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Worker-owned cooperatives

What is it?

Worker-owned cooperatives (co-ops) are businesses owned and managed by employees who make decisions through democratic processes and who control the profits produced through their labor. Not all co-ops focus on racial equity, but those that do can advance racial economic inclusion by providing quality jobs and ownership opportunities to people of color. About 60 percent of new cooperatives worker-owners since 2010 are people of color. 

By putting decision-making and control back into the hands of workers, co-ops provide a model of economic democracy that is an alternative to the traditional corporation. Compared to conventional businesses in which workers are paid wages while outside investors or owners take the profits, co-ops tend to be more productive, pay better wages, offer longer-term employment that lasts through shocks to the economy, provide greater career mobility, and keep profits in the community.

In recent years, the cooperative sector in the United States has grown to an estimated 300 to 400 businesses, employing 7,000 people and generating $400 million in revenue each year. Many of these are new businesses, but others have been created by retiring business owners selling their businesses to their employees, effectively converting them into co-ops or employee stock-ownership plans (ESOPs). 

Critics caution that co-ops are difficult to scale, may lack the structure and discipline necessary to remain competitive in the market, and may underinvest in their businesses; however, securing traditional business financing seems to be a much greater challenge for new co-ops. Cities can help bridge this gap and foster cooperative ventures by streamlining the legal framework to establish them, offering grants and loans, and supporting co-op incubators.

For more resources on worker-owned cooperatives, see the Democracy at Work Institute and the Democracy Collaborative.

Who implements it?

  • Elected and appointed city officials can create funds to award grants and loans to workers wishing to form cooperatives, award grants to co-op incubators, and streamline the process for worker-owners to start businesses through one-stop-shop business centers.
     
  • Business leaders can sell businesses to their workers instead of selling to new owners or shutting their doors upon retirement.
     
  • Community-based organizations and other advocates can build public support for co-op funding, business supports, and training.

Key considerations

Successful cooperatives tend to secure early funding to support the start-up phase, as well as guidance from other cooperatives, incubators, and business owners who can help them navigate the process of establishing a workable business model. Local governments can provide critical support in this process.

Cities seeking to foster the creation of worker-owned cooperatives must consider a range of legal and logistical questions.

  • Streamlining business supports: Many cities are working to identify all of their resources and processes related to starting a business, and to streamline them into one-stop shops to facilitate the founding of new business ventures, including cooperatives.
     
  • Securing permanent funds: Given their collectivized structure, co-ops may struggle to secure traditional bank loans and business financing. Cities working to foster the development of cooperatives must consider not only how to fund their support services, but also how to facilitate business funding for prospective co-op ventures.
     
  • Selecting a co-op development partner: Co-op development centers and incubators can provide technical assistance for prospective worker-owners. Cities should develop selection processes to identify organizations that can help with education and training, and consider creating a co-op center if the existing resources are inadequate.
     
  • Creating grants and loans: Using a combination of grants and loans, cities can develop sustainable support models to bolster co-op efforts, providing critical start-up capital and guidance.  
     
  • Using conversions: Conventional businesses can be converted into cooperatives by transitioning to a worker-ownership model. This typically occurs when a business owner is retiring and sells the business to an employee collective. City leaders could survey small business owners to identify those approaching retirement and provide information and support should they choose to pursue a conversion.

Where is it working?

Efforts to foster cooperatives should ensure that workers have access to a robust set of resources, from funding to mentoring to training programs. Risks are always involved in starting a business, but transparent support from policymakers, existing cooperatives, and nonprofit organizations can help ensure the development of successful cooperatives that empower workers economicallyand socially.

  • In New York City, a coalition of community groups successfully lobbied the city council to establish a cooperative development fund to provide financial and technical assistance for new and existing co-ops. In 2014, the city council passed a budget that included $1.2 million for the fund. Over the first year of the initiative, 21 new cooperatives were launched across the city, enabling 141 workers to gain employment and business ownership. Overall, through its extensive outreach, education, and training services, the initiative reached nearly 1,300 entrepreneurs and community members. In 2015, the city council invested an additional $2.1 million to expand the initiative. As of June 2015, the Worker Cooperative Business Development Initiative (WCBDI) reported that another 19 new worker cooperatives were in the pipeline, nearly tripling the number of worker cooperatives in the city since January 2014.
     
  • The City of Madison, Wisconsin, was inspired by the success of New York City’s initiative and efforts by local organizations, and allocated a total of $5 million — $1 million per year for five years, beginning in 2016 — to fund cooperative/worker-owned business development in the city. These funds will be used to provide technical assistance and low-interest loans to support worker cooperative development, targeting low-wage workers and workers of color.