"Was John Stuart Mill wrong?" This is the question of an exercise of the e-book The Economy (CORE Project), which I discussed last week with my introudctory economics students in the new degree on History, Politics and Economics at my university. Mill had said that in his times, there were no more worker cooperatives because workers lacked a good enough education, but he added that with the universalization of education, workers would be better prepared and worker cooperatives would expand. However, the puzzle remains today about why in a democratic society with universal education, the working majority have not been able to generalize an economic organization where this majority has the power.
My students had to do some research and they came up with some standard reasons: the combination of scale economies and financial imperfections, the accummulation of risk for worker-owners, the fate of takeovers by conventional forms, incentive problems because of free-riding in team effort, and the improved outside options (as compared to Mill’s times). They also pointed out systemic effects: competition with lower salaries from conventional firms, lack of accompanying institutions…
These problems are compensated by many benefits, otherwise it is hard to understand why there are still so many cooperatives or firms with intermediate forms, like those with worker representatives in relevant boards (like in Germany), or those with participation of workers in the ownership of an otherwise capitalist organization (shared capitalism).
Cooperatives are still more democratic than conventional firms, and in some cases they are more efficient or at least not less. In the knowledge and care economy, where intangibles are more important than in the past, they may increase their relative importance. As Dani Rodrik said, firms with worker participation may be better at internalizing the effects of production in local communities and at creating good jobs in complementarity with place-based policies.
Specific cases, like self managed firms in Yugoslavia, may have ultimately failed not because of self-management being a bad idea, but because of the weight of a single-party system and the lack of outside options.
A student said that a social revolution is necessary to make cooperatives sustainable. That’s perhaps too strong a statement, but he is probably right in that to have an environment more friendly to cooperatives some global changes are necessary.