Cooperative Ways to a Stronger Economy

Co-ops — just like people — can get more done together than anyone can do alone. They come in many forms, and are more common than you might imagine.  

Guest article

by Sarah van Gelder

Our little group of a dozen families was running out of time. After meeting every weekend for three years to plan our hoped-for cohousing community, and after investing much of our savings to acquire a few acres of land, it looked as though our dream would fail. We couldn’t find a bank that would finance a cooperative.  

It was our local credit union that saved us. “You’re owned by your members? What’s

so odd about that? We’re owned by our members,” the president of the Kitsap Credit Union mused.

With that financing, we were able to build 30 affordable homes and a common house, and to make space available for gardens, an orchard, a playfield, and a tiny urban forest. In 1992, we moved into Winslow Cohousing, the first member-developed cohousing community in the United States.

Co-ops—just like people—can get more done together than anyone can do alone. The good news is that co-ops come in many forms and are more common than you might imagine. They are owned by workers, residents, consumers, farmers, craftspeople, the community, or any combination. What they have in common is that they circulate the benefits back to their member-owners, and these benefits ripple out to the broader community. As Marjorie Kelly explains, cooperative forms of ownership allow the well-being of people, the planet, and future generations to take priority over profits for shareholders and executives.

This is an exciting moment for cooperatives. A growing disillusionment with big banks and corporations is sparking interest in economic alternatives, and new opportunities are opening up:

• The United Steelworkers and other unions are exploring worker-ownership as a means to assure stable, living-wage jobs that can’t be outsourced to low-wage regions.

• Communities seeking alternatives to profit-driven corporate health insurance are forming health care co-ops.

• Hundreds of thousands of people who “moved their money” from Wall Street banks to local banks and credit unions now have a say in how their money is used.

• Consumers are turning to co-ops like Equal Exchange for ethically produced goods, and Equal Exchange, in turn, supports co-ops made up of farmers and producers in some of the world’s poorest regions.  

These cooperatives can be powerful forces for change. Vancity, Canada’s largest credit union, targets its investments to local enter- prises that have positive impacts. It divested its holdings in Enbridge due to concerns about the proposed Northern Gateway pipeline. And it adopted a living wage policy that applies to its own employees and to service providers.

Cooperative structures can strengthen an economy. For example, Italy’s Emilia Romagna region, where about a third of the economy is cooperative and has far less inequality. Most people there can find living wage jobs, and quality of life is high.

Last year, Winslow Cohousing celebrated its 20th year, and the grown sons and daughters of the early members returned to share what it meant to them to grow up in a community, surrounded by love and support.

My hope? That many more children have the opportunity to grow up in cooperative spaces; that more adults get the respect and empowerment that comes from working in cooperatives and buying from co-ops; and that over time, diverse forms of democratic ownership displace predatory capitalism as the foundation for our economy.

This article first appeared here

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Sarah van Gelder wrote this article for How Cooperatives Are Driving the New Economy, the Spring 2013 issue of YES! Magazine. Sarah is executive editor of YES!

Political Democracy can and will be fortuitous when Economic Democracy is established.   Explore this and other articles covering alternative economics, ethical leadership, economic democracy, and a society without the weal and woe of social and economic vicissitudes HERE   How does PROUT compare or contrast with capitalism or communism?  Explore the answers HERE What are essential ingredients assuring progressive sustainability bereft of the vicissitudes of economic or political predation, privation or disparity?  Learn more HERE   http://gplus.to/ProgressiveSustainability

Cooperatives: Alternative Economic Structures and Business Enterprises

Cooperatives

Alternative Economic Structures and Business Enterprises

By Dieter Dambiec

The basic reason for having cooperatives as a form of economic enterprise in an economy is to help people work together and move forward in a collective way.  Cooperatives are considered to be the best form of economic enterprise because they are capable of seeking a balanced adjustment between collective spirit and individual rights.  Dieter Dambiec summarizes Prout's views on cooperatives.

Cooperation means getting things done with collective effort.  The benefit  of cooperatives is that they combine the wealth and resources of many  individuals and harness them in a united way.  To help achieve this,  however, cooperatives should be structured so that individual interest  does not dominate collective interests.  Individual dominance can  adversely effect the welfare of different social groups and the  environment.  

Essence of cooperatives

Cooperatives as a form of economic enterprise involve getting things done between free human beings with: 

(i) equal rights; 

(ii) equal human prestige (and mutual respect for each other); 

(iii) equal locus standi (eg, legal standing) so that everyone's welfare  is considered.  

This is called "coordinated cooperation" and is needed for equilibrium  and equipoise in social life.  A socio-economic system should be based on  coordinated cooperation not subordinated cooperation.  

"Subordinated cooperation" involves people doing something individually  or collectively, but at the same time keeping themselves under other  peoples' supervision or control.  This can degenerate the moral fabric of  an enterprise and should be avoided when structuring cooperative business enterprises.

More evolved than communes

A collective economic enterprise that lacks coordinated cooperation as  its primary mode of functioning is a commune or communist system.  It ends up being based on subordinated cooperation and the predominant  relationship is that of supervisor and supervised or master and servant.   According to Prout founder P.R.  Sarkar, these relationships are ultra  vires to the psychological needs of the human mind and retard progressive movement.  

Such systems force production down, not increase it.  This is because  workers do not feel oneness with their job, nor do they have freedom to  express all their potentialities.  Communes or collectives in communist  countries were not cooperatives.  They were simply production distribution mechanisms under a regimented system of control.  

The major distinctions between communes and cooperatives are: 

(i) Communes lack personal ownership; this is one reason for their  failure.  Without a sense of personal ownership people do not work hard or care for property.  Suppression of personal ownership sentiments results in sluggish production and psychic oppression.  In cooperatives, to  compare, there is personal ownership, subject to social limitations on  concentration of wealth but also part of a mechanism to ensure  progressive increase in everyone's living standards. 

(ii) Communes lack a proper incentive system, which discourages  individual initiative by talented people.  The result is that people do  not work hard.   

(iii) Organisational behaviour and outlook in communes tends to be  materialistic and the imposed leadership crude and unsophisticated.

More responsible than capitalism

Cooperative economic enterprises must also avoid becoming capitalist in  nature.  A key feature of capitalism is the import of raw materials from  other countries or regions in order to manufacture finished products.   Cooperatives must not encourage this form of economic imbalance.  An  economy based on cooperatives must develop its own raw materials through research so that cooperatives are not dependent on foreign raw materials.

For example, apple orchards (raw materials), sericulture, apple  processing, packaging, transportation and marketing should all be  regarded as part of the farming industry of a region and function as  cooperatives.  

However, in capitalism raw material producers like farmers, timber  growers, fishing fleets, etc.  have to sell their produce immediately  through large commodity exchanges or multinational companies in order to pay off loans for irrigation, seeds, labour, equipment, etc.  Because  capitalist enterprises control markets for these raw materials, producers  often sell at lower prices than they could get under other arrangements.   A good example of the squeeze on primary producers' income by capitalist enterprises can be seen in the steep decline in wool prices in Australia over recent years.  Commodity exchanges and multinational corporations act as or dominate raw materials markets to the detriment of their suppliers.

In a cooperative system, raw materials producers like farmers would not  be faced with the same financial pressures, and so not be forced to sell  produce immediately after harvesting at sub-market prices.  By advancing  money to individual farmers, cooperatives will allow farmers to better  control the conditions of sale and thus enjoy more financial security.

A properly conceived and structured cooperative should be capable of: 

(i) determining how much to sell;  

(ii) determining the most favourable time to sell in order to get the  best price; 

(iii) fixing the price of its own produce within certain price limits.   In this way cooperatives will get the profit which is presently taken by  middlemen and profiteers in the capitalist system.  

In a cooperative farmers sell their produce to the cooperative at a rate  fixed by the cooperative.  When the market price is reasonable the  cooperative sells the aggregate.  The farmers then receive their  percentage of the profit, which will be proportional to the amount of  their land shareholding in the cooperative.  At least this can be an  initial arrangement.  

Membership requirements

Cooperative members have to be local people who, by virtue of their  established residence, can make a commitment to the cooperative and the region it services.  Therefore the problems of a floating population and immigrant labour which may disturb the economy by increasing the  availability of labor will not occur in a cooperative system.  The  requirement of a worker's or shareholder's longer term commitment to the  cooperative means there is no scope for floating labourers to be  cooperative members.  Elimination of immigrant labour will also protect  the social life of the cooperative from possible adverse social  influences created by mobile populations.  

Anyone who wishes to be part of the socio-economic life of a region,  however, can settle there and become a member of local cooperatives.  

Unemployment

Sarkar further states that in the cooperative system unemployment will be solved.  This is because as production increases the need for more human resources and for the construction and operation of more facilities will also increase.  Educated people can be properly employed as skilled  workers.  There will also be a need for tractor drivers, labourers,  cultivators, etc.  who as cooperative members will naturally do this work.   In times of economic downturn everyone's labour will be proportionately  reduced so that no one suffers the stigma of being unemployed.  In this  way economic downturns will always be short and temporary.  

Sarkar is confident that cooperatives will solve the unemployment problem and states that in the cooperative system there should be no compulsory date for superannuation.  People should be free to work as long as they like providing their health permits.  This is in contrast to some government policies which encourage older people to retire in order to make room for younger people.  Following is a look at other aspects of  Sarkar's cooperative concept.  

Workforce composition

All groups in the cooperative workforce will benefit from the  cooperative's profits.  The members of a cooperative will be composed of: 

(i) shareholders - who receive salaries for their work plus a return on  their shares; 

(ii) non-shareholders or labourers - who enjoy stable employment and  favourable wages.

Non-shareholding labourers can be further categorized into those who are: 

(i) permanent labourers - who get bonuses and premiums (dividends) as  incentives besides their wages; and  

(ii) casual or contract labourers - who only get wages for their labour.  

Labourers or workers also include those who are engaged in cooperative  management.  They will be entitled to draw dividends and salaries on the  basis of their membership in and services they render to the cooperative.  

This structure allows cooperatives to develop a proper incentive system  so that individual initiative by talented people is encouraged.  An  incentive system should ensure that intelligent people are not forced to  do work which is unsuitable for them, or be paid the same wages as  ordinary workers.  If skilled workers get paid more than unskilled workers  there will be an incentive for all to become skilled and work harder.  In  this way the cooperative will encourage the educational and skill  upgrading of its members.  

In addition, workers who give the greatest service to the cooperative  should get the greatest bonuses.  Bonuses should be paid in proportion to  wage rates and should reflect both the skill and productivity of the  worker.

Shareholder composition

Members who purchase shares in a cooperative should have no power or  right to transfer their shares without the permission of the cooperative.   Such a pre-emptive right allows existing shareholders to determine the  basis of membership, and prevents capitalist entrepreneurs from  purchasing large numbers of shares in a cooperative and speculating in  the market.  Speculative activity can easily lead to a depression and this  will of course effect the cooperative.

Shares can however be inherited.  The shares of cooperative members  without descendants simply pass on to their legally authorised  successors, who become members of the cooperative if they are not already members.  Different countries have different systems of inheritance, so the right of inheritance should be decided according to the system in vogue.  In western common law countries if someone inherits shares in a business enterprise and does not want to become a member of that enterprise, existing shareholders simply buy that person out.  Presumably the same reasoning can be applied to cooperatives.  Following this arrangement will help cooperative members avoid litigation.  

Because cooperative members will be from the same vicinity they will all  know each other, so there should be no difficulty in deciding who should  be able to buy such shares due to ignorance about potential shareholders.

Disadvantaged persons can also benefit from the cooperative system.  A  widow, disabled worker or minor can all own shares and derive an income  based on the number of shares they own.  Therefore even if as cooperative members are unable to work, they will still be entitled to an income from cooperative profits.  Establishing such a structure on a large scale should be able to do away with the welfare state mentality prevalent in capitalist societies.

Dividend distribution
In a cooperative system there will be no preference shares.  Today  preference shares are used by some financial institutions as a substitute  for debt investments (ie., loans to businesses).  Preference shares really  mean that a lender in the guise of a shareholder has first grab at co-op  dividends and therefore co-op profits.  Such investors should become  ordinary shareholders like other co-op members and share proportionately  in the success (or perhaps otherwise) of the co-op.

Cooperative management

Cooperative members should elect a board of directors from amongst the  cooperative members.  The position of director should not be honorary.   Directors must be moralists.

The board decides the amount of profit to be divided amongst members,  ie., the dividend to be paid to each shareholder.  However, not all profit  should be distributed in the form of dividends.  Some should be kept or  used for: 

(i) reinvestment, purchasing capital items or repair and maintenance;  

(ii) increasing the authorised capital of existing shareholders; 

(iii) deposit into a reserve fund to be used to increase the value or  rate of dividends in years when production is low.  This also ensures that  shareholder capital is not adversely affected.

Farmer cooperatives

All people have the right to be guaranteed minimum requirements such as  food (including water), clothing, housing, education and medical care.   These basic requirements should be cooperatively produced because they are essential collective requirements.

The importance of food means there has to be maximum and safe utilisation of agricultural land.  The best way to achieve proper organisation of agriculture is on a cooperative basis, as will be seen.

Land is very important in the psychology of farmers so a proper  cooperative system has to be built up to give farmers a sense of  ownership of their land and permanent usufructuary rights to the land  while it is managed cooperatively.  This will also give a better outturn.   The cooperative system has to be psychological and subtle so that farmers do not feel adversely affected or insecure.  

This can be achieved by farmers pooling their land in cooperatives and  keeping records of their shares based on the size of their individual  land holdings.  In this way many small plots can be merged and boundaries for adjoining lands broken down, removing needless division of land into small individual holdings.  This allows for an increase in the area of land available for cultivation, benefiting farmers collectively.

Small plots are also detrimental because farmers have to lease their land  to someone who can cultivate it as an aggregate, as in the share cropping system.  This results in lower (if any) return to the farmer.

In the cooperative system there is also great scope for agricultural  research and development into new ways to better utilize and prolong the vitality of land.  The ill effects of chemical fertilizers, which are  common in individual farming and relatively unavoidable because of lack  of individual capital, could be minimized or eliminated.  

Phase-wise socialisation

Sarkar's theory also advocates the gradual socialisation of all  agricultural land according to a phase-wise plan.  Socialisation does not  mean nationalisation or loss of an ownership interest as in the commune  system.  

A main objective of socialisation is to ensure that everyone's economic  needs can be met (particularly by having enough purchasing power to get access to the basic necessities of life).  It also ensures that there is  maximum utilisation and rational distribution.  Another objective of  socialisation and the phase-wise process is to allow for individual  psychic expansion, with a consequent change in collective psychology, so as to create a more congenial social environment in which people learn to think for the collective welfare rather than for their own self-interest.  

Four Phases

In the first phase all uneconomic land holdings should be taken over by  cooperative management for the benefit of those who own the land.  

In the second phase all landowners should be requested to join the  cooperative system.  

In the third phase there should be rational distribution of land and  redetermination of ownership.  It appears that in this phase questions  such as the excessive concentration of wealth are to be fully addressed  after having instilled in people's minds the purpose and practice of  cooperatives.

In the fourth phase conflict over land ownership should disappear.   Therefore after land has been vested in the cooperative and ownership of shares determined (as well as a proper policy of distributions of  dividends to shareholders and wages to workers determined), conflicts  amongst landowners and landless rural workers will no longer exist.

Initial stages
In the initial stages (phases 1 and 2) agricultural cooperatives can be  formed by farmers consolidating their lands into a cooperative and having  shares in the consolidated holding in proportion to the amount of land  they put into the cooperative.  For example:  

Farmer	Hectares	Shareholding %
A	5	10
B	10	20
C	15	30
D	20	40
Total	50	100

Adjustments to this simple structure will be required where the number of  shares has to be allocated to take into account the productivity of the  land.  For example, if a farmer has 20 hectares of land of which 10  hectares are highly productive and 10 hectares are of low productivity,  the share allocation to that farmer should take into account the  differences in productivity accordingly.  

Profits from crop sales by the cooperative should be shared in proportion to: 

(i) the number of shares each shareholder has in the cooperative; and 

(ii) the labour rendered for crop production.   In this way farmers receive profits according to the number of their  shares in the cooperative and their labour.  

The system is flexible so that landowners who do not want to work in the  cooperative will still have their land included in the cooperative and be  considered cooperative members.  They will get shares based on the size  and productivity of their land but if they do not want to work they will  not be entitled to wages.

Producer cooperatives

Cooperatives which are strictly agricultural, in Sarkar's system, should  sell their produce to producer cooperatives, which in turn can  manufacture a wide variety of consumer goods.  

Raw materials which are of non-farming origin, such as limestone for the  production of cement, should also be processed by producer cooperatives.  

Thus, producer cooperatives need to be formed for agro industries, agrico industries and non-agricultural industries.  

The total profit of such cooperatives should be distributed amongst the  workers and members of the cooperative according to their individual  capital investment (shares) in the cooperative and the service (labour)  they render to the production and management of the cooperative.

Farmer-producer cooperatives

Farmers in agricultural cooperatives may also create producer  cooperatives to produce items for various industries.  Thus, some  cooperatives may function as both farmer and producer cooperatives.  

Farmer cooperatives which also function as producer cooperatives have the opportunity of increasing their profitability in various ways.  For  example, producer cooperatives functioning with agricultural cooperatives  could produce rice as well as oil from the husks.  

Consumer cooperatives

Consumer cooperatives will distribute consumer goods to members of the  public at reasonable rates.  These cooperatives should be formed by  persons having an interest in selling goods to the public (ie., not  hoarding), and will share profits according to the standard criteria of  individual labour and capital investment (shares).  

Consumer cooperatives will be supplied by both agricultural and producer  cooperatives.  For example, agricultural or producer cooperatives which  produce cotton or silk thread will sell the thread to weaver cooperatives, which can produce cloth using the appropriate or latest technology.  Weaver cooperatives will in turn supply consumer cooperatives that sell the cloth to the public.  

Commodities which do not go directly from agricultural cooperatives to  consumer cooperatives will be produced by producer cooperatives.  These  non-farming commodities should be compulsorily produced by producer  cooperatives.  

This arrangement will prevent artificial shortages or the non-supply or  unavailability of essential goods and commodities.  This can cause  suffering to ordinary people who have little means for circumventing  these problems.

This structure also ensures there is no accumulation of essential  commodities by capitalists for the purpose of maximizing profits, or  price inflation in essential commodities.  If the distribution of  essential commodities is done through consumer cooperatives linked with  producer cooperatives, middlemen and profiteers will be eliminated.  

Service cooperatives
These are special cooperatives which should be formed by people involved  in service-type industries, such as doctors.

Satellite cooperatives

PROUT advocates the formation of many small satellite cooperatives to  supply various items to large producer cooperatives.  For example  different parts of a motor car can be locally manufactured in small  cooperatives (and even carried out at home as cottage industries).  The  main function of the producer cooperative will be assembly.  This has two  benefits:  

(i) large cooperatives will not require many labourers, minimizing labour  unrest; and  

(ii) labour costs will be reduced, keeping the cost of commodities low.

Electronic commerce and digi-cash will make it easier to establish  cottage industries because links can be made electronically between  various satellite coops, avoiding many costs and delays potentially  arising from decentralized production.

The question of transportation of goods or parts still needs to be  addressed.

The state and cooperatives

Taxation

Taxes, levies, excise duties, etc.  should be paid collectively by the  cooperative, not individuals.  This frees individuals from financial  pressure and economic exploitation through personal taxation systems.  

The primary source of taxation revenue in a PROUT system would appear to be at the point of production.  This makes sense in that enterprises which make first use of resources have a social responsibility to ensure proper utilisation and rational distribution; taxation imposes some restraint to ensure this responsibility is carried out.

Trademark regulation
A useful device that can stop black-marketing or the sale of stolen goods  is trademark law.  Laws can be passed which prevent the sale of goods  without the producer co-op's trademark.  Thus, if black marketeers try to  sell any clothing without trademarks, they can be caught easily.   Trademarks specifying cooperative ownership will also help the public  support the cooperative movement.

Essential commodities

Commodities can be divided into three categories: 

(i) essential commodities, like rice, pulse, salt, clothing, etc.  People  are willing to borrow money to buy these; 

(ii) demi-essential commodities, like oil, antiseptic soap, shoes etc.;  and  

(iii) non-essential commodities, like luxury goods.  

The number of items of essential commodities should be continually and  progressively revised and expanded with changes in time, place and  preferences.  These revisions should be made by the government and not by the board of directors of a particular cooperative.  What is considered a demi-essential commodity today may be treated as an essential commodity tomorrow.  Demi-essential commodities which may be affected by artificial shortages, causing suffering to common people, should be produced by producer cooperatives.  The production of luxury goods can be left in the hands of the private sector.  Essential commodities or services of a non-farming nature which require large capital investment, like the railway system, should be government managed.  

During shortages of non-essential commodities ordinary people will thus  not be affected.  

Pressure groups
Farmers in agricultural cooperatives should be able to exert collective  pressure on local, state or federal governments for different benefits  and facilities.  For example, government assistance may be needed to  develop an irrigation infrastructure.

Scientific advancement

As science advances, cooperatives will develop and manufacture a great  variety of commodities from synthetic raw materials.

Socio-economic units lacking sufficient supply of raw materials will have  to manufacture synthetic raw materials.  Suppose a unit or region lacks an  adequate supply of fodder to feed its cattle, sheep, etc.  Will it import  fodder from another unit or region?  No, it should manufacture artificial  fodder instead.  Similarly, it takes a substantial volume of cotton to  produce one "dhoti" (the traditional garment worn by men in northern  India).  To transport large amounts of cotton also requires much energy,  and so if it is not readily available, synthetic fabric can be produced  instead.

Thus through the cooperative system human society will progress with  accelerating speed, ushering in a new revolution in science and causing  the intellectual capacity of human beings to increase.  Every nook and  corner of natural and human potential will be properly used.  In this way  progress and development can be maintained in every field of life.  

To encourage common factors and discourage all fissiparous factors in the  physical realm, human sweetness is required.  The best expression of human sweetness in the socio-economic world is the cooperative system.

Dieter Dambiec practices law in Australia and New Zealand.  

Worker Cooperatives

Cooperatives 

PROUT Worker Cooperatives

By Carla Dickstein, Ph.D. 

Cooperative enterprises—worker, consumer, agricultural and credit—form the core of a PROUT economy. The majority of manufacturing and service enterprises are organized as worker cooperatives.

Cooperatives are a privileged sector in the PROUT economy because they are considered the best structures for human beings to work together.  According to PROUT's founder, P.R. Sarkar, "Human society is one and indivisible.  A human being cannot live alone.  In society human beings have to work jointly with others so that everyone can move forward collectively." Thus, only those things that cannot be done collectively should be done individually.  If individuality dominates human life, it could "adversely affect the environment, the welfare of different groups and even the continued existence of humanity" (Sarkar, PROUT in a Nutshell, 14:38).  

The foundation of the cooperative system is coordinated cooperation where free human beings with equal rights and mutual respect for each other, work together for the welfare of the others.  This differs from subordinated cooperation, where people work individually or collectively but keep themselves under other peoples' supervision.  Subordinated cooperation dominates most cooperatives and communes formed through forced collectivization.  True coordinated cooperation does not exist in any present economic system.

The main reasons that cooperatives have failed in capitalist economies are rampant immorality and economic centralization.  People cannot accept the cooperative system in an environment of exploitation, corruption, and materialism.  Furthermore, cooperatives are forced to compete for markets and supplies with monopoly capitalists.

For cooperatives to succeed, they must have morality, strong management, and the people's whole-hearted acceptance of the cooperative system.  Members must have similar interests:  

they must share a common economic structure and demand similar necessities.  Furthermore, cooperatives need ready access to suppliers and markets for their goods and services.

Thus, developing an integrated cooperative sector requires: moral people with cooperative values, similar material needs, and mutual respect for each other; appropriate organizational and management structures; and a conducive political, social, and economic environment to support small and medium scale cooperative industry and the development of local economies.  A difficult question is whether cooperatives can develop in the absence of a sufficient moral base.  In other words, must the values and support structures first be in place for these institutions to flourish, or do cooperative structures themselves help create moral and cooperative values for those participating in the cooperative? An understanding of this chicken or egg dilemma determines strategies and appropriate settings for developing cooperatives.

This paper offers a PROUT perspective specifically for developing worker cooperatives.  It examines their principles, advantages, internal organizational structures, supportive infrastructure, and wider environmental factors necessary for their development.  It then addresses the difficult questions of strategic priorities.   

Principles of worker cooperatives

Worker cooperatives are firms that are controlled and usually owned by their members, who are the workers.  PROUT cooperatives adhere to the following principles established by the International Cooperative Alliance:

(1) Membership is open and voluntary.  Workers are able to become members, usually by nominal holdings of share capital.

(2) There is democratic control at all levels of the enterprise, on the basis of one member, one vote.

(3) Interest paid on share capital is limited.

(4) Workers share in any surplus, usually in proportion to each member's work contribution.

(5) Some part of cooperatives' surpluses is devoted to worker education.

(6) Cooperatives cooperate among themselves.
Thus, PROUT cooperatives differ fundamentally from private firms.  Control of the firm is based on rights derived from a worker's labor contribution rather than on property rights derived from a capital contribution.   

Advantages of worker cooperatives

In addition to fostering collective work behavior worker cooperatives have the following advantages:

(1) Cooperatives are inherently just enterprises: they broaden the base of property ownership and distribution of wealth.
 
This is particularly important for creating democratic institutions and true political equality.  Otherwise, those who have the wealth control access to resources, the media, and political power, as we have seen in Western democracies.
 
(2) Cooperatives have shown that they can outperform comparable private sector firms if they have access to sufficient means of production: capital, labor and entrepreneurial and managerial talent.
 
Productivity increases for two reasons.  First, workers have greater motivation and morale because of greater individual rewards and because of elimination of the conflict between labor and management.  Second, there is greater flow and use of information to management concerning production and workers' insights for improving production.
 
(3) Cooperatives enhance worker satisfaction and job fulfillment because of participation in decision making, profit sharing, greater self-expression and dignity, and equality.

Thus, cooperatives are one component of what is known in PROUT as "psycho-economy" or a concern with "increasing the psychic pabula of the individual and collective mind through appropriate economic activity" (Sarkar, PROUT in a Nutshell, 13:19).
 
(4) Cooperatives provide greater job security than do private enterprises.

In cooperatives, labor is considered a fixed rather than a variable cost over the short run.  This means that workers are not immediately fired or laid off if production is cut back.  Cooperative members in order to maintain employment levels.
 
(5) Cooperatives are one component of the PROUT economic system that contributes to local control of the economy.
 
Worker-controlled businesses stay where the workers live and do not sell out to outside owners.  This eliminates problems of absentee ownership and the flow of profits out of a region to outside owners, as experienced in capitalist economies.   

Internal cooperative structures

a. Membership and Control
Membership in a worker cooperative is open only to those who work in the enterprise.  The right of control of the firm and the right to any residual assets and profits is based on the labor contribution rather than the value of capital or property holdings.  Control is based on the principle of one member, one vote, and not on the number of shares or amount of a person's investment in the cooperative.  If non-worker shareholders are allowed to become members, it introduces conflicts of interest that can dilute the worker incentive system.

New workers enter the cooperative on a trial basis before they become full members.

b. Ownership
Several forms of ownership have been used in worker cooperatives:

1. conventional ownership through share capital;
2. social ownership where workers have operation control or usufructuary rights, as was true in Yugoslavia;
3. collective ownership with workers' having the right to the residual assets of the firm through a system of internal capital accounts, as is practiced in the highly successful Mondragon cooperatives in the Basque region of Spain.  

Worker cooperatives that are structured on a share basis invariably revert to capitalist owned firms if they are at all successful.  Workers have an incentive to sell their shares for the best price.  Often people interested in become a working member cannot afford the appreciated value of the share, and the share is sold to an outside owner.  

At the other extreme are cooperatives in England and former Yugoslavia where workers have no ownership stake but merely control the operations of the firm.  The assets are socially owned, and workers have no claim on any increases in the net value of the assets.  This system encourages workers (particularly older workers with a shorter time horizon in the cooperative) to take out profits or surpluses immediately as wages and finance any long-term investments through debt.  

Experience in structuring worker cooperatives shows that in addition to their wages, workers must participate in the growth or decline of the firm's net worth in order to have sufficient incentive for long-term investment in the firm.  They do not necessarily need total ownership or control over the assets.  Thus PROUT cooperatives would be structured according to the Mondragon's model of collective ownership which provides a balance of incentives.  

Members are required to purchase a share in the cooperative and make an equity investment.  It is important that all members have a financial stake in the cooperative.  The cost of the share depends on the valuation of the cooperative.  In a new cooperative start up, it would depend on the need for equity investment to leverage outside capital.  If a new member cannot afford the price up front, it may be possible for the person to pay over time from wages, assuming the cooperative can afford this payout, or to arrange for an equity loan to the member from a cooperative support organization (as discussed below).  

A PROUT cooperative system should adopt the innovative Mondragon system of internal capital accounts that spreads gains or losses in the net worth of the cooperative to individual workers' capital accounts.  The cooperative restricts workers from taking out their balances at will so that it can use the assets for reinvestment in the cooperative.  The cooperative pays yearly interest on each account.  The balances on each member's account are eventually paid out either on a rollover basis at a designated period of time (five years), or when a worker leaves the cooperative.  

Members must sell their shares back to the cooperative in order for control to remain with worker members.  Thus, inheritance of shares is not permitted.  

c. Diversifying Risk and Ownership
One of the primary barriers cooperatives have had in attracting talented people and capital is that workers are poor, risk adverse, and do not want to concentrate both their savings and source of income in one firm.  However, if a cooperative attempts to sell outside shares in order to raise capital and diversify risk, it must then give voting rights to shareholders.  This contradicts the principle of control based on a person's labor contribution rather than capital contribution.

A cooperative also has difficulty offering preferred stock that gives first right to a dividend to the preferred stockholder, but without any vote.  In a cooperative, there are no outside shareholders who have a vested interest in declaring dividends for preferred stockholders.  The workers, who make all decisions, can decide to divide all surpluses as wages and not declare any dividends at all.  

Professor Jaroslav Vanek, an internationally known scholar on economic democracy at Cornell University in the United States, has suggested ways of diversifying risk in worker cooperatives through new financial instruments in order to make cooperatives more adaptable in contemporary settings.  Ideally workers and managers should own 10 percent of the company.  Other interests, including the cooperative support structure, banks, government, the community at large, and outside investors, should hold the other 90 percent.  

Outside investors would buy fixed interest rate bonds or variable rate debentures.  Variable rate debentures would diversify the risk.  Part of investors' return would be paid at a fixed rate; the other part would vary with the profits of the firm so that the investor is sharing the risk.  However, the investor would not have a vote.  Voting rights would still be based on labor and not capital contribution according to one person, one vote.  

Workers would be required legally to pay out a return to investors based on some percentage of their own income.  This would avoid the problem described above whereby workers can take out potential surpluses from value added as wages rather than declaring any profits.  

Another investment option is a mutual fund that diversified its investments in various worker-controlled companies.  

Vanek also sees a potential role for foreign investment through cooperative support structures, particularly in underdeveloped economies.  Foreign investors could have some vote in support organizations, or if they were providing technical assistance as well as capital, then they may have a vote at the enterprise level.  The vote would be based on their labor participation in the enterprise.  

Vanek's model is not yet tested but, if it is capable of attracting outside capital without compromising fundamental principles of worker control, it will be a major contribution to economic democracy.  

d. Incentives and rewards
The incentive system for pay and profit sharing must be fair and at the same time be able to attract competent people to the cooperatives.  PROUT advocates rewarding workers' performance according to their skill and contribution but within a minimum and maximum income range.  Rewards can also be in-kind payments, such as equipment, education and training, foreign travel, that encourage more productive work.  Cooperatives often establish wages according to a ratio between the highest and lowest paid members.  The ratio is determined according to time, place, and person.  The wage differential would be greater under present conditions than would be anticipated in a fully established PROUT economy.  

In addition to wages, cooperatives pay returns on individual capital accounts in proportion to a member's contribution to the growth of the assets.  However, this long-term incentive may not be strong enough, particularly in cooperatives with younger members.  

Cooperatives should also look at annual gainsharing plans as a more immediate incentive to reward worker performance.  These plans devise a bonus formula for performance gains in specific areas of a firm's operations such as labor productivity, cutting costs, improved quality of services or products, or increased customer satisfaction.  

Cooperatives must operate as businesses and reflect business performance in their incentive and reward systems.  If a cooperative is performing poorly, wages must be set accordingly even if it means that workers do not meet their minimum necessities.  The problem of providing a safety net for workers is an issue for the economic or cooperative system as a whole and not for an individual enterprise.  However, cooperatives have the choice of reducing all workers' hours rather than laying off members so that losses are spread equally among the membership.   

d. Hired labor
Worker cooperatives should discourage the use of hired labor unless it is critical for the business' survival.  A dual structure of worker owners and hired labor contradicts the principle of worker control and self-management.  Some cooperatives resort to hired labor because the structure of the industry requires seasonal or part-time labor.  Where possible, cooperatives should offer hired labor bonuses for productive work even if they do not permit voting rights.  

e. Governance and management
The degree of collective decision making depends on the size of the cooperative.  Members can make most key decisions in a small collective (maximum of 10 to 12 people). Larger cooperatives elect boards that make policy decisions.  Boards select a manager who is a member of the cooperative.  The manager is in charge of day to day operations.  Each cooperative, according to the realities of its business, must decide which decisions the manager, the board, or the entire membership makes.  Guidelines are available from other cooperatives' experience.  

To the extent possible workers should participate in all levels of decision making through work teams.  The concept of coordinated cooperation means that workers should participate as equal members.  Their interests should not be subordinated to those of managers, who often possess greater technical knowledge of the firm and are in a strategic position to control information.  Workers build their capacity and confidence to participate effectively in policy decisions through initial involvement in day to day decisions involving routine production tasks.  

Ultimately coordinated cooperation requires that members and management possess mutual respect and trust for each other.  Where cooperatives have been the most successful, managers serve as educators to develop workers' understanding of the cooperative and the management function.  

Formal structures and processes of the cooperative can also help check the power of management.  Workers must have access to records and information about the cooperative and must learn how to interpret that information.  

Grievance procedures and processes for dispute resolution must be in place.  Resolving disputes depends on clear guidelines of behavior and expectations of members, which must be set out in the operating rules of the cooperative and in the performance appraisal process that evaluates each member's work contribution.  In grievance processes, unions have represented the interests of cooperative members as workers (as opposed to their interests as owners).  A cooperative board or union may resort to an outside mediator to resolve conflicts.  A cooperative support organization could possibly undertake the mediation role.  

f. Social goals
Cooperatives should make a continuous effort to raise the education level and moral standard of all members.  In addition, cooper cooperative support organizations to set aside a percentage of any surpluses for community and social purposes.  Whether mandated externally or voted internally, social goals must be secondary to the primary goal of maintaining the cooperative's economic viability.   

g. Dissolution of the cooperative
Any surplus of assets after paying the value of the shares can either be distributed to the current members, to current and past members who can be located, or to another cooperative.  Some cooperative laws require that assets be distributed to another cooperative in recognition of the role that the state plays in developing cooperatives and the social goal of maintaining a strong cooperative sector.  

The PROUT policy on dissolution is to assess the context in which cooperatives are established and determine what is the best practice for establishing a strong cooperative sector.  In some contexts, a policy that prohibits distribution of surplus assets to members may discourage talented people from entering the cooperative sector.  

A supportive infrastructure

Experience in Western economies shows that cooperatives do not survive as isolated enterprises.  They must operate together as a system of enterprises with a supportive infrastructure.  These cooperative support institutions provide cooperative enterprises with financing, technical and management assistance, joint marketing and purchasing of supplies and services, research and development of new products, cooperative education and training, and lobbying and public relations services.  Cooperatives tend to be relatively small enterprises in order to function democratically.  The only way they can afford these services that larger companies can provide internally is through mutual cooperation.  

The design of appropriate structures and functions of the supportive infrastructure should be based on local capacity and context.  From existing experience, two issues deserve particular attention: (1) whether support organizations develop bottom up or top down, and (2) how much control support organizations have over cooperatives.  

The strongest cooperative systems have developed bottom up.  For example, in Mondragon and the kibbutzim in Israel, a base of cooperative enterprises first formed and then created their own support organizations according to their needs.  These support organizations later took on proactive roles of developing and supporting new cooperative start-ups or converting existing businesses to cooperatives.  

In a number of Western countries with few existing worker cooperatives, support organizations have been established top down through government, foundations, unions, and other private sector interests in order to accelerate cooperative development.  These efforts are relatively new with less dramatic results.  Nonetheless, they have had some success in starting cooperatives and providing visible cooperative models.  

A second important issue is the degree of control a support organization takes during early stages of developing new cooperatives.  Ideally a cooperative should be totally worker controlled.  However, if a support organization puts up financing and technical assistance resources, it has a stake in the cooperative's success, both in terms of its economic viability and its ability to function democratically.  A new cooperative often requires strong guidance and oversight in the first few years.  Some cooperative support organizations have placed their own staff as the manager until the cooperative members learn to manage democratically.  Others retain a seat on the board of directors and have a controlling vote over hiring or firing the manager and over the ability to change the cooperative constitution.  Once the cooperative is functioning well, the support organization turns over its control to the cooperative members.  

The Mondragon system maintains control over new cooperatives by requiring each cooperative to sign a contract of association with the cooperative system's bank.  The cooperatives agree to adopt Mondragon's bylaws that establish various operating principles.  Mondragon has the power to do this because the cooperatives need financing from its bank.  

In this way, Mondragon is able to replicate basic cooperative principles and structures throughout the cooperative system.   

A conducive environment for cooperatives

Cooperative models serve a useful role of awakening consciousness and suggesting that there is an alternative way to organize economic activity.  However, successful models are few and far between in an environment hostile to cooperatives.  For cooperatives to develop on any scale, changes are needed in society's values, political support, and the economic system.  

a. Cooperative Values
Cooperative structures and models are very difficult to create if there is no commitment to cooperative principles or values.  The experience of working in a cooperative may help develop those values, but it is far more difficult for those values to develop at a late stage of a person's adult life rather than during their formative years.

Successful cooperative structures require socialization towards cooperative modes of behavior and thinking at an early stage of life.  Family, educational, and social institutions are all potential vehicles for cooperative socialization.  Possibly the strongest leverage for intervention is in the school system.  Children need to be exposed at an early age to team work and rewards for cooperative behavior.   

b. Political Support
The government can implement policies which either encourage or mandate cooperatives.  In a PROUTistic economy, economic democracy should be a constitutional right.  Laws would be passed mandating that cooperatives would be formed in medium scale industries that were not key industries.  However, mandatory legislation is only viable if an ethical foundation is already established.  Legislation itself does not create the value base.  Otherwise forced collectivization is likely to dampen productivity and innovation as occurred in command economies.  

In absence of full-scale support for cooperatives, government can still "privilege" a cooperative sector through subsidies to develop cooperative infrastructure, tax incentives or preferential bidding to cooperatives for government contracts ( i.e. sheltering their markets).  However, if incentives are not designed properly, they can lead to exploiting the cooperative structure for private gain.  This has happened in the so-called cooperatives that received some leeway for private gain in command economies.  

c. Decentralized Economy
External economic systems affect the design and behavior of economic enterprises.  Increasing internationalization and monopolization of the economy undermines the viability of cooperatives.  If they are to operate democratically, cooperatives must be relatively small (not more than 300 to 500 people).  They do not usually have the scale of operations or resources to compete successfully in highly volatile global markets.  Global competition also requires fast response time to changing market conditions.  Cooperatives can adapt to some extent to global markets through mutual cooperation and federated support structures.  Yet the more cooperatives are entrenched in global markets, the more they must adopt the behavior of capitalist firms.  For cooperatives to maintain democratic processes and create desirable work environments, they need greater economic certainty for marketing goods produced and procuring supplies.   

Decentralized, self-reliant economies reduce market uncertainties by minimizing dependence on external markets and exposure to market shocks.  The availability of local raw materials guarantees constant supplies to cooperatives.  If cooperatives produce for local needs, their goods are easily sold in local markets.  Economic certainty creates a positive environment for increasing interest and involvement among cooperative members and fostering acceptance of the cooperative system among local people (Sarkar, PROUT in a Nutshell, 3:36).  

Copyright The author 1999