Published on April 28, 2025 2:19 PM GMT
In my last post, I argued that worker co-ops can help restore declining social trust. But a common objection I keep hearing goes something like this:
Worker co-ops seem basically equivalent to a firm that gives its employees stock—but then permanently blocks them from selling it. Isn't that harmful? The ability to sell your shares is valuable. You might want to diversify your investments, liquidate shares to make a big purchase (like buying a house), or avoid having all your financial eggs in one basket. Why force workers to hold their shares indefinitely? If they really wanted to keep them, they could just choose not to sell.
At first glance, this objection feels logical. After all, publicly traded companies usually let people buy and sell their stock freely, giving investors plenty of flexibility. So, wouldn’t preventing workers from selling their shares in a co-op be bad for them?
But there are a few important details missing from this framing — let's unpack them step by step.
1. Most workers don't own much stock in traditional companies
So first of all, this objection doesn’t work for companies that are not publicly traded.
Secondly, even if employees do buy stock, employers have an army of lawyers and much more bargaining power than the employees, so they often pull contract shenanigans.
Lastly, while, in theory, nothing stops a regular employee at a publicly traded company from buying stock, in practice, most stock ownership is heavily concentrated among wealthy individuals. Workers usually don't own a significant percentage of the stocks. But worker co-ops fundamentally change this dynamic by giving employees shares directly, making stock ownership accessible and widespread, not just limited to wealthy investors.
2. We should distinguish between voting shares and non-voting shares
There are two kinds of shares:
- Voting shares: These shares give employees actual decision-making power within the company—allowing them to vote on important decisions. Crucially, co-ops do not allow these shares to be sold to outsiders, because if voting shares could be sold freely, external investors could eventually gain control, and the co-op would revert to being a regular capitalist firm.Non-voting shares: These shares provide financial benefits like dividends and can often be sold, allowing workers to access financial liquidity, diversify their investments, or buy a house. The crucial difference here is that the workers themselves (through their voting shares) control the rules around selling non-voting shares—making sure that financial flexibility doesn't compromise their ownership or control.
Compare this to traditional firms, which rarely offer meaningful control to employees. Employees might receive shares as part of their compensation, but these shares are usually non-voting. This means employees have no real say in company decisions, including crucial financial decisions like issuing new stock.
3. Why dilution matters (and how co-ops prevent it)
A common issue in traditional companies is something called ‘dilution’. Dilution happens when a company issues more shares, reducing the ownership percentage of existing shareholders. Think of it like owning a pizza: if someone suddenly cuts your pizza into smaller slices and gives some slices to someone else, your share of pizza is now worth less—even though you didn't do anything. Companies often dilute shares to raise money or grant new stock to executives or investors, and employees typically have no control over this process. Dilution can dramatically reduce the value of shares held by regular employees.
In a worker co-op, dilution can't happen without employee approval, because the employees hold voting shares and therefore control any decision about issuing more shares. This structure protects worker-owners from suddenly finding their shares becoming worthless or diluted without their consent.
You can read a fourth, more technical/academic argument on my blog
Discuss
