Who Hires Whom in Cooperatives?

It is usually assumed in the literature that whereas in a capitalist firm capital hires labour, in a cooperative firm labour hires capital. This may be an accurate description of a capitalist firm, in which the owners of the firm’s capital enjoy residual claims and control rights, paying workers a rental fee (that is, a wage) in return for their labour. In cooperatives, however, even if ‘labour hires capital’ in some theoretical sense, worker-owners do not necessarily hire capital from somebody else (although they may). Rather, many cooperatives in the Western world are self-financing, meaning that members contribute both labour and capital, receiving both wages and dividends; the roles of worker and capitalist are merged into one person. In fact, it is almost as if workers have become “their own capitalists”, as Marx bemoaned, by hiring their own labour (and each other’s). This can be clearly seen when one considers that many cooperatives hire non-member workers, who receive only a wage and have no control rights. The only thing that distinguishes these non-member-workers from worker-members is that they have not contributed any capital in the form of a membership fee.

What about the fact that voting rights in cooperatives are usually allocated on a 'one-member-one-vote' basis? Doesn't this imply that control rights have in fact been allocated to labour rather than capital? That could well be the case - control rights could have been separated from residual claims, the former vested in labour and the latter vested with capital (but both ultimately remaining with the same persons). However, the equal-voting principle can also be explained by the fact that members usually contribute an equal amount of capital, at least with regard to their membership; in some cooperatives the membership contribution is set at a token $1, for example. Indeed, in some cooperatives that allow for variable amounts of internal investment by members, voting rights are allocated in proportion to capital contributions. And, of course, the principle could simply represent a historical or philosophical remnant of the cooperative movement rather than a necessary result of the way that cooperatives function.

To be sure, cooperatives may issue debt to outside investors, paying interest on the debt, which would indeed be a case of ‘labour hiring capital’. Furthermore, in post-Communist Yugoslavia, workers in self-managed enterprises did not own the capital of those enterprises, but rather rented it from (that is, paid interest on it to) the state. The workers received only wages as remuneration, but these wages were really a form of dividend as they were set by workers themselves according to the firm’s anticipated net earnings (akin to profits). This was also a case of labour hiring capital, with the capital owned by the government rather than by capitalists. However, a complication arises when cooperatives issue non-voting equity to investors – although the investors do not enjoy control rights, they do enjoy residual claims; so, although they do not hire labour, they nevertheless part-own the firm. And, of course, if those investors do enjoy voting rights, then the firm is no longer a cooperative in a strict sense but has rather ‘degenerated’ into some sort of hybrid between a cooperative and a capitalist firm, such as Spain’s sociedades laborales, which are at least 51% owned/controlled by their workers. In that case, it is impossible to say who is hiring whom! In fact, both capital-owners and worker-owners are hiring labour, the latter from themselves.

The question posed in the title presents even more surprising answers. A consumer cooperative, for example, can in fact be considered a variation of a capitalist firm, because the member-owners, who pay a membership fee and receive dividends (for example in the form of coupons), hire labour from employees. Conversely, you could say that a ‘classical firm’, in which the capitalist-owner also manages, is a variation of cooperative enterprise – as in a cooperative, a set of worker-capitalists are hiring their own labour, this time in the form of management (a particular kind of labour). One apparent difference between a cooperative and a classical firm is that the labour of non-owners is hired along with that of the owner; but as I mentioned earlier, this also occurs in many (hybrid) cooperatives! A partnership, moreover, would appear to be even less distinct from a cooperative. So really these archetypal firms are best conceived on a spectrum.

Another interesting case is that of the Mondragón group of cooperatives and those that have mimicked it. In Mondragón, workers receive wages that are connected to net earnings and so are similar to dividends. At the same time, they own ‘internal capital accounts’, which are essentially savings accounts within the firm that accrue interest over time. This system represents the inverse of a conventional cooperative: whereas in the latter, it is as if worker-capitalists own/control the firm and hire labour from themselves, in the former it is as if workers own and control the firm in their capacity as labourers, and instead hire capital from themselves!