Cooperation and Solutions: Why the U.S. Government Should Help Worker Cooperatives

Cooperation and solutions. These two words encompass the exact opposite of American politics today. At a time when an American president with incredibly low approval ratings is heading into his lame-duck session and Congress is the least popular it’s been in decades with massive gridlock, cooperation and solutions are the last two words on Americans’ minds (Dutton et al., 2014). There is a deep partisan divide in America on various issues, especially issues regarding poverty and wealth inequality. According to a poll conducted by Pew Research Center and USA Today from January 2014, 90% of Democratic voters are in favor of a bill to raise the federal minimum wage, while 43% of Republican voters are opposed to it. However, Republicans aren’tnecessarily “anti-poor” or “anti-worker”; while 33% of Republicans were opposed to any government action combatting the wealth inequality gap, only 13% were opposed to any government action combatting poverty (Most See Inequality Growing, but Partisans Differ over Solutions, 2014). Interestingly enough, even though both parties disagree strongly over how to help struggling American workers and both put some focus on doing so, they both seem to disavow major parts of the labor movement. The strength of unions has declined significantly in the past few decades, and, though one may expect Democrats to have unions’ backs, even they have left them behind. In July 2014, the National Education Association, the largest teacher union in the country, called on Democratic Secretary of Education Arne Duncan to resign after the administration supported policies hurting the strength of teachers’ unions (Strauss, 2014). The American Federation of Teachers, the second largest union, stopped just short of doing the same (Grasgreen, 2014). At a time of such political polarization and weakness in the labor movement, worker cooperatives offer an opportunity for cooperation and solutions.

The United Nations General Assembly decided in 2009, in the middle of the Great Recession, to mark 2012 as the “International Year of Cooperatives” (Brown, 2012). In doing so, cooperatives, especially worker cooperatives, were pushed into the global spotlight as a possible solution to major economic recessions. Worker cooperatives date back to the late 1700s, and have grown steadily in the centuries since. From Detroit to Spain, they offer an alternative to conventionally-owned businesses as well as unions, as they offer a different way for achieving major goals of the labor movement, like fair wages, and a different way of representing the workers themselves. In Argentina and Venezuela, we see major examples where governmental policies have aided in the creation and maintenance of worker cooperatives, and even the United States has already proposed and passed legislation to do the same.

Background: The History, Principles, and Structure of Worker Cooperatives

Worker cooperatives are not a new idea. In fact, according to historical expert Chris Wright (2010), worker cooperatives date as far back as the late 18th and early 19th centuries, having been formed while workers were either on strikes or after such strikes had failed. Worker cooperatives gained strength throughout the mid to late 1800s, as the Industrial Revolution churned on. This lead to the Sherman Antitrust Act, which prohibited anti-competitive business activities by large corporations and monopolies and also created a more competitive environment for cooperatives. Worker cooperatives saw another surge in the mid to late 1900s, as part of both the labor movement and the anti-authoritarian youth movement, and have continued to have a strong presence in America to this day (Wright, p. 84–104).

Now that we’ve got a brief historical background of worker cooperatives, let’s delve into what they really are. According to the US Federation of Worker Cooperatives, worker cooperatives are businesses that are both controlled and owned by their workers. Workers, also called members, own the business together, and decisions are made democratically, normally adhering to a one member-one vote principle (What is a Worker Cooperative, para. 4,). According to the Canadian Worker Co-operative Federation, there are many cooperative “values,” including but not limited to democracy, equity, and social responsibility. This is further explained and described in the seven “cooperative principles,” which are the guidelines cooperatives use to put their values into practice.

They are voluntary and open membership, democratic member control (as explained earlier), member economic participation, autonomy and independence, education, training, and information, co-operation among cooperatives, and concern for community (Statement of Co-operative Identity, n.d.). In other words, co-operatives are autonomous organizations controlled equally by their members. These organizations work for their members and their communities’ needs and co-operate locally, nationally, and internationally with other co-operatives.

So what makes worker cooperatives different from unions, then? Worker cooperatives, though they have similar goals to unions, are not the same as unions. Though both types of organizations work within the larger labor movement, some of the cooperative principles are not mimicked in unions. As University of Oslo professors Karl Ove Moene and Michael Wallerstein (1993) write in their chapter “Unions versus cooperatives” of the book “Markets and Democracy: Participation, Accountability and Efficiency,” while worker cooperatives operate on the premise of equal democratic member control, unions are organizations formed separate from businesses that have a hierarchical structure and who represent the interests of workers from entire industries. While cooperatives achieve their goals through the organization of cooperative businesses themselves, unions achieve their goals through such practices as collective bargaining, by which union representatives work with business owners to support the workers they represent, namely by negotiating wages (Moene & Wallerstein, p.147–158).

To further understand worker cooperatives, we should see a few examples of worker cooperatives, as well as the reasoning the workers had for creating these cooperatives.

From Detroit to Spain

Economist Richard D. Wolff (2013), a supporter of worker cooperatives, sees a major reason to support worker cooperatives in what was once known as the automobile manufacturing capital of the world — Detroit, Michigan. Through the Industrial Revolution, the city of Detroit grew into a power house, a city with an ever-expanding number of well-paying jobs available in the car manufacturing industry, due in large part to the strength of the unions at the time. However, by the late 20th century, the power of unions had been greatly diminished. Large corporations, such as GM and Chrysler — though the automotive industry was only part of the problem — were demanding large wage and benefits cuts to their middle-class workers in exchange for staying in Detroit and not laying off all of their workers (Wolff, 2013). As Wolff explains, the unions would then have two choices. They could negotiate with the employers of their memberships’ workers, or they could call the employers’ bluffs. In the case of Detroit, they did the latter — and with devastating consequences. GM, Chrysler, and the other major automotive corporations left and moved their jobs elsewhere in the United States and overseas, leaving those in Detroit without work. Without work in Detroit, those who could afford to leave the city did, as the population of Detroit has decreased from around two million people to about 700,000 (Wolff, 2013). Forty percent of the houses in Detroit are abandoned or uninhabited. Today, due to a lack of workers, and therefore a lack of revenue, the city of Detroit has declared bankruptcy, and faces major problems, including a water shortage (Wolff, 2013).

The failure of Detroit can be attributed to many different causes, one of which is the decline of the power of unions and union membership since the mid-1970s. According to Wolff, only 7% of workers in the private sector are members of unions, and only somewhere from 25% to 35% of public sector workers are union members (2013). Henry S. Farber and Bruce Western (2001), in their writing for the Journal of Labor Research, “Accounting for the Decline of Unions in the Private Sector, 1973–1998,” find that the decline of unions is due to “broader market” forces, and that increased organizing by unions still won’t succeed in turning back this decline (Farber & Western, p. 459–468). In other words, as corporate power has grown, union power has decreased, likely to the point of no return. However, while Farber and Western believe this is a regular symptom of the markets, Wolff sees it as a result of capitalism itself, and a reason to move toward a more socialist society. As a result, Wolff suggests that when GM and Chrysler threatened the unions with moving out of Detroit, the unions should have welcomed it (Wolff 2013; Farber & Western 2001). They should have opened up their own manufactories, owned by the workers, and provided local consumers with the cars they needed to get to work and around the city.

Mondragon, Spain is famous amongst scholars for the Mondragon Corporation, which many see as the perfect example of a worker cooperative. The Mondragon Corporation was created at the end of World War II, and is a corporation and federation of worker cooperatives based in the Basque region of Spain. It is currently the tenth largest corporation in the entire country of Spain. In their book “Making Mondragon: The Growth and Dynamics of the Worker Cooperative Complex,” authors and urban sociologists William Foote Whyte and Kathleen King Whyte (1988) find that Mondragon is a prime example of a worker cooperative formed in order to support local workers that has succeeded (Whyte, K. & Whyte, W., p. 3–7). However, not everyone agrees on the success of Mondragon in relation to the labor movement. In her dissertation for the City University of New York, “The Myth of Mondragon: Cooperatives, Politics, and Working Class Life in a Basque Town,” anthropology professor Sharryn M. Kasmir (1993) writes that the Mondragon Corporation “is part of a new industrial ideology that promotes cooperative and participatory labor-management relations in order to discredit labor unions and working class organization” (Kasmir, p. iv-v). Kasmir believes that Mondragon and other worker cooperatives are an attempt to “discredit” labor unions and replace them (Kasmir, iv-v). However, this isn’t necessarily a bad thing — unions are part of the failing capitalist structure, experts like Wolff would say, and worker cooperatives offer a strong alternative to replace them. Farber and Western may agree with Wolff that this isn’t a bad thing, but for a different reason. They argue that unions, which have been on the decline since the mid-1970s, have passed the point of no return (Farber & Western, p. 459–460). It is for that reason that worker cooperatives offer not only a strong replacement, but a necessary replacement.

But Do They Work?

So while Farber, Western, and Wolff may agree that worker cooperatives are necessary to help middle-class workers, there is still much debate over how effective worker cooperatives are at this task. Wright states that through the 2008 recession, “worker cooperatives are seeing growth as people choose the cooperative form of enterprise to respond to new economic realities” (Wright, p. 84–94). In other words, Wright finds that as traditional forms of business fail, people turn to different means of work, like worker cooperatives. This is exemplified through the New York City Co-op Network, the Evergreen Cooperative Initiative in Ohio, which is expected to create as many as ten worker cooperatives, creating hundreds of jobs in the next few years, and more. Therefore, Wright would argue that worker cooperatives are very successful at the tasks they attempt to accomplish, especially creating jobs for middle-class workers, specifically ones that pay workers fairly. Some may argue that the basic structure and principles of a worker cooperative mandate that it succeeds in these goals, especially in fair pay for workers. For example, in the Mondragon Corporation, managers of worker cooperatives, who are decided on by the workers themselves in the first place as evidenced in the second principle of worker cooperatives, cannot be paid more than 8.5 times the average worker (Ferdman, 2014). This is in stark contrast to conventionally-owned businesses, as a study by the Harvard Business School recently found that in the United States, CEOs make more than 350 times the average worker. Therefore, worker cooperatives strongly help workers receive fair wages (Wright 2001; Whyte, K. & Whyte, W. 1988; Ferdman 2014).

A study by René van den Brink in Social Welfare and Choice entitled, “Vertical wage differences in hierarchically structured firms” (2007), found that “the wage of a manager is always at least as high as the wage of its subordinates. On the other hand, the wage of a manager never exceeds the sum of the wages of its direct subordinates” (Van den Brink, p. 225). In other words, in worker cooperatives, a manager still makes more than the average worker, just like in conventionally-owned businesses, although they are more efficient at guaranteeing fair pay than conventionally-owned businesses as a manager’s pay can’t be too high. Consequently, they contradict Wolff’s sentiments that worker cooperatives are a type of “socialist solution” — there is still a vertical wage structure. In “Worker Cooperatives: Crashing in the Same Car,” published in Industrial Worker, Ogier (2014), a worker at a worker cooperative himself, makes the same argument, arguing that worker cooperatives “‘challenge’ capitalism in the most superficial way” (Ogier, para. 1). Nevertheless, they agree with Wolff in that worker cooperatives and other forms of cooperatives succeed in achieving fairer pay for workers.

Worker Cooperatives and Recessions in the Global Spotlight

Worker cooperatives have continued to grow larger in the world spotlight since the Great Recession, and for good reason. For example, in 2009, as the Great Recession was nearing its worst, the United Nations General Assembly decided to declare 2012 the “International Year of Cooperatives,” going so far as to state that “cooperatives, in their various forms, promote the fullest possible participation in the economic and social development of all people … [and they] are becoming a major factor of economic and social development” (Brown, 2012). Rachel Brown (2012), writing for “Rural Telecommunications,” called the year 2012 “historic.” In her article, Brown specifically noted the strength of worker cooperatives in regards to recessions, quoting National Cooperative Business Association (NCBA) President and CEO Paul Hazen, who said the “co-op model … [is] a business model that can survive the recession and create jobs and bring wealth to local communities” (Brown, para. 10).

The strength of cooperatives is especially important in the United States, considering the sheer number of cooperatives operating in the country, let alone their importance in recessions. As Brown notes, the NCBA estimates that in the US, “29,000 co-ops … generate 2 million jobs,” and these co-ops “substantially contribute to the national economy, with $652 billion in annual sales and $3 trillion in holding assets” (Brown, 2012). Of these 29,000 cooperatives, which range from worker cooperatives to food cooperatives and beyond, Gary Dorrien, in his article “A Case for Economic Democracy” (2009) published in Tikkun magazine, estimates that there are approximately 12,000 worker cooperatives in the U.S (Dorrien, 2009).

It is still important to consider whether or not worker cooperatives fare well in recessions. Around the same time Dorrien’s article was published and the United Nations declared 2012 the “International Year of Cooperatives,” as the Great Recession was hitting its hardest, Johnston Birchall and Lou Hammond Ketilson of the International Labor Organization (ILO) put out a report titled “Resilience of the Cooperative Business Model in Times of Crisis.” In their own words, Birchall and Ketilson (2009) published this report in order to “provide historical evidence and current empirical evidence that proves that the cooperative model of enterprise … is a sustainable form of enterprise able to withstand crisis, maintaining the livelihoods of the communities in which they operate” (Birchall & Ketilson, p. 2). In their report, they analyze recessions in the 1970s and 1980s in Western Europe, as well as the Argentinian financial meltdown of 2001, which we’ll delve into later, and find that in each of these cases, the response included a wave of worker cooperatives specifically designed to find work for those now unemployed.

Worker cooperatives aren’t just a short-term solution used only as a result of recessions. Birchall and Ketilson found that, according to the International Co-operative Alliance (ICA), four years before the Great Recession, “the top 300 cooperatives in the world had around the same output as the GDP of Canada” (Birchall & Ketilson, p. 8). Furthermore, Edward Martin and his colleagues in their article “Social Reform and Worker Cooperatives: Countering Economic Inequality” for Global Virtue Ethics Review (2014) find that the “cooperative movement possesses [potential] for insulating people from economic calamity” (Martin et al., p. 20). Specifically, they find that cooperatives tend to have a strongly better success rate than conventionally-owned businesses, stating that “the rate of survival of cooperatives after three years was 75%, whereas the ratio was only 20% for all enterprises” (Martin et al., p. 20). Therefore, cooperatives not only fare better than conventionally-owned businesses in times of recession, but they do so even in times of economic

Argentina and Venezuela: How Government Action Aids Worker Cooperatives

Governments around the world have already adapted policies to aid worker cooperatives, both in response to tough economic times and times of economic stability. One such government is the government of Argentina, as we mentioned earlier. According to an in-depth piece by Jon Jeter of The Washington Post (2003), after Argentina suffered a financial meltdown in 2001, many private corporations fell through, including the Ghelco S.A. factory. In response, there was a wave of workers taking over the institutions to run them themselves — as worker cooperatives. When the Ghelco factory fell through and the owners filed for bankruptcy, the workers protested (Jeter, 2001). They refused to leave, and decided to show up to work and keep the factory going, controlling it themselves, until the local government stepped in (Jeter, 2001). As part of a government pilot program aimed at “seeding” cooperatives to combat unemployment, which had risen as high as 24% by 2003, the Buenos Aires province legislature seized the Ghelco factory and then handed it over to the workers to form a worker cooperative (Jeter, 2001). The venture has been successful — so successful, in fact, that the original owners of the Ghelco factory have attempted to buy it back from the workers (Jeter, 2001). The success of this pilot program led the Ministry of Social Development of the Argentinian government to create the “Argentina Trabaja,” or Argentina Works, program, which signed agreements with local governments across the country to promote cooperatives, with the long-term goal of creating 100,000 goals for “vulnerable people,” or people who are unemployed, lack job training and have no other form of income. In 2010 the MSD conducted a study in order to evaluate the success of the program and concluded that the program largely did help those who truly needed the help — it found that half of the members of these cooperatives are women, “79 percent of participants had not completed the 13 years of primary and secondary education that are compulsory in Argentina, and 77.6 percent had no trade or profession when they entered” (Valente, 2011). In other words, the Argentinian government, in response to widespread unemployment and an economic recession, encouraged local governments to help create and maintain worker cooperatives (Valente, 2011). These cooperatives, in turn, managed to help those who were badly in need of such help.

The Venezuelan government has also adopted policies to aid worker cooperatives. Since 1998, the country has seen an explosion of cooperatives, starting from 877 in 1998 to as many as 30,000 to 60,000 in July 2009, according to Camila Harnecker’s (2009) study of Venezuelan cooperatives. Harnecker contributes this incredible growth in cooperatives to Venezuelan government actions and policies. A Cooperative Law passed in 2001, as well as other government policies, for example, requires state institutions and private companies with contracts with the government to prioritize cooperatives when doing contract bidding (Harnecker, para. 1–3). Another example of this can be seen in MINEC, the Ministry of Communal Economy (formerly MINEP, the Ministry of Popular Economy), which was created to provide job training and encourage the creation of various forms of cooperatives by offering access to various types of support from the government as well as state contracts (Harnecker, para. 4). Overall, the creation of this Ministry as well as the passage of laws in support of cooperatives has not only allowed for, but has also accelerated the growth and creation of cooperatives in Venezuela (Harnecker, para. 3–7).

Back to America: U.S. Legislation on Cooperatives

Argentina and Venezuela provide two great case studies of governments that have helped aid the growth, creation, and maintenance of worker cooperatives, which, as shown in Argentina, tend to aid mainly those who need it most — women, the unemployed, and people with a lack of education. But South America isn’t the only place where legislation has helped cooperatives thrive. In fact, surprisingly enough, legislation to do just that has been proposed and enacted back here, in the United States.

In June 2013, Democratic Representative Chaka Fattah of Pennsylvania proposed H.R. 2437, or the Creating Jobs Through Cooperatives Act. According to GovTrack, which receives its information from the nonpartisan Congressional Research Service division of the Library of Congress, the bill would “[direct] the Secretary of Housing and Urban Development (HUD) to establish a National Cooperative Development Program to create jobs and increase economic development in eligible project areas by promoting cooperative development.” Getting past this legal mumbo-jumbo, the bill would create a program aimed at creating jobs and increasing economic development in low-income communities by promoting “cooperative development,” which GovTrack defines as “assistance for the establishment of cooperative organizations, which are autonomous associations of persons united voluntarily to meet their common economic, social, and cultural needs … through a jointly owned and democratically controlled enterprise” (Creating Jobs Through Cooperatives Act, n.d.). Therefore, based on our previous definition of a worker cooperative and its principles, this bill calls for the government to aid in the creation of worker cooperatives in low-income areas, which, as shown in Argentina, has been very effective. It would also call for 1 to 5-year grants for local cooperative development centers, which would be given out through a competitive process.

Though this bill has not passed Congress, it is not the only bill that would aim to help worker cooperatives. The Cooperative and Small Employer Charity Pension Flexibility Act (S. 1302) was not only passed in the Senate, but also passed the House of Representatives and was signed by President Obama in April 2014. According to GovTrack, this Act was created to make it easier for small businesses and cooperatives to be able to provide pensions benefits for their employees and to provide a “cost-effective way for cooperative associations and charities to provide their employees with economic security in retirement.” Not only was the bill passed and enacted — it passed the Senate by unanimous consent, and Democratic leaders who controlled the Senate and Republican leaders who controlled the House worked together to provide a bipartisan compromise between Senate and House versions of the Act (Cooperative and Small Employer Charity Pension Flexibility Act, n.d.). All of this occurred without any massive partisan battle in one of the most gridlocked Congresses in history.

***Note: Since I wrote this report, Senator Bernie Sanders (I-VT), who also happens to be a Democratic presidential candidate, has put forward policies to further aid the growth of worker cooperatives. You can find more on that here.

Conclusion

Worker cooperatives offer a unique opportunity in America. Both major political parties have managed to compromise in order to pass legislation in support of worker cooperatives, which themselves offer a solution to various problems plaguing America and the world, and they should continue to pass legislation in this way, such as through the Creating Jobs Through Cooperatives Act. From Detroit to Spain, worker cooperatives have managed to achieve major labor-supportive goals, such as fair wages, and have been successful in trying to repair the wounds in the labor movement left by the decline of unions. Worker cooperatives offer a strong solution for workers both during and after a major economic recession, as evidenced by their strength through both the early-2000s recession in Argentina and the late-2000s recession in America. In Argentina and Venezuela, government initiatives have managed to help create worker cooperatives and keep them going, and these cooperatives have mainly helped those who are unemployed, lack job training, and minority groups such as women. In the future, America can use this opportunity to bring more lasting, fair-paying jobs to the poor and middle-class workers who truly need them.