Why I'm skeptical of worker cooperatives
A central point of Democratic Socialism is the belief in workplace democracy as essential for human flourishing. Their line of reasoning states: Conventional liberal democracy is just a mirage by which capitalists purchase control of the government and continue the oppression of workers and the extraction of the surplus value of their labor in the form of profit.” The proposed solution is usually a worker cooperative, a company that is owned and run by workers. In a company like this, no profit is earned over the long run because everything produced by labor goes to the workers themselves. Some radical socialist thinkers have proposed that the government subsidize or mandate some kind of worker cooperative structure on companies. For reasons I will lay out, I think there would be terrible efficiency losses from subsidizing or mandating worker cooperatives, and those cooperatives would underdeliver on the promised welfare gains of workplace democracy. (I will probably do a later post on the problems with the Labor Theory of Value and the importance of entrepreneurship, but those arguments are not included here.)
Many socialists have lauded Mondragon, the largest worker cooperative in the world, located in the Basque region of Spain. Research has shown that worker cooperatives were more productive than traditionally owned firms in the plywood industry. Socialists usually use this as evidence to support worker cooperatives and their mandate. Yet when I hear claims of equal or even greater productivity, I immediately become skeptical of the need of government intervention. If worker-owned firms are more productive, they should outcompete traditional firms in the long run, making government action superfluous.
It’s a bit similar to when I hear progressives assert that a higher minimum wage can raise worker wellbeing and in turn raise a firm’s profits. While I would support a moderate hike in the minimum wage, it’s quite the stretch to say it will raise profits through productivity gains. If it was more profitable to pay workers more, companies would’ve likely already done it.
Related to this point, I’ve been thinking about the true value of workplace democracy among workers. Prominent socialist writer Nathan Robinson of Current Affairs has talked about how giving workers the ability to fire their manager through a collective “no confidence” style vote would encourage better workplace practices as well as give workers a level of empowerment that grants them dignity in their job. While these all sound like nice things, I’m skeptical that workers really value things like “workplace democracy” as much as Nathan Robinson think.
Why do I think that? Well, suppose at the average restaurant in a town, workers are paid $10 an hour. Now, imagine that the workers really value workplace democracy like many socialists say they would—let’s say it gives them $4 an hour worth of satisfaction. A worker cooperative with full-fledged worker democracy would be able to essentially pay their workers $7 an hour, with $4 of invisible benefit from the workplace democracy and dignity granted by the cooperative’s ownership structure, thus giving the workers $11 in total monetary and non-monetary compensation. Such low real wages would allow the restaurant to undercut every other restaurant in the city on prices. The capitalist firms would be forced to adopt similar practices of offering democracy as a form of intangible benefits, and soon every restaurant in the town is a worker cooperative or at least is run like one. Of course, I’ve never heard of this happening, and you probably haven’t either. This is because I don’t think workers value workplace democracy as much as lefty polemicists think they do. Workers generally want to make more money and improve their living standards, and the fact that we don’t see companies that offer workplace democracy able to undercut traditional company salaries tells me that workers don’t value democratic structures as much as public intellectuals claim.
Additionally, the goal of worker cooperatives are to maximize wages for workers, not profits. This lack of a need for profit allows them to pay workers more than their competitors. By this logic, you’d think if they are equally as productive as a traditional business they should outcompete and out innovate the traditional businesses, because they don’t have to return capital to shareholders.
And if worker cooperatives can out compete traditional companies, I see little issue with that! Higher productivity means cheaper products and better wages! However, in the real world it rarely plays out this neatly. I think the grave efficiency losses from mandating worker cooperatives would make this kind of proposal incredibly harmful if introduced, as well as not deliver on the welfare promises of workplace democracy made by left-wing intellectuals and advocates.
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