Thinking globally, acting locally: 
Subnational strategies to promote employee ownership

 

 

 

 

 

 


John Logue

Ohio Employee Ownership Center

Department of Political Science

Kent State University

 

 

 

 

 

 

 

Prepared for presentation at the Capital Ownership Group conference, “Fix Globalization:  Make It More Inclusive, Democratic, Accountable and Sustainable,”

Washington D. C., October 9-11, 2002

 

 

 

This is the current draft of Chapter 2 of the manuscript Ownership for All: The High Road to Globalization.  The list of “works cited” may be requested from the author at jlogue@kent.edu.

 

Comments, criticism, and suggestions for revision are timely and much appreciated. 


 

Broadening ownership is a global issue, a national issue, and a local issue in that order of priority.  If we are serious about addressing it, however, it is more useful to reverse that order, to begin where we live and work.  Not only does this choice have intuitive appeal to those who seek practical choices for actions within their own scope of influence. There are at least five compelling reasons why we should be concerned with encouraging employee ownership at the subnational level: at the level of the state, the province, the region, the municipality, or other subnational governmental and nongovernmental units, including ones that cut across governmental geographic units. 

 

The first is that in many governmental systems, particularly federal systems, legislative measures beneath the national level may be effective in promoting broadened capital ownership.  In many federal systems, the writ of the federal governmental does not extend beyond broad national agenda items; state and local legislation speaks to the local economic development questions.  Moreover, policy experimentation is typically local, and successful provincial or local innovations frequently become models for national policy.

 

Second, in larger nation states, be they federal or unitary in structure, the national government is not a very effective provider of technical assistance for companies, employee groups, retiring owners, unions, or community economic development groups.  Subnational provision of technical assistance through state, provincial, or municipal programs, or through non-profit organizations and industrial associations is far more efficient and appropriate. 

 

Third, employee ownership is, in its nature, a strategy for anchoring capital and jobs in the areas where employee owners live. Its benefits are local. For example, its productivity-enhancing effects can “help to narrow the divide between those who favor and those who fear more growth in Hawaii by slowing workforce/population growth in future economic expansions which, in turn, could reduce the need for wage cuts and lay-offs in future recessions” (Tom Brandt, 4/4/2000; see also his “Impossible Dream for Hawaii's Future?” 9/10/99).[1]  This local or regional strategy is best implemented through subnational action. 

 

            Fourth, employee ownership is intrinsically a micro-economic strategy, implemented at the level of the firm.  Employee-owned companies can thrive by using collaborative networks, training cooperatives, establishing employee-owned supplier networks, and other strategies for community involvement.  The substantial multiplier effect that employee-owned companies can have in spreading employee ownership and increasing community economic activity has the greatest impact at the state or provincial and local levels. 

  

Fifth, with economic globalization, the nation state gradually ceases to be the appropriate unit for economic policy, and the traditional national economic management tools -- whether fiscal, monetary, or exchange rate policies, capital transfer restrictions, domestic content, requiring a controlling domestic ownership stake, domestic preference in the award of public contracts, etc. -- cease to be effective or are struck down by international trade rules.  In this environment, employee ownership is a particularly attractive alternative, especially for high wage areas.

 

Consequently this chapter will look at employee ownership at the subnational level as distinct from the promotion of employee ownership nationally or transnationally.   We will look at what subnational actors -- both public and private sector -- can do to promote employee ownership through (1) state or provincial legislation, (2) technical assistance, (3) local actions by public and private sector actors, including employee-owned companies, (4) investment funds, and (5) company networks.

 

            Participants in Capital Ownership Group on-line “eosubnat” discussion (http://cog.kent.edu) that informs this chapter emphasized two major goals with their proposals and comments: (1) broadening ownership of productive assets through increasing the rate of formation of employee-owned firms, and (2) deepening existing (or future) employee ownership through encouraging greater employee participation.  Those goals shape this chapter.

 

 

1. Subnational public policy

 

Subnational political units can act to encourage employee ownership within their jurisdictions.  To date, that seems to have been done primarily in Canada, Italy, Spain, and the United States. But there is no reason why similar measures cannot be undertaken in other federal systems and in unitary political systems that give latitude to subnational governmental bodies in economic development.  In principle such measures can be implemented by Russian oblasts, Australian states, Chinese provinces, German Länder, and other provincial governments, by cities and municipalities, and by any of hundreds of thousands of other subnational political jurisdictions.

 

            Indeed, as nation states have gradually lost their capacity to make and implement national economic policies in the face of increasing economic globalization, subnational policies may become increasingly appealing.

 

State and provincial legislation

 

Employee ownership appeared first on the state policy agenda in the United States as Congress passed the Employee Retirement Income Security Act (ERISA) in 1974 that legitimized the Employee Stock Ownership Plan (ESOP) as a pension plan, and is most developed there. In all, twenty-eight states have passed some sort of legislation encouraging employee ownership. (For a comprehensive account of state legislation, see Logue and Grummel 2000.)  Their measures run the gamut from policy declarations to substantial financial commitments.  They include:

 

·         Policy declarations endorsing employee ownership

·         Publicity for employee ownership including workshops, pamphlets, etc.

·         Tax credits

·         Exemption of ESOPs from state securities regulations

·         Explicit legal recognition of workers cooperatives

·         Loan guarantees

·         Interest rate subsidies

·         Funding for or the direct provision of technical assistance

·         State employee ownership offices or programs

·         Use of employee ownership in privatization of state services

 

The aims of state employee ownership legislation mirror the context of the times. Initial state legislation, enacted in Minnesota and Michigan in 1974, provided both philosophical and economic justifications for supporting employee ownership.  Minnesota declared ESOPs to benefit the people of Minnesota by (1) renewing a sense of human worth, (2) recognizing the interdependency of human effort, (3) providing direct economic advantage, (4) reducing differences in the interests of labor and capital, and (5) relieving a primary cause of social tension.  Michigan promoted employee ownership as part of revitalizing local economies to prevent unemployment.

 

The big push for state legislation came between 1979 and the end of the 1980s as the one-two punch of the recession of 1979-80 and the overvalued dollar in the middle of the decade sent American manufacturing into a long-term crisis. While no more than two or three percent of employee-owned companies have been set up to avert job loss, state legislation in this period focused on employee ownership as a job retention strategy.  Between 1979 and 1990, twenty-three states passed legislation encouraging employee ownership in a variety of ways.  These included every state in the industrial heartland from Massachusetts and Connecticut through Illinois and Wisconsin as well as on the West Coast. In the same time period, a major push for legal recognition of worker cooperatives put such legislation on the books in twelve states, starting with Massachusetts in 1982.

 

By contrast in the prosperous 1990s, half a dozen states let existing employee-ownership legislation lapse, and new state legislation focused primarily on employee ownership in privatization (Virginia 1995; North Carolina 1998).  Only two states (Texas 1991; Delaware 1996) added legal recognition of worker cooperatives to their statute books.  Maine, however, broke new ground. It followed 1997 legislation driven by job retention interest with a 2000 commission to undertake a comprehensive study of ownership patterns in the state. The commission was charged “with documenting current patterns of ownership of Maine businesses, the characteristics of those businesses (size, number and quality of jobs), and the impacts of changes of ownership on the state and local economies, and civic and environmental accountability,” and was also to look at policy options for broadening ownership through employee, consumer and community forms of ownership in firms operating in the state.  An area of particular interest was “small, Maine-owned growth companies, particularly technology firms, and their need for large infusions of capital as they grow: how many are bought out, do they continue to operate in Maine, does their growth take place in Maine?” (Carla Dickstein, 4/4/2000; see also her discussion of 4/5/2000 and 4/7/2000 and “LR: 3751: An Act To Broaden Business Ownership in Maine” in the COG library). While Maine’s ownership commission did not receive adequate funding to accomplish its mission, its focus was correct:  to understand more fully the relationship of ownership patterns to economic and social performance.

 

A number of other interesting initiatives were proposed in the discussion.  These include:

 

·         States can encourage electrical consumer co-ops in electricity deregulation.

 

State and local privatization

 

When the hegemony of neo-liberal ideology reached the local level in the 1990s, subnational governmental units joined nation states in divesting themselves of ownership of public utilities and services, from hospitals through water works.  So far privatization of municipal and state enterprises has represented a major missed opportunity to broaden ownership in the West.  In general, privatization has occurred through sale of locally owned public enterprises to conventionally owned corporations, not to employees, with revenues flowing into general public coffers for current spending, rather than into trusts or other funds which provide a lasting benefit for citizens. 

 

In effect, the public sector has liquidated long-term assets to finance current consumption.  While this procedure has been justified by the ideological assumption that the market is always superior to public provision of goods and services, in fact much of the political motivation for local privatization has been covering revenue shortfalls or paying for tax cuts, usually for the well to do, quickly consuming the value of public assets.  At least in the United States, this has been “free” funding for the governmental unit, because public sector accounting practices do not provide balance sheets to citizens charting asset liquidations.

 

Given the fact that these assets were typically built through public effort, achieving some public purpose (beyond replacing tax revenues short term) would seem desirable.  The recent Virginia and North Carolina employee ownership legislation considers sale to employees as a means of privatization. Russian and Eastern European privatization at the local level has often also given preference to employees. As is clear from Dan Bell’s chapter on employee ownership in privatization, one primary motivation for an employee share has been getting public employee unions’ acquiescence in privatization.  However, one can conceive of a privatization policy designed to create lasting employee ownership of privatized assets.

 

            A second form of state and local privatization has been contracting out to private firms public services from cafeterias to school buses.  This has rarely involved giving the employees an opportunity to bid for the work, giving them no option but to wait helplessly to see whether the winning bidder will choose to employ them.

 

One transitional strategy in both cases could be to create partial employee ownership of the public business or service to be privatized while the service is still in the public sector.  This would create an enterprise jointly owned by the public sector and by the employees.  (In effect that was the situation with Conrail, the Federal reconstruction of the Eastern freight railroads: the employees owned 15 percent and the government the remaining 85 percent.)  The process could begin with the agency to be privatized paying employees a small capital wage in stock.  Paying dividends on this stock (assuming profitability of the agency) could underpin what otherwise would be regarded as purely theoretical ownership rights.  A gradual privatization strategy of this sort would be less disruptive, especially to current employees who could bargain with potential business partners as co-owners, than a sale or contracting out to outside owners.

 

Distribution of subnational public ownership rights to citizens

 

An alternative to privatization is to unbundle public ownership rights and vest a portion of them in citizens or employees while retaining legal ownership in the hands of the governmental unit.

 

One fascinating case where this has been done is the Alaska Permanent Fund which shares public ownership rights of subsoil resources (in this case, oil) with partial financial ownership rights for citizens. (This is arguably a real world example of John Roemer’s coupon socialism model; see Roemer 1993.) Since 1982, a portion of state oil royalties have been distributed to every man, woman, and child resident in Alaska for all of the previous year.  Every resident who qualifies gets an equal share.  These rights are not tradable (i.e., cannot be sold), cannot be inherited, and cannot be taken with you if you move out of Alaska.  In effect, Alaska treats its residents as beneficial owners of royalty rights.  In 2000, dividend checks from the Permanent Fund were almost $2000 for each of the state’s 585,000 qualifying residents.  The state retains the formal ownership right but chooses to pass-through the economic benefit to its citizens.

 

It is not difficult to imagine a similar treatment for other profitable public ownership rights at the state or local levels when those streams of income are sufficient to be divided.  Public income from royalties, easement and concession income, fees for private use of public property, and the like are often consigned to general revenues and not as jealously protected as they might be if citizens derived a more direct benefit from public ownership.  In the case of publicly owned production or service facilities, such as municipal electricity generation or public parking garages which sell their products and services directly, ownership might be split between the public sector and employees.  Of course, most of these public ownership income rights are already committed to other worthy public ends, especially public education, as is the case for Texas oil royalties and for most state lottery profits.

 

 

2.  Providing technical assistance

 

One promising mechanism for encouraging employee ownership at the subnational level is the establishment of organizations which provide information, technical assistance, training, and the like for employees seeking to purchase companies or to establish cooperatives.  This can be done by governmental units (as has been done in several American states), by not-for-profit organizations (again there are several American examples), by unions, by labor-sponsored investment funds, or, conceivably, by for-profit groups.

 

State employee ownership programs

 

During the latter half of the 1980s and early 1990s, seven state employee ownership programs (Hawaii, Massachusetts, Michigan, New York, Ohio, Oregon, and Washington) were established.  A quasi-state entity -- the Steel Valley Authority -- provides similar services on a regional basis in Southwest Pennsylvania.  More than anything else, these programs focused on outreach and assistance to union locals in plants facing shutdown and to retiring owners who might be interested in selling their companies to their employees. 

 

A study of three of these programs -- New York, Ohio, and Washington -- in 1990 by the National Center for Employee Ownership found all of those studied to be efficacious in increasing the rates of ESOP formation in the states in question (National Center for Employee Ownership 1990a; 1990b).

 

Practically all we know about the impact of employee ownership at the state level is a consequence of studies done by those state programs (Michigan [Michigan Center for Employee Ownership and Gainsharing, 1990], Ohio [Logue and Rogers 1989; Logue and Yates 2001], and Washington [Keogh 1988; Keogh and Kardas 1994/95; Kardas, Scharf, and Keogh 1998]) or supported by them, most notably Gorm Winther’s study of the impact of employee ownership in both New York and Washington (Winther 1995).

 

Despite the apparent success of these programs, their political support ebbed with improved economic conditions in the 1990s and party transitions in a number of state governments.  The consequence was the defunding of state employee ownership programs in Hawaii, Massachusetts, Michigan, New York, Oregon and Washington, although state personnel continued to provide support and technical assistance for employee ownership in Massachusetts, Michigan and Washington. 

 

Why were clearly successful programs dismantled?  They were largely anchored in state governments; only Ohio's and Oregon's were contracted out to, respectively, a state university and a non-profit organization.  Within government, they were susceptible to the slings and arrows of state politics, especially because several state programs had clear partisan backing at the time of their establishment. Placement outside of state government was no panacea, however: while the Ohio program has continued to grow despite reductions in state support, loss of state funding terminated the Oregon program.

 

Jim Houck, who ran the Michigan program while it existed and who continues to promote employee ownership in that state reflected that “State programs are inevitably vulnerable and most have a somewhat limited life expectance.  There is always the temptation to try something new and programs are constantly being scrapped, merged with others and replaced by the latest fad incentive.... Employee ownership must compete with a lot of other program applications in government. It must constantly evolve its marketing appeal (attracting and retaining employees is a major concern to most all states in today's economy) and specific applications if it is to retain its support by state government officials” (Houck, 3/27/2000).  Thus the new Virginia employee ownership program has a special interest in employee ownership in privatization. In Quebec, it’s fee for performance: the provincial government supports the Regional Development Cooperatives (RDCs) with payments on the basis of number of jobs created.

 

One aspect of state programs is particularly important to note: their greatest successes arose from targeting retiring owners to encourage them to sell their businesses to their employees when there was no heir eager to continue the family business. Special Federal tax incentives encourage the sale of closely held businesses to employees. For the seller, the employees constitute an often enthusiastic buyer willing to pay a market price for the company, rather than bottom fishers looking for a bargain.  For the employees, buying the company averts uncertainty and avoids the dubious aims of outside owners. 

 

A number of subnational programs have this focus.  In the early 1990s, Hawaii's employee ownership program was funded to identify owners within 5 years of retirement and to let them know about the advantages of employee ownership (Tom Brandt 4/4/2000). The New York state program actively promoted employee ownership in retiring ownership situations by funding preliminary feasibility studies.  The Ohio Employee Ownership Center, which always stressed outreach to retiring owners, has successfully run a business succession planning program to promote broader ownership in the Cleveland area since 1996. Between 1996 and spring 2001, 347 business owners from 276 area companies employing more than 25,000 participated in the program. (The rationale and design for the OEOC program can be found in Clifford and Logue 1996; the manual used in the program is Clifford and Teodosio 1999.)  Massachusetts recently piloted a state-wide succession planning program patterned on the Ohio model.

 

This retiring owner focus pays off.  The 1990 NCEO study of state employee ownership programs found, for example, that in Ohio, where the state program targeted small business, the rate of ESOP creation in closely held firms rose 45% faster than the national average (National Center for Employee Ownership 1990b, 1).

 

Have these state programs made a difference? The answer is overwhelmingly “yes!”  The question is how best to maintain them.  Michigan’s Houck argues that it is “very important to have legislation which more or less permanently supports the establishment of some sort of government response encouraging employee ownership. Ideally, that legislation will also establish a modest funding level to support staff and program initiatives. It does not have to cost a lot of money.   From $100,000 to $200,000 annually will provide a substantial administrative effort.  Legislation will help a state to override inevitable political shifts” (Houck, 3/27/2000).

                                

Non-profit employee ownership organizations

 

In addition to public sector employee ownership assistance organizations, there are a handful of regional not-for-profits which promote employee ownership in the United States.  These include the Industrial Cooperative Association (now ICA Group) in Boston, the Center for Democratic Solutions in San Francisco, and the Southern Appalachian Center for Cooperative Ownership in North Carolina.  The ESOP Association, Center for Economic and Social Justice, Foundation for Enterprise Development, and National Center for Employee Ownership promote employee ownership at the national level.

 

A number of local non-profits have been set up to encourage employee ownership.  In Ohio alone there have been three: Commonwealth in Youngstown, Worker-Owned Network in Athens (now ACENet), and Jobs for People in Cincinnati.  Generally speaking the catchment area for such local organizations is simply too small for them to focus exclusively on employee ownership and, over time, they have come to broaden their scope to include such other admirable goals as low and middle income housing development (Common Wealth) and flexible manufacturing (ACENet).

 

            The largest and by far the most successful network of non-profit promotion of employee ownership has been created by the Quebec cooperative movement.  Since 1985, it has established eleven Regional Development Cooperatives (RDCs), which currently employ 75, to establish new consumer, forestry, processing, and worker cooperatives.  The provincial government funds the RDCs on the basis of their success in job creation.  Currently the province reimburses the RDCs $2000 per job created.  The result:  “In 1999, the RDCs created more than 175 new cooperative enterprises representing more than 1500 jobs created or retained in Quebec, compared to 15 per year a decade ago” (Labelle 2000/01, 16).

 

 

Employee ownership as a tool for general economic development organizations

 

A handful of general purpose economic development organizations use employee ownership as one of their tools for economic development.  These include Coastal Enterprises, a community development corporation in Maine; Social Action for a Just Economy (SAJE), a nonprofit Hispanic community organization in Los Angeles; the Center for Community and Labor Research, a labor-related economic development and research program in Chicago; and the Steel Valley Authority, a quasi-governmental economic development agency established by a number of municipalities in the Pittsburgh area.  While their regional catchment areas are not sufficient to focus on employee ownership alone, through their economic development activities they screen enough firms that some individual firms are identified as appropriate candidates for employee ownership. 

 

Given the successful experience of these organizations in using employee ownership in their regions, it would be worthwhile to train additional economic development organization personnel in the appropriate uses of employee ownership. This could be done through the National Development Council’s professional economic development certification program or, conceivably, though a web-based, continuing education course conducted by a university.

 

 

Industrial sector strategies

 

 An alternative to a regional focus is a sectoral strategy.  Several organizations have undertaken to promote employee ownership nationally within particular economic sectors.  These include Childspace Cooperative Development, a national cooperative daycare developer; Cooperative Homecare Training Institute; the Industrial Cooperative Association's temporary service cooperative initiative; and the United Steelworkers of America’s Worker-Ownership Institute.

 

The first two of these build off the success of single cooperative enterprises.  Childspace, a parent-teacher cooperative daycare program, originated in Philadelphia where it developed an enviable track record of providing high quality daycare services in a low income community.  Cooperative Home Care Associates (CHCA) in New York is an outstanding example of how a cooperatively organized and well led company can provide higher wages and benefits as well as ownership in a low income, female service sector branch. In both cases, national replication projects have been funded by foundations.  The third, the ICA’s employee-owned temporary employment agency initiative, similarly attempts to improve the employee's economic conditions in what is usually benefit-less work while also providing ownership. To have large-scale consequence, they need linkages to other large organizations with the purchasing power to take these attractive models to scale.

 

            The Steelworkers’ Worker Ownership Institute (WOI) was designed to link existing employee-owned firms in the steel industry as well as provide advice and assistance to employees and union locals trying to buy firms in the industry.  While the WOI fell victim financially to the steel crisis – it was funded by a per capita contribution by member firms, the model is an appropriate one for other union-organized employee-ownership initiatives.

 

Private sector consultants

 

Private sector consultants – lawyers, accountants, valuators, and plan administrators – specializing in employee ownership in the United States outnumber public and non-profit staff by perhaps a 50 : 1 ratio.  They account for the rapid growth of employee ownership in the United States. Employee ownership is a substantially more lucrative area of professional endeavor in the United States than in other countries, because the most common form of employee ownership in the United States is the ESOP, a government-regulated pension plan, rather than cooperatives, which provide few fees for professionals.  Outside the US, professional consultants play a more limited role.

  

            While professional consultants have broadened employee ownership in the United States, they have done little to make it more democratic.  The tax breaks are equal for democratic and non-democratic ESOPs. However, if the evidence that more participatory ESOP companies outperform less participatory ones is in fact as compelling as it appears, one can argue that ESOP professionals have to start promoting greater participation, and may be remise as advisors should they fail to do so. Further, ESOP trustees may have a legal obligation to encourage greater employee participation in ESOP firms simply to increase the value of the stock in the plan.

 

 

Maximizing leverage

 

Since participatory ESOP firms are better performers, it makes sense to encourage participatory management.  But in the United States, Federal tax advantages are accorded to good, bad, and indifferent ESOPs alike.  In fact, in terms of the total dollars in tax expenditures, the bad and indifferent ESOPs -- those with little employee participation, communication, training, and generally lower economic performance -- account for the lion’s share of tax incentives.  An Ohio study found that the bottom two-fifths of firms in these areas accounted for just over 90 percent of the Federal tax expenditures for ESOPs in Ohio. By contrast, the roughly three-fifths of firms which provided more opportunity for employee owners in these areas got under 10 percent of the corporate tax dollars (Logue and Yates 2001, 169-70).

 

Ironically, it is the latter category of companies that outperforms conventionally owned firms, not the former.

 

Although compelling for corporations, Federal tax incentives are expensive.  They probably exceeded $2 billion annually in the 1990s.  By contrast, total public sector funding for all employee ownership support organizations did not exceed $2 million annually at any point in the 1990s – 1/10th of 1 percent of the tax expenditure.  A modest Federal program to provide matching funds for state, regional and sectoral employee ownership assistance programs would be highly cost effective in generating both more employee-owned companies and in improving their performance. Only $5 million annually in Federal matching funds – less than 3/10ths of 1% of the federal tax expenditure for ESOPs – would probably lead to the establishment of 20 to 30 state, regional and sectoral employee ownership programs that would effectively cover the country.

 

In addition to matching funds, a $1 million marketing budget annually to promote the idea of employee ownership nationally would be valuable (COG meeting, 4/2000) as would funds to establish certificate programs in managing employee-owned companies in business schools in several regions.

 

 

An extension service for employee-owned companies

 

One of the most successful American innovations in economic development is the Agricultural Extension Service.  For decades it has been transferring research results from the lab to the farm, bringing knowledge and technology to the family farm.  The Extension Service has helped keep American family farms competitive with corporate farming and promoted a continual process of intellectual renewal in agriculture.  An employee ownership extension service could be created at the state level to supply a variety of technical and organizational development assistance to smaller firms and to share best practices. Once successfully field-tested in a couple of states, an employee-ownership extension service could be spread by Federal matching funds.

 

Another prototype is the Department of Agriculture’s new Rural Cooperative Development Program, which has put cooperative development specialists into nearly all states to provide outreach and technical assistance.  Their mandate includes aiding the establishment of worker cooperatives, though little has been done in this area to date.  This program, however, has substantial potential to expand employee ownership in small towns in rural areas as a means to stabilize their economic base, and it could easily be expanded to include other forms of employee ownership.  The Department of Agriculture has also provided matching funding for some twenty state or regional cooperative development centers.  [need exact number]

 

            A third attractive model is the Province of Quebec’s Regional Development Cooperatives (RDCs), which have outreach, networking, and technical assistance roles.  Created by the cooperative movement, the RDCs are supported by the provincial government in proportion to their success in job creation. Their 75 professional staff members – in a province with a population of 7.4 million – provide a dense support network that has been striking successful in creating new cooperatives and in creating thousands of new jobs. 

 

 

3.  Action at the local level

 

Why limit ourselves to actions by state, provincial, or regional governmental entities?  Once we move out of national capital cities and turn to public and private initiatives at the state and local levels, the possibilities are legion.  Much can be done to encourage broader employee ownership by municipalities, by charitable and religious organizations, by unions and universities, and by employee-owned companies themselves.

 

Little has been done to promote employee ownership by local government outside of using local revolving loan funds to save jobs in employee buyouts.  This probably reflects a lack of imagination rather than a lack of ability.

 

Among the proposals brought forward during the COG process are

 

·         Municipal or local economic development authorities can establish industrial parks for employee-owned companies and other high performance companies so they can share a joint training facility, a cooperative day-care facility, and a co-op lunch facility.

·         Municipal governments can provide preference in purchasing for employee-owned firms as is the case in Northern Italy, aiding the growth of production cooperatives there (Carla Dickstein email to Deb Olson, 4/18/2000).

·         The Catholic hospital system can use its institutional strength to replicate New York’s Cooperative Home Care Associates, creating better jobs and ownership for home health care aides and simultaneously improving care for the homebound (currently under discussion in a number of dioceses).

·         Local churches can encourage employee ownership within their spheres of influence through their purchasing and through social justice work within their congregations.

·         Unions can negotiate contract language that gives their members the right to buy facilities put up for sale or right of first refusal at the time of such a sale.

·         European and American universities concerned with the use of sweatshop labor in garments carrying their logos could simply require their production in worker-owned businesses, a positive screen which would also be more easily enforced than the current negative screens.

Employee-owned companies can themselves become cornerstones of local employee ownership efforts by building networks of employee-owned suppliers. They can buy from neighboring employee-owned companies and encourage the development of additional employee-owned suppliers.  The last is particularly viable in the purchase of services, such as janitorial services for the company or childcare services for the employees.  Much of the low wage sector is based on underpayment of workers, failure to pay benefits, and absence of any career opportunities for low skill workers, resulting in high turnover, poor service, and frequent theft or other regrettable externalities.  Creating employee-owned suppliers of services upgrades jobs, creates a sense of ownership, and generally improves the quality of service provided to the existing employee-owned company and its employees.

 

            Well established employee-owned companies with ample management can serve as incubators for new employee-owned companies. Such firms could provide space, telephone answering, accounting, purchasing, and management support for new employee-owned firms, perhaps in return for a small ownership share. Such incubators can also provide an opportunity for entrepreneurial employee owners of the sponsoring companies to set up their own employee-owned businesses.  As these firms became better established, direct support would transition to mentoring.

Employee-owned companies can build cooperative networks. Those in the same geographic area can develop cooperative services, such as common training facilities, child care facilities, purchasing of supplies, or employee benefits like health and dental insurance. Furthermore, such joint networks can provide employment opportunities for employees of individual companies that are affected by the economic cycle in their industry.  Perhaps it is possible to develop joint seniority lists that would permit employees to move among them on occasion.  Those in the same sector can establish joint marketing and export co-ops.

            Employee-owned firms that use the hiring hall model for employment, such as construction firms, could establish multi-employer employee-ownership plans (COG meeting 4/2000).  Today most of those firms do not include their union employees in their ESOPs; a multi-employer plan could cover them.

 

Many existing employee-owned companies work with local schools to provide coop jobs, internships, job training, and apprenticeships.  Those school-to-work programs can be expanded through including ownership principles, participation, understanding business basics, and other knowledge and skills that create an interest in and basis for broader ownership in the future.  For example, Mondragon establishes student production cooperatives in its schools. Employee-owned Friesens, one of Canada’s largest book publishers, in the Mennonite community of Altona, Manitoba, provides a graphics classroom, instructor, and training for the local high school, and runs a two-week summer camp for its employees’ 10-12 year old children in which they write, set, lay out, and print a book about their families and what their parents do. 

 

Employee-owned firms need to look beyond themselves to build coalitions at the state or regional level with the traditional cooperatives (agricultural, rural electric, mutual insurance companies, credit unions, consumer co-ops, etc.).  The Cooperative Council of Quebec offers a dramatic demonstration of the possibilities that such a critical mass could create (Labelle 2000/01). Substantial synergies are possible, including developing hybrid consumer-employee cooperatives in which both agricultural producers or consumers, on the one hand, and the employees, on the other, share ownership of the firm.

 

 

4. Employee ownership funds

 

Should there be special financing institutions for employee ownership?  Opinion is divided.  Some feel that it is salutary for employee-owned firms to utilize the standard market financing sources: commercial banks, asset-based lenders, venture capital funds, and bond market.  Others argue for at least a partially separate financing stream for the employee-owned sector.

 

Over the years, a variety of public and private financing mechanisms for the employee- owned sector have been launched with mixed success.  These include

 

·         local and regional revolving loan funds;

·         a national banking institution with a preference for employee ownership, the National Cooperative Bank;

·         state loans and loan guarantees,

·         private sector venture capital funds; and

·         regional labor-sponsored venture capital funds with special preference for employee ownership, such as the Crocus Fund in the province of  Manitoba, Canada, and the proposed Framtid i Norr fund in the north of Sweden.

 

Some of these funds do only debt financing while others provide a source of friendly equity financing as well.

 

 

Revolving loan funds with preference for employee ownership