The Efficiency of Worker Cooperatives is Just Fine, Thank You

By Jonathan Jenner

Indian Coffee House (1)

Worker-owners at the fast food chain and worker-cooperative, Indian Coffee House, in Trivandrum, India

Spend enough time discussing worker cooperatives around town, and you’ll encounter a frustratingly persistent idea: worker cooperatives are inefficient.   It’s quite untrue, though, and for this reason you will not find an explicit statement of this idea as anyone’s talking point in the ever growing public discussion about worker cooperatives.  Outside of public discussion, though, the idea finds refuge in two arenas: as a general, relatively unspoken attitude among people and as a derivation behind (some of) those high walls of economic theory.  It’s time to put the idea to bed.  So, here’s a quick look at where the idea comes from, and what empirical evidence has to say.

The notion that worker cooperatives are inefficient is usually trotted out to explain why there are so few worker owned and operated firms in capitalist economies.  In a competitive environment, the theory goes, firms that cannot produce efficiently will die out.  Because worker cooperatives are relatively rare, then, it must be because of their inefficiency relative to capitalist firms (the theory generally skips over the notion that there could be other reasons for the relative absence of worker cooperatives).  And so, certain strands of economic theory set about to locate the inefficiency of the cooperative form. Henry Hansmann thinks the inefficiency of firms comes from the governance of worker owned firms, where ‘one worker, one vote’ leads to inefficient decision making.  N Scott Arnold thinks that worker owned firms are inefficient because workers will free ride on each other when they are engaged in group production. These theories have corollary appearances in popular opinion: that democratic decision making is cumbersome, and that shirkers, well, shirk.

As far as worker cooperatives are concerned, though, these theories and attitudes hold little water. While the discipline of economics has been good at theorizing why worker cooperative should be inefficient, it has been quite poor at finding evidence that worker cooperatives are inefficient.  Rather, the opposite is true.  I’ll let the researchers speak for themselves:

  • Ben Craig and John Pencavel surveyed many worker cooperatives and capitalist (unionized and not) in the plywood industry of the Pacific Northwest, over a 60 year time period.  The found that “worker participation has neither major efficiency gains nor losses” [‘Participation and Productivity’, 158]
  • Employee involvement programs “do not harm productivity on average, and, more than likely, raise it.” [Richard Freeman and Joel Rogers; What Workers Want (p. 116)]
  • Justin Schwartz, after surveying a wide range of various empirical studies and other approaches (here, here, & here,) finds that “participatory firms with employee ownership are more productive,” [‘Where Did Mill Go Wrong?’ 230]
  • “Evidence strongly suggests that worker self-managed firms are at least as internally efficient as capitalist firms.  Indeed, all else equal, worker self-managed firms tend to be more efficient than their capitalist counterparts.” [David Schweickart; After Capitalism (p. 63)]

Of course, for those who are interested in building a broader base of worker cooperatives, we need to understand why there are still relatively few worker cooperatives relative to capitalist firms (they are out there, though!), and there’s a bevy of different initiatives to disseminate ideas about worker cooperatives, train worker-owners, and provide credit specifically to worker cooperatives.  But we really can, and should, once and for all, dispense with the idea that worker cooperatives are inefficient.