Cooperative nuts and bolts: minimum profit plow-back rules

This is a first in what I hope will be a series of practical articles about the nut and bolts of setting up a worker cooperative. In this first article, I’m going to take a look at an important but poorly-understood subject: minimum profit plow-back rules.

A key to success?

The size and strength of the cooperative sector varies enormously from country to country and from region to region around the world, and while there are all sorts of reasons why cooperatives might be more common in some places than in others, one factor stands out in particular: in regions where cooperatives are strong, they often share a special type of internal financial arrangement called a minimum profit plow-back rule. Indeed, it seems that minimum profit plow-back rules may be behind the success of many of the most well-known cooperative groups, like the Mondragon cooperatives in the Basque country, and the cooperatives in the Emilia-Romagna region of Italy.

Minimum profit plow-back rules help cooperatives raise the capital they need to grow and multiply, and because they accelerate the growth of cooperatives, these rules could prove to be the key to expanding worker-ownership beyond the fringes of the global economy, but unfortunately, it is hard to find much detailed, practical information about these rules in the literature. In this post, I want to share what I have discovered so far. It’s a fairly short post now, and that is a measure of how difficult it is to find information about these structures, but I plan to add to it little by little as I learn more. If you have any information or experience with minimum profit plow-back rules, please share it the comments below.

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Review: The Inner Level

The Inner Level

Richard Wilkinson and Kate Pickett’s book, The Spirit Level, was a rigorous, evidenced-based exploration of the damage economic inequality does to society. Published in 2009, it came out at just the right moment, and along with the Occupy Movement and the Bernie Sanders campaign, it played an important part in opening up a new conversation about class, in the USA in particular.

Their new book, The Inner Levelexamines the damage that inequality does to our psychological health, and it is just as powerfully-argued, evidence-based and rigorous. I found it particularly helpful in trying to get to grips with the psychology of the rise of Donald Trump and the politics of Brexit in the UK. The evidence they gather shows how inequality raises levels of fear and anxiety in societies. These, of course, are some of the same emotions that feed the politics of nationalist populism, which in turn lead to social policies that widen the economic gap, driving us around in a perverse vicious cycle of social self harm. In a society caught in a cycle of growing inequality and anxiety, a leader like Trump isn’t an aberration; in unequal societies, sociopaths like Trump naturally rise to the top:

Greater inequality not only causes psychopathic tendencies to manifest in more people, it provides the cut-throat environment in which those tendencies come to be seen as admirable or valuable … (74)

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Review: Shut Down the Business School

shutdownthebusinessschoolI have a new favorite book! Ever read a book that comes at just the right moment, that seems to perfectly sum up how you are thinking or feeling about something, and then points a way forward? I had that experience this weekend with Martin Parker’s new book, Shut Down the Business School: What’s wrong with management education.

Parker is a Professor of Organisational Studies at the University of Bristol in the UK, and his  thesis is that much of what is wrong in the world can be traced back to the business school and how management is taught there. In his view, business schools can’t be reformed; they should be shut down, and in their place he proposes a new kind of school: a school of organizing that would study and teach about all kinds of organizations, not just capitalist corporations, and this would definitely include worker-owned firms. In fact, he uses the worker-owned organic food distributor, Suma Wholefoods, as one of his examples of the kind of organization that main-stream management education typically ignores.

Shut Down the Business School is a short book and I blazed through it. Parker sprints through some of the main theoretical debates in politics and organizational theory, but manages to keep the discussion largely jargon-free. And he is really funny and irreverent. This is a book (partly) aimed at academics, but it isn’t academic at all in tone. I was often laughing and underlining zingers as I read.

This is a theoretical book, or a manifesto perhaps, and for readers of this blog who are looking for practical advice for starting and managing a new worker-owned firm, you won’t find it here, but still I think you should pick up this book. You’ll be inspired. Parker’s vision of a new economy is so fresh and hopeful, even if you never plan to go near a business school, it is very much worth the read.

Martin Parker. 2018. Shut Down the Business School:What’s wrong with management education. London: Pluto Press.

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Innovation and Worker-Ownership

Yesterday I published a post about the new book, Jackson Rising, edited by Kali Akuno and Ajamu Nangwaya, and while I was researching Nangwaya to see if I could find his homepage, I stumbled across a short article he wrote about “Labor Entrepreneurship” that discusses some of the central themes of this blog, so I thought I would share it here.

Nangwaya’s article examines the role of innovation in the cooperative economy. One of the principal arguments in favor of capitalism is that it is an exceptionally innovative economic system. In a capitalist economy, you can make money by selling solutions to problems, so entrepreneurs have a strong profit motive to continually innovate, and in general, this is a clear social good. So if it can be shown that worker-ownership is not as innovative an economic system as capitalism, then that would be a fairly strong argument against expanding the cooperative sector of the economy.

So do worker-owners innovate? Is entrepreneurship more common in a capitalist economy, or are there ways to promote entrepreneurship in worker-owned firms?

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Review: Jackson Rising

Jackson RisingJackson Rising is a recent collection of essays about the growing movement for economic democracy and Black self-determination in Jackson, Mississippi, USA. Edited by local activist, Kali Akuno, and the academic, Ajamu Nangwaya, Jackson Rising was published right at the end of last year, so it represents an up-to-the-minute account of this movement. Jackson, Mississippi, is a very poor, Black-majority city who’s population has suffered under some of the worst systemic racism in the US, but in June, 2013, a long-time Black activist and civil-rights lawyer, Chokwe Lumumba, was elected mayor, and his administration adopted a radical plan for the regeneration of Jackson that was founded in part on establishing a network of worker cooperatives in the city. In Nangwaya’s words, the plan was to “transform the city of Jackson into America’s own Mondragon.” (p. 110)

Sadly, Chokwe Lumumba died unexpectedly, just eight months into his term, but in June, 2017, his son, Chokwe Antar Lumumba was elected mayor in a landslide victory, and intends to continue his father’s work. Chokwe Antar Lumumba’s electoral victory was a resounding popular endorsement of his father’s regeneration plans, but critically, the movement in Jackson is much bigger than than just these two men. Centered around the organization, Cooperation Jackson, a broad base of local activists have come together to set up this network of worker-owned businesses.

Readers of this blog will find Jackson Rising both inspiring and thought-provoking, but it should be noted that this collection of essays does not provide a detailed account of the practicalities of setting up worker cooperatives in the Southern US. Rather, the authors in this volume explore the theory behind the movement and how they understand worker-ownership as a key strategy for advancing civil rights and Black self-determination in the US. I learned a lot about the history of my own country from reading this volume, and in the end, Jackson Rising left me feeling exited and profoundly hopeful.

Kali Akuno and Ajamu Nangwaya, Jackson Rising: The struggle for economic democracy and Black self-determination in Jackson, Mississippi. Daraja Press, 2017.

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Georgian Cooperatives

georgia
Near the end of World War I, Georgia declared independence and set up one of the world’s first experiments in democratic socialism. The Georgian experiment wasn’t perfect. Mistakes were made. And it didn’t last long, just three years. In 1921, the Democratic Republic of Georgia was crushed by Russian communists, but in that short time, their experiment was very successful, and cooperatives played an important role in the economy of the young republic. Eric Lee has just published a history of this period, The Experiment: Georgia’s Forgotten Revolution, 1918–1921, and in it he includes a short chapter on cooperatives. The chapter is short in large part because the cooperative side of the experiment was not well documented:

the story of the Georgian cooperatives is an important one, and yet most histories of the country have barely touched on them. Some have focused extensively on tiny organisations like the Bolshevik party, while ignoring the hundreds of thousands of Georgians whose lives were changed by the cooperative movement, or for that matter the trade unions. This may have to do with historians’ generally focusing more on politics and war, and less on social movements. (p. 123)

Nonetheless, Lee manages to dig up some interesting information. He cites one estimate that in the republic almost as many workers were employed in cooperatives as were employed in private businesses:

By 1920, only 195 of Georgian workers were employed by the private sector. A majority — 52% — were employed by the state and a further 18% worked for municipal or cooperative enterprises. (p. 127)

Lee’s book was interesting in general. I was entirely ignorant of this period and I found it really inspiring. I would strongly recommend it.

Via Coop News. Image CC 4.0 Scoundrelgeo.

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Interview: Harold de Jesus, P.O.L.I.D.O. Skateboards

logoP.O.L.I.D.O. (Physics and Other Laws I Don’t Obey; FacebookInstagram, Tumblr) is a custom skateboard company in the Bronx, NY, that was recently organized into a small workers’ cooperative. I wanted to interview P.O.L.I.D.O., in part, as a window on the exploding New York workers-cooperative scene. P.O.L.I.D.O. has benefited from training and support from a number of groups in NY: Green Worker Cooperatives, a cooperative incubator in the Bronx; Business Outreach Center Network, a business consultancy that works with under-served entrepreneurs; and the Urban Justice Center, who provide legal support to community groups, all under the auspices of the Worker Cooperative Business Development Initiative, a city-wide project to grow the cooperative sector in New York.

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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:

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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.

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