On the stability of the cooperative type of organization

The stability of producer cooperatives in market economies is analyzed in a dynamic context. It is shown that, when permitted to hire wage laborers, a producer cooperative, even if its labor productivity is higher than in an otherwise equivalent capitalist firm, is likely to lose its cooperative character because members' personal income will be maximized when "expensive" members are replaced by "inexpensive" wage-laborers. Producer cooperatives will maintain their organizational character best when they operate in a marginal industry where cooperation enhances members' productivity so that their earnings exceed their opportunity wages. In general, competitive markets for membership are not a sufficient condition to prevent the transformation of cooperatives into capitalist firms.