Cooperatives are collective problem solvers, and community assets. They are also a perfect fit as a tool for community economic developers who want to create high-quality, long-lasting jobs.

Recent research has found that the economic activity of the 30,000 cooperatives in the United States contributes an estimated $154 billion to the nation’s total income. These co-ops have helped to create over 2.1 million jobs, with an impact on wages and salaries of almost $75 billion. They contribute to an increase in private sector activity, and local, state, and federal tax revenues.

But the benefits of cooperatives, especially worker-owned cooperatives, as a community economic development strategy go beyond raw economic activity—they fill unserved market niches, provide higher quality jobs, and generate more reliable and comprehensive economic development.

What Are Cooperatives?

A cooperative is an autonomous, internationally recognized type of enterprise owned democratically by its members. Co-ops operate according to the values of self-help, self-responsibility, democracy, equality, equity, and solidarity and seven guiding principles: voluntary and open membership; democratic member control; member economic participation; autonomy and independence; education, training, and information; cooperation among cooperatives; and concern for community.

A co-op’s purpose is to meet member needs, not just to earn a return on investment as with a traditional investor-oriented corporation. Profits, or what co-ops call surplus, are distributed to members in proportion to use; in a traditional corporation, profits are distributed according to stock ownership (in proportion to investment).

There are three major types of co-ops. Consumer cooperatives—such as credit unions, rural electric co-ops, housing co-ops, and food co-ops—enable consumers to own their own business in order to affordably provide the needed goods or services that otherwise are not being provided, not available at high quality, or difficult to access. Producer cooperatives—such as farm co-ops and craft co-ops—are owned by producers who cooperate to pool resources to afford the supplies they need, to own the production materials or processes, and/or to market or distribute their products.

Worker cooperatives enable employees to own a business and to decide on the company’s policies, compensation, and distribution of surplus. Under worker cooperative ownership structures, the board of directors is voted on by the employee-owners, and often consists of all employee-owners. The U.S. Federation of Worker Cooperatives conservatively estimates that there are over 350 democratic workplaces in the United States, employing over 5,000 people and generating over $500 million in annual revenues. There is a growing movement in the United States to convert existing businesses (especially where the founder and/or sole proprietor is retiring) to worker cooperatives.

Co-ops as Community Development

There are many reasons for the community economic development field to support cooperatives.

From the community angle, cooperatives frequently address market failure and fill gaps that other private businesses and the public sector ignore, such as the provision of electricity or other utilities in sparsely populated rural areas; provision of affordable healthy and organic foods; access to credit and banking services, affordable housing, and quality affordable child or elder care; and markets for culturally sensitive goods and arts.

Cooperative businesses are also stable, community-based business anchors: Cooperative businesses have higher survival rates than traditional corporations and small businesses after the first year of startup and after five years in business. In addition, evidence shows that cooperatives successfully address the effects of crises and survive crises better than other types of enterprises.

From the employment angle, cooperatives, especially worker cooperatives, create not just jobs, but high-quality jobs. They tend to lead their industries in wage levels and benefits. In addition, as owners of the business, worker-owners share in the surplus (or profits) of the enterprise. Many worker cooperatives provide annual dividends to worker-owners, which increase the compensation level and also symbolize the member’s ownership. They enable their owners to not only generate income, but accumulate assets—equity in the cooperative—promoting economic independence.

Cooperatives also provide more stable employment levels than investor-owned firms, which tend to adjust employment levels in lean times. In contrast, worker cooperatives tend to adjust pay or compensation instead, and safeguard employment.

Thanks to their democratic structure, worker cooperatives often provide superior work conditions that the worker-owners control or have major input into. They are more likely to offer self-management or team work between management and “labor,” job ladder opportunities, skill development and capacity building, job security, and general control over income and work rules. Women-owned catering and house cleaning cooperatives—like Emma’s Eco Clean and the other cooperatives developed by Women’s Action to Gain Economic Security (WAGES), and the cooperatives developed by Cooperative Economics for Women in the 1990s, for example—provide their members with control over the hours of work, work rules, health and safety, benefits, and income generation in a way that allows them to balance home, family, and work lives and still own their own business.

Many of the worker co-ops are also union shops whose employees were union members before starting the co-op, or whose worker-owners joined the union because it increased their benefits and remained compatible with the co-op’s objectives (for example, Collective Copies, Cooperative Home Care Associates, Red Sun Press, and Workers’ Owned Sewing Company).

Many worker cooperatives, especially the most successful ones, provide comprehensive orientation, pre-training and training for their worker-owners to be, which can be particularly helpful in marginalized neighborhoods where has there been continuously high unemployment and workforce development and job training programs are frequently ineffective and not matched to actual jobs. Rainbow Grocery in San Francisco, Equal Exchange outside Boston, Cooperative Home Care Associates in the South Bronx, ChildSpace in Philadelphia, and the Arizmendi Bakeries in the San Francisco Bay Area are all examples of very successful (and large) worker cooperatives that have extensive and comprehensive in-service education and training.

Of and For the Underserved

African Americans have a long, strong, but hidden history of cooperative business development. African-American cooperative economic activity begins with solidarity and collective action (economic and social) in the face of oppression and racial violence. As has every group in history, when faced with starvation, exclusion, discrimination, and market failure, African Americans pooled resources and distributed them fairly among family and neighbors. In the 19th and 20th centuries, African Americans formed mutual aid societies and then official cooperatives to meet the needs of their communities and/or augment their incomes, especially when they had no access to needed goods and services through regular markets.

As early as the 1880s, unions such as the integrated Knights of Labor and The Colored Farmers’ Alliance and Co-operative Union established farm, worker, consumer, and credit cooperatives. While they were often attacked and undermined by white competitors and racists, black cooperators persisted. By 1907 there were 154 documented African American–owned cooperatives: 103 distribution or consumer cooperatives, 34 real estate and credit cooperatives, 14 producer cooperatives, and 3 transportation cooperatives, as well as hundreds of mutual aid societies and cooperative projects through religious, fraternal, and benevolent organizations.

Cooperative economics became a strategy proposed and used consistently by black liberation and civil rights leaders and organizations, especially in the 1930s and 1960s, including the Young Negroes’ Co-operative League, The Brotherhood of Sleeping Car Porters, the Student Non-Violent Coordinating Committee, the Black Panther Party, The Nation of Islam, and the Federation of Southern Cooperatives.

Today many worker cooperatives are located in underserved neighborhoods and were created by people of color and immigrants as a form of economic empowerment.

Freedom Quilting Bee was established in 1967 to help sharecropping families earn independent income. Some of the women in Alberta and Gees Bend, Ala., came together to produce and sell quilts. In a few years they made enough money to buy 23 acres of land and build a sewing factory. They also provided day care and after-school services, especially for members’ children, becoming the largest employer in the town. In addition, when local black residents were evicted from the land they were sharecropping because they registered to vote, Freedom Quilting Bee had land to offer those farmers to help them get back on their feet and the economic independence not to be intimidated by the plantation owners. A founding member of the Federation of Southern Cooperatives, the cooperative is an example of women’s leadership and control over their own work conditions and company, as well as an example of community solidarity.

The Workers’ Owned Sewing Company (WOSCO) was founded by five African-American seamstresses and a farmer in August 1979, in Windsor, N.C. The majority of the company consisted of women machine operators who headed households. The operators wanted to provide themselves and other industrial seamstresses with steady jobs. Starting in 1982, the cooperative was able to provide its owner-workers with full time, uninterrupted work. Turnover was also uncharacteristically low for the industry. WOSCO instituted an innovative compensation policy based on the cooperative’s profitability. Wage solidarity was three to one (no one member or worker was paid more than three times the amount the least skilled member was paid). The number of employees averaged 43 in 1992, 40 of whom were owners. At one time the cooperative employed as many as 85 women.

Cooperative Home Care Associates (CHCA) is a worker-owned home health care cooperative in the South Bronx, N.Y., with a mission to create quality jobs that create quality services in the home care industry. CHCA, the largest worker cooperative in the United States, employs 2,000 mostly Latina and African-American women as home care paraprofessionals. Half to two-thirds of the employees are owners. Started in 1985, the worker-owned co-op has increased wages and benefits for members, providing full time work, living wages, paid vacations, and health insurance—all of which are unprecedented in this sector. The co-op enables employees to own the company, move into management positions, and control the board of directors. Dividend payments averaging 25 percent of initial equity are paid to owners most years (when the business is profitable). In addition, CHCA has developed a nonprofit training company to train its own workers and others in the industry, and it engages in policy advocacy around higher wages and better working conditions for home care workers in the city and state.

SSC Employment Agency in Baltimore, Md., was a worker-owned cooperative temporary services agency in the hospitality industry started by Baltimore BUILD, a community organizing and advocacy organization. BUILD wanted to support business development that would help employ hard-to-employ local residents, develop their skills and career mobility, and provide good jobs with ownership possibilities. BUILD established SSC in 1997, during the height of the growth in the hospitality industry around the revitalized Baltimore Harbor. Providing temporary workers in a fast growing industry positioned SSC well. BUILD hired a local black-owned management company to run the business until the workers took over. As more and more workers became eligible to be owners, the agency became self-managing and fully worker-owned. As the company grew, it provided annual dividends to each owner, in addition to job permanence, decent wages, and job ladder mobility.

Emma’s Eco-Clean house cleaning cooperative is a project of WAGES in Redwood City, Calif., to help women form environmentally friendly worker cooperatives. Five founding members (predominantly Latinas) went through a one-year business training program offered by WAGES, and 75 hours of industrial training in ecological cleaning. The business began operating in April 1999. The now 11 members make decisions collectively, jointly participate in administration, and have formed their own internal training program. Emma’s won a 1999 Silicon Valley Environmental Business Award with WAGES, and was nominated for a 2001 San Mateo County Sustainability Award. WAGES has developed and supported several other ecological cleaning cooperatives, and generally helps immigrant women jointly own their own businesses, receive the needed training, and gain control over their income.

Mandela Foods Cooperative is a worker-owned and community-owned full-service grocery store and nutrition education center in West Oakland, Calif. The co-op started in June 2009 with a group of local activists working on food security issues in Oakland. The co-op partners with local farmers to increase the financial sustainability of family farms and access to fresh foods for central city residents. Mandela Foods is the only grocery cooperative in the United States that began as a worker-owned cooperative instead of a consumer cooperative. All worker-owners are members of the board of directors, and the majority are people of color.

From External to Internal Capital

There are an increasing number of examples of how cooperatives have enabled low-income residents, people of color, women, and others to generate income and accumulate wealth. Low-income people are vulnerable to the most exploitative labor and asset markets, and have health, education, and child care challenges that interfere with asset building. Cooperatives help to ensure that the members, the people who need and create the enterprise, are the ones who own and govern it. Worker-owned businesses, particularly worker cooperatives, use employees’ pooled equity combined with loans (and sometimes grants for start up) to own and often manage their own business, participate

in democratic governance (one member, one vote), and make decisions about work rules, business practices, benefits and surplus distribution (profit

sharing).

Because of the democratic nature of cooperatives, distribution occurs in an equitable fashion, which places the wealth generated from the business into the hands of the owner-members (and sometimes other stakeholders). This means that cooperatives as a business are also a democratic mechanism for wealth creation. In addition, cooperatives help to anchor economic activity in a community and to recirculate resources. Cooperatives tend to trade with other local businesses, support other cooperatives, donate to community organizations, and be environmentally friendly. They pay local, state, and federal taxes. Cooperatives have the ability to empower women and other marginalized groups who have been historically left behind in the workplace by allowing them to create enterprises that offer economic security and leadership development. Women who are able to control their workplace have the flexibility needed to meet family needs while at the same time deepening their ties to the community.

All this changes the model of development from one based on external capital to one that first recognizes and develops internal (to the individual and to the community) capacities and creates mechanisms that distribute, recycle, and multiply local expertise and capital to the benefit of local residents. Cooperative enterprise development makes possible new strategies for economic development and wealth creation based on principles of democratic participation and profit sharing.

This article is based on “Benefits and Impacts of Cooperatives,” a white paper by Jessica Gordon Nembhard, 2014.