JACOB HEISLER – NOVEMBER 14TH, 2022
EDITOR: DENYSE CHAN
In today’s market society, the dominant business structure consists of capitalist firms. The classic structure of capitalist companies prioritizes achieving a profit and return on investment for shareholders. There is a hierarchical structure in which employees perform tasks to produce goods or services and receive a salary or commission or some other type of compensation. These goods or services are sold to unaffiliated consumers, and the profits go to shareholders. The employees do not typically have final decision-making power nor ownership of the company they work for.
A cooperative, also referred to as a co-op, is a form of business ownership that challenges the traditional capitalistic structure. A cooperative entails a shared ownership between the workers and key stakeholders. Members can also serve as consumers of the business. They are able to democratically vote on the direction of the business and receive a share of the profits. Cooperatives not only seek to function as a money-making business but also to provide a democratic, supportive financial and community-based environment for its members.
To put it simply, cooperatives prioritize stakeholders’ interests whereas capitalist firms typically prioritize shareholders’ interests.
Government Influence to Boost Development of Cooperatives
There are cooperatives in numerous sectors such as agriculture, health, energy, and more. These companies employ over two million people within the United States, and in 2020, the top 100 US-based co-ops earned a total of over $200 billion in revenue. However, there are still fields in which workers and communities are underrepresented and an expansion of the cooperative business model could be beneficial.
In order to spur the growth of co-ops, both in terms of their number and influence, individuals with prior experience working in co-ops in addition to co-ops that are already successful can provide resources and expertise. That being said, the institution with the greatest power to promote the development of cooperatives remains the government. Thus, for effective and comprehensive action to be taken, it needs to come from the state rather than private actors. If elected officials deem the development of co-ops to be worthwhile, there are numerous ways in which state and federal governments can incentivize and accelerate their growth.
One aspect of policy governments can focus on is changing laws regarding incorporation and regulations to explicitly include cooperatives. State governments can ensure that cooperatives receive the same ease of formation that traditional firms receive instead of having to jump through various additional hoops to be formed. For example, new types of cooperatives in states without general incorporation statutes have to lobby with governments to draft statutes pertaining to their specific situation that permit their incorporation. Additionally, legislation regarding benefits for workers and businesses often fails to include co-ops. This can make it challenging for new cooperatives to have assurances that they would get the same legal protections as capitalist businesses. A lack of legal protection causes ambiguity regarding taxation, legal property, and much more which serves as a significant deterrent to the creation of cooperatives.
Governments can aid the development of co-ops by direct funding via grants and loans. As early-stage co-ops often struggle to receive the requisite capital in order to get the business off the ground, grants and subsidies can incentivize the creation of cooperatives in particular fields. Providing advantageous loans is another method to help co-ops get started. The federal government has a history of strategically providing loans to cooperatives that function in sectors in need of aid. The Rural Electrification Act of 1936 provided loans to cooperatives that worked to electrify farms in rural areas, going from about 10% of applicable farms to 80% in 1950.
Finally, governments can provide a favorable tax code for cooperatives. Cooperatives are taxed
at the same rate as other businesses. If the government wants to incentivize the growth of co-ops, the federal government can change the tax code to reduce rates for co-ops compared to other types of businesses. In Spain, the Federal Co-operatives Tax Act that was passed in 1990 set the corporate income tax rate at 10% for cooperatives in certain fields, whereas capitalist businesses were taxed at a rate of 28%. This is a drastic example of a way to incentivize the development of cooperatives to increase the well-being of workers in select vulnerable sectors.
If the government recognizes the relevance of cooperatives in certain industries, it has the ability to incentivize the growth and development of co-ops by applying the appropriate policy initiatives.
Opportunities for Growth
The gig economy has rapidly developed over the past few years. As the demand for digitally accessible services such as ride-sharing and rapid local delivery increased, companies like Uber and Doordash burst onto the scene. These companies were appealing to workers due to the flexibility of scheduling. A gig worker for Uber, for example, can choose their hours and be free from oversight, all while Uber gets cheaper labor than employee-based ride-share companies might be able to attain. However, during this process, employee-based companies that provide similar services were pushed out due to an inability to compete with gig worker-based companies. Thus, the most accessible option for employment in this industry ceased to provide benefits and stability that many sought.
California aimed to address this issue when the state passed a law called AB5 in 2019 that forced companies like Uber to consider its drivers to be employees instead of gig workers. In response, Uber and Lyft spearheaded Prop 22, a ballot proposition which passed in the election to exempt those companies from the regulation. The judiciary ruled this initiative unconstitutional, but these relevant gig worker-based companies have appealed the ruling and refuse to acknowledge it until the appeals process concludes.
A solution to this issue is to promote the development of platform cooperatives, co-ops based around a digital site or app, that can rival the major gig-worker-based companies. A ride-sharing platform cooperative would allow drivers in the industry to join and have more control over how their company is run. They could ensure health benefits, guarantee flexibility, and determine other ways to structure the ride-sharing cooperative to look after their interests, as opposed to exclusively private investors and shareholders who don’t actually do the driving.
California, and the federal government at large, can promote the development and growth of relevant platform cooperatives that aim to challenge the existing companies in the industry by providing funding and preferential treatment to cooperatives. Through the aforementioned strategies, platform cooperatives can be cultivated, and the issue of the gig economy can be resolved in a way that circumvents the current unsuccessful strategy of regulating gig worker-based businesses.
Despite the potential opportunity to incentivize the expansion of cooperatives into the sector dominated by the gig economy, it could be challenging due to the nature of most people within the economy. Companies in the gig economy have extremely high turnover rates of employees, meaning that many people either hop from platform to platform, or in and out of the industry entirely depending on available opportunities elsewhere. While the development of platform cooperatives could eliminate some problems for gig workers if successful, it remains to be seen if sustaining a long-term business in which drivers would have an ownership stake in a cooperative is a worthwhile venture.
Cooperatives already play a significant role in several industries, and there is the potential for the development of this business structure in other emerging and existing markets. The government has and will continue to play a significant role in either furthering or hindering co-op development depending on where it deems cooperatives to be useful for the growth of the economy and the protection of workers and consumers. The future of co-op development is uncertain, and it hinges largely on how the government decides to approach them in comparison to traditional capitalist firms.
Featured Image Source: The United Nations
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