There is a widespread presumption that worker ownership and control of the firm represents a deviation away from 'private property', a principle which is supposedly more closely maintained in conventional, capitalist firms that are owned and controlled by investors. This conception is reflected both in general opinion, which often associates cooperative organisation with socialism/communism, and in on a lot of the academic literature, especially within the so-called 'property rights school' initiated by Furubotn, Pejovich, and Vanek in the 1970s. In my estimation, however, this conception is in fact a misconception; indeed, I think that the opposite is actually the case.
The underlying rationale for my argument relates to the peculiarity of labour as a factor production. Whereas capital (especially financial capital - physical capital can be problematic) can be bought and sold over the market, with ownership transferring from one party to another, this is not the case with labour. As David Ellerman (1992) has explained, labour is de facto inalienable from the labourer, and is therefore a 'fictitious commodity'. To transfer ownership of labour from one human being to another, as is routinely done with capital, would require the buying and selling of human beings themselves - that is, slavery, which is prohibited (if not completely eradicated) in most of the civilised world. Thus, when an employer employs an employee, labour is only being rented, not purchased; hiring a worker is, in an important way - but not in all ways - equivalent to hiring a car. That is why workers in modern economies are paid wages according to some temporally limited contract, rather than a lump-sum being paid either to the worker or to her previous owner to cover an indefinite period of time.
The peculiarity of labour vis-a-vis capital applies to the present topic in the following way. In a conventional capitalist firm supposedly owned and controlled by its investors, property rights are limited by the fact that labour cannot be owned by anyone other than the labourers, and in this sense, investors do not actually own 'the firm' in its entirety. Instead, their property rights merely give them a claim to the firm's 'residual profits' - that is, the surplus left over from the combination of labour and capital, after the costs of those inputs, including wages along with the 'opportunity cost' of investing capital elsewhere, have been covered. The incomplete nature of ownership in a capitalist firm is perhaps why, even abstracting from the autonomy of managers vis-a-vis investor-owners, residual claimants do not absolutely control the firm even in legal terms. In a worker cooperative, by contrast, workers can potentially own both labour (by virtue of being labourers) and capital (by acting "as their own capitalists", as Marx bemoaned), and in this sense, the cooperative firm represents a more complete form of ownership than the capitalist firm.
Now, it should be noted that, just as investor-ownership is a simplification, so too is worker-ownership. In fact, the assets of a 'worker-owned' firms are not entirely owned by their workers, except for in certain American cooperatives. Rather, virtually all cooperatives maintain some sort of 'collective capital' that cannot be paid out as shares to individual workers or sold to outside parties, but must rather remain within the firm. One purpose of collective ownership (although it is not really 'ownership' at all) is to prevent workers from neglecting internal reinvestment or selling out to investors - problems that the American 'capitalist cooperatives' (and indeed, capitalist corporations) have experienced in force. An extreme form of collective ownership was found in the self-managed enterprises of the former Yugoslavia, which adhered to a 'usufruct arrangement' whereby all surplus earnings were collectively owned. However, while the collective-ownership model prevented workers from buying out, it did not succeed in promoting reinvestment, because workers simply increased their wages and bonuses, thus reducing the collective surplus. This led to further problems, such as the disincentive to hire new workers. In practice, therefore, most cooperatives use some mixture of individual and collective ownership; the 'individual capital accounts' of the Mondragon cooperatives are the most famous example.
However, even if a Yugoslav-style system of ownership is not as complete a form of property as individual ownership (in either a cooperative or a capitalist firm), both individually- and collectively-owned cooperatives arguably represent a more 'private' form of property than capitalist firms. At this point, Ellerman's discussion of the 'labour theory of value', which emphasises that production is ultimately carried out by workers, comes into play. Because labour cannot be removed from the labourer, in a capitalist firm there will always be another category of stakeholder other than investor-owners - namely workers - vying for control of the firm (again, even in a legal sense). By contrast, a cooperative can in principle abolish the investor category of stakeholder, or at least combine it with the worker category into a single category of 'members', because worker-members need not 'hire' capitalists in the same way that investor-owners must hire workers (although they may, for example, rent machinery). It is no surprise, then, that cooperatives have often been compared to secret societies - surely as 'private' as it gets!
In corporations - also known as public limited companies - the non-private nature of capitalist ownership is magnified by the fact that shares can be traded over a public stock market. Cooperatives featuring common property cannot be likewise traded; and although worker-owners in individually-owned cooperatives can sell their shares to investors, there is no market (or even the possibility for private exchange, as in the case of a private capitalist company) for the unified category of membership. If capitalists purchased all the shares of a cooperative, they would have to hire workers, thus transforming the firm into a capitalist firm, or else become workers themselves.
So, in sum, cooperatives need not represent a deviation from the notion of private property; on the contrary, they may represent a more complete, and indeed more private, form of property.
Reference: Ellerman, D. (1992) Property and Contract in Economics: the Case for Economic Democracy (Cambridge: Basil Blackwell)
The underlying rationale for my argument relates to the peculiarity of labour as a factor production. Whereas capital (especially financial capital - physical capital can be problematic) can be bought and sold over the market, with ownership transferring from one party to another, this is not the case with labour. As David Ellerman (1992) has explained, labour is de facto inalienable from the labourer, and is therefore a 'fictitious commodity'. To transfer ownership of labour from one human being to another, as is routinely done with capital, would require the buying and selling of human beings themselves - that is, slavery, which is prohibited (if not completely eradicated) in most of the civilised world. Thus, when an employer employs an employee, labour is only being rented, not purchased; hiring a worker is, in an important way - but not in all ways - equivalent to hiring a car. That is why workers in modern economies are paid wages according to some temporally limited contract, rather than a lump-sum being paid either to the worker or to her previous owner to cover an indefinite period of time.
The peculiarity of labour vis-a-vis capital applies to the present topic in the following way. In a conventional capitalist firm supposedly owned and controlled by its investors, property rights are limited by the fact that labour cannot be owned by anyone other than the labourers, and in this sense, investors do not actually own 'the firm' in its entirety. Instead, their property rights merely give them a claim to the firm's 'residual profits' - that is, the surplus left over from the combination of labour and capital, after the costs of those inputs, including wages along with the 'opportunity cost' of investing capital elsewhere, have been covered. The incomplete nature of ownership in a capitalist firm is perhaps why, even abstracting from the autonomy of managers vis-a-vis investor-owners, residual claimants do not absolutely control the firm even in legal terms. In a worker cooperative, by contrast, workers can potentially own both labour (by virtue of being labourers) and capital (by acting "as their own capitalists", as Marx bemoaned), and in this sense, the cooperative firm represents a more complete form of ownership than the capitalist firm.
Now, it should be noted that, just as investor-ownership is a simplification, so too is worker-ownership. In fact, the assets of a 'worker-owned' firms are not entirely owned by their workers, except for in certain American cooperatives. Rather, virtually all cooperatives maintain some sort of 'collective capital' that cannot be paid out as shares to individual workers or sold to outside parties, but must rather remain within the firm. One purpose of collective ownership (although it is not really 'ownership' at all) is to prevent workers from neglecting internal reinvestment or selling out to investors - problems that the American 'capitalist cooperatives' (and indeed, capitalist corporations) have experienced in force. An extreme form of collective ownership was found in the self-managed enterprises of the former Yugoslavia, which adhered to a 'usufruct arrangement' whereby all surplus earnings were collectively owned. However, while the collective-ownership model prevented workers from buying out, it did not succeed in promoting reinvestment, because workers simply increased their wages and bonuses, thus reducing the collective surplus. This led to further problems, such as the disincentive to hire new workers. In practice, therefore, most cooperatives use some mixture of individual and collective ownership; the 'individual capital accounts' of the Mondragon cooperatives are the most famous example.
However, even if a Yugoslav-style system of ownership is not as complete a form of property as individual ownership (in either a cooperative or a capitalist firm), both individually- and collectively-owned cooperatives arguably represent a more 'private' form of property than capitalist firms. At this point, Ellerman's discussion of the 'labour theory of value', which emphasises that production is ultimately carried out by workers, comes into play. Because labour cannot be removed from the labourer, in a capitalist firm there will always be another category of stakeholder other than investor-owners - namely workers - vying for control of the firm (again, even in a legal sense). By contrast, a cooperative can in principle abolish the investor category of stakeholder, or at least combine it with the worker category into a single category of 'members', because worker-members need not 'hire' capitalists in the same way that investor-owners must hire workers (although they may, for example, rent machinery). It is no surprise, then, that cooperatives have often been compared to secret societies - surely as 'private' as it gets!
In corporations - also known as public limited companies - the non-private nature of capitalist ownership is magnified by the fact that shares can be traded over a public stock market. Cooperatives featuring common property cannot be likewise traded; and although worker-owners in individually-owned cooperatives can sell their shares to investors, there is no market (or even the possibility for private exchange, as in the case of a private capitalist company) for the unified category of membership. If capitalists purchased all the shares of a cooperative, they would have to hire workers, thus transforming the firm into a capitalist firm, or else become workers themselves.
So, in sum, cooperatives need not represent a deviation from the notion of private property; on the contrary, they may represent a more complete, and indeed more private, form of property.
Reference: Ellerman, D. (1992) Property and Contract in Economics: the Case for Economic Democracy (Cambridge: Basil Blackwell)
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