In an article that would delight a former regular and much-missed commenter here, Noah Smith writes about cooperatives at Bloomberg:
Corporate profits now represent about 6.6% of U.S. gross domestic income, while labor compensation is 43.2%:
That means that if profits flowed to workers instead of distant shareholders, the average worker could get a raise of about 15%.
What’s more, cooperatives might help reduce inequality. Workers in a cooperative can vote to pay executives less and pay themselves more, making the compensation structure more egalitarian for the entire company. There is some evidence that this happens. Mondragon Corp., Spain’s largest worker-owned business, pays its chief executive officer just nine times as much as the average worker — a much lower ratio than most companies in the U.S.
It’s hard to measure, but flatter corporate hierarchies might yield intangible benefits, too. Instead of feeling like rented labor, workers who own part of their employer might feel a greater sense of ownership, pride, control and loyalty.
The former commenter regarded such organizations as a form of socialism; I think it a form of capitalism.
Such organizations have been studied. They have advantages and disadvantages:
Data on this question is mixed. A landmark 1995 study of plywood manufacturers by economists Ben Craig and John Pencavel found that in terms of output per hour, conventional businesses had higher productivity than cooperatives, but in terms of total factor productivity — which measures the efficiency with which companies use all their inputs — the co-ops had the edge. This suggests that cooperatives don’t encourage greater effort, but they do organize production in more efficient ways. A 2012 paper by economists Fathi Fakhfakh, Virginie Perotin and Monica Gago found a similar result for cooperatives in France.
A final benefit of cooperatives is that they might be less subject to asset-stripping by short-term investors and shed fewer workers in recessions. There is some evidence that cooperatives have higher survival rates than other businesses, especially during the recent recession. These effects might be magnified in the U.S., with its more rapacious private-equity industry.
I would ask different questions than Mr. Smith does. My question would be why do so few private sector unions hold their pension funds in the stock of the companies for which their members work? I think doing that would align incentives much better. I presume that participatory labor practices, like those employed in Japan, are responsible for the “total factor productivity” benefits suggested above.
Whose interests does a starkly adversarial relationship between management and labor promote?