Opportunities to Build Wealth through Worker Coops

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Opportunities to Build Wealth through Worker
Co-ops

• Jessica Gordon Nembhard, Ph.D.
• Center for Race and Wealth, Howard University
• CFED Assets Conference Sept 2008

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Wealth

• All assets minus all liabilities
• Net Worth
• Assets stocks, bonds, savings, business equity,
  home equity, real estate equity, retirement
  savings.
• The wealth portfolio (asset holdings) of the
  richest people is diverse, complex and wide
  ranging at least 4 different kinds of assets.
• Business equity is an important component.

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Middle Class

• Most middle class and the poor who have assets
  have wealth because they own their own home.
• Have few if any other assets.
• Housing crisis hurts these people the most.

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Lack of Wealth

• The poor consume more of income pay more for
  basics.
• Barriers to credit mortgage markets.
• Mortgage interest rates higher if have one.
• High unemployment instability.

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Asset Poverty

• Do the assets held by the household enable it to
  live at a minimum level of consumption
• for a temporary period ( 3 months) and
• with no other source of income.
• ? As serious a measure as income poverty .

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Asset Poverty Rates (2001)

• Head aged less than 25 years 72
• Nonaged Female heads 71
• with children
• Renters 64
• Blacks/Hispanics 62
• Head with less than 60
• high school degree
• Head aged 25-34 years 52

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Causes of Asset Poverty

• Policy discrimination and failed policies
• Economic and racial discrimination
• Financial behavior

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Policy Discrimination

• History of asset policy and housing
  discrimination
• Asset stripping
• Redlining
• Predatory lending
• Supports for rich and corporate.

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Choices

• Intervene at the cause
• Change policies anti-discrimination, economic
  rights, financial independence
• Change behaviors such as consumption and savings.

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Behavior

• Focus has been on changing behavior
• Assume the poor consume too much and save too
  little.

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Behavioral Interventions

• Have a role and some success
• Savings programs IDA accounts
• Financial literacy
• Home ownership programs

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Limitations

• Presume deficit model
• Ignore existing assets of low- income people
  nontraditional resources.
• Dont help leverage resources.
• Results very micro incremental change, small
  impact, one minor asset acquired.
• Ignore policy and discrimination.

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Savings/Consumption

• Research suggests low income and people of color
  can not limit consumption any more than already
  do.
• rising costs of basic necessities, and stagnating
  wages and income transfers
• Savings rate essentially equal when control for
  income.

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Income

• Need family friendly wages, living wages,
  benefits, stable income.
• Enhanced income and benefits can contribute to
  wealth accumulation
• Increase stability ability to save
• Increase disposable income for patient capital
  (to take advantage of investment opportunities).

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Wealth Solutions?

• Realistically first help low-income people gain
  income and acquire an asset.
• But, if ultimate aim is wealth accumulation and
  the elimination of asset poverty, a savings
  account or two will not be enough.
• We need strategies to help low-income families
  own, or at least benefit from, a variety of
  assets portfolio span.

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Collective Action

• Limitations of what individ-uals, families, govt
  can do.
• Use community-based development and supports
  (public private).
• Collective action at the grass-roots - and
  perseverance.

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Alternative Strategy

• Cooperative business development
• Community ownership
• Community-based asset building

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Worker Ownership and Community Entrepreneurship

• Municipal Ownership
• Community LLCs
• ESOPs
• Employee Owned LLCs
• Worker Cooperatives

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Worker Co-ops in the USA

• Estimate about 300 worker co-ops
• Broad range of sectors
• Majority employ small numbers of workers
• Emerging infrastructure of regional groups,
  federation and networks.
• Rely on 15 nonprofit support organizations

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Sectors

• Almost any including
• Food processing and food retail stores and
  restaurants
• Manufacturing
• Information technology
• Childcare, healthcare
• Staffing services
• bookstores, copy centers and printing presses.

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Co-op Advantages

• Particularly as strategies to save costs, provide
  quality goods and services, increase income,
  combat racial discrimination, increase economic
  stability and self-sufficiency, and build assets.
• Pool resources, democratic governance, double or
  triple bottom line designed for use.

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Why Coops/Worker Ownership?

• Cooperative ownership helps address market
  failures, underdevelopment and economic isolation
  and marginality.
• Co-ops anchor the local economy.
• Lead their industries in providing living wages,
  and often health, vacation and retirement
  benefits.

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Re-circulation

• Local wages stay in community,
• Use of local suppliers (buying local and the
  local suppliers activity stay in community),
• Surplus returned to members,
• Equity belongs to members,
• Direct dollars to community and to community
  development.

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Worker Co-op Outcomes

• Worker-owned cooperatives create assets- own
  business.
• Worker Co-ops increase
• production and productivity,
• flexibility and innovation
• self-management and labor- management
  inter-cooperation.

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Returns to Ownership

• Co-ops and employee-owned businesses provide
  dividends and financial returns .
• The employee ownership index outperformed the
  overall stock market during 1997 and since has
  tended to converge toward the broad stock market
  indicators.

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Returns to ESOP Ownership

• ESOP retirement savings are higher than
  non-employee-owned companies
• Massachusetts ESOP study
• Per participant retirement savings of 39,895
• 12 of ESOPs have average participant accounts
  worth over 100,000.

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ESOP Returns

• Washington State ESOPS
• Higher wages and significantly higher retirement
  wealth than similar non-ESOP firms
• Average per employee account worth 24,260 (1995)
  compared with 12,735

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Co-op Member Investment/Assets

• Equity share
• Patronage refund
• Allocated and unallocated resources
• Revolving payment system
• Minimum vestige

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AG Co-ops Returns

• U.S. Ag Co-ops have higher average payout rate
  to members than shareholder dividends from public
  agribusiness corporations.
• U.S. Farmers Cooperatives
• Total member equity at 9.9 billion in 1998
• Member accounts worth 1.3 billion.

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Dairy Co-op Returns

• U.S. dairy cooperatives paid 14.3 of equity in
  total member patronage dividends in 1997- better
  than the long-term rate of return on publically
  traded equities in US.

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Credit Union Savings

• Modest savings can be enabled in low income
  households
• Credit unions are growing, so the potential for
  increasing savings and investment, and providing
  financial services to low income communities is
  growing.
• Can compete with predatory lenders.

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FSC Credit Unions

• FSC/LAF Community Development Credit Unions
• Assets have been growing, increased to approx
  3,780/member in 2005
• Loans are growing, total value of loans in 2005
  was 205 million.
• Dont have dividend figures but shares per member
  increased to 3,132 in 2005 (up from 2,000).

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Worker Co-op Returns

• Cooperative Home Care Associates in NYC (1987-
  present)
• pays annual dividends often at 25 of initial
  equity investment
• leads the industry in above average wages,
  benefits, career ladder, leadership training,
  advocacy, and low turnover.

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CHCA

• Own a share of a thriving business.
• Currently over 1000 employees.
• More than 700 of them are owners.
• Largest worker cooperative in the U.S. but not
  unique in terms of returns.

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SSC Employment Agency

• A worker-owned co-op temporary hospitality
  services agency in Baltimore, MD sponsored by
  Baltimore BUILD in 1997.
• In 2000, the agency placed 260 employees in
  hospitality jobs.
• In March 2001 there were seventeen worker-owners
  who elected the companys board of directors and
  received dividends.

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More Examples

• Many smaller worker cooperatives also provide
  significant dividends on shares and democratic
  control of a growing asset.
• Worker co-ops and employee ownership are a
  growing movement in the US and around the world.

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Co-op Development Support Organizations (target
specific sectors)

• Arizmendi Development Support
  Cooperative/Center for Democratic Solutions
• Childspace Cooperative Development Inc.
• Cooperative Development Institute
• The ICA Group
• Northwest Cooperative Development Center
• Ohio Employee Ownership Center

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Development Orgs. contd

• Paraprofessional Healthcare Institute
• Rocky Mountain Farmers Union Cooperative
  Development Center
• Southern Appalachian Center for Cooperative
  Ownership (SACCO)
• Vermont Employee Ownership Center
• WAGES

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Worker Co-op General Supp.

• USFWC
• Regional worker co-op organizations ECWD,
  Western, NOBAWC
• Cooperation Works!
• National Cooperative Business Association, NCB

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USFWC

• National grassroots membership organization of
  and for worker cooperatives, other democratic
  workplaces, and the organizations which support
  the growth and continued development of worker
  cooperatives.
• Founded in 2004.
• 57 organizational members by mid-2008.

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Make Connections

• Need more connection with urban planners, unions,
  elected officials and asset community.
• Need more connections with funders and funding
  sources.
• Need policy support

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Significant for Low-Income Families

• All these elements of cooperative and joint
  ownership are especially important to low income,
  low resource, and under served communities.
• They help provide control over economic
  resources, activities, assets and productive
  capacities and increased income and wealth.

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Worker Co-op Benefits

• Control over income
• Control over surplus present assets and
  retirement
• Control over work rules
• Leverage co-op corporate assets
• Living wages, benefits
• J ob ladder mobility
• Experience human and social capital increase
• Benefits to families community.