A worker cooperative is a cooperative that is owned and self-managed by its workers. This control may mean a firm where every worker-owner participates in decision-making in a democratic fashion, or it may refer to one in which management is elected by every worker-owner who each have one vote.
Worker cooperatives rose to prominence during the Industrial Revolution as part of the labour movement. As employment moved to industrial areas and job sectors declined, workers began organizing and controlling businesses for themselves. Worker cooperatives were originally sparked by "critical reaction to industrial capitalism and the excesses of the industrial revolution." Some worker cooperatives were designed to "cope with the evils of unbridled capitalism and the insecurities of wage labor".
The philosophy that underpinned the cooperative movement stemmed from the socialist writings of thinkers including Robert Owen and Charles Fourier. Robert Owen, considered by many as the father of the cooperative movement, made his fortune in the cotton trade, but believed in putting his workers in a good environment with access to education for themselves and their children. These ideas were put into effect successfully in the cotton mills of New Lanark, Scotland. It was here that the first co-operative store was opened. Spurred on by the success of this, he had the idea of forming "villages of co-operation" where workers would drag themselves out of poverty by growing their own food, making their own clothes and ultimately becoming self-governing. He tried to form such communities in Orbiston in Scotland and in New Harmony, Indiana in the United States of America, but both communities failed.
Similar early experiments were made in the early 19th century and by 1830 there were several hundred co-operatives. Dr William King made Owen's ideas more workable and practical. He believed in starting small, and realized that the working classes would need to set up co-operatives for themselves, so he saw his role as one of instruction. He founded a monthly periodical called The Co-operator, the first edition of which appeared on 1 May 1828. This gave a mixture of co-operative philosophy and practical advice about running a shop using cooperative principles.
The first successful cooperative organization was the consumer-owned Rochdale Society of Equitable Pioneers, established in England in 1844. The Rochdale Pioneers established the ‘Rochdale Principles’ on which they ran their cooperative. This became the basis for the development and growth of the modern cooperative movement. As the mechanization of the Industrial Revolution was forcing more and more skilled workers into poverty, these tradesmen decided to band together to open their own store selling food items they could not otherwise afford.
With lessons from prior failed attempts at co-operation in mind, they designed the now famous Rochdale Principles, and over a period of four months they struggled to pool one pound sterling per person for a total of 28 pounds of capital. On 21 December 1844, they opened their store with a very meagre selection of butter, sugar, flour, oatmeal and a few candles. Within three months, they expanded their selection to include tea and tobacco, and they were soon known for providing high quality, unadulterated goods.
The International organisation representing worker cooperatives is CICOPA. CICOPA has two regional organisations: CECOP- CICOPA Europe and CICOPA Americas.
When the current cooperative movement resurfaced in the 1960s, it developed mostly on a new system of "collective ownership" where par value shares were issued as symbols of egalitarian voting rights. Typically, a member may only own one share to maintain the egalitarian ethos. Once brought in as a member and after a period of time on probation usually so the new candidate can be evaluated, he or she was given power to manage the coop without "ownership" in the traditional sense. In the UK, this system is known as common ownership.
Some of these early cooperatives still exist and most new worker cooperatives follow their lead and develop a relationship to capital that is more radical than the previous system of equity share ownership.
In the United States, there is no coherent legislation regarding worker cooperatives nationally, much less Federal laws, so most worker cooperatives make use of traditional consumer cooperative law and try to fine-tune it for their purposes. In some cases, the members (workers) of the cooperative in fact "own" the enterprise by buying a share that represents a fraction of the market value of the cooperative.
In Britain, this type of cooperative was traditionally known as a producer cooperative; and while it was overshadowed by the consumer and agricultural types, it also made up a small section of its own within the national apex body, the Cooperative Union. The 'new wave' of worker cooperatives that took off in Britain in the mid-1970s joined the Industrial Common Ownership Movement (ICOM) as a separate federation. Buoyed up by the alternative and ecological movements and by the political drive to create jobs the sector peaked at around 2,000 enterprises. However, the growth rate slowed, the sector contracted, and in 2001 ICOM merged with the Co-operative Union (which was the federal body for consumer cooperatives) to create Co-operatives UK, thus reunifying the cooperative sector.
In 2008, Co-operatives UK launched The Worker Co-operative Code of Governance, an attempt to implement the ICA approved World Declaration.
According to Virginie Perotins research which looked at two decades worth of international data, worker cooperatives are more productive than conventional businesses.
In Mondragon Corporation, the world's largest worker cooperative, the pay ratio between the lowest and the highest earner is 1:9 in 2018. The ratio is decided by a democratic vote by the worker-members. By comparison, the ratio between CEO pay to average (not the lowest) earner in top 350 US companies was 1:321 in 2018.
In France the pay ratio between the highest and lowest paid 10% of the employees is 14% lower in worker cooperatives than in otherwise similar conventional firms.
In France, the three year survival rate of worker cooperatives is 80%-90%, compared to the 66% overall survival rate for all businesses. During the 2008 economic crisis, the number of workers in worker owned cooperatives in France increased by 4.2%, while employment in other businesses decreased by 0.7%.
According to an analysis of all businesses in Uruguay between 1997 - 2009 , worker cooperatives have 29% smaller chance of closure than other firms.
In Italy, worker owned cooperatives that have been created by workers buying a business when it's facing a closure or put up to sale have a 3 year survival rate of 87%, compared to 48% of all Italian businesses.
According to a study drawing on a questionnaire from the population of the Italian province of Trento, worker cooperatives are the only form of enterprise that fosters social trust between employees. A survey conducted in Seoul suggests that in conventional firms, the more demanding the job is, the less committed the employees are, however, this was not the case in worker cooperatives. In the US, home health aides in worker cooperatives were significantly more satisfied with their jobs than in other agencies.
Many definitions exist as to what qualifies as a workers' cooperative. CICOPA, the International Organisation of Industrial, Artisanal and Service Producers’ Cooperatives, gives an 8-page definition in their World Declaration on Workers' Cooperatives, which was approved by the International Co-operative Alliance General Assembly in September 2005. Below is the section on the basic characteristics of workers' cooperatives:
Workers' cooperatives also follow the Rochdale Principles and values, which are a set of core principles for the operation of cooperatives. They were first set out by the Rochdale Society of Equitable Pioneers in Rochdale, England, in 1844 and have formed the basis for the principles on which co-operatives around the world operate to this day.
Even though there is no universally accepted definition of a workers' cooperative, they can be considered to be businesses that make a product, or offer a service, to sell for profit where the workers are members or worker-owners. Worker-owners work in the business, govern it and manage it. Unlike with conventional firms, ownership and decision-making power of a worker cooperative should be vested solely with the worker-owners and ultimate authority rests with the worker-owners as a whole. Worker-owners control the resources of the cooperative and the work process, such as wages or hours of work.
As mentioned above, the majority—if not all—of the workers in a given worker cooperative enterprise are worker-owners, although some casual or wage workers may be employed with whom profits and decision making are not necessarily shared equally. Workers also often undergo a trial or screening period (such as three or six months) before being allowed to have full voting rights.
Participation is based on one vote per worker-owner, regardless of the number of shares or equity owned by each worker-owner. Voting rights are not tied to investment or patronage in the workers' co-operative, and only worker-owners can vote on decisions that affect them. In practice, worker co-operatives have to accommodate a range of interests to survive and have experimented with different voice and voting arrangements to accommodate the interests of trade unions, local authorities, those who have invested proportionately more labour, or through attempts to mix individual and collective forms of worker ownership and control.
As noted by theorists and practitioners alike, the importance of capital should be subordinated to labour in workers' cooperatives. Indeed, Adams et al. see workers' cooperatives as "labor-ist" rather than "capital-ist":
"Labor is the hiring factor, therefore the voting and property rights are assigned to the people who do the work and not to capital, even though the worker-members supply capital through membership fees and retained earnings...Any profit or loss after normal operating expenses is assigned to members on the basis of their labor contribution."
Nevertheless, recent developments in the co-operative movement have started to shift thinking more clearly towards multi-stakeholder perspectives. This has resulted in repeated attempts to develop model rules that differentiate control rights from investment and profit-sharing rights. Workers' co-operatives have often been seen as an alternative or "third way" to the domination of labour by either capital or the state (see below for a comparison). Co-operatives traditionally combine social benefit interests with capitalistic property-right interests. Co-operatives achieve a mix of social and capital purposes by democratically governing distribution questions by and between equal controlling members. Democratic oversight of decisions to equitably distribute assets and other benefits means capital ownership is arranged in a way for social benefit inside the organization. External societal benefit is also encouraged by incorporating the operating-principle of cooperation between co-operatives.
In short, workers' co-operatives are organised to serve the needs of worker-owners by generating benefits (which may or may not be profits) for the worker owners rather than external investors. This worker-driven orientation makes them fundamentally different from other corporations. Additional cooperative structural characteristics and guiding principles further distinguish them from other business models. For example, worker-owners may not believe that profit maximisation is the best, or only, goal for their co-operative or they may follow the Rochdale Principles. As another example, worker cooperatives’ flattened management structure and more egalitarian ideology often give workers more options and greater freedom in resolving work-place problems.
Profits (or losses) earned by the worker's cooperative are shared by worker owners. Salaries generally have a low ratio difference which ideally should be "guided by principles of proportionality, external solidarity and internal solidarity" (such as a two to one ratio between lowest and highest earner), and often are equal for all workers. Salaries can be calculated according to skill, seniority or time worked and can be raised or lowered in good times or bad to ensure job security.
Worker cooperatives have a wide variety of internal structures. Worker control can be exercised directly or indirectly by worker-owners. If exercised indirectly, members of representative decision-making bodies (e.g. a Board of Directors) must be elected by the worker-owners (who in turn hire the management) and be subject to removal by the worker-owners. This is a hierarchical structure similar to that of a conventional business, with a board of directors and various grades of manager, with the difference being that the board of directors is elected.
If exercised directly, all members meet regularly to make—and vote on—decisions on how the co-operative is run. Direct workers' cooperatives sometimes use consensus decision-making to make decisions. Direct worker control ensures a formally flat management structure instead of a hierarchical one. This structure is influenced by activist collectives and civic organizations, with all members allowed and expected to play a managerial role. Such structures may be associated with political aims such as anarchism, libertarian socialism and participatory economics.
Some workers' cooperatives also practice job rotation or balanced job complexes to overcome inequalities of power as well as to give workers a wider range of experiences and exposure to the different jobs in a work place so that they are better able to make decisions about the whole workplace. The Mondragon Bookstore & Coffeehouse is a good example of a workplace that does this.
The term 'worker collective' is sometimes used to describe worker cooperatives which are also collectives: that is, managed without hierarchies such as permanent manager roles.
Common ownership is practised by large numbers of voluntary associations and non-profit organizations as well as implicitly by all public bodies. Most co-operatives have some element of common ownership, but some part of their capital may be individually owned.
The principle of common ownership was codified in UK law in the Industrial Common Ownership Act 1976 which defines a "common ownership enterprise" as:
a body as to which the registrar has given, and has not revoked, a certificate stating that he is satisfied—
British law has been reluctant to entrench common ownership, insisting that a three-quarters majority of a company’s members, by passing a "special resolution", have the right to amend a company’s memorandum of association. This three-quarters majority above applies to most limited companies, except that it is possible since 2006 to entrench altruistic dissolution in an industrial and provident society registered as a "community benefit society" ("bencom"). This statutory asset lock is not available to societies registered as 'bona fide' co-operatives. However, such entrenchment has also been written into the community interest company (CIC), a new legal status that was introduced in 2005.
Section 1.2 of the Industrial Common Ownership Act authorised the Secretary of State for Industry to make grants and loans to bodies "constituted for the purpose of encouraging the development of common ownership enterprises or co-operative enterprises" up to a total of £250,000 over a period of five years, with the proviso that grants should not exceed £30,000 in any year. Grants to promote common ownership enterprises were made to the Industrial Common Ownership Movement and the Scottish Co-operatives Development Committee, while loans were administered through Common Ownership Finance Ltd. This section was repealed in 2004.
In 1978, the UK government set up the national Cooperative Development Agency and in subsequent years common ownership was promoted as a model to create employment, and approximately 100 local authorities in the UK established co-operative development agencies for this purpose.
A very significant early influence on the movement has been the Scott Bader Commonwealth, a composites and specialty polymer plastics manufacturing company in Wellingborough, Northamptonshire, which its owner Ernest Bader gave to the workforce in installments through the late 1950s to early 1960s. Contrary to the popular concept of common ownership organisations as being small organisations, this is a high-technology chemical manufacturer whose turnover has exceeded £100 million per annum since the early 1990s with a workforce of hundreds. In London, Calverts is an example of an established worker co-operative with a policy of pay parity. From the collective movement, one of the most successful ventures is probably Suma Wholefoods in Elland, West Yorkshire.
The advocacy of workplace democracy, especially with the fullest expression of worker self-management such as within workers' cooperatives, is rooted within several intellectual or political traditions:
Economists have modeled the worker cooperative as a firm in which labor hires capital, rather than capital hiring labor as in a conventional firm. The classic theoretical contributions of such a "labor managed firm" (LMF) model are due to Benjamin Ward and Jaroslav Vanek.
In the neoclassical version, the objective of the LMF is to maximize not total profit, but rather income per worker. But such a scenario implies "perverse" behavior, such as laying off workers when output price rises so as to divide increased profits among fewer members. Evidence supporting such behavior is lacking however; a review of the empirical economics literature is found in Bonin, Jones, and Putterman. But alternative behavioral models have been proposed. Peter Law examined LMFs that value employment as well as income. Nobel Laureate Amartya Sen examined pay according to work and according to need. Nobel Laureate James Meade examined behavior of an "inegalitarian" LMF. Worker cooperatives tend to have a more compressed wage distribution, which can potentially turn off high-ability workers, potentially causing the cooperative to suffer a "brain drain" as they leave to seek higher wages elsewhere, though this effect is less of an issue in a cooperative with a less compressed wage distribution. Hiring managers from capitalist firms can be very difficult because of the lower wages. 
Generally, the evidence indicates that worker cooperatives have higher productivity than conventional companies although this difference may be modest in size. Research indicates that employee ownership can improve company performance, increase firm stability, increase survival rates and reduce layoffs during a crisis, though the effect is small and only an average, meaning it is not necessarily guaranteed to bring benefits. A 2016 metanalysis concluded that employee ownership had a small positive effect on firm performance but no effects on efficiency or growth-related outcomes. However some researchers have argued that while cooperatives can have higher performance in some circumstances, there is generally little difference in performance between cooperatives and conventional firms and that ultimately they are, on average, just as productive as each other. Economists have explained clustering of worker coops through leagues or "supporting structures" Regions where large clusters of worker cooperatives are found supported by leagues include Mondragón, in the Basque region of Spain, home of Mondragón Cooperative Corporation and in Italy, particularly Emilia-Romagna. Leagues provide various kinds of scale economies to make coops viable. But as leagues need coops to start them the result is a chicken or egg problem that helps explain why few coops get started. Research has suggested that the primary appeal of a cooperative for its members is in security of employment, as workers can actually become decoupled from a cooperative's ostensible worker ownership (due to a mixture of interests and the more individualistic values of more recent workers), making secure employment, particularly in economically precarious times, a major draw. While it has been suggested that cooperatives could be a solution to unemployment, research indicates that this is unlikely to be the case.
Worker cooperatives do not seem to differ in innovation or management capabilities from conventional firms. Workers at cooperatives tend to report higher levels of involvement in their tasks, more positive evaluations of supervisors and greater fairness in their perception of the amount of wages they received and methods of payment. Employment in worker-owned firms tends to be more stable than conventional firms, which fluctuate more. This was attributed to conventional firms fixing wages and having to lay off employees during times of economic difficulty, as workers would not accept a wage cut since they could not guarantee a restoration of their original wages at a later date, requiring workers be laid off instead. In a cooperative, workers can accept a wage cut since they know they can restore it at a later date. Cooperatives have a higher survival rate than traditional firms, which seems to be down to greater employment stability and willingness of workers to make adjustments to allow the firm to survive, rather than other possible explanations like greater productivity or financial strength. Worker cooperatives and conventional firms tend to have similar wages after controlling for other possible variables, with any wage differentiation being due to other characteristics aside from firm organisation. If the workers are not satisfied with their work and participation, they can express their disengagement with higher rates of absenteeism. Managers can refrain proposing controversial needed changes if they feel that they will be rejected by the workers.
Worker co-operation is well established in most countries in Europe, with the largest movements being in Italy, Spain and France.
The European Cooperative Statute, which has been in force since 2006, permits worker cooperatives to be created by individuals or corporate bodies in different EU countries. It is a loose framework which devolves much detail to the national legislation of the country in which the European Cooperative Society (ECS) is registered. It permits a minority of shares to be held by 'investor members' which are not employees.
Workers' associations were legalised in 1848 and again in 1864. In 1871, during the Paris Commune, workshops abandoned by their owners were taken over by their workers. In 1884 a chamber of workers' cooperatives was founded. By 1900 France had nearly 250 workers' cooperatives and 500 by 1910. The movement was to rise and fall throughout the twentieth century, with growth in 1936, after the Second World War, between 1978 and 1982 and since 1995.
In 2004 France had 1700 workers' co-operatives, with 36,000 people working in them. The average size of a co-operative was 21 employees. More than 60% of co-operative employees were also members. French workers' co-operatives today include some large organisations such as Chèque Déjeuner and Acome . Other cooperatives whose names are generally known include the magazines Alternatives économiques and Les Dernières Nouvelles d'Alsace, the driving school ECF CERCA and the toy manufacturer "Moulin Roty".
The cooperative movement in Emilia-Romagna, Italy, successfully melds two divergent philosophical currents: Socialism and Catholicism. With more than a century of cooperative history, the region includes more than 8,000 cooperatives.
In the United Kingdom, the Labour Party's enthusiasm for worker cooperatives was at its highest in the 1970s and 1980s, with Tony Benn being a prominent advocate. A small number of such co-operatives were formed during the 1974 Labour Government as worker takeovers following the bankruptcy of a private firm in a desperate attempt to save the jobs at risk. However the change in ownership structure was usually unable to resist the underlying commercial failure. This was true in particular of the best known, the Meriden motor-cycle cooperative in the West Midlands which took over the assets of the ailing Triumph company, although there were instances of successful employee buy-outs of nationalised industries in the period, notably National Express. Meanwhile, many more worker co-operatives were founded as start-up businesses, and by the late 1980s there were some 2,000 in existence. Since then the number has declined considerably.
Co-operatives are typically registered under either the Companies Act 2006 or the Co-operative and Community Benefit Societies Act 2014 (IPS), though other legal forms are available. A number of model rules have been devised to enable cooperatives to register under both acts; for workers' cooperatives, these rules restrict membership to those who are employed by the workplace. Most workers' co-operatives are incorporated bodies, which limits the liability if the co-operative fails and goes into liquidation.
In Israel, worker cooperatives emerged in the early 20th century alongside the Kibbutz, the collective farming movement. The Kibbutz is a cooperative movement which was founded on Zionist ideas, with the intention to cultivate land and increase the number of Jewish settlements. By the 1970s, the Histadrut (Israel Labour Federation) controlled a significant number of corporations, including Israel’s largest bank—Bank Hapoalim (literally the Worker’s Bank). By the 1990s, the Histadrut had lost its power and influence and many worker cooperative corporations were sold or became public companies. Israel’s biggest public transportation company, Egged, is still a workers cooperative. However, Egged employs workers who are not cooperative members and are paid at a lower wage than worker-members.
The United States Federation of Worker Cooperatives is the only organization in the U.S. representing worker cooperative interests nationally. Offering a voice on national level, promoting the worker co-operative model, uniting co-ops at conferences and providing a base of support and technical assistance to the worker co-operative community.
The Eastern Conference for Workplace Democracy and Western Worker Co-operative Conference hold conferences every other year for their respective regions. In addition, there are national and regional nonprofit organizations that focus on providing technical support and assistance to both create new worker cooperatives (start-ups) and conversions of existing businesses into worker cooperatives, usually when the business owner is retiring and wants to sell the company. These organizations include Democracy at Work Institute (created by the U.S. Federation of Worker Cooperatives), Cooperative Development Institute, Ohio Employee Ownership Center, Vermont Employee Ownership Center, Project Equity, and others.
Worker co-ops in Canada are represented by the Canadian Worker Co-op Federation (CWCF). Members of the CWCF are found throughout English Canada.
In response to the economic crisis in Argentina, many Argentinian workers occupied the premises of bankrupt businesses and began to run them as worker-owned cooperatives. As of 2005, there were roughly 200 worker-owned businesses in Argentina, most of which were started in response to this crisis. The documentary film The Take described this phenomenon.
According to a recent statement by the International Co-operative Alliance, cooperative businesses in Argentina employ nearly 20 million people across a number of business sectors from health care to housing to factory work and beyond. These businesses are increasing in number at a drastic rate, with over 6000 having been created in 2012 alone.
See also recovered factory.
India has a substantial set of laws, rules & regulations for enterprises in the co-operative sector.
The Indian Coffee Houses in India were started by the Coffee Board in the early 1940s, during British rule. In the mid-1950s the Board closed down the Coffee Houses, due to a policy change. The thrown-out workers then took over the branches, under the leadership of A. K. Gopalan and renamed the network as Indian Coffee House. This history is recorded in Coffee Housinte Katha, a book in Malayalam, the mother tongue of A. K. Gopalan. The author of the book is Nadakkal Parameswaran Pillai one of the leaders of the ICH movement. Another very large network of worker coops is Kerala Dinesh Beedi, originally started by exploited beedi rollers.
There are significant differences between ends and means between firms where capital controls labour, or firms where the state controls both labour and capital. These distinctions are easily seen when measured by essential elements of commerce: purpose, organization, ownership, control, sources of capital, distribution of profits, dividends, operational practices, and tax treatment. The following chart compares the commercial elements of capitalism, state ownership, and cooperative worker-ownership. It is based on US rules and regulations.
|Commercial criteria||For-profit corporations||State-owned enterprises||Worker cooperatives|
|Purpose||a) To earn profit for owners, to increase value of shares.||a) To provide goods and services, or hold and manage resources for citizens.||a) To maximize net and real worth of all owners.|
|Organization||a) Organized and controlled by investors
b) Incorporated under relevant incorporation laws – varies by country
c) Except for closely held companies anyone may buy stock
d) Stock may be traded in the public market
|a) Organized and controlled by state
b) Chartered by relevant level of government
c) No stock
|a) Organized and controlled by worker-members |
b) Incorporated under relevant incorporation laws – varies by country
c) Only worker-members may own stock, one share per member
d) No public sale of stock
|Ownership||a) Stockholders||a) State||a) Worker members|
|Control||a) By Investors
b) Policies set by stockholders or board of directors.
c) Voting on basis of shares held
d) Proxy voting permitted
|a) By state
b) Policy set by government planners.
|a) By worker members |
b) Policy set by directors elected by worker-members, or by assembly of worker-members
c) One person, one vote
d) Proxy votes seldom allowed
|Sources of capital||a) Investors, banks, pension funds, the public
b) From profitable subsidiaries or by retaining all or part of the profits
|a) The state||a) By members or by lenders who have no equity or vote |
b) From net earnings, a portion of which are set aside for reinvestment
|Distribution of net margin||a) To stockholders on the basis of number of shares owned||a) To the State||a) To members after funds are set aside for reserves and allocated to a collective account|
|Capital dividends||a) No limit, amount set by owner or Board of Directors||a) n/a||a) Limited to an interest-like percentage set by policy|
|Operating practices||a) Owners or managers order production schedules and set wages and hours, sometimes with union participation
b) Working conditions determined by labour law and collective bargaining.
|a) Managers order production schedules and set wages and hours, sometimes with union participation
b) Working conditions determined by labour law and collective bargaining
|a) Workers set production schedules either through elected boards and appointed managers or directly through assemblies |
b) Working conditions determined by labour law and assembly of worker-members, or internal dialogue between members and managers.
|Tax treatment||a) Subject to normal corporate taxes||a) n/a||a) Special tax treatment in some jurisdictions|