Co-operatives have often been promoted as a viable alternative to traditional businesses, but stubbornly remain a niche sector.

Advocates put this down to a lack of financial and business support, awareness and tax treatment. The truth is, in my opinion, co-operatives don't provide the right incentives for entrepreneurs.

The logic for co-operatives goes like this. Co-operatives provide better incentives for workers to join than the average firm: they have a say in the running of the business, and a slice of the profits generated. And if a company has better workers, they generally do better. If the logic is right, we should see more successful co-operatives.

Indeed the very reason John Lewis (one of the largest co-operatives in the UK) is so successful is because it is employee-owned. The fact that employees have a say in the way the company is governed and receive a generous share of the profits each year, is clearly no small part of their success.

So why aren't there more co-operatives? The answer can be found at the early stages of starting an organisation.

All organisations require an individual, or a small number of individuals, to take a huge personal risk when they start up. For businesses, this risk is rewarded by financial returns if the company is successful. For charities or social enterprises, the risk is often rewarded with public recognition for your work.

Co-operatives don't provide any of these incentives. The ethos of co-operatives is one of equality, both in recognition and financial rewards. This is antithetical to the start-up culture that produces the largest and most successful businesses and charities.

And we can see this in the largest co-operatives. John Lewis was only given to the employees once it was an established business. The large healthcare mutuals spun out of the NHS started within public services. The Co-operative Group is a consolidation of small, sub-scale co-operatives. It is almost impossible to think of a large co-operative that began as a start-up in the normal sense of the word.

That being said, there is something in the idea that individuals, whether customers or employees, should be given a financial stake in businesses. This drives loyalty, productivity and makes for happy workers. It also feels like a fairer way to distribute the profits of a company. But co-operatives aren't the answer.

What I would like to see are more ways for people to participate in the success of small and medium sized businesses. It's a good thing when employees have the right to buy shares in a company or can lend money to a company when it needs capital. And its great when customers can share the success they create by investing. These are both easier and better than the co-operative structure.

All of these things can be accomplished without having to resort to employee ownership. The reason co-operatives remain, and will remain, sub-scale is not because of lack of support, awareness, or appropriate legal structures. It is because they stifle the entrepreneurial spirit that creates the most successful organisations.

Jonathan Godwin is executive director at Community Capital.

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