Scaling democratic ownership
A worker cooperative, if structured according to the principles of economic democracy (Ellerman 2021; Erdal 2012), is different from a conventional corporation in that the rights to profits and governance are defined as personal rights and structured in a democratic way, rather than a freely transferable property rights. Democratic ownership in a privately held firm in the market economy implies that personal rights in production are associated with the provision of labour and are structured so that they comply with democratic principles. Worker cooperatives are a radically departure from capitalist firms in that they prevent the legal rights to be freely transferred on the market and concentrated in the hands of the few because they define these rights are personal rights of each worker in the firm.
One of the historical challenges with democratic firms is related to the marginal role they play in the economy. This brings us to a very common question in the literature: "If so successful, why so few?" (Gonza, 2016). Contrary to conventional explanations, democratic form of ownership is not rare because it would impose economic inefficiencies on production, there are many other more plausible explanations for the relative paucity of democratic firms (ibid.).
One of those reasons is related to the creation of democratic firms - most of the co-operatives are created from the scratch, or, in some rare occasions where the institutional support is ensured, as all-at-once conversions of conventional businesses. In the context of the recent scale-up trends of broad-based employee ownership through the ESOP (1) and the EOT (2) model, it seems that the lack of mechanism that would allow gradual and leveraged conversions to cooperative ownership may be one of the important reasons for the sluggish growth if not stagnation of democratic ownership in our economies.
We argue that the potential of scaling the cooperative sector is in the gradual cooperative conversion mechanism embodied in the concept of Cooperative ESOP (Ellerman, Gonza, and Berkopec 2022), which can, with a help of strong supportive institutional environment, leverage democratic ownership to become a significant part of our economies.
Author: Tej Gonza, PhD, Director of the Institute for Economic Democracy, Researcher University of Ljubljana, Research Fellow Rutgers University
(1) The Employee Stock Ownership Plan (ESOP) was introduced in the legislation in the United States of America in the 1970s.
(2) In 2014 a similar a mechanism similar to the ESOP was introduced in the UK called Employee Ownership Trust (EOT)
Download the full article:
Tej Gonza, David Ellerman, and Kosta Marco Juri: DEMOCRATIC OWNERSHIP: SCALE THROUGH LEVERAGE (to be published in the Routledge Handbook of Cooperative Economics and Management (1st Edition), Edited By Jerome Warren, Lucio Biggiero, Jamin Hübner, Kemi Ogunyemi, 2025, open access)