CALIFORNIA STATE UNIVERSITY, NORTHRIDGE Worker Cooperative

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CALIFORNIA STATE UNIVERSITY, NORTHRIDGE

Worker Cooperative Creation and Growth: Obstacles and Opportunities

A graduate project submitted in partial fulfillment of the requirements for the

Degree of Master of Public Administration in Public Sector Management and Leadership

Rogelio Garcia

December 2020

The graduate project of Rogelio Garcia is approved:

______

Dr. Elizabeth Trebow, PhD Date

______

Dr. Ariane David, PhD Date

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Dr. Anaïs Valiquette L’Heureux, PhD, Chair Date

California State University, Northridge

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Table of Contents

Signature Page iii

Abstract vi

Introduction 1

Background 3

Literature Review 5

Defining Worker Cooperatives 5

The Current State of Worker Coops 7

Worker Coops in Foreign States 9

US States and Cities Developing Worker Coops 12

Anchor Institutions 12

Cost Per Job Ratio 13

Public-Private Partnership 13

Barriers to Worker Coop Development 14

Insufficient Data 14

Negative Stigma 15

Efficiency Concerns 15

Ease of Transporting or Replicating 15

Corporate Competition 16

Little to no Supporting Public Policy 17

Education 17

iv Unfamiliarity with the Worker Coop Business Model 18

Conversions 18

Financing 19

Governing Boards and Management 19

Limitations 20

Literature Review Summary 21

Research Question and Aim 22

Research Design 23

General Approach 23

Methods 23

Qualitative Data Collection 23

Quantitative Data Collection 24

Discussion 26

Limitations 26

Ethical Considerations 26

Expected Benefits/Contribution 26

Conclusion 28

References 29

Appendix A 33

Appendix B 34

v Abstract

Worker Cooperative Creation and Growth: Obstacles and Opportunities

Rogelio Garcia

Master of Public Administration in Public Sector Management and Leadership

Worker cooperatives represent one example of an alternative choice of employment. The worker cooperative framework can vary, but essentially are businesses that are owned and self- managed by the workers. Many industrialized countries are experiencing growing inequality, especially over the last few decades. Worker cooperatives are seen as an alternative business model to help provide their workers with a higher standard of living. The latest financial crisis has brought worker cooperatives to the forefront yet again as a viable alternative business model.

However, the number of cooperative jobs overall created, which translates into 10% of the world’s employed population, remains relatively low. This proposal aims to determine the obstacles worker cooperatives in different sectors face and how these determine the extent to which these affect worker co-ops creation and expansion. An exploratory approach is the method chosen to collect qualitative data for this project. Method sampling will implement surveys and interviews which will be given to various worker coop management. The findings here can help future and present worker cooperatives navigate and mitigate the obstacles that the participants mentioned. Public policy makers can benefit from data collected here by learning what inhibits worker cooperatives from competing on an even playing field with traditional firms. Data from

vi this research could be used by policy makers to help promote worker cooperative friendly legislation which will increase employment opportunities.

vii Introduction

Worker cooperatives represent one example of an alternative choice of employment. One reason for the increased interest in worker cooperatives is due to the long-term trend by major

American companies to move their plants abroad and or outsourcing jobs (Bretos, Errasti &

Marcuello, 2019). This has led to a significant decrease in the quantity and quality of jobs available. Individuals are not able to acquire full-time jobs with benefits as was the case before.

This means that the standard of living in the US has steadily lowered and most likely will continue a downward trend (Chowdhury, 2018). Worker cooperatives can provide quality employment and raise the standard of living for their workers as compared to traditional corporate businesses (Olsen, 2013).

The second reason for an increased interest in worker cooperatives is connected to the last financial crisis that began in 2007. Many individuals fortunate enough to have full-time jobs with benefits found themselves unemployed and their homes in foreclosure during the financial crisis as major US corporations began to downsize and call in their loans. The official unemployment rate jumped to over 10% during the financial crisis. This economic crisis gained the interest of policymakers and researchers who are concerned with finding possible ways to restructure economic organizations (Arando, Gago, Jones & Kato, 2019). The fragility of the current economic system was exposed in 2007/2008, and many individuals still see it as a potential threat to their livelihoods. Worker cooperatives can compete with market pressures and better withstand financial crises while at the same time having a positive ripple effect in the local economy (Baskaran, 2015). What are the key factors that influence worker cooperative development? The answer to this question is important because worker cooperatives are designed to create quality employment and to help in putting an end to cyclical unemployment (Landin,

1 2018). Ending cyclical unemployment is especially relevant today as the worldwide quarantine in response to the Covid-19 pandemic has dramatically increased unemployment. Many employers will undoubtedly not be able to fully recover from the shutting down of their business and will not be able to rehire their employees. Finding answers to this question will ultimately help in developing knowledge on how to remove obstacles for worker cooperatives creation and make data available for policy makers who could create legislation that favors worker cooperative development. The following chapters will give a little background and define worker cooperatives. Worker cooperatives from around the globe will be analyzed to see how the business model performs.

2 Background

During the Great Depression thousands of worker cooperatives, also known as worker coops, emerged to create new jobs for the mass of unemployed. Historically, worker coops proliferate and gain popularity in times of economic distress or political upheaval (Baskaran, 2015). During the 1960s and 1970s worker coops experienced a resurgence due in large part to the social justice and political movements. In this context, worker coops were a way to give power to the people to counter establishment values that were seen to negatively impact people and the community

(Camou, 2016). The financial crisis of 2007/2008 has brought worker coops to the forefront yet again as a viable alternative business model. All 50 states have recognized and formalized cooperatives into their laws but currently, only 12 states have specific laws for worker cooperatives (Jacob, 2016).

Public policy in California regarding worker coops is leading the way for the other 38 states that lack a specific and substantial worker coop policy (Jacob, 2016). The California

Worker Cooperative Act (AB 816) was signed by Governor Jerry Brown and came into effect on

January 1, 2016 (Blum, 2017). AB 816 amended existing cooperative law to provide both a legal framework and the pathway for worker cooperatives to raise capital from their community.

Worker coops represent an alternative way of helping communities with existing unemployment.

Worker coops also represent a way to help communities withstand further economic downturns.

There is ample evidence that suggests traditional firms have less employment stability than worker coops when confronted with demand shocks (Burdin, 2014). This means that worker coops are less likely to fire employees and more likely to retain their employees when local or global economies decline. These reasons alone warrant further studies into the impact and outcomes of worker coops.

3 A renewed willingness to use the worker coop model throughout the world was apparent after the 2008 economic collapse with the increase of grassroots economic initiatives to help develop worker coops (Miller, 2010). Many industrialized countries are experiencing growing inequality, especially over the last few decades. Growing global inequality makes for another important reason to further study worker coop start-up factors and barriers. The number of cooperative jobs created overall translates into 10% of the world’s employed population. This number includes all types of cooperatives such as consumer, credit and worker cooperatives.

However, worker coops are present in almost all economic sectors and represent the most common type of cooperative in the world (Guzman, Santos & Barroso, 2019). These grassroot initiatives, if provided with adequate public policy support, could result in the formation of a significant worker coop sector. However, caution needs to be taken because public policies can increase the obstacles, deliberately or not, that worker coops face.

Literature Review

This chapter focuses on the problems and barriers that worker coops face in their efforts to start up as a business. In addition, barriers to the development of a worker coop business sector are also analyzed and discussed. Worker coops from around the world will be compared with firms that use the traditional business model to determine how they respond to similar barriers to success. The worker coop model will be analyzed to see how it manages these barriers.

Defining Worker Cooperatives

Analyzing the key principles of worker coops will assist in understanding how they function and what their goals are. Worker coop frameworks vary from each other, but essentially they are businesses that are owned and self-managed by the workers. Member economic participation is one principle that usually means that members contribute equitably and are in control of the capital of their coop (Baskaran, 2015). This means workers/members are their own boss and vote to allocate surpluses such as profits as they see fit. However, a portion of worker coop profits, called indivisible reserves, are prohibited from being distributed to any worker.

These indivisible reserves are a restricted part of the worker coops capital structure and can only be used for the firm’s ongoing capital needs (Jacob, 2016). A worker coop purchasing newer and or more efficient technology would be a permitted use of indivisible reserves. The individual reserve concept is important to a worker coops survival. This is because on average worker coops are smaller than the competition which is mostly made up of traditional firms. Worker coops try to ensure firm survival by requiring parts of the profits to be reinvested into the firm to keep it as efficient and competitive as possible.

5 Sustainable development is another worker coop core principle. Sustainable development here means a business that integrates well with the local community and improves the community. Worker coops can help provide vulnerable workers with opportunities for stable and safe employment (Baskaran, 2015). Rural communities around the world have increasingly embraced worker coops because worker coops provide a way to create and preserve rural jobs

(Jacobs, 2019). The worker coop structure helps in avoiding layoffs during periods of economic decline by making it easier to temporarily change worker salary level until the economy recovers

(Díaz-Foncea, & Marcuello, 2015). Employees all take a temporary pay cut to avoid or lessen the number of workers that would have to be laid off during economic declines. This ability allows for sustainable development which in turn helps to maintain and keep the local community intact.

Democratic member control is another worker coop principle. Workers actively participate in high-level decisions about the direction of the company (Baskaran, 2015). There are variations to the worker coop model but they mostly all have the same key principles. Each worker gets one vote regardless of the share of capital they own. Workers vote and decide who will be on their firms governing board and who the managers will be (Saleh & Hamzah, 2017).

Worker coop members also vote on who the members will be and how membership will be granted and terminated.

Coopetition is another worker coop key principle which is defined as simultaneous cooperation and competition at multiple levels or even at an intra-organizational level

(Basterretxea, Charterina & Landeta, 2019). Coopetition is accomplished when two or more worker coops mutually agree to provide each other with valuable assets such as capital, knowledge, technology and managerial talent (Beamish & Lupton, 2015). Coopetition may

6 contain benefits and drawbacks. The main benefits of coopetition are oriented towards sharing costs, increasing capacity, reaching economies of scale and reducing risks. The main drawbacks of coopetition are knowledge leakage and opportunistic behavior (Baskaran, 2015). One study on coopetition compared worker coops and traditional firms that were both engaged in the high technology, knowledge-intensive and dynamic industries. The study found that coopetition increased when market conditions were either extremely good or extremely bad (Basterretxea,

Charterina & Landeta, 2019). This means that worker coop creation and or expansion is more difficult when market conditions are average. However, overall, there is little academic research on how the worker coop principle of coopetition affects worker coop performance (Guzman &

Santos, 2019). More research needs to be done on the benefits and drawbacks that coopetition has on worker coops.

The Current State of Worker Cooperatives

Understanding the reasons why worker coops are more common in some cultures and countries and not in others will provide clues about the obstacles and incentives associated with their creation and expansion. Comparing worker coops with traditional capitalist firms can help in obtaining data that can be used to explain why there are relatively fewer worker coops.

Despite being less numerous, worker coops are important to the world economy. According to

International Cooperative Alliance, which is a leading organization for all things coop, there are

3 million cooperatives in the world that are most active in insurance, agriculture, wholesale, retail trade and banking (Kispál-Vitai, Regnard, Kovesi & Guillotte, 2019). The World

Cooperative Monitor analyzed the world's 300 largest cooperatives and found that they generate a combined turnover of $2.5 trillion and created 280 million jobs (Guzman, Santos & Barroso,

2019).

7 The most common type of cooperative is an agricultural cooperative which represents about 50% of all cooperatives (Grace, 2014). Banking and credit unions, which make up about

8% of all existing cooperatives, represent the next largest single category of cooperatives.

Worker cooperatives account for only about 3.5% of all cooperatives worldwide. (Grace, 2014).

Worker coops, although they represent a small percentage of cooperatives, are important and different because they provide opportunities for workers to own the business they work in and are operated democratically. Europe has about 31,500 worker coops with the majority of these being located in Spain and Italy (Landin, 2018). The US has about 30,000 cooperatives with about 27,000 of these categorized as consumer cooperatives (Artz & Kim, 2011). A little over

1% of these 30,000 cooperatives are categorized as worker coops which on average have 11 full- time employees (Artz & Kim, 2011). Worker coops in the US, as of 2016, are only about 400 nationwide (Camou, 2016). When compared with the rest of the world, where worker coops account for 3.5% of all cooperatives, the US has a much lower ratio of worker cooperatives at

1%. However, recent economic downturns have caused a renewed interest in worker coops.

An increasing number of states and cities are contracting private companies to help implement public policy (Miller, 2010). Public-private partnerships are situations where governments contract private firms for the implementation of public policy (Wang, Xiong &

Zhu, 2017). This includes public services such as transportation, water and sewage, energy, environment protection, public health and others. This current trend is a form of institutionalized cooperation between cities and the private-sector. Worker coops are beginning to receive an increasing amount of business from cities. These initiatives are more broadly known as the solidarity economy (Miller, 2010). As mentioned before, people throughout the world have

8 increased grassroots economic initiatives after the 2008 financial crisis. This is an opportunity that other countries are also using to develop a worker coop sector.

Worker Coops in Foreign States

Most of Europe’s worker coops are found in Spain and Italy (Adeler, 2014). Spain and

Italy in particular have significant worker coop public policy as well as a developed worker coop sector. However, public policy concerning coops, at least in these cases, came after the creation of a robust worker coop sector (Diaz-Foncea & Marcuello, 2014). For example, the most successful worker coop in the world is the Mondragon Corporation, is located in Spain’s northern Basque region. Founded in 1956 with 25 workers as a group of mainly industrial worker owned enterprises, today Mandragon comprises 250 coops, subsidiaries and affiliated organizations mostly in Europe and throughout the world (Arando, Gago, Jones & Kato,

2015). Mondragon’s success does not mean the public policy is not important in helping worker coops be developed. Sometimes, as the previous example demonstrated, the creation of a strong worker coop sector came first. It was only after worker coop success that public policy was created to further increase the strength and number of worker coops (Adeler, 2014).

The determinants for the entry of new worker coops in Spain were studied and found to be primarily related to the supply of entrepreneurs and institutional factors (Diaz-Foncea &

Marcuello, 2014). There seems to be a combination of factors responsible for worker coop development in these countries. Although Spain’s worker coop sectors developed with little to no help from public policy, it was helped to develop and expand once policymakers began creating worker coop friendly legislation.

Regional determinants in Spain that influence the creation of worker coops were compared with determinants influencing the creation of traditional capitalist firms.

9 Entrepreneurial demand and supply factors, as well as institutional environment factors, were used as indicators to examine and compare firm creation opportunities. Results showed that population growth, salary level and the unemployment rate have a positive and significant influence on worker coop creation (Diaz-Foncea & Murceollo, 2015). The population increased as did the level of unemployment. Unemployment proved to be the main determinant for the creation of worker coops in Spain (Diaz-Foncea & Murceollo, 2015). This means that the higher the unemployment rate was in a region of Spain, the greater the number of worker coops created in that same region. High unemployment exists, however, in other countries and yet worker coops are not being created there at the same rate as in Spain. Other studies on worker coops in

Spain point out that cooperation among cooperatives is the reason for a high worker coop creation rate here and why the largest worker coop in the world, Mondragon, is located here

(Basterretxea, Charterina & Landeta, 2019). The worker coop creation ratio in Spain, when compared to the rest of the world, is extremely high. Many entrepreneurs in Spain, for whatever reason, choose the worker coop business model over conventionally owned firms. Further research to determine all the reasons why there is an above-average worker coop firm creation ration in Spain and not in other places like the US can help to discover barriers.

Research on worker coops in France show they are overall successful in part due to employee participation which reduces agency and information costs (Kispál-Vitai, Regnard,

Kovesi & Guillotte, 2019). Worker coops, like traditional businesses, are not perfect business models but they are more efficient in the above-mentioned areas. Firm survival seems to be correlated with greater employment stability inherent in worker coops. Having job security makes it possible for workers to vote for actions that are not just good for them in the short term but good for the organization in the long term (Burdin, 2014). Other studies have empirically

10 shown cooperatives to feature less managerial supervision compared to traditional firms

(Thompson, 2015). Management supervision may be more efficient in worker co-ops because managers are elected by workers. In addition, each worker is also an owner of the business and as such monitors themselves and others. More efficient management supervision saves time and resources which gives worker coop firms an advantage over conventionally owned firms.

Worker coops and traditional firms' use of technology in France were compared in a study to determine if the worker coop business model is as productive. As of 2012, there were

2000 worker cooperatives in France which employed 47,000 people (Fakhfakh, Perotin & Gago,

2012). Compared with most countries, France has a bigger worker coop sector. Worker coops here like in other countries are owned by employees who each have one vote regardless of the share of capital they hold. French worker coops were found to be as productive or more productive overall than traditional firms in most industries (Fakhfakh, Perotin & Gago, 2012).

The study also found that the technology used by traditional firms was not as efficient as the one invested in worker coops. The authors believe that the existence of the incentive effects associated with full employee ownership is a reason why French worker coops have invested more in more efficient technology than traditionally owned firms.

Favorable legislation played a decisive role in helping to create worker coops in Canada,

France and Hungary (Kispál-Vitai, Regnard, Kovesi & Guillotte, 2019). France and Hungary, for example, created new cooperative legislation in 2014 and 2006 adding to previous coop legislation that was last created in France in 1947 and in the late 19th century in Hungary respectively (Kispál-Vitai et al, 2019). Canada also relatively recently created a general cooperative law in 1998. These countries and others had existing legislation that was from the earlier part of the 20th century and in some cases the 19th century. The wealth gap has grown to

11 the point where the wealthiest 85 individuals own as much as the poorest 50% of humanity. This trend, or second wave of renewed worker coop enthusiasm, is most likely a response to the widening wealth gap and to economic instability.

U.S. States and Cities Developing Worker Cooperatives

This chapter’s goal is to look at how cities in the US are using public policy to help develop worker cooperatives. In the past public policy has been used to try to address systemic challenges. Legislation is also important for worker coop creation not just in other countries but in the US as well. In an effort to create more just and equitable markets, state and city governments are increasingly adopting worker cooperatives initiatives and laws (Camou,

2016). The California AB 816 law amended cooperative law to help create a way for worker coops to raise capital from their community (Jacob, 2016). Ten US cities, under the Imagine

Economy Project, used one of three approaches for worker cooperative development. This five- year project is an effort to build up a worker coop ecosystem in each city taking part in this project. The first two years of this project are meant for capacity building with the following 3 years meant more for delivering concrete expectations.

Anchor Institutions. One approach used in the Imagine Economy Project to support worker coops seeks to gain procurement spending by area anchors institutions (Camou, 2016). Examples of anchor institutions include hospitals, universities and medical institutions. Anchor institutions are the largest employer in more than half of the top 100 most populated cities (Rogers, 2013). In

Cleveland, Ohio, for example, public policy was passed for the creation of a network of worker coops designed to provide services to the local anchor institutions (Rowe, Peredo, Sullivan &

Restakis, 2017). Tying worker coops with local anchor institutions is a way to help ensure the survival and development of worker coops in a city. The results of these municipal approaches to

12 worker coop development in these ten US cities are still in progress. Three of these cities have implemented programs and projects that in turn have created 25 new worker coops in each city that employ a total of 261 people (Camou, 2016).

Cost Per Job Ratio. Most if not all forms of businesses, organizations and individuals contain inefficiencies. The efficiency of the worker coops business model has been documented by several studies. For example, service sector jobs were created in some cities under the Imagine

Economy Project public. The costs per job created ranged from $7,143 to $100,000 (Camou,

2016). The ratio of $10,000:1 for public investment per job created was set as a goal. The lower number involved no financing roll by the city and the high number involved a substantial financial role by the city. Most worker coops created through this initiative tended to be small ones. The cost per job ratio that each of these cities used to create these new positions was relatively lower on average when compared with traditional firms. The lower than average cost- per-job ratio demonstrates that the worker coop model is efficient. Burdin (2014) agrees that firm survival seems to be correlated with greater employment stability inherent in worker coops.

Having job security makes it possible for workers to vote for actions that are not just good for them in the short term but good for the organization in the long term (Burdin,

2014). Policymakers in other cities and states that are interested in efficiently creating and retaining long term quality employment in their communities could study and implement the parts of these pilot programs that would help improve their communities.

Private-Public Partnership. Studies have shown that the private-public partnership approach to supplying infrastructure and public services has increased (Wang, Xiong & Zhu, 2017). Many city governments, in an effort to develop worker coops, have developed contract bid preferences for worker cooperatives (Camou,2016). Worker coops that are certified as able to meet city

13 procurement needs would get priority. The short-term goal of the Imagine Economy Project program would be to increase the number of worker coops. The long-term goal is to create more equitable and inclusive local economies. One challenge to worker coop development in these cities included the impact of worker coop initiatives on the other small businesses. Many cities still want to achieve a balance between social and business purposes.

Barriers to Worker Coop Development. Impediments or barriers to worker coop development can make starting and maintaining these types of business more challenging. Negative stigmas and efficiency concerns may serve to deter individuals from creating or working in and being a part of a worker coop. Insufficient data and a lack of familiarity with the worker coop business model may also act as barriers. If entrepreneurs or banks are not familiar with the worker coop business model, then it follows that they will not be as likely to create worker coops or provide financing. These and other issues combined can act as barriers to worker coop development.

Insufficient Data. Public policy regarding worker coops has not kept pace with the demand for such legislation. Public policy sometimes, however, has to be created to keep up with the increasingly new demands brought on by a growing and changing worker coop sector (Adeler,

2014). Policy makers, in some instances, have had a reactionary approach to worker coop development. Policy makers, however, do not have sufficient data on how the worker coop model can aid in creating viable businesses and employment in their communities. Determining what kind of business model is more sustainable and efficient is not always easy to ascertain due to the scant direct evidence on the mechanisms that account for performance gaps between conventionally owned firms and worker coops (Arando et al., 2019). This lack of data and knowledge is a significant barrier for policy makers, entrepreneurs and communities who want to use the worker coop model.

14 Negative Stigma. The belief or explanation as to why worker coops are not as numerous because they are not as efficient as traditional capitalist enterprises is another barrier. Some studies have sought to determine the validity of this negative viewpoint of worker coops by analyzing cities that are supporting locally rooted and anchored economic development. In the city of San

Francisco, for example, it was found that money spent on local bookstores created about 45% more economic activity and about 40% more local wages than investing the same amount of money in chain bookstores (Rogers, 2013). One area where worker coops are not as efficient as traditional capitalist firms, which they are proud of, is in extracting community wealth and transferring that wealth out of the community. Keeping the economy local conforms to the worker coop sustainability principle which is meant to help maintain and or restore the community in which the firm is located.

Efficiency Concerns. Another case study on three types of business models was done that compared compare their efficiency. These businesses ranged from worker coops, where most if not all employees were part owners, limited cooperatives, where only some of the employees are part owners, and conventional stores where employee ownership is zero. All of these are in the supermarkets and hypermarkets, which are superstores that combine supermarkets with department stores. One result found was that a small subgroup of hypermarkets that are worker coops greatly outperformed conventional firms in having significantly faster sales growth

(Arando, Gago, Jones & Kato, 2015). However, for supermarkets, there was no significant performance among these three types of business models. Sustainability, as previously mentioned, is a fundamental worker coop principle.

Ease of Transporting or Replicating. The ease of transporting or replicating the success of a particular worker coop from one community to another has also been cited as another barrier to

15 promoting the worker coop model. Cooperativization is another term used when discussing the replicability or diffusion of the worker coop model (Bretos et al., 2019). Replicability is exactly what the Evergreen Cooperative Corporation set out to create when it first started in Cleveland,

Ohio shortly after the 2008 global financial crisis. Evergreen is a network of worker-owned cooperatives meant to be replicable in any city and state offering sustainable greenhouse foods

(Rowe, Peredo, Sullivan & Restakis, 2017). An extensive study on Evergreen was done and the primary finding stated that the Evergreen model might not be replicable because its development depended heavily on contextual factors. Evergreen, for instance, was gifted millions of dollars to help it start up (Rowe, Peredo, Sullivan & Restakis, 2017). This was done because banks hesitated in giving Evergreen loans and worker coop public policy was inadequate.

Corporate Competition. Agricultural producers in France, Hungary and Canada formed cooperatives also had similar contextual challenges. Challenges agricultural cooperatives faced here were the industrialization of agriculture, shrinking natural resources and competition from sizable firms (Kispál-Vitai, Regnard, Kovesi & Guillotte, 2019). Similarly, Evergreen’s greenhouse agricultural foods sector needed a three million dollar donation to start up. The lack of replicability here is not due to an inherent flaw within the worker coop model. The survivability and sustainability of worker coops were compared with conventional firms in a long panel of Uruguayan firms. Results showed that worker coops had a 29% lower hazard rate, which means that coops have a longer survival time than conventional firms (Burdin,

2014). Worker coops prove they are sustainable if 29% of them remain in business longer than conventional firms. However, corporate farming is a considerable challenge due to its large-scale agriculture that makes it difficult for agricultural worker coops to compete.

16 Little to No Supporting Public Policy. Existing public policy or a lack of it undoubtedly is another key determinant for worker coop creation. Literature and research on the obstacles and constraints worker coops face are mostly in agreement in their results that a lack of adequate policies and legislation disadvantage coops in competing with traditional capitalist enterprises

(Adeler, 2014). Policy here is defined as decisions made in a transparent and accountable manner that result in actions or plans to facilitate worker coop creation (Saleh & Hamzah, 2017). This study focuses on factors that facilitate and hinder the development of RE coops. A study regarding wind power cooperatives in Denmark, Germany, Belgium and the UK analyzed the reasons for the development of this energy community. The conclusion demonstrated that a hostile environment, specifically externally imposed regulatory changes, for coops resulted in coordinated actions amongst these RE coops (Bauwens, Gotchev & Holstenkamp, 2016).

Denmark, Germany, Belgium and the UK existing public policy on worker coops financing proved to be the most important factor that enabled the establishment of many new energy coops

(Wierling et al., 2018). Results also showed that removing financial incentives and other support schemes resulted in a dramatic downturn in the creation of new energy coops across all countries. This illustrates how public policy can increase the obstacles, deliberately or not, that worker coops face.

Education. Education is another challenge for worker co-ops. In Hungary, for example, the word cooperative was associated with oppression and enforced joint work during the years of communist central planning (Kispál-Vitai, Regnard, Kovesi & Guillotte, 2019). Education, in some European countries, is needed to help destigmatize and disassociate the word cooperative from the Soviet Union’s version of this. Worker coops, solidarity and cooperation are not part of

17 what is taught in mainstream economics (Miller, 2010). This illustrates one way how education needs to be changed to remove obstacles to worker coop development.

Unfamiliarity with the Worker Coop Business Model. A lack of knowledge about the worker coop model by current business owners is another barrier to worker coop development. Since mainstream economics does not cover alternative business models well, creating spaces that educate on worker coops is key for knowledge and skill sharing. In the US the lack of business succession plans is the main cause of preventable job loss (Rogers, 2013). Educating business owners and policy makers about the cooperative business model could help to mitigate job loss.

This is especially true since studies have found that worker coop principles have a positive influence on the performance of a business in terms of both sales and employment growth

(Guzman, Santos & Barroso, 2019). Several cities have begun providing worker co-op education to city government policy makers (Camou, 2016). This is an acknowledgment that worker coops are unfamiliar to most people and that this must change if city worker coop initiatives are going to succeed.

Conversions. Conversions, which entail changing existing traditional investor-owned and conventionally owned firms into worker coops, has proven to be a challenge. Cultural values in the institutional environment play a significant role in helping worker coops avoid converting into traditional firms despite operational difficulties (Kispál-Vitai, Regnard, Kovesi & Guillotte,

2019). This means that despite the problems present in worker coops people do not want to change them into traditional firms. An estimated 70% of privately-owned businesses in the US will most likely change ownership in the next 10 years (Rogers, 2013). The vast majority of these businesses are traditional firms. Education about worker coops could target these owners.

18 This could potentially make millions of privately-owned traditional firms convert into worker coops. Public policy could be created to educate aging business owners on this option.

Financing. Financing can be a barrier for many type of business models but it is especially problematic for the worker coop model. Cooperatives usually use debt financing, which is easier to obtain but is more expensive than equity (Limnios, Watson, Mazzarol & Soutar, 2016).

Financing for worker coops, from 2002 to 2012, declined 10% as a percentage of all business commercial bank lending (Rogers, 2013). Banks are decreasing the number of loans, for whatever reasons, to worker coops. This is important because worker coops often find sources of funding harder to secure because the coop structure makes external profit-driven investment impossible (Miller, 2010). Banks are often hesitant to lend to worker-owned businesses and in particular to work cooperatives because of the lack of familiarity with those models in mainstream banking (Rogers, 2013). Credit access is significant because small businesses mostly rely on bank loans to start up or survive whereas large businesses can raise money in the stock or bond market. City governments could create policy here to at minimum bridge this gap.

Some US cities representatives expressed that the lack of underwriting was the main challenge worker co-ops faced in acquiring bank loans (Camou, 2016). Australian legislation,

Cooperative Capital Unit (CCU), was designed to provide greater flexibility for worker coops to raise funds (Limnios et al., 2016). One-member-one-vote was changed to the one-share-one-vote control structure in the hopes of attracting investors. As mentioned before, debt financing is much more expensive than financing with equity.

Governing Boards and Management. Research on why worker coops in some countries fail seeks to determine if this is due to worker coop management and or their governing boards. One study analyzed the nature of governance practices of coops in Malaysia which has a huge

19 disparity between successful and less successful coops. Results indicated that governing board incompetency was the reason for inefficiency and why many coops failed (Saleh & Hamzah,

2017). As previously stated, one of the coop ideals is democratic member control. Board appointments based on member votes often get unqualified directors being appointed because of a lack of worker training and education (Baskaran, 2015). Training and education are needed because most workers come from an employment situation where they executed simple routine jobs. In worker coops, employees have to manage a business collaboratively and be invested in the continued growth of the business. This can result in an inability of the board to serve the members and the local community interests (Baskaran, 2015). Whether the inability to appoint qualified board members was due to a member’s character or ability or to other outside factors was not determined in this study (Saleh & Hamzah, 2017). However, appointing unqualified board members is most likely due to a combination of outside factors and to a member’s character or ability.

Limitations

Existing research on why the multinational expansion of worker coops has failed to replicate worker coops that adhere to their key principles is overall limited (Arando et al., 2019).

Some studies claim that the worker coop model itself is the main reason for the difficulty in replicating itself while other studies find that institutional differences at the regulatory level between the worker coop country of origin and the subsidiary’s country of origin are the main obstacle (Bretos, Errasti & Marcuello, 2019). Other literature gaps detected were tax breaks and the benefit from the ease of financing that traditional firms get compared to worker coops

(Limnios, Watson, Mazzarol & Soutar, 2016). Learning more about the difficulties that worker coops go through in attaining bank loans is critical to understanding why worker coops are

20 underrepresented. The reasons why banks do not usually give loans to worker coops, whether it be due to unfamiliarity with the business model or other reasons, need to be studied further.

Literature Review Summary

As mentioned above worker coops have been compared to traditional firms. Overall, the literature is clear that the worker coops offer a legitimate alternative to the business model

(Camou, 2016). Much of the research shows that worker coops can compete with traditional firms and or surpass them (Fakhfakh et al., 2012). However, it is clear that there are many obstacles facing worker coops (Arando et al., 2019). These include unfamiliarity with the worker coop model itself as well as financing (Limnios et al., 2016). Public policy and mainstream economics mostly favor traditional firms which creates disadvantages for worker coops (Rogers,

2013). This, however, seems to be changing as entrepreneurs and policy makers are looking at alternatives for job creation in response to recent economic downturns (Kispál-Vitai et al., 2019).

An increasing number of cities and states are creating a private-public partnership approach to supplying infrastructure and public services has (Wang et al., 2017). However, there remains a lack of research on the impediments to worker coop creation in the U.S.

21 Research Question and Aim

What are the internal and external factors that impede the development of worker cooperatives in different sectors?

The purpose of this project is to explore the factors that condition the start-up of worker coops which can then be used to identify policy options that will support worker coop development in the U.S.

Reporting on the results of this study could be used by public policy makers and other individuals to create worker coops and help develop current worker coops. The end goal of the project is to identify the barriers that impede worker coop development in the US to assist policy makers in creating laws that sustain local communities by helping create and maintain good quality jobs.

22 Research Design

General Approach

The purpose of this study is to determine the obstacles worker cooperatives in different sectors face and how these determine the extent to which these affect worker coop creation and expansion. An exploratory approach is the method chosen to collect qualitative and quantitative data for this project. This method is appropriate since there is relatively little research on the external and internal factors that impede the development of worker coops in different sectors

(Silverman, 2013). This study will focus on worker coops throughout the world that are in different economic sectors. Surveys and interviews will be implemented in the method sampling.

Methods

A stratified random sample was used to divide worker coops into their specific economic sector. Five worker coops will be used for this project. One primary sector worker coop is in agriculture. Another worker coop is a brewery which is part of the manufacturing sector. The three other worker coops are in the service sector and are in retail, restaurant and medical services. This is how eligible participants will be determined for recruitment. The sample size will include one manager from each of these five worker co-ops. Managers will be selected in all five sectors because managers have more experience with worker coops. This is because managers have worked in a variety of positions inside the firm and as such may have more insight. Each manager will undergo a semi-structured interview over the phone at their convenience. Letting managers choose their interview date and time was done to allow them to collect their thoughts and take their time.

Qualitative Data Collection. Qualitative interview questions will be relatable and will allow participants to share their knowledge about what works or needs improvement in their worker

23 coops. Interview questions will be closed-ended. This will make the data retrieved more useful for researchers because it will be less difficult to interpret and analyze.

Interviewing management only was done because their position makes them more familiar with the problems worker coop models have in starting up, staying competitive and in business. Worker coop managers in different sectors will share their insight concerning the obstacles to creating and maintaining worker coops. Management have more direct experience with the strategies developed to solve their worker coop barriers and the degree to which these strategies were successful. The goal of the interviews is to allow for the inquiry on how worker coops internal processes affect their relationship with external stakeholders. See Appendix A for the type of questions asked in the interview.

Quantitative Data Collection. In addition to being interviewed, each of the five managers will be given a quantitative questionnaire that will assess the level of obstacles for maintaining their particular worker coop business. The survey questions are closed-ended. Close-ended questions, although not entirely perfect, help in assuring appropriateness by avoiding inserting biased questions. Participants will be asked about what they have seen to be obstacles for their worker coop creation and development. These particular questions were included in the questionnaire to help determine the accuracy of the findings from the sources reviewed in this literature. This questionnaire will help determine the validity of the findings cited in this project concerning worker coop external barriers. External variables mentioned in the survey include financing.

Financing is operationalized here to include bank loans, credit, investors, government grants and tax breaks. The questionnaire can also be used to determine the accuracy and extent to which internal factors act as a barrier to worker coop efficiency. Internal factors placed in the questionnaire include decision making which encompasses, member voting, management and the

24 governing board. Questionnaire data will be able to be used directly towards answering the research question which seeks to reveal the internal and external factors that impede worker coop development. See Appendix B below for the examples of survey questions asked.

25 Discussion

Limitations

Despite keeping the questions on the survey open-ended qualitative data due to its nature can become biased. Participants interviewed, since they still are managers, may provide answers that downplay problems in the internal workings of worker coops. Participates may also provide overly positive feedback about their own firm’s ability to mitigate these problems. The research for this project will not rely on evidence from existing studies, since this specific research comparing the obstacles that worker coops from different sectors face is not available, and as such will avoid creating a confirmation bias. The results here are generalizable because worker coops from various economic sectors are included in this project. However, the generalizability of these findings may be a limitation due to the low number of worker coops included in this study.

Ethical Considerations

Participation in this study is strictly voluntary. A privacy and confidentiality agreement will be provided to participants. The nature and purpose of the study will be explained. Any questions or concerns that potential participants have will be addressed before the study. At that point, each individual will decide whether he or she wants to become a participant and, if so, provide their informed consent. The researcher will make sure not to influence participants' interviews and survey responses. The researcher will also make sure to report all findings to all participants.

Expected Benefits/Contributions

The results of this type of research can be beneficial in many ways. Analyzing the answers will help determine worker coop barriers that current firms are experiencing which will

26 ultimately help to answer this project’s research question. The findings here can help future and present worker coops to navigate and mitigate the obstacles that the participants mentioned. It can help these business owners compete with traditionally owned and managed firms. This will help worker coops stay solvent and avoid having to file for bankruptcy. Successful worker coops can also help keep wages in the community, since most worker coops are small, and help create sustainable communities. Public policy makers can also benefit from learning about what inhibits worker coops from competing on an even playing field with traditional firms and as such can use this data to help promote worker coop friendly legislation that helps create living-wage jobs for their constituents.

27 Conclusion

Due to the relative rareness of worker coops in existence, a low number of these were included in this study. The generalizability of our findings is a limitation due to the small number of worker coops included in this study. In addition, due to the low number of worker coops included in this study, future research might include many more worker coops found in every sector in the US and also throughout the world. The increasing depth and length of economic downturns have generated more interest in alternative business models such as worker coops. As is sometimes the case, public policy is created in response to grassroots efforts by local communities seeking new political and economic paths and directions (Diaz-Foncea &

Marcuello, 2014). More needs to be done in the educational aspect as education can very well prove to be the key in helping worker coops proliferate. Current and future business owners, banks, investors and policy makers will not gravitate towards this business model if they are unaware of its existence or its benefits. Others, such as people who lived in the Soviet Union bloque and for who the words worker coops are associated with forced labor, need reassurance that the current worker coop structure does not include forced or free labor. Including worker coops from various sectors of the economy in this study helps to give it generalizability. Public policy has generally not helped create a strong worker coop sector. Examples of public policy that could be used to develop worker coops are favorable taxation and funding instruments. The proposed exploratory research here includes an interview and questionnaire that will be used to obtain the required data. The findings here can be used by policymakers, entrepreneurs and others to help sustain local communities by creating quality employment opportunities.

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32 Appendix A

Interview Questions

1. What is the name of your organization?

2. What is your job title?

3. What are the top 3 benefits or advantages that this worker coop has over traditional

businesses?

a. Why do you consider these the top three advantages?

b. Is there any data available to help support your claim?

4. What are the top three disadvantages that this worker coop has in comparison to

traditional businesses?

a. Why do you consider these 3 disadvantages?

b. Is there any data available to help support your claim?

5. What do you think will be the most effective way to amplify your worker coop’s

current advantages?

6. What do you think will be most effective ways to reduce the current

disadvantages for your worker coops?

7. What are the internal factors that impede the growth and profit of the worker coop that

you work in?

8. What are the external factors that impede the growth and profit of the worker coop that

you work in?

33 Appendix B

Survey Questions

Using a scale from 1 to 5, with one being the least or no challenge and five being the biggest challenge for worker coop success, please rate the following:

Circle one:

A. Financing/Bank Loans

1 2 3 4 5

B. Business Conversions

1 2 3 4 5

C. Worker Buy In/ Participation

1 2 3 4 5

D. Decision Making

1 2 3 4 5

E. Attracting Investors

1 2 3 4 5

F. Governing Board

1 2 3 4 5

G. Lack of tax incentives

1 2 3 4 5

H. Non- existent worker coop public policy

1 2 3 4 5

I. Hostile local public policy environment

34 1 2 3 4 5

J. Unfamiliarity with the worker coop model in the local community

1 2 3 4 5