How Worker-Owned Companies Work

Part of the Series

Moyers and Company

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(Photo: Paul Gibson / Flickr)Economist Richard Wolff is a proponent of democracy at work: an alternative capitalism that thrives on workers directing their own workplaces. In the documentary film Shift Change, producers Mark Dworkin and Melissa Young tell the stories of successful cooperative businesses from Spain to San Francisco. We caught up with Dworkin and Young to find out what makes cooperative businesses work.

Theresa Riley: What drew you to this topic as filmmakers? Why did you want to make this film?

Mark Dworkin and Melissa Young: As filmmakers we don’t just expose problems. We want to help people find solutions. In 2002 we were in Argentina at the height of their economic crisis, and in hundreds of workplaces which had closed, workers took over the company, went back to work, and made a go of it. These examples made quite an impression on us, and we featured their stories in two films: Argentina — Hope in Hard Times and Argentina Turning Around. A friend who saw the Argentina documentaries suggested that we learn more about the Mondragon cooperatives in the Basque Country of Spain. When we did, we were moved and inspired by this successful model of worker ownership and its potential to change the culture of work — not just in Spain but around the world. Our investigations revealed that there are hundreds of thriving worker cooperatives that promote economic democracy right here in North America, but they are little known.

Riley: How many businesses in America are worker-owned?

Dworkin and Young: Employee ownership in the U.S. is much more widespread than usually understood, with at least 11,000 such businesses in operation. Many are Employee Stock Ownership Plans or ESOPs, where employees own part or all of the company. Introduced under President Nixon, this is one way for private companies to transition to employee ownership. ESOPs may or may not be democratic and participatory places to work. Worker cooperatives are both owned and managed by their workers — one worker, one vote. According to the U.S. Federation of Worker Cooperatives, currently there are about 400 worker cooperatives in the U.S. They operate many types of businesses, mainly services, and are growing especially among Latino immigrants and in working class communities.

Riley: Most of the businesses you visited in the film seemed to have weathered the economic downturn of recent years. But have some co-ops failed? How do privately-owned small businesses and worker-owned businesses compare? Do they fail less often?

Dworkin and Young: One of the challenges faced by cooperative businesses is that they have to survive in the larger economic system, over which they have little control. Worker co-ops in Mondragon and in the U.S. have done better than other similar sized businesses in the current economic crisis. When sales and profits are down, worker owners don’t just close the doors. People take a hard look and try to figure out what they can do to make things better – such as adding new products or finding ways to improve efficiency and productivity. At any given time some co-ops are doing better than others, depending on the industry in which they operate. So in Mondragon each year co-ops that are profitable pay into a “rainy day fund,” and co-ops that are going through hard times are able to withdraw funds to help them out. In co-ops where business is slow, members can often find temporary work in co-ops that are doing better. And since workers own and manage the company, they may agree to reduce their pay on a temporary basis until business picks up again. That way nobody has to lose their job. Cooperative networks that function in a similar way are just beginning in the U.S.

Watch the Shift Change trailer.

Riley: The film makes it look like co-ops are pretty smooth operationally.

Dworkin and Young:Most of the co-ops we chose have proven themselves. They’ve had decades to learn how to operate smoothly. New employees go through a probationary period, from as little as six months to a couple of years, during which they discover if they like working in a cooperative environment, and current co-op members can decide if they think the new employee would work out. After this trial period the person generally has to apply for membership and be voted in by existing members. At that point the new member needs to make an investment in the company, usually ranging from $500 to $20,000, with about 10 percent paid in cash and the rest from payroll deductions. People who would not feel comfortable in this environment weed themselves out. People who have shown they don’t work well cooperatively are not asked to join. New members then get training in co-op management. So there are various stages of selection and development to make sure that co-op members have the temperament and the skill to work together smoothly.

In the U.S. we learn from an early age to navigate hierarchical social structures, and we have lots of practice competing but little practice cooperating. So we have a lot to learn in order to make cooperatives a success. But many people are willing to make the effort. We have participatory instincts that are stifled in the dominant economy. One friend lit up when I told him that in worker cooperatives, people are encouraged to put forward their ideas about how to make the company better. That’s sure different, he said; everywhere I have ever worked you’re best off if you keep your head down and your mouth shut. So I wouldn’t say that workers are resistant to cooperation, but rather our cooperative instincts are suppressed and trained out of us. To help overcome this, all of the co-ops we visited place a high priority on initial training and ongoing leadership development of their members. And it works.

Riley: What happens when agreement can’t be reached? Or when consensus leads to failed strategy?

Dworkin and Young: Worker co-ops are organized and run by their members and they have very different management structures. Those that manage by consensus, such as the Arizmendi Bakeries profiled in our film, tend to be small. Members can meet with one another face to face and on short notice to deal with problems and correct them. Most co-ops around Mondragon and the larger ones in the U.S. tend to have professional management that operates much the same as management in a conventional enterprise. The key difference is that the co-op board of directors is elected by the employees. Nobody who does not work in the co-op has a say in how the business is run, so the co-op tends to serve the needs and wishes of its members as opposed to absentee owners. Everyone has an incentive to work constructively together and help the business succeed.

But as Fred Freundlich, a professor we interviewed at Mondragon University offered, “Broad democratic management doesn’t solve all human problems.” When major disagreements do arise, “The ownership and governance structures in those enterprises, that they’re democratic, that they’re more participatory, helps ameliorate these problems, even if it doesn’t make them go away.”

Riley: What can we learn from places where it has not worked?

Dworkin and Young: The history of worker co-ops in this country is mixed. Many got started in the late 19th and early 20th century with the arrival of immigrant groups. In our region of the Pacific Northwest, there were a lot of cooperative plywood mills. Many of these failed because they had not made provisions for the business to survive as a cooperative long term, after the original members retired.

We’ve heard of companies begun in a wave of optimism in the 1970s that failed for either of two basic reasons. Some were not businesslike enough (there was not a good market for their product, their product or service was not of sufficient quality, or they didn’t manage finances, time, and materials well). Others were not cooperative enough (they were such successful businesses that they were bought up by a large corporation and ceased to be a part of the cooperative economy). Newer co-ops have learned from past co-op failures and designed programs to overcome them. They have become sophisticated businesses that are more agile and nimble than conventional firms while retaining their co-op purpose. Technical assistance is available from experienced experts in terms of how to convert a regular business to one that is employee owned and even more successful in the future. And to discourage co-ops from selling out to corporations for a big profit, in many cases, if the co-op should be sold, members can only recover the funds they have invested with a modest return, but any profits above that have to be given to other co-ops or public interest organizations.

Riley: What aspects of co-op workplaces can non-co-ops adopt? How would we get started here at Moyers & Company, for instance? Any tools we can share with our audience?

Dworkin and Young: Nearly all workplaces, even those which are not owned by their employees, can still be more democratic. They can invite ideas and criticisms from staff without penalizing someone who challenges (constructively) how things are currently done in an effort to do things better. Decision making and finances can be more transparent, so every employee has an idea of the risks and limitations that the enterprise faces and their own contribution to that. Performance evaluations which are traditionally between an employee and a supervisor can also include peers, “customers,” etc. And even a non-cooperative institution can be devoted to the common good above and beyond the short term gain for that enterprise. We now have B corporations in various states where a commitment to solving environmental and social problems is enshrined in the corporate legal structure alongside financial profit. Many employee-owned businesses allow workers to spend a given percentage of their paid work time either improving their own skills or examining ways to improve the business. That is also something conventional businesses and non-profits could do.

Watch a segment from Shift Change on the Arizmendi Bakery chain in the Bay Area. For more information, visit www.shiftchange.org.