Cooperative Incubators in Brazil

I often wonder why there aren’t more business schools for socialist entrepreneurs? There are some (for example, see here and here), but they are not common, and that definitely limits the growth of the cooperative economy. Classic business-management programs are expensive to set up, expensive to attend, and cater to a very specific type of student. If, in order to expand worker-ownership throughout the economy, broader opportunities for cooperative business education are needed, are there examples of cooperative business schools that are more egalitarian than classic business programs and that could be replicated relatively rapidly?

Well, it turns out, there may be one such example of cooperative business education flourishing just now in Brazil. These business schools are called ITCPs (Incubadoras Tecnológicas de Cooperativas Populares; Technological Incubators of Popular Cooperatives), and in several respects, they are very different from the classic model of a capitalist business school offering MBAs:

First, they are practical. They don’t just educate; they are also directly involved in setting up new worker-owned businesses. They aim to both incubate new worker-cooperatives, and at the same time, give new worker-owners the skills that they will need to succeed.

Second, they are radical cooperative education projects established as extension schools at traditional universities in Brazil, allowing academics who study management, entrepreneurship or cooperatives to get their hands dirty and use their expertise to practically assist in growing the worker-owned model.

And third, the ITCPs explicitly target the poorest communities in Brazil, helping economically disenfranchised Brazilians start their own worker-owned businesses as a concrete strategy for ending poverty and empowering marginalized communities.

The first ITCP was started in 1996, at UFRJ (Universidade Federal do Rio de JaneiroFederal University of Rio de Janeiro), and there are now 42 ITCPs throughout Brazil. Since its founding, the ITCP at UFRJ has incubated 125 new worker-owned businesses. These businesses average 50 to 100 employees, so that would be something like 6,000 to 12,000 new jobs created by just one cooperative incubator.

You can read more about ITCPs in the following article:

Leca, Bernard, Jean-Pascal Gond, and Luciano Barin Cruz. (2014) “Building ‘Critical Performativity Engines’ for deprived communities: The construction of popular cooperative incubators in Brazil.Organization 21(5): 683-712.

Unfortunately, the article is behind a paywall, but there is also a copy on which you may be able to access. As you can tell by the title, the authors use the example of the ITCP as a vehicle to discuss their particular school of sociological theory, in this case, critical management studies. The first section is slow going and full of insider jargon, but if you skip to the description of the ITCP at UFRJ on pages 691–697, the jargon mostly drops away, and the authors discuss in some detail how an ITCP actually works.

See also: Universidade Federal do Rio de Janeiro (English); Universidade de São Paulo (Portuguese); Universidade Federal do Paraná (Portuguese); Fundação Universidade Regional de Blumenau (Portuguese); Universidade Comunitária da Região de Chapecó – Unochapecó (Portuguese); University of Vale do Itajaí (Portuguese).

If you know of any other online sources of information about ITCPs, particularly in English, please share them in the comments!

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Interview: Rich Bartlett, Loomio

Rich portrait beagLoomio is a fascinating project. The web and the internet have fundamentally altered how people around the globe network and share information, but up until now these technologies have not much changed how people make democratic decisions together. Loomio is a new online tool that aims to fill that gap.

Loomio was created by a group of Occupy activists, social entrepreneurs, and software developers who met at Enspiral. Their aim was to create an open-source tool that would allow disparate networks of people to communicate, and then to turn that communication into radically democratic plans for action.

As such, Loomio might be an interesting tool for worker-owned start-ups who need an online space to communicate and to make decisions, but Loomio is also of interest because it is being developed by a group that is itself a worker-owned start-up, one that is structured as a radically democratic, horizontal cooperative.

To learn more about this cooperative and how they organize themselves, I spoke on the phone to Rich Bartlett, one of the founders.

Tim:       So the first question I have is about capital. Raising capital is one of the central problems for new worker cooperatives. You’ve raised capital for your business in a number of innovative ways. In the beginning you held two successful crowd funding campaigns and then more recently you raised half a million dollars from investors using redeemable preference shares.

Rich:      Yes, that’s right.

Tim:       I’m specifically interested in that second financing instrument. Could you explain a little bit about how these shares work and maybe talk a bit about the risks involved in this type of financing with respect to preserving worker ownership and control, and also how you try to mitigate those risks?

Rich:      Sure. It’s one of the most important questions, right. The way that we have approached the capital question is in keeping with the way we’ve approached every question about how we structure ourselves and our business model. Being the kind of personalities that we are, we have a reflex to reject everything that already exists, and then to start from a blank slate, to ask: if we could do everything with a pure commitment to our ethics, how do we do it? Then we go on a research journey and try and balance our idealism with some pragmatism and come up with something reasonable.

That process last year landed us on the redeemable preference shares, which I had  never heard of ― I don’t know much about investment ― but when I actually got talking with people, it turns out they’re not so rare. They have a long history and people were more or less familiar with them. Obviously, they’re not super common in the start-up financing world, but in co-ops they are. I’m not an expert, but as I understand it, here is a handful of people who have invested in us, in a social mission that they care about deeply, and in a group of people that they trust to be credible, a group of people with a track record that makes them think that we’ve got some shot of delivering social impact in future.

In mechanical terms, it’s basically a very generous loan, a loan on very generous terms. There’s no trading of investment for governance rights, so the governance is still 100% with the workers, and the risk remains with the investors. If we default for some reason, then the risk is on them. It’s extraordinarily generous. As for the risk of losing ownership, losing worker control, this is a relatively small financing round as far as they go. To some members, I think it’s probably a ‘getting to know you’ kind of loan. The investors might be up for some more in the future, but I would expect that they would only be up for more if they can have more of a stake in the governance. We’ll design that relationship according to our principles and balancing idealism and pragmatism when we get to that. We’ve got a constitution that is pretty explicit about putting our social mission ahead of any other kind of mission, so we feel pretty confident about that.

The other component is that the product we’re building lives in the commons, so it’s open-source software. The decision to put the software in the commons really says, “look if at any point in the future the community feels that we’re not doing an effective job of stewarding this product, then anyone else can just take it, fork the code and do their own version.” This creates quite a strong incentive on us to maintain our ethics.

I can certainly imagine at some point in the future that we might do a different kind of investment or we might change the terms in some way that gives the investors a seat at the board or a role in some other kinds of decision making spaces. We will just have to design that in a way that is in alignment with our principles. It is a never ending challenge of being an enterprise that puts social impact over financial impact. You’ve just got to continuously be evaluating the impact you are having in the world and the resources you need to get there and try to make your best judgement calls about designing systems that work for you and still make progress every day.

Tim:       Excellent. I think it would be worth it at this stage asking a second question, and that is, from the beginning, your business has had a radically horizontal structure based on direct democracy and consensus. Could you talk a little bit about the benefits first of this type of organisational structure and also about the challenges this structure presents and how do you work with those challenges?

Rich:      The benefit would be … it’s a long list. Because we have a central organising principle that no one can tell anyone else what to do, we’ve excluded force from the equation. That creates a fundamental shift in what the organisation looks like in practice and it’s quite a big thing. It’s hard to just summarise into a bullet point, list of five benefits or something like that. When you exclude force you immediately get to the question of what do people want to do and why do they want to do it and how do we align what we each want to do into something that’s actually more or less coherent, and productive and progressive? As far as I know the only way to do that is for the individuals involved to actually care about each other. So our organisation sort of requires people to care about each other in a way.

I mean there’s a real emphasis on care and it’s just a lovely place to be. It’s tremendous for us to be in an environment where everyone really cares about each other, where your feelings are legitimate information that is taken into consideration in decisions. Compared to any other job I’ve ever had, it has fundamentally changed my quality of life to go to a place where I’m expected to feel fairly good most days. In previous jobs the expectation was that work sucks but that’s why they pay you for it: a trade-off that me and most of my friends were not happy with but we just sort of conceded that’s just what work’s like. But to be in a place where you’re deeply engaged with the work and deeply engaged with each other and doing it due to intrinsic motivation, not extrinsic motivation, doing it because you believe in the outcome and you’re surrounded by people that you trust, actively working for your goals, that is really an incredible work environment. It’s quite remarkable and I attribute much of that to the decision that we’re going to organise without force.

I think ― and this is a hypothesis ― but I think that in the long run it’s also a more resilient and a more innovative way to work. When you include the widest perspectives in your decision making, you tend to develop decisions that are better than the decisions any individual could develop their own. That’s the core hypothesis that we at Loomio are testing. Right now I can report that it feels really good! In the long run, we’ll see whether it actually delivers results. It seems like it delivers results just in terms of the amount of the impact that we’ve had compared to the resources that we’ve put into it. Because people are so engaged, they really give an awful lot more than the meagre wages would account for, because they’re engaged with each other and engage with a mission that they actually believe in.

It gives us a kind of resilience as well that’s been quite remarkable. This kind of work of starting a cooperative it’s stressful and difficult like starting any business is stressful. We’ve had times where say one of our key people had said, “Look I need a little rest; this is too much.” Because we’ve got quite a high degree of overlap between the different kinds of work people are doing, we can handle it when someone says, “I need a rest.” We can rearrange and cover it. Sure there is some specialisation and there are some people that would be harder to replace than others, but no one is completely irreplaceable because we’ve got an emphasis on distributing power and influence around which means we’re distributing context around and distributing relationships around. Not endlessly, but there’s always a couple of people that know more or less what needs doing in any job. That gives us a kind of long-term resilience that I hope will pay off. It’s early days for us but I think it will pay off in the long haul.

As for the challenges then … man! It’s incredibly challenging because for one thing we’re inventing everything from scratch. I mean, we do our research and try and not reinvent the wheel, but the process of bringing, well now it’s 13 people along for the ride of: “Okay what would a good investment structure be or what’s our conflict resolution process going to be?” All that sort of stuff. We have systems to delegate work out to different small working groups, so we don’t have to get full consensus every step of the way. We’re quite fluid and dynamic in that regard. But still it’s a lot of work. You spend a lot of time in communicating and then synthesizing diverse inputs and hopefully in the process coming out with stronger outputs but still the work of synthesizing is complex. It requires emotional intelligence and I’d say probably political nous.

In any organisation, regardless of the structure, you’ve got those kinds of challenges: How do we structure ourselves? What policy makes sense? What strategic decision? That’s always difficult. But it’s definitely made more difficult because our structure is less common. Consider the ludicrous start-ups in the United States that get funding at the drop of a hat. If you’re willing to structure yourself along traditional corporate lines and fund yourself with traditional venture capital funding, there are doors that open a lot more rapidly than if you choose to do things like: “Well we’re not a charity but we’re not a traditional profit-maximising company either. And, ah yea, by the way, the thing that we’re building: that lives in the commons, and oh yes, we live in New Zealand… Yes, we’ve got a pretty much iron-clad commitment to ethics over everything else.” It really does make it harder than if we were willing to play it by the traditional set of rules.

But it’s not really a choice for us. If it weren’t for these ethics, we wouldn’t be doing it. It’s just a reflection of who we are. So it’s a huge challenge but it’s also so rewarding. The sense of solidarity is it’s unparalleled. I’ve had a little bit, not a lot, but a little bit of experience with different activist groups and the solidarity there is pretty amazing. When I was participating in the Occupy movement, that was my first taste of solidarity, where I was part of this collective identity called Occupy, and then I saw these people on the other side of the world that shared that identity, and then their struggles were my struggles. When I saw them getting beaten by the cops that affected me in my guts. It was like, “OK, this is what solidarity feels like.”

It was a tremendous experience, but it expired. That collective identity expired. With other activists projects that I’ve been involved with, the community so often expires because it’s up against such a huge foe and it’s always coming out of people’s volunteer time and surplus energy and what they can manage to squirrel away from the boss or whoever. So people are forever burning out because you’re relying on people volunteering. So to have an enterprise that is on track to sustainability means that we get that sense of solidarity in participating in activist project that is mission driven. We keep getting to do that day after day after day. That sense of solidarity is deepening to an extraordinary degree, that I know that these people deeply care for me and can turn that care into really practical support when I need it.

Tim:       Excellent Rich, that was really inspiring answer and we’ve spoken for about 20 minutes. If it’s okay I’d rather keep the interview relatively short and on those points that you raised. But I wanted to also ask, before we end, if you have anything else you wanted to add or if there was a question that I should have asked that I didn’t ask, that you wanted to answer.

Rich:      The question that’s on my mind at the moment, is about scales: so Loomio was one co-op that is a member of a collective of companies called Enspiral. There’s about a dozen different companies that are siblings and we are mostly based in New Zealand and we’re now exploring how to scale out across the rest of the world. One of the tracks we’re exploring that seems most promising is not for us to expand our collective identity globally but actually to just make good friends with the others, to find others and connect with them.

I guess really a simple question is: I’m really interested to hear what’s happening in your hemisphere that you’re finding it exciting or that’s got some promise or is worth connecting with. I’m on a mission at the moment of connecting with all the interesting people that are trying to invent this new economy and supporting each other to do so.

Tim:       Maybe it’s a question for readers of this blog, is that fair?

Rich:      Yes. My sense is that we’re trying to do something very challenging, to invent an economy that’s based on ethics. One of the ways that we can increase the likelihood of success is by supporting each other’s work. We’re all so busy doing our thing that it’s hard to get our heads up sometimes and pay attention to what else is happening. So I’ve just in the last couple of months sort of opened my ears a little bit to hear what else is going on. So yes, a question for people reading the blog is a great idea.

Tim:       Excellent. Rich, thank you so much for taking this time to talk to me.

Rich:      It’s a real pleasure.

For more information on Loomio, see:

Wired: Out in the Open: Occupy Wall Street Reincarnated as Open Source Software

How a Worker-Owned Tech Startup Found Investors—and Kept Its Values

Posted in Interviews | 2 Comments

Degeneration and Regeneration

Like all businesses, cooperatives can fail. Cooperatives can go bankrupt, but they can fail in another way too. Over time, cooperatives can degenerate. Cooperatives are said to degenerate when, under economic pressure, they abandon their cooperative principles and start adopting capitalist business practices and structures. In the worst case, given enough time and economic pressure, cooperatives can fully degenerate into privately-owned, capitalist businesses. Such businesses might still be economically viable ― they will have avoided bankruptcy ― but they can no longer be considered successful cooperatives.

This can easily happen. Cooperatives have been described as islands of socialism in a capitalist sea, and the pressures to make compromises with the surrounding capitalist business environment can be very difficult to resist, particularly if the economy is in recession. Given that degeneration is such a danger, is there any way that the founders of a worker-owned firm could structure their new business to make this less likely to happen? Are their lessons we can learn from other cooperatives that might help us build new worker-owned firms that are more resistant to degeneration as they grow over time?

This spring, scholars published two separate studies of a particular case of degeneration that go some way toward answering these questions. Both papers are studies of the most renowned and admired group of worker-owned cooperatives in the world: the Mondragon Corporation in the Basque country in Northern Spain. With 74 thousand workers in 260 firms, the scale of the Mondragon Corporation is truly impressive. Further, the Mondragon cooperatives have pioneered a number of business practices that have significantly modernized and strengthened the cooperative business model. The Mondragon cooperatives are frequently praised by economists and activists as an example of how a broader worker-owned economy might feasibly work in the future.

But the Mondragon Corporation is not perfect. Since the 1990s, the Mondragon cooperatives have significantly degenerated away from their founding worker-ownership model in at least one key respect. In the 1990s, to compete with multinational corporations, the Mondragon cooperatives adopted a strategy of ‘internationalization’ and started acquiring subsidiary businesses both in Spain and around the world. This could have been an opportunity to spread the Mondragon model of worker-ownership globally, but critically, the Mondragon cooperatives decided not to convert their new subsidiaries into sister cooperatives, but rather, they continued to administer their subsidiaries as capitalist businesses. The employees of the subsidiaries in essence became employees of the Mondragon cooperatives, rather than worker-owners in their own right. By 2007, this degeneration had progressed so far that only 29.5% of the Mondragon cooperatives’ total workforce remained members-owners. (Storey et al. 2014, cited in Bretos & Errasti 2016, 2)

How did this happen? Why didn’t the Mondragon cooperatives use the opportunity that internationalization presented to grow their worker-ownership model outside of the Basque country? And now that this has been done, are the Mondragon cooperatives doomed to fully degenerate into capitalist businesses or can the damage be reversed? Can the Mondragon cooperatives ‘regenerate’ themselves back into full worker-owned businesses in the future? These two studies come at these questions from two contrasting perspectives, and as such, they are particularly interesting and useful if considered together.

The first study is by Sharryn Kasmir, an anthropologist from Hofstra University who has been strong critic of the Mondragon Corporation in the past. In her recent paper, “The Mondragon Cooperatives and Global Capitalism: A Critical Analysis,” Kasmir comes at the problem of degeneration in the Mondragon cooperatives via a case study of Fagor Electrodomésticos, a flagship business in the Mondragon group. In 2013, Fagor Electrodomésticos went bankrupt. The Mondragon cooperatives are famously resilient, and the bankruptcy of a flagship company was an unprecedented development. But more troubling still, Kasmir’s research shows that the different classes of workers in Fagor Electrodomésticos faired very differently after the failure of the business.

Kasmir describes how degeneration created three distinct classes of workers in the Fagor Electrodomésticos cooperative: full members in the Basque country (1,900), wage labourers on short-term contracts in the Basque country (200), and wage labourers in international subsidiaries (3,500). (Kasmir 2016, 54–5) After the bankruptcy, most of the full members transferred to other Mondragon cooperatives and remained employed, but in contrast, the wage labourers both at home and abroad simply lost their jobs.

Kasmir argues that the Mondragon cooperatives long ago created a labour aristocracy in the Basque country that has undermined working class solidarity in the region, a divide that has only deepened as the Mondragon cooperatives have degenerated. She contends that these failures demonstrate “the inescapable limits of the ability of cooperatives to challenge capitalist social relations.” (Kasmir 2016, 56)

But are these limits actually inescapable, or could Mondragon cooperatives find a way to extend solidarity to the workers in their subsidiaries? Is there any possibility that the Mondragon cooperatives could reverse this trend toward degeneration and extend membership to all their workers? Could the Mondragon cooperatives find a way to regenerate?

The second study by Ignacio Bretos and Anjel Errasti of the University of the Basque Country tries to answer these questions. In their paper, “Challenges and opportunities for regeneration of multinational cooperatives: Lessons from the Mondragon Corporation — a case study of the Fagor Ederlan Group”, they evaluate the success of the Fagor Ederlan cooperative in its efforts to convert its subsidiaries to worker-owned businesses. The Fagor Ederlan Group is an automotive supplier in the Mondragon Corporation comprised of eight factories located in the Basque country and six subsidiaries located in Spain, in Brazil, in Slovakia and in Kunshan, China. In 2003, the Mondragon Cooperative Congress approved a new strategy of ‘social expansion’ to try to reverse the trend toward degeneration in the Corporation as a whole, and shortly thereafter, the Fagor Ederlan Group began work on extending worker-ownership to its subsidiaries.

To date, Fagor Ederlan has had its greatest success with its Tafalla subsidiary in the neighbouring region of Navarre, Spain. By 2014, 485 of Tafalla’s total workforce of 688 had become member-owners. (Bretos & Errasti 2016, 9) Fagor Ederlan also had some success with two other subsidiaries in Spain, to the extent that worker-ownership in the Fagor Ederlan Group as a whole has risen from 36% in 2007 to 65% in 2015. (Fagor Ederlan 2009 and Koop 2015, cited in Bretos & Errasti 2016, 9)

However, Fagor Ederlan has been much less successful with its remaining subsidiaries, and has found its foreign subsidiaries particularly challenging to reorganize as worker cooperatives. In the second half of their paper, Bretos and Errasti ask why this is the case. Scholars have theorized that a number of external factors may make extending worker-ownership to employees of  subsidiaries difficult: extending membership to workers in subsidiaries is economically risky for the parent cooperative, particularly if the future viability of the subsidiary is uncertain; the legal framework in some countries may make establishing new cooperatives difficult or practically impossible; the work culture in some countries may make it difficult to establish cooperative values in a subsidiary firm; and members of the parent cooperative may also risk losing control of their investments if employees of subsidiaries become members.

In their research, Bretos and Errasti found evidence that all four external factors acted as barriers to regeneration in the Fagor Ederlan Group, but they also argue that internal factors may have been even more important. They contend that the reluctance to extend solidarity to the workers in subsidiaries may be more a result of a general weakening of the cooperative ideology in the Mondragon Corporation over time:

This is also consistent with research conducted by Heras (2014) who concludes that there is a clear decoupling between Mondragon’s principles and the daily activity of the worker members, and that the strongest tie binding them to the organisations is not their closeness to the cooperative model and culture, but rather job security. Ultimately, if the members of the Basque plants are not themselves strongly bound to the cooperative principles and values of Mondragon, it seems unlikely that strong interest in extending the cooperative model to foreign subsidiaries will arise.

(Bretos & Errasti 2016, 14)

And this I think that is the core message: ideology matters. Worker-owned businesses are not only creating jobs and building social wealth, they are also advancing an new ideology about social ownership, and this research suggests that unless this ideology is nurtured in each new generation that comes to work in a cooperative, degeneration is all but certain.

As islands of socialism in a capitalist sea, there will always be strong pressures on worker cooperatives that can push members to compromise on their values. The final bulwark against degeneration is a workforce that is committed to collective ownership and to work-place democracy.

Together, this research shows that while degeneration over time poses a real threat to the worker-ownership movement, full degeneration is not inevitable; with the right effort, regeneration is also possible. However, Bretos and Errasti’s research in particular shows that rebuilding solidarity in a degenerated cooperative is not easy, particularly across boundaries of geography, nation and culture. It would be far better to structure a cooperative so that degeneration did not take place in the first instance.

Cooperative education has been a central pillar of the cooperative movement since the Rochdale Principles were first agreed, and a strong ideological commitment to workplace democracy among worker-owners is the best long-term defense against degeneration, but this research raises the practical question: how is this commitment fostered in a worker-owned business as it grows over the years, decades, generations?

I am currently looking at research published on this question, and I plan to review this research in a future post. Stay tuned!

Bretos, Ignacio and Anjel Errasti (2016) “Challenges and opportunities for the regeneration of multinational worker cooperatives: Lessons from the Mondragon Corporation — a case study of the Fagor Ederlan Group.Organization.

Kasmir, Sharryn. (2016) “The Mondragon Cooperatives and Global Capitalism: A Critical Analysis.” New Labor Forum 25(1): 52-59.

A video of Sharryn Kasmir giving a brief talk on some of her research can be seen here.

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Worker-owned Firms: Five Myths

I just read a wonderful review article entitled “Worker Cooperatives: Good, Sustainable Jobs in the Community.” It was authored by Virginie Pérotin from the Leeds University Business School and was published in the Journal of Entrepreneurial and Organizational Diversity. In this article, Pérotin reviews recent research on worker cooperatives and uses the latest data to puncture some persistent myths about worker ownership. Below I have summarized Pérotin’s main points in list form, with the notion that this information will be helpful to socialist entrepreneurs, not only in planning their own worker-owned ventures, but also in discussions with other stake-holders, e.g. community members, potential fellow worker-owners, and particularly, banks, credit unions, building societies or other potential sources of start-up capital. The first four of these misconceptions are fairly common and are therefore likely to come up in discussions about your venture with future partners and backers. While Pérotin’s article discusses some of her own research, it is a review, so most of the data comes from other researchers’ work. I have included the page numbers from Pérotin’s article so that you can easily follow the citation trail to the original data if you are interested.

Five common myths:

1. Worker-owned firms tend to be small, niche businesses.

There are not a lot of comprehensive data on worker-owned firms as a population, but where this data exists, it appears that worker-owned firms tend to be just as large or even larger than capitalist firms on average. Even though huge worker-owned cooperatives like Mondragón or John Lewis are relatively rare, it is also true that most capitalist firms tend to be small and that massive capitalist firms are also statistically rare. There is no evidence that worker-owned firms are any smaller than average, and while it varies from country to country, globally, it also does not appear that worker-owned firms tend to cluster in any one specific sector of the economy. You can find worker-owned firms in most industries. When you look at the data, it turns out that worker owned firms are more ‘normal’ in these respects than many assume. (pp. 36–7)

2. Worker-owned firms tend to be less capital-intensive.

Researchers have long assumed that worker-owned firms would tend to be involved in less capital-intensive businesses (food coops vs airlines for example) because socialist entrepreneurs would tend to have less access to capital (i.e. be poorer) than capitalist entrepreneurs and would find it harder to start businesses where large capital investments are required (buying airplanes to start an airline for instance), but again, looking at the data, it does not appear that worker-owned firms are any less capital-intensive in general than capitalist firms. (p. 37)

3. Worker-owned firms tend to fail.

Again, the data is patchy, but in cases where good population data exists for both worker-owned and capitalist firms, worker-owned firms appear to be at least as robust as their capitalist counterparts, and in some instances, may actually survive better than equivalent capitalist businesses. (p. 37)

4. Worker-owned firms tend to under-invest in the long term.

This is perhaps one of the most persistent theories in research on worker-ownership. The idea is that since in many cases workers can’t take their stock in their cooperative with them when they retire, they will tend to think of investment in the company only in the short-term and will be more likely to spend profits on wage increases rather than plowing profits back into the company as an investment in the future. Pérotin discusses two common solutions to this perceived problem: tradable membership shares and compulsory profit plow-back rules. Both of these ideas relate to initial coop design and this topic is so important to the subject of this blog that I plan to revisit it in detail in a future post. In this review, Pérotin presents some interesting ideas on the relative merits of these two design options, but she also notes that, regardless of what micro-economic models might predict in theory, it does not appear that there is any evidence for under-investment in worker-owned firms in practice. Worker-owned cooperatives appear to invest in themselves at the same rate as capitalist businesses everywhere this has been studied. (pp. 37–9)

5. Worker owners will be tempted to fire their fellow workers in order to raise their personal incomes.

This is another academic critique of worker-ownership, and while this theory is probably less common outside of academic circles, it is still worth discussing. Based again on micro-economic analysis and modeling, the theory is that when prices for a particular cooperative’s product rise, worker owners in that cooperative will be tempted to exploit the opportunity and fire fellow workers in order to capture the extra profits as higher wages for themselves. On the face of it, this doesn’t sound likely, and even the name of the theory suggests that it is a fairly counter-intuitive idea: “the perverse supply response”. And indeed, whatever the models might predict in theory, there is no evidence that this actually happens in practice. Pérotin suggests that this may be because worker-owners are not solely trying to maximize personal income (as theorists assumed), but rather, that they manage their businesses to also maximize job-security. Pérotin argues that worker-owners in a cooperative will probably understand their business more as a general social good rather than simply and narrowly as a profit opportunity, and therefore, they will work to preserve that social good for themselves and for their fellow workers into the future. Indeed, all of the evidence suggests that worker-owned cooperatives are actually better at avoiding lay-offs (redundancies) in times of economic crisis than are capitalist firms. (pp. 39–41)

In general, Pérotin’s review article is short and delightful to read. I strongly recommend it, and best of all, it is open-source so anyone can access it. Here is the citation:

Pérotin, Virginie (2013) “Worker Cooperatives: Good, Sustainable Jobs in the Community.” Journal of Entrepreneurial and Organizational Diversity 2(2), 34–46.

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Review: Putting Democracy to Work

PuttingDemocracytoWorkWhile there are many tens of thousands of books in print about starting and running a traditional capitalist business, very few books have been published specifically about starting and running a worker-owned business, and those books that have been published tend to be relatively old. Previously, I reviewed the worker-ownership guide, We Own Itthat was published in several editions back in the late 1980s/early 1990s, and here I would like to take a look at another guide from around that same era, Putting Democracy to Work, A Practical Guide for Starting and Managing Worker-Owned Businesses, by Frank T. Adams and Gary B. Hansen. Both these business guides were written in a very different time and for a very different business environment, before the age of the internet and before the hyper-capitalist, neoliberal economic model completely conquered the world. When these two guides were first published, the Soviet Union was still with us, and the final revised edition of Putting Democracy to Work  from 1992 would have been written shortly before the end of the Cold War. But as I argued in my review of We Own It, I believe that even though much of the specific information in these guides is now outdated, the general advice they offer is still very valuable, and that they are definitely worth tracking down and reading if you are considering launching your own worker-owned start-up.

Putting Democracy to Work is a thick book, but even at 324 pages it feels brief, and that is probably inevitable. There is simply so much ground to cover — you couldn’t really set up a business based on the business plan outlined in chapter 4 for instance; you would need much more specific guidance, but Putting Democracy to Work does flag up those issues particular to worker-owned businesses. In this way, Putting Democracy to Work would serve as a valuable complement to topic-specific business guides aimed principally at capitalist entrepreneurs. Socialist entrepreneurs would still need to read general guides — on writing business plans, for example — but could then supplement that research with the worker-ownership specific advice in Putting Democracy to Work.

When it was published, one of the best things about this book would have been the long list of contacts in the appendix for groups in each US state that helped start-ups, but of course, most of this information is now obsolete. Also, like We Own ItPutting Democracy to Work is very much aimed at a US audience, and would be less relevant to businesses in other parts of the world, in the details anyway. But it is more in the broad strokes that Putting Democracy to Work is valuable. The authors have years of practical experience with worker-owned businesses, and their advice on the special challenges that face a new worker-owned business is well worth the effort required to sort through the sections that wouldn’t apply.

Early on, the authors argue that socialist entrepreneurship, or as they call it labor entrepreneurship, is an integral part of successful worker-ownership:

This handbook is for women and men who want to own their labor. It is about creating good jobs, bringing democracy to the workplace, and promoting labor entrepreneurship. In a nutshell, it is about worker ownership.(1)

They define labor-entrepreneurship as a democratic version of the same culture of risk-taking and organization building that distinguishes successful capitalist entrepreneurs:

Labor-entrepreneurship means that the workforce or a group within it assumes the responsibilities of searching for profitable business opportunities, of obtaining productive resources, while engaging in risk-taking and organization building. (23)

Citing research by Ana Gutierrez-Johnson, the authors contend that this active, entrepreneurial approach to cooperative business is what makes modern worker-ownership so vital, and what distinguishes modern worker-ownership it from the classic, more-static Rochdale model of a cooperative, an insight apparently developed and advanced particularly by the Mondragon cooperatives in the Basque country:

Accordingly, the Basques created the doctrine of labor-entrepreneurship which, in addition to participation, includes risk-taking, enterprise building or growth, husbandry of productivity, and the search for new opportunities. (19)

The heart of this book is in chapters 8 and 9, “Managing Worker Democracy” and “Democracy on the Workfloor”. It is workplace democracy that really distinguishes the day-to-day operation of a worker-owned firm from the command-based organization of a capitalist firm. This is the sort of advice that you could only find in a start-up guide like this, one that is specifically targeted at worker-owners. This guide addresses a number of questions that only worker-owners have to face, such as: Practically, how do you make business decisions democratically as a group of worker-owners? How are worker-owners hired, and if needs be, how are worker-owners laid off (made redundant) or even fired? How do worker-owners locate capital to start up and to expand? And critically, how do successful worker cooperatives like the Mondragon cooperatives structure their businesses to generate their own sources of capital? And so on.

The authors sketch out a range of possible structures, ranging from, on the one hand, fully horizontal organizations that approve some or all decisions by vote of the whole workforce, to, on the other hand, more traditional pyramid-shaped organizational structures where top management ultimately answers to a worker-elected board of directors, but whatever management structure a worker owned firm selects, the authors make clear that it will be individual to that firm and a result of experimentation and evolution. There is no single right way:

How twenty-five worker-owners in small enterprises manage their work will differ greatly from the way twenty-five hundred worker-owners must tend to business. Size is only one factor which will shape the way workers govern the workfoor itself. The purpose a buisness is set up to accomplish influences how it is organized. So do the tools used or the markets served. Occupational skill of workers and managers leave their mark. In the end, each worker-owned cooperative — whether just getting started or a conversion — must undertake the sometimes painful process of fashioning the way work itself is governed. (156)

Putting Democracy to Work doesn’t offer a blueprint of a perfect worker-owned firm, but it does explore the key differences and particular difficulties of setting up and managing a worker-owned business, and it offers comprehensive advice on how workers can design an administrative structure for their start-up that will be both democratic and successful. As as a complement to more topic-specific (but capitalist) business guides, both Putting Democracy to Work and We Own It are invaluable resources for socialist entrepreneurs. Definitely worth buying and reading, despite their age.

Putting Democracy to Work: A Practical Guide for Starting and Managing Worker-Owned BusinessesFrank T Adams and Gary B. Hanson, 1992, Berrett-Koehler Publishers.

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Interview: Yochai Gal, Boston TechCollective

humanoid-chaotic-goodYochai Gal has been instrumental in founding two worker cooperatives: the San Francisco TechCollective, and more recently, the Boston TechCollective in Somerville, MA. Yochai was born in Israel but raised in California and started repairing computers when he was 17. He has long had an interest in worker-ownership, and when he couldn’t find a worker-owned tech business that needed his skills, at 23 years old, he decided to set up his own.

He and his fellow co-owners opened the San Francisco TechCollective in May, 2007, with a 20K line of credit from Wells Fargo, 14K of which they used and then successfully paid off. The business has a storefront in the Mission District of San Francisco out of which they handle consumer and small-business IT support and specialize in data recovery.  The collective currently has six worker-owners and they are successful enough to pay themselves above-average wages and excellent benefits. They are the highest-rated IT company on Yelp in the Bay area.

In 2011, Yochai relocated with his wife to Boston, and in May of 2013 he launched the Boston TechCollective with a new group of co-owners, assisted by a 70k loan from the Cooperative Fund of New England. The Boston collective currently has six worker-owners and hopes to pay off their loan in about another year.

Recently, the two TechCollectives and C4 Tech & Design in New Orleans have partnered to form the Technology Cooperative Federation as a purchasing cooperative, allowing them to compete in purchasing power with larger private IT companies and corporations.

Yochai kindly agreed to an interview by email:

First, I first wanted to ask you about what sort of fears you faced before you launched your collective? Looking back to when I was younger, I think one of the reasons that I never got involved in starting a full-blown worker-owned collective myself was that I was afraid that trying to make a living from my own business would be really daunting, but in a recent interview you said that starting a business actually isn’t that hard, that regular people do it all the time, and I was wondering if you could expand on that comment a little? What concerns did you have before you started the first TechCollective and how was your actual experience different from your initial fears?

What fear? I was 23 years old, healthy and full of venom! I mean, I’d been through worse: I’d never finished high school or college, and had lived/worked at hostels around the country! Heck, just a few years before I’d moved to a city I’d never been to with $11 to my name, and I turned out OK! How could starting a business be harder?  The arrogance of the youth, I suppose.

And it really isn’t hard – you fill out some paperwork, hire a CPA for 2 hours and viola! You’ve got a business going. The hard part is having something to sell. And in that sense, I was lucky – the world of IT is very unique, I think. People often talk about how there is this veneer of meritocracy (as long as you’re male, of course) – and that’s very much true: if you can do it, you’re in. Of course, there’s the added benefit that if you don’t have a degree/diploma, nobody seems to care! I was once hired for a very serious corporate gig; they didn’t even ask me where I went to school! And there’s one last benefit: everyone needs what I’m selling. Have a business? How about an apartment? Do you own a computer? Maintain a website? Do you have data you care about?

My parents (lapsed communists with a dash of anarchism) raised us on Kibbutz values; e.g. anti-religious, pro-equality and above all anti-power. We didn’t have any money, but they always had a place for me if anything didn’t work out. Maybe that’s what it’s all about: I’ve always had somewhere to go to; even though I had no money.

It occurs to me now that part of it might be cultural: my father came to the US without any education, money, or grasp of the English language. Yet he took more risks than most of the Americans I’ve met – including leaving his family behind, starting a business (which he runs by himself to this day) and raising a family in a foreign land. He told me once, “When I die, put on my tombstone: this man was not afraid to fail.”

Maybe that’s why I did it.

I can’t really recall what earlier concerns were – I think the biggest was perhaps the fact that I had no clue what I was doing! I had no business experience, and frankly didn’t know a 1/10th of what I know now – about business, about computers, about being an adult. And I made a lot of mistakes, of course. But in many ways I was especially lucky to form a co-op – my co-owners would share the load, ease my burden. I was never alone. They also brought their own skills and experiences along, and worked often just as hard, if not harder than I. Lastly, I was fortunate to connect with the local co-op community (; we had an immediate customer base, as well as technical support for all things co-op.

People go into to debt for hundreds of thousands of dollars for school and they don’t blink an eye; it’s just ‘what you do’ here in the US. And that to me is even more ridiculous as most of the people I know who have degrees don’t even USE them at their current job! What I’m getting at is that there are always acceptable risks, and we as a society seem to assume some are OK and others are not. For what it’s worth, I’ll be debt-free long before many of my friends who went to college – and I’d wager that they feel less happy with their ROI to boot.

One more thing: I once called into a (disappointing) radio show about co-ops; some kind of forum thing. And on the call, I said something along the line of, “Don’t just listen to what we’re saying, and then go out there and keep living your normal life, working somewhere you don’t want to be, all the while dreaming of working at a co-op” – I’m paraphrasing, of course. Anyways, a year later I ran into someone at a conference, and they told me that they heard me on that show, and after hearing what I said decided to go out and do it, and now they did have a worker co-op of their own. This made me very happy, and while I know it isn’t easy for everyone – and for good reason – I still love stuff like that, it gives me a feeling of hope and inspires me.

On a related theme, you also said in a recent interview that it is actually easier to start a business as a cooperative group, rather than as a sole owner. What are some of the advantages to starting a business as a team of worker-owners?

As I mentioned before, creating a business as a worker co-op is a shared experience; you never feel completely alone – you have a group of (usually) like-minded, committed individuals right there with you. Their shared resources, skills and experience makes the process of starting a business unlike anything I’ve ever encountered.

There are more practical reasons as well – taking out a loan is a bit easier if you have a wider range of personal credit to lean on. There is also the concept of the buy-in: each worker upon becoming an owner must pay an amount, ranging from $50 and up every paycheck, until the agreed upon amount has been paid. A $3,000 buy-in ensures seriousness in the business, creates equity, and increases over time – so if a worker eventually leaves (as I did) they will receive a chunk of cash greater than they put in. The obvious question is: how does one pay this amount if they have no money? We do not require the full amount right away – in fact you are not required to pay anything until you receive your first raise. The worker can pay as little or as much as they like. This process is a great litmus test for finding good employees! Another strength of our model is our open-book approach to business: all employees know the financial situation, and are empowered to make decisions “as a boss” when they need to. Workers are working to benefit themselves as well as the business – it is built-in! Further, a traditional business would typically ignore any good ideas non-owners had; at a co-op all voices are given a chance to speak – and the business benefits. Voting itself is a useful tool: I’ve been wrong about many, many things – and when I was overruled and we went a different way, I could see that fact. But if I were the sole owner, I would have only found that out the hard way!

There is another tangible attraction for new personnel (an advantage in my eyes): the patronage model. If at the end of the year we are profitable, our bylaws stipulate that we may take 75% of our profits (the other 25% is working capital – an idea from Mondragon) and distribute them amongst our employee-owners; in many states this is untaxed income! There are a few other business-specific benefits I could mention (though they aren’t very interesting, I think). For example, many co-ops are formed by immigrants that use the LLC model: this allows them to hire non-citizens and pay them – legally. It also employs a similar method for patronage (returns) as a cooperative corporation/employee cooperative.

The second co-op I formed received a loan (line of credit, really) from the Cooperative Fund of New England. Obviously we would not have been able to receive this loan (or the many, many grants we’ve applied for) had we not been a democratic workplace! If that’s not an advantage to starting out over a traditional business, I don’t know what is! We are part of a larger movement that help one another; we share resources, trade work, and connect in the most equitable fashion imaginable. Our co-op could not exist without the larger movement.

People sometimes say things like, “What about the geniuses, the Steve Jobs of the world – don’t they need to be “in charge” and dictatorial to do their great works?” And to that, I say, “What about all the rest, the regular workers who are given no chance to have their ideas heard, to join in creation?” How much have we as a society lost out on as a result of how we do business?  A co-op is thus made stronger as a result of our model – both as a business and as a part of the community. We will never outsource ourselves, we will never poison our backyards, or allow one of our own to do so. We create workers that take democracy to the workplace – where we spend the majority of their time – and apply it elsewhere in their lives – it empowers us to grow and stand tall; I definitely see this is an advantage and benefit.

And finally, you’ve said that one of the biggest challenges in the beginning was locating suitable co-owners to staff your new businesses. What have you learned about the challenges of finding and vetting potential fellow co-owners and what advice would you give on the process?

Handling personnel is definitely the most important part of running any business, I think. But it is especially important at a co-op because you are not simply hiring for an employee; you’re looking for future co-owners. Someone who will share the frustrations, difficulties and benefits of being an owner – with you, of course! Our society teaches us to be slaves; to accept our exploitations – even to yearn for our chance at being the exploiters! This isn’t just rhetoric – it is compounded into every aspect of our lives, as well as our education. As a result, most candidates have either:

  1. Never heard of a worker co-op.
  2. Have a vague notion, but would never consider searching for one.
  3. Love co-ops, but probably don’t have the relevant job requirements (this happens quite often).

Loving co-ops is not in any way a requirement – in fact, very few people we’ve hired have known what they were.

So our approach has been to find candidates who meet the personality requirements; we have a full matrix of skills we look for as well. If we are faced with one candidate that can do the job but has an incompatible personality, we will not hire them. If however we can hire someone who has the personality we’re looking for, but none of the skills – we’ll probably hire them and train them. You can not change a person’s personality but you can certainly give someone whatever knowledge they need! Problem solving, critical thinking, etc are all very important; but what we really care about is whether they work well with others, particularly in a democratic and equitable fashion. The co-op is also not for everybody; we don’t simply think “How well do they work for our purposes?” – we also ask them “How well do we work for you?”

Long-term, my advice is to build employee reviews (ours are quarterly) into the job – if you keep everything out in the open, people are more likely to change and grow; this includes the co-op itself. At what is a co-op really, but a growing group of people, working together towards a common goal? Is there anything more beautiful?


Christian, Jon (2014) “New co-op brings bossless business model to tech support in Somerville”, The Boston Globe, May 08, 2014.

Halash, Jeff (2014) “Yochai Gal from”, Podnutz Daily 400, November 03, 2014.

Jones, Erica (2014) “Hello Neighbor: a look at Boston TechCollective”, SCATV Somerville, July 30, 2014.

Wolff, Richard (2015) “The Worker Co-Op Alternative”, Economic Update, April 12, 2015

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Credit unions

In order to have a growing and sustainable cooperative business ecology you need at least two things: first, you need a continuous stream of newly founded worker-owned firms entering the ecology, either through conversions or as startups; and second, you need a growing cooperatively-owned financial sector in the ecology, to help these worker-owned firms manage their capital. The Kibbutz experience in Israel has shown that, given the chance, capitalist banks will use their financial leverage to force cooperative businesses to adopt capitalist structures over time; in other words, for purely ideological reasons, capitalist banks have been shown to use restrictive loan terms to progressively force cooperatives to convert back into capitalist businesses. (Simons and Ingram 1997) Capitalist banks don’t trust cooperatives, they don’t like to work with them, and when they do, they often insist that cooperatives restructure themselves to operate more like capitalist businesses as a precondition for loaning cooperatives money. A healthy cooperative economy requires a financial sector that shares its cooperative structure and philosophy so that worker-owned firms have access to investment capital from banks that understand what cooperatives are about and on terms that fit the worker-owned business model. That’s why it is so discouraging to see that the number of credit unions in the United States continues to drastically decline:

credit-unions-over-timeSource: The Credit Union National Association via the Internet Archive Blog.
This data was compiled by the folks at the Internet Archive. In 2011, one of the founders of the archive, Brewster Kahle, launched a new credit union, the Internet Archive Federal Credit Union, explicitly to offer low-income members affordable financial services. Sadly, after a frustrating five years, Kahle and his partners have recently decided to close the project, and they blame the regulatory body, The National Credit Union Administration, for putting so much needless regulatory bureaucracy in their way that the credit union never managed to get off its feet. By the Archive’s estimates, 200-300 credit unions are forced to close each year in the US and only a tiny handful are allowed to start. Whatever the problem, from the evidence above it is clear that something is very wrong.

Someday, if we ever achieve a sustainable global cooperative economy, much of the change required will be ideological, but much will also be structural. Among the structural changes, it is clear that the laws that govern credit unions need to be re-written, at least in the US and undoubtedly elsewhere, so that they encourage rather than discourage the foundation of cooperative financial institutions. As Kahle points out in his blog post, the technical tools required to start a cooperative bank have never been easier to use. There is really no technical reason that the curve above should be going down. Indeed, by all rights, given internet-based technical advances in providing financial services, it should be going up, and after the catastrophe of the last global recession — caused in large part by the capitalist financial sector — there is even more reason to see that the cooperative financial sector starts growing again.

Kahle, Brewster (2015) “Difficult Times at our Credit Union.” Internet Archive Blogs,, 24-11-2015.

Popper, Nathaniel (2015) “Dream of New Kind of Credit Union Is Extinguished by Bureaucracy.” New York Times, 24-11-2015.

Simons, Tal and Ingram, Paul (1997) “Organization and Ideology: Kibbutzim and Hired Labor, 1951–1965.” Administrative Science Quarterly 42, 784–813.


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