Can Union Co-ops Help Save Democracy?

A new wave of cooperatives is emerging in the US, and a big part of the inspiration is coming from what might seem an unlikely source: the United Steelworkers International Union (USW), which describes itself as North America’s largest industrial union, with 1.2 million active and retired members.

In 2009 the USW joined with Mondragon Inc. of Spain and Kent State University’s Ohio Employee-Ownership Center (OEOC) to start a discussion on bringing the successful Mondragon model of employee-owned cooperatives to the US. Mondragon was founded in 1956 and today includes some 260 enterprises, many of them cooperatives, in more than forty countries, with annual sales of 24 billion dollars. OEOC brings to the effort 25 years of institutional expertise in the development of employee-owned businesses. The collaboration with the USW was announced in the national media in 2009, and in 2012 the three organizations followed up with the release of a how-to guide called “Sustainable Jobs, Sustainable Communities: The Union Co-op Model.”

The core goal of any employee-owned cooperative, a model dating back to the 18th century, is to organize business democratically. The people who do the work jointly run the business, all have a say, one-person one-vote, and all share in the profits. Mondragon has spent decades perfecting the model in Europe, and the addition of collective bargaining through a union committee is a new twist that can bolster democracy and garner additional resources for launching and sustaining cooperatives.

Union partnership with employee-owned co-ops is part of a philosophical ebb and flow within the US labor movement, as the tide turns alternately toward negotiating the status quo of the corporate economy or toward reforming it.

In the 1860s, National Labor Union leader William Sylvis boldly declared “The time has come when we should abandon the whole system of strikes and make cooperation the foundation of our organization and the prime object of all our efforts.”

The Knights of Labor made employee-owned co-ops a priority in the 1870s, and union leader Terrence Powderly later wrote “My belief that cooperation shall one day take the place of the wage system remains unshaken.”

Proponents of today’s union co-ops may not be seeking to overthrow the wage system, but they do believe the model will help people to create more employee-owned co-ops, and more profoundly democratic ones. And they promote union co-ops as a solution to several deficiencies of the US workplace at the micro level of the single company: lack of democracy, wage disparity between highest- and lowest-paid employees, and job insecurity.

Some also hope these micro-level solutions might someday transform the US political economy at the macro level, helping solve problems like the growing wealth disparity between the 1 percent and the 99 percent and its strain on democracy, stagnant for the US workforce, and the community instability and drag on net job growth caused by downsizing and by off-shoring of jobs.

The prospects for these micro and macro goals are worth examining more closely. But first, just what is the Union-Co-op initiative?

The union co-op initiative

The first thing to understand is that the initiative is not a centrally-directed program one just plugs into. There is no central hub. The initiative is better understood as an agreement among the USW, Mondragon, and OEOC to develop and share out a model which strengthens the traditional employee-owned cooperative through a new partnership with labor unions. And, in equal share, the initiative consists in the response of interested workers, business owners, unions, non-profits, and local communities who have heard of the model and are now talking with each other, and with the USW, Mondragon, and OEOC, about starting new co-ops.

“The response to the initial press release in 2009 was overwhelming,” says Rob Witherell of the USW, “and people keep coming to us to learn more.”

The “Union Co-op Model” how-to guide (available at www.usw.org/our_union/co-ops) explains the Mondragon model and how the union co-op improves on it. It lays out the vision and principles that are the moral foundation for the model and also describes the mechanics of governance, ownership, financing, compensation, and collective bargaining. There are even a couple of short case studies. Even as thorough as the document is, it is a guide, not an instruction manual, and there are many specifics which, as Chris Cooper of OEOC explains, “employee-owners will have to decide for themselves.”

And employee-owners are doing just that. The Cincinnati Union Cooperative Initiative (CUCI) and local partners are already putting the union co-op model into practice. A local food growing, distribution, and retail cooperative called Our Harvest, whose workers are organized by the United Food and Commercial Workers Union, was launched in 2012 and is preparing to expand. CUCI is now helping lay the groundwork for another union co-op, organized by the Greater Cincinnati Building and Construction Trade Council, to improve the energy-efficiency of aging commercial buildings. There is also a project to recruit a Mondragon cooperative, the Danobat Group, to open a union co-op railway manufacturing plant in Cincinnati organized by the USW.

“Today there are projects underway in Cleveland, Cincinnati, Pittsburgh, New York, Seattle, Denver, and new ones starting all the time,” says Michael Peck of Mondragon USA.

Some employee-owned cooperatives which developed independently of the union co-op model have nonetheless helped inform the new model. A few recent examples:

The Evergreen Cooperatives in Cleveland, Ohio are not organized as union co-ops but are demonstrating the viability of the Mondragon model in the US. Evergreen currently operates three employee-owned enterprises: Evergreen Energy Solutions, started in 2008, installs solar panels and provides energy efficiency services; Evergreen Cooperative Laundry, started in 2009, is an industrial laundry serving institutional customers; and Green City Growers Cooperative, started in 2013, is an urban organic farm.

In New York City, Cooperative Home Care Associates evolved gradually into a union-organized cooperative. Launched as an employee-owned cooperative in 1986, CHCA invited the Service Employees International Union to organize its worker-owners in 2003, and finally established a labor-management council in 2007 which, though not identical to the union committee of the union co-op model, can be seen as a precursor.

Creating more employee-owned cooperatives

Out of 5.7 million firms the Census Bureau finds in the US, fewer than 300 are employee-owned cooperatives, according to the US Federation of Worker Cooperatives (USFWC) in San Francisco. Phrased optimistically, that’s a lot of room for growth.

Proponents say the union co-op model can help worker-owners fill the gap. That’s because pairing a start-up cooperative with a labor union instantly adds financial resources and community support. A unionized workforce typically can access more affordable group health insurance or retirement plans through the labor union, allowing the new business to affordably offer the benefits that attract high quality employees. And a labor union serves as a community ally who can advocate to local civic leaders on behalf of the start-up cooperative as it seeks funding or other support.

In fact starting up, rather than surviving, seems to be the challenge for employee-owned co-ops, because surprisingly, indirect evidence suggests that sustaining an employee-owned co-op is no more challenging than sustaining any business. They might even have better survival rates.

“Worker-owned co-ops have to accomplish everything any business does—a good product, a viable market, the right pricing,” says Michael Peck of Mondragon USA. “And we do all that better by giving people ownership of the work they do.”

There are anecdotal examples of decades-old employee-owned co-ops still running today. The USFWC points to the examples of Rainbow Grocery, San Francisco, founded in the mid-1970s; Alvarado Street Bakery, Petaluna, California, founded in the mid-1980s; Equal Exchange, Boston, founded in the early 1980s; and Isthmus Manufacturing, Madison, Wisconsin, founded in 1980. Anecdotes are not statistical data, though, and a few stories of success tell us no more than would a few stories of failure.

But survival rates for US cooperatives, employee-owned or otherwise, are hard to come by. The US Department of Commerce does not distinguish co-ops from other businesses, so its voluminous statistics shed no light. “We’ve been aware for a while of this gap in the data,” said Anne Reynolds, assistant director of the Center on Cooperatives at University of Wisconsin-Madison. The center is preparing a five-year longitudinal study to track the longevity of US co-ops, including employee-owned co-ops, in a range of economic sectors. And the USFWC started this year to track the longevity and number of worker-owners of every known US employee-owned cooperative.

Until direct data is available, indirect evidence can be gathered from two sources: studies of Canadian cooperative longevity, and studies of the longevity of US employee-owned companies, mostly those with Employee Stock Ownership Programs or ESOPs.

Canada finds that cooperatives can be less risky than conventional business start-ups. The data does not distinguish between types of cooperatives—employee-owned, consumer, or producer—but can serve as a starting point for understanding cooperative viability in general.

A study called “Co-op Survival Rates in British Columbia” published in 2011 by the Canadian Centre for Community Renewal found a 5-year survival rate of 66 percent for cooperatives, compared to 38 percent for British Columbia’s conventional businesses and 43 percent for all of Canada’s conventional businesses.

Similarly a 2008 study by Québec’s Ministry of Economic Development, Innovation and Export found Québec cooperatives had a 10-year survival rate of 44 percent compared to 20 percent for conventional businesses.

For reference, the 5-year survival rate of all US private sector businesses established in 2007 is 46 percent, and the 10-year survival rate of those established in 2002 is 34 percent, according to the US Bureau of Labor Statistics. This means that US cooperatives could score nearly 20 points below Canadian cooperatives’ 5-year survival rate and 10 points below their 10-year rate and still score equal in survival to US businesses as a whole.

Meanwhile the paper “Effects of ESOP Adoption and Employee Ownership,” by Steven Freeman of the University of Pennsylvania, surveys 30 years of research and finds “not only that employee-owned firms are more profitable and productive, but that they also survive longer.” The paper looks at US companies with employee stock ownership programs, not employee-owned cooperatives, but the relevant finding is a correlation between employee ownership and enhanced company longevity.

The paper cites, for example, a study by Blasi and Kruse (2007) which shows a 70 percent survival rate over 11 years for privately held employee-owned companies, compared to a rate of only 55 percent for similar non-employee-owned companies.

Regardless of whether the survival of employee-owned co-ops is better than or equal to that of conventional businesses, the added resources and support which the union co-op model brings to start-ups could be expected to enhance longterm survival as well, helping to increase the number of US employee-owned co-ops over time.

Micro-level goals for a more balanced workplace

Proponents suggest that the union co-op model can create cooperatives which are more profoundly democratic. Although by definition the employee-owned cooperative already is governed democratically—one worker, one vote—some argue that democracy requires more than just a chance to vote at the annual meeting. Especially in larger co-ops, the exercise of power by worker-owners in management roles can overrun the general body of worker-owners, according to Chris Cooper of OEOC. “As the cooperative grows in size,” Cooper says, “democratic participation can suffer.”

Gar Alperovitz, professor of political economy at the University of Maryland and author of a new book “What Then Must We Do?” echoes the concern: “Everything I’ve seen suggests that without [special] mechanisms in place, a worker-owned firm can fall apart or become indistinguishable from a traditional capitalist enterprise.”

Mondragon found a solution. Just as America’s founders developed a system which, beyond voting, also relies on a separation of powers among the branches of government, so Mondragon found that creating a social council of worker-owners to serve as a voice for the general body of workers helps to restore balance between workers and managers. “In a democracy, redundant protections are good,” notes Kristen Barker, director of CUCI.

The union co-op model starts from Mondragon’s innovations and then further protects the balance between workers and management first by allowing all non-supervisory workers to organize as labor union members and second by transforming Mondragon’s social council, which has power to advise but not enforce, into a union committee with the power to negotiate and enforce collective bargaining agreements. As Alperovitz puts it, the union committee is “tasked with making sure the cooperative lives up to its ideals.”

Adding collective bargaining to the mix is all the more important because sometimes not all workers at employee-owned co-ops are owners. “There is typically a candidacy period of six months to two years for new employees,” says Melissa Hoover, USFWC executive director. During this waiting period an employee prepares for membership through trainings in finance and cooperative decision-making.

Moreover, some workers simply choose not to join. “Some are satisfied with decent wages and don’t want to share the risk, or don’t want to attend meetings and trainings,” says Hoover, who points out that only 50 percent of workers must be owners to meet “sub-chapter T” federal tax requirements for cooperatives, though many employee-owned co-ops set higher ownership goals.

Whatever the reasons and however small in number, non-owner employees are a reality, and collective bargaining under the union co-op model ensures that all workers have a voice, even those who are not owners.

Proponents of union co-ops, like proponents of employee-owned cooperatives generally, also hope that bringing more democracy to the workplace will lead to fairer pay and better job security.

In a conventional corporation officers wield authoritarian control over employees and are accountable only to shareholders. These shareholders are investors who might reside anywhere in the world and whose stake in the corporation is simple: a high return on their investment. They can reap profit from the “cost savings” of employee pay-cuts and layoffs without ever feeling the human consequences.

And although some employees might own shares in the conventional corporation, shareholder voting power is not the democratic one person, one vote. Instead it is one share, one vote, so that those who can afford to buy the most shares—high-paid executives, wealthy external investors—always win.

The result in the conventional corporation is a circle of ever-increasing consolidation of wealth and power in the hands of a few. It is little surprise then that CEOs of conventional corporations in the US earned 231 times more than typical employees in 2011, according to the report “CEO Pay and the Top 1 Percent” by the Economic Policy Institute (EPI) in Washington, DC.

In the employee-owned co-op, the employees all hold equal voting power—one worker-owner, one vote—in selecting board members and making decisions at the annual meeting. And these voters tend to be socially and emotionally invested in the company’s fairness, success, and stability because typically they are the very workers whose lives will be affected by the decisions. And in the union co-op, even workers who are not owners have a voice through union representation.

The result ideally is a workplace where employees enjoy working democracy: They can vote to diminish disparity in pay between top and bottom, and during hard times they can vote for practical alternatives to layoffs, such as temporarily reduced hours, thus improving job security.

And although the roles of the manager and the managed still occur in employee-owned co-ops, especially larger ones, the very fact of shared ownership mitigates against a strong top-down culture and leaves more room for, yes, cooperation.

Macro-level goals for a more balanced society

Some proponents also hope that employee-owned cooperatives, and especially union co-ops, might someday transform the US at the macro-level, helping solve problems like the growing wealth disparity between the 1 percent and the 99 percent and its strain on democracy, stagnant wages for the US workforce, and the community instability and drag on net job growth caused by downsizing and by off-shoring of jobs.

Recognizing that a balance in decision-making power and wealth holding in the economy is crucial to sustaining a balance in political power among the people, some scholars call these macro-level reforms “economic democracy.”

Thad Williamson, a political scientist at the University of Richmond, defined the term in his paper “The Relationship Between Workplace Democracy and Economic Democracy” as the idea that “meaningful self-governance over the conditions and institutions which shape our lives—the core ideal of political democracy—requires not just democratic control over political institutions, but also extending norms of democratic self-governance to economic life.”

Alperovitz, Williamson, and others identify a range of institutional forms which could help build economic democracy, and employee-owned cooperatives, including today’s union co-ops, are one of them.

If at the micro level cooperatives restore democracy through the governance structure of one worker, one vote, what are the mechanisms by which they would restore democracy at the macro level?

One mechanism is simply habit. The anthropologist Mary Douglas observed that people often think and act by analogy. People can of course invent new ideas and practices, but for efficiency as well as for coordination, they typically look to existing ideas and practices and develop new ones by analogy with the old. If more Americans are practicing daily democracy by working at employee-owned co-ops, instead of practicing toeing the line at conventional, authoritarian corporations, then perhaps more Americans will be acquiring the habits and skills needed for effective participation in civic and national democracy.

“We do not learn to read or write, ride or swim, by being merely told how to do it, but by doing it,” wrote the nineteenth century philosopher John Stuart Mill, cited in Alperovitz’s recent book, “so it is only by practicing popular government on a limited scale, that the people will ever learn how to exercise it on a larger.”

Tim Huet, co-founder of the Arizmendi Cooperatives, declared in a 2004 manifesto: “You cannot say that a society is truly democratic if its adults spend the majority of their waking hours in undemocratic workplaces.”

Another mechanism by which cooperatives can strengthen democracy is by rebalancing raw power and influence in society, resulting in more balanced election funding and policymaking. Today the 1 percent hold far more wealth and more ability to influence politicians than the 99 percent.

Two strategies which conventional corporations have used to boost profits have also led to the growing disparity in wealth and power. These are downsizing employment by replacing people with machines or making fewer people work harder and faster, and sending jobs overseas where wages are lower. The lower the wage bill, the greater the profit left over for executives and shareholders.

Under these strategies, the US economy has not created enough jobs. From one job seeker for every one job in 2000, the ratio of job seekers to job openings rose in 2003 to 3-to-1, where it remains today after spiking to 7-to-1 during the Great Recession, according to EPI’s “The State of Working America.”

Beyond downsizing, the US job market has been gutted by the offshoring of jobs due to the high value of the US dollar, which makes US labor and products relatively expensive, thus discouraging US exports and encouraging imports. EPI’s briefing paper “The China Toll” reports that trade with China alone cost US workers more than 2.7 million jobs between 2001 and 2011. The high dollar is largely a result of policy choices, says Dean Baker, economist and director of the Center for Economic and Policy Research (CEPR) in Washington, DC, and is favored by powerful corporations in finance, manufacturing, and retail.

When job seekers outnumber job openings due to downsizing and offshoring, it’s a buyers’ market in which employers can bargain down the wages they offer for labor. It is not surprising then that real wages for most American workers have remained essentially flat since the 1970s even as pay at the top has risen. According to “The State of Working America,” between 1979 and 2007, the top 1 percent of US households received more income growth than the bottom 90 percent combined.

Meanwhile, US corporate profits nearly doubled from $434 billion in 1990, to $819 billion in 2000, and doubled again to $1.6 trillion in 2010, according to the April 2011 “Survey of Current Business.”

The imbalance in wealth and power generated by shareholder corporations throws American democracy out of balance because one community—large corporate shareholders—has the clout to overwhelmingly influence public affairs. In 2010 corporate interests spent more than a billion dollars on political contributions in the US, nineteen times more than labor unions spent, according to the Center for Responsive Politics.

Promoting a company governance structure like that of union co-ops, which carries incentives for sustaining jobs and broadly sharing profits rather than cutting jobs and funneling profits to the top, would help balance wealth and, with it, political influence.

Employee-owners who have a one-person one-vote say in how a successful cooperative is run, and especially those bolstered by a union co-op’s collective bargaining agreement, can be expected to see fairer wages and more job security than workers in a conventional company. Employee-owners simply don’t have the same incentives as conventional shareholders to cut wages or cut jobs. And they certainly don’t have the same incentive to close plants and move to Asia or Latin America for the sake of cheaper labor and higher profits.

“Cooperatives are more rooted in the local community,” says Chris Cooper. “They are not going to be offshoring their own jobs.”

“We see union cooperatives as a way to stabilize wages and benefits by taking them out of competition with lower-paid workers in China,” adds Rob Witherell.

If union co-ops can increase as a share of all US employers, then the effects would be multiplied throughout the economy. Even employees of conventional companies could eventually benefit from what economists call the “spillover effect” in which other employers raise median and low-end wages to compete for hires.

So the question becomes a matter of proportion: Assuming employee-owned co-op wages are more fairly balanced than wages in conventional corporations, what share of the US workforce would have to be employed in these co-ops in order to have a measurable impact on US wage disparity?

According to Dean Baker of CEPR, “If you could get 4 to 5 percent of the workforce in real co-ops, then it would make a difference, especially if they act politically self-conscientious.”

The report “Research on the Economic Impact of Cooperatives,” published by the University of Wisconsin Center for Cooperatives in 2009, shows that US co-ops maintain about 856,000 full-time equivalent employees. This is less than one percent (0.65 percent) of all US non-farm employees, according to Current Employment Statistics. So cooperative employment needs to increase by seven times to start having a measurable effect on US wage inequality.

Baker’s qualifier “real co-ops” intensifies the challenge, if this means co-ops that actively pursue shared prosperity and family-supporting wages. The only type of cooperative that, by definition, demands shared prosperity for workers is the employee-owned coop, and the number of persons employed in these co-ops is just 2,380, or 0.002 percent of all US non-farm employees.

And what share of US jobs would have to be employee-owned co-op jobs in order to stem offshoring enough to measurably reduce the drag on US net job growth?

Baker suggests that if cooperative employees do not act politically, then their employment as a share of all US employment would need to be even larger than 4 to 5 percent to measurably stem the offshoring of US jobs. “You will need some really huge share to affect outsourcing, because this is a function of economic incentives driven by policy like the high dollar,” Baker explains. “If we get all our steelworkers in co-ops, but you can get steel for half the price from the developing world, then no one will buy the steel from the US co-ops.”

And what about that curious booster effect which Baker calls “politically self-conscientious” action?

A matter of culture

Culture could ultimately be the factor that decides the power and fate of employee-owned cooperatives, both at the micro and macro levels.

People create a culture of shared practices and beliefs as a simple effect of each one seeking to meet their own need for effective social and economic transactions and a coherent worldview. So argued Mary Douglas in her 1986 treatise “How Institutions Think.” Humans are driven toward shared culture for the simple reason that working with someone is easier if you see and do things the same way, harder of you don’t. Getting in sync typically is not a conscious process. It is a result of gradual poking and prodding, urging us toward the path of least resistance.

Of course our practices don’t always match our beliefs. But according to Douglas, when they do match, then ad hoc associations and arrangements are transformed into lasting and effective institutions.

At the micro-level, that tells us that putting some deliberate effort into understanding worker cooperatives and grasping the deeply held beliefs that bring people together to form one can be very important. When the internal culture is strong, members have the will to say no, for example, to conventional pressures to use excessive executive pay as a recruiting technique or pressures to solicit investment from venture capitalists at odds with cooperative values.

“When starting a new employee-owned coop, taking time to study together is invaluable,” says Kristen Barker. She and the other co-founders of CUCI functioned as a highly-focused book club for about two years, reading about worker coops, watching documentaries, and discussing it all together. Although Barker and her partners were putting together an advisory organization rather than a cooperative per se, their studious method is an example to anyone starting a cooperative. “Especially when a project is embracing new norms and building a new kind of social institution, it’s important to make sure to get things right,” notes Gar Alperovitz.

The catch is that overlapping communities may have differing cultures. Members of an employee-owned co-op can build a strong internal culture. But they simultaneously are members of, or need to coordinate with, other socio-economic communities which might have different cultural tendencies—conventional business culture, for example.

In an era when shareholder corporations dominate not only the American economy but culture as well, an employee-owned co-op, as it seeks to build relationships with suppliers, retailers, and investors, can start feeling its internal culture poked and prodded toward the anti-democratic beliefs of larger, more powerful cultures. Beliefs that democracy is too inefficient, that discipline is the best motivator for those at the bottom and money for those at the top, that the people at the bottom can’t be trusted and the people at the top can, that government is a burden not an aid—might start to seep in.

That tells us that it may be crucial for cooperative proponents to begin identifying and investing in large political-economic communities whose cultures are decisively supportive of cooperatives’ democratic ideals. To be effective, these communities themselves must show a strong mesh of economic transactions and worldview; they must be politically well-organized, share a sense of who they are and what kind of world they want, and hold considerable economic power. Labor unions are one such community who, as Witherell observes, “already share a lot of ideals in common with cooperatives, a sense of fairness and solidarity.”

If employee-owned cooperatives can band together and build culture and wealth, and continue to build alliances like the budding alliance with labor unions, then they might just beat Baker’s daunting odds and help America build democracy in the workplace and in the broader economy.