How Worker Co-ops Handle Bankruptcy

A Supporter of Democracy at Work asks: “The concept of the productive worker being both employer and employee in all areas is brilliant and necessary to overcome the injustice of the potentially dangerous and egregious financial disparity between that of the upper earning and the lower earning citizens. However, not all such businesses will succeed. How is this scenario resolved?”

In an economy based on worker co-ops what would happen, if, and when worker co-ops don’t make it, this, or that, one doesn’t succeed in staying in business? 

Very good question and I want to answer it on three levels.

First, this is a problem in all economic systems. In other words, some slave plantations fall apart, some feudal manners cease to exist, some capitalist enterprises stop functioning. So, it’s always a possibility that this or that enterprise within any system ceases to be able to function. And here are some of the reasons why that can happen. And it can happen to worker co-ops as well. The first one: tastes change. People who used to buy x now prefer to buy y, the worker co-op that made x is now in a sense out of business, because what it does is no longer what people want to consume and that can happen in any kind of economic system and always has. Here’s another example: competition among producers. As producers learn how to make different kinds of goods or to make them of different quality, some will be more successful than others in implementing new technology, developing new qualities, and people will get the product from them and not from whoever didn’t make the improvement.

This can happen to worker co-ops just like it happens to particular capitalist firms or enterprises as well. Where the difference comes in is not really in whether or not a business goes out of business, but it’s really what happens when it does. How does this society react? And the society reacts usually in the following way: it worries that the collapse of a particular business or sometimes a whole industry can disrupt the economy as a whole and it takes steps to prevent that from happening. And how it does, it will determine how people are affected.

So, let me start with the way capitalism does it and then I’ll show you the difference with how a worker co-op society would do it. Capitalist enterprise, for example, have over the years in all capitalist countries developed a procedure by the courts called bankruptcy. The business no longer can function, the demand for its goods is gone. The company didn’t know how to react to new technology, its liabilities to others are greater than its assets, so it declares bankruptcy. It goes into a court system in order that the dissolution of this enterprise closing down is done and I’ll quote “in an orderly manner”. What that means, is it shouldn’t be too disruptive of everybody?

No, no! Bankruptcy is a capitalist institution, so it is organized to help the creditors. Whoever has lent money in one way or another to the company that goes out of business to be able to share roughly fairly and equally. A judge oversees this, in whatever assets are left as the thing goes out of business that declared bankruptcy, so, it protects the creditors. By the way here’s somebody it doesn’t protect: the workers. The workers who lose their job, because the business ceases to function. They’re on their own. In a capitalist system it helps the creditors, the capitalists get through this difficulty, the workers not so much. So, how would a worker co-op economy be different? Here’s the difference in a nutshell.

In a worker co-op economy, the focus is on the worker, not surprisingly. And so, here’s what would happen if a business went out of business. The first thing that happens is that all the workers in the affected business are protected. Their income is maintained, and they are helped to find alternative employment. A seniority system is built up over time, where workers who have bigger families or bigger responsibilities, etc., etc., get a higher ranking than those who have less, so that when this kind of bankruptcy happens, the ones with more seniority get their first pick of where else to go in that community, in a different job, relative to those with lower seniority and the government handles all of this. So, it is a socialization of the adjustment process for when an enterprise goes out of business workers are taken care of first and foremost, because that’s what a worker co-op economy is. It’s putting workers in charge. One last point. Some folks when I’ve explained this, say well that’s going to cost the society money to help workers in the transition. You bet! And it’s a decision of a worker-based economy that that’s a good thing for a society to do. Just like it maintains the road system and it maintains the public parks that are good for our lives, helping workers get through a disintegration that is in no way their fault would be part of that. Does it cost money? You bet! But let me assure you: bankruptcy courts, bankruptcy judges, the whole apparatus of the judicial system in capitalism is paid for out of public money. The working class pays the taxes that enable a bankruptcy system to serve capitalism as its priority. In a worker co-op economy, that wouldn’t be the priority. The priority is taking care of the working people. Who, footnote, happened to be the majority.