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Cooperative Firms in a Competitive Market

Cooperative Firms in a Competitive Market Rob


Mark Gordon - published on 06/04/14

A growing movement to provide dignified work has great consonance with Catholic social teaching.

Thirty years ago, President Ronald Reagan famously said, “I think the best possible social program is a job.”

He was right, of course, provided the job is a good one that pays a decent wage.

Unfortunately, good jobs are hard to find in the United States these days. This is particularly true in manufacturing. In 1970, when the American workers numbered around 100 million, 27 percent were employed in the manufacturing sector. Today, with a labor force of 150 million that percentage is a little over 10 percent.

Real wages have stagnated, too, despite gains in productivity, defined as the average measure of labor efficiency in production. Between 1973 and 2011, productivity rose by 80 percent, while median hourly compensation rose by only 11 percent. During the same period, the purchasing power of a dollar fell by 80 percent so that a dollar in 2011 was only worth the equivalent of two 1973 dimes. Those of us fortunate enough to be working are doing so harder and smarter only to earn lower wages in a more expensive economy. No wonder the dream our parents lived, to buy a house and send kids to college on one income, seems so out of reach.

Today, pace Reagan, it may be that the best social program is a small, sustainable business of one’s own. But the capital barriers to small business formation, especially sole proprietorships, remain formidable, even for those with demonstrated skills or experience. So some are turning to the next best thing: worker cooperatives.

The cooperative business model, in which workers own the firm, share in its profit, and democratically make decisions about its direction, accounts for some 350 firms in the United States, according to the US Federation of Worker Cooperatives. That’s a drop in the bucket considering there are over 7 million businesses in the US. But for those involved, participation in a cooperative can generate income and assets, the pillars of a dignified work life, and even provide a proving ground for developing the skills needed to strike out on one’s own.

One example is Independent Fabrication, a manufacturer of high-end bicycles in southern New Hampshire. Formed in 1994, it is owned and operated by former employees of another, defunct bike company. Isthmus Engineering and Manufacturing, in Madison, WI, is in the business of automation solutions and equipment. It was started as a worker cooperative in 1980 and today has nearly 50 worker-owners. A few firms, such as Real Pickles, have even converted to the cooperative business model from other, more traditional forms of organization.

Worker cooperatives can also be engines for community development, particularly in low-income, economically distressed areas with concentrations of low-skilled workers. One example is the Wellspring Upholstery Cooperative (WUC), in Springfield, MA, started late last year by Evan Cohen, a master upholsterer with 40 years’ experience. WUC bills itself as a full-service upholstery business targeting commercial and institutional customers. WUC currently has six owner-employees and hopes to double that number in the next five years.

Another is the Evergreen Cooperatives, in Cleveland, OH. Evergreen consists of three companies, each owned by its workers. Green City Growers is a 3.25-acre hydroponic greenhouse that supplies lettuce and herbs to institutions and the public. Evergreen Laundry is a state-of-the-art commercial laundry serving the institutional market. Evergreen Energy Solutions installs PV solar arrays for institutional, government and commercial customers. Each Evergreen firm relies on previously low-skilled labor from inner city Cleveland. New employees gain marketable, professional skills and their ownership stake rises the longer they remain employed.

The grand daddy of the worker cooperative movement is Spain’s Mondragon Corporation, which competes in finance, industry, retail and education. Located in the Basque region, it was founded in 1956 under the guidance of a young Catholic priest, Fr. José María Arizmendiarrieta. Today, the organization includes 289 separate companies and cooperatives, with 80,000 employees and $14 billion in annual revenue. Mondragon recently formed an alliance with the United Steelworkers union to assist in the formation of worker cooperatives in the US.

If all of this resonates with Catholic readers, it’s because there is great consonance between the worker cooperative movement and Catholic social teaching. In the first great modern social encyclical, Rerum Novarum, Pope Leo XIII wrote:

If working people can be encouraged to look forward to obtaining a share in the land, the consequence will be that the gulf between vast wealth and sheer poverty will be bridged over, and the respective classes will be brought nearer to one another. A further consequence will result in the great abundance of the fruits of the earth. Men always work harder and more readily when they work on that which belongs to them; nay, they learn to love the very soil that yields in response to the labor of their hands, not only food to eat, but an abundance of good things for themselves and those that are dear to them.

At the time, land was considered the form of property par excellence, which accounts for Leo’s formulation in the passage above. But property can take many forms, including land but also the means of industrial production; or in our time and context, the means of providing commercial services. Whichever form it takes, what counts is the character of the property. Is it productive, meaning can it be used to generate income and assets? Is it owned, meaning that the person who wields it has a personal say over its disposition?

“The fact that God has given the earth for the use and enjoyment of the whole human race can in no way be a bar to the owning of private property,” wrote Leo. “For, every man has by nature the right to possess property as his own.” Having concluded that private property is a right in accordance with nature, Leo plunks the family down squarely as the justification for that right: “That right to property, therefore, which has been proved to belong naturally to individual persons, must in like wise belong to a man in his capacity of head of a family.”

And what kind of property? Productive property.

It is a most sacred law of nature that a father should provide food and all necessaries for those whom he has begotten; and, similarly, it is natural that he should wish that his children, who carry on, so to speak, and continue his personality, should be by him provided with all that is needful to enable them to keep themselves decently from want and misery amid the uncertainties of this mortal life. Now, in no other way can a father effect this except by the ownership of productive property, which he can transmit to his children by inheritance [bold and italics mine].

Leo was writing at a time when revolutionary socialism was making great headway in Europe, and so he believed it was necessary to offer a full endorsement of private property. Yet he also knew that socialism was a reaction to the capitalist exploitation of labor, including the imposition of a form of wage slavery that ensured the average laborer would never own productive property. On the one hand, socialists talked about abolishing private property and forcibly transferring productive resources to the state. On the other hand, capitalists talked a great deal about the sanctity of private property but had erected a system in which productive resources were forcibly transferred to a tiny economic elite. The enemy, Leo saw, was the concentration of economic power. The solution, he saw just as clearly, was an equitable distribution of productive property. Not the forcible redistribution of existing assets, but structural reform that would enhance the dignity and rights of all, including workers.

Pope Leo XIII didn’t propose worker cooperatives, and the notion didn’t originate with him, but they certainly fit within the broad vision he painted in Rerum Novarum, a vision that has been deepened by his successors, including Pope St. John Paul II, and Pope Francis, who late last year met with and thanked leaders of the International Co-operative Alliance, which offers these seven principles to guide the cooperative business movement:

  1. Voluntary and Open Membership
  2. Democratic Member Control
  3. Members’ Economic Participation
  4. Autonomy and Independence
  5. Education, Training and Information
  6. Cooperation among Cooperatives
  7. Concern for Community

Mark Gordonis a partner at PathTree, a consulting firm focused on organizational resilience and strategy. He also serves as president of both the Society of St. Vincent de Paul, Diocese of Providence, and a local homeless shelter and soup kitchen. Mark is the author ofForty Days, Forty Graces: Essays By a Grateful Pilgrim. He and his wife Camila have been married for 30 years and they have two adult children.

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