The Degeneration Debate: Strategical Considerations for the Worker Co-operative Movement
The Degeneration Thesis
The “degeneration thesis,” as it came to be known, was formulated by Beatrice and Sidney Webb, Fabian socialists and founding figures of the British Labour Party and weekly magazine The New Statesman. According to the thesis, there is a trade-off between workplace self-governance and efficiency: firms that are more efficient are more likely to survive and grow. But in so doing, they often move away from the ideal of democratic self-management. This article offers a critical analysis of the degeneration thesis and outlines some strategic considerations for the worker cooperative movement in response to it.
In Chapter VIII of the “Special Supplement on Co-operative Production and Profit-sharing,”[1] published in The New Statesman in 1914, the Webbs discuss the ill-success of the associations of producers that proliferated in the late nineteenth century. There, the crux of the degeneration thesis is expressed in the following way:
[T]hose societies which have had any marked financial success, or have grown to any size, prove, for the most part, to have departed considerably from the form of Self-governing Workshop — to such an extent, indeed, that it is not far off the truth to say that the chance of success seems to increase the further that form is left behind![2]
The failure of the associated producers, the authors infer, is due to the institutional form of the self-governing worker cooperative itself, which suffers from three shortcomings that militate against efficiency:
Lack of Workshop Discipline
First, they suggest that a lack of workshop discipline arises from the fact that those workers who the manager supervises are simultaneously the manager’s employers: “[I]t does not do for those who have in the workshop to obey the manager to be, as committee-men, the direct employers of the manager.”[3] Shopfloor decision-making power results in lower workplace discipline, according to the Webbs, and this negatively impacts efficiency. However, the authors suggest that this drawback might be overcome by education and goodwill.
Lack of Market Knowledge
More serious, they believe, is “the almost necessary ignorance of the manual working producer with regard to the market for his commodities.”[4] While capitalist entrepreneurs are always looking to discover what customers desire and what they are going to desire, the Webbs suggest that manual labourers are almost necessarily ignorant of the market for their commodities. This perceived ignorance, it is implied, fundamentally limits the capacity of workers to effectively navigate and compete within a capitalist market system.
Resistance to Change
Finally, the authors propose that producers are resistant to change, whether it be in the form of a new material, a new process, a new machine, or a new commodity. “His very absorption in his own specialty, which has given him his high degree of technical skill,” they argue, “stands in his way when it is a matter of discerning and recognising the advent of a new alternative.”[5] The producer is “naturally” and “inevitably biased against a change which will be apparently to his disadvantage.”[6] Thus, democratic workplaces, they suggest, tend to be less efficient than their traditional capitalist counterparts because workers are resistant to innovation.
In summary, the degeneration thesis holds that worker cooperatives, particularly self-governing workshops, are less efficient than traditional capitalist firms because worker control over production reduces workplace discipline, limits responsiveness to changes in the market, and militates against innovation. While some issues might be mitigated by education, the authors suggest that these structural features limit the viability of the self-governing cooperative institutional form.
Critical Response
Yet, subsequent research and empirical evidence call many of these claims into question. After examining the degeneration thesis, we now turn to critiques of the Webbs’ claims.
Comparative research challenges the idea that worker reluctance to obey managers undermines output. In a study conducted by Dr. Virginie Pérotin at Leeds University, it was found that worker-owned firms are at least as productive as, and often more productive than, conventional small and medium sized enterprises (SMEs), particularly in labour-intensive industries but also in capital-intensive ones. This higher productivity likely arises from factors exclusive to cooperatives, such as higher job-satisfaction, greater worker engagement and lower turnover, since cooperatives are less likely to lay off employees during economic downturns. Far from undermining discipline, democratic workplace governance seems to foster a stronger commitment to achieving goals, as workers understand the benefit that their work provides to the community.
Regarding “a lack of requisite knowledge of the market,” the Webbs’ claim that manual labourers are ignorant of market dynamics may have had merit in their time. In the twenty-first century, however, widespread education and literacy have undermined the legitimacy of such arguments. Employees of worker cooperatives are often as, or more, educated than employees of SMEs and can allocate specialized roles, such as marketing or data analysis, within the cooperative structure.
Finally, concerning “a lack of alacrity in the change-making process,” the Webbs argue that workers managing the same tasks they perform could impede willingness to change processes. In reality, however, cooperatives are often more likely to adopt new technologies and business innovations than conventional SMEs, in part because workers collectively bear the risks and rewards of innovation. Estrin, Jones, and Svejnar note that cooperative participatory structures can accelerate innovation adoption, since workers are directly involved in decision-making and can ensure new technologies integrate smoothly into existing workflows. Furthermore, because cooperatives are less prone to short-term pressures from external shareholders, they can invest in long-term improvements that enhance lasting benefits.[7]
In summary, empirical evidence addresses each of the Webbs’ criticisms:
Co-ops tend to be more productive than standard SMEs, especially in labour-intensive industries, and often in capital-intensive ones.
Workers today are more educated and can leverage the division of labour within the co-op to manage specialized tasks like marketing or data analysis.
Co-ops tend to adopt technical change more readily than standard SMEs.
Countermeasures
The success of cooperatives operating within a capitalist economy depends on the adoption of certain practices that support their viability and help mitigate the risk of degeneration. According to the literature, the most important strategy the worker cooperative movement should consider is integration into the broader labour movement. As Egan suggests in his comparative review of historical cooperative movements across Europe and the United States, evidence suggests that the existence of a working-class movement in conjunction with cooperatives to support them both ideologically and tangibly greatly increases the chances of success for those firms. According to Egan “cooperatives existing in the context of a strong, politically active labour movement are as a whole better able to maintain their democratic organization character than their counterparts in unmediated market-capitalist social formations.”[8]
Transition to Political Cooperatives
Strategies that support cooperative viability, such as worker engagement, education, and integration into the broader labour movement, are limited if they do not take into account the enduring structural pressures imposed by capitalist competition. Even when productivity, market knowledge, and innovation are managed effectively, and cooperatives are integrated into the labour movement, competitive markets impose persistent pressures to reduce costs.
This structural compulsion imposes a tension between democratic self-management and enterprise viability. Insofar as cooperatives operate within a competitive system and treat the system as a “constant” rather than a “variable,” they are pressured to internalise capitalist imperatives, often at the expense of their ethical and democratic principles. If such principles are held as non-negotiable constants, however, and the competitive market is understood as variable, the implication is revolutionary: cooperatives emerge that do not simply adapt to the market but seek to transform it. In this light, cooperatives understand themselves as transitional forms within a larger movement. They become more than democratic enterprises: they become political actors engaged in a struggle to transcend the competitive logic of capitalism itself and build a system grounded in cooperation rather than domination.
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[1] Sidney Webb and Beatrice Webb, “Special Supplement on Co-operative Production and Profit-sharing,” The New Statesman, February 14, 1914, vol. II, no. 45, 20-21.
[2] Webb and Webb, “Special Supplement,” 20.
[3] Webb and Webb, “Special Supplement,” 21.
[4] Webb and Webb, “Special Supplement,” 21.
[5] Webb and Webb, “Special Supplement,” 21.
[6] Webb and Webb, “Special Supplement,” 21.
[7] Saul Estrin, Derek C. Jones, and Jan Svejnar, “The Productivity Effects of Worker Participation: Producer Cooperatives in Western Economies,” Journal of Comparative Economics 11, no. 1 (1987): 40–61, https://doi.org/10.1016/0147-5967(87)90040-0.
[8] Daniel Egan, “Toward a Marxist Theory of Labor-Managed Firms: Breaking the Degeneration Thesis,” Review of Radical Political Economics 22, no. 4 (December 1990): 76, https://doi.org/10.1177/048661349002200405.
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Bibliography
Egan, Daniel. “Toward a Marxist Theory of Labor-Managed Firms: Breaking the Degeneration Thesis.” Review of Radical Political Economics 22, no. 4 (December 1990): 67-86. https://doi.org/10.1177/048661349002200405.
Estrin, Saul, Derek C. Jones, and Jan Svejnar. “The Productivity Effects of Worker Participation: Producer Cooperatives in Western Economies.” Journal of Comparative Economics 11, no. 1 (1987): 40-61. https://doi.org/10.1016/0147-5967(87)90040-0.
Jones, Ernest. “A Letter to the Advocates of the Cooperative Principle and to the Members of Cooperative Societies.” In Marx and Engels Collected Works, vol. 11 (1851): 573-581.
Olsen, Erik K. “Worker Cooperatives and Post-Capitalism.” In Radical Political Economics: Principles, Perspectives, and Post-Capitalist Futures, edited by Mona Ali and Ann E. Davis, chap. 17. New York: Routledge, 2025.
Pérotin, Virginie. What Do We Really Know about Worker Cooperatives? Manchester: Cooperatives UK, November 19, 2018.
Webb, Sidney, and Beatrice Webb. “Special Supplement on Co-operative Production and Profit-sharing.” The New Statesman, February 14, 1914, Vol. II, no. 45.
What is a Co-op?
A cooperative (also known as a co-op) is a purpose-driven, democratically governed business owned and managed by the people who work in or benefit from it. Unlike traditional businesses that rely on external shareholders or top-down executive decision-making, co-ops are governed by democratic processes. Members may, for example, elect representatives to management and leadership positions, ensuring that the organization remains accountable to those directly involved in its activities. By fostering shared ownership, mutual support, and participatory decision-making, cooperatives can both meet immediate needs and serve as the seeds for a more just, inclusive, and democratic society.
Types of Cooperatives
Worker Cooperatives – Worker cooperatives are businesses owned and democratically controlled by the workers themselves. Those who produce goods and services are the same people who make decisions about the direction, management, and governance of the organization.
Consumer Cooperatives – Consumer cooperatives are organizations owned by the consumers who use their services. They access goods and services at better prices and have a say in the operations of the co-op.
Producer Cooperatives – Producer cooperatives are made up of independent producers, such as farmers and artisans, who collectively market and distribute their products to to reduce costs, access larger markets, and increase their collective bargaining power.
Financial Cooperatives – Financial cooperatives are member-owned financial institutions that provide savings accounts, loans, and other banking services while returning profits to members instead of external shareholders. Credit unions, for example, are a common type of financial cooperative.
Multi-Stakeholder Cooperatives – Multi-Stakeholder Cooperatives bring together different groups for shared benefits. Multi-Stakeholder Cooperatives are co-ops that unite diverse stakeholders, such as workers, consumers, and producers, to balance interests and build strong, community-centered enterprises.
The Seven Cooperative Principles
Cooperatives operate according to seven internationally recognized principles, which balance economic goals with social values.²
Voluntary and Open Membership
Democratic Member Control
Members’ Economic Participation
Autonomy and Independence
Education, Training and Information
Cooperation Among Cooperatives
Concern for Community
A Example: Ocean Spray
One of the most well-known cooperatives is Ocean Spray, an agricultural co-op based in Massachusetts, USA.
With over 700 farmer-members, Ocean Spray represents over 70% of North America’s cranberry production. It exemplifies the economic power and collaborative potential of the cooperative model while ensuring fair participation and shared benefits among members.
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¹ Strategy and Innovation Policy Sector, “Government of Canada,” Co-operatives in Canada, January 30, 2025, https://ised-isde.canada.ca/site/cooperatives-canada/en/understanding-co-operatives-how-they-work-typesand-contributions#s3.
² International Cooperative Alliance, “Cooperative Identity, Values & Principles,” International Cooperative Alliance, accessed July 7, 2025, https://ica.coop/en/cooperatives/cooperative-identity.
Cooperative Success: Three Forms of Democracy in Cooperatives
There are three ways workers in cooperatives tend to govern themselves democratically. They may opt to take bits and pieces from one structure or another, combining aspects of different structures to form a hybrid. However, generally, the modes of governance are …
There are three ways workers in cooperatives tend to govern themselves democratically. They may opt to take bits and pieces from one structure or another, combining aspects of different structures to form a hybrid. However, generally, the modes of governance are:
Hierarchical
Typical of large organisations, hierarchically structured cooperatives appoint representatives for democratic purposes. This is a form of representative democracy. This method allows members of large cooperatives to express their interests and views efficiently, without the challenge of a complicated voting process.
The voting process of a hierarchical cooperative is typically as follows: “worker-members elect the board-representative workers; the board hires the manager; and the manager supervises the worker-members and non-member employees.”¹ While the Chief Executive Officer (CEO) or General Manager (GM) usually exercises significant authority within the organisation, the overall balance of power differs significantly from that of conventional firms.
In hierarchically structured worker cooperatives, individual power may be diluted depending on the position the individual holds within the cooperative. Members often have limited decision-making power beyond electing the board and ratifying major decisions at annual or special meetings.² While this helps maintain the overall effectiveness of the board of directors and membership oversight — since political factions may compromise efficiency in larger organisations³ — critics argue that it represents a departure from core cooperative values.
This model faces challenges because managerial power can become concentrated, requiring both informal and formal mechanisms, such as active labour unions, to balance this power dynamic. Labour unions often act as a collective voice to support worker interests and have historically partnered with cooperatives to counterbalance management authority. Such union-cooperative alliances serve as a political and practical antidote to managerial overreach.
In large cooperatives, the dilution of individual decision-making power and the presence of political factions can complicate effective democratic governance. These complexities highlight that representative governance, while efficient, can sometimes undermine the ideal of equal member influence.
A widely cited real-world example of a hierarchical cooperative is the Mondragon Corporation in Spain. It features a multi-tiered governance structure, including a General Assembly of worker-members, a governing council, and executive leadership. Although hierarchical in structure, Mondragon integrates worker representation and cooperative values at every level.
Collective
Practical in smaller cooperatives, the collective approach ensures that every individual member’s vote carries the same weight — not only in formal governance, as in all worker cooperatives, but also in day-to-day decision-making processes, which are shared equally among all members.
Workers participate in a non-hierarchical, egalitarian model of collective governance. Instead of appointing members to a board of directors or group of managers, and concentrating power among a select few, collectives include every member in the decision-making process. No decision can be made unless all members of the cooperative agree with the proposal. Such a model is built upon consensus, meaning that decisions are not made by majority vote but through a process of inclusive deliberation.
Some models of collective governance allow for consensus to be reached even in the presence of dissent from one or two individual members. These modified approaches are referred to as “consensus -1” or “consensus -2,” respectively. The collective model represents egalitarian democracy, sitting at the other end of the continuum from hierarchy.⁴
Typically, worker cooperatives that operate under the collective form of governance are quite small, with around thirty members or fewer. This is due to the logistical difficulty of achieving consensus within large groups. Significantly, members of the collective participate in the daily administration of the enterprise, determining things such as working conditions, pay rates, and benefits.⁵
In many collective cooperatives, members form sub-groups or committees to manage specific functions and tasks, ensuring that governance is participatory through a division of labour. This structure supports high levels of member engagement and accountability but can become impractical as the cooperative grows larger.
In cases where consensus breaks down or becomes unproductive, collectives may adopt rotating facilitation roles, mediation protocols, or fallback voting procedures to maintain decision-making capacity while still honoring egalitarian principles.
Examples of collective governance include Red Emma’s in Baltimore and The Cheeseboard Collective in Berkeley. These organisations function without traditional management structures, relying instead on full consensus and shared administrative responsibility.
Sociocratic
Originally coined by Auguste Comte in the 1850s to describe a society governed by scientific and moral experts, the concept of sociocracy was significantly reinterpreted by Gerard Endenburg in the 1980s as a practical method of participatory and democratic governance. It is a hybrid of hierarchical and consensus-based decision-making models. This model has been applied to the cooperative context by practitioners seeking alternatives to traditional hierarchical organisational structures. It refers to a system of governance in which “those who associate together govern together.”⁶
In the “sociocracy circle method,”⁷ work is divided into “domains,” with each domain representing an area of responsibility and decision-making authority within the business. Each domain is governed by a circle, a semi-autonomous group responsible for making decisions and coordinating work within that domain. Decisions within circles are made by consent (not consensus), meaning a proposal is adopted when no member has an objection to it.
Circles are typically organised in a nested structure, where broader circles delegate authority to more specific circles. For example, within the marketing domain there might be a marketing circle responsible for overall marketing strategy. This circle might delegate specific responsibilities to sub-circles, such as a social media circle, and that circle might in turn delegate more specialised responsibilities to circles focused on different social media platforms, such as LinkedIn and Facebook. Simply put, a functional hierarchy exists in sociocracy.
One widespread term that is often used in the literature is “circular hierarchy,”⁸ where interconnected circles govern through mutual accountability. Each circle has a top-down and a bottom-up relationship with another circle at the same time, which is referred to as “double-linking.” The top-down link is the leader (appointed by the higher circle) who oversees operations in the circle and carries information from the wider organisation into the circle. The bottom-up link is the delegate (elected by the sub-circle) who brings the voice of the circle to the wider organisation by attending the parent circle.⁹
Circles attempt to make as many individual decisions as possible at the smallest level each day to maximise efficiency and effectiveness within the organisation. Those who believe in sociocracy’s effectiveness believe that the authority in decision making should belong to those who directly do the day-to-day work associated with that decision.¹⁰
The legal structure of sociocratic cooperatives often requires a board of directors composed entirely of members, ensuring that all formal governance aligns with the cooperative’s membership decisions. Importantly, sociocracy separates the hierarchy of work (task specialisation) from the hierarchy of decision-making power, which remains distributed equally across circles.
Sociocracy is increasingly popular among tech-oriented or distributed cooperatives such as Loomio (New Zealand) and Outlandish (United Kingdom). These cooperatives rely on digital tools and dynamic governance to facilitate decisions across teams.
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¹ John A. McNamara, “Humanism and Democracy in Worker Cooperatives,” in Humanistic Governance in Democratic Organizations: The Cooperative Difference, ed. Sonja Novković, Karen Miner, and Cian McMahon (Cham: Palgrave Macmillan, 2023), 121–142.
² U.S. Federation of Worker Cooperatives, Co-op Clinic Mini-Guide: Structure and Decision-Making (Philadelphia: U.S. Federation of Worker Cooperatives, 2021), https://www.usworker.coop/wp-content/uploads/2021/10/Co-op-Clinic-Mini-Guide-Structure-and-Decision-Making-EN.pdf.
³ McNamara, “Humanism and Democracy,” 126.
⁴ McNamara, “Humanism and Democracy,” 129-30.
⁵ McNamara, “Humanism and Democracy,” 129.
⁶ Ted Rau, “Circles in Sociocracy: An Effective Organizational Structure,” Sociocracy for All, December 2019, https://www.sociocracyforall.org/organizational-circle-structure-in-sociocracy/.
⁷ McNamara, “Humanism and Democracy,” 130.
⁸ Sociocracy For All, “Circular hierarchy,” image, Sociocracy For All, accessed June 27, 2025, https://www.sociocracyforall.org/circular-hierarchy/.
⁹ Rau, “Circles in Sociocracy.”
¹⁰ Rau, “Circles in Sociocracy.”