Right now in spain, the largest buisness group in basque (10th largest overall) is the Mondragon corporation. It’s worker-owned (but not worker managed), although each worker has voting rights. Clearly it is possible - even within capialism - to have some worker autonomy over production.
In 1936, during the civil war in Spain, around 60-75% of urban industry and agriculture was restructured by anarchist labour unions and run and managed by the workers to varying degrees of collectivization. Some towns abandoned the use of fiat currency entirely and instead used systems of vouchers, in small villages goods where distributed even more informally. Industrial production is reported to have increased during this time, and agricultural yields rose by around 30%.
How? There was no economic failure. It ended due to a political coup. After all there was the slight external complication of a proxy war considered by many to be a prelude to the defining conflict of the 20th century.
>never expanded
Apart from across an entire country you mean?
This is extremely wrong. Every society in human history has some degree of division of labour. Capitalism is a specific economic mode of production that emerged from the embers of Feudalism a few hundred years ago, as merchant guilds and private manufacturors in urban centres gradually grew more independent whilst the noble classes who had subsisted off the labour of an agricultural underclass had gradually lost power. The exact process and reasons for this is extremely complicated and vast in scope.
There is also an unimaginably vast spectrum of potential ways of organising economic production in a human society, and many civilisations historically have exhibited different iterations of these. To make the claim that it is impossible to devise a system different from where
>we don't pay each other,[and] the incentives are very strong to be a free-rider
is not only to ignore not an entire field of historical and anthropolgical research, but also to not even bother to imagine any alternative to very particular unique economic system we happen to find ourselves in this current and infinitesimally narrow slice of time.