This is a chapter 'self-management and the case for workers' co-ops' from Radical theories: Paths beyond Marxism and social democracy (1994) by Darrow Schecter. This study is being shared for critical consideration.
In the previous chapter we saw how the Guild socialists were concerned to safeguard producer autonomy from both the State and the tyranny of private interests. In the writings of G. D. H. Cole this implied a role for a modified market to facilitate direct exchange of goods between producers. It became clear that the particular kind of market advocated by Cole was highly unusual, featuring a negotiated price and a continual dialogue between producers, distributors and consumers. Cole intended that producer autonomy be reconciled with high standards of craftsmanship reminiscent of the Guild era, as well as full producer responsibility to the interests of the local community. But trade union scepticism, the depression of the 1930s and general confinement of Guild socialist ideas to intellectual circles spelled the eventual failure of Guild Socialism as a political movement.
The post-World War II world was not long in existence, however, before the demand for non-statist Socialism was once again heard - this time in Yugoslavia. This chapter will examine the Yugoslav experiment in self-management and the origins of contemporary Market Socialism in post-war Europe. It will conclude with an assessment of the current theoretical debates on the feasibility of combining a market economy with socialist ideals of participation and accountability of power.
There is a great deal at stake here, since the role of the market has always been a highly contested issue amongst socialists of every persuasion. Recent market socialists have made bold claims suggesting that the market is not only compatible but actually indispensable for Socialism. In contrast to Cole's fairly complex conception of a mediated form of market, David Miller has declared his intention to equip the theory of Market Socialism with 'a full-blooded unapologetic commitment to a market economy'. 
Market Socialism in Yugoslavia
The ideal of Socialism as self-government in the economy as well as in the polity long precedes the Yugoslav break with central planning. It will be recalled from the introduction that in the Paris Commune Marx had seen the possibility of smashing the State by democratising it, that is, by dismantling the central State apparatus and dispersing political power to a federation of de-centralised Communes. These organs of local democracy would then manage the affairs of 'even the smallest country hamlet'. For Marx this seemed to be the precondition for any genuine self-government of the producers. But we also saw how this highly participatory and de-centralised vision was impossible to reconcile with a centrally planned economy which would necessarily come under the control of a socialist officialdom. In fact, this is what happened in the former USSR and State socialist countries of Eastern Europe. Rather than withering away, the State continually expanded its role as it sought to control all of society's economic functions. Thus the Bolsheviks, presiding over the State and the economy, deprived the Soviets and other bodies of local power of any real authority. By 1927 the Five Year Plans could be implemented without 'interference' from shopfloor workers in the various regions of the country. It was soon apparent that such centralisation of economic power, along with the political monopoly of power held by the Communist Party, was not in any way compatible with the self-government of the producers. Groups like the Workers' Opposition demanded greater producer autonomy through the empowerment of trade unions and workers' Councils. These attempts proved futile. As Leninism was succeeded by Stalinism, any attempt to question the centralised model of political economy was rejected as counter-revolutionary. 
Though the Workers' Opposition had raised important objections to Bolshevik tyranny which also figured prominently in the writings of syndicalists, anarchists, Council communists and Guild socialists, it was not until 1948 in Yugoslavia that an alternative conception of Socialism was given a chance to function on a large scale. It was here that the market, traditionally associated with capitalism, was seen as an alternative to the State as a means of allocating resources. This constituted a step further than Guild socialist proposals for a negotiated price between the parties affected in an economic transaction. Yugoslav theoreticians claimed that the introduction of the market would not only lead to increased production, but would have the equally important effect of democratising the country by diffusing political power. Stalinism was castigated as a tyrannical and bureaucratic deviation from Marx, while the Yugoslavs defended their reforms as a return to Marxist humanism. Right until the disintegration of the country in 1991, the Yugoslav leadership claimed to be returning to the spirit of the young Marx and the Marx of the Paris Commune writings, that is, rejuvenating the doctrine rather than departing from it. 
At the outset it should be noted that the advent of Market Socialism in Yugoslavia was to a large extent a historical accident. When World War II drew to a close the Yugoslav Communist Party (subsequently re-named the Yugoslav League of Communists) took control of the country, suppressed all opposition parties, established a monopoly on the media and generally eliminated freedom of expression. In this way they were simply following the Bolshevik model of the dictatorship of the proletariat. In fact, Yugoslavia was initially one of the Soviet Union's most loyal satellite countries. Led by Josip Broz Tito, Yugoslavia supported Stalin on all major issues of foreign policy, economic collectivisation and the subordination of Civil Society to the State. But by 1948 Yugoslavia was denounced by the USSR and expelled from the international organisation of communist economies, the Cominform, as a country that had betrayed the principles of Socialism. How did this come about, and what were the results? 
The first Constitution of the Federal Republic of Yugoslavia of 31 January 1946 called for State ownership of all major sectors of industrial production, with the corresponding demand that all major decisions on the setting up and closing of enterprises be taken by the government. Production targets and distribution were under tight control by the League. At this stage it was thought that the concentration of all resources and the confiscation of private wealth was necessary in order to put the war-ravaged country back on its feet and gain some measure of political stability for the future. Thus planned distribution and rigidly controlled prices were deemed indispensable. 
However, in keeping with the country's agricultural traditions, the Yugoslavs sought to resume small-scale agricultural production, for which they drew heavy censure from Stalin and the Cominform. It was made clear that such measures would only encourage 'petit bourgeois' and 'typically peasant' attitudes towards land and work which would retard Stalinist models of industrialisation and collectivisation. The Yugoslavs initially sought to fall in line with Cominform policy, but it soon became apparent that such policy was ill-suited to the needs and realities of the country. Tensions between Stalin and Tito going back to the fight against Fascism were exacerbated. But the Yugoslav leader remained steadfast in his belief that his country had to chart an independent course based on its own abilities and needs. The inevitable result was the ostracising of Yugoslavia and the imposition of economic sanctions which, before long, amounted to a total blockade forcing the country to look to other parts of the globe for trading partners. Throughout the period 1946-48 Tito adamantly opposed Soviet-style collectivisation and Stalin's notion of a single road to Socialism. Polemics were exchanged until 1950, when Tito announced that Yugoslavia would henceforth embark on a new path of development based on the slogan, 'the factories to the workers'. This was the start of a highly original and influential experiment in socialist self-management. 
In November 1949, Djuro Slaj, the President of the Yugoslav trade union Confederation, and Boris Kidric, a government official responsible for economic policy, sent out a notice to 215 large enterprises, detailing plans for the establishment of Workers' Councils in those firms. These Councils were given the task of drafting enterprise-level production targets, including proposals for raising productivity and efficiency. Councils were to be elected by all employees working in an enterprise by means of a secret ballot. The Council had in turn to elect a director, with the stipulation that workers could vote to remove Council members before the expiry of their mandate if two-thirds decided he or she was not doing an adequate job. 
The self-governing enterprise became the basic unit of all economic activity. Other corporate bodies such as local Communes, banks, or self-employed craftsmen were granted similar status. The 1965 law on enterprise formation and activity clearly stated that:
By freely combining their work in the basis of social assets and self-management, the working people in an enterprise organize and constantly expand production, trade, or other economic activities, so as to satisfy their individual and collective interests and the general interests of society.
The Basic Law governing enterprise functions contained 299 articles, along with legislation regulating employment relations, the election of Workers' Councils and management structures, and the distribution of enterprise assets. What was formerly the exclusive domain of the State was henceforth, in principle, a matter for shopfloor workers and the managements they elected and dismissed. These groups of workers would trade their products with other similarly organised firms via the market. The aim was to achieve both democracy in the workplace and economic efficiency. 
In theory, all workers in an enterprise, whether they be manual workers, technicians or managers, were meant to enjoy the same rights. Each self-managed enterprise was instructed by the law to determine its own basic rules and regulations, provided that this underlying equality of all members was not infringed. In all enterprises with more than 70 workers an elected Workers' Council, comprised of somewhere between 15 to 100 people depending on the size of the firm, would hold 1-year terms. During the course of these terms the Council would legislate on all policy issues, such as how much of revenue to apportion between investment and consumption. Disciplinary matters were also dealt with. Yugoslav law specified that Council members could not run for a second consecutive term, but could run again subsequently. The Council elected a Management Board each year, entrusting it with authority on issues ranging from investment to housing and social services for workers. The Management Board, in consultation with the Workers' Council, would in turn elect an Executive Director for a 4-year renewable term. 
Where such upper management had previously been appointed by the relevant planning ministry, self-management called for new procedures. Thus Executive Directors were chosen as follows: in accordance with individual enterprise regulations, the post was publicly announced and advertised by the Council, which then appointed a committee to evaluate applications. Committees were made up of Council members and local Commune members in equal proportion, who would narrow the field of candidates down to six people. The list was sent to the Workers' Council for approval, which then selected its top choice or asked the committee to reconvene to select a new group of prospective Executive Directors. Once elected, the Executive Director was in charge of all current business, including the implementation of decisions made by the Workers' Council and its sub committees. Following traditions of radical democracy established in the Paris Commune, the Executive Director could be recalled on demand if a majority on the Council found his or her management incompetent. 
Jan Vanek, a scholar of Yugoslav self-managed enterprises, reports that in large firms it was not uncommon for there to be self-management bodies at individual levels of production and administration. In such enterprises, mid-level directors were appointed by Workers' Councils without outside intervention. In a very large enterprise one might have had several dozen self- management bodies of various descriptions working in conjunction with sub-committees in charge of different aspects of production and distribution. Autonomy and co-operation were important goals in all such firms. Vanek thus concludes that in Yugoslavia the usual model of the single enterprise was replaced by the far more flexible ideal of an 'autonomous organisation of associated labour'. Writing in an optimistic vein that may strike us today as somewhat naive, in 1975 Vanek assessed the Yugoslav situation thus:
All this amounts to an immensely complex decision-making process for which it is difficult to find an analogy or a precedent. According to most accepted management theories, it should paralyse all decisions, all action. Yet this conclusion is obviously incompatible with Yugoslav experience. There have certainly been cases where internal conflicts led to delays or inefficiency but, on the whole, there are few examples of actual paralysis of decision making within an enterprise. On the contrary, there are few examples of collectivities as active and action-minded as the average Yugoslav firm ... New Projects, big or small, are collectively pursued in all areas, especially investment, training, and social development. 
Vanek goes on to stress that contrary to many people's association of democracy with inefficiency and slowness in the decision-making process, the Yugoslav market socialist economy embodied the advantages of not having to seek the approval of directing planning boards located in distant capitals. Moreover, since all the workers in a firm bore the consequences of economic success or failure, there was little incentive to prolong disputes between management and shopfloor workers. Such conflicts are a chronic problem in both privately owned and nationalised industries. At the same time, enterprise capital was collectively controlled, which ensured that decisions would reflect the interests of at least the majority of employees working in a firm. This system of collectively owned capital, or social property, as it was called, had an enormous impact on subsequent self-management ventures outside of Yugoslavia. From its inception, a worker-controlled enterprise disposed of a certain amount of capital in the form of assets and means of production, which were either acquired independently or conferred by the State. This capital was intended to help the enterprise begin its commercial activities; it was available for use but was not owned by the enterprise. This meant that assets could not be liquidated to buy private retirement homes or other benefits that did not contribute to society's productive needs. It was considered vitally important that there be constitutional measures against property speculation and other instances of private usurpation of socially controlled wealth. Thus in the 1959 Constitution of the Socialist Federal Republic of Yugoslavia we read that:
Socially-owned means of production, being the common, inalienable basis of social labour and social reproduction, shall exclusively serve as a basis for the performance of work aimed at the satisfaction of the personal and common needs and interests of the working people and at the development of the economic foundations of socialist society and socialist relations of self-management ... Since no one has the right of ownership over social means of production, nobody - not socio-political communities, nor organizations of associated labour, nor groups of citizens, nor individuals - may appropriate on any legal property grounds the product of social labour or manage and dispose of the social means of production of labour, or arbitrarily determine conditions for distribution. 
Enterprises getting under way in one of the six regions that made up Yugoslavia often received their initial capital from a voluntary association of individuals pooling their resources, or from the Fund for Regional Development. From this moment on, however, authority was legally vested in the Workers' Council and the Executive Director. Each enterprise was legally registered according to its chief economic activity, though it was permitted to engage in related subsidiary activities in other markets. For instance, an industrial enterprise might list transport and marketing activities as secondary operations generating new commercial possibilities. Since all enterprises had an interest in diversifying their operations for competitive market strength, it was frequently the case that they would not limit themselves to manufacturing or transport, even if they began as manufacturing or transport firms. 
To a large extent, self-managed enterprises in Yugoslavia faced similar problems to those confronting private firms in a capitalist economy, that is, raising initial capital and reaching sufficiently high levels of profitability necessary to pay off debts and to hire new workers. Yugoslav firms had the advantage of public investment agencies like the Fund for Regional Development. Alternatively, prospective founders could publicly approach banks for their initial capital. Any public social organisation or group of citizens could found an enterprise, provided that they could secure the necessary capital. The Yugoslav banking system ran into a number of difficulties, however, often operating at a loss. This obviously curtailed investment. In this respect Yugoslav banks were far less successful than the Basque Casa Laboral Popular (CLP), which we shall examine in the next section. 
Since capital was socially controlled by the workers of an enterprise and could not be arbitrarily sold or transferred without the approval of the Workers' Council, there were few rules concerning the voluntary shutting down of operations. This is not surprising, since the workers of a firm had little to gain from such a move unless assured of jobs in another self-managed enterprise. If it became clear that an enterprise would not be able to meet its financial obligations, that is, repaying loans, finding sufficient investment, or paying its workers adequately, there were some provisions for closure, all of which were designed to find new sources of employment for the displaced workers. The creditor of an enterprise could call for the appointment of a Public Receiver to remunerate the workforce and take over the functions of the Workers' Council and the Executive Director. Such manoeuvres could be and at times were contested by workers of the affected enterprise if they felt they were being exploited. In terms of workers' rights, this certainly represented an impressive advance over the condition of most workers elsewhere. A compromise between the contending forces might be found if the local Commune was ready to assume responsibility for the enterprise until it managed to reverse its losses. Enterprises were legally required to inform the Commune of any likely financial problems of this kind. 
However, closure provisions became increasingly necessary as bankruptcy became more frequent. After two decades of economic growth, the system began to falter. Most importantly, the market, which was thought to be the key to economic efficiency, had actually exacerbated inequalities between the Yugoslav regions. This imbalance seemed to bear out the thesis that the market tends to produce winners and losers, leaving the latter with increasingly little bargaining power. This was an important discovery in the Yugoslav context, however, where workers had far greater protection than in most private enterprise systems. At the same time, participation levels at the workplace began to drop, which was unacceptable if the principle of self-management was to be taken seriously. In response, a number of counter-measures were taken. The Constitution of l959 was updated in 1974, followed by the Law of Associated Labour in 1976. These changes were intended to extend the principles of participatory democracy and de-centralisation, and yet at the same time to introduce a greater element of planning into the economy. But tensions between successful firms on the one hand and constantly struggling firms on the other continued apace. Meanwhile, ethnic tensions between the country's various nationalities were getting worse. The final result, as we know, was the end of the Yugoslav search for self-management and the tragic precipitation of the country into civil war. 
In fact, however, even before the civil war many of the problems in the system continually plagued the Yugoslav experiment. In opposition to the highly optimistic assessments of people like Jan Vanek and Edward Kardelj, western observers cast a far more critical eye on Yugoslav developments. On the one hand, it cannot be denied that the system did achieve high levels of economic growth and embarrassed the orthodox communist world. On the other hand, it appears to be the case that the market economy gave further impetus to existing regional disparities in wealth and power. This created enormous problems for the local and regional Communes. In contrast to the more limited service-oriented role of local government in private enterprise systems, the Yugoslav Commune had an important role in local economic planning. In this task the Commune had to consider the objectives of both the federal government as well as the investment strategies of local enterprises. This active role for the Commune seemed to be the logical result of the move from central planning to a market economy. In practice, however, the politico-economic system was impaired by the competition between political and business elites. The market economy provided material incentives for enterprise chiefs to seek suppliers and customers throughout the country and even abroad. At the same time, the Commune was eager to protect employment within the region and to stimulate local industry. This tension became so acute that Communes began levelling heavy taxes on goods exported outside of the region, which prompted management bodies and Executive Directors to clamour for more market and less planning. To make things worse, many of these arguments were carried out by enterprise managements, Commune officials, and federal government officials without due regard for the Workers' Councils, thus making a mockery of the claim that it was a self-management system at all. 
The question as to whether self-management was real or ideological has also been raised by empirical studies documenting large-scale absenteeism and apathy by shopfloor workers who, in theory, were the key to the self-management system. The Workers' Councils and their sub-committees tended to be dominated by highly skilled technicians who could either do without the Councils, or present the Councils with highly complex proposals which the average worker would have to accept on faith. Once again, the discrepancy between the self-management ideal and Yugoslav reality was stark. Caught in the middle of these conflicts - between enterprise freedom and Commune authority, between elites and ordinary workers and citizens, between successful enterprises in wealthy regions and their less fortunate counterparts elsewhere, etc. - was the League of Communists. The League had made self-management the official ideology of Yugoslav society, but then found its own position weakened by the workings of the system in practice. This ideology stressed democratic participation at the same time that it made direct appeal to the material interests of the population. In time, however, emphasis continued to shift towards economic prosperity. To the extent that this prosperity did come, it was highly uneven and created demands for government intervention. Those who were doing well out of the system denounced any moves for more planning or attempts by the League to re-assert its authority. The less successful enterprises decried what they considered the prevalence of capitalism over socialism. By the late 1980s and early 1900s, as new social movements came to the fore in Civil Society, the League saw its prestige weakened further. Environmental groups and youth movements that criticised the model of growth underpinning the Yugoslav market economy came in for heavy criticism from the League, who exhorted a return to the principles of self-management. By the time the regime collapsed in 1992, self-management looked like a hollow version of the original vision that had inspired Tito and his followers in the late 1940s. 
Such events would seem to point to a fairly negative assessment of Yugoslav Market Socialism, and lead us to question the validity of the premises underlying the model itself. Yet this must first be weighed against the very successful performance of workers' co-ops in Italy and, especially, in Spain. Our final assessment of market socialism would be incomplete without an examination of these developments.
The case for workers' co-ops
In The Case for Workers' Co-ops Robert Oakeshott provides us with a detailed empirical analysis of self-managed co-ops in France, Italy and Spain. Referring to the Mondragon co-ops in the Basque region of Spain, he makes the case for worker self-management thus:
A Mondragon sector, though it might well take some sting out of the class war, would be working for its own interests and not for either traditional capitalism or for the state sector; it would be a genuine third alternative. Assuming it was anything like as successful as it is in the Basque country there would be a queue of workers - from both capitalist and nationalized undertakings - applying to join. 
How do workers' co-ops function and how might they offer a 'genuine third alternative' to Social Democracy and State Socialism? This section will take these to be the central questions concerning the political significance of the co-op movement. The movement has been described as a practical example of Market Socialism aiming to combine the democratic and participatory goals of self-management with the efficiency and responsiveness of the market. It is thus essential for our purposes to briefly look at how co-ops have fared in countries where they have gained a measure of popular support. Since co-ops can flourish in such diverse climates as Tito's Yugoslavia, Franco's Spain and in France and Italy as well, Oakeshott's claim must be taken seriously. 
First, how do workers' co-ops function? To a large extent this can be illustrated by comparing them to both State-controlled and privately owned companies. If the State owns an enterprise's assets, it may seek to promote political goals like equality, but the chain of command leading from the shopfloor upwards to the State effectively cuts the workers of the enterprise off from any genuine possibilities for self-management. Even if, as initially occurred under the Soviet Five Year Plans, increases in productivity are registered, the workers must either be persuaded or coerced to produce for the State. The physical and psychological distance between enterprise workers and State planners has been continually cited as a reason for the poor economic performance of planned economies and their unresponsiveness to consumer preferences. In private companies the owners of capital can quite simply make use of their assets as they like, regardless of the interests of the workers they employ. Employees must follow orders, while managers are hired to ensure that this compliance is attained with the minimum possible conflict. Shareholders who have a stake in a privately owned company tend to have little knowledge or interest in the way they are managed, and are much more likely to be concerned with the rise or decline in value of their stock. 
Whether State- or privately owned, the underlying assumption is that whoever controls the means of production - the State or private capitalists - has the right to organise work and determine all major questions on wages and investment. Workers' Councils within planned economies and trade unions within capitalism may contest the prerogative to some extent, but power ultimately remains in either State or private hands. This is even true when enterprises in a capitalist private enterprise system are nationalised.
Indeed, this has largely contributed to the waning of enthusiasm for nationalisation as a strategy for the left. The rather simple principle that governs co-op practice is that the right to organise production derives from investing one's labour - not capital - in an enterprise. This principle informed Yugoslav practice, and was subsequently adopted by workers' co-ops elsewhere. However, echoing the Guild socialist critique of Syndicalism, it has been suggested that such control of a community's vital resources might be potentially dangerous. In cases involving the water supply, etc., some form of shared control between the workers of an enterprise and the representatives of the community is certainly desirable. 
In 1975 Jaroslav Vanek listed 12 conditions for the successful functioning of workers' co-ops within a self-managed economy. Two points are of particular relevance: (1) the rules regulating who can join a co-op and under what conditions of entry and (2) the rules governing the creation of self-managed firms and their subsequent strategies for securing adequate investment. On this second point Vanek points out that:
It is imperative to establish a shelter organization or institution on the national level (which can be decentralized according to need), whose express function would be to fund and promote the self-managed sector of the economy. More specifically, this agency would be charged with the supervision but not control of the capital market, the promotion and expansion of new firms or sectors according to national plans, the co-ordination and spreading of information regarding alternative investment projects, technical and other assistance to new groups desiring to form self-managing firms, and supervision designed to secure in the long run the equalization of income per worker. 
Perhaps the most significant instance of such a shelter institution has been the Basque CLP, as we shall see. In other situations, however, some such institution has been equally indispensable. In France, the movement for workers' co-ops gathered force in the mid-1970s in the wake of 'L'affaire LIP'. The workers at a watch-making factory in eastern France refused to accept management plans to close down, and decided instead to take over production themselves. The LIP episode was the first of several instances in which workers attempted to rescue sinking private companies by converting them into self-managed co-operatives. By 1975, the Workers' Cooperatives Production Society: (SCOP), began receiving appeals from workers in failing industries who sought a co-operative solution as an alternative to plant closure. Further impetus for French co-ops came quickly after the Mitterrand government's first unsuccessful experiments with nationalisation in 1981-82, which did not result in the much hoped for upswing of the French economy. Moreover, a significant number of young French engineers and managers were attracted to co-ops. They anticipated greater potential for creative work than would have been possible in either the private or State sectors of the economy. 
Like the members of the Rochdale consumer co-ops in England, French co-ops do not oblige their workers to be members of the co-operative they work in. Thus control is linked to shares and membership, not work alone. This has raised the question of the optimal roles for outside members - members of a co-op who do not actually work there, and non-member workers - that is, workers of a co-op who are not actually members. There were initial fears that co-ops might either be bought up by outsiders, or that members would hire non-members to do the hardest jobs for less pay. In general, however, most French co-ops insist that not less than two-thirds of the management must be comprised of worker members. In addition, in the event that a co-operative shuts down, remaining assets are not distributed among the members but passed on to other co-ops. This forestalls the risk of being bought out by external forces. There are also provisions in French co-op law to ensure the most equal possible distribution of wealth between members and non-members. The question of non-member workers came to the fore in the mid-1970s, as both the number of temporary and non-member workers rose to alarmingly high levels in the building sector and other sectors where seasonal work was common. One of SCOP's principal aims thereafter became safeguarding the income of non-members in the short term, and reducing the number of such workers in the long term. 
French co-ops can raise capital from three main sources: the Central Bank of Co-operative Credit, the French Bank of Cooperative Credit (BFCC) and joint stock banks. Unsurprisingly, the joint stock banks are reluctant to lend money to firms whose management can be dismissed by owner-workers! This leaves the majority of French co-ops dependent on the Caisse Centrale and the BFCC. In cases where a co-op has very limited resources but is judged to have good potential; SCOP has a fund from which it can offer help. If SCOP funds manage to get the firm on its feet, the co-op may then have some positive response from the Caisse Centrale. Like most banks, the Caisse Centrale and the BFCC will assess the risk involved when they loan money to co-ops. However, there is an important difference, in that they will advise co-ops on how to outline the best possible plans for future production and investment decisions, so that their case may eventually find favour with potential lenders. Moreover, the Caisse Centrale and the BFCC do support the case for workers' co-ops and are thus prepared to take greater risks on their behalf than the average joint stock bank. 
While the French Socialist Party and the other parties of the left have encouraged the growth and development of worker co-ops at various times, in Italy co-ops have been actively supported by political parties since the last century. The Italian Socialist Party (PSI) was formed in 1892, and quickly lent its support to the League of Cooperatives and Mutuals (the Lega), which was set up the following year. In 1919 a Catholic section of the Lega broke away to form an independent Confederation, and a second split followed in 1945 with the birth of the General Association of Italian Co-operatives. Since 1945 the co-operative sector of the Italian economy has experienced steady growth and expansion into new areas of economic life. Meanwhile, Italian co-ops have taken on an overtly political character: the Lega enjoys the support of the parties of the left, including the former Communists (now the PDS), the PSI and the Republicans; the Confederation is supported by Christian Democracy, while the Social Democrats and Republicans support the General Association. But since the end of the 1960s these ties have loosened, as the three co-op groups have attempted to forge stronger ties with one another to widen their base of political support. 
The co-operative sector of the Italian economy is so large, that co-ops dominate industry in parts of central and northern Italy, and account for 10 per cent of production nationally in the building industry. As such they offer us a picture of the successes that co-ops can have within predominantly capitalist economies. The Italian co-ops also illustrate the severe limitations on co-ops as primary vehicles for a more general democratisation of Civil Society. It has become clear that while a co-operative sector of the economy is certainly necessary for the democratic organisation of work and the widest possible dissemination of ideas, the co-op movement leaves larger political questions unanswered. Many of the problems that we have already discussed in relation to the effects of the market in Yugoslavia also arise in other contexts such as Italy and Spain. Let us look at these difficulties for a moment.
In Italy co-ops have a history dating back to the 1880s, a time when they were also making their first appearances in England and France. Two factors in particular have contributed to their continued growth in the post-World War II world: (1) the access to affordable credit, which all co-ops are entitled to under Italian law; and (2) the co-ordination of efforts between the Lega and the CGIL, Italy's large left-wing trade union confederation. Indeed, contrary to practice elsewhere, Italian unions have played an important role in co-op affairs both in terms of converting collapsing privately owned firms into co-ops, and in defending workers' rights within the self-managed firm. However, commercial viability in the competitive world of the 1980s and 1990s has forced Italian co-ops to evolve considerably. First, the spread of new technology outside of the co-operative sector has forced co-ops to change their own production systems, which traditionally relied heavily on the specialised skills of master craftsman ('artigiani'). To an increasing extent, these workers are being replaced by computer-driven production systems. Second, in a highly consumer-oriented society like contemporary Italy, advertising and marketing have become a vital part of successful commercial enterprise. As a result, co-ops have been forced to set up marketing departments with a totally different set of personnel than those working on the shopfloor, and often in an urban location distant from the point of production. These marketing specialists usually come from very different social backgrounds than the shopfloor workers, who, for the most part, they rarely see at all. This has substantially decreased enterprise solidarity, which, in turn, has prompted managers, technicians and marketing personnel to demand greater pay differentials and prerogatives in the firm's decision-making processes. 
As in Yugoslavia, it has been found that in Italian co-ops managers and technicians tend to enlarge their sphere of power and influence at the expense of the authority of the Workers' Council. This has become an urgent problem in the larger Italian firms, which, over time, may develop hierarchical management structures that do not differ significantly from private firms. When attempting to survive in a sea of capitalist enterprises, however, the logic of the market often demands such discipline. Mark Holmström presents the issue this way:
In principle everyone sees the need to put the market first. In practice this goes against the grain and the tradition of a producer co-op, the pride in fine work, the respect for technical skill. Now the specialized knowledge that counts is not engineering skill or production technology ... What counts now is marketing skill, a nose for new opportunities and the ability to make useful contacts: things to be learned through wide-ranging experience of the capitalist world. 
Obviously such developments would have horrified William Morris and the Guild socialists. But there seems to be a wide degree of consensus that this is the price of success for co-ops working within predominantly capitalist economies.  Problems arising from the implementation of new technology jeopardising the craftsperson, increased division of labour, the growing importance of marketing and increasing demand for pay differentials are hardly accidental: they show that self-managed firms are constrained to adopt strategies of capital accumulation and to accept the logic of continual expansion and growth. In Italy this has led to the formation of mergers to achieve economies of scale, product diversification for the sake of profits, and other similar measures to keep enterprises afloat. 
Perhaps even more serious for the future of Italian co-ops is the spread of the competitive ethos necessary for market transactions. This has undermined the very thing that initially made Italian co-ops look like the harbingers of a 'genuine third alternative': the feeling of community that pervaded regions like Emilia Romagna where co-ops flourished. In the uncertain political and economic climate immediately following the end of World War II, Emilian workers joined together in a spirit of solidarity and community which gave co-ops their strength. Nazario Galassi reports that co-ops were not merely a means of attaining a certain measure of economic security, but were at the centre of human relationships, even to the point of adding a spiritual dimension to social interaction. But by the 1970s it became necessary to either accumulate capital and expand operations or go out of business. At this point co-ops all over the country were forced to produce for foreign markets and bring in white-collar managers from outside the community instead of hiring local working-class people. This has drastically changed the nature of co-operative production relations. Sooner rather than later Italian co-ops will have to decide whether they wish to work in close contact with the people of the communities in which they are located. If they decide to do this, it will mean returning to the practice of hiring local people, producing for local markets, and generally limiting their operations to the kinds of small-scale activities in which democracy and daily contact between members is once again possible. This will require a political and ideological commitment to resist the pressure to constantly expand operations and find new markets. However, such a redefining of priorities will not necessarily mean a return to parochialism, as we shall see in the conclusion to this book. 
The Mondragon co-ops in the Basque region of Spain provide a good example of how the spirit of community and solidarity can insulate co-ops from the above-cited problems in the Italian movement. The Mondragon co-ops employ approximately 21,000 workers, all of whom are members. They contribute to the production of goods as diverse as machine tools, refrigerators, gas cookers, as well as furniture and building materials. Co-op members have decided that all co-ops which exceed 500 workers should be split up into constituent organisations, with the notable exception of the founding co-op ULGOR, which employs some 2,700 workers. 
In the Mondragon case, what began as a pragmatic attempt to find jobs was transformed into a socio-economic experiment with much wider implications than anyone had imagined. The initial impetus was defiant Basque nationalism in the face of Franco's determination to curb all signs of Basque independence after the Republican defeat in the Spanish Civil War. A radical priest in the town of Mondragon called Father Arizmendiarrieta founded a technical school after his release from prison in an attempt to alleviate economic hardship in the area. In 1956, graduates of the school set up ULGOR, an engineering co-op. The ULGOR success inspired a number of similar ventures offering a range of services, from research and development to social security. One co-op in particular, a bank, gathered savings to create employment by investing money in local co-ops. This bank, the Bank of People's Labour, quickly assumed a dynamic role, providing consultancy, market research, and feasibility studies on proposals for new co-ops. 
The CLP classifies and assesses industrial co-ops by dividing them into five main sectors: (1) founding and forging; (2) capital goods and machine tools; (3) intermediate goods and component parts; (4) consumer goods; (5) building materials. Oakeshott notes that the CLP has been remarkably successful in mobilising the savings of the public for the purpose of local investment. This success would not be possible without the discipline of the co-ops themselves, which have agreed to return 90 per cent of their profit for re-investment rather than consumption. Mondragon co-ops also help solve the perennial problem of co-ops -financing-by insisting on large capital contributions from all new member workers. 
New workers must become members after a six-month probation period, and, as stated, they must contribute a substantial sum on joining. This sum amounts to roughly one year's pay. If the worker is unable to contribute this sum initially, he or she must pay what they can on joining, and then make up the rest in instalments. The difference in pay between shopfloor workers and managers is approximately 3.5 to 1, which means that managers and technicians in the Mondragon co-ops agree to work for considerably less money than their private-sector counterparts. As fixed by Mondragon law, co-op profits are not immediately divided amongst workers, but rather are credited to their share accounts. This sum is then indexed against inflation, and eventually collected in full by the worker when he or she reaches retirement age. In cases where workers decide they want to leave earlier, their share will depend on the reasons given for wanting to leave. In general, however, we can see that Mondragon law provides far more structure to co-op practice than Yugoslav law had done previously. Where Yugoslav co-ops were allowed to determine their own formulae for finding the balance between investment and consumption, Mondragon co-ops must comply with fairly fixed regulations. This structuring implies a certain amount of planning in the Mondragon system that is not found in the other countries we have looked at. 
With the ground rules clearly defined at the outset and the CLP as a reliable source of finance, co-ops in Mondragon have been remarkably successful in terms of providing long-term growth and stable employment to co-op members. Within individual firms the self-management body with final say on internal matters is the General Assembly of All Members. This body elects a management committee from its ranks, the Junta Rectora. The Junta Rectora, in its turn, appoints the firms' chief executive, also known as the general manager. These provisions are set out in detail in the ULGOR statutes, which are highly representative of Mondragon practice as a whole. There are eight separate statutes: (1) provisions to ensure democratic self-government with all authority stemming from the base; (2) provisions to promote efficiency; (3) provisions to promote solidarity between management and the shopfloor; (4) provisions on initial capital contributions by all worker members; (5) provisions on job security and work discipline; (6) provisions on solidarity between co-ops to foster co-ordination between them; (7) provisions on solidarity between both the local community and non co-op workers and firms in the district; (8) provisions to ensure that co-ops remain committed to increasing jobs. 
A Social Council has been created to foster communication between the shopfloor and the democratically accountable management. Its members are elected by the different divisions of a given co-op. The Council performs the role of a trade union in an Italian co-op, that is, protecting workers' interests on health, safety and pay issues. Referring to the eight provisions and the Social Council, Oakeshott describes the general picture thus:
Their rationale can perhaps best be understood as an attempt to harmonize various sets and pairs of interests: of the individual worker member and the co-op as a whole of capital and labour; of the co-op and the local community in which it works; of those who already work in co-operatives and of that potentially unlimited number still outside who, according to the Mondragon philosophy, must be given the chance of eventual membership by an unremitting open door policy of job expansion. Taken together these arrangements are an extraordinarily subtle and imaginative exercise in social engineering which make all other attempts at industrial structure building-whether by the Webbs or Ernest Bader or the Rochdale pioneers - look like artefacts of Stone Age workshops. 
Be this as it may, the most subtle and imaginative social engineering in the world could not compensate for the foundation of social solidarity and strong sense of community that underpins the cooperative economy and militates against the exploitative and divisive forces of market competition. This is a fundamentally important point, for as the picture elsewhere shows, without structures and traditions of a solidaristic Civil Society operating in the background, market forces will tend to create virtually insuperable problems for workers' co-ops. These problems will obviously centre on the perennial question of obtaining initial investment and credit, but will also include wider issues, such as the temptation to leave the co-operative sector for the private sector, where the salaries are almost always higher. Mondragon managers and technicians continue to make the political decision to forego such rewards in order to keep the co-operative economy functioning. Indispensable, in this context, are Basque traditions of local democracy and regional autonomy, Basque music and drinking clubs, and the sense of identity enforced by the still widespread use of the Basque language. It must be emphasised that these features of Basque society preceded the Mondragon experiment, and make such vitally important institutions as the CLP possible. 
The success of the Mondragon economy has in turn enforced established traditions of solidarity. By providing jobs and security, workers committed to the co-operative ideology have been able to stay local and build their lives in the Mondragon community. In the infrequent cases where enterprises have not been successful, the laid off workers have generally managed to find employment with other co-ops. While looking for new work, they are entitled to 80 per cent of their normal income until full-time employment resumes, a figure which exceeds the provisions of most welfare States. Again, the combination of economic success in conjunction with traditional forms of solidarity make such extensive welfare provision possible. Indeed, with CLP support unemployed workers who join new co-operative ventures are not expected to turn a profit for at least two years. 
The political culture which sustains Mondragon, similar in many ways to the post-war communist culture of Emilia Romagna, provides the soil in which producer and consumer co-ops can flourish. It is a culture forged through common experiences and struggle over a long period of time. Its network of social clubs, support groups, and neighbourhood associations constitutes the kind of Civil Society in which a democratised economic system can work for the benefit of the whole community. A strong sense of independence and co-operative values are needed to sustain this kind of Civil Society against attempts at bureaucratisation by the State. Moreover, such consciousness is also necessary to ensure that the centrifugal forces of the market can be contained within their proper limits. Thus it would clearly be wrong to attribute the solidaristic characteristics of the Mondragon system to the existence of the market. As we have seen, the market is often praised for its efficiency in allocating resources, but the market will also produce results that are not compatible with the socialist values of participation and accountability. The key point is this: without the network of social institutions in which it is embedded in the Basque region, the market would have the same effects as it has had in Yugoslavia and elsewhere: regional inequality, class exploitation and political inequality.  Recent theoretical work on Market Socialism has made strong claims on behalf of the market's ability to allocate resources efficiently and to protect consumer interests, but what we already know about markets is that they generate vast disparities in wealth, power and life-chances. In the conclusion of this chapter I would like to address this point in relation to recent market socialist theory.
Concluding remarks: the theory of Market Socialism
The collapse of the Soviet Union and the transition to predominantly market economies throughout eastern Europe has prompted an almost universal cry for the free market as a remedy for the problems of bureaucratisation and tyranny that did indeed characterise the countries of 'existing Socialism'. This demand for the market even managed to find resonance amongst some socialists before the Soviet collapse. Notable, in this context, was Alec Nove's argument for Market Socialism as 'feasible Socialism' in 1983. But the debate on Market Socialism actually has a longer history. In the 1920s the Austrian school of economics led by Ludwig Von Mises launched an attack at the version of a socialist market economy proposed by Oskar Lange. Anticipating the work of Vanek, Lange argued that a socialist society could exist with consumer choice and freedom of occupation, that is, markets for consumer goods and labour, but no market for capital goods. A central planning board would control capital and fix initial prices, which would remain within State control but subsequently fluctuate according to supply and demand. The task that Lange did not himself complete, but bequeathed to his market socialist successors, was to answer such questions as: who establishes new firms in Market Socialism? How do new firms secure investment as they grow, and according to what criteria? How large should firms be? These became pressing questions for market socialists in the 1970s and 1980s, as the planned economies foundered and the industrial democracies struggled with unemployment, inflation and persistent socio-political inequality. 
The publication of Nove's book had the general effect of giving wide currency to the idea that Market Socialism would offer efficiency and consumer choice, on the one hand, and satisfy socialist criteria of just distribution and equality, on the other. With the one-party planned economies in such widespread disrepute, Market Socialism was upheld as the last remaining 'feasible' alternative to State Socialism and the various social democratic variants of capitalism. Yet Nove's work acknowledges that the market brings with it its own set of problems, and that it would be unwise to regard it as some kind of political and economic panacea. David Miller has recently adopted a more unequivocal defence of the market in his Market, State and Community. Miller cites four primary market socialist goals: (1) economic efficiency; (2) checking the power of the State; (3) protection of worker autonomy; (4) more equal distribution of primary income. Briefly stated, the model retains the market as a means of resource allocation, while self-managed enterprises lease capital from the State and public investment bodies. Once established, however, enterprises choose their own strategies for product development, production methods, prices and marketing techniques. Once the competition between worker-controlled firms results in the usual balance of winners and losers, the State steps in to redistribute wealth according to need, and to ensure that no one starts the next round of competition with unfair advantages. 
Yet it is unclear how there will be political support for such redistributive measures in light of the overall thrust of the argument, which is heavily weighted towards sanctioning economic success. From what we know about the political economy of market societies, successful groups in the economic struggle will be well placed to protect their advantages both politically and socially. Thus what appears to be the most recent innovation in political theory actually takes us back to ideas of Marx and Hegel in our introduction. Miller confidently predicts that individuals can associate for the purposes of 'full-blooded' competition in their lives as producers, though somehow they miraculously espouse communitarian values once they leave the workplace. As we noted earlier, Marx remarked that Hegel was correct to perceive that the State/Civil Society division was the hallmark of modernity, but that Hegel was wrong to argue that the problems of Civil Society were resolved in the modem State. Miller's semi-Hegelian view is even more strange in light of his own accurate assessment of the market as an institution:
The market has a structure and a logic, and it pays to go along with them ... The market favours those with conceptions of the good which are centred on the private enjoyment of commodities, or which have non-commodity elements which run with the logic of the market- for instance, those who enjoy competitive success for its own sake as well as for the income it brings. It penalizes those whose conceptions require behaviour that cuts against that logic - for instance, those wanting to pursue time-consuming projects outside the market, or to sustain co-operative relationships (my emphases). 
Neither Nove, Miller nor any market socialists have convincingly shown how this kind of market can be reconciled with socialist positions on equality, democracy and participation. Perhaps part of the market socialist problem is that it has conceded far too much ground to the resurgent liberalism of the 1980s, which championed the market as the precondition of political liberty from the authoritarian State. Thus market socialists did not really question the extent to which the market is efficient in terms of resource allocation, production incentives and relaying information on supply and demand.  On the one hand it has been recognised that after a period of initial growth, command central planning develops rigid bureaucratic political and economic structures that stifle economic productivity. On the other hand, however, it is also mistaken not to distinguish between various forms and extents of planning, and to assume that planning is inherently incompatible with shopfloor initiatives, consumer interests and wider community interests. This point was clearly illustrated by Cole, and it is borne out by the economic planning role assumed by the CLP in Mondragon. We will return to this vitally important point in our conclusion. But I would not want to make the same mistake by placing all market socialists together in the same category. Indeed, a market socialist has recently argued that market socialists will have to face the negative consequences of market competition, such as waste, lack of co-ordination between producers, and the tendency of the logic of the market to invade areas of social life where it is not appropriate. But if these points are to be incorporated into a new and more theoretically coherent model, it will no longer be within the framework of Market Socialism. 
 For the sources of Yugoslav theory and the stated aims of self-management see Kardelj, Democracy and Socialism, pp. 7-10; Zukin, Beyond Marx and Tito, pp. SD-4; Drulovic, Self-Management on Trial, pp. 199-202; Smidovnik, 'Disfunctions', pp. 27-9.
 Vanek, 'Introduction' to Vanek Self-management, p. 35. Perhaps of equal importance are points 11 and 12. which stress that self-management is more than a set of economic premises, but rather an entire philosophy of education and politics which aims at advancing our understanding of democracy beyond the terms offered by concepts like Socialism, Communism and capitalism (p. 36).
 Holmström, Industrial Democracy in Italy, p. 68. Thornley remarks that former Lega chief S. F. Carpanelli's view is that the co-op movement did not create the capitalist system, but has no choice but to work within it. She writes: 'As businesses which are competing in this system, co-operatives are primarily a sector of the economy and not a force for building socialism.' See Thornley, Workers' Co-operatives, p. 158. For Carpanelli's and other views on the Italian movement, see Carpanelli, L' autogestione nell'industria.
 Holmström, Industrial Democracy in Italy, pp. 7-8. The CLP was founded in 1959 as a credit co-op. It was designed to provide financial, technical and social assistance to those co-ops associated with the bank as well as to individuals. For a detailed analysis of its functioning, see Thomas and Logan, Mondragon, pp. 76-7.
 Oakeshott, The Case for Workers' Co-ops. pp. 186-7, and p. 204. Oakeshott notes that there is a slight complication in all this, due to the formation in 1966 of the ULARCO federation of co-ops next to the ULGOR co-ops within the umbrella of Mondragon co-ops. However, he adds, the ULGOR arrangements are still representative of Mondragon practice as a whole, and continues to constitue a good general model.
 That in fact the market is not efficient in these matters has been cogently argued by O'Neill in 'Markets, Socialism and Information', pp. 206-10. See also O'Neill's 'Exploitation and Workers' Co-operatives', p. 234.
 Thus Frank Roosevelt concedes that 'With resources often idle at the same time as there are unfulfilled human needs, a market economy can be said to be both irrational and wasteful.' See Roosevelt, 'Marx and Markets', p. 515.
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