedes the heyday of industrial capitalism by offering a means
to consolidate small producers and take advantage of economies of scale,
shared risk, and common gain.

 At the advent of the industrial era, cooperatives were one of many
competing solutions offered to ameliorate the plight of the emerging
proletariat. Social engineers like Robert Owen experimented with
cooperative enterprises and communities.

 In the era of mass socialist parties and socialist construction,
cooperatives were considered as intermediate steps to make the transition
from feudal agrarian production towards socialist relations of production.

 Under the capitalist mode of production, co-ops have filled both
employment and consumption niches deferred by large scale capitalist
production. Economic activities offering insufficient profitability or
growth have become targets for cooperative enterprise.

 In theory, cooperatives may offer advantages to both workers and
consumers. Workers are thought to benefit because the profits that are
expropriated by non-workers in the capitalist mode of production are shared
by the workforce in a cooperative enterprise (less the present and
anticipated operating expenses and investments, of course). Many argue as
well that the working conditions are necessarily improved since workplace
decisions are arrived at democratically absent the lash associated with the
profit-mania of alienated ownership (though little attention is paid to the
consequences for productivity and competitiveness against capitalist
enterprises).

 Consumers are said to benefit when they collectively appropriate the
retail functions normally assumed by privately owned, profit-driven
outlets. Benefit comes, on this view, by purchasing from wholesale
suppliers, collectively meeting the labor requirements of distribution, and
enjoying the cost-savings from avoiding a product markup (little attention
is paid to limitations on participation dictated by class, race, or gender;
the wholesale quantity discounts enjoyed by capitalist chains are also
conveniently overlooked).

 A case can also be made for the cooperator's dedication to quality,
safety, and health- promotion.

 In reality, cooperatives in the US are largely indistinguishable from
small businesses. Like small private businesses, they employ few people and
rely heavily upon “sweat equity” for capitalization. Like other small
businesses, US cooperatives operate on the periphery of the US economy,
apart from the huge monopoly capitalist firms in manufacturing, service,
and finance.

 *Cooperatives as a Political Program*

 Since the demise of the Soviet Union and Eastern European socialism, many
on the US Left have rummaged for a new approach to the inequalities and
injustices that accompany capitalism. Where more than a decade of
anti-Communist purges had wrung nearly all vestiges of socialist sympathy
from the US psyche, the fall of the ludicrously-named “Iron Curtain” found
Leftists further distancing themselves from Marxian socialism. Hastily
interning the idea of socialism, they reached for other answers.

 It is unclear whether this retreat was actually a search for a different
anti-capitalist path or, in reality, grasping an opportunity to say
farewell to socialism.

 In recent years, several Leftists, “neo-Marxists”, or fallen Marxists have
advocated cooperatives as an anti-capitalist program. Leading advocates
include the *Dollars and Sense* collective centered around the University
of Massachusetts, Amherst, GEO (Grassroots Economic Organizing), Professor
Gar Alperovitz, *Labor Notes*, United Steel Workers of America, and media
Marxist-du-jour, Professor Richard Wolff. Some are organizing around the
idea of a “New Economy” or a “Solidarity Economy”, with cooperative
enterprises as a centerpiece.

 Now coops are not foreign to Marxist theory. After World War I, the
Italian government sought to transfer ownership of unused land from big
estates, *latifondi*, on to peasants, especially veterans. As much as
800,000 hectares were thus passed on to poor peasants. Through this process
and land seizures, the number of smallholders increased dramatically.
Socialists and Communists urged the consolidation of these holdings into
collectives, agricultural cooperatives. Certainly more than 150,000
hectares ended up in cooperatives. In those circumstances, the rationale
was to increase the productivity, to save the costs, to enhance the
efficiency of peasant agriculture in order to compete with the large
private estates. Cooperatives were not seen as an alternative to socialism,
but a rational step away from near feudal production relations toward
socialism, a transitional stage.

 Likewise, in the early years of the Soviet Union, Communists sought to
improve small-scale peasant production by organizing the countryside into
collective farms, producers' cooperatives. They saw cooperative
arrangements as rationalizing production and, therefore, freeing millions
from the tedium and grind of subsistence farming and integrating them into
industrial production. Through mechanization and division of labor, they
expected efficiency and productivity to grow dramatically, speeding
development and paving the way for socialism.

 Again, cooperative enterprises counted as an intermediary for moving
towards socialist relations of production. Thus, Marxists see the
organization of cooperatives as a historically useful bridge between rural
backwardness and socialism.

 But modern day proponents of cooperatives see them differently.

 “The 'evolutionary reconstructive' approach is a form of change different
not only from traditional reform, but different, too, from traditional
theories of 'revolution'” says Gar Alperovitz of cooperatives and other
elements of the “Solidarity Economy” (*America beyond Capitalism,** Dollars
and Sense*, Nov/Dec, 2011). Like most proponents, Alperovitz sees
cooperatives as pioneering a “third way” between liberal reformism and
socialist revolution. However, a minority of advocates (Bowman and Stone, “*How
Coops can Change the World*”, *D&S*, Sept/Oct, 1998, for example) see
cooperatives as the “best first step towards that goal [of a planned,
democratic world economy]. They suggest that the correct road is through
“spreading workplace democracy” and on to socialism.

 Whether postured as a “third way” or a step towards socialism, it is
difficult to get a clear picture of the extent and success of the
cooperative movement; it is equally challenging to gather a sense of how it
is suppose to function in a capitalist economy.

 As for numbers, Alperovitz (“*America beyond Capitalism”*, *D&S*, Nov/Dec,
2011) muddies the waters by citing the numbers of “community development
corporations” and “non-profits” (Alperovitz, 2011) as somehow strengthening
the case for cooperatives. The fact that community development corporations
have wrested control of neighborhoods from old-guard community and
neighborhood groups and embraced developers and gentrification causes him
no distress. Of course “non-profits” count as an even more dubious
expression of a solidarity economy. In a city like Pittsburgh, PA,
mega-non-profits remove 40% of the assessed property from the tax rolls.
These non-profits not only evade taxes, but divide enormous “surpluses”
among super-salaried executives. They beggar funding from tax shelter
trusts and endowment funds, completing the circle of wink-and-a-nod tax
evasion. Of course there are, as well, thousands of “non-profits” that
pursue noble goals and operate on a shoestring.

 Alperovitz alludes to credit unions as perhaps sharing the spirit of
cooperation without noting the steady evolution of these once “third way”
institutions towards a capitalist business model. Insurance companies also
share this evolution, but they are too far down this path of transition to
capitalist enterprise to be credibly cited by Alperovitz.

 Alperovitz leaves us with “...11,000 other businesses that are owned in
whole or part by their employees.” In this slippery total of whole or
partial worker ownership are included ESOPs-- Employee Stock Ownership
Programs, a touted solution to the plant closing surge that ripped through
the Midwest in the 1980s. Alperovitz pressed vigorously for ESOPs in the
steel industry in the 1980s as he does cooperatives today. When asked to
sum up their track record, one sympathetic consultant, when pressed, said:
“I don't think its been a real good record of success. Some have actually
failed...” (Mike Locker, *“Democracy in Steel?”*, *D&S*, Sept/Oct, 1998).
But we get no firm number for cooperatives in the US.

 Another advocacy group for cooperatives gave a more candid picture of the
cooperative movement in the Sept/Oct, 1998 issue of *Dollars and
Sense* (*“ESOPS
and Coops”*). A study by the Southern Appalachian Cooperative Organization
claimed that there were 154 worker-owned cooperatives employing 6,545
members in the US. In sixty percent of the 154, all workers were owners.
Median annual sales were $500,000 and 75 percent had 50 or fewer workers.
Twenty-nine percent of the coops were retail, twenty-eight percent were
small manufacturing, and twenty-three per cent food related businesses.

 Interestingly, the same article claims that there were approximately
11,000 ESOPs in 1988 (source: National Center of Employee Ownership). If we
take Alperovitz's 2011 claim seriously, there has been little growth in the
ensuing thirteen years of “...businesses that are owned in whole or part by
their employees...”.

 From this profile, we can conclude that cooperatives in the US are
essentially small businesses accounting for a tiny portion of the tens of
millions of firms employing less than 50 employees. As such, they compete
against the small service sector and niche manufacturing businesses that
operate on the periphery of monopoly capitalism. Insofar as they pose a
threat to capitalism, they only threaten the other small-scale and family
owned businesses that struggle against the tide of price cutting, media
marketing, and heavy promotion generated by monopoly chains and low-wage
production. They share the lack of capital and leverage with their private
sector counterparts. Cooperatives swim against the tide of monopolization
and acquisition that have virtually destroyed the mom and pop store and the
neighborhood business.

 Some of the more clear-headed advocates acknowledge this reality. Betsy
Bowman and Bob Stone concede the point: “...Marx argued in 1864 that
capitalists' political power would counteract any gains that coops might
make. This has proven true! When capitalists have felt threatened by
cooperatives, they have conducted economic war against coops by smear
campaigns, supplier boycotts, sabotage, and, especially, denying credit to
them.” (Bowman and Stone, *D&S*, Sept/Oct, 1998).

 *Mondragon*

 Until recently, cooperators and their advocates had one very large arrow
in their quiver.
 When pressed on the apparent weakness of cooperatives as an
anti-capitalist strategy, they would counter loudly: “Mondragon!”.

 This large-scale network of over 100 cooperative enterprises based in
Spain seemed to defy the criticisms of the cooperative alternative. With
80,000 or more worker-owners, billions of Euros in assets and 14 billion
Euros in revenue last year, Mondragon was the shining star of the
cooperative movement, the lodestone for the advocates of the global
cooperative program.

 But then in October, appliance maker Fagor Electrodomesticos, one of
Mondragon's key cooperatives, closed with over a billion dollars of debt
and putting 5500 people out of work. Worker-employees lost their savings
invested in the firm. Mondragon's largest cooperative, the supermarket
group Eroski, also owes creditors 2.5 billion Euros. Because the network is
so interlocked, these setbacks pose long term threats to the entire system.
As one worker, Juan Antonio Talledo, is quoted in *The Wall Street Journal *
(*“Recession Frays Ties at Spain's Co-ops”*, December 26, 2013): “This is
our Lehman moment.”

 It is indeed a “Lehman moment”. And like the Lehman Bros banking meltdown
in September of 2008, it makes a Lehman-like point. Large scale
enterprises, even of the size of Mondragon and organized on a cooperative
basis, are susceptible to the high winds of global capitalist crisis.
Cooperative organization offers no immunity to the systemic problems that
face all enterprises in a capitalist environment. That is why a cooperative
solution cannot constitute a viable alternative to capitalism. That is why
an island of worker-ownership surrounded by a violent sea of capitalism is
unsustainable.

 The failures at Mondragon have sent advocates to the wood shed (see
www.geonewsletter.org). Leading theoretical light, Gar Alperovitz, has
written in response to the Mondragon blues: “Mondragón's primary emphasis
has been on effective and efficient competition. But what do you do when
you are up against a global economic recession, on the one hand, or radical
cost challenges from Chinese and other low-cost producers, on the other?”

 What do you do? Shouldn't someone have thought of that before they offered
a road map towards a “third way”? Are “global economic recessions”
uncommon? Is low cost production new? And blaming the Chinese is simply
unprincipled scapegoating.

 Alperovitz goes on: “The question of interest, however - and especially to
the degree we begin to face the question of what to do about larger
industry - is whether trusting in open market competition is a sufficient
answer to the problem of longer-term systemic design.” Clear away the
verbal foliage and Alperovitz is admitting that he never anticipated that
open market competition would snag Mondragon. Did he think that Fagor sold
appliances *outside* of the market? Did he think that Mondragon somehow got
a free pass in global competition?

 Of course the big losers are the workers who have lost their jobs and
savings. It would be mistaken to blame the earnest organizers or idealistic
cooperators who sincerely sought to make a better, more socially just
workplace. They gambled on a project and lost. Of course social justice
should not be a gamble.

 The same sympathy cannot be shown for those continuing to tout
cooperatives as an alternative to capitalism. If you want to open small
businesses (organized as cooperatives), be my guest! But please don't tell
me and others that it's somehow a path beyond capitalism.

 Comrades and friends: It's impossible to be anti-capitalist without being
pro-socialist!

 Zoltan Zigedy
 zoltanzigedy at gmail.com
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