Can worker cooperatives alleviate income inequality?

“Every year we have a history lesson,” says Carrie Feldman, a member of the collective that runs Minneapolis’ Seward Cafe, which prides itself on being the oldest cooperatively owned and run restaurant in the country. Open since 1974, Seward is perhaps what most people think of when they think of a co-op: a small neighborhood business that isn’t making anyone rich, staffed mostly by young, idealistic people for whom the collective structure is part of the attraction. Keeping that history alive among newer members like Feldman, who joined about a year ago, is part of the job.

Workers get the chance to try out different jobs at the restaurant. Feldman came on as a night cook when the cafe began to stay open in the evenings for live music, wine and beer; since then, she has learned how to keep the company’s books. She notes that many former members of the co-op have gone on to open their own small businesses. Being able to have control over their job and learn new skills, Feldman says, makes up for the fact that the base wage is not much more than minimum wage.

Hundreds of cooperatives like Seward sprang up in the 1960s and 1970s, when the social movements of the time sparked interest in alternatives to business as usual, according to the book “Worker Cooperatives in America,” edited by Robert Jackall and Henry M. Levin. Economic insecurity and social upheaval are the most common factors leading to a rise in interest in co-ops. According to Kali Akuno of Cooperation Jackson, a worker-cooperative incubator in Mississippi, the South has a history of cooperatives and mutual-aid societies in black communities that dates back to Reconstruction.

And Gar Alperovitz in his book “What Then Must We Do?” notes that it’s not only the historical left that has touted worker ownership. As proof, he offers this 1987 quote from Republican icon Ronald Reagan: “I can’t help but believe that in the future we will see in the United States and throughout the Western world an increasing trend toward the next logical step, employee ownership. It is a path that befits a free people.”

Wolff suggests that what’s happening now is something new. The co-op movement of the past, he says, defined itself not as a challenge to the existing way of doing business, but as an escape from it. Co-ops seemed quaint, charming, an alternative to a dog-eat-dog world, but not something that could scale. But he points to the Mondragon corporation in Spain’s Basque Country, now partnering with the United Steelworkers union to help develop co-ops in the U.S., as an example of how co-ops can be competitive even with multinational corporations.

The 2008 financial crisis sparked an interest in alternative structures, Wolff notes, because the basic structures of capitalism seemed to be failing. During that crisis, Bank of America, fresh from a $25 billion government bailout, cut off credit for the Republic Windows and Doors factory in Chicago. Executives decided to close — without paying the workers their legally required severance. Those workers made national news when they then occupied the factory, demanding that the bank give the workers some compensation.

The idea of becoming a worker-owned cooperative came up in conversations among workers after the occupation, but was placed on the back burner when Serious Energy (then known as Serious Materials) stepped up and bought the company’s facilities, according to Leah Fried, an organizer with the United Electrical, Radio and Machine Workers, the union that represents the plant's workers. But in 2012, Serious too announced it would be closing the factory. Fried remembers calling Brendan Martin of the Working World from the factory floor as the workers once again occupied, asking if his organization could help them buy the factory. New Era Windows reopened as a cooperative in 2013 in an old Campbell’s Soup factory on Chicago’s Southwest Side.

There are some 223 worker cooperatives operating in the United States, but few of them are in manufacturing. And yet, as the U.S. has continued to deindustrialize, with industrial jobs departing for foreign shores, Fried suggests that manufacturing is a sector in which cooperatives could grow. She is the first to warn, though, against too much happy talk. “I get a little wary of people who are like, ‘Co-ops are the answer,’ ” she says. “It’s a very slow process, it’s hard to grow. If people think co-ops are going to revitalize our economy, you have to be prepared for a very long-term strategy.” Republic employed 250 people; New Era has just 18 worker-owners.

Mainstream economists have for the most part not been proponents of cooperatives. As John Teta Luhman, professor of management at Eastern New Mexico University, explains, some theorized that co-ops would lack discipline and competitive drive; others thought that longtime members and newer members would have fundamental conflicts of interest. Still others suggested that workers will underinvest in their own business or that their commitment to democratic principles will necessarily decline over time.

Fried points out that the unwillingness of banks to lend has shaped existing cooperatives. “It’s easier to start a co-op where you need $800 to buy cleaning equipment as opposed to $600,000,” she says.

The FPWA report explains, “Worker cooperatives generally have trouble in three areas: lack of financials to support the loan application, insufficient collateral and the requirement of a personal guarantee, which goes against the worker cooperative principle on collectivizing risk.” Independent Sen. Bernie Sanders of Vermont put forward a proposal this summer to create a U.S. Employee Ownership Bank to make loans specifically to cooperatives, but the likelihood of such a bill passing this Congress is slim to none.

Laws that govern businesses were not constructed with cooperatives in mind. Wayne Ho says that in addition to providing funding for co-ops in New York, the City Council and the mayor’s office will have to revise policies to make it easier for co-ops to incorporate and to receive city contracts. Now, for instance, a co-op trying to gain certification as a minority-owned business (which would give it preferred status for jobs paid for with city dollars) faces an uphill battle in proving that each and every worker-owner is a person of color — a standard that is not applied to traditional businesses.

Internally, too, co-ops are difficult to set up. New Era Windows was assisted by the Working World in setting up its bylaws, and the workers retain their union membership and have a union contract that covers work rules, grievances and mediation in case of conflict. And the union community has continued to help: For the first several months after New Era’s grand opening, Fried says, order after order came from union members who wanted to support the cooperative.