Worker Coops in the USA

The Democracy at Work Institute in Oakland California conducts an annual census of all the worker cooperatives in the United States, and they have just released their analysis of their data from 2015. This is a relatively new research project. They have previously published data for 2013 and 2014, so this most recent report represents the first time that they can compare data from several years and discuss emerging trends. I highly recommend reading the whole report; it is fascinating, but here are some of the key findings:

  • The worker-cooperative sector in the US is still very small, but growing. The authors identify 323 cooperatives in the US in 2015, employing about 6,000 workers and generating about $395 million in annual revenue. This represents an 8.1% increase in the number of worker coops from 2013.
  • From the perspective of this blog, it is interesting to note that most of these businesses (70.9%) were founded as worker-cooperatives rather than becoming cooperatives through conversion from capitalist businesses.
  • The vast majority maintained a 2-1 top-to-bottom pay ratio or less. This compares to an average 303-1 pay ratio in US corporations.
  • Over two thirds of the workers were women.
  • Almost 60% of the workers were people of color.
  • On average, worker-owners represented only 60.2% of the total work-force in the cooperatives surveyed. This is a critical statistic because the percentage of worker-owners to non-owner employees in a cooperative is a key measure of the cooperative’s health as a democratic organization. The lower this number goes, the more a cooperative is degenerating toward becoming a capitalist business.
  • Only 33% reported holding indivisible capital reserves. This is an important statistic because holding significant capital reserves (often generated as a result of mandatory profit plow-back rules) is one factor that substantially strengthens worker cooperatives in other parts of the world.

As in all research, these data have limitations. Of the 323 worker cooperatives identified, only 106 (33%) filled out the researchers’ detailed survey. This is a respectable return rate in the social sciences, but still, it limited the researchers in their analysis. The authors of the report urged us to be particularly wary of the measurement listed above of the average percentage of worker-owners to non-owner employees, as the data-set included some democratic workplaces that were non-profits, and therefore, where worker-ownership would not legally be an option.

Hopefully, as they continue to conduct this survey each year, their response-rate will improve, providing them with more data that will allow them to perform more detailed analysis. In particular, the average ratio of worker-owners to non-owner employees in US cooperatives is arguably the most important measure of the health of the cooperative sector, so it would be great if they had the data to improve this particular measurement in the future.

Timothy C. Palmer 2017 Worker Cooperatives in the U.S. : 2015 State of the Sector. Oakland, CA: Democracy at Work Institute.

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Cooperatives in Times of Crisis

The 2008 global financial crisis was the greatest economic shock to the world economy since the great depression. The crisis not only tested the foundations of the capitalist economic system; it also presented a severe test for the cooperative economic model. So how did cooperatives do? How did they cope, and what strategies did they use to weather the storm? In general, did they fare better than capitalist businesses? Or worse? To answer these questions, two Italian researchers, Chiara Carini and Maurizio Carpita, analysed a huge economic-performance data set collected from Italian capitalist and cooperative businesses in the industrial sector covering the peak crisis years: 2008–10.

As we saw in an earlier post, the Italian cooperative sector is huge, and it is also rapidly growing. While the number of employees in Italian corporations stayed roughly the same between 2001 and 2010, and the number of employees in Italian partnership businesses declined by 28%, the number of employees in Italian cooperatives grew by 15% in the same period. (p. 15) This large number of cooperatives means that Italian economic researchers are in a position to compare capitalist and cooperative businesses using large, robust data-sets, something that would not be possible in countries like the US or Canada where cooperatives are relatively much more rare.

The authors used this data to make several generalization about cooperatives during the crisis:

Cooperatives successfully maintained employment during the crisis. Cooperatives lost only 1.2% of their employees between 2008 and 2010, while corporations lost 5% and partnerships lost 10.8%. (p. 16)

Cooperatives focused on maintaining employment while corporations focused on maximizing profits. Taking turnover, employment and profit data together, the authors added support to the general observation that cooperatives tend to prioritize community values like maintaining employment while corporations tend to focus more narrowly on maximizing profits. (pp. 17, 19)

Cooperatives made investments roughly as often as corporations. During the crisis, 34.2% of cooperatives reported making investments to improve their performance, compared to 31.8% of corporations, and 24.7% of partnerships, further refuting the prediction that cooperatives tend to under-invest. (p. 20)

More cooperatives made organizational innovations during the crisis while more corporations were investing in R&D. This is an interesting and perhaps unexpected distinction. Of cooperatives, 11.9% reported making organizational, managerial and/or commercial innovations during the crisis, while slightly fewer corporations (9.5%) and many fewer partnerships (4.3%) reported implementing similar innovations. At the same time, while 11.1% of corporations reported investing in R&D during the crisis, only 6.4% of cooperatives and 3.0% of partnerships did the same.

This is a massive study that clearly shows that cooperatives can be as resilient, and often even more resilient, than capitalist businesses during an economic crises. From the perspective of this blog, the principal weakness in this study is that the authors analysed all cooperatives together. Consumer cooperatives, producer cooperatives and worker cooperatives have quite different priorities in some respects that arise from their different ownership structures, and it would be particularly interesting to see if worker-owned businesses reacted differently or fared differently in the crisis compared to other types of cooperatives under similar economic stress.

Chiara Carini and Maurizio Carpita. (2014) “The impact of the economic crisis on Italian cooperatives in the industrial sector.” Journal of Co-operative Organization and Management 2: 14–23.

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Coops are huge

New figures just published show that almost 10% of jobs in the world are either in a cooperative or closely linked to a cooperative. This figure includes employees in consumer coops, worker-owners in worker coops, and self-employed workers in producer coops. Altogether, that is 280 million jobs, and of that number, just over 11 million are jobs in worker coops specifically. While 11 million is a tiny fraction of total global employment, as an absolute number that represents a lot of worker-owners. These new numbers show that in many places in the world worker-ownership is not a fringe economic model, but a common, normal way of doing business.

Some other interesting statistics from the report: 1.2 billion people around the world are members of a cooperative, and all told, there are almost three million cooperatives worldwide. The report further breaks down the numbers by country, and it is fascinating to see how the scale of worker-ownership varies substantially from place to place: there are 6.8 million worker-owners in India; over one million in Italy; 524 thousand in Malaysia; 162 thousand in Iran; 291 thousand in Brazil; 178 thousand in Argentina; 230 thousand in Spain; 27 thousand in France; 94 thousand in the UK; 55 thousand in the US; and four thousand in Canada.

It is worth noting that there are clear limitations to the data in the report. You can see in the section on Africa, for instance, that this continent is very poorly measured, with many gaps in the data, particularly concerning worker-coops. Also, many of the figures cited throughout the report are round numbers, suggesting that they are based on broad estimates rather than on hard data from detailed surveys, but nonetheless, the statistics do give us a fair idea of the scale of the international cooperative sector, and contrary to what some may assume, it is very large. Here are the summary statistics in table form:

globalcooptable

Hyung-sik Eum 2017. Cooperatives and Employment, second global report. CICOPA.

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Informal Leadership and Burnout

Catherine W. Ng and Evelyn Ng (2009) “Balancing the Democracy Dilemmas: Experiences of Three Women Workers’ Cooperatives in Hong Kong.” Economic and Industrial Democracy 30(2), 182–206.

This paper is a study of three new, radically horizontal worker-coop start-ups in Hong Kong. Worker-ownership is not common in Hong Kong and at the time of the initial research (2004) there were only three worker-owned cooperatives registered in the territory, all of them women’s cooperatives. These three form the basis of this study.

The three new worker cooperatives were founded with the assistance of non-governmental organizations (NGOs), and the authors report that the NGO staff were hands-on in the development of these organizations to the extent that the cooperatives almost certainly would not have been founded without their assistance. Many of the women workers involved were displaced from the workforce and struggled with social exclusion and illiteracy. These coops were founded by the NGOs as opportunities for these women to re-enter the workforce, to develop confidence and new skills, and to provide extra income for their families.

The purpose of this study was to examine two possible ‘contradictions’ in the organization of worker cooperatives: the contradiction between democracy and efficiency, and the related contradiction between democracy and leadership. All three cooperatives were small service/retail businesses (a university tuck-shop, a cleaning coop, and a university canteen) of about ten members each, and all three were radically horizontal, governed by direct democracy with no vertical management structure. Nonetheless, informal leadership did develop and the authors document some of the tensions this created.

Specifically, some of the women came to the coops with more confidence in formal meetings and more experience in running a business, and these women were naturally deferred to when it came to decision-making. The cooperatives used job rotation and other techniques to democratize information and expertise, but these informal leadership structures were still a problem. Informal leaders suffered burn-out, but at the same time, felt trapped in their jobs both because of their commitment to the cooperative ideal and because of their friendship and loyalty to the other women. One woman commented:

“If I leave, I’m afraid the co-op will disintegrate. I worry that many of my colleagues will not be able to find employment then.”

These informal leaders probably would have been able to find work elsewhere, perhaps in management positions, so in effect, they had taken a pay-cut to work at the cooperative. This is obviously not a sustainable or fair situation, but what do you do when some workers are more skilled and confident, but also possibly, more invested in the cooperative, and take on more responsibility and work as a result?

The authors don’t offer any answers, but they do conclude that this tension must be addressed as cooperatives grow or they risk degeneration. Some cooperatives find a balance by carefully adopting some management structures, mixing elements of direct and representative democracy together as they grow. Other cooperatives may decide to radically commit to direct democracy and management by consensus, and may therefore decide to limit the growth of their cooperatives or perhaps to divide their businesses from time to time to avoid having to adopt formal management structures.

However, as Jo Freeman argued in her influential essay, ‘The Tyranny of Structurelessness’, these tensions always lurk in horizontal organizations, and the authors of this study argue that finding a workable and just balance between democracy on the one hand and efficiency and leadership on the other is an on-going and critical problem for all worker-owned businesses.

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Degeneration and Regeneration 2

Beginning with some of the earliest socialist theorists, many have argued that worker cooperatives cannot remain democratic in the long term. This is called the ‘degeneration thesis’ and according to this view, worker cooperatives are inherently unstable and will inevitably degenerate into capitalist businesses over time. For decades now, researchers have been studying worker cooperatives to see if degeneration really is inevitable, and if not, to describe the strategies that worker-owned businesses use to strengthen democracy in their organizations or to restore democracy if degeneration has started to take hold. This research has real practical value for entrepreneurs thinking of launching new worker-owned businesses, and previously I have reviewed some of the more recent research on this question.

Perhaps one of the best studies on degeneration and regeneration was authored by Chris Cornforth from the Open University in the UK. This study is getting a little old now: the paper first appeared in Economic and Industrial Democracy in 1995, and the research was conducted way back in the mid-80s; nonetheless, in broad strokes, Cornforth’s research and analysis remains just as relevant today as it was when it was first published. Cornforth conducted in-depth case studies of four small to medium-sized worker cooperatives, examining how they balanced democracy and efficiency, and how they coped with growth. These four case studies are of particular interest to us here because they were relatively ‘young’ businesses in the mid-80s. They were all launched in the 70s as small, radically horizontal cooperatives governed by direct democracy. Two were founded directly as cooperatives and the two others were converted to cooperatives a few years after being set up. By the mid-80s they had all grown and their worker-owners were experimenting with different democratic structures to better manage their larger, more-complex organizations.

All four case studies are interesting on their own, and its worth reading the whole paper for Cornforth’s detailed analysis, but examining the data from the four case studies together, Cornforth draws a number of useful generalizations. First of all, Cornforth contends that, at least in the short term, degeneration does not appear to be inevitable. At the time of his research, three of the four cooperatives he studied were successfully negotiating their growth without compromising their democratic principles. Cornforth does however suggest that there may be an upper limit to the size of worker-cooperatives that can be efficiently managed by direct democracy (full consensus):

The experience of [one of the larger cooperatives studied] suggests that once a co-operative reaches 15–20 members, a high degree of democratic involvement and influence can only be maintained by developing a more complex democratic structure, combining representative and direct forms of democracy, so that they reinforce each other.

This is a controversial suggestion, and many would contend that full consensus can be made to work even in much larger organizations, but if a cooperative — at whatever size and for whatever reason — decides to introduce representative democracy in some form, can the members successfully delegate some of their decision-making authority without compromising the basic principles of worker ownership and control, or is representative democracy the first slippery step in an inevitable slide to full degeneration? Based on his research, Cornforth believes that cooperatives can indeed successfully adapt to growth through more vertical management structures and still stay fundamentally democratic, and he contends that a shared ideology or vision among all members is critical in this respect. Ultimately it is a strong, shared cooperative ideology that serves as the best bulwark against degeneration in a worker-owned business, but as cooperatives grow, maintaining this shared ideology requires constant vigilance:

It is important then for co-operatives to develop working practices which aim to develop a shared meaning and commitment to the co-operative’s aims and principles, through, for example, common recruitment and induction procedures, training, and the periodic rotation of at least some staff between departments and jobs.

Cornforth is a particular proponent of job rotation and notes that all the successful cooperatives in his study used job rotation to democratize expertise and improve communication, even as they grew and diversified. In his view, management structures are not the greatest threat to democracy, but rather, that informal elites will the develop in a cooperative who start to act as de facto managers but who are unacknowledged as such and are therefore unaccountable to democratic control.

While Cornforth argues in this paper that degeneration is not inevitable, he does see it as a real and constant danger, and his final recommendation is that, as they grow, worker cooperatives should continually reflect on their performance as democratic organizations to guard against degeneration taking hold:

Finally and perhaps most importantly, the case studies suggest that co-operatives need to regularly review their performance both as co-operatives and businesses if they are to avoid degeneration.

Chris Cornforth (1995) “Patterns of Co-operative Management: Beyond the Degeneration Thesis.” Economic and Industrial Democracy 16, 487–523.

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The Grey Lady goes red

The president may call it “fake news”, and editorially, it is widely regarded as liberal, at least on social issues, but more than anything, the New York Times represents the voice of the establishment. Particularly on economic issues, the discourse in the New York Times conforms to the limits (and to a significant extent helps define the limits) of what the establishment considers acceptable debate in the USA. The New York Times discusses ideas that members of the establishment would consider serious and rational and stays far way from ideas — either from the left or the right — that the establishment would consider dangerous or implausible.

That is why it is particularly noteworthy that yesterday the New York Times published an opinion piece praising democratic socialism. For the whole of the 20th century, there has been no idea more vehemently excluded from establishment debate in the US than socialism. That the New York Times would print an unapologetically positive column proposing that socialism has a future in the US hints at a fundamental shift in what the establishment considers serious and rational.

The opinion piece is by Bhaskar Sunkara, a founding editor of Jacobin magazine and vice chair of the Democratic Socialists of America, and in it, he argues that “stripped down to its essence, and returned to its roots, socialism is an ideology of radical democracy”, but he acknowledges that authoritarian socialism in the 20th century betrayed those roots. He argues that we need a new, pluralistic vision for socialism in the 21st century. Simply nationalizing the economy isn’t a solution anymore. From the perspective of this blog, it is particularly encouraging to read that he sees worker-ownership as central to this new model for socialism:

A huge state bureaucracy, of course, can be just as alienating and undemocratic as corporate boardrooms, so we need to think hard about the new forms that social ownership could take. Some broad outlines should already be clear: Worker-owned cooperatives, still competing in a regulated market; government services coordinated with the aid of citizen planning; and the provision of the basics necessary to live a good life (education, housing and health care) guaranteed as social rights.

Of course, one New York Times op-ed piece will not restructure the economy; that will require a political movement of global scale (and plenty of socialist entrepreneurs!) but the publication of this piece in the New York Times, particularly with its emphasis on worker-ownership, feels like a small but nonetheless significant milestone on the path to a better, fairer world. I really do think things are changing.

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Deep-level Cooperation

Spencer Thompson from the University of Cambridge in the UK recently published a paper outlining a new theory of the firm, taking the worker-owned business as its starting point. It is a fascinating paper at a theoretical level, but in it he also discusses a number of practical issues about the design of worker-owned firms.

One concept that is particularly intriguing is his notion of “deep-level cooperation.” Thompson explains that firms function through a combination two processes: coordination and cooperation. We can understand coordination as the vertical organization of a firm, its management. Workers have certain skills and know when and where to apply their skills because their work is coordinated together through some sort of management structure. Everyone in the firm has a role and all those roles are coordinated together to produce a product or a service.

But firms also require cooperation to function. We can understand cooperation as the horizontal organization in a firm. Workers aren’t just coordinated into a production process, but they also must cooperate together to produce the product or service. While distinct in theory, cooperation and coordination are closely intertwined in practice, and both are required for a firm to succeed.

Thompson’s insight is to further divide cooperation into two different levels: surface-level cooperation and deep-level cooperation. Surface-level cooperation is the kind of cooperation that can be specified in an employment contract. When you are employed, you agree to cooperate in a productive process in certain specific ways in exchange for a pay check. It is a market transaction, but as Thompson points out, surface-level cooperation is not enough to keep a firm going. Indeed, working to rule — where workers stick exactly to their employment contracts, doing no more than explicitly required — is a kind of industrial action, just short of an outright strike, and it can slow work down to a crawl. Without a culture of deep-level cooperation, firms can’t function well.

[…] whereas surface-level cooperation is achieved through organisational structures (such as property rights, pay schemes, and monitoring systems), which constrain individualistic behaviour, deep level cooperation is achieved through an organisational culture, which enables solidaristic behaviour. (p. 5)

The dark secret of capitalism is that all firms take advantage of our natural cooperative nature as human beings and depend on us ‘donating’ our deep-level cooperation to our employers as we do our jobs. Deep-level cooperation is all the cooperation we provide with our fellow workers that cannot be efficiently described in an employment contract, and Thompson suggests that worker-owned businesses may have a competitive advantage over capitalist businesses in this respect, in that worker-owners may be more likely to engage in deep-level cooperation than employees in capitalist firms because worker-owners are more socially invested in their businesses.

Thompson argues that there is a trade-off between coordination and cooperation. As firms grow and as management becomes more bureaucratic and vertical, coordination from above may undermine workers’ desire to cooperate at a deep level. No one likes to be bossed around, and the more bureaucratic our jobs become, the more likely it is that we will take a purely individualistic approach to our work, that we will see our jobs simply as a way to get a pay check, and the less likely it is that we will cooperate socially with our co-workers.

The practical implication is that in order to realize the full efficiency advantages of worker-ownership, cooperative firms should always aim to organize themselves as horizontally as possible. The more a worker-owned firm turns to top-down structures to coordinate production, the more it risks undermining its members’ intrinsic desire to cooperate at a deep level in the business as a shared project.

This is a particular problem as a firm grows. Many small worker-owned businesses manage to successfully structure themselves as completely horizontal organizations, often making all major decisions by full consensus, but as worker-owned businesses grow, they typically move to a more vertical structure, and particularly when they reach the size of a cooperative corporation like Mondragon, for instance, significant top-down coordination seems almost unavoidable.

The trick then would be to find ways to build as much horizontal decision-making as possible into the structure of worker-owned firms at all stages of their development and growth, and also to make certain that management is always meaningfully and transparently answerable to the democratic will of the worker-owners as a whole. As Thompson points out, democracy in a worker-owned firm has to be meaningful before it can inspire a culture of deep-level cooperation among its members:

[…] if the day-to-day experience of worker-members (and managers) is no different from that of employees (and managers) in conventional firms, abstract notions of equality and participation substantiated by occasional exercise of voting rights are unlikely to influence workplace behaviour. (p. 9)

I’d be interested to know what readers think about these ideas. In your experience, how large can a firm grow and still maintain fully horizontal decision making? Is there an upper limit? And what are some of the ways to maintain horizontal decision-making and meaningful democracy in larger, more complex firms?

Spencer Thompson. 2015. “Towards a social theory of the firm: Worker cooperatives reconsidered.” Journal of Co-operative Organization and Management, 3: 3–13.

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