The formation of cooperatives doesn’t by itself eliminate competition

More people are becoming interested in cooperative enterprises as an alternative to the capitalist top-down corporation. In reading about and discussing the topic, I have found an interesting pattern: An assumption that competition will continue but that it will become benign.

It would be unrealistic to forecast that a cooperative economy would be without competition. But competition in what, and in what form? When we think of competition, often the visualization is of two or more companies competing to make a better consumer product. That is visible — the company that produces a shoddy product when another company produces a quality product puts itself at risk of going out of business (at least in theory).

Less visible, because it is abstract unless it is your job that is shipped overseas or eliminated, are the marco-economic results of competition. Among these are increasing downward pressure on wages; the creation of rust belts as industrialists move production to locations with ever cheaper wages; the relentless pressure (most often applied by the financial industry) to reduce costs, often by workforce reductions; the drive to produce ever higher profits, regardless of human cost; and environmental destruction. All these developments arise not because of this or that greedy banker or the personality of this or that industrialist. They arise because they are the inevitable product of market forces.

Market forces are not a “natural” phenomenon, they are the aggregate interests of the most powerful capitalists. The concentration of production in most industries into a handful of giant corporations — an oligopoly — is also the result of capitalist competition. Expand or die is the inexorable law a capitalist lives by: If you don’t get bigger and stronger, your competitor will and put you out of business. As the winners from this ruthless competition grow bigger and more powerful, they have more weight to throw around the political arena, and can (and do) exert decisive influence over the political process. It is in their interest for them to do so — and we shouldn’t expect them to act otherwise.

I have often been struck by a belief I often encounter that presumes that we need only convert business enterprises into cooperatives and capitalist competition will cease. Underlying that assumption, in my opinion, is locating the cause of greed, injustice, inequality and other social ills in the authoritarian, hierarchical structure of the capitalist enterprise. That structure is surely a significant contributing factor. But that shouldn’t obscure the cut-throat nature of unfettered, market-driven competition: The relentless pressure to increase profits, maximize market shares and eliminate competition — on pain of enterprise death for those who don’t do this sufficiently — makes unethical or anti-social business decisions inevitable.

It is not only the direct competition that compels such behavior, it is also the financial industry: Billionaire speculators, institutional investors, hedge funds, investment banks and other financiers are ever ready to apply the whip if profits falter — and can move gigantic sums of money through stock, bond and foreign-exchange markets at the click of a button to punish those who don’t deliver. During periods of economic upswing, wages may rise for a time as unemployment falls. But wage increases eventually eat into profits; falling profits are intolerable and will be punished by financiers. Cuts to wages, whether in givebacks or in the form of layoffs, and the destruction of productive capacity ensues.

Wages — and thus the human beings who work for the wages — are commodities in capitalism, or any system in which distribution is monopolized or largely controlled by capitalist-style market relations. If all enterprises were converted into cooperatives, collectively owned and managed by the full workforce, but capitalist market relations were left intact, the same competitive pressures would exist. There would be much less inequality because, presumably, all workers within a given enterprise would receive the same wage or would have small differentials, and the workers would be sharing in the profits they create rather than have them confiscated by top executives and financiers.

But their own wages would remain a commodity if everything else is a commodity priced by markets. The collective workers would face market pressure to reduce their own wages in order to compete better against their competitors. Some enterprises would become much bigger than others; smaller enterprises would be compelled to sell themselves to larger competitors, consolidating production until an oligarchal situation arose. Some industries would be much bigger than others. As market competition intensified, survival would require more ruthless behavior. In somewhat different form and with somewhat less intensity, the instability and social ills of capitalism would be reproduced.

A cooperative economy, therefore, has to not only be based on enterprises run on cooperative lines, but the cooperatives must cooperate with each other as well. An economy would have to be based on democratic control, with commodity prices negotiated in fair and open talks, and with a rational system of distribution that would be supple enough to respond to changes in consumer demand while not over-producing.

Part of the waste of capitalist production lies in its chaotic, unplanned nature: Production is increased until too much product is produced that can’t be sold; productive capacity is then destroyed (such as shuttering factories) until a shortage arises and a new cycle begins. This is done through uncoordinated, individual decisions based on guesswork. The pressure of competition compels decision-making to be done in secrecy and, additionally, no mechanism exists to judge composite demand. The result is alternating booms and busts, with accompanying human costs.

Democratic planning, from the bottom up, would be necessary to determine need and enable proper distribution. Ideally, there would be many enterprises for most products. Enterprises might work best as small or midsized production units. Here is where competition would still exist and provide a positive, rather than a destructive, role. If there are dozens of cooperatives producing shoes, the consumer would have many choices, and the enterprise that made a poor-quality shoe would have to do better — a producer that makes a product that people don’t want to buy won’t stay in business.

If one cooperative makes an innovation that gives it a higher-quality product, then other cooperatives would naturally copy the innovation. If democratic planning, to throw out a hypothetical example, determines that 1.2 million shoes need to be made because 1.1 million shoes were produced last year and the supply fell a bit short, and there are several shoe makers who make a quality shoe, that increased target can be distributed among them. If limits to capacity are being approached, one or more cooperatives can go to the local community-run and -controlled bank for a loan to expand capacity by making a case that more shoes should be made.

Production in unfettered markets will become production for private profit, not social need, even if that private profit is collective rather than concentrated at the top. Production needs to be oriented toward human need — that is the other half of the equation of cooperative enterprises.

10 comments on “The formation of cooperatives doesn’t by itself eliminate competition

  1. Alcuin says:

    Hmmmm …. sorry for the late response. I’ve been pursuing the very interesting theme of orality versus literacy and how that shift gave rise to our present predicament. In response to your post, I still maintain that the focus has to be on the individual. As long as the individual is competitive, the larger society will also be competitive. There cannot be a cooperative economy unless there are cooperative individuals. There will be no democratic planning unless there are individuals who believe in democracy. And so on. If you’d like to blow a huge hole in your hypotheses of how the world works, I can’t recommend David Abram’s new book, Becoming Human: An Earthly Cosmology enough. Follow that up with Walter J. Ong’s classic, Orality and Literacy: the Technologizing of the Word.

    • It is never too late to comment! I think there can be a cooperative economy because individuals are already cooperative, at the same time they are competitive and also have a range of other human traits. These traits are unevenly distributed to be sure, but humanity would not have survived were it not for cooperative instincts. There will always be athletics, spelling bees, intellectual debates, political elections and all sorts of places for competitive instincts to unfurl themselves, and competition would still have a place in a cooperative economy because there will always be room for newer and better products and services. (As long as there are many enterprises in a given line.) Somebody or some cooperative enterprise will wish to be the one that comes up with the latest innovation.

      We live in a world that heavily rewards competition; I still maintain that in a world that rewards cooperation there would be more cooperation. Getting there, of course, is a monumental task, especially given that individuals are competitive (but are cooperative, too).

      • Alcuin says:

        Ong shines a brilliant light on the decline of cooperation in the shift from oral societies to literate societies. Yes, humans are cooperative. No, they aren’t as cooperative in literate societies as they are in oral societies. Oral does not equal spoken written words, either. Ong wrote (1982) a book that has upended my view of humanity. If nothing else, read a synopsis of the book. Remember the Ford commercial with the light bulb? It’s that and much more.

        From the first page of the book:

        “This classic work explores the vast differences between oral and literate cultures and offers a brilliantly lucid account of the intellectual, literary and social effects of writing, print and electronic technology. In the course of his study, Walter J. Ong offers fascinating insights into oral genres across the globe and through time and examines the rise of abstract philosophical and scientific thinking. He considers the impact of orality-literacy studies not only on literary criticism and theory but on our very understanding of what it is to be a human being, conscious of self and other.”

  2. Alcuin says:

    I stumbled across this interesting piece on the Mondragon Cooperative and thought you might be interested in it …

    Then, there is the International Cooperative Alliance and the Commmunity Economies Collective. Lots of good information there – I particularly loved Ken Byrne and Stephen Healy’s paper combining Marxism and Lacan to show how the neo-liberal project is every bit as utopian as anything popular on the Left. I have a friend who is so deeply attached to Parecon that she rejects any other “solution” to the crisis facing us.

    • Thanks for the links. At the risk of repeating myself too much, people need to see a working, viable alternative of something better — that is what will shatter the neo-liberal utopianism of “there is no alternative.”

      • Alcuin says:

        I couldn’t agree more and I’m moving in the direction of embracing worker cooperatives as a “working, viable alternative”. All of the rest of the “solutions” are pie-in-the-sky. I get particularly irritated with Parecon and its total rejection of markets. I mean, get real, people! Are worker cooperatives perfect? Not by any means. But there is enough good about them that they are vastly better than any of the other options. There are hundreds of thousands of them all over the world. Do people participate in them like they should? Nope. But the option is there.

  3. Alcuin says:

    I should make it a habit to come back and re-read your older posts – new connections emerge because of what I’ve read since I last read the post in question! In this case, re-reading this post brought to the forefront a concept that I’ve not yet fully digested – Polanyi’s idea of how markets in pre-capitalist societies are embedded in the societies they are part of. It was capitalism’s unique “contribution” to rip the market loose from its social foundations and it has been all downhill since then. I would imagine that in a cooperative society, markets (which have existed for as long as home sapiens sapiens has existed) would not exert such a disruptive effect. Food for thought, anyway. I’m only part-way through Polanyi’s The Great Transformation. So many books; so little time!

    • I’ve become convinced that negotiations would have to become the basis of the relations of trading, buying and selling among cooperative enterprises. Cooperatives will have to cooperate with one another. But then more democracy means not only more freedom, but more responsibility, too.

  4. […] is in their interest for them to do so — and we shouldn’t expect them to act otherwise. (“The formation of cooperatives doesn’t by itself eliminate competition” by Pete […]

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