Worker cooperatives are quite rare in the US. Because of this, there is not a lot of information to tell us if they are more likely to succeed or fail than regular businesses. But it doesn’t mean that they are more likely to fail. The problem is that worker cooperatives have a harder time getting started. If people invest in worker cooperatives and organizations that help them, it could make it easier for them to succeed and make our economy more sustainable.
Why Worker Cooperatives Are So Scarce
Professor Erik Olsen looked at studies that compared worker cooperatives (WCs) to conventional firms (CFs) in different countries. The study also addressed why there is a scarcity of WC despite their resilience. Olsen concluded that their scarcity in the US was due to obstacles to their creation, not to their survival.
The report identified the following as the primary reasons that start-up businesses are rarely formed as worker cooperatives:
- Workers must take the risk of high costs should the enterprise fail, since in most cases they must make an initial contribution to the business. In addition to losing their jobs, they would also lose this investment. This risk of loss may make taking a job in a conventional business more appealing.
- Start-ups are usually credit constrained and lack collateral. Co-ops do not typically offer control to outside investors and rely heavily on loans, which can be hard to come by, or their own limited wealth.
- Start-up costs may be unevenly distributed, and the founders of the co-op may not see a material benefit for the risks they took in starting the business.
Barriers to entry:
Another study from the The Democracy Collaborative by Hillary Abell found that barriers to entry (and growing to scale) that worker co-ops face are:
- Culture and education: competition and conventional capitalism are still the dominant culture in the US.
- Business expertise: workers lack business management experience and nonprofits lack experience incubating new businesses, especially co-ops.
- Partnerships: ill-equipped partners or partners leaving the company before it is on its feet can often hurt the cooperatives ability to remain resilient.
- Financing: lack of startup funding and patient capital is a key barrier for co-ops.
- Management and leadership: co-ops require more participatory, egalitarian management that can be difficult to cultivate.
- Entrepreneurship: traditional entrepreneurial personality types and skills may not work for the cooperative form of business.
- Organizational democracy: co-ops need to develop processes for democratic decision-making, as well as training in facilitation, collaboration, and conflict management.
Converting to a Worker Cooperative
Starting a worker cooperative from scratch can be hard because there are a lot of obstacles to overcome. But if an existing business becomes a worker cooperative, it can be easier because they already have things like money and stability. They can even use the money from the business to buy it from the old owner. Even though this is a good idea, not many businesses in the United States have become worker cooperatives this way. If more people knew about this and gave them money to do it, it could be the best way to create successful worker cooperatives.
Success Factors and Addressing Barriers to Entry
Under the right circumstances, cooperatives are highly resilient, productive, and successful. What factors have been shown to contribute to this success?
Abell’s report mentioned above also identifies these success factors:
- Ongoing training and cultivation of cooperative culture
- Design for business success
- Effective long-term support
- Patient capital
- Strong management and social entrepreneurial leadership
- Good governance
- Public policies and investment that allow worker-owners to access patient capital, technical assistance, training, and support, will help pave the way for a more resilient economy.
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