Asset Price Fluctuations

In the current model, members appropriate both earned and unearned profit. All earnings or losses from asset price fluctuations are appropriated by the members of the cooperative. This can have a disproportionately large impact on member investments (internal capital account), if the aggregate member investments are a small fraction of the total coop assets. This leverage amplifies the effect of price fluctuations on member investments. The only two accounts which can bear losses are the internal capital accounts and the collective reserve account. Debt and preferred equity are fixed value investments to which no losses can accrue.

The issue is one of scale. It is currently unrealistic for the value of an internal capital account to be a large multiple of a member’s annual compensation. (Many member buy-ins in the United States consist of a token contribution and are nowhere near a member’s annual income.) Yet big businesses have assets per capita that can fluctuate on a significantly larger scale. Take the following companies’ total assets and total employees, and compare the equivalent assets per member if they were a worker cooperative. Data are from mid 2009, but the magnitudes which haven’t changed meaningfully still illustrate the point.


Business Assets Employees Assets per member




General Electric








Exxon Mobil




Dow Chemical




Bank of America








Coca Cola




Note that the assets per member are not the internal capital account investments each member would make in a worker coop. Most of the financing at that scale would come from external debt and preferred equity investments. There would probably be a relatively small amount in the collective reserve account. The problem is that members would be liable to cover asset price fluctuations on a large amount of assets. A small percentage drop in asset prices can create a sizable member loss, even if a portion of that loss was absorbed by the collective reserve account. Many large companies have investments in their suppliers and distributors, which would likely be subject to market fluctuations. This problem is mitigated because not all assets are marked to market, and therefore not held on the book at fair market value.

Consider the results of a ten percent drop in asset prices. In several of these cases members would become responsible for losses over $100k each. These non-labor losses would be outside of the members control. This makes some asset intensive businesses unsustainable under the current model. There is also the problem that asset price fluctuations are not always modest in scale.

The current structure creates a disadvantage for an asset intensive worker cooperative, when the cooperative requires a significant outside investment compared to the capital contributed by the members. Any such coop will be highly leveraged, in the sense that the capital that can absorb losses is a small fraction of the total assets. Highly leveraged businesses are inherently unstable. This is one of the reasons few asset intensive cooperatives exist. The problem is even more acute for an asset intensive startup where the collective reserve account has not yet been funded and cannot help absorb a loss.