Can worker cooperatives alleviate income inequality?

A $1.2 million investment from the New York City government is the latest boost to businesses owned and run by workers

Carlos Lezama, Victor Hernandez, Henry Lezama and Manuel Escobar of Roca Mia Construction finishing a job in Far Rockaway, Queens, in June of 2014.
Courtesy Roca Mia

When Henry Lezama joined Roca Mia Construction, his new colleagues were still in the process of deciding what kind of business, exactly, it would be. On New York’s Rockaway peninsula after Hurricane Sandy washed through, there was plenty of work to do. Entire homes had been destroyed; basements and ground floors needed to be gutted and rebuilt. Would the workers do demolition, landscaping or cleanup? The one thing they were sure of was that Roca Mia would be a cooperative: The employees, as a group, would own the business. “From that day forward, we all made decisions together — on buying insurance or tools or accepting new contracts,” Lezama says.

The five members of Roca Mia have now been in business as a construction company for a year (longer, notes co-op member Carlos Lezama, than many new businesses survive). While making decisions cooperatively often means sitting through a meeting at the end of a long day, when they’re all tired from installing floors, hanging drywall and painting walls, the five say that the collaborative process is worth it. Working as a cooperative has allowed them to create their own jobs, rebuild their neighborhoods and keep the money they earn in their community.

Roca Mia, along with La Mies, a bakery, was founded after Sandy with funding from Occupy Sandy, the hurricane-relief organization started by members of Occupy Wall Street, and support from the Working World, a nonprofit organization that provides investment capital and training to workers who want to own their own businesses. More than 40 Rockaway residents have completed Working World’s program, learning everything from business strategy to the basics of collective decisionmaking. It’s difficult to go from being an employee to running a business, since none of the workers had management experience, co-op member Victor Hernandez says. “We’ve had really tough challenges, but together we’ve been able to overcome them.”

Cooperatives have been gaining popularity as a different kind of postcrisis development model, Scott Trumbull of the Working World says, whether the crisis is Hurricane Sandy or the 2008 financial crash. Recently, the New York City government gave a big boost to the co-op movement, voting to invest $1.2 million in developing worker cooperatives. It is, according to Wayne Ho, the chief program and policy officer at the Federation of Protestant Welfare Agencies (FPWA), the biggest sum ever invested in cooperatives by a city government.

Co-ops, according to an FPWA report released last year, are one way to tackle New York City’s much-publicized inequality problem. The pay ratio between the highest- and lowest-paid worker-owners in cooperatives is between 3 to 1 and 5 to 1, says the report; that compares with a ratio of roughly 600 to 1 in traditional corporations. The housecleaner-owners of Sí Se Puede, one of about two dozen worker cooperatives in New York City, have seen their wages increase to as much as $25 per hour. (The median for the industry, according to the Bureau of Labor Statistics, was $9.51 per hour in May 2013). Without the middlemen or placement fees that other housecleaning businesses charge, more of the money goes into their pockets.

For Richard Wolff, a professor of economics at the New School in New York and the author of “Democracy at Work,” a book about worker self-directed enterprises, the city’s investment is just the latest acknowledgement that cooperatives are growing by leaps and bounds. In an economy in which more and more workers are freelance, self-employed or temporary, he says, worker cooperatives can be a solution that helps people keep what they like about being self-employed — not having a boss — but also help them create something bigger.

Says Enma Giron, one of the worker-owners of La Mies Bakery, “This is a business. It has to work as a business, but the greater purpose we have is to be an example to show that we can work as a group.”

‘I get a little wary of people who are like, ‘Co-ops are the answer.’ It’s a very slow process. It’s hard to grow.’

Leah Fried

United Electrical, Radio and Machine Workers

Seward Community Cafe in Minneapolis is the country’s oldest cooperatively run restaurant.
Sarah Jaffe

“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.

A spring 2013 training for the Worker-Owned Rockaway Cooperatives.
Ronny Nunez

One year into their company’s existence, Roca Mia’s workers aren’t getting rich, but worker-owner Manuel Escobar says he’s seen an improvement over what he was making as an employee, and the business is covering its costs. Because the Rockaway co-ops were seeded with $100,000 that had been donated to Occupy Sandy, the workers didn’t have to put up their own money to get started, but because it is their business, they feel deeply invested in its success. Because existing cooperatives range in industry from child care to computer programming, massage therapy to translation, and in size from the two employees at La Mies to more than 2,000 at Cooperative Home Care Associates, a collectively run home-health-care provider, it’s hard to estimate what the potential for Roca Mia and La Mies might be, but to Henry Lezama, the goal is to keep growing, to bring more people into the cooperative.

The cooperative movement would shoot itself in the foot if it just tried to stay a localized movement, without looking at the greater challenges of the ecology and the economy, how these things work on a global scale.

Kali Akuno

Cooperation Jackson

In Jackson, Mississippi, Kali Akuno expected to help develop worker cooperatives alongside that city’s new mayor, Chokwe Lumumba, who won office in 2013. But Lumumba died of a heart attack Feb. 25, a few months into his term.

Now supporters are wondering what will happen to their plan to construct a network of co-ops that would create jobs and overcome the city’s entrenched poverty, particularly among its black majority. Akuno, Lumumba’s former coordinator of special projects and external funding, was tasked in 2013 with creating a cooperative-development fund that would rely on city grants and private sources, with the goal of creating several new organizations and hundreds of jobs.

That city money is no longer forthcoming, but Akuno says the plan is moving forward anyway. Cooperation Jackson is building an urban farming co-op on 25 acres of donated land, and it has plans for a recycling business that will also be worker-owned and -directed.

But gaining access to private capital is also a challenge. The city’s business community remains mostly white, and though Lumumba made some unlikely allies, most businesspeople remain suspicious of the co-op network, leaving Cooperation Jackson looking for support from outside the community. “The ruling forces in Mississippi seem to be much more interested historically and currently in social control than they are about maximizing profits,” Akuno says.

It can be hard for co-ops to take off when they’re surrounded by hostile competitors. But Rick Wolff thinks that co-ops around the country should embrace the challenge of competing against traditional businesses. Co-ops in New York, he notes, were framed as an anti-poverty program, but he prefers to think of them as an alternative way of organizing the production of goods and services, one that is more democratic, that allows workers to direct their own lives. He hopes that as they spread, the ethos and method of organizing production will catch on and help change the broader economy.

For Akuno, too, that is part of the appeal. “The cooperative movement would shoot itself in the foot if it just tried to stay a localized movement, without looking at the greater challenges of the ecology and the economy, how these things work on a global scale.”

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