What is the solution to the horizon problem in cooperatives? And does such a problem actually exist?

There is a classical narrative in academia that worker-managed cooperatives operating within a market economy suffer from the problem of creating too little long-term investment and too little employment, ultimately resulting in overall inefficiency. The reason given is that, unlike traditional firms, cooperatives are said to maximize income per worker rather than total net income. According to this view, cooperatives may prefer distributing profits to workers instead of reinvesting them. Therefore, the key question is: are cooperatives less successful than traditional firms at increasing their total profits in the long run?

A study of Italian wine companies between 2009 and 2018 claims that traditional firms increased their revenues by an average of 12.8 percentage points annually, whereas cooperatives increased their revenues by an average of 8.6 percentage points. Let me say from the beginning that, in my view, the growth difference in this example is not caused by maximizing income per worker, but rather by cooperatives’ difficulties in obtaining financing. However, let us first start from a purely theoretical level.

1) I accept that if investment and employment decisions were made entirely through voting, such a problem could perhaps occur (although this is not certain). However, if cooperatives have rules written into their bylaws that require gross profits or net profits to be reinvested into physical capital, then this horizon problem disappears. Moreover, when physical capital is reinvested, it generally requires labor to be used alongside it. A new bus can be driven by a new driver. Workers would also want employment to be maintained in order not to lose the money sacrificed for this mandatory reinvestment. In short, it is crucial that a cooperative has an automatic reinvestment mechanism. For example, in Yugoslavia, there was no strict reinvestment rule like in modern cooperatives, and one of the reasons for stagnation was insufficient capital investment.

2) I have theorized this refined solution, but it is only a thought experiment. So why are capitalist firms willing to increase physical capital, total profits, and employment more rapidly? First, because the capitalist firm’s owner is a long-term owner. However, in cooperatives, workers both manage the cooperative and also have to change jobs eventually. A worker may think that they will eventually leave and therefore will not receive the long-term benefits of the cooperative’s growth.

One could consider restricting job mobility and making the labor market tighter here, but that would harm economic efficiency by weakening the mechanism through which labor moves toward more productive places.And the solution is not actually to convince workers to stay by delaying their dividends, because you could already achieve this through regulations, and if you delay dividends even further, the labor market would still become inefficient.

Second, the capitalist is one of a small number of owners of the firm, meaning that new employment does not have the potential to reduce their income; on the contrary, it increases it. However, in cooperatives, workers may not want to trade the revenue generated by the products they produce during the year for long-term depreciation and employment, because the relevant measure is profit per worker.

Therefore, I think a mechanism that solves these two problems believed to hinder cooperative growth would be to keep workers partially responsible for the cooperative even after they leave it. For example, suppose a worker leaves a cooperative. They could remain responsible for the performance of their former cooperative for two years after leaving. If the total profit of the former cooperative grew very little on an annual basis, then the worker could receive their annual profit share from the new cooperative one year later (the deferred dividend income would be paid in real terms, adjusted for inflation)By the way, after a worker leaves the cooperative, they no longer retain any claim whatsoever over the former cooperative’s income or capital.

I do not think this would create an accounting manipulation problem either, because the amount of profit growth of the former cooperative that affects and is reported to the departing worker does not create a problem for that cooperative.

The second solution I have theorized may appear somewhat unconventional but keep in mind that it is only a thought experiment.

What do you think?