Former President George W. Bush often advocated the development of an “Ownership Society,” for him, a restructuring of Social Security with the stock market. I have often suggested that Alabama Democrats must forcefully promote a Ownership Society itself. I am not suggesting we turn Social Security into a stock market funding scheme; we need a set of policies which rebuild wealth-producing assets for low- and middle-classes. From incentivizing lending to microbusinesses to empowering savings accounts for children, Alabama Democrats can help return economic power, entrepreneurship, and financial independence to those not deemed “too big to fail.” Why?
Washington University scholar Michael Sherraden first proposed the modern concept of “asset building,” as it is often called, in his 1991 book, Assets and the Poor. Sherraden argued that while income is necessary to escape poverty, it is not sufficient. Without assets–savings, a home, land, small business, education and skills, investments, a retirement account–it will be difficult, if not impossible, for the poor to permanently achieve financial security, especially across generations.
In addition, Sherraden argued that asset ownership–distinct from income flow–changes the way people think and behave and ultimately affects a range of social outcomes.
This month’s Fast Company magazine highlights another policy which would economically empower the working people of Alabama.
Remember Plantation Patterns, the profitable patio-furniture manufacturer in Wadley, Alabama which was shut down because of the bank failures. With active and pending work-orders, hundreds of workers were forced out of work. Instead of exclusively incentivizing international corporations to come here, imagine if Alabama also empowered workers such as those in Wadley to invest and collectively buy-out plants like Plantation Patterns. Let’s provide a framework for these potential entrepreneurs, our own people. Here is just another report from Farberware where this actually occurred.
As shown in this article, this ownership model is powerful and proven.
There are two things in which I believe strongly: that business is at the root of our economic challenges and that business is at the heart of the solution to those challenges. I don’t know whether that makes me a pessimist or an optimist–but I like to think it makes me an ideals-driven pragmatist.
That’s why I’m excited about a new way of doing business that’s not just good in theory, but has proven itself to be a workable solution in reality. It’s happening right now, right here in the United States. Business is realizing the power of placing ownership in employee hands. Instead of fixing a broken system, a few innovative communities are creating a whole new system altogether, one that‘s profitable, sustainable, people-focused, creates good jobs, and rebuilds dying communities. Say hello to Evergreen Cooperatives, the economic model of our future: the worker-owned business built upon the predictable revenue flow of place-based anchor institutions.
These models from Cleveland draw their inspiration from one of the most successful corporations in the world.
Many aspects of the Evergreen Cooperatives are modeled on the Mondragon Cooperatives, created by an activist Catholic priest in 1956 with the goal of lifting the Basque region of Spain out of the poverty it experienced in the aftermath of the Spanish Civil War. Today, Mondragon is a network of more than 120 worker-owned cooperatives generating more than $20 billion in annual revenue and employing 100,000 workers, making it Spain’s fourth largest industrial and seventh largest financial group.
Mondragon has a very unique structure which gives its wrokers a unique direct ownership interest in the company, as described here.
The basic building blocks of the MCC have been its industrial co-operatives. The industrial co-operatives are owned and operated by their workers. The workers share equally in the profits – and, on occasion, losses – of the co-operatives, and have an equal say in their governance. That they are able to do so is due to the unique structures and systems of governance and financial management which the Mondragón co-operatives have developed. In the case of governance, the workers in a co-operative have their say in the first instance through its General Assembly, where the performance of the co-operative is discussed and its policies determined. The workers also elect a Governing Council, which conducts the affairs of the co-operative between Assembly meetings, and an Audit Committee – referred to by some as the “Watchdog Committee” – which monitors the co-operative’s financial operations and its compliance with its formally established policies and procedures. Only members of the co-operative – all of them workers – are eligible to stand, and voting is on a one member/ one vote basis.
Our people will need to begin to think like owners instead of just workers which means taking responsibilities for losses, belt tightening in lean times, but also lapping up the “gravy” during prosperous times.
The Mondragon pay scheme is quite unique as well; it avoids the problems of excessive executive compensation have plagued the US. A Mondragon bank or credit union would never have an executive earning 844 to 1 more than the low-wage worker as JP Morgan.
The earnings of a Mondragón co-operative are the property of its members. In place of wages, members are paid monthly advances – referred to as anticipos – against the income their co-operative expects to receive. Two further advances required by Spanish custom are made available at Christmas and for the summer holiday period. The co-operatives observe a “principle of external solidarity”, under which no advance should exceed by more than a narrow margin the wages paid for comparable work by nearby private sector businesses. The level of each member’s advance is determined in the first instance by a labour value rating which the Social Council of the co-operative assigns to the job. Overall, incomes are kept as equal as possible. The highest advances a co-operative pays its members cannot exceed the lowest by more than eight to one. By 1990, members had had an estimated increase in their purchasing power since 1956 of around 250%.
Additionally, the Mondragon model truly builds wealth for its members:
A further share of the co-operative’s earnings is credited to the members as capital. The capital structure has been designed to produce the greatest possible consciousness on the part of the each member that he is a stake-holder in the co-operative. The identification is achieved initially by requiring as a condition of entry to the co-operative that each member should make a direct personal contribution to its capital. There is an entry fee which currently stands at about $US12,500. Payment can be made on the basis of a 25% initial contribution, followed by monthly instalments. The co-operative then establishes an individual capital account for the member, to which 70% of his initial contribution is credited. The capital accounts earn interest at an agreed rate, and are credited each year with – say – 40% of the co-operative’s surplus, apportioned among members on the basis of their salary grades and the hours worked. Members may draw on the interest accumulated in their accounts, or use the accounts as collateral for personal loans, but the principal cannot normally be touched until they resign or retire. Payouts from the capital accounts of members currently retiring in Mondragón – over and above their superannuation entitlements – are in some instances in excess of $US100,000.
Here is a video from the BBC from 1980 discussing its Mondragon’s history, model, and development
In Cleveland, in the heart of the Rust Belt, this model seems to be thriving according to Fast Magazine:
So how is this new system working? Recently, I had the opportunity to visit the first two Evergreen businesses that were launched in October 2009: the Evergreen Cooperative Laundry, a cutting-edge green business, and Ohio Cooperative Solar.
Ohio Cooperative Solar (OCS) was profitable in its first five months in operation; current annual revenue is projected to be $1.3 million. At the end of the fiscal year, a portion of profits will be allocated to each OCS employee owner’s capital account, furthering the idea of people-focused business.
The Green City Growers, a hydroponic greenhouse, expects to break ground on the construction of a four-acre greenhouse this summer, with its first crop ready for harvest in the spring of 2012. When fully operational, it will produce 5 million heads of lettuce and 300,000 pounds of herbs annually and employ between 30 to 40 workers year-round.
Listen to these accounts of the cooperative model during the recent recession:
From a standing start in 1956, the MCC has grown to the point where by mid-2008 it was the seventh largest business group in Spain. Annual sales increased between 2006 and 2007 by 12.4 per cent to some $US20 billion, and overall employment by 24 per cent, from 83,601 to 103,731. Exports accounted for 56.9 per cent of industrial co-operative sales, and were up in value by 8.6 per cent. Mondragón co-operatives now own or joint venture some 114 local and overseas subsidiaries.
Hard-hit by the economic meltdown as like other business the co-operatives now find themselves, their members are tightening their belts in a further exercise of the solidarity that has enabled them to weather previous major downturns, and achieve new heights. For example, in 2008 worker owners at the Fagor appliance co-operative elected to forego the additional four-week’s pay normally due to them over the Christmas period, and have subsequently cut their pay by eight per cent. As the MCC’s Human Resources Director, Mikel Zabala, points out, “We are private companies that work in the same market as everybody else. We are exposed to the same conditions as our competitors”.
The only way for Democrats in Alabama to recover from 2010 will be to develop and perfect a new generation of solutions and ideas for prospering Alabama which are consistent with the deepest convictions of our people. I think this can be one.