by: Logue, John; Yates, Jacquelyn
Source: Ohio Employee Ownership Center, Prepared for Employment Sector, International Labour Office, Geneva
Productivity is the baseline measure of the economic efficiency of firms. It is typically reported as value added per worker, value added per unit of investment or value added per unit of assets. Enterprises will fail to thrive in a market economy if they cannot meet or exceed the productivity of other firms in their sector.
The survival rate of worker cooperatives and employee-owned firms in market economics appears to equal or surpass that of conventional firms. But they typically return a different combination of economic benefits to their member-owners than do conventional firms, because they place more emphasis on job security for employee-members and employees' family members, pay competitive wages (or slightly better than their sector), provide additional variable income through profit-sharing, dividends or bonuses, and offer better fringe benefits. They also support community facilities such as health clinics or schools.
In the developing world, cooperatives and employee-owned firms have usually been supported as parastatals, to implement various governmental goals. When governmental support was withdrawn due to budgetary shortfalls or structural adjustment policies, most parastatal cooperatives failed, because productivity had been of little or no concern, and they were not prepared to compete in a market economy.
However, these failures were not due to any intrinsic shortcomings of employee ownership. Considerable evidence from the developed countries shows that participative worker cooperatives and employee-owned firms can match or exceed the productivity of conventional firms. Most evidence from the former centrally planned countries in confounded by exceptional conditions. Evidence from much of the developing world is slim, in part because basic economic and political conditions are often absent.
For agricultural and small business cooperatives, the research is less voluminous, but leads in the same direction. Well-run cooperatives can compete with traditional firms and can effectively increase the productivity of their members. But their profits are distributed differently: the farm and business cooperatives charge lower prices and return patronage dividends to members. The dearth of research on the productivity of agricultural cooperatives may possibly be explained by the widespread assumption that they create benefits for their members-owners. Empirical studies and stock market data suggest that agricultural cooperatives regularly generate economic benefits for their members that equal of surpass comparable private sector returns to shareholders. Promising new forms of the cooperative include small business cooperatives and shared service cooperatives that provide branding, marketing and other business services for producers.
In sum, there is no great accumulation of evidence to suggest that cooperatives and employee-owned enterprises are less productive than conventional firms, and substantial evidence that they at lease equal, and probably exceed, the productivity of their conventional counterparts. In addition, they create collateral benefits for their communities and societies.
Link: Productivity in Cooperatives and Worker-owned Enterprises: Ownership and Participation Make a Difference!
Publication Date: 2005-01-01