Can co-operatives crowd out capitalism?

1 July 2012

Wayne Ellwood argues that co-ops – democratic, community-focused – offer an egalitarian way out of our current mess.

This special report was published in the July/August edition of the New Internationalist on co-operatives. Buy this issue or subscribe from just £7

In the eyes of the mainstream media and the high priests of the free market, Argentina just doesn’t get it. This past May, the country was savaged by the international business press for nationalizing the Spanish-owned oil company, YPF. Scarcely mentioned was the fact that Argentina’s oil and gas industry was only ‘privatized’ in the late-1990s under pressure from the International Monetary Fund (IMF) and other hardline enforcers of then fashionable neoliberal economic policies. Like many countries around the world, Argentina’s oil industry used to be state-owned.

Back in 2001, the knives were out again. After years of enforced austerity and ‘structural adjustment’ the resource-rich South American country was awash in debt, crippling inflation, staggering unemployment and negative economic growth. (Notice any parallels with present day Greece and Spain?) The IMF’s prescription for setting the economy right – ‘flexible’ labour conditions, deregulation, loosening of capital controls, privatization of state-owned assets, devaluation of the national currency – only made things worse.

Skilled and in control: an Argentine co-op member thins dough for tarts at a recovered bread factory in Buenos Aires.

Andres Lofiego/ Majority World

With inflation raging and tens of thousands of workers on the streets, the government finally called it quits, defaulting on its debt and devaluing its currency. Predictably, the kingpins of global finance went ballistic, warning that Argentina would sink into penury and chaos.

It didn’t happen. Over the next decade the country’s GDP grew by nearly 90 per cent, the fastest in Latin America. Poverty fell and employment rose steadily while government spending on social services slowly increased.

Many factors contributed to this astounding turnaround, including the determination of Argentineans to strike an independent economic course not reliant on the whims of foreign capital.

But a significant part of its success is rooted in Argentina’s rich history of co-operatives. Waves of Jewish and Italian immigrants brought the co-operative vision with them during the early 20th century. Co-ops were well established, especially in agriculture, prior to the financial and political meltdown in 2001. According to the International Co-operative Association (ICA), nearly a quarter of the South American country’s 40 million people are linked directly or indirectly to co-operatives and mutual societies.

‘So when the national economy collapsed and the country's business class started to bail out... the workers had a better idea’

So when the national economy collapsed and the country’s business class started to bail out, abandoning factories and stripping assets, the workers had a better idea. They decided to form worker co-ops and run the factories themselves. The movement became known as las empresas recuperadas (recovered companies). You can see the background to the Argentine crisis and the story of one such takeover in Avi Lewis’ and Naomi Klein’s inspiring documentary, The Take.

It was by no means an easy road. One estimate put the number of factories around Buenos Aires abandoned by their owners at close to 4,000. Argentina was a country steeped in decades of corrupt, clientalist politics and ‘I’m-all-right-Jack’ trade unionism. Democratic ownership, the workers taking control, running their own factories as co-operatives, was a stretch. How to re-engineer a top-down system of traditional management where employees defer to authority in an adversarial workplace? The psychological shift alone was daunting. But desperate times can bolster resolve. Against all odds, including belligerent bosses, intransigent owners and reluctant bureaucrats, the idea took hold.

Today, there are more than 200 ‘recovered’ co-operative factories in Argentina – up from 161 companies in 2004 – providing jobs for more than 9,000 people. Most are smallish, which means the hands-on approach is a little easier to manage. Three-quarters of the firms employ fewer than 50 workers, though two per cent have more than 200 employees. They are scattered across a range of industries from shoes and textiles to meatpacking plants and transport firms.¹

What began as a brave experiment after the economic collapse of 2001 has become a vibrant and stable part of the economy. According to University of Buenos Aires researcher Andrés Ruggeri: ‘The workers learned that running a company by themselves is a viable alternative. That was unthinkable before… These are workers who have got back on their feet on their own.’²

As in Argentina’s 2001 crisis, the co-operative spirit often emerges when times are toughest, in the midst of economic collapse and social disintegration, when people are searching for alternatives. A little history is instructive.

Radical thinkers

Weavers formed the first documented co-operative society in 1769 in Fenwick, Scotland. But the modern co-op movement really began with the Rochdale Society of Equitable Pioneers in December 1844. As the Industrial Revolution rolled across Britain, a menacing, muscular form of capitalism was remaking the country from top to bottom. Thousands of workers lost their jobs to the new steam-powered machines; the cities were flooded with unemployed; poverty and illness soared as the skies blackened; men, women and small children worked 70 hours a week in life-threatening conditions in the booming mills and factories.

Co-ops put people at the centre of decision-making.

Stringer/Reuters

Across Europe, radical thinkers sparked opposition to the ravages of this new industrial capitalism. Proudhon, Fourier, Owen, Marx and Engels all argued for a social and political order where people would come before profit and where co-operation would trump competition. In Rochdale, a bustling mill town north of Manchester, 30 citizens including 10 weavers pooled their savings and opened a tiny shop selling candles, butter, sugar, flour and oatmeal. By combining forces they were able to afford basics they could not normally buy. Soon they were also selling tea and tobacco. It was a success and an inspiration that gave birth to a new movement. In the next half-century co-operatives and credit unions spread through Europe and around the globe.

According to the ICA, more than a billion people are now involved in co-operative ventures – as members, customers, employees or worker/owners. Co-operatives also provide over 100 million jobs – 20 per cent more than multinationals. There are producer, retail and consumer co-ops and they’re spread across every industry. Members may benefit from cheaper prices, friendly service or better access to markets but, most importantly, the democratic structure of co-operatives means members are ultimately in charge. A core principle is ‘one member, one vote’. It’s that sense of control that builds social capital and makes co-operatives such a vital source of community identity. Profits might be reinvested in the business, shared among members or channelled to the local community. Because they exist to benefit their members, rather than to line the pockets of private shareholders, co-operatives are fundamentally more democratic. They empower people. They build community. They strengthen local economies.

The stunning success of the co-op movement is reason enough to celebrate 2012 as the UN’s International Year of Co-operatives. But the timing is propitious for other reasons. We’re living with an economic system that is producing vast wealth for the few at the expense of the majority. The model is broken and the damage to people, communities and the natural world is growing. In the aftermath of the great financial meltdown of 2008 and the continuing instability of the global economy there is an urgent need – and a deep yearning – for balance and equality. The search for alternatives has never been more urgent.

As US social critic and author Chris Hedges has written: ‘The demented project of endless capitalist expansion, profligate consumption, senseless exploitation and industrial growth is now imploding.’³

Old orthodoxies hold firm

And so it is. But not gracefully. The owners of capital are unlikely to cede power willingly. The Occupy Movement struck a powerful chord and new research underlines the notion that social ills are rooted in inequality. Income gaps weaken society and make things worse for everyone, not just the poor. ‘It’s what they’re yearning for out there on the streets of the Occupy Movement – to have some active engagement in their community and in their economy, ’ says Dame Pauline Green, president of the ICA. ‘That’s what they want.’

Yet inequality is growing almost everywhere and those in power refuse to do anything about it. In the US, where belief in free markets reigns supreme, the incomes of the richest 1 per cent of Americans grew 58 per cent from 1993-2010 while the rest rose just 6.4 per cent.

‘Members may benefit from cheaper prices, friendly service or better access to markets but, most importantly, the democratic structure of co-operatives means members are ultimately in charge’

Against reason, science and empirical evidence, the old orthodoxies hold firm: ‘The market will sort things out. Economic growth will be our salvation. Technology will save us.’ Yet people sense there is something wrong even if they can’t quite identify the problem. Middle-class budgets are stretched. Young people can’t find meaningful work or affordable housing; the ranks of the poor are growing; social services are pared back while the welfare state is dismantled. People have lost faith in big government, big banks, big business, Wall Street and the City of London. Karl Marx wrote of the dislocating social upheaval of his time that ‘all that is solid melts into air’. It is just as apt today.

A central part of what’s missing is economic democracy. As corporate critic Marjorie Kelly notes: ‘Our politics and economy are so intertwined that imbalances in wealth and ownership have eroded our political democracy. To fix this we need to democratize the economic aspect of sovereignty.’⁴

‘We can no longer afford the free-market shenanigans of the past decade, the freewheeling state-capitalist Chinese model or the dead hand of traditional communism’

Without overstating the case, co-operatives can help do precisely that. They offer a way to democratize ownership and to counter the divisions and inequalities of the market economy. The co-op model is a challenge to the hyper-competitive, winner-takes-all model of corporate capitalism. Co-operatives show there is another way of organizing the market where profit is not the sole objective and where, theoretically, fairness is institutionalized and people are at the centre of decision-making.

But can co-ops actually ‘crowd out capitalism’? University of Wisconsin sociologist Erik Olin Wright believes they can play a vital role in expanding democratic space. Co-ops help rebuild the public sphere and create a wedge between the market and the state. Wright talks of a ‘symbiotic’ transformation where co-ops spearhead a wider democratic surge to help bolster civil society and put down roots in the cracks of the existing system.

People over capital

Co-operatives can be a community anchor and they can revitalize the local economy. When the Fonderie de l’Aisne in Trelou sur Marne northeast of Paris was threatened with closure, a group of 22 former workers came up with a bold plan. They bought the factory and reopened it as a co-operative. Now they run the place themselves. The workers are ‘really motivated and provide solutions to problems,’ says manager Pascal Foire. ‘We work for ourselves and for our own future.’

But for co-ops to really tip the balance, Wright points to the need for some key policy changes. These include access to publicly financed credit markets at below-market rates (to solve the problem of under-capitalization) and more ‘cross-subsidizing and risk pooling’ between co-ops themselves.

There is no question that mutual support works. The massive Mondragon Co-operative, a $23-billion global operation in Spain’s Basque region, is a case in point. Of the group’s 270 component companies, only one has gone out of business during the current Spanish crisis. And all these workers were absorbed by other co-ops.

Co-operative by nature

Despite Mondragon’s success we live with an economic system that is inimical to the spirit of co-operation. Competition and efficiency are its watchwords. You could even say it is systemically unco-operative, based on individuals operating in their own self-interest. The rightwing icon Ayn Rand mythologized unbridled capitalism as the pinnacle of freedom but it was Margaret Thatcher, in her attack on the ‘nanny state’, who put it most baldly way back in 1987 when she said ‘there is no such thing as society’. Mrs Thatcher’s current heir in Westminster, David Cameron, is both more cynical and more devious. His ‘Big Society’ formulation calls on citizens to pick up the pieces after the state withdraws from the provision of social services. Help each other because you’re on your own. In the end the vision is the same.

Recent thinkers argue that biology and evolution prove we are natural co-operators.

Jorge Martin

And yet we are a supremely co-operative species by nature. How else to account for our ability to survive and prosper in every corner of this planet, from the frozen Arctic tundra to the blistering Australian outback? Harvard maths and biology professor Martin Novak describes co-operation as the ‘master architect’ of evolution.

Of course, reality does not always live up to theory. Co-ops operate within market structures and must rely on human beings to make them work. The competitive market is ruthless and those who can’t compete are trampled underfoot. Co-operation can sometimes drift into co-optation. And people are... well, people – sometimes nasty, selfish, lazy, opinionated, bull-headed. While co-operation for mutual benefit is a good idea, the road may be bumpy.

In his recent book, Wired for Culture, the evolutionary biologist Mark Pagel argues that culture is made possible by social learning, which in turn depends on co-operation. Evolution allows co-operation to flourish within groups – but not necessarily between them.

‘It is our uniquely human sense of social and cultural relatedness that makes our co-operation work... we are prompted to behave well toward each other; but even slightly perceived differences can end in xenophobia, racism, and extreme violence.’⁵

The same drive that pulls people together can also cause them to turn on anyone different as a perceived threat. Choose your own horror. The list is endless: Stalin’s Gulag, the poisonous antisemitism in Nazi Germany, the slaughter in Rwanda, the carnage in ex-Yugoslavia. The co-operative urge, while strong and innate, does not always lead to sweetness and light. People can co-operate for bad ends as well as good. Street gangs co-operate, but so do surgical teams. Building bridges of mutual understanding and eroding both tribal and group frontiers has to be at the forefront of the co-operative vision.

A good idea takes root

Where plants are closed down, worker co-operatives can reopen them. The ‘recovered factories’ co-op movement is spreading in Latin America. There are 69 ‘recovered factories’ in Brazil, around 30 in Uruguay, 20 in Paraguay and a handful in Venezuela.

We’ve got some endgame issues facing us as a species, problems which will require us to co-operate at a global level if we are to get through the next century without catastrophe. Climate change, resource depletion, ecological collapse and galloping consumerism: these are challenges few business or political leaders have the courage to confront. The UN itself is one chequered attempt to unite the peoples of the world in a common project of peace and prosperity. It has been fraught, to say the least.

We can no longer afford the free-market shenanigans of the past decade, the freewheeling state-capitalist Chinese model or the dead hand of traditional communism. We will have to do much better.

Co-operatives can point the way towards a different kind of economic model, where people control capital and not the other way around.

A little real democracy wouldn’t hurt. ■

Las Empresas Recuperadas en la Argentina, Andrés Ruggeri, Open Faculty Programme, University of Buenos Aires, 2010.
‘Worker-run factories in Argentina continue to thrive, boosting the economy and influencing workers in other countries’, Marcela Valente, IPS, 12 Nov 2010.
‘The implosion of capitalism’, Chris Hedges, Truthdig, 30 April 2012.
‘Can there be good corporations?’ Marjorie Kelly, Yes Magazine, Spring 2012.
Wired for Culture, Mark Pagel, WW Norton 2012.