This is Part III of a five-part series on worker-directed cooperatives as an autonomous community self-development tool.

Founded in 1956, the Mondragon worker cooperative, located in the Basque region of Spain, now employs over 75,000 people in 257 different businesses. Italy's Emilia Romana region has a high density of WSDEs due to favorable laws that support the formation of cooperative enterprises. And the United States has an increasing number of WSDEs, some of which date back to the 1970s.

This is Part III of a five-part series on worker-directed cooperatives as an autonomous community self-development tool. Read Parts I and II. The full series will be available on Democracy at Work's Coop Talk after Part V has been published. 

Part III: Viable Models — Looking Abroad and in the US

BY KIMBERLY WESTCOTT and RICHARD WOLFF | DECEMBER 4, 2016

Europe: Spain, Italy and the UK

One of most influential WSDEs is Spain's Mondragon Corporation, a corporation and federation of worker cooperatives located in the country's Basque region. Mondragon cooperatives are united by a humanist concept of business, a philosophy of participation and solidarity, and a shared business culture. The framework of the business culture is set forth in its 10 Basic Cooperative Principles, which have laid the foundation for agreed-upon wage ratios between executive work and field or factory work.  These ratios range from 3:1 to 9:1 in different cooperatives, with the average being 5:1. The wage ratio is decided periodically by its worker-owners through a democratic vote.

Mondragon was founded in 1956 by graduates of a local technical college; its first product was paraffin heaters. Today it is the seventh largest Spanish company in terms of asset turnover and the leading business group in the Basque Country. At the end of 2014, it employed 74,117 people in 257 companies and organizations in four areas: industry, finance, retail, and knowledge.        

Italy has a remarkably large number of worker cooperatives partly because of a deep cultural tradition of and sympathy for collective, solidaristic enterprises and partly because the state has developed a supportive infrastructure and committed resources to their development. For example, Italy's Marcora Law, enacted in February 1985, promotes worker cooperatives in two ways, by: (1) establishing a general fund for the promotion and development of all types of cooperatives; and (2) creating the Compagnia Finanziaria Industriale (CFI), a special fund to help save companies in crisis.  Most significantly the Marcora Law makes government unemployment funds available to unemployed workers as a one-time lump sum advance payment to be used as start-up capital for worker cooperatives, which returns the unemployed to work sooner and is much more socially effective than on-going unemployment payments.

Little known to many is the long-term commitment of Britain's Labor Party in promoting and supporting WSDEs. John McDonnell, advisor to and colleague of recently re-elected Party leader Jeremy Corbin, has articulated their official program. It entails: (1) a commitment to build a major worker coop segment of the UK economy; (2) a commitment to legislation giving workers in every enterprise right of first refusal to buy any UK company if and when it proposes to sell itself to another company, to go public, or to close; and (3) to provide government funds to enable such worker buyouts. This is one key Labor Party response—helping to build a worker coop sector—to the growing problems experienced by the British economy's capitalist sector. It is significant that a major political party in a major global economy has made this policy commitment in favor of fostering a cooperative economy.

The United States

In the United States, the worker cooperative business structure is quickly gaining currency—it was even highlighted in Bernie Sanders' 2016 political platform. Though in use in just a few states and several municipalities, such as Cleveland, Ohio; Seattle, Washington; Madison, Wisconsin; Richmond, Virginia; New York City, New York; Oakland, California; Austin, Texas; and across Massachusetts, Vermont, and Minnesota, citizens and elected officials are increasingly recognizing their individual and community level economic development potential. Though many WSDES tend to be in low-tech, labor-intensive businesses like food preparation or retailing, they are also viable structures for highly skilled work, as performed by Madison Wisconsin's Isthmus Engineering & Manufacturing (IEM) company or information technology groups, and can be a potent tool for promoting business development in low-income areas.

Cleveland's Evergreen Cooperatives —community development and the anchor model

The seeds of the Cleveland worker cooperative movement were sown following the demise of Ohio's steel industry when the Youngstown Sheet and Tube Company announced it would close its Campbell Works operation in September 1977 and almost 5,000 workers found themselves unemployed. Assisted by the Ecumenical Coalition of Mahoning Valley and Gar Alperovitz, then director of the National Center for Economic Alternatives, the workers’ strategy focused upon direct action and feasibility studies to determine how to carry out a community-worker takeover of the mill. Though the steel companies and even the United Steelworkers turned their backs on the idea of worker ownership of the mills, the effort inspired the formation of the Ohio Employee Ownership Center at Kent State University, which through its developing expertise in worker cooperative structures subsequently helped to foster the creation of the Evergreen Cooperatives in the heart of some of the most distressed neighborhoods in urban America.

In 2005, the Cleveland Foundation along with some of the biggest anchor institutions (i.e., hospitals, universities, and municipal government), businesses, and civic groups in the city, spearheaded the "Greater University Circle Initiative" designed to stimulate real and lasting development in the ailing neighborhoods around University Circle. The Evergreen Cooperatives, which emerged in 2009 as a result of this effort, is a holding company that, thus far, houses four businesses under its umbrella: Evergreen Cooperative Laundry, a "green" industrial laundry; Evergreen Energy Solutions, which installs solar panels and provides other environmentally friendly home and commercial energy services; Green City Growers, the largest hydroponic greenhouse in an American city; and the Greater University Circle Neighborhood Voice, a free, student-owned and student-run newspaper and online news source covering worker coop activity in Cleveland and other issues of concern to residents, which emerged in 2009 as a result of this effort. Though Evergreen shares many qualities with Spain's Mondragon Corporation, it is decidedly more planning oriented and aims to create a "culture of community." The Evergreen Cooperative Laundry provides laundry services for the Cleveland Clinic, Green City Growers provides food for the University Hospital, and Evergreen Energy Solutions provides weatherization and solar installation services for other local nonprofit institutions. A board of directors oversees the cooperatives, assuring they function not just for the workers but also for the surrounding communities.  The board can also prevent any one cooperative from leaving the community, dissolving, or from selling itself to an outside entity.

The City of Oakland, California — promoting growth and equity through a procurement model

Other cities across the country have seen the benefit of fostering worker cooperatives as a community development and worker empowerment strategy. Most recently, the City of Oakland's Council made a commitment to provide legal and financial supports for WSDEs by passing a resolution that followed up on Governor Jerry Brown's signing of the California Worker Cooperative Act in August 2015, which cleared barriers to incorporation and relaxed rules to raising equity. The resolution supporting WSDEs passed largely because Oakland is distressed: Oakland's unemployment rate increased from 5.6 percent to 16.9 percent between 2000 and 2010; in East Oakland, 31–35 percent are unemployed; and in parts of West Oakland, 44–45 percent are unemployed.  The fact that the poverty rate in Oakland was 22.3 percent in 2010, compared to the 11.7 percent poverty rate in the East Bay as a whole, places the matter in context. As a consequence, more than 60 percent of people working at new WSDEs in 2012 and 2013 were people of color, according to a "State of the Sector" report by Oakland-based Democracy at Work Institute.

Community-level benefits of WSDEs highlighted in the findings of the City of Oakland's model ordinance include: locally-based stores typically invest more in local labor and are also more likely to purchase goods and services from within their local economies; wealth generated by worker cooperatives tends to stay in the local economy because WSDE profits are generally distributed to workers or reinvested in the cooperative; poverty reduction is more likely with WSDE development, rather than traditional economic development, because WSDEs provide their workers with the opportunity to build wealth through joint ownership of the enterprise, rather than merely offering low-wage, dead-end jobs; the shared ownership structure of WSDEs cause each worker-member to be less vulnerable to unemployment, withholding of payment, and low-wage exploitation, resulting in less employee turnover and increased profitability and longevity; worker-members, rather than investors, control the business—employees have a say in their work conditions and the business is focused on member benefits rather than merely profit. For example, worker-owners in the Bay Area's Prospera (formerly Women's Action to Gain Economic Security) saw an increase of 158 percent in their incomes and an average return of 22 times their initial investments. Natural Home Cleaning Professionals, the largest WSDE that Prospera incubated, pays its members twice the average starting wage for commercial cleaners in the country and provides benefits such as health and dental insurance and flexible vacation time.

Most significantly, studies have shown that communities where local businesses make up a substantial portion of the economy have lower crime and poverty rates, and their residents are more engaged in community and civic organizations. Conversely, as big-box retailers enter a community, civic engagement declines. In light of these findings, city action, particularly the city's contracts and procurement practices, was flagged for fostering stable markets for worker cooperatives and contributing to the economic development of the city, including:

1.  Targeted purchasing and contracting with worker cooperatives to keep wealth from flowing out of the community and create empowering local jobs. Giving preference to worker cooperatives provides an alternative to relying on large corporations and minimum wage jobs to meet the city's needs.

2.  City investments could support worker cooperatives through strategies such as funding targeted training, capitalizing a revolving loan fund, offering guarantees on loans to worker cooperatives, and linked deposits.

3.  Waiving land use fees and providing tax incentives to allow cooperatives to more effectively invest in their communities.

Madison, Wisconsin — fostering mutual development through an ecosystem approach

Madison, Wisconsin has supported the development of worker cooperatives for decades and is home to some of the oldest worker cooperatives in the country.  In total, the city has 75 cooperatives (including member and worker-owned), credit unions and mutual insurance companies.  The State of Wisconsin has 773 cooperatives, creating 64,000 jobs and bringing in $27 billion in revenue and contributing $642 million in tax revenues to the state. Union Cab of Madison, one of the country's worker cooperative success stories, was formed after a labor strike in 1978 and its predecessor, Checker Cab shut down.  The workers then reorganized, incorporated, and opened Union Cab in 1979.  Since then Union Cab has been fully worker-owned and each of its 220 drivers, dispatchers, mechanics and administrative workers own an equal share of the company for a $25 buy-in and has an equal vote in operations, including electing the board of directors.  The company has many revolving committees and a general manager responsible for daily operations.  Fully committed to interdependent networks among cooperatives within the community, Union Cab buys its health insurance from Group Health Cooperative and gasoline from Landmark Coop.  Workers eat, shop and pay rent in the community and have adopted an official buy-local policy.  The idea: keep the surplus with the workers and in the community.

Another success story is Isthmus Engineering & Manufacturing (IEM), owned entirely by its 32 employee-members and regularly doing more than $20 million in annual reserve. IEM's business is factory automation. It builds custom machinery that produces everything from auto parts to baby pacifiers. IEM started as a partnership in 1980; in 1983 the group became a cooperative. Every member sits on the board of directors, which generally meets twice a month and makes the majority of IEM’s administrative decisions, such as who to hire or when to build a new building. Board committees handle matters like shop tools or finance. A salaried general manager and sales manager, accountable to the board, are responsible for the company's daily operation. On a day-to-day basis, the coop worker answers or reports to one of the managers. IEM also has about 30 employees who are not members. All are eligible for membership except the two salaried managers.  When a member leaves, the company must buy back the member's share. IEM does so over a five-year period, thereby minimizing the cash drain in any one year.

Seattle, Washington — the WSDE as a site for training and economic development

Seattle, the largest city in the Pacific Northwest with a population of over 652,000, is known for its green economy and is a model for sustainable business practices. Its population consists of nearly 70 percent whites of European descent, 14 percent Asians, 8 percent blacks of African descent, 7 percent Latino or Hispanic, 1 percent Native American, and 2 percent other.

While the city is home to the country's largest and oldest consumer cooperatives, such as food stores and retailers like Recreational Equipment Inc. (REI); Puget Sound Consumer Cooperative (PCC Natural Markets), a 53-year-old natural foods chain; and Group Health Cooperative, a 47-year-old health insurance and medical services group, there are only about six worker cooperatives in Seattle. One of the most prominent is the Equal Exchange Cafe, a spin-off of Equal Exchange in West Bridgewater, Massachusetts, which pioneered fair-trade coffee and is one of the country's most financially successful worker cooperatives.

Seattle's low income workers are the prime beneficiaries of the federal government's Small Business Administration (SBA) Program for Investment in Micro-entrepreneurs (PRIME), which funded a local business support group, the Center for Inclusive Entrepreneurship, to help train disadvantaged Seattle workers to develop worker cooperatives and home-based or cottage businesses. SBA PRIME provides assistance to organizations that help low-income entrepreneurs who lack sufficient training and education to gain access to capital to establish and expand their small businesses. SBA PRIME is also intended to facilitate cooperative development in the United States. Programs like these are crucial to the structuring of a cooperative economy for communities of all income levels. 

Kimberly Westcott is Associate Counsel at Community Service Society of New York (CSS), Adjunct Assistant Professor at Columbia University School of Social Work (CSSW), and Co-Chair of d@w-NYC's Coop Committee. Contact: [email protected]

Richard Wolff is an economist, a visiting professor at The New School, and the founder of Democracy at Work. Follow him on Twitter: @profwolff