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 By Rogelio Garcia December 2020 Copyright by Rogelio Garcia 2020 ii The graduate project of Rogelio Garcia is approved: ____________________________________ __________________ Dr. Elizabeth Trebow, PhD Date ____________________________________ __________________ Dr. Ariane David, PhD Date ____________________________________ __________________ Dr. Anaïs Valiquette L’Heureux, PhD, Chair Date California State University, Northridge iii Table of Contents Copyright Page ii 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 By 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. 4 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.