What is a cooperative?
A cooperative is a business that is owned and democratically run by and for its members. Unlike in a stockholder corporation, where voting rights are proportional to the amount of money invested, coop members all have an equal vote in governance decisions. Like any business, coops may be run for a profit, but the profits they make are either retained to support the business or distributed to members in proportion to the amount business they have transacted with the coop during the year.
Cooperatives generally also subscribe to the seven cooperative principles, including non-discriminatory membership, promotion of education and training, concern for community, and cooperation with other cooperatives.
What is a worker-owned cooperative?
There are several different types of cooperative, named for the type of economic actor that has organized it. A typical food coop is a consumer cooperative, organized to obtain desired goods at fair prices for the benefit of its shoppers. So is a rural electric cooperative. Producer cooperatives are organized to process, market, and distribute products. Well known examples include Welch’s grapes, Land O’Lakes, and Organic Valley dairy.
A worker-owned cooperative is a business that is collectively owned and democratically managed by its workers. Member workers each purchase a share in the business and make business decisions — including how to equitably distribute any profits not reinvested in the business — on a one worker, one vote basis. This feature distinguishes worker cooperatives from other forms of employee ownership, such as Employee Stock Ownership Plans (ESOPs), in which workers may own anywhere from a trivial to a significant portion of the business, yet may have no meaningful role in its governance. Worker coops generally vote to invite new members to join after a trial employment period.
There are also multi-stakeholder cooperatives, which combine two or more classes of members. For example, the Fifth Season cooperative in Viroqua, WI was organized to make locally grown food more accessible to large institutional purchasers, such as schools and hospitals. It has six classes of members — farmers and producers, producer groups, food processors, distributors, buyers, and workers. The social care cooperatives in Italy and the UK are also multi-stakeholder cooperatives, including workers, service recipients and their families, volunteers, and community organizations among their members.
Why do workers form cooperatives?
There are many reasons workers form cooperatives, including:
- To pool capital needed to start the business
- To share the responsibilities of management, rather than having them all fall on a single owner
- To gain control over their working conditions, hours, and pay; and
- Because of a values-based commitment to shared ownership and governance.
Business owners who want to retire or otherwise exit the business may also find that their workers are the best potential buyers for it.
Why should I care?
If you care about jobs:
Worker-owned cooperatives create better, more secure jobs. Because workers control the company, they can make decisions that meet their needs, including providing more stable hours, better benefits, and higher pay. While pay ratios in the economy at large have sky-rocketed over the last half-century from 20-to-1 in 1965 to over 300-to-1 today, pay ratios in the largest, most well-established worker cooperatives remain at 11-to-1 or less, with most of those surveyed in the most recent Worker Cooperative State of the Sector report having a ratio of 2-to-1 or less.
And being an owner is empowering! Becoming a worker-owner provides many experiences and grows many skills that being an employee does not, including management, business planning, and financial skills. People who have been worker-owners are ready to seek out and develop other opportunities, even if the coop itself does not last. Over time, a job creation strategy focusing on worker cooperatives will create a skill-rich community that has a greatly increased capability to take on its challenges.
If you care about economic development:
Worker coops are by definition locally-owned businesses. Owned by their workers, they will never leave town for a “better deal” elsewhere. An investment in worker-owned coops creates lasting economic growth. Worker coops can also be a way to broaden a locally-owned business development strategy. Worker-owned coops have been successful in sectors including home health care, cleaning, taxi driving and temporary office work, sectors that serve local needs and often provide limited opportunities for high quality jobs. An economic development strategy centered on creating and nurturing worker-owned cooperatives can contribute to a broad based economy that’s less vulnerable to changes outside the region than one focused more narrowly on tourism, tech, and other “hot” sectors.
And coops are more resilient than traditional firms. Studies in Italy, Quebec, and the UK have shown that worker owned cooperatives are nearly twice as likely to survive 3, 5, and 10 years into their existence than non-employee owned firms. They also have greater resilience during economic downturns. A worker-owned business has more flexibility to respond to a downturn using measures of the workers’ own choosing, such as cutting pay or hours, instead of laying people off, shutting down, or moving away. Numerous studies also show that that worker-owned businesses, including ESOPs, are more productive than non-worker owned companies.
If you care about community well-being:
Worker coops go beyond creating better, more secure jobs. Because workers own the company, cooperatives create an opportunity to address the tremendous race, class, and gender-based disparities in wealth that our communities face. A recent Federal Reserve report found that 40% of Americans could not come up with $400 to deal with an unexpected repair, injury, or other emergency, and more than 20% are not able to pay their current monthly bills in full. The racial divide in household wealth is shocking, even to researchers in the field, and growing! Black families now hold less than six percent as much wealth as white families, with a similar gap facing Latino families. These wealth gaps lead to health inequalities, educational disparities, food and housing insecurity, and a host of other destabilizing and costly impacts on our communities.
Employee ownership provides a means for workers to build wealth through their share of the company. A study by the National Center for Employee Ownership found that employee-owners at ESOP companies had nearly twice the household wealth as their non-employee-owner counterparts, a finding that held across demographic groups and educational levels. Worker coops provide a similar opportunity, through annual profit-sharing dividends that may be paid out to owners and/or placed in an owner’s capital account, to be redeemed upon retirement or leaving the company.
Do we have worker coops here in the Hudson Valley?
We do! Earth Designs landscaping, based in Rosendale, converted to a worker coop in 2016. (Look for an interview with Earth Designs’s owners coming here soon!) The recently opened CO co-working space in Rhinebeck is a multi-stakeholder cooperative, with worker, user, and investor owners. Random Harvest in Craryville is a worker-owned market and community space featuring local products and dedicated to creating a relational food economy.
If you are a member of or are forming a worker coop in the Hudson Valley, let me know in the comments. I’d love to profile your coop here.
Where can I learn more?
A great starting point is the excellent Upstream podcast series on worker coops. Part 1 introduces worker coops and economic democracy, and profiles the development of cooperatives in Richmond, CA. Part 2 takes a deep dive into the Mondragon Cooperatives, the struggles they have faced in being part of the global capitalist economy, and the role of worker coops in economic transformation. Don’t miss the powerful interview at the end of Part 2 with Kali Akuno, Co-Founder and Co-Director of Cooperation Jackson, describing their vision for worker coops as an engine of transformation in their city and beyond.
The Democracy at Work Institute offers a wide variety of resources to support cooperative formation, conversions, and management. Their report on The Cooperative Growth Ecosystem offers a look at how regions around the country have built a network of supports for worker coops, and suggestions for how a region like ours can begin building one.
The Worker Cooperative Toolbox, published by Northcountry Cooperative Foundation, provides a deep dive into planning, structuring, and managing new and existing employee-owned cooperatives. They also make available a 16-hour curriculum on cooperative entrepreneurship.