Are Worker Cooperatives a Viable Way to Promote a More Equitable Economy?

Malone, D. (2019). Are Worker Cooperatives a Viable Way to Promote a More Equitable Economy? Solutions 10(2): 16–21. https://www.thesolutionsjournal.com/article/are-worker-cooperatives-a-viable-way-to-promote-a-more-equitable-economy

Perspectives Are Worker Cooperatives a Viable Way to Promote a More Equitable Economy?

by Donal Malone

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n a capitalist economy dominated by large corporations can worker co-operatives play a role in creating living-wage jobs and help rebuild local economies? That is the hope and promise of a small industry of non-profits, foundations, academics and activists who see worker co-ops as a key part of a new and more equitable economy. The New Economy Coalition (NEC) is a group of 140 organizations around the USA that envisions an economy wherein “… capital (wealth and the means of creating it), is a tool of the people, not the other way around.”1 This new economy would be one that, “… meets human needs, enhances the quality of life and allows us to live in balance with nature.”1 Although officially created in 2012, the NEC has roots dating back to 1980.

The NEC is part of a larger global social movement called the “social” or “solidarity” economy. Although centuries old, it has gained new energy and adherents in the past two decades with global competition and corporate relocation leaving many unemployed and underemployed.

With the decline of government support to meet basic needs, individuals, groups and organizations have banded together to create their own economic opportunities. While there are various definitions of the social or solidarity economy there is general agreement among participants in this movement on a set of principles set forth by the Quebec Task Force on the Social Economy. Foremost among them are that economic enterprises must serve social needs and that profits should be reinvested for this purpose. They also support democratically run businesses free from government control and 16 | Solutions | April 2019 | www.thesolutionsjournal.org

empowerment through economic development.2 Frustrated by the failure of decades of community development efforts to eliminate poverty, the NEC espouses a new form of economic growth based on “… cooperative, ethical, and community-rooted enterprises.”3 Linked to the community development field and its focus on urban poverty, this coalition put a renewed emphasis on rebuilding poor neighborhoods from the inside out. Low-income communities would be encouraged to create their own jobs and wealth through a variety of economic strategies and mechanisms. They would establish worker cooperatives and partnerships with businesses, create manufacturing hubs, city-owned utilities and banks, as well as community land trusts, to produce sustainable jobs and economies, building wealth from within communities.4 The renewal of interest in worker cooperatives that began in the 1990s, and re-emerged with more urgency after the Great Recession in 2008, is a key part of this movement toward a more democratic and socially responsible economy. However, this strategy for economic revival raises several questions: Are worker cooperatives a viable way to create more jobs and promote economic development in low-income urban neighborhoods?

Will they be able to grow in size and scale to make a meaningful difference in the lives of workers, families and communities? Or will they remain economically marginal as they are now? And if they become a larger part of local economies, will they be able to compete effectively with other businesses less burdened by

the social needs of their workers?

Or will they be forced to act like other major businesses in a capitalist economy, squeezing workers to remain competitive?

The Promise of Worker Cooperatives The supporters of worker cooperatives see them as central to transforming the way in which community economic development takes place.

Worker cooperatives are viewed as a vehicle for workers and local communities to create their own businesses, jobs and wealth without relying on outside investors. Their presence is said to have a “multiplier effect” as the profits and income resulting from them are re-circulated in the community increasing their economic impact.4 They are viewed as a more a sustainable form of economic development since they encompass a variety of businesses leaving the local economy less susceptible during economic downturns. Their willingness to put labor before capital in taking losses to save jobs rather than short-term profits also promotes their longevity according to supporters. Labor often comes first in these enterprises as workers determine the conditions of their employment resulting in higher productivity and wages in comparison to traditional enterprises.5 However, the record is mixed, as many worker cooperatives have not always acted in the best interests of workers, putting employers’ or customers’ needs first.4,5 The potential of worker cooperatives to have significant impact, at least on a local level, is illustrated by Cooperative Home Care Associates (CHCA), a home health care company

Perspectives

New Economy Coalition

in the south Bronx. With over 2,000 employees CHCA is indicative of the potential impact of worker cooperatives on workers’ lives and communities. Its size makes its impact much greater in the community as it transforms the lives of so many. Zaida Ramos is one example.

Before she joined Cooperative Home Care Associates she was a single parent on public assistance with a low paying job. With her new position at CHCA, she had a steady income, flexible hours, health and dental insurance, as well as a share in the company’s profits. She has also been able to pay half of her son’s tuition at a Catholic school as well as support her daughter in obtaining a college degree. Working at CHCA has given her a level of economic stability she did not have before. As she says, “I’m financially independent. I belong to a union, and I have the chance to make a difference.”6 Si Se Puede, is another workerowned enterprise that has changed the lives of its members. Located

in Brooklyn, New York, this is a business that specializes in doing housecleaning in an environmentally friendly way. Olga Cruz, who came to the U.S. from Puebla, Mexico in 1996, epitomizes the members of this cooperative who are immigrant women struggling to provide for their families. For Olga, Si Se Puede allows her to have, “more control over my schedule, so I can be with my family when I need to.”7 Si Se Puede is small in comparison to CHCA but tries to make up for this by being part of a network of worker cooperatives locally in Brooklyn across New York City and nationally, sharing ideas and resources. They are part of the Solidarity Economy Network, another national coalition loosely linked with the New Social Economy Network. Their aim is to build a new social economy by creating jobs that provide the wages and working conditions that support workers, their families and communities. For both groups, the common goal is to create a more just and equitable economy.

The Reality of Worker Cooperatives How viable are worker cooperatives as an economic model? Are they part of a niche market that only exerts marginal impact or are they much more? What does the evidence show?

In a review of two decades of research on worker cooperatives in Western Europe, the United States and Latin America, Virginie Perotin found that, overall, worker cooperatives are more productive, efficient and sustainable than conventional businesses. They tend to have as much capital investment and last as long. They are also better at preserving jobs during economic downturns because they adjust pay while traditional businesses lay off workers.8 These findings have been supported by other research focused solely on U.S. worker cooperatives.5 One of the defining features of worker cooperatives is worker control which helps explain these findings.

Workers who have a say in the work process are more likely to work more effectively and efficiently than www.thesolutionsjournal.org | April 2019 | Solutions | 17

Perspectives

Cooperative Home Care Associates

Members of Cooperative Home Care Associates Co-op.

those who do not, resulting in higher productivity. There is some evidence that these worker-owners have higher job satisfaction and fewer stress related health problems in comparison to other workers. However other evidence shows that worker-owners feel more stress from ownership responsibilities leading to lower levels of job satisfaction.5 Worker control explains why worker-owners are more likely to choose job security over pay, preferring pay cuts to layoffs. It may account for pay differentials between executives and workers which are much lower in worker cooperatives than in conventional firms.9 Worker managed firms also keep a larger share of their profits than other businesses 18 | Solutions | April 2019 | www.thesolutionsjournal.org

reserving capital to maintain jobs and salaries.9,5 Globally, worker cooperatives, while only a small proportion of all businesses in their countries, vary in size and number. For example, Italy has 25,000 worker cooperatives, followed by Spain, with17,000. In contrast, France has 2,600 while Britain and the USA have only a few hundred.

Worker cooperatives tend to be larger than traditional small businesses.9 This may be because they begin as collective enterprises with some countries requiring several individuals to start this kind of business. Some worker cooperatives are very large having subsidiaries and employing thousands of workers. The largest

worker cooperative in the world is Mondragon, a global corporation of 261 subsidiaries, 101 of which are worker cooperatives. This Spanish giant’s cooperatives employ almost 30,000 workers. While Mondragon attests to the potential of worker cooperatives to become very large, most employ less than 20 workers.9 Worker cooperatives can be found in a variety of industries ranging from manufacturing, transport, construction and retail to banking, hospitality, agriculture, forestry and fishing, among others. On average, worker cooperatives have as much capital as other businesses but also a greater proportion of businesses without adequate capital than conventional

Perspectives ones. They also have a survival rate equal to that of traditional businesses.9 Despite their promise as a business model, worker cooperatives remain a small part of national and local economies. This may be due to a lack of awareness about worker cooperatives and how they are created. This void is supported by the finding that industries with the most co-ops also have the highest number of new ones.9 More cooperatives provide more examples of an alternative business model for potential entrepreneurs.

This is the case in the United States, as well as in Israel and Spain, where more cooperatives are created in industries that already have the highest proportion of these enterprises.9 Worker cooperatives in the USA today are a negligible part of the economy numbering about 300 and employing around 7,000 people.10 Limited public knowledge of and government support for this business model are causes. Unlike European governments, the United States Government has done little to support the development of worker cooperatives while at the state level a variety of complex laws and requirements make it difficult to establish them.11 Access to capital is also an inhibiting factor. Those attempting to start worker cooperatives have limited seed money for these businesses as well as little in the way of collateral to secure bank loans. Banks, used to dealing with individual borrowers, generally resist lending to a group sharing the responsibility for a loan.12

The Potential of Worker Cooperatives Despite the fact that most worker cooperatives are small they have the potential to operate on a much larger scale with much greater impact. The example, cited above, the CHCA, is the largest worker cooperative in the USA.

CHCA is a home health care company founded in 1985 in a community struggling with poverty and high unemployment. Today, it has 2,300 members who earn almost double the average pay in their industry, work regular hours and have family health insurance. CHCA’s turnover rate of workers is 15 percent versus almost 60 percent in the industry. The ratio of executive pay to worker pay is 11:1 versus 175:1 in the healthcare industry. CHCA workers also receive training to improve their skills and peer-mentoring support in dealing with the challenges of their work. This has raised the wages and status of an occupation dominated by women, mainly Latin American immigrants.

CHCA’s success and size are held up as an ideal example of the potential impact of worker-co-ops on one community.6 Boosting the income of so many in one neighborhood can have a ripple effect as workers spend much of their income locally.

The Evergreen Cooperative Initiative in Cleveland, Ohio is another relatively large worker cooperative cited for its success in creating jobs and helping revitalize a low-income community. This effort was part of a larger, citywide approach to develop worker cooperatives .

In 2008, the Cleveland Foundation brought together an assortment of local government and nongovernment stakeholders such as, University Hospitals, the Cleveland Clinic, Case Western Reserve University, city officials, and local nonprofits, with the aim of creating ten cooperative businesses and 500 family wage jobs for local residents. These stakeholders provided the funds for the first worker-owned business, Evergreen Cooperative Laundry. Starting with one shift of 25 workers, it contracted with these institutions to provide laundry services. While it has faced

many challenges in getting established, the laundry is a profitable business today. Another related and profitable cooperative is Evergreen Energy Solutions which helps businesses become more energy efficient and environmentally friendly. A third related cooperative, Green City Growers, which grows fruits and vegetables in mineral nutrient solutions without soil, is on a path toward profitability. Overall, the Evergreen Cooperative Initiative employs 120 people today and receives only15 percent of its income from its original institutional customers.13 The Evergreen Cooperative Initiative represents an attempt to increase the size and impact of worker cooperatives in local economies.

Some of the leaders of the worker cooperative movement see this as the next stage in their development.

Accordingly, “scaling up”—increasing the number and size of cooperatives is viewed as a way to create more living wage jobs by becoming a larger part of local and regional economies.

Scaling up also means creating an “ecosystem” in which worker cooperatives work with each other and major public and private stakeholders in local economies to promote further growth and economic impact. As one recent report on this effort in 20 cities noted: “What’s emerging is a systems approach to creating an inclusive, sustainable economy where all can thrive. The work is place-based, fed by the power of anchor institutions, and built on locally rooted and broadly held ownership. It’s about building community wealth.”4 The Evergreen Cooperative Initiative represents another stage in the attempt to make worker cooperatives a major part of revitalizing inner-city neighborhoods.

However, as worker cooperatives succeed in becoming larger and more prevalent in the USA’s economy, they www.thesolutionsjournal.org | April 2019 | Solutions | 19

Perspectives

New Economy Coalition

face what is perhaps their greatest challenge, becoming like any other business in order to compete and survive in the marketplace. How can worker cooperatives provide living wages and benefits for their workers while many of their competitors do not? How can an economic model that puts labor before capital prosper in a system based on the primacy of capital? This is the central dilemma or contradiction for worker cooperatives today that aspire to become a greater part of the economy: how can they remain viable as they socialize production in a marketplace based on capitalism?

The Mondragon Cooperative Corporation in Spain, the world’s largest and most successful worker cooperative, is a case in point. Today, it has 74,000 workers in 257 businesses operating in sixty countries.

However, only half of its businesses are cooperatives, and only one third of its workers are cooperative members. Mondragon’s workers who are cooperative members are guaranteed their jobs and, in slow times, maintain them through pay cuts, increasing their investments in the corporation and by transferring to other cooperatives. Mondragon’s other employees, 20 | Solutions | April 2019 | www.thesolutionsjournal.org

temporary workers in Spain and wage laborers in overseas subsidiaries, have none of these privileges.14 One result is that the benefits of Mondragon’s cooperative members rest on the exploitation of its second and third tier workers. In order to remain competitive with other global corporations, Mondragon is pressured to behave in the same way.

Mondragon’s experience also highlights another dilemma all worker cooperative face, that of its members’ dual roles as owners and workers. The roles of owner and employee may conflict. Typically, workers want good wages, benefits and control over working conditions while owners want to increase production while keeping costs down and profits up. These opposing interests may undermine the development of class-consciousness among worker-owners and their identification with workers in general as well as the emergence of a critique of capitalism in support of a movement for a more equitable and sustainable economy. Kasmir cites the failure of Mondragon’s worker-owners to come out in support of striking workers in Spain as evidence of their lack of identification with other workers.14

Mondragon’s experience is a cautionary tale for the worker cooperative movement in the USA today whose goal is to increase its size and impact in local and regional economies. Will their growth put them in direct competition with traditional businesses and result in the same problems faced

by Mondragon? Will they be forced to act like any other enterprise in capitalism? Will the worker-owners in large American cooperatives see themselves more as entrepreneurs and less able to identify with other workers in common cause?

Based on her research, Sharryn Kasmir argues that to avoid repeating the mistakes of Mondragon, worker cooperatives in the USA must become part of a much larger movement for social change. One example she cites in the USA are unionized worker cooperatives such as those sponsored by the United Steel Workers union who provide worker-owners with union membership, allowing them to bargain collectively with managers in their workplaces whose interests may conflict with theirs. According to Kasmir, union membership will unite these cooperative workers with other workers in noncooperative businesses

Perspectives creating the potential for a broader labor movement for worker rights.14 The kind of social activism and mutual assistance suggested by Kasmir is being carried out in another way by some members of the NEC. It seeks to make worker cooperatives a much larger part of local and regional economies by partnering with key players in these economies. This “ecosystem” consists of worker cooperatives collaborating with “anchor” institutions such as hospitals, universities, nonprofits as well as banks and other major local businesses. Together, with local government support, they may have the resources to become much larger parts of local economies. This is part of an attempt to build community wealth on a much larger scale.4 As worker cooperatives become a greater part of the economy, they may have more say in how their enterprises can compete in the capitalist marketplace without abandoning their social mission.

By becoming a larger part of the economy, worker cooperatives may also be better able to advocate for more state and federal support. Currently, most government subsides to promote economic development go to large corporations. According to one report, during the past 15 years the federal government provided $68 billion in grants and special tax credits to the business community, allocating two-thirds of it to large corporations.15 Given this bias, small businesses may join with worker cooperatives in pressing for a larger share of government subsidies for businesses.

The increasing social activism in support of worker cooperatives has resulted in some important gains. In 2014, New York City was the first city to make a major investment in the development of worker cooperatives when its city council allocated $1.2 million for a Worker Cooperative

Initiative. This effort engaged 11 community-based organizations to create 28 new worker co-ops and 234 new jobs. It also included funds for education, training and technical support for 20 existing co-ops.16 Funding for worker co-ops was increased to $2.1 million in 2016 and $2.2 in 2017.17 In 2016, the city council of Berkeley in California passed an ordinance supporting the creation of workerco-ops. It provided tax and land-use incentives for worker cooperatives, information on them, and facilitated the purchase of services and products from these enterprises.18 With 50 worker-owned cooperatives, Berkeley, and the area surrounding it have the highest concentration of workerowned cooperatives in the USA.18 Many other cities across the country have demonstrated support for worker-owned co-operatives such as Oakland and Richmond in California, Cleveland, Ohio, Madison, Wisconsin and Jackson, Mississippi. Community activism was the catalyst behind these initiatives.18 Community activism is the driving force for increasing the size and scope of worker cooperatives making them a larger economic player with the potential to have more impact on how capitalism operates. Worker cooperatives are one way to limit the excesses of capitalism by reducing its negative effects on workers and communities.

As they become a more significant part of the economy, they increase their ability to make it more responsive to the needs of workers, families and communities. They have the potential to play a role in curbing the excesses of capitalism, redirecting it to serve social needs. This is what worker movements have done in many countries in Europe.19 Worker cooperatives are a part of the larger movement among workers to tame global capitalism to serve social needs.19,20

References 1. New Economy Coalition [online] (2017). https://neweconomy.net/about 2. Chantier De L’ Economie Sociale [online] (2017). http://www.chantier.qc.ca/?module=document& uid=867 3. New Economy Coalition [online] (2017). https://neweconomy.net/about 4. The Democracy Collaborative [online] (2017). http://democracycollaborative.org/ 5. Wright, C. Worker Cooperatives and Revolution (booklocker.com, Inc., Bradenton, Florida, 2014).

6. Flanders, L. The Kind of Job That Lifts You Up. Yes Magazine. (Fall 2014).

Wang, Amy X. (2018, Feb. 15). What American CEO’s Earn Compared With Their Rank and File Workers.

Retrieved from Quartz at Work https://qz.com/work/1196106/how-much-do-ceosmake-140-times-what-their-median-employee-does/ 7. Si Se Puede Women’s Cooperative [online] (2017). http://www.wecandoit.coop/members.html 8. Perotin, V in ILO-ICA. Symp. Research Conference on Cooperatives and the World of Work, Antalya (Turkey) 9-10 November 2015.

9. Perotin, V. Worker Cooperatives: Good, Sustainable Jobs in the Community. Journal of Entrepreneurial and Organizational Diversity 2, 34–47 (2014).

10. Democracy at Work Institute [online] (2017). http://institute.coop/worker-cooperative-faq 11. Rothschild J Workers’ Cooperatives and Social Enterprise: A Forgotten Route to Social Equity and Democracy. American Behavioral Scientist 52, 1023–1041 (2009).

12. Nadeau, E.G. The Cooperative Solution (The Cooperative Foundation, Madison, WI, 2012).

13. Brodwin, D. A Cleveland Success Story.

U.S. News & World Report (July 2016).

14. Kasmir, S The Mondragon Cooperatives and Global Capitalism: A Critical Analysis.

New Labor Forum 25, 52–59 (2015).

15. Good Jobs First [online] (2017). http://www.goodjobsfirst.org/ 16. Ifateyo A. A Co-op State of Mind: New York City Jumpstarts Worker Cooperatives. In These Times (August 2014).

17. Abello, O. NYC Set to Triple the Number of Worker Cooperatives. Next City (January 2016). [online] (2017). https://nextcity.org/daily/entry/nycworker-cooperatives-jobs-increase 18. Hachadourian, A. Berkeley Votes to Boost Co-op Economy in the Face of Gentrification.

Yes Magazine (February 2016).

19. Hill, Steven. Europe’s Answer to Wall Street.

The Nation. (5/10/10).

20. Wright, Erik Olin. How to Be an Anti-Capitalist Today. Jacobin. (12/02/15).

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