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Evaluating the Benefits of Worker-Owned Cooperatives Using the Labor Theory of Value
By Emily Brixey

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Table of Contents
Introduction………………………………………………………………………………………3
Types of Cooperatives…………………………………………………………………………….6
Economic Theory………………………………………………………………………………….7
Current Employment Conditions………………………………………………………………...12
Alienation of the Worker………………………………………………………………...12
Declines in Real Wages of the Worker…………………………………………………..13
Job Insecurity…………………………………………………………………………….14
Ways Cooperatives Help Alleviate Alienation, Low Wages, and Job Security ………………...14
Cooperatives Alleviate Alienation of the Worker……………………………………….14
Cooperatives Pay Higher Real Wages…………………………………………………...15
Cooperatives Improve Job Security……………………………………………………...16
Cooperatives and Economic Efficiency………………………………………………………….16
Greater Productivity Because of Worker Cohesion……………………………………...17
Reduce Market Inefficiencies……………………………………………………………18
Cooperatives and Capital………………………………………………………………...18
Additional Efficiency of Cooperatives…………………………………………………..20
Cooperatives Have Better Long Term Goals than Investor-Owned Businesses………...21
Government Policy………………………………………………………………………………22
Conclusion……………………………………………………………………………………….24
Works Cited……………………………………………………………………………………...25

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Introduction
The United States has a capitalist economy, where firms seek profits, expand capital, and
create new and innovative products through the sale of stocks and bonds, creating investor-
owned businesses. These investor-owned businesses have resulted in many negative
consequences for the workers. Laborers have lost power in politics, both with the defeat of the
Labor Law Reform Act of 1978 and the introduction of Reaganist economics (Mohun 2005). The
Labor Law Reform would have increased the size of the National Labor Relations Board and
expanded the overall power of labor unions throughout the nation. The defeat of this bill was due
in part to the expansion of Reaganist economics which argued the benefits of laissez-faire policy
and theorized that tax cuts would stimulate business development. The overall goal of Reganist
economics is to make it as easy as possible for businesses to expand by limiting the barriers to
entry and additional costs. One important barrier to eliminate was labor unions. The impacts of
the loss in labor power have been felt by the majority of Americans who have only their labor to
sell in the market as a way to earn a living. The loss of labor power has meant workers have had
fewer opportunities to bargain for their wages; this has resulted in an accumulation of wealth for
corporations, taking larger portions of the profits rather than distributing them to workers by
providing higher wages. As demonstrated by the graphs below, the corporate profit rate is at the
highest it has ever been, while the wages of workers have been decreasing steadily since the
1970s (Blodget 2012, Thomas 2013).
Corporate Profit Margins in Terms of GDP (Blodget 2012):

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Weekly Earnings in Constant Dollars (1982-84) (Data Used from Thomas 2013)
While the graphs of corporate profit rate as a percentage of GDP shows that corporations
took a serious hit after the 2008 recession hit, they were quickly able to bounce back, matching
their pre-recession profit rates. The employment rate on the other hand, has been unable to return
to its prerecession levels.
Civilian Employment Population Rate (Blodget 2012):
While many Americans struggle to find work that is full time and pays a decent wage,
corporations have continued to see large profit margins. The rate of the total unemployed, plus
0
50
100
150
200
250
300
350
400
Weekly Earnings (1982-84 dollars)
Weekly Earnings
(1982-84 dollars)

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all persons marginally attached to the labor force, plus total employed part time for economic
reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor
force as of October 2014 is 11.1% (US Bureau of Labor Statistics). This statistic gives us a good
understanding of the present underemployment rate. When the recession hit, the government was
forced to bailout numerous companies that were considered too large to declare bankruptcy
because of the potentially devastating impacts on the economy. Birchall (2012), argues that the
large company bailouts demonstrate a need for a business model that is more risk-averse and less
driven by the need to maximize profits. The problem with firms pursuing profit maximization is
that not only do managers of these firms make risky decisions, but the firms also gain profit
through the manipulation and coercion of workers. International competition, specifically from
countries offering low wages, is creating additional downward pressure on the wages in the
United States. Gordon Brown, the former Prime Minister of the United Kingdom stated at the
2012 launch for the United Nations’ International Year of Cooperatives that “it is not ‘anti-
wealth’ to say that ‘wealth must do more than serve the wealthy’; it is not anti-competition to say
that, ‘without cooperation, competition might not lift us up, but pull us down’ ” (States News
Service 2011 1). The allocation of resources in the economy can be made more efficient by
changing the ownership model to one that takes the focus off of the profits to external investors
and returns the surplus to those who are working to produce the good itself.
This paper proposes that the best way to alleviate the inefficiency in the allocation of
resources in the economy and coercion of workers by investor owned businesses in the United
States is to promote the adaptation of a different form of business: the cooperative. Research has
found that employee ownership benefits both the employers and the employees of the company
(The National Center for Employee Ownership). This paper will discuss how business
cooperatives can be used to help businesses maximize their returns on labor and benefit the
productivity of the overall business as well as increase the wellbeing of the worker. In recent
years, approximately 36% of workers own stock in their firms through either stock purchase
plans in public companies, stock options and similar kinds of equity awards, or employee stock
options plans (The National Center for Employee Ownership). This fairly large percentage shows
that there are already some business models that use the assumption that employee ownership
can have beneficial outcomes for business. The goal of this paper is to discuss the potential role
of cooperatives to create more efficient economic and social outcomes than the current investor-
owned business model in the United States.
This paper seeks to answer the question: to what extent do worker-owned
cooperatives promote the interests of the laborer? To answer this question, this paper
explores the ideals of the Labor Theory of Value, which focuses on the production by the worker
and the wages and treatment that they receive. The first section of the paper will begin by
discussing the different types of cooperatives and the ways that they issue membership and
power over key decisions. The second section of the paper will describe the Labor Theory of
Value both in its progression through the thoughts of key historical economists, as well as more
current interpretations and uses of the theory. In the third section, the paper elaborates on some
of the issues associated with the loss in labor power over the years including alienation, job
insecurity, and coercion of workers resulting in lower wages. Based on the discussion of how
cooperatives function and the ways they can eliminate poor treatment of workers, the paper then
examines how cooperatives help make better working environment than investor-owned
businesses. To demonstrate that worker-owned cooperatives can have a positive impact on the

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overall economy as well as the individual workers, the paper will then discuss the ways that
worker-owned cooperatives provide even more efficient production results.
Types of Cooperatives
The International Cooperative Alliance defines cooperatives as “an autonomous
association of persons united voluntarily to meet their common economic, social, and cultural
needs and aspirations through a jointly-owned and democratically controlled enterprise” (Nilsson
1996 635). Since cooperatives are formed to meet the needs of those forming the cooperative, the
operations of cooperatives differ depending on the circumstances of said cooperative. The
principles of cooperatives are all the same, but the way that the cooperatives practice those
principles are determined by factors like the education level of individuals in that community
(Watkins 2003). The education level of individuals determines how they will manage and make
choices for the group. For example, a cooperative made up of members with higher education
levels might be likely to run the business as a democracy, under the assumption that everyone
will be able to make reasonable and rational decisions for the business. If the members of the
cooperative have lower levels of education, they might select a few individuals to manage the
business, though who is in charge would still be subject to the desire of the majority. The
principles include voluntary and open membership, democratic member control, member
economic participation, autonomy and independence, education, training and information,
cooperation among cooperatives, and concern for the community (Maughan 2012). The official
set of principles for cooperatives were determined by the Rochdale Society of Equitable Pioneers
in 1844 and have been used as the founding principles for cooperatives to this day. Cooperatives
had been unofficially using these principles when forming cooperatives prior to 1844, but the
official set helped to connect cooperatives in a more concrete way. Common characteristics of
cooperatives include dual function, issuance value, voting rights, economic participation and
redeemable shares (Lopez-Espinosa et al 2009). Dual function is where the member uses the
cooperative for the transaction purposes and helps to provide the capital. Issuance value is the
issue price of a cooperative share is usually at par value. The voting rights of cooperatives are
usually attached to membership rather than the individual share. Lastly, the economic
participation typically includes patronage return and remuneration on paid capital.
Generally, cooperatives are formed in order to accomplish the common needs of
members directly (Birchall 2012). These needs can be needs associated with the production
process, employment, banking system, goods they are consuming, etc. Members of cooperatives
are simultaneously consumers, owners, workers, and managers of the organizations they work
for (Nillson 1996). Therefore, the key stake holders in cooperatives are those producing the good
or service, and those purchasing it (Birchall 2012). Purchasing power of members in consumer
cooperatives is of greater concern because these cooperatives exist to make it easy for members
to buy the goods produced, but some production efficiencies can also be beneficial (discussed
later in the paper) because they may lead to lower prices of goods produced by cooperatives,
helping all consumers. Outside investors, such as stockholders, are not stakeholders in these
types of firms. The goal of cooperatives is to provide workers a way to control their working
conditions, income, benefits packages, management, and essentially all other areas that affect
their lives as employees of a company. Therefore, the stakeholders in this case are the members
who are the ones who reap the benefits of production in cooperatives. Cooperatives empower
individuals who otherwise might be considered a lower level of operation of a business.
Cooperatives can go as far as to provide a way for the poor individuals to improve their own

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standard of livings without much additional help (Maughan 2012). Since many individuals are
less likely to have the funds to start a business by themselves than affluent individuals, which
would enable them to meet their needs and better their employment circumstances, the
cooperatives provide a much more feasible method for doing so. Small cooperatives tend to
make all decisions based on a consensus, while larger cooperatives tend to have designated
management personnel (Conn 1990). These management teams are still held accountable by the
workers. This is particularly important because it means that the management teams make their
decisions based off of what they believe the employees want, rather than what the stockholders
want (Conn 1990). New Generation cooperatives have made a slight change to the typical
agenda of cooperatives which focuses entirely on its members’ happiness. New Generation
cooperatives emphasize profits and have restricted membership that requires members to
purchase larger amounts of stocks before being allowed to participate; entry fees are typically
high (Stofferahn 2009).
While different types of cooperatives may focus on specific goals in terms of
employment benefits, the focus of this paper and its arguments will be worker-owned
cooperatives. Under worker-owned cooperatives, members both work for and own the business.
The goal of worker-owned cooperatives is to “create employment and retain control over labor
power” (Staber 1993 130). The functions of a worker-owned cooperative can greatly vary.
Alexander (1985) sums it up nicely, explaining that the ownership may be “partial or full by
equal or unequal conventional share ownership, with or without voting rights in choosing policy
makers by ESOP [employee stock option plans] or other forms of trust ownership” (341). But,
Alexander (1985) argues that the greatest benefits of worker cooperatives come when ownership
is closest to “full, equal and continuing ownership” (342). This business model places the
employee at the frontline of decision making which is very different than the investor-owned
model that is abundant in traditional capitalism. In this model, investor-owned business
entrepreneurs start up a business and people invest in the company in order to receive some share
of the ownership (Birchall 2012). This paper will explore to what extent the worker-owned
business model can alleviate some of the alienation and coercion of workers as defined by the
Labor Theory of Value.
Economic Theory
The economic theory section of this thesis will evaluate the importance of labor in the
production process by examining the main theorists who contributed to the Labor Theory of
Value in order to understand some of the key components of the theory. This theory argues that
the value of a good is determined by the amount of labor that it takes to produce it. The Labor
Theory of Value was a part of the thinking of the first economist, Adam Smith, and has
continued to be present in economic theory ever since. The discussion of the theory will cover
the ideas of economic theorists from Smith, to David Ricardo, to the most well-known promoter
of the Labor Theory of Value, Karl Marx. The development of this section will also include
some interpretations of these theorists’ contributions to the Labor Theory of Value from the
perspective of more modern economists.
Adam Smith began his understanding of value by arguing that the natural price of a good
would always equal the market price (Hunt 2011). While he recognized that the process by
which capitalists created profit and the way laborers created profit were different, he did not
make any ethical claims regarding it (Hunt 2011). In the early state of production, Adam Smith
argued that all the inputs of production are owned by the laborer. Smith believed that capitalism

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develops so that when employers hire labor for wages and supply them with the materials needed
it is in order to make a profit (Peach 2009). Adam Smith wrote on several occasions that
capitalists loved to “reap where they never sowed”, providing an important insight into key
observations that drive the Labor Theory of Value. Smith argued that profits worked like
compound interest, increasing with each stage of production (Peach 2009). The importance of
labor in production was emphasized by Smith when he described what would happen if the price
of inputs changed. Smith theorized that an increase in price of wages would increase the price of
the good more so than if owners decided to increase profit rates (Peach 2009). This argument is
important because by saying that the price is determined more by the labor costs than the profit
demonstrates that labor is a larger factor in production. Smith believed that the wages that were
paid to a worker would reflect the payment necessary to maintain a living (Peach 2009). These
subsistence wages are how capitalists are capable of making a profit. They are able to coerce
workers into getting paid a smaller amount than what they produce because a worker will need to
work to live before a capitalist will need to produce to live. A capitalist has much larger sums of
money in savings than a laborer, so they will be able to stop production, meaning they have no
additional source of income, for a longer period of time than a worker will be able to wait to
receive wages. Smith also did not make ethical claims regarding what he believed were the
conditions of workers. Smith argued that workers received subsistence level wages and although
he mentioned the coercion that the rich had over the poor, it did not lead him to make arguments
about the injustices behind the process (Hunt 2011). The economic analysis of Smith became the
backbone for both the Labor Theory of Value and the Classical Theory that we see abundant in
capitalist societies today. But, while Adam Smith made great contributions to the theory of
value, he did not add any ethical claims regarding the production processes. Without the addition
of an ethical claim, the economy will continue to function in the status quo because there won’t
be a reason to make a change.
David Ricardo expanded on the ideas of Adam Smith, and like Smith, Ricardo did not
add ethical claims regarding the working conditions of laborers. David Ricardo argued that
surplus value was created by labor, but was taken as part of profit and rent (Hunt 2011). Ricardo
moves beyond Smith’s understanding of labor and applies it to skilled workers as well, saying
they were the sum of unskilled workers labor hours, and argued that capital was simply past
labors plus interest (Hunt 2011). David Ricardo was the first to theorize many of the important
concepts behind the labor value theory. Recently, some economists have attempted to argue that
Ricardo was not a true Labor Value theorist because he held many ideas that are inconsistent
with a pure argument of the theory. Ricardo mentions that there are other causes that add value to
goods such as the durability of capital and the proportion of fixed capital (Stigler 1958). This
argument disregards the understanding that Ricardo attributed the creation of capital to past
labor, making the value produced by capital a product of labor and maintaining its consistency
with the Labor Value Theory argument. Some theorists have disregarded the understanding of
capital as previous labor arguing that “except in some irrelevant day of Genesis all capital has
been made by the cooperation of earlier capital and labor and land” (Stigler 1958 361). While it
may be true that capital has been present for a while, it does not mean that labor is not necessary
in the use and creation of it during present day function. Thomas Hodgskin, another prominent
theorist who studied the Labor Theory of Value, argued that machines are produced with labor,
they are useless without the application of labor, they require application of labor for
maintenance, and fixed capital does not represent accumulation in hands of capitalists but is used
by coexisting labor (Hunt 2011). And like Smith, Ricardo believed that the changes in price of a

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good were most greatly caused by the changes in the price of labor rather than capital or rent,
this is because wages made up a majority of the cost of a good since it is the largest input of
production (Stigler 1958). Even without arguing specifically that all capital can be broken down
into past labor, it is still evident that labor plays a necessary role in capital itself, let alone
production. Ricardo’s largest contribution to theory was his discussion of economic trade.
Meoqui (2011) argues that Ricardo’s explanation of international trade is a balance between the
real labor costs necessary to produce certain amounts of wine and cloth (Meoqui 2011). So we
see that the most important aspect of where jobs are created, according to Ricardo’s international
trade analysis, is in the labor costs. Goods that are more expensive in terms of real labor will not
sell for a higher value in importing countries than when imported from another country, because
the good is sold at the value of the labor that it took to produce it (Meoqui 2011). The expansion
of international trade has opened markets and made labor theory more complicated, but Ricardo
explained how the Labor Theory of Value functions in an open economy.
Karl Marx is the economist who took the ideas of the Labor Value theory and discussed
the implications that it has on the workers. Marx described the coercion that occurs between
capitalists and laborers, where capitalists are able to pay only for necessary labor while getting
the absolute labor out of the process, resulting in a surplus which results in the profit margin that
the capitalists receives (Hunt 2011). Marx not only described this process as unjust due to the
fact that labor is the one creating the value, but also focused on the large problems of worker
alienation (Hunt 2011). This alienation and law of increasing misery demoralizes workers.
Wennerlind (2002), describes Marx’s four types of alienation that workers face as: alienation
from the product, from labor, from specie-being, and from fellow workers. Alienation from the
product is caused by workers only being a part of one specialized aspect of the product.
Alienation from labor occurs because the acts of a laborer are all dictated by management.
Alienation from specie-being comes from a worker being unable to use their particular creativity
and human capital to make decisions about the labor process because their actions are dictated by
management. Finally, alienation from fellow workers is caused by physical separation from one
another as they work only with capital. The laborer is forced to use up their body in order to
accelerate profit for the capitalist (Yates 2011). Marx was unable to come up with a permanent
solution to the problem at hand that workers are not receiving the value which they produce.
Smith argued that the division of labor would likely result in greater productivity of labor, but
Marx believed that the division of labor would “establish the requisite power asymmetry for the
extraction of surplus labor”, and that workers would resist but technological advances in capital
would lead back to capitalists’ social control (Wennerlind 2002 10-11). This statement claims
that even if laborers became better at working together to end the coercion of capitalists, the
capitalists would continue to have an upper hand as they changed their means of production
through changes in technology. The lack of control over wages and the work performed leaves
laborers in a state of misery. The surplus of value created through capitalism is partially for
accumulation and consumption purposes, but Marx believed that the purpose was primarily for
the structure of society (Wennerlind 2002). If the Labor Theory of Value is true, that the labor is
the most important aspect of production, then workers should have a say over the procedure itself
since they would be the most knowledgeable. Working is either productive, meaning it
transforms inputs and adds value, or unproductive, such as financial and commercial activates
and supervisory positions (Mohun 2005). Productive labor, under the Marxist understanding, is
what creates the surplus value (Mohun 2005). These productive laborers are not only creating the
value, but are also facing emotional turmoil as they are alienated through the production process.

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While the ideas behind Marx’s Labor Theory of Value are concrete, today’s labor value
theorists have attempted to take these concepts and turn them into more mathematical equations
which can justify these arguments on an empirical level. One reason that the Labor Theory of
Value is not used as the major accounting method in determining value is that it is complicated
to determine the value that is produced by a worker rather than a piece of capital. When labor
power is sold for money it is expressed in the same way as all other commodities, in the physical
form of money (Mohun 2004). Labor wages cannot fully reflect the value of a workers
production because the value of a bundle of commodities differs from worker to worker (Mohun
2004). So even if the Labor Theory of Value is correct in arguing that labor is coerced and
receives less than fair wage, it is challenging to prove. For this reason, some recent theorists have
chosen to focus on the empirical analysis of the Labor Theory of Value to help justify the
importance of workers in the production process. For example, the Sraffian approach analyzes
the value of a commodity based on the value of the necessary labor used in production (Saad-
Filho 1997). The complication with this theory is that the value of necessary labor is determined
by the value of money, which cannot be held constant through time and location (Saad-Filho
1997). It is challenging for theorists to quantify the added value produced by labor, causing
difficulty in the discussion of a fair wage for workers. Another accounting method is the
Dumenil and Foley Approach. Using this approach, the accounting method can be used to
determine the fair wage of an employee, by looking at the aggregate relationship between prices
of goods sold and the production capacity of workers within a firm or industry and the prices of
the good at the time of production (Mohun 2004). It is challenging to find an accounting system
that works to aggregate the goods and services produced by firms and sectors, and also to
determine what wages should be paid by individual firms. The different inputs and outputs vary
by firms and by individual workers. Incorporating the importance of capital and the rate that it
depreciates into the process further complicates the accounting. The Dumenil and Foley
approach is the most usable, but it is too simplistic to be able to fully comprehend the value that
a worker is creating in the production process, especially since the timing of purchase of goods
and services differs and cannot be completely accurate.
While it may be challenging to find a mathematical equation that can fairly calculate the
worth of a laborer in production, an alternative approach would be under a worker-owned
cooperative, where the workers receive the profit from the sale of the goods that they are
producing. Since other types of accounting methods cannot seem to create a usable system to
determine the value of workers in capitalism, a change in the operations of a firm might be the
best approach to allow for workers to get the true value of what they are producing, thereby
receiving the wages that they deserve. This allocation would greatly simplify the problem of
attempting to separate the value added by capital versus the value added by labor, and would
likely benefit the worker.
The alternative theory used to discuss justification of wages, profit, and rent is the
neoclassical theory. The key assumptions to this theory in determining wages are that individuals
are rational and labor markets are competitive. When these assumptions are true, the wages
received by workers represents their marginal productivity of labor; the value that they are
contributing in the production process. If wages were lower than what they were producing, a
worker would have the rationality to go to another firm, creating highly competitive wage
markets in which capitalists are trying to attract the best and most efficient workers to their
company. However, this theory does not capture the complexities of the behavior of individuals
in the real world labor market. The idea of a perfectly competitive labor market is highly

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unlikely. This is particularly true during recessionary periods that contain higher rates of
unemployment than normal. Marx explained in his theory that the army of the unemployed
would lower the wages as there is a shortage of jobs and as Smith argued, a capitalist is able to
hold out longer from producing than a worker is able to hold out from working, giving the
capitalist an advantage during wage bargaining. While neoclassical theory suggests that workers
receive a far wage, on reflecting the value that they’ve added to the production, one study
suggests that businesses inaccurately tie pay to performance (Baker et al 1988). Additionally,
Baker suggests that rewarding workers with monetary benefits actually decreases the quality of
work because workers will try to specialize and complete the task as quickly as possible; the cost
of dealing with the management to reduce this problem outweighs the benefits of a merit based
system (Baker 1988). Baker (1988) also found that when workers are treated differently from
one another, based on perceived productivity differences, it can be detrimental to morale.
Performance measurements are also very subjective and can cause dispute between employees
and their superiors. These arguments illustrate a couple of reasons why the traditional investor-
owned system, which argues that workers receive fair wages based on neoclassical labor theory,
is incorrect and result in a less productive means of production. Walras, another well-known
historical theorist, believed that the greatest fault of the neoclassical theory was its indifference
to good and bad. Walras did however end up arguing that the neoclassical ideals of free
competition were the best option for the economy because it resulted in allocative efficiency
(Whyman 2012). But, the facts seem contrary to this belief associated with the neoclassical
theory because, as discussed by Mohun and other theorists, the production has increased while
real wages have decreased.
Worker-owned cooperative organizations use their profits to benefit their employees.
Under the Labor Theory of Value, labor is the most important component of the production
process and therefore should be given more substantial wages than the subsistence level
observed by economists. This process occurs through employee shares, better benefits, and more
employee control. The principles of cooperatives help to alleviate some of the mental insecurities
placed on workers while giving them the value added profits that they are justified through the
perspective of the Labor Value Theory. While these are the goals of the worker-owned
cooperatives, they are not necessarily the outcomes. The greater the employee control, the more
they are able to reduce alienation. A worker is more likely to have a solution to alienation
problems than someone in a managerial position because the workers are the ones with first hand
experiences.
The Labor Theory of Value presents an argument that the labor is the most important
component of production and therefore it is not justifiable that they receive the lower wages than
capitalists who simply own the means of production. The Labor Theory of Value is not the
typical value theory used by economists in Capitalist countries. Capitalistic societies work under
the assumption that the value of a good is determined by exchange in the market rather than by
the way in which it is produced. While the assumptions of the neoclassical theory argue that the
market helps to justify wages and that due to competition it can be assumed that we see efficient
allocation, the gains in productivity and the decrease in real wages seem to suggest that there is a
more complicated component of the economy. The Labor Theory of Value attempts to
understand that complication by incorporating the power roles of capitalists. If the Labor Theory
of Value successfully persuades that the current employment conditions take advantage of the
workers, then it is best to look at ways to restructure society that could meet the needs of
laborers. Worker-owned cooperatives appear to be one way to do this.

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Current Employment Conditions
The three most concerning outcomes of the investor-owned companies are the alienation
of the worker, the unfair wages, and the insecurity of the job market. If labor is the most
important aspect of production, then laborers should be treated in ways that demonstrate this. A
worker should not have to be constantly concerned about keeping their low paying job because
they have not been able to save enough to cover the costs of living should they go unemployed.
Additionally, this job should not force them to be alienated from coworkers and live a majority
of their lives as dictated by supervisors. Watkins (2003) articulates these circumstances of
workers; “the manufacturing towns and mining settlements are not truly liberated for they live
without security in an atomized, organized society, exploited both as workers and as consumers,
raw material for demagogy and mob-agitation rather than democratic citizenship”(86). This
section will illustrate some of the ways that the concerns of the Labor of Value are present within
society.
Alienation of the Worker
Workers face alienation from coworkers and supervisors, become disconnected from the
products they are contributing to the production of and are limited in their ability to make
choices about the way in which they are preforming their duties. Laborers are required to work in
a capitalist investor-owned business environment because they do not own capital and must
figure out some way to raise funds needed to survive. Their work is not only a requirement to
survive, but it shapes the entire well-being of a worker and the way that they live (Wennerlind
2002). Workers spend a majority of their time working, and even when they are not working
their financial needs are still a large concern. Workers’ autonomy and control are removed as
soon as they enter the workforce as laborers (Wennerlind 2002). Wennerlind (2002) also points
out that labor spends a majority of their time doing what someone else tells them to do. This loss
of personal autonomy can be emotionally draining for workers. Wennerlind (2002) argues that
“value can be defined as the continuity of social control, that social control is established through
the process of alienation, and that alienation takes on a strategic role within the dynamics of class
relations” (2). De Angelis argues that the primary goal of work in capitalism is to maintain the
social order, not to produce goods and services (Wennerlind 2002). While this view point may be
extreme, it is quite obvious that capitalists are in a much more powerful position than the
workers. This allows the capitalists to coerce workers into taking lower wages and reduces a
laborers ability to rebel against the system. The human waste created by capitalism impacts the
worker more than just at work, it moves into social relations and furthers the realm of alienation
(Yates 2001). Since work becomes such a vital component of laborers’ wellbeing, the alienation
they face at work has even more negative consequences than just lower productivity at work due
to lack of confidence or more behavioral issues, but this can extend into the community in which
they live in as well. A study by Stofferahn, which took place in North Dakota, found that in areas
with New Generation cooperatives, property crime decreased 48%, but in counties that did not
have them it decreased by only 25% during the time period examined (Stofferahn 2009). This
demonstrates greater trust within the community which could be the result of reduced alienation
between workers. A study by Majee and Hoyt (2010) found after interviewing a group working
in a home-care worker-owned cooperative, that the form of business created more participating
and networking, confidence, better communication, and more worker cohesion than in the
investor-owned business that they were working with before. In the study, many of the workers

13. Brixey 13
had been working with the same company for years before entering the worker-owned
cooperative, but their relationships and ability to work with each other became much better once
they joined the cooperative. This was in part because the cooperative encouraged the flow of
horizontal and vertical information (Majee and Hoyt 2010). The fact that the study found that
this worker-owned cooperative not only made workers more confident but also resulted in better
sharing of information, thereby demonstrating some of the negative impacts of the investor-
owned model of business.
Declines in Real Wages of Workers
As mentioned previously, the real wages of workers has seen a decrease since the 1970s
in the United States even though the productivity of workers has increased. The value of labor
power, the ratio of the real wage to labor productivity, has fallen relatively steadily since 1984
(Mohun 2005). The graph below shows this trend.
Labour Productivity and the real (product) wage (Mohun 2005 358)
When production growth increased dramatically in the 1980s, the real hourly wage rate
did not grow at all for two decades (Mohun 2005). It is likely that real wage did not increase
during this time period because the surplus value being produced was collected as profit. The
decrease in real wage can also be attributed to the increase in payments to supervisors, who saw
an increase in additional income at this time (Mohun 2005). These supervisors were being paid
from the surplus of workers without creating any additional value to the product during
production. Cooperatives are particularly helpful in reducing poverty by setting wage at a
competitive labor market price, but also distributing a share of profits to each member (Birchall
2012). Under the argument of Labor Theory of Value, this allocation is much more fair because
laborers deserve the value of what they are producing, including the surplus value created from
the bargaining that takes place between them and capitalists which reduce their wages. In a study
by Stofferahn (2009), the author found that counties with New Generation cooperatives saw

14. Brixey 14
increase in wages by 10% while counties without them saw wages increase only 5%, and those
without had more individuals receiving food stamps. This study demonstrates that these typical
investor-owned businesses are more likely to pay lower wages, and likely lower wages than
deserved by the laborers.
Job Insecurity
The final key consequence associated with investor-owned businesses is that they create
job insecurity for workers, causing unnecessary stress as well as adding to the problem Marx
describes as the army of the unemployed. Workers’ concern about employment insecurity has
been on the rise across all industrialized democracies, increased partially by globalization and
de-industrialization causing asset-specific skilled workers to be more insecure (Anderson and
Pontusson 2007). The neoclassical theory of economics, which justifies the efficiency of the
investor-owned business model, assumes that workers will likely be able to find a job and there
will not be large amounts of unemployment. Workers base insecurity of their job off of labor
market conditions, their employable attributes and the institutions they can access which provide
unemployment resources (Anderson and Pontusson 2007). The structure of investor-owned
businesses leaves many of the employment decisions up to the supervisors without the
information being transferred to the employees until the laborer is told they are being fired. The
insecurity is worsened because many laborers do not make enough money to save up in case they
become unemployed. Workers who are part of a union or public-sector employment are less
insecure about their jobs (Anderson Pontusson 2007). Unions are not popular among investor-
owned businesses because they take away from the power of the capitalist and their ability to
make decisions. Under the neoclassical view, unions also create inefficiencies within the market
by reducing the ability of capitalists to fire and hire when needed to reach equilibrium in the
market. Cooperatives have many of the same employment stability benefits as unions, but do not
require that the union be approved by the owners or force member to work with the owners to
reach an agreement. Capitalism creates human waste by creating a system which requires
unemployment rates and leaves a large percentage of the population without a means of
subsistence (Yates 2011). The Labor Theory of Value argues that capitalists benefit greatly from
larger rates of unemployment because it pushes down the wages they are required to pay workers
by contributing to the army of the unemployed.
Ways Cooperatives Help Alleviate Alienation, Low Wages, and Job Insecurity
The Assembly President of the United Nations Year of Cooperatives Conference, Nassir
Abdulaziz al-Nassar, believes that the member-owned model of business is especially important
in the aftermath of the financial crisis that hit globally because they reconcile “the logic of the
market economy with imperatives of social inclusion and ownership” (States News Service 2011
3). The 2008 crisis lead to a recessionary period that has lowered the stability of jobs and wages,
giving owners of the investor-owned firms additional bargaining power in determining labor
wages and benefits. Pauline Green, the President of the International Cooperative Alliance,
stated that cooperatives had helped contribute to directly improving the standard of living for
about half of the world’s population, helping people to get out of poverty with dignity (States
News Service 2011). This is because worker-owned cooperatives empower the workers, resulting
in higher wages and more stability, which leads to general happiness. Cooperatives “break down
barriers of ignorance, indifference and prejudice between peoples” (Watkins 2003 101).

15. Brixey 15
Cooperatives Alleviate Alienation of the Worker
Worker-owned cooperatives help to alleviate the alienation of workers both between each
other and with management. Even some of the well-known historical theorists believed that
cooperatives could help to eliminate alienation. Marx believed that cooperatives could alleviate
the subjugation of labor to capitalists. Marx described cooperatives as a more possible version of
communism (Whyman 2012). John Stuart Mill argued that policies in cooperatives were less
likely to result in restrictive practices since the workers would be the ones making the decisions,
which would simultaneously result in increased labor productivity (Whyman 2012). Mill argued
that the share in profits would make working in a cooperative preferred over other forms such as
capitalist owned firms (Whyman 2012). So according to the theories of Mill, not only would
these policies help to reduce the alienation of workers, but doing so would increase the
productivity of the firm; benefiting both society and the workers themselves. On the same note,
Alfred Marshal argued that cooperatives would develop to be sustainable businesses and improve
the position of laborers in general. Marshal believed that workers were more likely to identify
with the goals of the cooperatives since they took part in making them, which would result in
lower shirking rates and reduced monitoring costs (Whyman 2012). Allowing workers to control
management decisions would highly benefit society while reducing alienations felt by workers.
There are some key challenges associated with this type of organization. Keynes highlighted one
of the challenges by arguing that for cooperatives “the greatest difficulty is the question of
management: it is not easy to bring oneself to vote for the most capable man among one’s
shopmates as manager rather that the best talker or the best fellow” (Whyman 2012 844). But,
Keynes failed to consider that it is easier to make the right decision when you are invested in the
wellbeing of the company and all of the workers within the cooperative should be voting in a
way that will result in the best outcome for the company. The benefits of having the workers vote
is that they should have the most comprehensive information regarding what the company needs
and which person would best fit those needs, so they would not likely be persuaded by the “best
talker;” through their experience they would likely have an idea of who would best serve the
cooperative’s needs. The alienation caused by working under traditional capitalist investor-
owned businesses creates a tension between laborers and management because laborers do not
want to give in to management’s capturing of their autonomy (Wennerlind 2002). Rejecting
policies requires much more supervision by managers which can be costly to the business. Some
businesses try to reduce this by giving promotion based incentives, allowing those who best
follow policy and demonstrate competency to move up in the management chain. But, promotion
based incentives are not helpful at reducing alienation, but instead tend to worsen it. Even if
workers are being told a company prefers to hire managerial positions from within, this system
can create inefficiency. A worker who performs well at one level will not necessarily perform
well at an upper level (Baker et al 1988). For this reason, it is more efficient for workers to be
paid fair wages and receive profits of the company, than to be working towards getting a better
position to earn higher wages.
Cooperatives Pay Higher Real Wages
Since worker-owned firms are run by those doing the labor, wages tend to be higher since
they are collecting the amount that would otherwise be collected as profit by the owner of the
investor-owned business. Cooperatives can help increase both the financial and social capital of
low-income communities (Majee and Hoyt 2010). Social capital is defined as “Features of social
organizations, such as networks, norms, and trusts that enable participants to act together more

16. Brixey 16
effectively to pursue shared objectives” (Majee and Hoyt 2010 419). When workers are given the
opportunity to make decisions about the operations of their business, they are more likely to
focus on ways that would allow them greater financial stability, as well as social stability.
Cooperatives are particularly helpful for women with limited resources to join a business (Conn
1990). Worker-owned cooperatives make it possible for all individuals who lack the means of
capital to begin their own business by pooling the resources of multiple people. This is especially
helpful for women who face disproportionately high levels of poverty and lack of resources.
Cooperatives Improve Job Security
Worker-owned cooperatives also help workers feel more secure in their jobs because they
are the ones in charge of making decisions about layoffs. Cooperatives allow for self-
determination of workers, better wages, and more secure jobs without needing strong unions
(Major 1996). This is because when the workers are in charge of making decisions about
themselves, they will allocate wages more fairly and are less likely to lay off workers. The
National Center for Employee Ownership found that employment stability, firm growth, and
rates of survival tend to be higher in employee owned firms that in traditional investor owned
firms (Birchall 2012). Not only do worker-owned cooperatives address insecurity within a
laborers place of work, but also the community in which they live. Cooperatives can help
revitalize a community and help them deal with the current economic conditions, job losses, and
rising costs of food and utility bills (Majee and Hoyt 2010). The company will make decisions
that take into account ways in which the company can help benefit the employees, rather than
focusing on the most efficient way to generate profit margins. During times of economic
downturn, it is likely that worker-owned cooperatives would reduce cyclical unemployment rates
because they are more likely to choose to decrease the salaries they pay to employees rather than
to lay people off (Major 1996). While reduction of salaries can cause financial instability, it has
significantly smaller impact than when a worker losses their income entirely. It is also important
that throughout this process, the workers are the ones making their own decisions about the
wellbeing of their coworkers and themselves. For this same reason, cooperatives would likely
reduce structural unemployment, since laborers would be unlikely to choose production methods
that would lay people off (Major 1996). While investor-owned businesses benefit from using
more capital intensive production method because it tends to be less expensive, worker-owned
businesses are much more likely to consider the well-being of their employees when deciding
changes in their production method.
Cooperatives and Economic Efficiency
This paper focusses on the issues associated with the current power structure in business
models and some of the ways that worker-owned cooperatives are able to produce goods and
services while reducing those issues. Importantly, this business structure is also arguably more
efficient and would help not only those who work there, but all members of society purchasing
the goods and services which they produce. Although there are many cooperative types that
compete with capitalist owned businesses, many theorize that the makeup of cooperatives leads
them to be less efficient than capitalist or investor owned businesses. However, there is evidence
that company performance improves even when small means of ownership, employee owned
stock option plans, are made available (Major 1996). Worker-owned cooperatives create more
worker cohesions which reduce costs, correct market inefficiencies, and ultimately tend to have
better long term goals than investor-owned businesses. This section of the paper will illustrate

17. Brixey 17
the ways in which cooperatives are able to reduce costs and increase productive and allocative
efficiency. Productive efficiency means that the resources of an economy are being used
efficiently. Allocative efficiency means that those goods and services that are being produced are
more desirable to the economy than alternative goods and services. Specifically, this section
examines how worker-owned cooperatives are able to correct market inefficiencies, manage to
effectively raise needed capital, have equal if not greater production efficiency, including
productivity specifically created by greater worker cohesion, and have better long term goals
than many investor-owned businesses.
Greater Productivity Because of Worker Cohesion
The alienation that is faced by laborers of investor-owned businesses, when reduced or
eliminated, can lead to increased productivity. This increased productivity will make a firm more
efficient and give them an advantage over the competition. This increased productivity comes
from an individual’s increased interest in the company’s success, better cohesion among
workers, and fewer supervisory costs by managers. Owning part of the company can increase a
worker’s commitment to the company, especially if they have an economic stake in its wellbeing
(Major 1996). This owning process varies greatly between different types of cooperatives. It can
be assumed that as cooperatives try different methods, it will become clearer which type of
ownership works best. Some theorists are concerned that ownership is too risky for most workers
to want to get involved it, but the problems of unemployment and the harsh job market are much
riskier for laborers (Major 1996). This is especially true in a recessionary period where the job
market works even less efficiently due to a shortage of employment opportunities. Transaction
costs are lowered because workers realize that they are dependent on one another and thus
realize that they each have a role to fulfill (Nilsson 1996). Workers realize that when they work
together they are able to achieve more than if they were trying to act alone (Nilsson 1996). When
workers know they are highly dependent on each other to better their livelihood they are more
likely to focus their efforts to get the best outcome for themselves and each other. This creates a
sense of comradery that is highly beneficial to the productivity of the company. When workers
are able to agree upon a set of values, in this case the values of their cooperatives, then the unity
among them is greatly strengthened (Nilsson 1996). We then see workers better communicating
with one another and operations run smoother (Nilsson 1996). Not only will operations be more
naturally and easily run, but workers will be more inclined to encourage coworkers to do their
best. Worker-owned cooperatives create incentives for coworker monitoring, which keeps all
workers accountable to do their best and results in better performance (Baker et al 1988). This
improved communication helps to lower the transaction costs within the firm. Mill argued that
members were significantly more likely to accept the policies of the cooperatives because they
would have the opportunity to participate in the decision making (Whyman 2012). Transaction
costs are further reduced because the procedure being implemented will likely be better received
by workers than policy changes made in investor-owned firms. This is likely because the
workers are the ones helping to make the procedural changes. When management is accountable
to the workforce it reduces the cost of monitoring, allows for natural flow of information and
innovation. Higher satisfaction would likely lead to productivity, resulting in higher yields on
both returns on capital and higher wages for workers (Major 1996). There are also some
arguments about the control problem of cooperatives, where workers spend large amounts of
time lobbying for other workers to vote in a certain direction, resulting in a less efficient decision
making process than if this was being done by an executive (Katz and Boland 2002). This seems

18. Brixey 18
unlikely because since workers would all benefit from the increase in profit, they will likely
make a voting choice that will most greatly increase their profit or benefit their community.
Since workers are tied together by that bond, it could be assumed that a majority of workers
would tend to agree on many policy decisions, limiting the lobbying efforts.
Reduce Market Inefficiencies
Worker-owned cooperatives help to reduce inefficiency of the labor market. This type of
cooperative allows for laborers to have a fairer wage because the few individuals who own the
capital are not able to coerce them. In a study by Mikami (2003), the author discusses three types
of firms and emphasizes the differences in their allocation of owner’s rights rather than their
functions. The assumption is that a capitalist firm arises to correct a market where physical
capital services is the least sensitive to variation in rental rate, a worker-owned firm will form
when the supply of labor is least sensitive to wages, and consumer cooperatives will form when
the price of a good is least sensitive (Mikami 2003). Under neoclassical assumptions of the labor
market, there is a perfectly competitive market, but as illustrated from pervious arguments in this
paper, exploitation of workers which reduces wages below a worker’s productivity, demonstrate
that this is not the case. The fall in real wages demonstrates a serious need to reconsider the labor
market system and it is arguable that wages are currently the least sensitive to changes in
aggregate price level. The argument here is that companies have a sort of monopsony power over
the wages. They are all set at very low wages because the “army of the unemployed” puts
downward pressure on these wages. Birchall (2012) argues that cooperatives of all types alleviate
some form of market inefficiency. Consumer cooperatives prevent cartels and monopolies,
producer cooperatives keeps prices at a competitive level, and employee cooperatives prevent
employers from taking advantage of their employees (Birchall 2012). Keynes argued that there
was no reason that capital should remain scarce, since it can be argued that capital owners were
better equipped to hire labor rather than the other way around (Whyman 2012). If low wages are
society’s largest concern, worker-owned cooperatives should be encouraged to grow and prosper
to correct this. Cooperatives tend to form during times of high unemployment (Major 1996). This
occurs because workers become more frustrated with the market inefficiency and form
cooperatives to take care of the issue. Domar argued that the assumption under neoclassical
theory that labor is flexible does not account for the real world motivation of job security
(Whyman 2012). Job security is one of the biggest concerns of workers today, and the flexibility
of the labor market negatively impacts them. While there is some danger involved in investing in
a business, this would likely still benefit the laborers. It is more costly to enter into a business
against someone that holds a monopoly or holds significantly more control, than it is to start a
worker-owned business (Birchall 2012). Under current circumstances investors in an investor-
owned business do have significantly larger control over wages, hours, and duties than workers
do. Worker ownership can be a way for a company to internalize production costs when
necessary (Alexander 1985). This can help to stabilize the economy because ownership of a firm
by workers allows for them to take pay cuts or reduce hours whenever it is necessary during an
economic downturn, without laying off workers, causing even more instability. Cooperatives
allow for those who are disadvantaged in the market to create more fair play within the market
with these self-helping organizations (Watkins 2003).
Cooperatives and Capital

19. Brixey 19
A key point in the argument against economic efficiency of cooperatives is that they do
not have the sufficient funds to raise the necessary capital or to invest in research and
development that allows for innovation; this argument however, is false. Some theorists argue
that workers will not be able to own the capital until the distribution of wealth has been more
evenly distributed, but Alexander (1985) argues that clearly it is possible since we see many
examples of worker-owned businesses today. Part of this argument comes from the assumption
that workers are prone to think short term when making choices regarding their business.
Theories regarding cooperative function often include the issue of investment, theorizing that
workers would prefer to take more of the profits at an earlier date rather than reinvest (Major
1996). However, if workers are dependent on their jobs, and feel more secure about their ability
to keep their job, it is arguable that they would prefer to invest for the longer term benefits. This
is why some theorists argue that rather than creating short-run behaviors, cooperatives do just the
opposite. Through educating cooperative members to think in term of the future, riskier behavior
can be reduced and those members can end up thinking in more long-term goals (Watkins 2003).
The initial costs of starting a business are high, and might require cooperatives to borrow in
order to purchase their capital. But, even with encouraging outside investment in worker-owned
cooperatives, it is likely that over time the workers would own a larger percentage of the
company as less investment was needed (Major 1996). There are very high benefits for
cooperatives that do not rely on heavy outside investment. The transaction costs are reduced
because they are not dependent on outside forces for funding or decision making (Nilsson 1996).
Degeneration occurs because incentives to take risks are reduced, so cooperatives might be
overly cautious and less likely to take steps towards innovation, and if cooperatives are
successful and need to expand, member are less likely to want to let new members in because it
will decrease their benefits (Major 1996). Cooperatives can put policy in place to limit the
number of hired laborers they can have compared to those that are actually members to limit
their desire to be exclusive and not expand (Major 1996). This loss aversion might benefit the
economy in the end by providing more stability, since risk can sometimes lead to very negative
consequences such as bankruptcy. Along these same lines, Birchall (2012) argues that this
reluctance to take risk actually results in businesses that are more durable. Workers do have
some advantages in innovation over investor-owned businesses because they are the ones
participating in the production process themselves. When the workers are the ones making
decisions about how to run the business, they are able to apply their own ideas about what might
work, which arguably fosters additional innovation (Watkins 2003). Sometimes the initial
funding for the worker-owned business can be the most challenging part of capital investment.
Cooperatives typically struggle to get outside funding because they are viewed as more risky
than capitalist firms, and investors usually expect some role in the decision making process
(Major 1996). In a worker-owned cooperative, relying on an investor who wants to participate in
the operation decisions of the business can be detrimental to the values of the cooperative.
Lopez-Espinosa et al (2009) argues that the way equity and liabilities are classified in the case of
cooperatives makes them appear more risky than they actually are. Their study found that
redeemable preferred stock for employees actually works more as equity rather than a liability in
the case of cooperatives (Lopez-Espinosa et al 2009). If cooperatives and their operations were
better understood, it is likely that investors would prefer to invest in this type of business and not
simply view the entirety of their liabilities as additional risk. There are numerous types of stock
options for cooperatives that could help eliminate the underinvestment issue without harming
any of the ideals that their business was founded upon. Some of these include stock option plans

20. Brixey 20
where investors can buy stock but cannot have a say in company policy, allowing stock to be
redeemable, and allowing workers to sell stock that they purchase upon the decision to leave the
company (1996). The options are numerous, and while there is not a certain way to increase
investment and maximize benefits to all parties involved, it is likely worth experimentation to
find out. Experimenting with different types of stock options could help to maximize the
efficiency of worker-owned cooperatives. The key point to this argument is that all of these
alternative stock options are viable and they would have numerous benefits even potentially
create a type of firm that is significantly more efficient for all parties involved than investor-
owned businesses that we typically see under the capitalist structure. While this is a key
argument against cooperatives, it is also important to remember that currently, worker-owned
cooperatives do exist and have been able to acquire the necessary capital. In Stofferahn’s (2009)
study on New Generation cooperatives, it found that when measuring the financial capital,
measured as means of investment, counties with New Generation Cooperatives had better results
than comparison counties. Pauline Green, the president of the International Cooperative Alliance,
said that during the financial crisis which caused many businesses to go bankrupt, cooperatives
had continued to grow (States News Service 2011). This comment demonstrates the stability and
efficiency of cooperatives, especially during a time where investment is low. These worker-
owned businesses are at an advantage because they are not relying on much of the same investor
money as investor-owned businesses.
Additional Efficiency of Cooperatives
There are many examples in which cooperatives demonstrate more efficient production
methods. Cooperatives derive much of their motivation for efficiency from the same places as
investor-owned firms. John Stuart Mill believed that the decentralized, market-based
organization of cooperatives would allow for the same type of competition between firms as
capitalism (Whyman 2012). This argument addresses the concern that cooperatives could not
function in the same competitive nature as investor-owned firms. Correcting this notion is
important because competition is assumed to be the key to efficient production methods and
pricing structures in an economy. Additionally, free entry and exit would make competition just
as likely as with capitalist owned business (Whyman 2012). Mill also believed co-operatives
could enhance allocative efficiency because the number of businesses producing a single type of
good would decrease and allow them to take advantage of economies of scale (Whyman 2012).
Similar studies also found that cooperatives combine resources are able to utilize economies of
scale (Mormark 1996). There is little reason that worker-owned cooperatives shouldn’t be able to
use the same strategies as investor-owned businesses. Some theorists argue that worker-owned
cooperatives tend to be smaller, so it is likely that they would continue to be smaller in size
compared to investor-owned businesses, resulting in more companies and enhancing competition
(Major 1996). It is likely that with investor-owned businesses, we could see a variety of firm
sizes since presently there are examples of both large and small worker-owned cooperatives.
Worker-owned cooperatives have additional incentives to increase production efficiency that
investor-owned businesses do not. Mill argued that personal interest of cooperatives would lead
to more efficient production since workers would have a stake in the success of the cooperative
enterprise (Whyman 2012). This is likely to occur because workers know that they will be
getting a share of the profit, so by being more productive, they can increase their income. The
elimination of supervisory control also allows for additional productivity. The hierarchy of
management’s control over workers discourages their creativity and innovation (Wennerlind

21. Brixey 21
2002). As mentioned in the section on capital, this same advantage in innovation applies when
discussing productivity. If the worker is the one making decisions about the operations in
production, then they will be able to utilize their insight to make decisions about which strategies
could increase productivity. Excluding workers from the decision making process, as done in
hierarchical structure within investor-owned businesses, results in decreased efficiency and
production that is not minimizing costs (Alexander 1985). This can be achieved through a few
different tactics. Some theorists believe that worker-owned cooperatives create more jobs than
investor-owned firms by creating greater cohesion between workers, having flexible wages, and
being flexible about the savings policy of the firm (Staber 1993). The agreement between
workers and employers in an investor-owned business is contract based and very clear regarding
payment and working hours, the worker-owned cooperatives can make decisions regarding
wages and investment as necessary for the firm without having to be concerned about a strike or
the loss of employees. Cooperatives also benefit their local communities. Cooperatives provide
higher producer incomes, better paying jobs, increased sales by local retailers, secondary
employment impacts, greater tax base, business expansion, and new jobs in the community
(Stofferahn 2009). These things are not exclusively created by cooperatives, but they are more
effective in creating them than investor-owned businesses. Investor-owned businesses can cause
other negative outcomes because their production methods are not as efficient. Investor-owned
businesses in the typical capitalism state rely on the overproduction of goods by capital
accumulation, and then the products must be sold so they are pushed onto consumers (Yates
2011). The capitalists are driven by profit and the only way that they can achieve that is to
produce mass amounts of goods so that they have more surplus labor to profit off of. The human
waste created in capitalism conflicts with the ideals of capitalism to be more efficient and
maximize value and potential of production (Yates 2011). The human waste that Yates describes
here includes the limitation of workers innovative skills as well as the desire to replace them with
capital whenever possible. Capitalism works to make the laborer expendable, and the larger the
surplus labor supply the better for the capitalist, since it lowers the wages they must pay.
Worker-owned cooperatives see the worker in an important role, striving to use their skills and
grow larger in membership throughout their time in business, rather than creating the expendable
worker.
Cooperatives Have Better Long Term Goals than Investor-Owned Businesses
Worker-owned cooperatives tend to place a greater importance on the impact that they
have on the community because the members are typically living within the community.
Cooperatives work under the values of honesty, equity, economy, openness, self-help and
independence, causing them to be more active citizens (Normark 1996). These ideals lead them
to focus their efforts to reduce waste, increase human capital within the firm, and provide to the
community with necessary resources. Guatemala’s representative at the United Nations’ launch
for the International Year of Cooperatives said that in addition to the large amount of goods
cooperatives contribute to Guatemala’s exports, he’s also seen them attempt to limit their impact
on the environment through actions such as planting trees (States News Source 2011). Since the
cooperatives members typically live in the community they want the community to remain in a
good state of being, not to be greatly harmed by their production. Worker-owned cooperatives
increase the opportunity to pursue ethical ways and means (Birchall 2012). Since worker-owned
cooperatives are not forced to seek profit to make shareholders happy, they can make decisions
which focus on their happiness instead, which quite often involves maintaining the vitality and

22. Brixey 22
beauty of the place where they live, and keeping their community safe. Keynes argued that
capitalists owned businesses are more likely to exploit resources which will result in higher
prices in the long run (Whyman 2012). These resources range from the natural resources they are
using in production to the individuals of the community who work for them. Since investor-
owned businesses focus on profit, they are more inclined to take advantage where they can to
increase profit margins without much concern of their impact on the environment and the
community. Typically, worker-owned cooperatives are willing to put service ahead of profit
maximization (Birchall 2012). The better service and quality provided can benefits the
community that they are apart of. Cooperatives often support welfare services and opportunities
for other small businesses (Normark 1996). Cooperatives are more likely to give generous
benefits to employees, and participate in more charitable events going on in the community. This
ideal is prevalent in the Blueprint for a Cooperative Decade which included the goal of “deep
commitment” within cooperatives by the year 2020 (Maughan 2012). This deep commitment
includes not only takes place within the cooperative, but also in the community in which the
cooperative operates. In the United Kingdom, they are exploring whether the use of worker
cooperatives can help ensure that public services continue to be provided even during a time of
budget cuts in the government (Birchall 2012). Additionally, cooperatives tend to invest more in
human capital since they have a comparative advantage in this input as compared to investor-
owned firms who have the advantage in financial capital investment (Normark 1996). This
investment in human capital not only benefits the cooperative by increasing its efficiency, but
also making the labor supply more skilled overall. A study by Stofferahn evaluated the impacts
of cooperatives on the community. Stofferahn (2009) found that cooperatives create negative
externalities in the location of cooperative firms, and the positive externalities only go to the
members. Stofferahn fails to identify any specific negative externality that is not associated with
most firms, and are particularly prevalent in investor-owned businesses. Stofferahn (2009)
discusses the issues of environmental degradation and the losses of investment associated with
failed businesses as well. As many authors have discussed, the negative externalities associated
with production are often reduced with cooperatives. Stofferahn (2009) concludes that the
benefits of cooperatives tend to have the largest impact in the community where most of the
residents reside. This impact would make cooperatives particularly beneficial in areas that face
economic development issues.
Government Policy
Government policy can be effectively utilized to promote the formation of business
cooperatives. There are many tax incentives set up by federal and state governments in the
United States which target the growth of business. These incentives help to reduce the costs for
businesses by providing a reduction in property tax, sales tax, payroll tax, etc. in order to
encourage businesses in existence to expand or incentivize new businesses to start up. Incentives
typically target industries that export and attempt to get them to move and operate in more
economically distressed areas through Enterprise Zoning programs. While these businesses may
be creating jobs that help the community, they do not help to increase the wages, benefits, or
overall standard of living within the community. Some of the incentives may include wage and
benefits requirements but these changes are driven by policy not by change in industry mentality.
A change in industry mentality could result in a more efficient production processes when
alienation and coercion of the worker is reduced. If government used policy to incentivize

23. Brixey 23
growth and startup of cooperatives, the results could be extremely positive for the reasons
discussed previously in this paper.
Government should incentivize cooperative industries both by increasing financial
incentives and working to educate investors and managers about the benefits of cooperatives.
Financial assistance is important because cooperatives are significantly less likely to dissolve
when they are given support (Staber 1993). Economic support is not necessarily direct funding,
but can include tax credits and write offs. This means that a cooperative receives some
reimbursement after they begin production. Funding cooperatives after they make the initial
investment helps to demonstrate that they have been able to generate the necessary funds to
begin production and therefore on some level that they are competitive. These types of programs
are already used for business development incentives but worker-owned cooperatives work to
eliminate alienation and more fairly distribute profits, so it would be highly beneficial to have
business development incentives that target these types of industries. When providing assistance,
it is important that the government do a thorough job in classifying cooperatives so that bogus
organizations cannot take advantage of the laws being built to protect cooperatives (Watkins
2003). The description of a cooperative, most importantly the membership requirements and
structure of business, should be laid out in a clear fashion. Cooperatives should have a liaison
that is able to communicate with government representatives to make sure policies are working
efficiently (Watkins 2003). Since there are few examples of worker-owned policy incentives, it
is highly important that the effectiveness of the policies is evaluated on a regular basis.
Additionally, there needs to be education and training about cooperatives so that owners know
how to help them perform their best (Watkins 2003). Since cooperatives are not well understood,
both their benefits and their liabilities may look risky but they are actually quite equitable. It is
important that entrepreneurs become aware of them so they will feel more inclined to start a
business under this model.
The only strong incentive program for cooperatives in the United States comes from
Missouri. This tax incentive, New Generation Cooperative Tax Credit Program, helps to reduce
the cost of membership while encouraging many of the ideals promoted by traditional
cooperatives. The requirements include that the cooperatives must consist of 12 or more
members, members hold a majority of governance or voting rights, they control hiring and firing
of management and deliver agricultural commodities to the entity for processing (Missouri
Department of Agriculture 2014). Requiring that members retain control over management and
other decision making in the cooperatives is necessary to ensure that cooperatives maintain the
element most effective in reducing alienation. The amount of the tax credit issued must be the
lesser of 50% of member’s cash investment or $15,000. But, producer-members related to a
“large capital project” cannot receive tax credits totaling more than $1,500,000 and those related
to “employee qualified capital project” cannot receive tax credits totaling more than $3,000,000
(Missouri Department of Agriculture 2014). The tax credit is given to members, in effect, help
reduce the cost of membership by allowing them to get a larger percent of their capital
investment back. This helps to address the fear that cooperatives will not be able to purchase the
necessary capital as well as investor-owned businesses. Not only is this a type of stimulus for
businesses expansion, but it stimulates a type of business that arguably increases the standard of
living for the workers and their community. This credit is provided to agriculture worker-owned
cooperatives. These cooperatives are typically producers, so the organizations structure is
slightly different than it would typically be in a worker-owned cooperative in the manufacturing
sector. Additionally, this targets New Generation Cooperatives, which include profit as a main

24. Brixey 24
goal as well. While New Generation Cooperatives may not incorporate the ideals of the Labor
Theory of Value as well as the more traditional cooperative, it still has many benefits and
alleviates alienation and coercion better than investor-owned businesses.
Conclusion
Cooperatives present an opportunity to create a new kind of business that is socially
advantageous and presents many advantages that could lead to greater efficiency. There is no
empirical evidence that cooperatives are less competitive than investor-owned companies, even
in highly competitive markets (Normark 1996). Cooperatives are able to compete with investor-
owned businesses by using their own advantages in production. Cooperatives create worker
cohesion which helps lower production costs, they make decisions that lead to more productivity
because they have more knowledge of the process itself, they correct inefficiency in the market
and coercion of workers caused by a noncompetitive labor market and they have better long term
goals which benefit their communities. Worker-owned cooperatives contain many of the same
economic efficiencies of investor-owned firms, but far fewer of the negative externalities created
by investor-owned firms. Investor-owned firms rely on the alienation and coercion of workers,
and they exploit resources with little care for the impact on workers and the community because
they are driven by profit. It seems unlikely that traditional capitalism can be sustainable when it
removes laborers from the process (Yates 2011). The cooperatives are typically more durable
and make less risky decisions, allowing for stability in the economy.
There are many different types of cooperatives, depending on their membership policy,
decision making processes, and how they chose to return profits to members, but all create a
better and more efficient working environment for laborers. Nassir Abdulaziz Al-Nasser said at
the United Nation’s launch for the International Year of Cooperatives that “people must be the
centre of social and economic development agenda” (States News Service 2011). When laborers
are the focus of government policy, it is clear that the best type of job creation would be the jobs
within cooperatives. Cooperatives work to reduce alienation, coercion, and increase job security
of the workers. At the same United Nations’ conference, many countries presented speeches
which discussed the positive impact that cooperatives have had on their economy, but the United
States representative discussed some cooperative different projects that they helped implement in
other countries, but not in their own (States News Service 2011). While this is just one example,
it demonstrates the disregard for cooperatives in the United States and the positive impact that
they have on economies. Since the United States’ economy relies mostly on investor-owned
businesses, it does not see the true value of cooperatives. Some economists, famously Keynes,
believe that the literature and theories produced by economists impact the decisions of many
financial players (Whyman 2012). So when the key concepts of cooperatives are not discussed in
economics education, it results in reluctance by financial players and policy makers to
incorporate them into the economy. Through education and financial incentives, the United
States government could be capable of creating an economy where a large percentage of the
businesses use this type of business model, which would benefit the workers and society as a
whole.
There are numerous examples of successful cooperatives throughout the world. In
Sweden, cooperative enterprises make up a large part of many sectors including agriculture, the
food industry, retailing, insurance, and housing (Normark 1996). During Finland’s deep
recession of the 1990s, worker-owned cooperatives were promoted as a way of reducing
unemployment (Birchall 2012). Cooperatives are not only versatile in their ability to work in

25. Brixey 25
many different sectors of the economy, but there are also many cases of cooperatives reducing
high levels of poverty by returning a larger portion of profit generated by business to the
employees. While these are not the most popular business model in the United States, WINCO,
Bi-Mart, and Ocean Spray are highly competitive businesses that all use the cooperative model.
Ocean Spray is a producer cooperative, where the growers are the members. Bi-Mart is an
example of a consumer cooperative, where members purchase a member card to be able to
purchase items at the store. WINCO is a worker-owned cooperative, where after a certain
amount of time working, the employees are then given stock by the company. WINCO argues
that offering their employees stock is a “direct incentive for employees to work hard and take
pride in what they do; that is why our stores are cleaner, our prices lower and our smiles are
bigger” (http://wincofoods.com/about/an-employee-owned-company/). Offering employees stock
is expensive, especially when it is coming entirely out of the company funds. WINCO believes
that what they gain from this business model is beneficial to both their employees and to their
productivity as well. By reducing the alienation they get bigger smiles, employees work harder
because they feel they are earning a fair wage, and prices are lower in part because they benefit
from the increased productivity of individual workers as well as the better cohesion between
workers. And most importantly, their prices are often the lowest available, demonstrating that
they are highly competitive. WINCO helps illustrate that the theoretical arguments of the Labor
Theory of Value through their application in worker-owned cooperatives can result in a more
economically efficient outcome for consumers and workers/owners.
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