Why co-operatives provide a great group dynamic for freelancers

This week I have spent a fair bit of time participating in the formation discussions for a co-operative of current and aspiring coding freelancers. If you had told me as I left finance law a couple of years ago that I would start a co-operative, I might have laughed or I might have asked you what a co-operative was. While I haven’t completely let go of my capitalist ways, I have recently been seeing some of the virtues of alternative structures for economic activity. This article is about those advantages — specifically for a group of freelance coders.

So how did I get here?

Those who follow me (who am I kidding? I mean those who saw me spamming previously) may remember that my previous article was about how I coped with rejection from a coding bootcamp called Founders and Coders. In recent months, while working on a prototype for my own tech start-up (more on that in the future), I have had the pleasure of working regularly with a great group of coding learners. Unfortunately, a number of my fellow coders have found themselves in the position I was writing about— receiving a rejection from Founders and Coders.

So I now find myself in a loosely associated group of people who are highly motivated to learn many of the same technologies I am experimenting with myself. Why not just continue what we are doing? We are providing each other with great moral and technical support, we are guiding each other to helpful resources and the only organisation required is the occasional WhatsApp message to see who will be in the library and when.

The short answer is that our group includes experienced and aspiring freelancers. We don’t just want to share educational resources. We want to share (and maybe even source) work together.

What is a co-operative and how does it differ from more common corporate structures?

Before considering why a co-operative might be favourable to a normal corporate structure for this kind of endeavour, I’m sure more than a few of you will need a refresher on what a co-operative is (I certainly did). According to the International Co-operative Alliance:

A co-operative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly owned and democratically-controlled enterprise.

So far none of the principles I’ve seen have involved holding other people’s wrists…

In English, that means a group with a common purpose that is owned and controlled by its members. So far, so good, but how does this differ from the other (more common) corporate structures you are likely to come across in the UK?

1. Democratic Control — the second principle that expands on the ICA definition of a co-operative is that a co-operative (including the distribution of its shared funds) should be democratically controlled by its members. This is typically interpreted as one member, one vote. Contrast this to a typical hierarchical corporate structure, where a small number of directors/partners make management decisions and shareholders (who may be completely unrelated to the management and the workers) make strategic decisions that, in each case, affect a far larger number of workers.
2. No entitlement to co-operative capital — one of the hardest aspects of any business is how a participant is to be compensated on winding-up or during succession. Partnership agreements have extremely long and complex sections on the payments that need to be made and in which circumstances. Start-up constitutional documents will invariably include good and bad-leaver variants of rights relating to share transfer and distributions. Co-ops take a different approach — members are not entitled to the co-operative’s capital and only receive limited compensation (by way of dividend or interest) for their initial contribution to it. This makes it very easy for membership to change and for the co-operative to continue unharmed.
3. Voluntary and Open membership — the first principle expanding the ICA definition of a co-operative is that membership should be voluntary and open to all. You can set qualification requirements for membership (e.g. a certain skill level or a certain amount of experience), but in no circumstances can membership be refused on the basis of gender, social, racial, political or religious discrimination. Combine this with their flat, democratic decision-making structure, co-operatives effectively wave goodbye to glass ceilings.

Why do photos of glass ceilings always look so pretty?

There are more principles relating to the co-operative form (7 in total) and other aspects of their structure that make them differ from a typical corporate form. If you are interested in learning about them, check out the ICA website.

Why don’t we see co-operatives everywhere and why are freelancers different?

So far we have looked at what a co-operative is and some of the ways in which it differs from a typical corporate structure. The differences, from a fairness standpoint at least, seem to point to a number of advantages of co-operatives. However, it remains a fact that (in the UK) co-operatives represent a very small percentage of economic activity.

Some of this is undoubtedly historical, but there do seem to be a couple of good reasons why the corporate form has prospered over co-operatives:

1. The need for risk capital — if an enterprise requires significant capital and involves significant risk, the workers may not be able to contribute the capital required. Even if they could, the principles regarding the economic participation in co-operatives may not offer enough of a reward to encourage the risk. If a business is capital intensive, the corporate structure with the associated capital markets seem to offer many advantages.
2. Democratic management at scale and with differing expertise — there are two potential problems with democratic management. The first is that it becomes unwieldy as you scale up. If there is a lot to manage then workers will end up spending a lot of time making decisions and preparing to make decisions (reading relevant reports etc.). At a certain point a management structure will need to be installed (although this is likely to be on an elected basis). The other problem is where a variety of expertise is required in an enterprise. Democratic decision making in such an instance may take power away from those who are best placed to make a decision. Neither of these problems are insurmountable, but the structures that will be required to alleviate them for the most part mimic their corporate cousins in a manner which dilutes the democracy.

OK, so not all freelancers involved in web design will see eye to eye, but you get my point!

Interestingly, these advantages of the corporate structure don’t seem to apply to a group of freelance coders and web designers. We don’t need significant capital — at most we will require a web presence and some office / event space (and to begin with we won’t even need that). We also won’t face the problems with democratic management, as most management will be at a project level where teams will be smaller and in all cases the members will have overlapping (if not completely shared) expertise.

Convinced?

If, like me, you’re now interested in learning a bit more about co-operatives there are some great resources out there. A few that I have been using are the ICA website and The Hive. Feel free to leave links to others you find in the comments.