Supporters of capitalism suggest that producer co-operatives would spring up spontaneously if workers really wanted them. Their argument is that co-operatives could be financed at first by "wealthy radicals" or by affluent workers pooling their resources to buy out existing capitalist firms; then, if such co-operatives were really economically viable and desired by workers, they would spread until eventually they undermined capitalism. They conclude that since this is not happening, it must be because workers' self-management is either economically unfeasible or is not really attractive to workers or both (see, for example, Robert Nozick, Anarchy, State, and Utopia, pp. 250-52).
David Schweickart has decisively answered this argument by showing that the reason there are not more producer co-operatives is structural:
"A worker-managed firm lacks an expansionary dynamic. When a capitalist enterprise is successful, the owner can increase her profits by reproducing her organisation on a larger scale. She lacks neither the means nor the motivation to expand. Not so with a worker-managed firm. Even if the workers have the means, they lack the incentive, because enterprise growth would bring in new workers with whom the increased proceeds would have to be shared. Co-operatives, even when prosperous, do not spontaneously grow. But if this is so, then each new co-operative venture (in a capitalist society) requires a new wealthy radical or a new group of affluent radical workers willing to experiment. Because such people doubtless are in short supply, it follows that the absence of a large and growing co-operative movement proves nothing about the viability of worker self-management, nor about the preferences of workers." [Against Capitalism, p. 239]
There are other structural problems as well. For one thing, since their pay levels are set by members' democratic vote, co-operatives tend to be more egalitarian in their income structure. But this means that in a capitalist environment, co-operatives are in constant danger of having their most skilled members hired away. Moreover, there is a difficulty in raising capital:
"Quite apart from ideological hostility (which may be significant), external investors will be reluctant to put their money into concerns over which they will have little or no control — which tends to be the case with a co-operative. Because co-operatives in a capitalist environment face special difficulties, and because they lack the inherent expansionary dynamic of a capitalist firm, it is hardy surprising that they are far from dominant." [Ibid., p 240]
In addition, co-operatives face the negative externalities generated by a capitalist economy. The presence of wage labour and investment capital in the economy will tempt successful co-operatives to increase their flexibility to adjust to changes in market changes by hiring workers or issuing shares to attract new investment. In so doing, however, they may end up losing their identities as co-operatives by diluting ownership or by making the co-operative someone's boss:
"To meet increased production, the producer co-operatives hired outside wage workers. This created a new class of workers who exploit and profit from the labour of their employees. And all this fosters a bourgeois mentality." [Michael Bakunin, Bakunin on Anarchism, p. 399]
Hence the pressures of working in a capitalist market may result in co-operatives pursuing activities which may result in short term gain or survival, but are sure to result in harm in the long run. Far from co-operatives slowly expanding within and changing a capitalist environment it is more likely that capitalist logic will expand into and change the co-operatives that work in it (this can be seen from the Mondragon co-operatives, where there has been a slight rise in the size of wage labour being used and the fact that the credit union, since 1992, has invested in non-co-operative firms). These externalities imposed upon isolated co-operatives within capitalism (which would not arise within a fully co-operative context) block local moves towards anarchism. The idea that co-operation will simply win out in competition within well developed capitalist economic systems is just wishful thinking. Just because a system is more liberatory and just does not mean it will survive in an authoritarian economic and social environment.
There are also cultural problems as well. As Jon Elster points out, it is a "truism, but an important one, that workers' preferences are to a large extent shaped by their economic environment. Specifically, there is a tendency to adaptive preference formation, by which the actual mode of economic organisation comes to be perceived as superior to all others." ["From Here to There", in Socialism, p. 110] In other words, people view "what is" as given and feel no urge to change to "what could be." In the context of creating alternatives within capitalism, this can have serious effects on the spread of alternatives and indicates the importance of anarchists encouraging the spirit of revolt to break down this mental apathy.
This acceptance of "what is" can be seen, to some degree, by some companies which meet the formal conditions for co-operatives, for example ESOP owned firms in the USA, but lack effective workers' control. ESOP (Employee Stack Ownership Plans) firms enable a firms workforce to gain the majority of a companies shares but the unequal distribution of shares amongst employees prevents the great majority of workers from having any effective control or influence on decisions. Unlike real co-operatives (based on "one worker, one vote") these firms are based on "one share, one vote" and so have more in common with capitalist firms than co-operatives.
Moreover, we have ignored such problems as natural barriers to entry into, and movement within, a market (which is faced by all firms) and the difficulties co-operatives can face in finding access to long term credit facilities required by them from capitalist banks (which would effect co-operatives more as short term pressures can result in their co-operative nature being diluted). As Tom Cahill notes, the "old co-ops [of the nineteenth century] also had the specific problem of . . . giving credit . . . [as well as] problems . . . of competition with price cutting capitalist firms, highlighting the inadequate reservoirs of the under-financed co-ops." ["Co-operatives and Anarchism: A contemporary Perspective", in For Anarchism, edited by Paul Goodway, p. 239]
In addition, the "return on capital is limited" in co-operatives [Tom Cahill, Op. Cit., p. 247] which means that investors are less-likely to invest in co-operatives, and so co-operatives will tend to suffer from a lack of investment. Which also suggests that Nozick's argument that "don't say that its against the class interest of investors to support the growth of some enterprise that if successful would end or diminish the investment system. Investors are not so altruistic. They act in personal and not their class interests" is false [Op. Cit., pp. 252-3]. Nozick is correct, to a degree — but given a choice between high returns from investments in capitalist firms and lower ones from co-operatives, the investor will select the former. This does not reflect the productivity or efficiency of the investment — quite the reverse! — it reflects the social function of wage labour in maximising profits and returns on capital (see next section for more on this). In other words, the personal interests of investors will generally support their class interests (unsurprisingly, as class interests are not independent of personal interests and will tend to reflect them!).
Tom Cahill outlines the investment problem when he writes that the "financial problem" is a major reason why co-operatives failed in the past, for "basically the unusual structure and aims of co-operatives have always caused problems for the dominant sources of capital. In general, the finance environment has been hostile to the emergence of the co-operative spirit. . ." And he also notes that they were "unable to devise structuring to maintain a boundary between those who work and those who own or control. . . It is understood that when outside investors were allowed to have power within the co-op structure, co-ops lost their distinctive qualities." [Op. Cit., pp. 238-239] Meaning that even if co-operatives do attract investors, the cost of so doing may be to transform the co-operatives into capitalist firms.
Thus, in spite of "empirical studies suggest[ing] that co-operatives are at least as productive as their capitalist counterparts," with many having "an excellent record, superior to conventionally organised firms over a long period" [Jon Elster, Op. Cit., p. 96], co-operatives are more likely to adapt to capitalism than replace it and adopt capitalist principles of rationality in order to survive. All things being equal, co-operatives are more efficient than their capitalist counterparts - but when co-operatives compete in a capitalist economy, all things are not equal.
In spite of these structural and cultural problems, however, there has been a dramatic increase in the number of producer co-operatives in most Western countries in recent years. For example, Saul Estrin and Derek Jones report that co-operatives in the UK grew from 20 in 1975 to 1,600 by 1986; in France they increased from 500 to 1,500; and in Italy, some 7,000 new co-operatives came into existence between 1970 and 1982 ["Can Employee-owned Firms Survive?", Working Paper Series, Department of Economics, Hamilton College (April, May, 1989)]. Italian co-operatives now number well over 20,000, many of them large and having many support structures as well (which aids their development by reducing their isolation and providing long term financial support lacking within the capitalist market).
We have already noted the success of the Mondragon co-operatives in Spain, which created a cluster of inter-locking co-operatives with its own credit union to provide long term financial support and commitment. Thus, in Europe at least, it appears that there is a rather "large and growing co-operative movement," which gives the lie to Nozick's and other supporters of capitalism arguments about co-operatives' lack of economic viability and/or attractiveness to workers.
However, because co-operatives can survive in a capitalist economy it does not automatically mean that they shall replace that economy. Isolated co-operatives, as we argued above, will more likely adapt to capitalist realities than remain completely true to their co-operative promise. For most anarchists, therefore, co-operatives can reach their full potential only as part of a social movement aiming to change society. As part of a wider movement of community and workplace unionism, with mutualist banks to provide long terms financial support and commitment, co-operatives could be communalised into a network of solidarity and support that will reduce the problems of isolation and adaptation. Hence Bakunin:
"We hardly oppose the creation of co-operative associations; we find them necessary in many respects. . . they accustom the workers to organise, pursue, and manage their interests themselves, without interference either by bourgeois capital or by bourgeois control. . . [they must] above all [be] founded on the principle of solidarity and collectivity rather than on bourgeois exclusivity, then society will pass from its present situation to one of equality and justice without too many great upheavals." [Op. Cit., p. 153]
Co-operation "will prosper, developing itself fully and freely, embracing all human industry, only when it is based on equality, when all capital . . . [and] the soil, belong to the people by right of collective property." [Ibid.]
Until then, co-operatives will exist within capitalism but not replace it by market forces - only a social movement and collective action can fully secure their full development. As David Schweickart argues:
"Even if worker-managed firms are preferred by the vast majority, and even if they are more productive, a market initially dominated by capitalist firms may not select for them. The common-sense neo-classical dictum that only those things that best accord with people's desires will survive the struggle of free competition has never been the whole truth with respect to anything; with respect to workplace organisation it is barely a half-truth." [Op. Cit., p. 240]
This means that while anarchists support, create and encourage co-operatives within capitalism, they understand "the impossibility of putting into practice the co-operative system under the existing conditions of the predominance of bourgeois capital in the process of production and distribution of wealth." Because of this, most anarchists stress the need for more combative organisations such as industrial and community unions and other bodies "formed,"to use Bakunin's words, "for the organisation of toilers against the privileged world" in order to help bring about a free society. [Michael Bakunin, Op. Cit., p. 185]