Cooperative Movement of Great Britain by Beatrice Webb - Book Report/Review Example

Webb’s Arguments on Worker Cooperatives Introduction England’s economy, in the beginning of the 20th century, was characterized with the sprouting of co-operative societies. The societies at that time were in the thousands as workers, retailers and producers collaborated to form co-operatives. This phenomenon has drastically changed in the past a hundred years or so. The number of co-operatives has reduced to almost twenty over this period. Co-operatives are attractive business ventures for their members due to their principles. Principles such as worker-member control, limits on wage inequality, the sharing of profits among others attract workers to this business models (Battilani & Schroter, 2012, p14). Despite, these attractive qualities majority of co-operatives fail. Their failure has been a subject of research for many since their inception. Beatrice Webb, Marxist socialists and Michel are examples of scholars who have researched on the factors that lead to the failure of these institutions. In recent years, there has been continued debate on the viability of co-operatives in the modern economy. This debate is a result of the increased failures of worker and other forms of co-operations along the years. The worker co-operatives are not as common as the other form of co-operatives such as the agricultural, credit or consumer co-operatives (Batstone 1983, p139). The worker co-operatives, unlike the others, are confined to specific niches of the economy. In addition, they play different roles compared to other co-operatives. This essay will concentrate on the criticisms that face worker co-operatives. The early 19th century sociologist, Beatrice Webb, developed several criticisms of worker co-operatives that have held their ground until now. Degeneration thesis and the economic failure of co-operatives will form the backbone of this paper. Body Worker co-operatives are institutions created with the sole aim of shielding their members from the capitalistic influences. Their members are able to collectively challenge capitalistic enterprises in doing business. In addition, they assist the worker in resolving economic problems (Ben-Ner, 1988, p19). Despite the potential of worker co-operatives, they have been shrouded with issues that derail their progress. These challenges such as degeneration stand in the way of these co-operative’s future. In her degeneration thesis, Beatrice Webb identifies that the association of producers fail due to being converted into profit-making organizations. This Webb’s most revered criticism of the co-operative movement. Beatrice never viewed worker co-operatives as a feasible form of enterprise (Estrin & Svejnar, 1987, p41). Both conducted research on the association of producers, worker co-operatives, found in Britain and Europe (Miller, 1981, p312). Their research yielded less than positive reviews of the associations as they regarded co-operatives as small associations of capitalists bound to the same fate as capitalism (Larson & Nissen, 1987, p44). Their argument contrasted that of the Marxists. The degeneration of cooperatives was because of the internal characteristics rather than the external characteristics of the associations. This thesis is true due to the worker’s co-operatives over-reliance on internal financing. Members of these co-operatives are bound to ask for increased wages and not re-invest into the co-operative. Furthermore, the co-operatives often at times become reduced to conventional firms. This is usually because of the co-operatives seeking to replace the old workers with new members who are non-workers (Holmen, 1990, p49). The management of the co-operative often opts for this replacement in order to increase the compensation of member workers. The management argue that operating, as a conventional firm is more profitable than being a co-operative. Success of the co-operative is the most overlooked reason for the degeneration of co-operatives. Success increases a co-operative’s net worth and this usually prompts members to sell their share of investments (Cornwell, 2012, p733). In addition, success increases the price of individual capital stakes, which makes new members unable to buy-out existing members. Democratic degeneracy is also a factor that leads to the failure of co-operatives. Co-operatives are inherently democratic organizations and are thus susceptible to Michel’s Iron Law of Oligarchy (FitzRoy & Kraft, 1978, p29). This law states that, “internal democracy could not be found in an organization that was avowedly democratic; it would certainly not exist in parties, which did not claim to be democratic”. That is if the decisions of the co-operative are to be left to all members, the co-operative would never do anything (Cornforth, 1983, p171). The people who become representatives acquire more strength than the workers. Finally, the representatives prolong their stay in those positions of power and this leads to mismanagement and abuse of power. Michel’s law of oligarchy supports Webb’s degeneration thesis. The managers selected by the workers gradually separate from by the workers. The separation of these two parties leads to the mismanagement. In today’s co-operatives, there are constitutional safeguards that prevent the co-operatives from having capitalist forms of ownership (International Labour Office, n.d). Today’s co-operatives have structures that guide the co-operatives in overcoming these internal problems. The modern day co-operatives face the same internal turmoil the Webb’s researched on but these internal problems do not lead to the degeneration of the co-operatives. Beatrice Webb in the Co-operative Movement in Great Britain further argues that economic failure bundled with internal incentives as another reason why co-operatives fail to achieve their objectives. Her opinion is true to the fact that co-operatives fail motivate or incentivize their member workers into re-investing into the co-operative. These incentives are important if a co-operative is to finance it operations or make long-term investments. In addition, there is misalignment of incentives for both the managers of the co-operatives and the workers. This misalignment derails their contribution to the organization’s productivity. Internal financing becomes an option once external financing fails. This option is more difficult due to the unwillingness of the member-workers to invest in their co-operative (Staber, 1993, p137). Furthermore, the co-operative ought to be increasing the members’ financial stability not weakening it. In the case, workers do lend money to the co-operative, they increase risk on both their money and their wages. By lending money to the co-operative, workers ought to be given managerial and decision-making positions in the co-operation (Jackall & Levin, 1984, p62). This, however, cannot happen due to the by-laws that guide the co-operative. Allowing workers to invest into their own co-operative is similar to a business owner investing his savings in his business and using its earnings for his living expenses. Interference in management is another reason that Webb identified as contributing factor to the failure of co-operatives. This interference may be because of incompetence, corruption or mismanagement of the co-operative’s management. The member-workers of a co-operative often lack managerial skills but they vote in their fellow members to lead them. The by-laws of these co-operatives grant their members equal opportunities in becoming managers or directors. These positions require comprehensive knowledge in management, finance and the economy (McCain, 1977, p359). Despite these requirements, the workers are voted in as managers and directors of the co-operative. The co-operative fails to survive the various market changes due to the failure of its managers in creating appropriate business strategies. The structures of the worker co-operative together with its low wages lead to the failure of the co-operative attracting external managers. In the Co-operative Movement of Great Britain, Beatrice Webb identifies external financing as another contributor to the failure of co-operatives. This factor holds true for modern day co-operatives. Worker co-operatives exist in unfavourable economic environment. This environment limits their ability to attract external investors (Kremer, 1997). Investors categorize worker co-operative as high-risk ventures. The investors do not know the structure and operations of worker co-operatives thus their unwillingness to invest (McCain, 1977, p361). Moreover, without this information the investors are unable to assess the risks and profitability of the co-operatives. In the case investors do invest into the co-operative, they will not have any controlling interest. This makes investing in co-operatives an unattractive proposition. However, some co-operatives grant their external investors voting rights. This dispels the risks involved with investing in the co-operative (Thomas & Cornforth, 1989, p37). Aside from the aforementioned factors that lead to the failure of co-operatives, other factors are left unmentioned. First among them is the difficulty co-operatives have in attracting entrepreneurial talent. This difficulty is due to the co-operatives failure of granting entrepreneurs enough material reward for their contribution to the organization (Kremer, 1997). Furthermore, entrepreneurship is an individualistic career that fails to integrate with the co-operative model. Secondly, co-operatives do not reward their most-valuable members sufficiently. There are no incentives for hard work in the co-operatives unlike in conventional firms (Pencavel, 2001, p104). In conventional firms, members are rewarded according to their productivity. Egalitarian earning schemes dictate how member-workers earn (Ellerman, 1984, p874). In the voting, majority of the workers are less productive and they do not consider their hard-working counterparts. This aspect of co-operatives hinders hard-working professionals from joining such an organization. Thirdly, many economies lack the capability, in the form of institutions, to support the thriving of co-operatives. Conclusion The co-operative social model is full of flaws but it remains the only source of hope in this eroding global economy. The recent financial crises are leaving people homeless and destitute financially. The few who are responsible for controlling the economy are not affected by these crises, as their money is safe beyond the reach of these crises. The rich profit from the crises while the poor lose. Worker co-operatives and other forms of co-operatives provide hope under these circumstances. In a co-operative society, people can join hands and pursue economical goals (Hendriske, 2008, p97). Streamlining of the internal structure of co-operatives is the only way they will help people to persevere through tough economic situations. If implemented properly, co-operatives have business advantages that surpass those of conventional business. The members of the co-operative are interested in the success of their organization (Pineiro, 2013, p174). This gives co-operatives a higher chance of survival in business when compared to conventional firms. This essay focused on the various threats worker co-operatives face during their existence. These co-operatives have a rich heritage spanning across a century and some are still thriving to date. The concerns raised by the Webbs, Marxist socialists and Michel are still relevant to date. Co-operatives in our modern day provide a glimpse of hope from the fluctuating financial environment characteristic of this era. In conclusion, the threats that worker co-operatives face should not limit their formation. This is because their merits far outweigh their demerits, especially in this failing economy. They are the future in terms of business and it is the task of the workers founding these organizations to streamline their operations. Bibliography Batstone, E. (1983). 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