At a time when Americans are looking abroad for alternative economic strategies to rebalance our unequal economy, some worker advocates in Germany are asking if an American form of cooperative enterprise—the union cooperative—might be the way to economic independence.

Ever since the United Steelworkers International Union, the Mondragon cooperatives of Spain, and the Ohio Employee Ownership Center launched the “union co-op initiative” in 2009, cities across the US have been exploring the model—cooperatives whose worker-owners choose to join a labor union—as a path to jobs, a stake in the economy, and hope for the future for local communities. Now worker advocates in Germany are taking notice.

US advocates might count the model a success if union cooperatives can help local economies here at home. But as shareholder corporations increase their global reach, the union cooperative ultimately may need to prove its benefits for local communities across the globe as well.

This summer I was invited to the Saarland Labor Chamber in Saarbrücken to talk about the role union cooperatives might play in Germany. In the days before the presentation, I engaged in discussions with Saarland’s Left Party, nonprofits, unionized workers at Saarstahl and Halberg-Guss steel companies, and representatives of Germany’s largest industrial union, IG Metall. [1]

Some questions asked were similar to questions here in the US: Why should labor unions and cooperatives partner together? Can the model work for large industrial firms? Are cooperatives as viable as conventional firms?

Other questions were more specific to historical successes and failures of social solidarity in Germany, but could apply to the US as well: Don’t labor unions already provide enough job and wage security for working people? Isn’t there a risk that the cooperative eventually would squeeze employees with more work and less pay like any conventional firm?

What follows is an early step toward answering these questions.

Union Cooperatives and Economic Democracy: An American Perspective

Thank you for inviting me to speak with you about union cooperatives and economic democracy. Democracy can be sustained only where there is a balance of power among all persons. And a balance of political power requires a balance of economic power. This spring, the US state of Minnesota, where I live, raised the state minimum wage above the national minimum. The original statewide campaign plan was geared toward the important work of door-knocking voters and lobbying legislators. After discussions, I was asked to write into the plan a new section on recruiting nonprofit institutions.

Although some nonprofits already were onboard, there had been no explicit strategy for recruiting more. I knew that a strategy for community partnerships, as also resolved at the AFL-CIO 2013 Convention, was crucial, because to convince the people inside the Capitol—the legislators—you first need to convince the people outside the Capitol. [2]

And not just the general public. Public opinion surveys showed that the public wanted to raise the wage, but legislators were saying, No. That’s because many business owners in Minnesota did not want to raise the wage, and persons who own or control more economic resources, right or wrong, have a louder voice.

Although labor unions were fighting hard to raise the wage, their economic resources were small compared to business owners. So our best chance was to recruit nonprofit organizations and add their modest power to the power of the unions. And as the balance shifted, and nonprofits and even some small business owners started saying yes, then, only then, did the legislators follow the general voting public to say yes as well. [3]

To wield power we must own power. To have democracy in our society, we must have democracy in our economy. We must all own a piece of raw economic power, and we must believe, as a matter of moral principle, that everyone has an inalienable right to own it. Economic power combined with principle makes culture, and culture is power in action.

The union cooperative is a furnace of economic value and moral principle in which a culture of economic democracy can be created.

First, What is a Union Cooperative?

A union cooperative is a worker-owned cooperative whose workers are covered by a labor union collective bargaining agreement, and whose workers believe everyone has a right to own the full fruits of their labor. Being a worker-owner means sharing in the decision-making, the profits, and the losses of the cooperative. The name “union cooperative” does not mean that the union owns the cooperative. It means simply that the worker-owners are covered by a collective bargaining agreement. In 2012 the United Steelworkers, Mondragon, and the Ohio Employee Ownership Center gave more definition to the model by releasing a how-to guide called “Sustainable Jobs, Sustainable Communities: The Union Co-op Model.” [4]

The protection of collective bargaining might seem unnecessary where the workers themselves are the owners. But the division of worker-owners into management and non-management roles means that even within a cooperative there is a situation of conflictual partnership. And typically there are some workers who are not owners. In the USA, newly hired workers must study cooperative finance and decision-making for up to two years to qualify for ownership. And some workers choose not to join as owners. Collective bargaining ensures that all of the workers have a voice, even those who are not owners.

Beyond improving the daily lives of working people, the union cooperative can help us attain social goals. It can inspire new membership in labor unions and in cooperatives. It can cultivate common interests and a shared agenda for unions and cooperatives, creating opportunities for building political coalitions together.

The union cooperative also can create stronger local economies. The key to a healthy economy is a cycle of production and consumption built from the local level. If in every city and state the people who live and work there are paid enough to purchase what they themselves produce, then the economy is meeting it’s fundamental natural goal of sustaining labor and life.

How is the Union Cooperative Governed?

We start with the governing bodies of any cooperative. In the US, these would be the general assembly of all owners of the cooperative and the board of directors who are elected by the owners and are responsible for management and long-term strategy. In Germany, the role of the board of directors is carried out by two bodies, the executive board who are elected by the owners and are responsible for management, and the supervisory board who decide long-term strategy.

To make a union cooperative we add two more: The body of all non-management workers, including owners and non-owners, covered by the collective bargaining agreement, and finally the union committee who are non-management workers elected from and representing all non-management workers covered by the agreement.

The union co-op model recommends that a worker-owner can serve on the board of directors, or in management, or on the union committee but may serve in only one of these roles at a time. In Germany, where there is a precedent for unionized workers serving on the supervisory board, it might also be important to maintain that standard by allowing both owner-workers and non-owner workers under the collective bargaining agreement to serve on the supervisory board.

Let’s Take a Closer Look at the Union Committee

The union committee enforces the collective bargaining agreement regarding wages, benefits, and working conditions at the firm level in a union cooperative and helps resolve conflicts between management and non-management workers. The union committee also has authority to negotiate supplemental agreements. This is much like the role of the German works council. So in Germany, the works council might serve in the role of the union committee.

In the USA, the union committee also negotiates the collective bargaining agreement at the firm level, but in Germany the agreement typically would be negotiated between the trade union and the employers association at the district level of the industrial sector. This might mean the union cooperative would join an employers association. But as a cooperative business which is modest in size, the union cooperative would have little influence within an employers association. So a better choice might be for the union cooperative to voluntarily join a district level agreement without becoming a member of an employers association.

How Do We Finance the Union Cooperative?

The goal of the union cooperative is 100 percent worker-ownership, with each worker purchasing and owning an equal share. If other investors are necessary at the start, as is likely in capital-intensive industries like manufacturing, then the model recommends investment by institutions who understand cooperatives and trade unions. These institutions might be credit unions, other cooperatives, non-profit organizations, or foundations.

It is recommended that there should be, from the start, a clear procedure to move toward majority ownership, and if possible 100 percent ownership, by the workers. Each worker-owner might, for example, see a portion of each paycheck deducted automatically and invested in that worker’s ownership account, so that each worker’s ownership stake grows and gradually they can buy back the shares of the outside investors. In some cases, such as large industrial firms, a stable investor such as a foundation might remain a partner over the long term.

Remember that democracy requires a balance of power, with no owner holding a share significantly bigger than the others. So if outside investment is necessary, the model recommends recruiting several investors with modest shares, each no more than 10 to 20 percent of total ownership, rather than recruiting one or two large investors who would wield too much power over the cooperative.

Why Are There so Few Worker Cooperatives?

Out of 5.7 million firms in the USA, only 300 firms are worker cooperatives. Some people might ask: Is this a viable business? Research tells us: Yes, worker cooperatives have good survival rates.

There is little historical data on cooperatives in the US, but economist Erik Olsen has compared worker cooperative survival rates in Uruguay, Great Britain, France, and Israel to conventional firms in those countries and to conventional firms in the US. He finds that the survival rates of worker cooperatives are equal to or greater than conventional firms. [5]

This means there are so few worker cooperatives only because so few have been started. For any new business, the first years are the highest risk. Partnerships with other institutions can help, and in the union cooperative, a labor union partners with the worker-owners from the very start. The union can support the new cooperative during planning, fundraising, legal permitting and registration, and publicity efforts.

Or we can avoid start-up risks entirely by helping conventional businesses convert into union cooperatives. A small business owner who is retiring from work but has no children to take over the business may be happy to learn that they can sell the business to their employees. Conversion of existing businesses is less risky because the business already has loyal customers and experienced workers. The partnership of the labor union adds still more support and stability.

Whether the union cooperative is new or converted, remember that connecting with other institutions who are committed to cooperative practices and principles will strengthen the union cooperative, while connecting with institutions committed to conventional corporate practices and principles will weaken the union cooperative. Why? Because people and institutions naturally align their own practices and principles with the people and institutions they depend on. We will come back to this question of common culture.

But First, How Are Union Cooperatives Doing in the US?

The city of Cincinnati offers a good example of how the initiative works. Members of labor unions and nonprofits formed the Cincinnati Union Cooperative Initiative after hearing of the USW-Mondragon initiative. Founding members include director Kristen Barker, Flequer Vera, Ellen Vera of the United Food and Commercial Workers Union, and Phil Amadon of the International Association of Machinists. [6]

The people of Cincinnati created the project in Cincinnati. And the USW and Mondragon have responded generously to requests for advice and even direct participation. As of today, Cincinnati has two new union cooperatives open for business:

One is Our Harvest, a farm and retail cooperative whose workers are represented by the United Food and Commercial Workers Union. Our Harvest began two years ago with five workers and today employs almost twenty full-time workers.

Another is Sustainergy, a cooperative which improves the energy efficiency of commercial and industrial buildings. Sustainergy’s workers are represented by two trade unions: the International Brotherhood of Electrical Workers, and the United Association of Plumbers and Pipe Fitters.

Meanwhile, Cincinnati has five more union cooperative projects in process. For each project, they recruit a working group of local unions, nonprofits, and government institutions to conduct research, planning, and advocacy for the new union cooperative. The Cincinnati Initiative’s working group for Our Harvest Cooperative, for example, includes the United Food and Commercial Workers Union, Mondragon, two nonprofits called We Thrive! and Center for Community Change, and three public institutions: Ohio Employee Ownership Center, Ohio Cooperative Development Center, and the Agricultural Extension Office of Ohio State University. Beyond Cincinnati, local organizations in fifteen other US cities are exploring union cooperatives.

The model can accommodate large cooperatives of hundreds or even thousands of worker-owners, or very small ones. In Cambridge, Massachusetts, the hometown of Harvard University, a two-person printing firm has become the world’s smallest union cooperative. The two worker-owners are represented by the United Steelworkers Union.

Economic democracy depends on democratic enterprises both large and small. And after many decades of insisting that bigger is better, America’s unions now recognize that every business counts.

Why Economic Democracy?

Perhaps for moral reasons, because we believe that shared authority, mutual accountability, and respect for individual initiative allow us to fulfill our human potential, and that this is possible only where there is a balance of power among all participants.

And perhaps for practical reasons, because we see that just as diversity in the natural world creates beauty, versatility, and robustness, so too diversity in the political economy creates beauty, versatility, and shared progress.

The economic crisis of 2007 is a recent reminder of the ugliness of unequal progress. In the US we watched shareholder corporations recover from the crisis stronger than ever, while workers continued to suffer. US corporate profits doubled to $1.3 trillion US dollars in the decade from the year 2000 to 2010, in spite of the economic crisis. [7]

9] Over the same decade the number of job seekers competing for every job opening multiplied from 1 job seeker for 1 opening in the year 2000, to about 5-to-1 in the year 2010. And a historically high share of employment is part-time, making it harder to make a living. [8

Taking a longer view, real median family income in the US had risen along with productivity from the year 1947 until 1970. But even as worker productivity has continued rising to the present day, median family income has stagnated and today is little more than it was in 1970. [10]

Labor unions have worked hard to maintain wages. But the share of US workers who are union members has been cut by almost two-thirds since 1970, to about 11 percent today, according to the Organization for Economic Cooperation and Development. And the share of German workers who are union members has been cut in half since 1980, to about 18 percent today. [11]

The trends forebode a dark future, unless we make an important change.

How Can Union Cooperatives Build Economic Democracy?

Economic power combined with principle makes culture. People create a culture of shared practices and beliefs as a simple effect of each one seeking to meet their own need for effective social and economic transactions and a coherent worldview. So wrote the British anthropologist Mary Douglas in her study How Institutions Think. When effective social and economic practices match together with principles, and when a group of people commit themselves to these shared practices and principles, then lasting institutions are made. Humans are driven toward shared culture for the simple reason that working with someone is easier if you see and do things the same way, harder of you don’t. [12]

This theory tells us two things. First that it is not enough to encourage people to believe in principles of democracy. The principles must support and be supported by a matching set of social and economic practices by which people satisfy their basic daily needs. And second that similar practices and principles can be a bridge between seemingly different institutions. The union cooperative smartly partners labor unions with the one cooperative which shares the most in common: the worker cooperative.

Sometimes, however, institutions adopt mismatched practices and principles. This happened, for example, when a consumer cooperative in Minnesota adopted wage and work conditions so bad that the workers had to unionize to protect themselves. In this case, the cooperative distanced itself from the culture of cooperatives and aligned itself with the ways of shareholder corporations. Why?

Here we move beyond Douglas’s theory of institutions to look at the behaviors of people within classes of institutions. The same rules of culture apply at this higher level but I propose further that these broader classes are formed by people exercising power within similar economic roles. And that when people governing culturally similar institutions organize politically together, share practices and principles, and hold considerable economic power, they can influence law and society. Let’s call this group of persons a political-economic community. Some examples in modern history are corporate shareholders, independent business owners, union workers, cooperatives, and farmers. If society consists of many powerful political-economic communities, the culture will be diverse. If one political-economic community has far more power than the others, the culture of that one community will dominate the whole society, so that even members of alternative communities, like the directors of that Minnesota consumer cooperative, will gradually align with the greater power. [13]

Today one political-economic community—corporate shareholders—outweighs the economic power of all others. Any corporate executive will agree that the shareholder corporation is not a democracy—the owners and employees are unequal classes with unequal privileges and powers. As long as these corporations dominate the economy, their culture will dominate society, and their agenda will dominate politics.

Just as wealth inequality has increased in the USA since 1970, so too principles have shifted increasingly from social solidarity toward individualistic competition and a belief that the winning minority has a natural right to rule as aristocrats over the losing majority. [14]

While social solidarity has always been stronger in Europe than in the USA, Germany too has seen a cultural shift, perhaps since 1980, toward individualism that has made it harder to engage cooperative members in active ownership and harder for unions to recruit members.

Political scientist Stephen Silvia analyzed German historical data for the years 1954 to 2009 and found that the most significant determinant of labor union density in Germany is social milieu, or culture, as measured by the choice to be a member of a left-leaning political party (like the Social Democratic Party before German Unification and the Left Party today). As culture leans to the right, the level of union density falls. [15]

Although German labor unions and employers associations have maintained an effective partnership after the Second World War, political-economist Gar Alperovitz believes that period of partnership and relative economic equality in Europe and in the USA was a rare moment in history caused by the massive disruptions and investments of that war. Today we are getting back to corporate business as usual. [16]

Research by economist Thomas Piketty affirms Alperovitz’s claim by showing that for the past 200 years, except for the middle of the 20th century, owners of capital have accumulated wealth faster than those who work for wages. [17]

Ownership alone does not cause unequal returns. It is how we own that matters. Do we own the economy democratically, each having a roughly equal share in returns and decision-making? Or do we own it aristocratically, with a minority of persons holding a majority of returns and decision-making power?

Today, as throughout the history of capitalism, corporate executives wield aristocratic authority over employees and are accountable only to shareholders. These shareholders are investors who might reside anywhere in the world and whose stake in the corporation is simple: a high return on their investment. Shareholder voting power is not the democratic one-person one-vote. Instead it is one-share one-vote. The person who can afford to buy the most shares wins. [18]

It is the lack of democracy within shareholder corporations which allows executives to unevenly distribute wealth. Corporate executives can create huge profits by taking the total value produced by their employees and paying back just a portion of it in wages, while splitting the rest between executive salaries and shareholder profits. The lower the wages, the greater the share left over for executives and shareholders.

This imbalance in wealth, created in every shareholder corporation, then throws our whole society out of balance because one political-economic community—corporate shareholders—has the power to dominate private and public affairs. They can dominate public discourse through paid advertising and direct ownership of news services. They can reward or punish cities by opening or closing factories. And they can make or break private or political careers. Again, this is business as usual. [19]

Culture is shifting toward corporate principles of competition and individualism, and depriving labor unions and cooperatives of members, because corporate shareholders are again consolidating their ownership of the economy. We who believe in economic democracy must fight for our share of the market.

Step by step, we must replace shareholder corporations with democratically governed cooperatives, associations, and unions in which all participants, including employees, hold the power of one-person one-vote, so that authority and wealth is shared and all are accountable to each other. More of these democratically-governed institutions means more people who own a piece of the economy, who depend on democracy for their daily living, and who will defend democracy as a way of life.

The path is a civilized battle to command a meaningful share of the raw power of the economy. We begin with union cooperatives formed by workers in a city to produce for consumers in that same city. And we do this in cities across the world. Union cooperatives are the engine of a culture that one day can enable democratic institutions to rival the economic power of shareholder corporations and achieve a balanced and democratic economy and society.

Notes:

5. Olsen, Erik. “The Relative Survival of Worker Cooperatives and Barriers to Their Creation,” in Advances in the Economic Analysis of Participatory & Labor-Managed Firms, Volume 14, 83-108. Emerald Publishing Group, 2013.

12. Douglas, Mary. How Institutions Think. Syracuse University Press, 1986.

14. Judt, Tony. Ill Fares the Land. Penguin Press, 2010.

15. Silvia, Stephen. Holding the Shop Together: German Industrial Relations in the Postwar Era. Cornell University Press, 2013.

16. Alperovitz, Gar. What Then Must We Do?: Democratizing Wealth and Building a Community-Sustaining Economy from the Ground Up. Chelsea Green Publishing, 2013.

17. Piketty, Thomas. Capital in the Twenty-First Century. Trans. Arthur Goldhammer. Belknap Press, 2014.