
          Starting a Worker Owned Cooperative
          By Adams, FrankFrank Adams
          Vol. 10, No. 2, 1988, pp. 20-22
          
          There are a variety of reasons for starting a worker
cooperative. They include workers' desires to own and work in a
business where human values are of equal importance to productivity
and profits, an owner's decision to retire or sell an existing
business, the threat of a plant closing, or a community's
determination to help create jobs by starting a new business. Whatever
the reasons for starting a worker cooperative, there are several steps
which can be taken to increase the probability of success.
          Most new businesses, including worker-owned cooperatives, typically
develop through four phases:
          Organizing. A three to six-month period in which the decision to
organize is made.
          Startup. A phase that usually lasts for six months in which the
basic business strategy is tested.
          Growth. A phase that may last for several years in which the
markets are expanded, management techniques and governance systems are
refined, production techniques are altered as dictated by experience,
and the workforce is expanded.
          Consolidation. The phase in which the worker-owners assess their
experience in reaching the targeted growth and develop the firm's
goals and strategies for the next three to five years.
          During the organizing phase prospective worker-owners 

must decide
whether they really want to establish a worker cooperative. If, for
whatever reason, you are thinking of forming a worker-owned,
democratically controlled business, either to produce goods or provide
services, you must ask yourselves some hard questions about your
motivation and the risks involved.
          Are your reasons for wanting to start a worker-owned business
sound? Do you and your prospective fellow owners share a common
understanding and enthusiasm for the venture? Do you have a viable
business idea or concept? Is there a market for your proposed product
or service? If so, is the market growing or shrinking?
          Are you knowledgeable about the various legal and organizational
forms which can be used to set up a democratic workplace? Is a worker
cooperative the type of business you want to set up? What about
finances? Do you have sufficient money to start or buy a business? How
much money will have to come out of your own pockets and where can you
obtain the rest?
          Worker cooperatives are for-profit businesses in which only the
firm's employees can be owners, usually after a probationary
period. Worker cooperatives are somewhat different from consumer and
agricultural producer cooperatives. Consumer cooperatives are owned
and controlled by their patrons (customers) who want to purchase high
quality groceries at reasonable prices and obtain cost savings on
other consumer goods. Producer cooperatives are primarily supply and
marketing cooperatives created by independent farmers to purchase farm
supplies or process and market their products. Neither type is owned
or controlled by its employees, and neither type sees worker ownership
and workplace democracy as its primary objectives.
          Worker cooperatives are usually started by more than one
person. The organizing group, or steering committee, understands and
accepts the basic tenets of workplace democracy:
          ~ Every worker-owner owns one membership share which entitles
him/her to vote in the election of a board of directors and to
participate in self-governance;
          ~ All worker-owners contribute both labor and capital; No one
outside the firm can be an owner. Profits earned or losses sustained
are allocated to worker-owners according to hours worked, gross pay,
or both;
          ~ Wages vary according to skill and seniority, but usually the
range between the highest and lowest paid workers and managers does
not exceed a ratio of 5:1. This fosters the well-being of the entire
group and insures that a few do not get rich in comparison with, or at
the expense of, the lower paid workers.
          Reading and agreeing with these tenets is easy, but putting them
into practice in a business is tough. The fundamentals of
worker-ownership are almost self-defining, but because most workers
have had little or no experience owning or managing their workplace,
putting these principles into practice requires experimentation,
patience, and attention to fairness.
          In order to fully understand worker cooperatives, it is necessary
to talk about the relationship of money and ownership to employees and
workers. Money is needed to organize a worker with materials and a
place to work, to meet the expenses of daily operation, and to use
when the going gets tough or business recessions occur. Whoever puts
up the money to start the business becomes an owner and holds equity
in the enterprise. These investors take the financial risks and earn
the financial rewards of entrepreneurship.
          In a traditional for-profit capitalist corporation, the degree of
control is directly related to the equity held by the individual
investor. Investors do not have to work in the business to exercise
the rights of control. Dividends on the net profits of the business
are paid out to the stockholders according to the size of their equity
investment as denominated in the number of shares they own.
          Unlike traditional capitalist corporations, worker cooperatives
give workers control of the business on a one person-one vote basis
without regard to their level of equity except for the membership fee
paid by each worker-member upon joining. The membership fee is a
capital contribution equal to the contribution of every other member,
which puts the new member at equal risk with fellow worker-owners. The
balance sheet of a worker cooperative differs in several 

ways from a
traditional firm where capital controls labor. In a pure labor-managed
cooperative only workers are shareholders, and each owns only one
share of stock. A member's one share of stock is divided into two
parts, political and economic rights, which have differing but related
functions. First, a worker-member's share of stock insures a right to
vote, certain other membership rights, and the right to a share of any
profit or loss. These constitute the political rights of
worker-ownership. Second, a share of stock assigns the net worth of
the cooperative's assets to a system of internal capital accounts. An
account is established for each member-worker. The initial balance in
these accounts is the membership or equity contribution made by each
member upon joining the cooperative. These internal accounts are the
repository of the economic rights of the worker-owners. They derive
from the contribution of labor, not the purchase of stock shares.
          The worker cooperative system of internal accounts generates
internal debt capital for expansion and modernization, creates
reserves against recessions, and provides worker-members with a share
of equity.
          It is largely through the internal, individual accounts system that
a worker cooperative raises the owner's share of risk capital to start
a business and generates the internal debt capital to run a
business. The internal accounts also help effectuate the principles of
workplace democracy.
          Another unique feature of work cooperatives is their policy of
employment security. They make every effort to keep their members
employed even during economic downturns. In a conventional capitalist
firm, workers directly involved in the production of goods and
services are assumed to be expendable. They can be hired and fired as
demand warrants. Direct labor is determined by production, which is a
function of sales and the desired level of inventory investment. If
sales decline, workers are laid off or dismissed so that inventory
does not build up too high.
          In a worker cooperative these relationships are reversed. After a
probationary period workers are either accepted into membership or
rejected from membership and terminated. Thus the amount of labor is
fixed, at least in the short run. Since the number of workers (and the
labor available) determines production, in order to match production
with sales it is necessary to adjust inventories upward or reduce
prices of products or services to maintain sales volume during
economic downturns.
          During business downturns or recessions worker cooperatives use a
variety of techniques to maintain employment levels and prevent
layoffs. Worksharing, aggressive sales efforts including reductions in
prices, and ultimately shared reductions in income, may be used as
part of the strategy of balancing the production and sales
equation.
          Placing people ahead of profits in a worker cooperative increases
the importance of the planning process and of maintaining a flexible
workforce; it also accentuates the need for good management. These are
the same employment security principles which have used so
successfully during the past two decades by a few enlightened American
firms, and by the Basque worker cooperatives in Spain.
          
            Frank Adams is author of Putting
Democracy to Work, a practical guide to worker
cooperatives.
          
        