The text below is a research paper extract. You can find the download link for the full paper at the bottom of the page.
For many people, work is an overwhelmingly negative experience. Despite centuries of economic growth and productivity increases, the global north remains gripped in stagnation of long hours and often low economic rewards; for many people work is no longer an assurance of a stable livelihood. At the same time we continue to be dominated by working cultures which strip us of meaning and autonomy, emphasising subservient performance at all costs. The world of work remains fundamentally extractive, with time, wellbeing and financial security of large swathes of the population being sacrificed to line the pockets of an increasingly more concentrated group of wealthy capitalist elites.
It does not have to be this way. Alternative models for running organisations do exist, and can offer a route into a better, more fulfilling world of work. In particular, cooperative ownership and democratic governance by workers or other groups of affected stakeholders has long been presented as a necessary foundation for transforming the world of work. But, despite an apparent resurgence in interest, it seems that these models1 have not really taken off.
Orthodox economics puts forward one story as to why this is. In this story, worker or multi-stakeholder ownership brings with it a whole raft of problems which undermine cooperatives’ ability to be successful. These range from free riding to deliberation and influence costs and even tensions around investment decisions given competing individual preferences. In short, the more equal resource distributions and democratic governance which make cooperatives better places to work are also the ones which undermine their ability to succeed. A review of the literature has generated the following list of problems (framed as asymmetries with traditional organisations), which will be outlined in more detail in the essay itself:
- Perverse responses to price increases
- Horizon problems
- Portfolio problems
- Difficulty securing external investment
- Free-rider problems
- Principal-agent problems
- Transaction costs
- Bargaining costs
- Influence costs
- Excessive egalitarianism
This paper was initially intended to break down what these problems are and provide proposals grounded in economic theory for rectifying them. However, further research unearthed a different narrative. While data is far from extensive, there is evidence that under the right conditions they are not only capable of surviving but thriving. So where does this leave us? The answer is one inspired by the work of Elinor Ostrom. Like Ostrom and the puzzle of common-pool resource management,2 we are faced with an interesting set of circumstances: real world experience indicates plentiful resolutions to problems which by the account of orthodox economic theory should be very difficult indeed. What is missing is a more in depth analysis of how and why these resolutions are successful. Work exists analysing the impacts of policy environments3, but there is little focused on the characteristics of cooperatives themselves and much less that is backed by rigorous and evidence-driven analysis.
At its core, this piece is a call for action. It lays out the landscape of theoretical economic problems facing cooperatives and the real world evidence which seems to contradict their doomful conclusions. It culminates in a call for an Ostrom-esque, emergent research programme to rigorously examine how cooperatives successfully tackle these issues in reality.
I’ll use the term “cooperative” or “co-op” here to refer to all collectively owned and democratically governed organisations, irrespective of their legal structure ↩
For brevity I will avoid giving too detailed an outline of Ostrom’s work here, but will expand a little further later in the paper ↩
E.g. New Economics Foundation, ‘Co-Operatives Unleashed: Doubling the Size of the UK’s Cooperative Sector’ (New Economics Foundation, 2017). ↩