The Promise and Circumscribed Potential of Worker-Owned Businesses

While our prolonged economic downturn is concentrating power and wealth in fewer and fewer hands, it is also stimulating efforts to create more democratic business models. Today’s Financial Times highlights an increased interest in worker cooperatives, with the Basque’s Mondragon as the model. From a June article in the Guardian:

MC [Mondragon Corporatio] is composed of many co-operative enterprises grouped into four areas: industry, finance, retail and knowledge. In each enterprise, the co-op members (averaging 80-85% of all workers per enterprise) collectively own and direct the enterprise. Through an annual general assembly the workers choose and employ a managing director and retain the power to make all the basic decisions of the enterprise (what, how and where to produce and what to do with the profits)… In short, MC worker-members collectively choose, hire and fire the directors, whereas in capitalist enterprises the reverse occurs. One of the co-operatively and democratically adopted rules governing the MC limits top-paid worker/members to earning 6.5 times the lowest-paid workers. Nothing more dramatically demonstrates the differences distinguishing this from the capitalist alternative organization of enterprises. (In US corporations, CEOs can expect to be paid 400 times an average worker’s salary – a rate that has increased 20-fold since 1965.)…

MC displays a commitment to job security I have rarely encountered in capitalist enterprises: it operates across, as well as within, particular cooperative enterprises. MC members created a system to move workers from enterprises needing fewer to those needing more workers – in a remarkably open, transparent, rule-governed way and with associated travel and other subsidies to minimize hardship….

The MC rule that all enterprises are to source their inputs from the best and least-costly producers – whether or not those are also MC enterprises – has kept MC at the cutting edge of new technologies. Likewise, the decision to use of a portion of each member enterprise’s net revenue as a fund for research and development has funded impressive new product development. R&D within MC now employs 800 people with a budget over $75m. In 2010, 21.4% of sales of MC industries were new products and services that did not exist five years earlier…

During my visit, in random encounters with workers who answered my questions about their jobs, powers, and benefits as cooperative members, I found a familiarity with and sense of responsibility for the enterprise as a whole that I associate only with top managers and directors in capitalist enterprises.

I was in the Basque region earlier this year, and my impression is that the Basques have long been enterprising and egalitarian. For instance, they did not have feudal social structures in the medieval era (land was owned by farmers; home-owners elected representatives; women could inherit property and serve in important positions, such as judges). So Mondragon may in part be a reflection of Basque culture.

So it should not be surprising to see that a business model that differs radically from modern capitalism would be seen as relevant only to those that capitalism has largely ignored. From the Financial Times:

Richmond Spokes, the bike shop where he works, has no boss and no owner. It is just months away from becoming a fully-fledged worker-owned co-operative, where all six employees have an equal share in the company and an equal say in how it is run. That sense of power and purpose is something Mr Johnson never had at his previous job doing computer repairs. “The computer store was just another job,” he says. “Every day when I was going to work for the man, I had to keep repairing my bike just to get to the job. I thought, why not just focus on fixing the bikes.”

The shop is one of several co-operatives in the early stages of forming in Richmond, California, a city suffering from high crime and poverty rates. Unemployment among the population of just over 100,000 people has hovered around 18 per cent this year, well above the current national average of 8.3 per cent. City officials have recently pinned their hopes on co-ops as a key strategy for shifting the local economy and stemming social problems. They believe co-ops can create more, better jobs and stimulate spending at other local businesses

According to the US Federation of Worker Co-operatives, these businesses are mostly in urban areas, at businesses such as restaurants and cab companies. In other industries, such as home healthcare, co-ops have helped to prevent employee attrition and provide more reliable care for the elderly. “The worker co-op takes a profession that is low pay, low morale, and high turnover and makes people worker-owners so they’ve got a vested interest in that business,” says Liz Bailey, interim chief executive of the National Cooperative Business Association.

The city has engaged a consultant to help train and advise new co-ops. In addition to the bike shop, Richmond has a catering coop, and a solar installation company and a bakery coop are in the formation process. Many of the prospective solar company owner/workers have had trouble finding employment due to criminal records or interrupted employment histories.

Not surprisingly, these enterprises can have trouble finding financing:

Solar Richmond is funding its co-op, Pamoja Energy Solutions, through a charitable grant from a foundation. But other co-ops, such as the Richmond Spokes bike shop, that do not have the support of an official non-profit, are struggling to find investors. Banks are suspicious of co-operatives, says Wayne Landers, one of five founding directors of the new Richmond Worker Cooperative Revolving Loan Fund, which will begin making loans to co-ops next month. “Banks do not understand or trust the distributed leadership structure,” he says. “They would like to go to one CEO or one chief financial officer. They want it to be very cut and dried. In the co-op community, we need our own financing infrastructure.”

While this approach is likely to develop more in the way of resources and funding, it’s hard to imagine it will ever be as important to the US economy as Mondragon is to the Basque region, where it is the leading employer. It’s too bad, because, as we have written elsewhere, unequal societies are unhappy and unhealthy societies. But as long as Americans embrace individualism and the myth that one’s fate is the result of effort, as opposed to circumstance, we are going to remain divided and easily exploited.

This post was originally published at Naked Capitalism and is reproduced here with permission.

3 Responses to "The Promise and Circumscribed Potential of Worker-Owned Businesses"

  1. AboutBC   August 29, 2012 at 7:49 am

    Regards from Basque Country

    About Basque Country

  2. The Working World   August 29, 2012 at 12:04 pm

    We're hard at work at The Working World and our La Base offices abroad in Nicaragua and Argentina to provide much-needed finance to cooperative enterprises. We just moved to the US and are having some great successes supporting the cooperative movement in the northeast, with some very interesting projects (you can see those at the TWW USA page of our website). We're interested in moving out west at some point when our fund is large enough. We are very excited about all the great cooperatives in the Bay Area in California.