Cooperative Enterprise and Market Economy: Chapter 4

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Chapter 4

Accumulation in cooperatives.1

1. In the previous chapter we defined the essence of equity and gains in worker cooperative enterprises as a function of labor, as L1 and L2, respectively.2 Accumulation of equity is naturally tied to distribution of gains; in theoretical terms they are inseparable logical moments of the same process. The nexus between accumulation and profit is obvious in capitalist enterprises, where accumulation is based on profit on capital invested, but it has not been clearly defined for worker enterprises. Instead, there has been an effort to dissociate accumulation from distribution, resulting in a contradictory and confused understanding of the relation between the two moments, with very serious practical consequences. In this chapter we examine this nexus and all its implications, demonstrating the importance of understanding accumulation as a necessary element of rational economic behavior in cooperative enterprises, and revealing the distortions caused by failing to do so.

As we have already indicated, the problem has its origin in a widespread practical distrust and ideological revulsion on the part of theorists of cooperation and workers themselves, with respect to property, accumulation, and profits.

The failure to adequately identify the distinct essence and content of equity and profit (or surplus) in worker enterprises has made it more difficult to pose the problem of cooperative accumulation in theoretical terms, and resulted in accumulation not being seen as an indispensable logical element of the processes of production, circulation, and consumption in which these enterprises are engaged. We continue to think of equity in its capitalist form – as capital – and not as our own accumulated Labor, seeing accumulation of equity as if it were capitalist accumulation and not accumulation of Labor.3

In order for the process of cooperative accumulation to cease to present itself as something mysterious or of dubious origin, and appear instead as the normal growth of an enterprise which is founded on profit generated by Labor, part of which is reinvested in the enterprise, we must grasp the distinction between equity and accumulation in cooperatives, and recognize their very different ethical and social implications.

Theorists of cooperation have formulated this problem poorly, leading to erroneous practices with significant impact, both on the level of management of individual cooperative businesses and on the level of policies oriented towards the promotion of cooperativism.

We already mentioned the widely held misconception that cooperatives only produce economic benefits for their members, as individuals, and not for the enterprise itself. According to this view, the savings, economies, or activities of the cooperative would amount to nothing more than associated and integrated coordination of individuals; the cooperative would not be a true enterprise. Once again we see the negative consequences of mistaking the particular form of capitalist enterprise for the general concept.

Of more recent vintage, but equally widespread, is the conviction that cooperatives and worker self-managed firms can only achieve a level of efficient operations if they operate with external capital, provided by the State or by some institution specializing in providing the finances or means of production needed. The role of the enterprise, then, is to manage that capital, paying a rent or fixed fee for the right of its use. In this case, too, we can’t speak of a true cooperative or self-managed enterprise, because the ownership of the equity is not internal but external to the enterprise; the cooperative or worker enterprise would simply be making associated use of external equity.

The basic, crucially important, problem which has given rise to both of these widespread beliefs – the failure to understand cooperative accumulation – has various implications for the cooperative phenomenon, influencing such elements as the way the principles of cooperativism are enacted, the legislation that is proposed to guarantee its authenticity, the social and political considerations of the cooperative movement, and the demands of efficient economic management. We need, then, to examine this question closely.

That cooperative gains are not a form of profit on capital does not mean that there is not or cannot be any economic gain in a cooperative enterprise, nor that gains should be assigned directly to individual members. If this were the case, we would have to admit that the growth of cooperatives is structurally limited. Distribution of the surplus generated by business operations, in its entirety, to the members would mean that the benefit they derive from cooperative activity would be either flat or declining and the enterprise would not experience a process of accumulation. Growth of the cooperative could only come from an increase in the number of members, or through public or private donations.

2. Surplus distribution to members is made on the basis of the principle of “patronage.” At the end of the fiscal year, or on a monthly basis, surplus is distributed not on the basis of the money invested by each member but in relation to their effective participation in the cooperative’s core activity (their labor, consumption, etc.). We should examine this principle closely, in order to reveal its rational content as well as any incoherencies or contradictions resulting from how it is understood.

Surplus is distributed in proportion (pro rata) to the contributions members make to the enterprise in relation to its organizing category. In the case of worker cooperatives, the organizing category is Labor, in its different modes and forms. It is worth underscoring the inherent economic rationality of this criterion, which, in the final instance, is not different from, nor counterposed to, but rather homologous with that applied in capitalist enterprises, in which profits are distributed in proportion to the participation of people involved in the formation of the capital, which is the organizing category in such firms.

It is interesting to note – in passing – that the widespread belief among cooperativists that it is the principle of patronage distribution that defines the cooperative difference with respect to capitalist firms is only half true. As we see, patronage distribution is only one particular mode of a more general practice common to all enterprises, including capitalist firms, in which contributions made to the organizing category are compensated pro rata. Clearly, the difference between the various types of enterprise is deeper that the simple criterion of distribution, and rooted in the category on which the organization and management of the economic entity is based.

Now, failure to understand the specific character of cooperative equity, failure to recognize the production of profits or gains, and the fear that management might open the door to forms of disproportionate enrichment on the part of some members, have led ideologues and organizers of the cooperative movement to understand patronage incorrectly or in a way that does not satisfy economic rationality. In effect, the principle of patronage distribution has been understood as the distribution of surplus in proportion to the operations carried out by each member of the cooperative. But the contributions members make to the enterprise are not the same as their participation in its operations in terms of the activity or cycle of the economic unit. Let us consider some examples.

Let us suppose a producer cooperative, perhaps created by artisans in some field to jointly sell their products, benefiting from economies of scale. Suppose that each member has paid an equal amount in dues and initial investment, that all market information is shared, as are their management skills, and that each contributes an equal amount of time to co-op activities. Or suppose, on the other hand, that members contribute different amounts of the various factors. In either case the surplus received by each member is the same. The cooperative distributes surplus in proportion to the volume of sales made through the enterprise by each member. This appears to be rational, if we suppose that the surplus results from the products being sold at prices higher than those initially paid to the producers, with the difference being paid to the member once the sales have been calculated. But is this how it really works? Or are we dealing with profits obtained by the enterprise as a result of good management of the market, reductions in operating costs, the quality of labor, and coordination carried out by the members?

Now let us suppose – and this is not an unrealistic supposition – that the members who are most active in the cooperative and sell the most through it are not those who were most active in its creation, in its labor and management; that, on the contrary, some who paid their dues faithfully, participated in management and labor, and thus broadly collaborated in the generation of the surplus, sold very little through the cooperative because their own production was small. In your judgment, dear reader, which criterion is economically rational and at the same time ethically just: a pro rata distribution based on contributions, or a pro rata distribution based on sales made through the cooperative?4

Another case is the traditional consumer cooperative. The members have paid their dues to join and thus acquired the right to shop at the cooperative. Assume that the members don’t work, nor do they participate in management of the entity – which hires staff – limiting their participation to purchases of consumer goods. How, in this case, should the criterion of patronage be applied?

We must first ask whether we are dealing with an enterprise in the sense we have given that concept, or just a phenomenon of association in the area of buying consumer goods, a buyer’s club. If it is the latter, it is clear that the benefits belong to the consumers, and a rational criterion of distribution of potential surplus funds would be according to their amount of consumption. In that case, it would not really be a question of true profits of enterprise, but of benefits of association.

To understand the appropriate mode of surplus distribution in a consumer cooperative that is a true enterprise, we must carefully examine the nature of the enterprise. What is its central activity? It is not, as it would appear, the sale of products; if that were its business, it would aim to have the smallest number of customers possible and charge them the highest prices the market would tolerate. On the contrary, the objective of this enterprise is to provide goods to its members at the lowest possible prices.

Seen deeply, what this cooperative is doing is buying on behalf of its members. When delivering goods to the members it simply passes on the prices at which the goods were purchased (including in those prices the amount spent by the cooperative in order to carry out the purchases). In other words, the members pay together the costs of the goods and the costs implied in the act of purchasing itself.

This is what we all do as buyers: we pay for the good or service along with a series of other costs involved in the purchase: transportation, time, etc. By doing it together, in association, cooperative members can secure lower prices and reduce costs, buying in bulk and eliminating intermediaries. The cooperative would be a buyer’s club. That is the role this organization carries out in the market, and it is in the market that it seeks to obtain benefits, making every effort to pay its counterparts, the sellers, as little as possible.5

As an association of “buyers” what is it that the members contribute? In reality, it’s not the dues they pay. In effect, the dues members pay are not equity in the enterprise but only a fee paid for the right to belong to the group. As an enterprise whose business consists of buying at low cost, the members’ contribution to the cooperative is the money that is used to buy the consumer goods. If this activity generates surplus, it would be correct to distribute it to members on the basis of the amounts of money they contributed to the purchase of goods.

Still, it is not clear that we are dealing here with an enterprise in the strict sense. If the cooperative also sells to third parties, non-members, then clearly it is an enterprise. In that case it would be a typical commercial enterprise, buying and selling and generating a surplus to the extent that it manages to establish a difference between revenues and total costs.

In such an enterprise, what is the organizing category and to whom do the profits belong? It is not difficult to see that in many cases, the answer is capital, which forms an enterprise adopting the cooperative form, giving rise to a situation that is hybrid and a bit confused but which can be disentangled on the basis of a careful analysis.

As members, consumers become in some way involved in the capital, in that their initial investments in the cooperative are seen as forming part of its share capital. Usually, these enterprises have other capitalist members who contribute the most important amounts of equity. The consumer members form a kind of “captive market” or a set of “preferred clients” for the enterprise, compensated in some form through the “patronage distribution of gains.” But in truth this is not an authentic distribution of surplus which without a doubt ends up in the hands of the shareholders in proportion to their contributions of capital and not the amount of purchases they make through the cooperative itself. If, on the other hand, the organizing category of a consumer cooperative that sells to third parties is Labor or Community, the adequate solution is to make this explicit and recognize it, and thus adopt a criterion of patronage distribution based on the contributions of the members with respect to Labor and Community equity.

3. Having clarified this first error, so widely diffused in the heart of the cooperative movement, it is necessary to refer to another error having to do with the principle of patronage distribution. It has been argued that, after paying taxes and setting aside funds for reserves and education, all surplus should be returned directly to the members. This is because we are not dealing with profits as such but a mere provisional retention of a quantity of value, held back for operating purposes. It is obvious that an enterprise cannot continue to exist on this basis; the dynamics of the market would inevitably drive it out: an enterprise cannot resist competition without increasing its equity and productivity.

Recognizing this problem, cooperatives have taken a series of corrective actions and established empirically defined norms aimed at overcoming this difficulty. At the same time, they have imposed controls, largely through legal restrictions, aimed at preventing the incursion of tendencies that might cause cooperative practice to stray too far from a mutualist, egalitarian, and anti-capitalist ideology. Let’s see how this works concretely, in accordance with common practices.

Cooperatives maintain a social capital, normally in the form of an indivisible reserve fund made up of dues paid by each member, either on an equal basis or in proportion to the services each member demands. In order to increase this minimal social capital, indispensable to growth, the cooperative system often “permits,” within certain limits, certain operations that are not always perfectly in keeping with the initial postulates. They can permit, for example, the issuance of supplementary shares or bonds which members can acquire in a fixed proportion. The limits within which the members can acquire such values are defined by law, and/or the cooperative bylaws, so as to prevent some members from taking too large a part in the capital of the enterprise, acquiring a share of money so large that it undermines the intrinsic cooperative egalitarianism.6

In keeping with the principle of patronage, neither the payment of dues nor the obligatory purchase of shares,7 entitles the member to participate in profits as these dues and shares are not considered investments in the normal business sense. Rather, they are contributions made in solidarity by members seeking to sustain the activities of the cooperative in order to achieve the collective interest. The formation of “cooperative social capital” and the purchase of supplementary shares are better understood as voluntary contributions. But, because cooperatives operate in a market economy and need capital in a quantity greater than that which they can secure through voluntary contributions they are obligated to issue money-earning shares or bonds in order to motivate members to place their savings at the disposition of the cooperative.

In order to mitigate the risk of falling back into capitalist methods and to prevent extraordinary invested savings from becoming the predominant factor in the enterprise, cooperatives apply the principle of “limited interest on capital.” This means supplementary shares pay a fixed rate of interest which is never superior to the minimum market rate of interest, or the “legal” rate of interest, and which has no relationship with the profits earned by the enterprise. The interest must be high enough to stimulate the flow of capital without, on the other hand, offering large individual gains that would be harmful to the social mission of cooperation.8

Now, this way of confronting the problem of capitalization introduces an exterior element into the system and method of cooperativism that remains alien to its specific economic logic, notwithstanding all the normative and juridical restrictions intended to limit its importance and control its influence. This exterior element is not at all suited the task of maximizing the potential of cooperativism because, as an investment of money, it is self-evidently inefficient.

In effect, this mode of treating capital does not correspond to a coherent economic rationality (neither capitalist nor cooperative) because the market offers investment opportunities for members’ savings, and all the more so for external funds, which offer higher rates of interest and earnings. This is true not only for the limited interest offered for the supplementary shares, but also, and more so, for the cooperative’s social capital which does not remain at the disposal of the individual members who contributed to it but belongs to the members as a group to be used for the pursuit of the ends defined in the bylaws. It can even happen that the members who have made additional contributions assume greater responsibility for the enterprise compared to third parties (this is true even of “limited liability” cooperatives), taking a risk which would be normal for capital invested by standard shareholders, but not when the capital involved is a contribution, made in solidarity, that earns a fixed and limited rate of interest and carries no particular management or governance rights.

All of this means that this method of capitalization achieves a certain efficiency and functionality only if the members themselves, or those outside the cooperative who contribute finances, have a powerful extra-economic motivation of a moral and ideological character. But even when their motivation is very strong, the limits set by legislation on these investments are sufficient to block the formation and growth of equity at the necessary level, especially in the context of a dynamic market and a development process in which enterprises find themselves obligated to carry out rapid processes of technological change.

To confront the problem of “capitalization,” in some countries the cooperative system has adopted other mechanisms even more questionable than those we have mentioned. In some cases, cooperative laws admit the membership of juridical persons in addition to individuals, with the former free to make unlimited investments of capital (being granted, in return, not just one but multiple votes in the member assembly and in management bodies).9 In other cases, cooperative societies are granted the right to create alongside themselves, and under their ownership, additional private and non-cooperative enterprises that are not required to adopt their own relations. A consumer cooperative, for example, could organize an agro-industrial business with non-cooperative governance whose profits supplement the earnings of the consumer cooperative; a consortium of housing cooperatives might organize a savings and loan in which members deposit their savings, receiving market rates of interest, good terms on loans, etc.10

It is easy to see that these mechanisms of capitalization are not only contradictory to the essence and specific logic of cooperation, but moreover create openings for bureaucracy and lack of transparency in both financial operations and the relations among members, and often generate indirect obstacles to the participation of members and their assemblies in management of the enterprise.

The most habitual and general mode of dealing with the problem of “capitalization” in the cooperative system has been to establish special relations with the State, which takes on the task of financing the continuing operations and expansion of these enterprises and attempts to resolve the dilemma of the insufficiency of factors owned by the cooperative itself through direct budgetary contributions or by providing credit under special privileged conditions. Providing external financing for cooperative growth in this way may appear natural in a society in which the State often provides financing or incentives to private enterprises as well, or where a “welfare” State supports initiatives for social development. It is less so in those societies where the so-called free market is more firmly in command. But in either case, in such situations, the cooperative movement and system ends up in a position of subordination and dependency that prevents it from following its natural path of development as an autonomous and alternative solution with respect to the other economic forms.

If financing of investment is converted into an external political variable, the cooperative movement and cooperative enterprises themselves will inevitably suffer from the conditions that flow from that relationship, and experience the insecurity and instability that characterize political relations.

All the same, it is necessary to distinguish more carefully among the various situations cooperatives may find themselves in with regards to this point. It is one thing for financial resources contributed to cooperatives to remain within the enterprise, forming part of their equity, and quite another thing when the financing and equity of the cooperative are permanently held outside the cooperative.

In the first case, it is a matter of a means of securing factors outside the market, specifically through donations, subsidies, disbursements, etc. To the degree that financing coming to the enterprise through such channels is converted into equity, operations will not be severely impeded, except if it comes to be a repeated practice and eventually a habit, undermining the motivation and effort to carry out the indispensable practice of internal accumulation, or if, in obtaining these outside funds the enterprise incurs political or ideological costs that translate into a loss of autonomy.

In the second case we face a situation that requires the most careful analysis. Within our larger movement for cooperation and self-management, it has become common to employ a financing workaround in which an enterprise’s capital remains external, with a strict severance of ownership of equity from management of the enterprise. In this approach, which has been theorized as a way to overcome the aforementioned inefficiencies of traditional cooperatives or self-managed enterprises, capital is to be considered an external factor with respect to which workers have a right of usufruct but not ownership.

According to Czech American theorist Jaroslav Vanek, internal financing and the formation of capital by a cooperative enterprise (through initial capital investment or dues, or reinvestment of non-allocated surplus) generates a series of negative tendencies such as under-investment, the creation of obstacles to the addition of new members, and insufficient remuneration for capital contributed by members.11 In his opinion, these problems can be overcome by considering capital to be external and treating surplus not as profit of the enterprise but only as value belonging to the workers, to be fully distributed among members after having complied with all obligations to external creditors.

While external financing can enable an enterprise to overcome some of the negative tendencies demonstrated by traditional cooperatives (a question to which we will return further on), it is important to remember that the system of external ownership of capital has its own consequences and generates other tendencies toward inefficiency.

When the financial and material factors of the enterprise have been assembled not through contributions of the members themselves or reinvestment of profits of their enterprise, but rather come from the State or some other external institution, workers have trouble developing adequate power to accumulate and grow. As a consequence, they will probably deploy and use those factors inefficiently, tending to adopt capital-intensive technologies that permit them to increase production and worker income. In the absence of other, more important, incentives for maintaining the value of the assets, there will also be a tendency to consume the invested capital.

In response to such problems, it would be normal for public institutions or private providers of capital to demand definite levels of profitability and productivity of capital, limit the quantities of financing provided to each enterprise, limit firings and demand that new workers be hired, and carefully evaluate every investment project. But the result would be nothing other than a loss of control and direction of the enterprise by its workers, and the introduction of two contradictory operational logics, with negative consequences for decision-making in the enterprise.

4. Given this problematic, according to which it would seem that cooperation must subordinate itself to either capitalist logic or the logic of State policy, a question arises: does the cooperative phenomenon contain all the elements it needs in order to establish, through its own development, the framework for an autonomous (and superior) mode of organization of economic life? Or, rather, is cooperation an incomplete form that, in order to to be established and developed requires recourse to external elements which introduce contradiction, incoherence and subordination?12

The ideologues of cooperativism have always maintained that the cooperative method is an autonomous totality, emphasizing especially the harmonization of labor and capital that distinguishes it from capitalist production in which these two categories are personified in distinct subjects whose interests inevitably enter into conflict. They have not known, however, how to translate this autonomy into concrete terms, especially when it comes to cooperative accumulation and the treatment and organization of the financial factor. A negative ethical-juridical judgment of capital usually fills the void, coupled with a persistent fear of capital’s well-known capacity to subordinate labor and the other essential factors of economic activity.

In our analysis of valorization we showed that the theoretical foundations of the autonomy of the cooperative economic mode are located on a different level, demonstrating that in a workers' enterprise equity is essentially Labor and that external financing, precisely because it is external, should be treated according to market logic. In order for a cooperative enterprise to receive and assimilate money and “capital,” while maintaining them in a subaltern and non-determinant position, it is necessary first of all to exorcise the ideological prejudice and reverential fear that they provoke (among those who remain culturally subordinate to capital). Money and capital must be treated as necessary economic factors and categories like any other, only lacking the particular traits that enable them “naturally” to organize and direct the other factors or that spontaneously assign them the role of managing the units of economic activity that have the highest efficiency.

To achieve this level of theoretical and cultural autonomy a deep understanding of the essential contents of the economic categories of cooperativism – Community and Labor – is necessary. This requires, in turn, the work of analysis and abstraction that we have presented here in theoretical terms.

This implies a shift in consciousness from that which has permeated economic culture in modern societies, especially in those long dominated by capitalism. It becomes necessary to empty out a multitude of habitual economic concepts, injecting them with new contents and new meanings. It seems opportune, then, to pause for a moment on the concepts of accumulation and equity as used in our analysis.

The equity of an enterprise is nothing more than the sum of the factors belonging to it. In a workers' enterprise, equity is, then, the sum of the labor power, technological knowledge, money and financial capacity, material means of production, administrative capacity, and community relations possessed by the workers, and under their control as organizers of the enterprise.

The equity of a workers' enterprise differs, then, from that of a capitalist enterprise, as much in its objective and subjective content as in the form it adopts.

As far as the objective content goes, the difference is real, but partial. In both types of enterprise, the same six factors, in specific proportions, can form part of the equity; but in a capitalist enterprise the greater part of the labor power (all of it that does not correspond to the direct labor of its capitalists) is an external factor contracted on the market, and remains external.

To the extent that workers are bearers not just of labor but, to some degree, of other factors as well – technological knowledge, administrative and management skills, capacity for collaboration and social solidarity, etc. – those elements must also be considered external factors. And, of course, the factors (finances, materials, technology, management, etc.) which the enterprise has to purchase on the market, in part or in whole, are also external.

In a workers' enterprise, again speaking objectively, equity comprises its worker members’ capacity for labor, along with the elements of the other factors indissolubly linked to them that they place in the service of their cooperative or associative enterprise, as well as those portions of other factors that they have managed to acquire and bring under their ownership and control. In contrast, those portions of the different factors that are purchased, including labor that is remunerated with wages, and which can not yet be considered to belong to the workers' enterprise, remain external.

There is, then, a difference with regards to the real and concrete content of the equity in each type of enterprise (a difference which is also observed in enterprises organized by the other four economic categories), because the factors that are typically possessed by the owners of the different types of enterprises, which they invest and employ as factors belonging to them, are not the same. In each type of enterprise it may be more of less difficult to acquire the economically necessary factors, compared to the other.

We also note a difference with respect to the subjective content of equity. We refer here to the fact that the organizers of the various types of enterprises (workers, capitalists, landowners, technologists, administrators, communities) relate to these internal factors in different ways, with different alignments of values, culture, and concepts.

A shareholder of capital and a worker in a workers' enterprise do not understand ownership of administrative capacity and technological knowledge in the same way. This subjective and qualitative dimension of equity is of great importance; its analysis is complex and for the moment we limit ourselves to mentioning it as we will return to it with reference to the theme of property.

As for the differences in economic form that equity takes, we have already gone some way into this theme: they are determined by the form of equity in the enterprise, and, at a deeper level, the enterprise’s organizing category.

These differences in the objective and subjective content of equity and the form it takes in enterprises organized by Capital, Labor, Means of Production, Technology, Administration, and Community, enable us to understand that accumulation also differs in each, both in the ways it occurs and in the types of economic activity accumulated. The differences correspond to those that we just defined with respect to equity. The real content of accumulation is at every moment the result of previous or past accumulation. More directly put, in each type of enterprise it is the organizing category, the category that forms the basis of the enterprise, that is accumulated. Clearly, accumulating Capital is not the same as accumulating Labor, Technology, or Community.

It is very important to understand accumulation in this way in order to resolve old controversies with respect to cooperative accumulation. The broad concept of accumulation we have established will have decisive implications when it comes time to analyze the contents and forms of economic growth and development. As for the specific character of cooperative accumulation, we understand that it comprises not only financial accumulation, or accumulation of material means of production, but also accumulation of labor power, the community factor, technology, and administration.

It is easier to understand this point if you take cooperativism as your point of departure, rather than other types of enterprise. It is clear that it is not only money and material goods that are accumulated, both being largely external to the human person, but the human element, embodied in the workers, in the form of their growing capacities for labor, technology, social relations and values of solidarity.

In any case, in a cooperative enterprise, finance, and material means of production are indeed accumulated and form part of the equity. This takes place on the basis of a specific contractual relation and/or a relation of domination that must be established in relation to these factors.

From the various considerations taken into account in this chapter and those before we can extract the thesis that, in order for cooperative enterprises – whether of workers or communities – to establish themselves and develop as instances of a different mode of economic organization, autonomous with respect to capitalist enterprises, it is necessary for the organizing category to establish explicit and normal market relations with all the other external factors, including finance and means of production. These relations are defined in accordance with the principle, which applies to every type of enterprise, that the organizing economic category tries to increase its value as much possible, that is, it tries to pay or remunerate the external factors it needs, but does not own, at the lowest possible rate without breaking the relationship. But even this is insufficient. Liberalization of relations between the cooperative system and financing and other external factors should go hand in hand with a new model of conceiving and using the profits generated by these enterprises.

Cooperatives should be able to make profits as enterprises (and their capacity to do so should be ideologically and juridically recognized), and dispose of them not only by distributing them on a patronage basis to members but also by using them to expand the operations of the enterprise or increase its reserve funds and overall equity.

As for the finance factor, cooperatives can generate their own financing, supplemented by credit obtained through various normal sources: bank credit, private loans, mortgages, easier payment terms from suppliers, as well as deposits made by members (which do not belong to the cooperative, but to the lenders, being normal investments made on standard market terms).

If the process of accumulation develops in this way, cooperative enterprises will be able to ensure that their financial and material equity remains subordinated to the economic category by which they are organized – labor or community – and will be able to use that equity to increase the value of that category, broadening the enterprise’s field of activity. As property of the cooperative and not its part owner (which is the status capital has when a person becomes a “member” of the cooperative on the basis of providing capital or credit), said financial and material factors can not act against the cooperative, that is, rise up against the economic category that organizes and directs them.

As for those portions of the material and financial factors that the enterprise buys on the market, and that consequently remain external to the cooperative, the relation will obviously be an opposition of interests in the framework of reciprocal convenience (without which the contractual relationship would not be established), the decisive factor being the relation of forces in the market. As long as capital remains external, there is no possibility of subordinating it structurally. In any case, whether internal or external, it is in the interests of the cooperative enterprise to obtain the given factor in the most efficient way possible.

Note that all of this reasoning leads to the conclusion that the process of accumulation and equity formation, which is nothing other than the expansion of the enterprise’s productive capacity, must be explicitly recognized as the productive investment of a part of the enterprise’s profits.

In fact, enterprises routinely direct a significant part of their earnings toward the expansion of their productive capacity. But they don’t recognize this as a reinvestment of profits, accounting for it instead as part of the total costs of production.

Taking into account what has been said about the objective content of equity in workers’ enterprises, it can be understood why the gains that workers receive, and which lead to an increase in their personal productivity, should be counted as (reinvested) profits and not as costs or expenses of operation. Failing to recognize them as such in cooperative accounting makes the profits appear to be lower than they are. But while the portion of the profits that is distributed among the members may fall, the other, non-allocated, portion of the profits has been converted to equity, which benefits the workers.13

Using accounting practices based on accounting methods used by capitalist enterprises has two negative consequences for cooperativism: first, the true efficiency of cooperative enterprises is not revealed, with all that implies for their image and concrete capacity to pose an economic alternative. Second – and this is even more damaging – it introduces an element of opacity and mistrust between members and managers. The question of ownership of the enterprise becomes, moreover, insoluble.

Thus, having defined in theoretical terms the nexus between enterprise profits and cooperative accumulation, a new question arises: what is cooperative ownership?

Translated by Matt Noyes
Header image by Jeff Warren and Caroline Woolard. CC BY-SA 3.0

• 1Thanks to Dave Swanson for feedback. - MN
• 2L2 representing the value created by labor in the production process. - MN
• 3Marx rejects the idea that capital is simply accumulated labor: “this refers to the simple material of capital, without regard to the formal character without which it is not capital.” Grundrisse, p257 (Vintage, 1973). The difference being that in cooperative enterprises accumulated labor belongs to the workers themselves, while in capitalist enterprises it belongs to the capitalist. - MN
• 4In Distributed Cooperative Organizations, or DisCOs, surplus is distributed based on three categories of contributions: livelihood work (that brings in revenue), care work (essential for the health and functioning of the enterprise, but generating no revenue), and love or pro-bono work (contribution to the commons). See the DisCO Manifesto: https://disco.coop/manifesto/ - MN
• 5This is, of course, subject to ethical and other considerations, as when a food cooperative pays more for fair trade or organic products or to support local farmers. - MN
• 6The issuance of debt by a cooperative to its members, particularly subordinated debt, can also put the savings of members who invest at risk, as in the case of the aportaciones financieras subordinadas issued by Mondragón cooperatives Eroski and Fagor Electrodomésticos in the early 2000s. - MN
• 7Often referred to as an “initial capital contribution.” - MN
• 8It would be helpful to have an example here; readers are encouraged to suggest examples in the comments. - MN
• 9Chapter 308B in the Minnesota Cooperative Law “permits outside Investor-Members to hold as much as 99.99% of the equity of the cooperative and receive up to 85% of the profits from the cooperative.” (Henley, H. and Swanson, D. May 2003. “Minnesota Legislature Adopts New Cooperative Associations Act: Coops Should Carefully Review Options to Avoid Pitfalls.” Newsletter. Dorsey and Whitney LLC.) - MN
• 10At the time of its bankruptcy, Fagor Electrodomésticos, Mondragon’s flagship cooperative, had established or acquired multiple subsidiary enterprises around the world which were not organized as cooperatives, resulting in a formation that has been characterized as a “coopitalist multinational” (see Errasti, A., 2017, Mondragon’s Chinese subsidiaries: Coopitalist multinationals in practice. Economic and Industrial Democracy, Vol. 36, #3.) - MN
• 11See Vanek’s The General Theory of Labor-Managed Market Economies, especially Chapter 14.9 (Cornell, 1970) - MN
• 12Interestingly, as Gérard Duménil showed in Le Concept de Loi Économique dans «Le Capital» (Maspero, 1978), a similar dynamic occurs in capitalist enterprises due to the fact that workers remain external to capital even when ‘factored in’ as labor power, introducing a similar element of contradiction, incoherence, and, in this case, insubordination. - MN
• 13In practice, in the U.S., the decision to count reinvested surplus as costs or as surplus often depends on the tax implications for the cooperative. - MN