Cooperative Business Ventures:
A Practical Solution to Many Problems in Today's Business World

by Brian Zuzga


No business system is perfect, but there are some problems in many firms that may be easily solved by moving to a cooperative system. Cooperative businesses are those that try to exchange some of the tight control of a traditional organization for the trust of the workers, which can be more valuable in the long-run. This does not mean that this is a cure-all or that this is an easy solution, since there are many barriers to slow down such a radical change in thinking. Just like any business decision, this is a tradeoff, here it is between which goals the firm wants to achieve and how much power the "owner" wants to give up to reach those goals. This paper presents cooperative business techniques as alternatives to traditional hierarchical organizations to help the business person optimize this tradeoff.

"Hierarchical patterns are so prevalent in our society and so deeply ingrained in our mind the we are almost incapable of looking objectively at the available evidence and admit that democracy in business and in other types of organization is indeed an economically -- and certainly humanely -- superior structure" (Seibel and Damachi 1982, p. 129)

This paper will provide evidence that alternatives to a traditional hierarchical organization can not only benefit the workers, but can make the business succeed as well. Then the paper will discuss some of the ways cooperatives can fit into various economic models.


If a business person is to be encouraged to move towards a cooperative system, then they would want reasons that doing so would be advantageous. This paper hopes to show that a number of goals that many business people have been striving to achieve are simple consequences of a cooperative system. However, cooperative firms are just as unique as traditional firms, but most of them do have following distinguishing characteristics that make them quite attractive.

Health and Safety

There are two competing theories on the effects of cooperative management on the health and safety of workers. First, there is the theory that the workers would be more willing to take greater risks with the potential for greater profits. On the other hand, the workers in a cooperative are better informed about issues of health and safety, so that makes them more careful. In fact, what often happens is that the firm approaches a social optimum between these two extremes. That way, the balance can be reached by making sure workers are informed of workplace hazards, and then can make an informed decision to take a risk with the chance of greater profit. (Rooney, Employee Ownership and Worker Participation: Effects on Health and Safety, p. 324) However, when the cooperative firm is put under economic stress this situation actually has a negative effect. In this situation, the workers will take too many risks in order to save their jobs or current wages.

Greater competitiveness

Organizational behaviorists and some managers have come to realize that different working environments affect the productivity of workers, while most economists stick to the more traditional model of treating workers just as a quantity unaffected by other factors. There have been studies to show that cooperative work environments affect worker productivity positively, as in the case of some Yugoslavian firms. However, most economic literature has a difficult time assessing work environment because it is so qualitative in nature. (Klinedinst, p. 364)

The increase in productivity due to a positive working atmosphere is particularly noticeable when the cooperative firms are compared with state-run firms. Cooperative firms are definitely more competitive than state-run firms, and one can try to argue that cooperative firms are as competitive as, if not more than, any capitalist firm. The failure of cooperative companies in capitalist systems may be more due to ideological conflicts, rather than any lack of competitiveness. (Doucouliagos, p. 44)

More Innovative

As Kropotkin suggested, worker alienation forces the worker into a mindless state of unimaginative drudgery. While if you engage the worker's mind, then it will naturally be put to use trying to innovate the way their work is done. This is particularly advantageous when innovation is the real product sold to the customer.

In some cases, and especially in the case of the computer industry, innovation is the only advantage that one business has over another competing business. The competing businesses constantly try to innovate: their product, its method of production, the labor costs, and their customer service. Unfortunately, "hierarchical organizations inhibit innovation and ignore the talents of the majority of employees." (Wilson, p. 39) Therefore, if one's goal is to increase innovation at any cost it would be best to avoid a hierarchical organization, and probably in one's best interest to consider cooperative measures.

Long Term Commitment of Employees to the Firm

Quite often, one of the institutional goals of a company is to get a long term commitment of the employees to the firm, since high turnover can break any sense of continuity and add greatly to training costs. Cooperative techniques can be seen a route to achieving this goal, as shown in the case of U.S. computer industry. (Bradley and Smith, p. 580) A cooperative environment is generally more friendly and makes the worker feel like part of the whole, and inspires employee loyalty. Luckily this effect is not limited to "full" cooperatives alone, and the evidence available "suggests conditions under which some firms are facilitating inter-worker collusion and receiving employee loyalty in exchange." (Drago, p. 59) One of the best examples of limited use of cooperative techniques are unions, which can be quite effective since "unions create a worker voice, reduced turnover, and enhanced commitment to the firm" in a study of 21 Australian firms. (Drago, p. 60)

Less Behavioral and Mental Health Problems

"There is reason to believe that the damage to persons caused by the experience of productive labor in settings characterized by powerlessness and the absence of autonomy is manifested in a wide range of problematic behavior, attitudinal and psychological developments." (Greenberg, p. 550) So, the first step to improving the mental health of workers is to eliminate these feelings of powerlessness and absence of autonomy.

From previous research, there are two sides of this problem to attack: first, the work is technically alienating because of the minute division of labor exemplified by the assembly line; and second, the organizational hierarchy that manages the workers treats them like a social assembly line. Again, the obvious solution is an imaginative reorganization of the work atmosphere by giving the workers a sense of power and autonomy, thereby eliminating these feelings of helplessness.

Member Satisfaction

One of the greatest problems in firms today is still worker alienation, and was one of the primary justifications for communism. The cooperative may have a solution to this problem without the totalitarian measures of the Bolsheviks. By giving the workers a sense of power and purpose many cooperatives have instilled a sense of satisfaction in their members and reduced feelings of alienation. This goes with the previous point of having less mental health problems, but one hopes that happy workers are good thing in their own right aside from the mental health benefits.

Spontaneous Cooperation

In the cooperative firm the job boundaries aren't as rigid as they are in a traditional firm, so much so that spontaneous cooperation pops up everyday in the cooperative company. A prime example of spontaneous cooperation is when there is an informal rotation and sharing of jobs outside the usual assigned schedule. Job assignments become informal and alternative arrangements can easily be reached based on the workload and the abilities of each of the workers. When there is a conflict, the workers stick together and try to work the conflict out, rather then appealing to a higher authority. (Greenberg, p. 558)

To further illustrate spontaneous cooperation, many of the workers who had experience in traditional businesses often complained that they felt helpless to assist coworkers with tasks because it was against union regulations. They felt much better with the cooperative notion that encourages workers to help each other out when they run into difficulties. If spontaneous cooperation isn't enough of a benefit in itself, the phenomena also affected firm efficiency and worker effort in a positive manner. (Klinedinst, p. 370)

Need less supervision and management

A common complaint of modern businesses is that they are often top heavy. This is a problem that is quickly solved by a cooperative organization, as demonstrated by the survey of the plywood cooperatives. The plywood cooperatives required one-third the management of an equivalent firm run traditionally. Why is this? How can they continue to run with significantly less supervision?

First, the workers in the cooperative firms felt that they weren't being treating like children anymore. They were treated like rational human beings by the managers and the managers weren't disappointed in return. This is somewhat counterintuitive to the traditional notion that if you give the workers an inch, they will take a mile. Instead, this inspires the managers to trust the workers, and the workers learn to be trustworthy.

Of the workers sampled that had previous experience with a hierarchical firm, they noted that whenever their supervisor was looking over their shoulder they felt unsure of their abilities and that they could do nothing right. In the cooperative environment the workers felt that they were trusted to do a good job, and made sure that their coworkers were doing a good job. This made everyone more confident and proud of the job that they were doing.

Supervisors in a traditional firm are often occupied with the direct supervision of each stage of the process. They are often so busy that they don't see the forest for the trees. Since the supervisors in the cooperative firms trusted the workers, they could worry about more plant-wide issues and deal with much larger problems more effectively. So, the managers are freed from the job of micro-management and supervision, then in turn they can spend most of their time on problem solving tasks that better utilize their skills.

Lastly, but certainly not the least of the advantages in the supervision of cooperative firms is that workers noticed that their supervisors were much more polite. The supervisors would often make sure to say "please" and "thank you" when making requests of the workers. This helps contribute to an attitude of mutual respect. (Greenberg, pp. 557-8)

Workers better informed about the state of their whole company

Another major advantage of a cooperative firm was that the workers were often better informed than their counterparts in a traditional firm. Not only informed about labor related issues, but also production, finance, and other enterprise-level issues. This way we aren't letting the monkeys run the zoo, because each worker knows the state of the company and can decide where it should go.

In the cooperative firm, it is necessary that all information regarding the state of the enterprise be available to all members of the cooperative. All too often, very few members take advantage of all the necessary information to make an informed assessment of the state of the enterprise. However, even this dissemination of information seemed to be enough to make sure that no small group of people tried to take control of the whole firm.

A surprising result of this process is that company-wide issues become the small-talk heard on the shop floor. So if two random people meet in the company rather than talking about sports or the weather they would often have an informed discussion of where the company was and where it should be going in the future. If the general masses of the company are expected to run it, then they have to work through hot issues. It's rather remarkable that this happens spontaneously on the shop floor during otherwise idle time.

Since the workers are the ultimate authority in the cooperative firm, they had better attend the shareholders' meetings to make the decisions. The shareholders' meetings often show a remarkably high attendance of almost 92% in the case of the plywood cooperatives. This is encouraging because it is the most concrete evidence that the workers do participate regularly in the management on their firm, and do believe that it is worthwhile; otherwise, the workers would not attend if they thought that the meetings were just a joke. The meetings are full of informed, intelligent conversation regarding the state of the firm, and where it should be going; this is a direct result of them being better informed.


The only rule for the organization of a cooperative firm is that there is no strict rule. They range widely from a profit sharing retirement plan all the way to employee owned/labor managed firms and producer cooperatives. The organization of a cooperative varies according to what goals the company in aiming for by using cooperative techniques. Sometimes a company's only objective is to achieve a different tax status, while other times it is a small step in a long evolutionary process. Often, employee motivation, innovation, long term commitment of employees to the firm, diversification, and avoidance of hostile takeovers are motivations for using cooperative tactics. Following are some of the more prominent features of many cooperative firms. (Bradley, pp. 573-580)

Ultimate authority is often the worker's assembly.

In a truly cooperative venture the ultimate authority in the firm has to be the mass of workers. Usually this is accomplished via general membership meetings, which can greatly vary in frequency but annually or semiannually seem to be the rule. The meetings generally concentrate on high level topics and try not to get bogged down in the details since they are often so large, while most of the detail is left to working groups or committees to work out.

Sometimes delegate authority in a free-association.

Just because the workers hold the ultimate authority doesn't mean they don't enlist the help of experts to help plan and manage day-to-day affairs, since meetings of the entire worker's body occur rather infrequently. However, in the anarchist tradition the authority delegated to the expert is done so freely and can be taken back at any time. The expert is still responsible to the workers and must report to them. Most of all, the expert can be relieved at any time. These "experts" sometimes hold the position of managers in the company. However, some view the manager/worker relationship as destructive and that authority is better delegated in other ways. (Wilson, p. 48)

Hierarchies still exist, but power flows bottom-up rather than top-down.

Along with the last point, hierarchies can still exist in a cooperative venture too. However the power in the hierarchy flows from the bottom-up in these hierarchies, rather than top-down in the traditional way. So, if there is any committee system or management system, the power comes from the masses of the workers and can be taken away by the masses of workers. Even if the smaller governing body is made up of shareholders, the smaller body is accountable to the larger one. This is a radical departure from the traditional capitalist firm.

Profit Sharing

Profit sharing is one of the easiest ways that a business person can gain some of the benefits of a cooperative venture, because required effort and change to the power structure is minimal. With this small change one can begin to reap the many benefits that cooperative firms enjoy. However, to fully enjoy the fruits of a cooperative system one must be willing to take more substantial measures.

There is a great deal of diversity among those profit sharing firms which institute no other cooperative measures. The profit sharing schemes can range from a simple retirement plan that is based on profits, to more direct or performance related incentives, to employee stock ownership programs. The method by which the dividends are calculated range widely also: some firms advertise beforehand what scheme they will use, while others aren't so clear how they arrive at the figure to be shared. One of the most common techniques was to set a minimum goal that must be met by the workers before the profit sharing would kick into effect. (Bradley, p. 573) In summary, the above are the most popular methods of profit sharing, but most of them are pretty uninteresting and too "traditional" when compared with more innovative cooperative techniques.

Community Property

There are many possible incentives to raise worker morale, one of those being community property which all the shareholders can enjoy, for example: vacation houses, lunches, training sessions, day care, culture (music and actors for celebrations), sports, holiday pay, etc. (Klinedinst, p. 374) Here you can get the economies of scale, while keeping things decentralized.

Example of a Specific Organizational Model: Plywood Cooperatives

The plywood cooperatives of the Pacific Northwest are a good example of successful cooperatives here in the United States. By keeping close to home, the laws and practices governing businesses will hopefully be more familiar to the reader, so that this paper can concentrate on the innovative solutions the plywood cooperatives have for doing business here in the U.S. Hopefully a specific example will show how these pieces can fit together into a coherent scheme for running a cooperative.

To remain consistent with the principle that ultimate decision making authority and responsibility should lie with the general membership, the plywood cooperatives have annual or semiannual meetings of all the shareholders to make all the important decisions for the next year. These meetings generally focus on the performance of the general manager, the financial situation of the firm, the establishment of hourly wage rates, and division of the profits into further investment and dividends to the shareholders.

One may find it odd that a general manager is mentioned in the topics of the shareholders' meetings. Isn't it inconsistent with the principles of a cooperative to hire a general manager? Not at all say the plywood cooperatives, because the general manager and his subordinate supervisors are hired experts whose authority comes directly from the workers. The workers are not afraid to give the managers great leeway in running the company's day-to-day affairs since the managers are hired hands, and if they screw up the workers will fire them (and often do).

Cooperatives, in general, have also been criticized because they aren't as quick to act as a traditional firm, since all the major decisions ultimately go through the general shareholder's meeting. However, the workers of the plywood cooperatives already have this problem solved by electing a board of directors. This smaller board of directors allows the firm to react quickly to outside influences, but this must be balanced with the dangers of giving a small group of people great deal of power.

The plywood cooperatives have addressed this difficulty in a number of ways: first, the board is elected by the shareholders; second, they make sure there is regular turnover on the board, and third, they actively try to prevent a tight-knit minority of shareholders from taking over the board. Some encouraging statistics which indicate that this system is successful are: 31.5% of the workers have run for a board position, and 17.5% of the workers had indeed run for and served on the board of directors. This atmosphere has prevented the board from getting too distant from the workers, since it is made up of workers and when their term is up they will go back to being workers. In fact, the shareholders almost universally felt that board members were very approachable and almost always available to talk about company issues.

Producer cooperatives have also been criticized as "letting the monkeys run the zoo," in effect implying that the average worker doesn't have enough intelligence or knowledge to effectively run the whole firm. However, from studies of the plywood cooperatives it is apparent that the average worker doesn't hold the fate of the entire firm in their hands. The average worker's actual decision making power is limited to the infrequent general membership meetings, so the firm is remarkably immune to the petty whims of a small group of workers. On the actual production front, the day-to-day management is pretty much the same too, with the workers being supervised by managers. All in all, things look very much the same in the day-to-day operation, and if one worker is a "monkey" it is impossible for that worker to change the fate of the entire firm.

One of the most interesting phenomena is how groups of workers act as collective supervisors to handle people that might be "slacking off." If an individual worker is not "carrying their own weight," and tries to reap the benefits of others work and cannot be convinced by the hired management to "shape up," then it is up to this person's fellow workers to get him/her back in line. So there is tremendous pressure for a worker to listen to the management and to do their job well, as long there is confidence that the management is performing their job well.

In summary, there are infinitely many possible ways to organize a cooperative firm. Above are some organizational techniques that have succeeded in a number of situations. However, each business is an individual and may require new and innovative solutions which remain true to the principle of giving control back to the workers.


There are two great political and economic systems that are in place today: socialism and capitalism. It is possible for cooperative ventures to benefit both of these systems greatly, and luckily the philosophy behind cooperatives actually seems to lie somewhere between the two systems. Cooperatives aren't strictly forbidden in either of the two economies, but there are barriers to instituting cooperative reforms in both. This section of the paper will discuss how cooperatives may benefit socialism and capitalism, and the barriers that stand in the way.

Cooperatives in a Socialist System

The principles of a cooperative aren't too distant from socialist doctrines that exist (or existed until recently) in many countries. According to the Pravda, Karl Marx himself "saw cooperatives as a form of new production method is comparison with capitalism." Many socialists don't see cooperatives as a retreat to capitalism, but rather as "a new, higher form of economic endeavor, totally compatible with socialism." (Schillinger, p. 23) With the recent fall of the U.S.S.R. and some disillusionment with the benefits a free-market promised, it might be wise for the leaders of the new republics to go to a system that is a little more familiar, the same system some capitalists are willing to adopt too.

On the other hand, there are some aspects of the cooperative firm that are ideologically at odds with the socialist system. The whole idea of competition between the cooperatives and between the cooperatives and the state-run firms is completely against Marxist-Leninist communal ideals. (Schillinger, p. 24)

However, cooperatives aren't totally unfamiliar to socialist governments. Cooperatives were quite popular during the New Economic Program period in the U.S.S.R., and were responsible for a great deal of economic growth during this time. So what helped the Soviet Union many years ago, may help the struggling former Soviet Republics today. (Schillinger, p. 23)

Cooperatives in a Capitalist System

It is often argued that cooperatively managed firms are less efficient than traditional capitalist firms on the basis that if they were as efficient we would see more of them around everyday. The proponents of labor managed companies counter this argument by saying that the capitalist system is ideologically hostile to cooperative firms. Moreover, the capitalist system uses its power (implicitly and explicitly) to stifle the growth of labor managed firms and to continue the current path. Cooperative firms in a capitalist system have been compared with foreign tissue being rejected in an organ transplant. (Doucouliagos, p. 48) Often this rejection isn't overt, it is very subtle; for example, a bank may discriminate against a cooperative firm on a loan application because on the surface the venture looks particularly risky, and the bank doesn't understand the strengths of a cooperative firm and how to measure the heath of a cooperative firm. For labor managed firms to succeed they have to develop democratic organizations everywhere they go, just as capitalist firms create hierarchical organizations everywhere they go. That way democratic banks will loan to democratic enterprises, hopefully attracting democratic customers.

A second weakness of cooperative firms, in the eyes of the capitalist, is that many times when a cooperative becomes successful it loses its cooperative character and begins to look more and more like a traditional capitalist firm. From the previous argument it could be shown that these firms might feel the pressure to conform as they need more and more support from great capitalist institutions like banks. However, there is more to the death of many cooperative firms than just the ideological bias against them in a capitalist system.

The creation of many labor-managed firms is often counter-cyclical, which means when capitalism is in crisis cooperatives thrive, since people are willing to try innovative management techniques. The labor-managed firm is able to pool it's resources and weather the hard times, but they succeed as long as the capitalist firms are doing poorly. When economic conditions improve, the cooperative's members want to increase their per capita profits, and the easiest way to do this is to use more hired labor (who are not shareholders). If this trend is continued to it's extreme, they there is only one shareholder and you are back with a capitalist system. So this is the first way labor-managed firms collapse back into capitalist firms.

The second way cooperative companies degenerate is by capitalist takeover. If a labor-managed firm is remarkably successful, which is the hope of the founding members, then the shares appreciate significantly. If the shares increase in value to the point that a new member couldn't possibly afford the cost of a share, then a retiring member of the cooperative has no choice but to sell their share to a capitalist firm. Soon enough the capitalist firm owns a controlling share of the company, and it degenerates into a capitalist venture again.

Internal conflicts and information disclosures are both sited as causes of why labor managed firms fail. In the case of internal conflicts, there is so much internal strife over some issue that it affects the ability of the company to operate on a day-to-day basis, and they have no choice but to give up at some point. As for information disclosure, one of the principles of a cooperative firm is that all the workers are kept well informed as to the state of the entire company. However, in a capitalist system it is often to one's advantage to keep corporate secrets, but this is almost impossible in the labor-managed firm. If this becomes a significant competitive disadvantage, it may eventually cause the company to go bankrupt.

Finally, the very nature of the technology of production seems to be against the methods of the cooperative. The machines and tools that a labor-managed firm buys are geared to an assembly-line mentality, and are often very hard to adapt to a completely different working environment. So, if the only technology to build a car is an assembly line, then a cooperative car company is still going to have arrange production around an assembly line. This is completely counter to the principles of the labor-managed firm, but they have to live with it until other tools become available.


It seems that the two great institutions of socialism and capitalism have developed cracks over these many years and may require some patching up if they are to continue to exist. Both have exhibited problems that essentially stem from worker alienation, and cooperatives can be a solution the deals directly with this problem. This paper has presented benefits to be gained by moving to a cooperative system and ways of achieving those goals. The end result could represent a great increase in the quality of life for a majority of humanity, but there is a small minority of capitalists who must be convinced to give up their "power" in favor of helping their neighbors. This is the real challenge.