The Case for Economic Democracy: Chapter 6.2

Worker Cooperatives, and the American Workers' Bank

Welcome to Chapter 6.2 of my book, “The Case for Economic Democracy.” If you’re new here, I’m releasing it chapter-by-chapter to premium subscribers, every Friday. If you’d like to read it (as well as support my work), become a premium subscriber today. Thank you! - Joe

Mondragon, one of the largest worker cooperatives in the world.

Last week we began Chapter 6: Economic Democracy in practice. The first section focused on how we can manifest the principles of economic democracy into the economy and began exploring the democratic effect of unions. This week we’re looking at worker cooperatives, and my idea for an American Workers’ Bank, a public bank that helps workers purchase their companies.

Worker Cooperatives

The second method of enacting economic democracy gives workers direct control over their workplace by making them the owners of the business. Building off the back of a strong union, workers can form a cooperative by purchasing the business from its private owners. This means instead of an individual or small group making the decisions for the workers, the workers will make these decisions democratically. They can either hold town-hall-style votes on issues or elect a board to hire executives, such as CEOs and CFOs. Or, they can configure a model that uses both of these democratic levers.

 Around the world, many such cooperative businesses already exist. The Mondragon Corporation, an international federation of businesses involved in banking, consumer goods, food distribution, and even education, is the largest worker cooperative in existence. Created in the ruins of the Spanish Civil War, Mondragon currently employed over 80,000 workers and is comprised of over 250 companies. Cooperatives can also be much smaller, as is the case with City Market grocery in Burlington, Vt, the primary food provider for one of America’s favorite college towns. While the exact amount of worker cooperatives in the U.S. is unknown, the Democracy at Work Institute ^[12]has reported over 300 active worker cooperatives in the U.S., employing over 7,000 workers and generating over $400M in annual revenue.

While each business has variations on its structure, cooperatives tend to follow the formats of a miniature representative democracy. Departments elect their managers, basing their decision not only on professional expertise but concern for the people they will have decision-making power over. Popular elections can also be held to elect board members, who in turn will appoint executive officers, and other “high-up positions.” (Along with democratic control, the cooperative model has built-in incentivize to reduce the exorbitant CEO-to-worker pay ratio. Currently, CEOs are paid on average 351 times the wage^[13] of their workers.) It is also common for large decisions to be made by majority vote. This can either be held in person, similar to a public town hall with debates and discussion or through a ballot system similar to elections of politicians.

If we use democracy to control the nukes, I’m pretty sure we can use it to run a coffee shop.

The notion of a workplace controlled from the ground up may sound odd at first. While the concept of electing a boss might sound troublesome, it is no different than how democratic governments may operate. The primary concerns about the cooperative model stem from the idea that subordinates electing their managers could result in lax performance standards, as workers will elect people who let them “slack off” and underperform. While this may sound like a certainty conceptually, the reality is that 2/3 of Americans take pride in their work^[14]. Their main complaints with their workplace aren’t that they have to work at all, but rather that they are being unfairly treated and under-compensated for the work they do. And even if there are a handful of “slackers” in an organization, those individuals will be held to the standards set by their coworkers. If they do not meet the standard, they are likely to be dismissed.

Democratic performance standards also ensure that there are no “favorites” in the workplace, as even relatives and friends of managers will be held to the same standard as other employees. Nepotism is cancer to workplaces, as it not only creates a dissatisfied workforce but can severely impact production. Cooperative governance eliminates this problem, as every worker is judged by the merit set by the group, not whether they are drinking buddies with the manager. And in the off-chance the company is comprised of a majority of unserious, lazy workers, the productive and focused workers are sure to leave, causing the company to quickly fold. This is no different than a privately owned enterprise going out of business due to poor management. Though, as the chances of having a shoddy workforce are significantly less likely than those of having a shoddy sole proprietor, the worker cooperative is an improvement over the standard model.

It should also be noted that worker cooperatives would be subject to regulatory oversight, just like privately owned firms. While the cooperative model massively improves workplace conditions, it is still possible for a worker-owned firm to negatively impact the environment or surrounding community. For example, were a local concert venue to become a cooperative, people who live nearby should have a say in how late music can be played on particular nights by voting for noise ordinances in their local elections. The same could be said about cooperatives that either disturb or risk the community, whether it be fire-hazardous machinery or noisy operations. But if the cooperative had no external impact, such as a quaint and quiet coffee shop, no such community control would be required.

With the cooperative model proven to work in both theory and practice, the next question is of their formation — how do we turn privately owned companies into worker-owned companies?