Because 99.9% of typical workers don't have the money to build the business.
Take for example, Google Inc. origins in 1998. Both L Page and S Brin came from upper middle class families but neither of their bank accounts nor their parents' bank accounts had $25 million to spend on a business. It's also doubtful if either family could have been approved for a $25m unsecured business loan from a bank. Likewise, Google's first 100 employeees also didn't collectively have $25 million. On the other hand, VCs like Sequioa and KPCB did have $25 million to invest. Later on, more investors bought IPO shares totaling $1.9 billion. There is no union of workers that can pool together that kind of cash.
Since a co-op by definition must be owned by the workers, the question is no longer "interesting" with a mysterious answer. Instead, it's tautological. If you look at the typical workers' modest savings as the ceiling for funding a business, it's obvious why they can't compete with businesses built by investors/capitalists money. While WorkersOwnedSearchEngine Inc scrapes together $30,000 from their owners-workers' savings accounts to buy a 5th rack server from dell.com, Google Inc. can use a fraction of its $2 billion war chest to buy an entire data center and also break ground on a brand new one.
As long as the coop members have 50% +1 that ok but it can go wrong (thank you very much ICANN) as we found at poptel.
The other problem is the coop movement in general is very old fashioned and isn't really embracing technical changes. Which is a pity as if poptel had been brought out by the main uk coop we woudl have all had a very nice 6 figure payday.
And you do get into silly arguments over exactly which version of STV you use ;-)
1. Cooperatives don't have strong incentives to grow, because growing typically means more people and that means sharing of power, accordingly. Their growth is probably limited by trust.
2. When someone has the ability to start the company, they won't probably want to do it as a cooperative. It's harder to start a good cooperative than just a company. This is a corollary of 1.
3. It's much harder to raise capital for a cooperative because of possibly misaligned incentives. Even though capitalist's companies suffer from principal agent problem too, this is enough to dissuade many potential investors. Since cooperatives are not very common, this is a chicken-egg problem.
4. As someone else mentioned, democracies tend to be pretty conservative. This can be good in the long term, but makes them vulnerable to well-planned short term attacks from the outside.
Workers' coops also have limited access to capital and business expertise which can make them difficult to get started, but the reason they don't grow large is the reason above.
However, it is totally fine for workers coops to remain small businesses for their entire existence, all that would mean for is that we need more of them to be started.
Is the fraction of co-operatives that fail larger than the fraction of failures in alternative structures?