The Uncertain Future Of Worker Ownership: Two Decades Of Lessons

By Len Krimerman

Worker-owned enterprises, sometimes called “worker cooperatives,” have a long history, even in the United States. But they face an uncertain future.

In May, 1791, Philadelphia’s Journeyman Carpenters started the nation’s first working-class cooperative. A century or so later, the Knights of Labor were advocating industrial cooperatives as a way to replace the capitalist wage system; about 130 such enterprises were inspired by this trade union movement. And in the late 1930s, plywood in the Northwest was largely produced by medium-sized cooperatives, the assets of which were owned and controlled by their workers.

These bursts of cooperative economic activity, however, suggestive of a different vision of worklife, did not survive. Within a decade or two, those plywood coops in Oregon and Washington state had become so “successful” that their original worker-owners began to work less and less, they hired “second class” wage labor instead of adding new owners, and in most cases eventually sold out to conventional corporations, reaping immense profits on their initial investments.

On the other hand, many cooperatives simply lacked the business acumen or, more crucially, the money, to compete effectively on capitalism’s extremely uneven playing fields. Thus, by the mid-1970s the idea of extending direct democracy into the American workplace – each worker having one and only one vote on crucial issues facing their enterprise – hardly seemed within reach.

America Discovers Mondragón

This, however, was soon to change, as Americans began to “discover” a unique European phenomenon. It was called “Mondragón”, after the small, mountain- surrounded Basque town where it started. At that point, Mondragón was a 25-year-old association of worker owned and controlled enterprises that produced a wide range of high tech products including buses, robotics, refrigerators and stoves. It was more productive than its capital-controlled rivals in the same sectors. It was spinning off new, but always interconnected, coops at a remarkable rate, and had developed internal sources of health insurance, retirement benefits, and education and training. Moreover, in the early 1960s, it created a novel (to us) economic institution, the Caja Laboral Popular, or “People’s Labor Bank.” The Caja functioned as an economic development vehicle. It enabled existing coops to expand and compete, prospective ones to be carefully assessed and, if found feasible, to survive and prosper. The bank made capital available at affordable rates and provided business assistance to the network’s cooperative firms.

What were the lessons of Mondragón?

First, that workers themselves can be a source of capital, by reinvesting some or all of their profits as owners. The Mondragón coops insist that worker-owners invest in their own firms, first by agreeing to weekly deductions from wages, then by postponing their share of annual profits until they leave the firm. In these ways, worker-generated capital becomes available to reinvest in new or improved technology and additional lines of production.

Second, Mondragón was not a set of isolated or disconnected trees, but a mutually supportive forest. Firms were connected to other firms, through co-production and co-marketing, and to “support” organizations which provided them with essential forms of financial, business, legal, and educational assistance.

News of Mondragón’s success fueled the “new wave” of worker ownership in this country. It began in 1975 with the formation of a Funding and Educational Development Organization (FEDO). FEDO’s aim was to build, within the wasteland culture, an economy based on liberating worklife, democratic participation and worker ownership.

A few dozen FEDO activists set about to transform a few mid-sized firms in the Northeast, and eventually the entire American economy. In those initial and heady days, we sometimes fancied ourselves an undercover vanguard surreptitiously replicating Mondragón-like federations from Maine to California. Our aim was not to set up and operate democratic workplaces, but to construct support systems for them. In time, we imagined surpassing even the Basques by reaching into the inner city and the labor and environmental movements, providing women and men equal access to ownership, and linking up worker ownership to the struggles of all excluded and disempowered groups.

It was not quite in the cards. FEDO perished after two short years, but not before it had assisted several worker buyouts on the East Coast. It perished, mainly, from internal strains and stresses. Some members felt its five scattered chapters (Boston, Connecticut, Philadelphia, Washington, and Ithaca) lacked a common and concrete agenda; others felt that its central staff was insufficiently responsive to the needs and priorities of local chapters.

In FEDO’s wake, more durable technical assistance organizations arose, animated by a similar vision. The first of these, the Industrial Cooperative Association (now the ICA Group) of Boston, formed in 1978, is still alive and well, and still uncompromising in its support for democratically owned and run workplaces. Other technical assistance groups have now joined the ICA, and today worker-owned firmsand ESOPs receive valuable support in virtually any part of the country.

A Guardedly Optimistic Assessment

In 1991, Frank Lindenfeld and I assessed the first 15 years or so of this would-be transformative economic activity. Examining cooperative enterprises in diverse sectors from textiles to steel mills to teacher-managed public schools, we reached a guardedly optimistic conclusion: the “new wave” of worker ownership in the United States displayed unique strengths that gave it the potential to challenge corporate domination. There was a nationwide contingent of savvy and well-trained technical assistance providers to whom worker coops could turn for assistance. There was support from several unions, notably the Steelworkers. An initiative to replicate Cooperative Home Care Associates, the Bronx-based service cooperative (owned and controlled by 200-plus low income women), had been launched in several cities. And some revolving loan funds serving coops had been established. Employee-owned firms had entered virtually all sectors, and were faring at least as well as conventionally owned firms. All of this, and lots more, had materialized in less than two short decades.

This budding movement was hardly problem-free. Like other progressive struggles, it had a severe capital shortfall and its far-flung advocates and activists knew little of one another and hardly ever worked collaboratively. It had failed almost entirely to develop internal sources of education for, or about, worker ownership. There were few if any places where those willing to work for a democratic economy could acquire the expertise to start, run, expand, or finance successful enterprises.

Where are we now?

Today the picture and the prospects seem more murky. On the plus side are several encouraging developments. The Ohio Employee Ownership Center’s steady growth into a large network of industrial, highly democratic, and mutually supporting ESOPs is a powerful reminder of what can be done within the crusty shell of the evil empire. It should help point the way for other regional or state-wide networks. The union-led efforts to replicate the Childspace day care cooperatives in Philadelphia, described here by Peter Pitegoff, and similar efforts to replicate the home health care cooperative in New York City, suggest that worker coops can succeed in the service sector as well as in manufacturing.

The road to Mondragón, or to any other form of economic democracy, has been very bumpy. Worker cooperatives (as distinct from firms with Employee Stock Ownership Plans, or ESOPs) in the United States today number less than 200, fewer perhaps than in the 1970s. By contrast, the single province of Quebec has more than double that number. The 25 or so United Steelworker-connected mills that were majority worker owned at the beginning of this decade have slipped to minority status in all but two or three cases, and many seem plagued by recalcitrant management and weak union involvement. Aside from the steelworker, airline pilot and machinist unions, organized labor still has not endorsed or utilized worker ownership very much, and the AFL-CIO leadership has kept its distance.

Education for (and about) worker ownership, economic democracy, or democratic business management has remained patchy and undeveloped. Where will managers, financial advisors, and marketing specialists learn about and become comfortable with worker and community-driven enterprises that stray from the bottom line criterion of profit? We need our own schools of business if we want to create enterprises that can recruit people with entrepreneurial expertise who share our longer range goal of building a genuinely democratic culture and a sustainable planet.

And we need to develop more ways to crack the ideological dominance of corporate capitalism — the pervasive belief that, rotten as capitalism may be, all other alternatives are worse or out of reach. Unless we do, Americans will remain unable to name more than one or two worker-owned enterprises, much less identify any of the four cooperative networks that exist throughout the world.

Len Krimerman is Editor of GEO Newsletter and co-author with Frank Lindenfeld of When Workers Decide: Workplace Democracy in North America (1991), available from GEO, RR1 Box 124A, Stillwater, PA 17878; 800-240-9721; Reprinted with permission from the joint issue of Dollars & Sense and Geo, Sept/Oct 1998.