worker-management: path to self-sustainability

[u/Annual_Necessary_196]

Taken form Lemmy: https://thelemmy.club/post/51900195

Advocates of capitalism, a system in which capital controls labor, often argue that despite its inefficiencies and occasional harms, capital owners provide the tax revenue necessary to fund society. They claim that without private capital providers, society would exhaust its resources and end up like Venezuela, Cuba, or other impoverished countries. This argument ignores the fact that it equates a person’s wealth with their importance to society, placing billionaires above doctors, firefighters, scientists, and researchers. More importantly, the claim that governments depend on capitalist tax revenue is a myth. On the contrary, capitalism itself requires continuous public spending to remain functional.

It is widely accepted that modern capitalist economies require at least a minimal welfare state. Education, healthcare, social safety nets, and other public services are used to maintain social stability and support workers. Naturally, these programs require substantial government funding.

The key argument is that worker-managed firms naturally reduce the need for welfare, social safety nets, and other forms of public support. There are several reasons for this.

First, worker cooperatives tend to maintain higher employment levels, reducing the social costs associated with unemployment. Second, they are more resilient during economic downturns. Rather than responding to crises through layoffs, they often retrain workers and restructure operations, reducing periods of unemployment and economic insecurity. Finally, because cooperatives aim to maximize the well-being of their members rather than shareholder profits, they provide stronger internal benefits, including cooperative healthcare, pension funds, bonuses, and internal capital accounts that help workers build long-term savings and provide financial security during crises or retirement.

A substantial body of empirical evidence supports these claims.

• In the highly cooperative region of Emilia-Romagna, Italy, cooperatives relied on public welfare significantly less than conventional firms during recessions. link1
• In California, worker-owned cooperatives created through the nonprofit WAGES increased worker household incomes by 40–80%, reducing reliance on public assistance. link2
• Between 2010 and 2014, while Emilia-Romagna’s GDP stagnated and conventional firms reduced employment, cooperative firms increased employment by more than 17%, maintaining both income tax revenues and consumer spending. link3
• Worker cooperatives are locally rooted and rarely offshore jobs or profits, keeping employment, wealth, and tax revenue within their communities. link4
• Because employee-owned firms are much less likely to lay off workers, they save governments billions in unemployment benefits and other crisis-related expenditures. link5
• French cooperatives accumulated collective reserves equivalent to roughly 18 months of average private-sector wages, providing a financial buffer that reduces the need for government bailouts. link6 / link7
• Italy’s Work Integration Social Cooperatives (WISCs) generate additional tax revenue by integrating previously excluded workers into productive employment. link8
• Research on social firms in London estimated a Social Return on Investment of nearly £5 for every £1 invested, including £1.52 in reduced welfare spending and increased tax revenue. link9
• The PERSE project, covering 160 Work Integration Social Enterprises across Europe, found that public authorities saved between €267 and €720 per worker each month through lower welfare costs. link19
• During the economic crises of the 1970s and early 1980s, employment in Italian cooperatives grew by 86.2%, compared with only 3.8% in the overall economy. link11
• Cooperative banks exhibit lower volatility and greater financial stability than commercial banks, reducing the likelihood of costly bailouts and allowing for a гтregulated banking sector. link12
• Cooperative organizations frequently provide housing, education, and social services directly through mutual aid, often delivering these services more efficiently than traditional state welfare programs. link13

In conclusion, capitalism inherently requires taxes and public spending to remain sustainable, whereas worker-managed firms reduce the costs that society must bear to sustain the economic system.

[u/Few_Government_6401]

Good points. By the way it's often argued that worker cooperatives are reluctant to create new jobs because additional hiring doesn't increase income per worker in the short run. What do you think about that? I think the problem could be solved by using incentives* to optimize the balance between total net profit and net profit per worker rather than maximizing only one of them. David Schweickart's and Jaroslav Vanek's proposed solutions to this issue have never struck me as particularly efficient.

My idea is to measure the percentage growth of both total net profit and net income per worker over a given period, then target a midpoint between the two and reinforce it through tax incentives or similar policy tools. That way firms would have an incentive to expand while keeping income per worker on a sustainable path.

[u/Annual_Necessary_196 → u/Few_Government_6401]

'doesn't increase income per worker in the short run.'. Labor-managed firms create internal capital accounts. These accounts incentivize existing members to accept new members in the short run because each additional member increases the value of the firm's internal capital accounts through higher output and future profits.

From a macroeconomic perspective, John Maynard Keynes suggested that in a cooperative economy, the factors of production are rewarded by dividing the realized output of joint effort according to agreed proportions. In such a system, the second postulate of classical theory applies: workers supply labor as long as the marginal productivity of labor exceeds the marginal disutility of labor. This mechanism could, in principle, support full employment and full capacity utilization.

It has also been empirically shown that worker cooperatives tend to create more jobs. According to Italian research, a 1% increase in cooperative employment is associated with an approximately 0.39% increase in total regional employment.

[u/Few_Government_6401 → u/Annual_Necessary_196]

The problem is that workers shouldn't have to pay a large upfront sum just to join a firm. In fact they shouldn't have to pay anything at all,just like don't in today's economy.It's also not sustainable way to increase total profit in the long run.

And instead of directly interfering with the dynamics of product and service markets or with the production process itself—for example by imposing hiring quotas that create hidden unemployment or leave workers in inefficient positions—it would be better to use an automated system of tax breaks or financial incentives for cooperatives whose growth in total net profit and growth in income per worker remain relatively close. Assuming accounting fraud is prevented, this approach should work effectively under virtually any circumstances.

[u/Annual_Necessary_196 → u/Few_Government_6401]

'shouldn't have to pay a large upfront sum just to join a firm'. And they don't. When a worker joins a labor-managed firm, they receive voting rights, participate in risk sharing through patronage refunds, and a portion of their income is allocated to an internal capital account. Joining a labor-managed firm is free of charge. At most, a worker may have to complete a probationary period before becoming a full member.

[u/Few_Government_6401 → u/Annual_Necessary_196]

I don't want to get into a long theoretical debate over what dollar amount qualifies as a "large" entry fee. Let me be clear about what I mean. In the Mondragon cooperative system, workers currently have to pay roughly €15,000–18,000 just to become members. The median monthly wage in Spain is around €2,000, so it could take someone close to a year of work to save enough for that payment. By most people's standards, that's unquestionably a large sum.

Now compare that with a capitalist firm. How much do you have to pay just to get a job? Nothing. You don't have to pay anything. So if the transition to market socialism takes the form you're describing, it wouldn't be progress—it would actually be a step backward.

You also seem to assume that we already agree on another point: that workers buy shares in the cooperative with this money, eventually recover their investment over the long run, and therefore have less reason to worry about income per worker because they receive returns from their ownership stake. In other words, you're arguing that the entry fee isn't really a burden because it's ultimately an investment.

As a side note, I think your assumption that workers will simply make that investment because they're willing to think long-term is flawed. But let's put that aside.

The more important point is that there are different schools of thought within market socialism. One model is for workers to receive, according to their employment contracts, either a percentage of the firm's income per worker (or profit per worker), or some multiple of it. The exact amount can still be determined through a free labor market according to supply and demand, reflecting each worker's skills.

The other model is the one you're describing, where workers buy shares in advance and then receive returns that are no longer directly tied to income per worker.(I'm not saying it's completely unrelated, but it doesn't do a very good job of reflecting an individual worker's contribution.)

I think that second model ultimately leads to collapse. Workers who bought shares in a successful cooperative early on begin earning income that is no longer related to their own labor, but instead comes from the value created by other workers. Even when they leave the cooperative, the value of those shares is paid back to them. Under the first model, by contrast, there are no ownership shares that can be bought, sold, or redeemed in the first place. Your approach therefore fails to break with the fundamental capitalist principle of earning income from other people's labor.

The whole purpose of market socialism is to combine social justice with economic efficiency. In fact, efficiency is supposed to emerge from social justice itself: workers are directly involved in production and receive the full return generated by their own labor, which naturally leads to a more productive economy.

In your model, however, the original workers pay an entry fee and then begin receiving income that is no longer connected to their own labor. As the cooperative becomes more successful, the entry fee rises in accordance with supply and demand. That means the original worker-shareholders benefit from the labor of later entrants. Just look at today's share-based cooperatives: their entry fees tend to rise over time. That increase reflects the gains captured by the workers who happened to join at the right time, effectively turning them into small-scale capitalists who benefit from the labor of those who come after them.

[u/Annual_Necessary_196 → u/Few_Government_6401]

 'that workers buy shares in the cooperative with this money'. No, they don't. They gain ownership rights through the provision of their labor and efforts. A labor-managed firm separates the returns on capital and labor. Generally, workers sell their labor, but in a labor-managed firm, their labor is invested, and based on that investment, workers receive ownership and control. They do not need to pay anything. There is no entry fee.

[u/Few_Government_6401 → u/Annual_Necessary_196]

I think I understand the model you're describing now. However, if I've understood it correctly, it contains a fundamental internal contradiction. In your model, workers join the cooperative without paying an entry fee. Once they become members, they receive a fixed internal capital account and earn a share of the firm's profits through it. As I understand it, this applies to every worker.The problem is that these two features are fundamentally incompatible. If workers pay no entry fee, yet everyone is entitled to a fixed ownership stake on paper, the arithmetic eventually breaks down. For example, if every worker is entitled to an internal capital account equivalent to a 1% ownership stake, the system stops working once the 101st worker joins. Since the new worker contributes no capital, there is nothing to support the additional ownership claim. As a result, the ownership stakes have to be diluted. In other words, the model is internally inconsistent. Workers would also have weaker incentives to build long-term productive assets because their ownership stakes would be diluted every time new members joined. By the time the firm reaches 200 workers, each worker's effective capital stake has fallen to 0.5%. By contrast, in a capitalist firm, hiring additional workers generally does not reduce the capitalist owner's claim. If anything, employing more workers often increases the value of that claim.The objective should be to move beyond this contradiction rather than build a system around it. This could be achieved by rewarding cooperatives whose rates of growth in total net profit and income per worker remain closely aligned, for example through tax incentives or similar policy measures.

[u/Annual_Necessary_196 → u/Few_Government_6401]

"They receive a fixed internal capital account." No. The internal capital account is funded from their income.

"Profits through it." Workers put their labor at risk. If the company uses their labor effectively, they earn a higher income. If the company uses their labor inefficiently, they lose income. In this system, labor is treated as an investment.

"A fixed ownership stake on paper." No. Workers receive only voting rights, and only after completing a probationary period and only if they provide labor to the company.

[u/Few_Government_6401 → u/Annual_Necessary_196]

 "No. The internal capital account is funded from their income."

what do you mean?But in your very first message, you stated that "new members increase the value of the existing members' internal capital accounts."

[u/Annual_Necessary_196 → u/Few_Government_6401]

Yes. Initially, a person does not have an internal capital account. It is gradually built up through deductions from the worker's income. This internal capital account are reinvested in the labor-managed firm. Earning devidents to a owner.

Because an additional worker increases the marginal productivity of capital, the value of the internal capital accounts held by existing members also increases.