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Can Worker Co-ops Reduce Inequality?

Author, Gaelan Ash (MPP '19). You can reach him at gaelan.ash@gmail.com

Derided as utopian in the 19th century, the co-operative movement is experiencing a modern renaissance, popping up in low-income communities to address bread and butter issues like income inequality and economic exclusion. For Taye McGee, a worker-owner at Rich City Rides, a bike shop in Richmond, California, co-operatives are anything but utopian. His job in the co-op has enabled him to make a positive impact in his community of North Richmond through workshops and trainings, all while earning a living in a democratic, worker-controlled enterprise.

From the earliest days of the movement, there has persisted a notion that the economic system in which workers are paid a wage and capitalists pocket the profits is unjust and unsustainable. Abolishing the division between owners and workers, co-operatives effectively eradicate income inequality, at least within the very narrow confines of a particular co-operative enterprise. The question is, can they be scaled up to have a similar effect on the economy as a whole?

The 19th century boom in co-operative enterprises and communities was curbed by the rise of Karl Marx and Friedrich Engels’ theory of scientific socialism, which helped to funnel radicals of the day into labor organizing and political parties. The co-operative model in the US fell out of fashion for a time, until its comeback in the countercultural heyday of the 1960s. In contrast to the worker co-ops of the Spanish revolution in the 1930s, and postwar Northern Italian co-ops, these alternative-lifestyle American co-ops of the 60s were established by mostly white middle-class people with less of an ideological vision for the economy as a whole and without a strategic plan to get there.

By the 1980s most of the counterculture co-ops had either closed down or succumbed to market pressures, serving an increasingly wealthy and white clientele. The most recent wave of worker co-operatives, beginning in the 1990s, have bucked past trends in terms of both race and class. Mo Manklang, the Communications Director at the US Federation of Worker Co-operatives (USFWC), explains that the majority of worker co-ops are now run by women and people of color, and primarily serve low-income communities. She also describes a new focus of the Federation called “business conversions,” in which retiring business owners are persuaded to sell to their employees, establishing a co-operative.

Co-op proponents point to the Mondragon Corporation in the Basque region of Spain, a “scaled up” federation consisting of 102 individual co-ops with roughly 85,000 worker-owners and employees. Executive pay is capped at eight times that of the lowest paid worker; as a result, Spain’s crippling recession has impacted the town of Mondragon and the surrounding region more mildly. Compared to the national unemployment rate which topped 26% in 2013, the Basque region in which Mondragon is based had 13% unemployment. In the town of Mondragon, there is nearly full employment because Mondragon worker-owners take pay cuts in hard times, starting with those at the top of the payscale, rather than layoffs. However, Mondragon has faced withering criticism in recent years due to its two-tiered employment scheme in which certain workers are hired on a temporary basis and without ownership and voting rights. Some of these workers and their supporters have blasted Mondragon for maintaining a structure in which some workers are “more equal” than others.

Perhaps the best records of success for worker owned enterprises lie in South America. In the wake of the 2001 financial crash in Argentina, hundreds of businesses were abandoned by their owners. Workers appropriated these companies and operated them collectively with either rotating or elected managerial roles and profits distributed equally among the workers. The legal framework in Argentina is such that these businesses were transferred to the workers through the courts and now exist as de facto legal businesses. Hotel Bauen in downtown Buenos Aires is emblematic of this new wave of empresas recuperadas, or recovered businesses. It went bankrupt under private ownership during the 2001 crisis, was seized by the suddenly unemployed workers, and has been run co-operatively ever since.

Venezuela’s worker co-ops, cultivated by the Chavez administration through preference in awarding contracts and tax-exempt status, saw remarkable gains, outperforming their previous standards of productivity and worker satisfaction, and often posting higher profits than their non-co-op rivals. Between 2002 and 2008, the government invested heavily in worker co-operatives, although a lack of infrastructure and support meant that many failed to become independent, and eventually fell apart. Despite these challenges, Venezuela was home to roughly 90,000 co-operatives as of 2014, second only to China.

In the Bay Area, Co-operation Richmond serves as an incubator for new co-ops to empower low-income people by keeping capital in their communities. Puja Dahal, a program assistant, describes the work as transformative: “it’s not only the loans,” she explains, “but also the financial literacy, business planning, and coaching” that goes into each co-operative enterprise to ensure long-term success. The plan is to have five new co-ops operating in Richmond by the end of 2019. This kind of slow-and-steady approach characterized by on-the-ground support is a good sign for the co-operative movement, to prevent the volatility seen in Venezuela.

However, within the capitalist US economy, we see what Peter Marcuse calls a “silo effect” in which isolated co-ops face market pressures, which push worker-owners to focus on “defense of the silo” rather than an outward focus on expanding the co-operative economy. He writes that worker co-ops can be supportive of efforts to oppose capitalism, but cannot be the instruments of opposition themselves. The USFWC seeks to mitigate this silo effect by fostering connections between co-ops.

Worker co-ops currently exist in a niche corner of the US market and command a small share of the national economy. They effectively reduce inequality and improve conditions for workers, particularly when targeted at low-income communities with ample institutional support and funding.  However, without the government support found in Venezuela or the property laws of Argentina, the prospects for large scale growth of worker co-ops in the US are bleak. Despite the big picture, for co-op workers like McGee, going to work and making decisions collectively is a small but significant act of daily economic empowerment.