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.