Most of the literature on cooperatives frames the discussion in terms of cooperative versus capitalist firms. In reality, however,there are two distinct forms of enterprise that are often bracketed together in the term 'cooperative': there are worker cooperatives, owned and controlled by their workers, and there are consumer (and other user) cooperatives, owned and controlled by their consumers (and other users) [1]. So what do these forms of enterprise have in common that differentiates them from capitalist firms?
It is usually said that cooperatives are 'membership organisations', meaning that they are owned and controlled by their members. By this explanation, the difference between the diverse forms of cooperative lies in which category of stakeholder is accorded the status of 'members'. However, as Hansmann (2013) has provocatively argued, according to this minimal definition there is no reason why capitalist firms should be excluded from the 'cooperative' classification, because capitalists can be considered members just like workers or consumers; capitalist firms, in other words, are essentially "capital cooperatives". In the conventional application of the 'cooperative' term, it would thus appear that the only thing the various types of cooperative have in common with each other is that they are not owned and controlled by capitalists. To retain consistency in light of Hansmann's argument, we could alter the definition of 'cooperative', either by restricting it to one particular type of cooperative or by extending it to include all firms. Either of these options, of course, would render the term redundant - the first by applying it in an equally arbitrary fashion as its current usage, the second by failing to offer any distinction between firms - which is precisely the purpose of Hansmann's reductio ad absurdum.
There is, however, a way to defend the current usage of the cooperative label, namely by providing an explanation as to why capitalists cannot in fact be considered 'members' of the firm. In a sort of Marxian way, I think that one potential explanation is that capital - be it physical capital like a machine or financial capital like a sum of money - is a tradable commodity; it is an actual 'thing' (even if it is an intangible thing, such as an entitlement to a certain portion of national wealth, as in the case of money) that can be bought and sold over the market. By contrast, neither labour nor consumption can be detached from their human actors; they are not 'things' but rather activities performed by human beings. Indeed, the 'fictitious' nature of the labour commodity is why, although there exists a labour market, employers can only rent/hire labour rather than purchase it in its entirety. Even in the case of slavery, wherein labour is bought and sold, a master cannot buy a person's labour without also acquiring its human embodiment. (This is both expedient and bothersome to the master, who is also entitled to any of the slave's offspring, but must deal with the physical and psychological needs of a human being if he is to extract the slave's labour power - a point that Marx raised in Capital when discussion the obligation of capitalists to ensure that their workers are capable of "social reproduction"). Consumption, meanwhile, cannot be bought or hired, because it is by definition the final stage of a product cycle - you cannot acquire somebody else's consumption, but only the thing that they consume; you can consume instead of somebody, but you cannot consume vicariously on somebody else's behalf.
What all of this implies is that in a capitalist firm, it is possible to arrive at a bizzare situation in which nobody (that is, no human being) involved in the firm's activities (recall the difference between things and activities), be it work or consumption, actually owns or controls the firm. Those who do own and control the firm - that is, those who have provided the firm's capital, and who receive a share in the firm's profits - may be completely absent and anonymous, which is indeed the case in many large corporations. The owners may even be performing activities of work and consumption elsewhere - many employees own shares in other companies, for example, while ultra-rich owners may be busy consuming yachts and fine wine. Of course, absentee owners employ managers to supervise production, but management is a form of labour rather than capital - it is an activity rather than a thing.
Now, it is true that investment is also an activity. However, capitalists do not own and control a firm because they have performed the activity of investment, but rather because of the capital they have provided. To see this, consider that a rich person can hire a stockbroker to invest the rich person's capital. In that situation, the owner of the capital, and not the stockbroker, becomes an owner of the firm in which the stockbroker invested. As I implied earlier, this dynamic cannot occur in the case of labour or consumption, because these activities can only be performed by the human beings in which they are embodied. In a sense, then, the capitalist firm is actually 'owned' by a thing - that is, capital - with that thing in turn being owned by capitalists. Indeed, this is normally how the firm is portrayed in neoclassical economics, with a certain factor of production (viz. capital) hiring another factor (labour), rather than the owners of those factors playing any primary role.
Based on the discussion so far, we can now establish a new criterion for membership: to be a member of the firm, somebody (that is, some human being) must be involved in the firm by virtue of her activities. Because a capitalist is involved in the firm only through her capital, which is not an activity, she cannot be a member of the firm, even if she owns and controls it. With this addendum, the reductio of Hansmann's argument - that a 'cooperative' consists of any firm that is not owned and controlled by capitalists - is not as absurd as it first appears!
Note:
[1] To be sure, cooperatives are usually differentiated into a larger number of categories, including, most prominently, agricultural cooperatives. In fact, however, the term ‘agricultural cooperative’ is ambiguous, and agricultural cooperatives can be either worker cooperatives, in which the farmers are the worker-members, or user cooperatives, in which farm units collaborate to bulk buy inputs, share marketing costs, and so on. This same distinction can be drawn between other forms of cooperative enterprise that are commonly enumerated, such as healthcare or educational coops, which can be owned and controlled either by the workers (healthcare practitioners or teachers) or by their users (students/parents or patients). Financial cooperatives, meanwhile, are clearly a form of user cooperative. In my estimation, therefore, the worker/user distinction is exhaustive.
Reference:
Hansmann, H. (2013) 'All Firms are Cooperatives - and so are Governments' Journal of Entrepreneurial and Organizational Diversity 2 (2): 1-10
It is usually said that cooperatives are 'membership organisations', meaning that they are owned and controlled by their members. By this explanation, the difference between the diverse forms of cooperative lies in which category of stakeholder is accorded the status of 'members'. However, as Hansmann (2013) has provocatively argued, according to this minimal definition there is no reason why capitalist firms should be excluded from the 'cooperative' classification, because capitalists can be considered members just like workers or consumers; capitalist firms, in other words, are essentially "capital cooperatives". In the conventional application of the 'cooperative' term, it would thus appear that the only thing the various types of cooperative have in common with each other is that they are not owned and controlled by capitalists. To retain consistency in light of Hansmann's argument, we could alter the definition of 'cooperative', either by restricting it to one particular type of cooperative or by extending it to include all firms. Either of these options, of course, would render the term redundant - the first by applying it in an equally arbitrary fashion as its current usage, the second by failing to offer any distinction between firms - which is precisely the purpose of Hansmann's reductio ad absurdum.
There is, however, a way to defend the current usage of the cooperative label, namely by providing an explanation as to why capitalists cannot in fact be considered 'members' of the firm. In a sort of Marxian way, I think that one potential explanation is that capital - be it physical capital like a machine or financial capital like a sum of money - is a tradable commodity; it is an actual 'thing' (even if it is an intangible thing, such as an entitlement to a certain portion of national wealth, as in the case of money) that can be bought and sold over the market. By contrast, neither labour nor consumption can be detached from their human actors; they are not 'things' but rather activities performed by human beings. Indeed, the 'fictitious' nature of the labour commodity is why, although there exists a labour market, employers can only rent/hire labour rather than purchase it in its entirety. Even in the case of slavery, wherein labour is bought and sold, a master cannot buy a person's labour without also acquiring its human embodiment. (This is both expedient and bothersome to the master, who is also entitled to any of the slave's offspring, but must deal with the physical and psychological needs of a human being if he is to extract the slave's labour power - a point that Marx raised in Capital when discussion the obligation of capitalists to ensure that their workers are capable of "social reproduction"). Consumption, meanwhile, cannot be bought or hired, because it is by definition the final stage of a product cycle - you cannot acquire somebody else's consumption, but only the thing that they consume; you can consume instead of somebody, but you cannot consume vicariously on somebody else's behalf.
What all of this implies is that in a capitalist firm, it is possible to arrive at a bizzare situation in which nobody (that is, no human being) involved in the firm's activities (recall the difference between things and activities), be it work or consumption, actually owns or controls the firm. Those who do own and control the firm - that is, those who have provided the firm's capital, and who receive a share in the firm's profits - may be completely absent and anonymous, which is indeed the case in many large corporations. The owners may even be performing activities of work and consumption elsewhere - many employees own shares in other companies, for example, while ultra-rich owners may be busy consuming yachts and fine wine. Of course, absentee owners employ managers to supervise production, but management is a form of labour rather than capital - it is an activity rather than a thing.
Based on the discussion so far, we can now establish a new criterion for membership: to be a member of the firm, somebody (that is, some human being) must be involved in the firm by virtue of her activities. Because a capitalist is involved in the firm only through her capital, which is not an activity, she cannot be a member of the firm, even if she owns and controls it. With this addendum, the reductio of Hansmann's argument - that a 'cooperative' consists of any firm that is not owned and controlled by capitalists - is not as absurd as it first appears!
Note:
[1] To be sure, cooperatives are usually differentiated into a larger number of categories, including, most prominently, agricultural cooperatives. In fact, however, the term ‘agricultural cooperative’ is ambiguous, and agricultural cooperatives can be either worker cooperatives, in which the farmers are the worker-members, or user cooperatives, in which farm units collaborate to bulk buy inputs, share marketing costs, and so on. This same distinction can be drawn between other forms of cooperative enterprise that are commonly enumerated, such as healthcare or educational coops, which can be owned and controlled either by the workers (healthcare practitioners or teachers) or by their users (students/parents or patients). Financial cooperatives, meanwhile, are clearly a form of user cooperative. In my estimation, therefore, the worker/user distinction is exhaustive.
Reference:
Hansmann, H. (2013) 'All Firms are Cooperatives - and so are Governments' Journal of Entrepreneurial and Organizational Diversity 2 (2): 1-10
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