Would a Cooperative Economy Be Communism?

When I discuss cooperatives with people (and by “people” I mean both species of human – academics and everyone else), a common issue that crops up is how cooperative firms could be ‘upscaled’ to the whole economy. In other words, what would an economy dominated by cooperative firms look like? That sounds like the title of a PhD dissertation, not a blog post, so I won’t attempt a complete answer here. Instead, I will address one permutation of the question that I have heard on more than one occasion – “how would a cooperative economy be different from communism?”

I think that two distinct dimensions are involved in answering this question: who owns and controls what (particularly ‘the means of production’, or firms), and how the economy is coordinated (by the market or by central planning). It seems to me that the question about communism not only betrays a misunderstanding of how cooperatives relate to each of these dimensions, but also confounds the two dimensions. In particular, depending on our definition of communism, the question (at least in its rhetorical form) seems to assume that a cooperative economy would be a) state-owned (or owned by ‘the people’) and b) centrally-planned. It is my contention that a cooperative economy need not be either of these things. Consider each dimension in turn.

Ownership

                The first question is whether a cooperative economy would be state- (or ‘communally-‘) owned. It is certainly the case that a cooperative economy could not be a capitalist economy, given that an inherent feature of capitalism is that capital owns the means of production, and therefore hires labour, leading to class distinctions. In a cooperative economy, by contrast, not only would capital be subservient to labour, but labour would probably own rather than hire capital (currently, capital must hire rather than own labour, due to the prohibition of slavery). Class distinctions would therefore be eliminated (or at least drawn on different lines), because workers would own both labour and capital. Workers would not exploit capitalists; rather, there would be no capitalists.

                That sounds like communism, right? Not so fast. Just because a cooperative economy would not be a capitalist economy does not entail that it would be a communist economy. Cooperative firms are still ‘private property’, in that they are not owned by the state, or ‘the people’ in general, but only by members that work within them. You can think of it as workers also assuming the role of capitalists. Now, cooperatives may be communally owned between their members (i.e. there may not be private property rights within the firm), but the firm itself is still private rather than public or ‘common’ property, in the sense that it is owned and controlled by a well-defined group of members (even if entry were to be unregulated). In this sense, cooperatives can be conceived as "hybrid form" of organisation between socialism and capitalism, to use Rosa Luxemburg's term.

               

Coordination

The second question is whether a cooperative economy would be centrally-planned or market-coordinated. Here is where the two dimensions are conflated – there seems to be a presumption that if we change one of the dimensions of the present system (which is assumed to be capitalist-owned and market-coordinated), namely the ownership dimension, we must also change the coordination dimension; that is, a non-capitalist economy must be a non-market economy. Hindmoor (1999) has even gone so far as to say that cooperatives are essentially “free-riding off capitalism”, because a cooperatively owned economy would somehow squander the benefits of the market.

However, although it is certainly true that capitalism is characterised by markets, that does not entail that markets cannot feature in other systems, such as cooperatively-owned ones. Indeed, I see no good reason why an economy dominated by cooperative firms could not be market-coordinated, and would have to be centrally planned. Of course, many socialists have envisaged a centrally planned economy, with semi-autonomous cooperatives producing according to government-directed prices or quantities, either as a stepping stone towards communism or as a final utopia. Indeed, Marx’s vision of ‘advanced communism’ may have featured cooperatives owned by well-defined communities. But I see nothing intrinsic about cooperatives that entails central planning; it would be possible for all firms to be cooperatively owned and controlled, but still compete with each other over the market. It seems to me that Hindmoor had in mind a market economy, rather than a capitalist economy, when he suggested that cooperatives are “free-riding off capitalism”. But in that case, capitalism is also free-riding off a market economy!

Perhaps there is a misconception that cooperatives are themselves more ‘centrally-planned’ than capitalist firms, which are somehow more ‘market-based’. It may be the case that the relationships prevailing within capitalist firms are more ‘market-like’; but actually, all firms (in a decentralised, market economy) are “islands of planned coordination in a sea of market relations” (Richardson 1972: 883). To go one step further, as Richardson acknowledged, it is not actually true the current system is characterised by a “sea of market relations”; rather, as Schumpeter’s analysis of capitalism demonstrates, and as Herbert Simon once pointed out, most coordination in the present system occurs within institutions like firms and the state, rather than across the market. So capitalism itself is not really ‘market-based’ – it is characterised by “islands of planned coordination” within a ‘sea of planned coordination’ (or perhaps a panacea of planned coordination with some rivers and lakes of market relations)!

Of course, a cooperative market economy would be very different from a capitalist market economy, not least because some very key markets, like the stock market and the labour market, would either be vastly different or would not exist. But other markets may emerge that do not exist today, such as some hybrid between labour and stock markets that allows worker-owners to move between firms. Weitzman (1984) suggested something along these lines, and argued that it would entail less unemployment and less inflation than the current arrangement. And cooperatives would still compete with each other, so there would still be a drive towards efficiency and innovation. Indeed, Vanek (1970) argued that a ‘labour-managed economy’ could more competitive than a capital-managed economy (for various reasons that are beyond the scope of this blog).

Conclusion

In summary, there are two dimensions to the question of what a cooperative economy would look like, which are often confounded. The first is who owns and controls what (‘the mean of production’ in Marxist parlance). If workers own and control the means of production, we have a cooperative economy, whereas if capitalists do so, we have a capitalist economy. The second dimension is how the economy is coordinated. If prices and/or quantities are centrally dictated, we have a planned economy; if they are negotiated in a decentralised fashion, we have a market economy. These two dimensions form a matrix of four potential economies (although I am not sure about a capitalist-planned economy – perhaps it would resemble some feudal arrangement, or some perhaps an extreme version of state capture. Wait, isn’t that what we have now?).  

So, when the questioner asked “wouldn’t a cooperative economy just be communism”: no, not really, for two reasons. First, a cooperatively-owned economy would not be communally-owned; cooperative firms have strictly defined members, and are not the property of ‘the people’ in general. Second, a cooperatively-owned economy would not necessarily be centrally planned; it would be fully compatible with a market economy. The reason for making this point is that a cooperative, market economy could still enjoy all of the benefits associated with the market (competition, innovation, etc.); and perhaps it could do so without incurring the devastating effects of control by capital.