Cooperative nuts and bolts: minimum profit plow-back rules

Posted on August 15, 2018 by lasairdhubh

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.

The capital problem

Cooperatives tend have a capital problem. While capitalist business-owners and entrepreneurs are often very rich, and therefore have access to money to start up their businesses and to expand, worker-owners generally do not have the same access to capital — they aren’t personally rich and banks are far less likely to extend them credit — so they have to find other ways to raise money. A minimum profit plow-back rule is one way a worker cooperative can solve this capital problem for itself over time.

There are all sorts of different ways to implement these structures, but basically, a minimum profit plow-back rule requires a cooperative to save or to reinvest a certain percentage of its profits back into the business each year; in other words, it requires the cooperative to create its own capital reserves. Sometimes these rules are imposed by the state as a legal condition for incorporating as a cooperative, and at other times, like in the case of the Mondragon Corporation, the rules are internally imposed by the cooperative group itself.

Italian Cooperatives

By law, cooperatives in Italy are required to plow back at least 30% of their net profits, although research shows that Italian cooperatives often voluntarily plow back much more than this, sometimes up to 100%. These capital reserves cannot be divided between members, even if the cooperative eventually closes shop. This arrangement is usually called an asset lock. (Navarra 2016; Navarra 2009;  Pérotin 2012)

Italian law rewards cooperatives that reinvest their profits in this way with a tax break: up to 70% of profits can be made exempt from corporate income tax if they are reinvested, and it was widely assumed that the high level of reinvestment seen in Italian cooperatives was a result of this incentive, but when Cecilia Navarra (2013) actually studied the behaviour of Italian cooperatives, she found this was not the case. Rather, she found that Italian cooperatives reinvest most or all of their profits as a way to insure against economic downturns, to protect employment, and to keep wages stable. She also cites research by Alberto Zevi (2005) showing that Italian cooperatives have been growing faster than equivalent capitalist businesses, and she believes that greater capital reinvestment may be a factor contributing this faster growth.

The Mondragon System

The profit plow-back arrangements in the Mondragon Corporation are more complex than most, but they are also particularly powerful. One key feature of the Mondragon system is that very early on their history the Mondragon group of cooperatives set up their own bank: the Laboral Kutxa (formally called the Caja Laboral). The Laboral Kutxa is a worker-owned credit union that in addition to serving as a regular public bank in the Basque region of Spain, also serves as the principal commercial bank for the Mondragon Corporation. The Caja Laboral was founded in 1959 as an integral part of the Mondragon cooperative system, and all of the individual firms in the Mondragon Corporation are tied to it.

Everyone agrees that Mondragon’s cooperative bank […] was vital to its expansion. The [cooperative bank] mobilized the savings of thousands of depositors and funneled them into the growth of the coops. (Dow 2003, 65)

The Mondragon system is constantly evolving, but according to the best information I have just now, the Laboral Kutxa requires all of the Mondragon cooperatives to set up three streams of profit plow-back. Net profits (after wages) are divided between a social fund (10% used to fund community social projects), a collective capital reserve fund (a minimum of 20% for direct profit plow-back into capital reserves), and the remainder is deposited in individual workers’ capital accounts. When new worker-owners join a Mondragon cooperative, they have a capital account set up in their name. Seventy percent of the cooperative’s net profit are deposited in these accounts, and the members can withdraw this money when they retire, but in the meantime, the Mondragon system is free to use this money as investment capital. (Dow 2003, 60-1)

The power of the Mondragon system is that, because they all share their own bank, all these capital reserves get pooled together in the Laboral Kutxa (Caja Laboral) and can be used as capital to start new cooperatives:

The main purpose of the [cooperative bank] was to finance the creation and expansion of worker cooperatives and other cooperative organizations. (Whyte and Whyte 1991, 52)

Suma Wholefoods

Suma Wholefoods is remarkable as a fairly large worker-owned cooperative in the UK that maintains a perfectly flat pay structure: everyone earns the same wage per hour, and in the 80s, Suma apparently implemented an interesting form of profit plow-back based on wages. They set up a cooperative development fund to help aid other cooperatives, and every time they voted themselves a pay raise (pay rise), they would deposit an equal sum in the development fund. (Parker 2018, 117)

The cooperative ecology

One can understand the cooperative sector as a kind of ecology, with new cooperatives constantly being founded (or “born” into the ecology), and established cooperatives leaving the ecology (or “dying” out of the system) by going bankrupt, degenerating or demutualizing. This ecology model of the cooperative economy would also include those supporting organizations that facilitate the growth of cooperatives, like credit unions and cooperative incubators. The cooperative sector as a whole grows if more cooperatives are “born” into this ecology at any one time than “die” out of it, and it seems clear that minimum profit plow-back is one way to strengthen the birthrate and longevity of cooperatives. Further, as demonstrated by the Mondragon system, the advantages of minimum profit plow-back rules are turbo-charged if a system of cooperatives all share the same cooperative bank.

These sorts of structures are definitely worth considering if you are founding a worker-owned firm. Rarely would founders of a worker-owned cooperative be thinking much about future profits as they are setting up their business; they may expect to struggle for months or even years just to break even, but these structures would be much easier to build into the design of a cooperative from the start. Then, when the business finally does first turn a small profit, the structures would be firmly in place and fully agreed.

Also, as the cooperative movement as a whole lobbies to have worker-cooperatives better recognized in corporate law in jurisdictions around the world, it would be worth building minimum profit plow-back into this legislation, mandating this structure in the design of worker cooperatives as it is in Italy and elsewhere.

Sources:

Dow, Gregory K. (2003) Governing the Firm: Workers’ Control in Theory and Practice.  Cambridge: University of Cambridge Press.

Navarra, Cecilia (2009) “Collective accumulation of capital in Italian worker cooperatives: an empirical investigation on employment stability and income smoothing.” Paper presented at  AISSEC XVII Conference, Perugia, Italy, June 2009.

Navarra, Cecilia (2013) “How do worker cooperatives stabilize employment? The role of profit reinvestment into locked assets.” Department of Economics, University of Namur, Working Paper 1307.

Navarra, Cecilia (2016) “Employment Stabilization Inside Firms: An Empirical Investigation of Worker Cooperatives.” Annals of Public and Cooperative Economics 87: 563–585.

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

Pérotin, Virginie (2012). “The performance of worker cooperatives.” In P. Battilani and H. Schroeter (eds.) A Special Kind of Business: the Cooperative Movement 1950-2010… and Beyond. Cambridge: Cambridge University Press, 195–221.

Whyte, William Foote and Kathleen King Whyte (1991) Making Mondragon: The Growth and Dynamics of the Worker Cooperative Complex. Ithaca, NY: ILR Press.

Zevi, Alberto (2005) “Il finanziamento delle cooperative.” In Enea Mazzoli and Stefano Zamagni (eds.) Verso una nuova teoria economica della cooperazione. Bologna: il Mulino, 293–331.

Posted in Nuts and Bolts | 9 Comments

Review: The Inner Level

Posted on July 2, 2018 by lasairdhubh

The Inner LevelRichard 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 Level, examines 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)

This is a very important book that has been published at a critical time, and their conclusions will be particularly interesting to readers of this blog because at the end of their analysis they set out a program of actions that we could take to reduce economic inequality, and foremost amongst their recommendations is greatly expanding worker ownership:

The next great stage in human development must therefore be the extension of democracy into working life. (264)

Interestingly, they take the opposite view to Gregory K. Dow’s in his book, Governing the Firm, which I reviewed earlier. Dow was reluctant to recommend worker cooperatives as a means to reduce economic inequality, in part because he was afraid that this would stigmatize the cooperative movement as being too political and radical, holding back the acceptance of cooperatives as a part of the mainstream economy, and instead, he recommended progressive taxation as a better way to deal with rising inequality.

Wilkinson and Pickett also see a place for progressive taxation, but are skeptical that taxation alone will provide a lasting solution to the problem of economic inequality:

Because it is easily reversed, the redistribution of income through taxes and social security benefits is particularly vulnerable when so many people regard taxes as a kind of legalized theft of income which they feel they have earned and have a right to. (246)

In their view, tax policy is too vulnerable to the whims of politicians like Trump. Rather, they favor expanding worker-ownership because this would build greater equality into the structure of the economy itself:

By far the most important long-term measure, however, will be the reduction of pre-tax income differences by extending democracy into the economic sphere. (256)

The Inner Level builds on the argument that Wilkinson and Pickett set out in The Spirit Level but also takes it in a new, important direction that is once again eerily relevant to the political situation we find ourselves in just now. They show how much of the anxiety and division we see around us in the world can be traced back to the psychological impact of economic inequality, and suggest that worker ownership may provide us with the best road out of this mess.

Posted in Book Reviews | 2 Comments

Review: Shut Down the Business School

Posted on May 28, 2018 by lasairdhubh

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

Posted on May 11, 2018 by lasairdhubh

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?

As we saw earlier, there is some evidence that in times of economic crisis, cooperatives may be less likely than capitalist firms to invest in research and development. And in his article, Nangwaya cites a 1999 think-piece by the economist, Andrew Hindmoor, who argues that most of the Mondragon cooperatives’ success is based on copying innovations from capitalist firms, that Mondragon is “free riding off capitalism” in this respect:

If it is to be argued that an economic system based upon the use of co-operatives will be as efficient as capitalism then it must be shown that they are capable of the kind of innovation that has underpinned economic growth in capitalist countries. Yet this is precisely what the Mondragon example does not show. (221)

While Hindmoor doesn’t produce much data in his paper to back up his claim that Mondragon is not as innovative as similar capitalist conglomerates, I really like the fact that Nangwaya nonetheless confronts the question of entrepreneurship in worker-owned firms head-on, rather than waving it away. While Nangwaya doesn’t agree that entrepreneurship is only for capitalists, he does acknowledge that fostering innovation in worker-owned firms is critical for the success of the cooperative model:

First: worker cooperatives must develop a workplace culture that emphasizes innovation, creativity, product or market leadership, competitiveness, and risk-taking. I look at the obscene development of entities such as Trader Joe, United Naturals, and Whole Foods, and view these capitalist companies as representing the failure of cooperatives (the consumer and worker forms) to be entrepreneurial. Cooperatives and collectives created and grew the natural foods market from the 1960s to the 1990s, but today many of them are shaking in their boots from the competitive pressure of these large natural food companies. Cooperatives should have anticipated changes in consumers’ expectation about their shopping experience, and grew to a size that would have been a barrier to entry by non-cooperative firms.

It’s a great short article. You can read the whole thing here.

Ajamu Nangwaya 2004 Is Entrepreneurship Intrinsically Capitalist? Why We Need Labor Entrepreneurship. Grassroots Economic Organizing Newsletter Vol 1., issue 66.

Hindmoor, Andrew (1999). Free Riding off Capitalism: Entrepreneurship and the Mondragon Experiment. British Journal of Political Science, 29(1), 217-224.

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Review: Jackson Rising

Posted on May 10, 2018 by lasairdhubh

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

Posted on March 13, 2018 by lasairdhubh

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

Posted on February 27, 2018 by lasairdhubh

logoP.O.L.I.D.O. (Physics and Other Laws I Don’t Obey; Facebook, Instagram, 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.

But, I also wanted to speak to them because I had never interviewed a skateboard workers’ cooperative before and it seemed pretty cool. I got in contact with Harold de Jesus, one of the founders of P.O.L.I.D.O., and in our interview, I was particularly struck by how important serving their community is to their vision and day-to-day work. They work with artists to design new skateboards, but they also are involved in a lot of community events in the Bronx, using skateboarding as a way to talk to young people about issues affecting their lives and their neighborhoods. Check it out:

TA:        Thank you for agreeing to talk to me. It would be great, to start, to hear a little bit about the history of your co-op, what you are trying to do and what your goals are for the future.

HDJ:      Our co-op started as a not-for-profit called Ecoriders and we used to work for a community center called the Point Community Development Corp (The Point CDC). From there, we used to teach kids how to ride skateboards and how to build skateboards while also teaching them about the environment, about what happens around the community, about problems like the pollution in the Bronx, and alternatives for fixing these problems. Eventually we decided it would be better if we were a business because that way we would be able to maintain ourselves and attain our goal, which is to keep helping the community this way.

TA:        Excellent. So how did you go about starting the co-op?

HDJ:      When we started speaking about it, we had no idea how to start or what to do. We had no idea at all. Then we met Omar Freilla who is one of the leaders of Green Worker Cooperatives, and that guy helped us out – he still helps us out with everything. When we started, he invited my friend, one of our co-founders, Victor Davila, to take part in their worker-cooperative training program, and then Victor came to me with the idea, and I said, “Yea, sure, I’ll join you in this great adventure.” And that kicked it off and it was amazing. Green Worker Cooperatives, the classes that they teach, helping you understand how a co-op works, are amazing. They are very thorough in every way. They engage you and help you understand what it takes to be a businessperson, or to run you own business.

TA:        So what was the next step? After you had worked with Green Worker Cooperatives what did you do?

HDJ:      Well, after we finished the course at Green Worker, we were still a bit lost, so we went back to them and they helped us out: they paired us with someone to help us further. We moved forward with getting our business name out there, organizing as a limited liability company (LLC), making sure that the legal side was all set, setting up the business really. With customer referrals, we started growing. Now, we are still growing and Green Worker is still helping us out, which is amazing.

TA:        So tell me a little about the business itself. What are you doing now?

HDJ:      From the time that it started, P.O.L.I.D.O. has grown quite a bit in the community itself. We do a lot of events during the summer and early fall. We do events where we team up with different community groups like the Point CDC. We do the same sort of things we did as Ecoriders, but we do them now as P.O.L.I.D.O. For instance, recently we were involved with Boogie on the Boulevard, an event that happens down in the Bronx, like a block party. We teamed up with the Bronx Museum of the Arts, and we held a skate competition there and we gave away free boards.

As another example, the Point CDC has a teen leadership program called A.C.T.I.O.N  (Activists Coming to Inform Our Neighborhood), and we invited the kids from A.C.T.I.O.N to an event where we talked about rezoning, and then held a skateboard design workshop afterword. Through events like these in the community, P.O.L.I.D.O. has grown, and the community recognizes us now, and come and chill with us, and hang with us all the time.

TA:        Nice! What are your plans for the future then? When you envision what you want to do with the co-op in the future, what do you have in mind?

HDJ:      Oh, man, whenever P.O.L.I.D.O. gets to work, we just imagine that we will continue doing what we are doing now, just on a larger scale. We often think, hey, it would be nice if we could take what we do now in the community, and take it to other countries like Nigeria, Puerto Rico, the Dominican Republic, Peru, because in these countries also there are a lot of problems, people not understanding the skateboarding community as well. We would like to visit some of these countries and see if we can help their local skateboarding communities, and through that, raise awareness about the situation in those countries, and try to help them out, team up with schools or community centers, to help out the people. And that is basically our goal: to take what we do here, and do it bigger, on a larger scale. That’s what we’ve wanted to do since we first started.

TA:        When you transitioned from a non-profit to a commercial workers’ co-op, what did you have to do to start making money, so that you could support yourselves and keep going? How did that work?

HDJ:      At first, it was really funny because we didn’t have any idea how we would price everything, because we started this very, very early; I was fifteen when we started this. I was the youngest one and I didn’t have any idea … none of us had any idea how to market ourselves, or how to start selling things, because we were so used to just making the product and giving it away, that we never thought about pricing. So when we changed the name, and the whole idea of the not-for-profit company, and started to explain why we went this route (as a commercial workers cooperative), people understood, which was amazing. And I guess the prices were not as crazy, because we were kids, and it just worked out. One of the main things, aside from pricing, was that we had a lot of help from this other skate company in the Bronx called HeavenBound7, and the owner of that company helped us out a lot by reaching out to other people. There was a lot of help that came our way.

TA:        In your average day, what does your cooperative do? What are the main activities?

HDJ:      Oh, wow, in the summer, we are so busy! I am in charge of reaching out to the people, and planning the events. Kendrick Martinez handles the managerial side. And he and I team up to work on budgets for the events. And Victor Davila is in charge of the designs and the artist team that we have. A lot of it is just a lot of planning and getting prepared for what is coming up, planning new design ideas we have coming out, planning how we are going to do workshops. For example, we have a couple of workshops we are trying to organize for this summer, that I won’t tell you about because they are secret! (laughs) So yea, in general, it is a lot of planning and preparing: getting ready for what is to come. We tend to do, like, small give-aways here and there. We are hopefully trying to start this summer with a big bang, so that we can move forward and that people will know that we are still here.

TA:        If you were to give advice to someone else who was thinking of starting a cooperative, and in your journey of starting your own cooperative, what are some of the lessons you have learned, or what might you do differently next time. What sort of advice would you give to someone who was thinking of going down this road?

HDJ:      Hey, man, with a co-op, people think it is easy, but it is really not. It is a lot of work. One thing is you are going to do an amazing amount of work. But the first thing I would recommend is to not give up. If you have an idea, and you push, and you really want your idea to be out there, and you think it’s the best idea in the world, and you back it up, then don’t give yourself up. Don’t get yourself down because people say it might not work. When P.O.L.I.D.O. started, we had so many people going like, “Oh, you guys have a business? That’s cool…” You know what I mean? Or we would try to sell stuff, and they would be like, “Oh, nobody’s gonna buy that.” And we were like, “But … OK.”

We never let those things bring us down. Now where we are, it’s because we tried and believed. It took us a little time, and yes, it takes a long time, but the benefit that you get afterword: it’s uncanny. There is nothing like it. The skateboard community, and the Bronx community itself knows us, and everywhere we go, we see other skateboarding dudes, they always call us over and speak with us. People out in the streets say, hi. Never give up with what you are doing, your work.

And do your research! Nothing is more important: do your research. Whatever it is you are going into, whether it is skateboarding, making guitars, or anything that you do, do your research. And find your people.

TA:        That’s an interesting point. I imagine a lot of people wouldn’t know where to start with market research. How did you guys approach that?

HDJ:      The way that we did it, right, we were trying to sell a specific product, which was skateboards, but skateboards are basically art, in a sense, because we team up with artists that are not skateboard makers to come up with designs for our skateboards. So we thought about that, and we were like, if we’re making art, we can also sell these as an art piece that can you can hang in your home.

So, the first way that we did it, the first wave, was that we had one guy, Emanuel, he’s our sponsored skateboarder, and he would take is board, skateboard around, do some tricks around the parks, and he would ask [people he met] how much they would pay for the board, and about what designs they would like to see.

To my surprise, a lot of people liked the designs we started doing, and a lot of people started coming back for them. But we had to explain that they are unique designs; we do not repeat them. So they were like, “Oh, OK.”  But that kept them on their feet, to come again and again, to check if we have any new cool designs.

The second way we did market research was to compare prices with other skateboard companies. We took the prices and tried to find a point where we could have an affordable price for our people, and still be able to make a profit. Then from there, we just reached out to the people. That is how we started our marketing. We did a lot of free give-aways. We just jumped into a lot of events that were happening, and since the people who were organizing these events kind of knew us, they would give us a shout-out, or give us a small booth, or a small area where people could come and check us out. People would just come and check us out.

TA:        I am aware of the time, but I would like to ask one more question about Green Worker Cooperatives. How did you first get in touch with them? How did the whole program work of them helping you start the cooperative, and what role do they have now that your cooperative is further along?

HDJ:      The first time that we met, it was my coop partner, Victor Davila, met Omar Freilla at Green Worker, and we started doing classes with them. That’s how it started. The Green Worker Cooperatives run classes that teach you how to be a coop, and they also teach you how to run a business, which was amazing. I remember that we used to take those classed every Saturday. Victor and I used to skateboard all the way to those classes and back. I used to go and pick him up and we would go together to the classes, and it was super fun. It was amazing.

We learned a lot of valuable things, how businesses are run, and then we graduated from the program, but the good thing is that the help doesn’t really stop there, you know what I mean? Even today, they are still helping us out. As a matter of fact, they gave us some office space right next to theirs, and we work from there a lot. We are there all the time doing work and planning. And to top it all off, they still give us business advice. They are just splendid people. For example, we were applying for a loan and they were like, “If you are applying for a loan then you should speak to Daniel deBrag, our manager, and she can help you with the application.” And we are in constant contact with her now talking about the next steps we should take to reach our goals. They helped us from the start and are still helping us to this day.

TA:        Excellent. That is a really positive note to stop on. Thank you very much for the interview.

HDJ:      Thank you.

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Worker Coops in the USA

Posted on December 7, 2017 by lasairdhubh

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

Posted on October 22, 2017 by lasairdhubh

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

Posted on October 3, 2017 by lasairdhubh

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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