Co-Ops, Capital and Inclusivity: The Blueprint for Building an Economy for All
Democracy isn’t just for politics — it’s for the workplace, too. And it’s desperately needed in an economy that exploits the wellbeing of workers and the environment just to maximize profits, where we all end up footing the bill. That’s why Ted Howard, co-founder and President of the Democracy Collaborative, is leading a national conversation on developing a more inclusive, just and equitable economy.
In this interview with Bioneers Senior Producer Stephanie Welch, Howard discusses the power of worker cooperatives, examples of what a new economy could look like, and how society can make these practices stick.
STEPHANIE WELCH: Could you describe your work at the Democracy Collaborative?
TED HOWARD: At the Democracy Collaborative, we think of ourselves as a laboratory for the birth of a new economy in America, beyond state socialism and beyond the kind of hyper-casino capitalism we have. We’re an action-oriented think tank, so we conduct policy research, publish reports, and do a lot of work on the ground. At any one time, we’re working with 25 cities around the country.
We’re living through a time when there’s a lot of pain in our communities. At another time in our history, the Great Depression, we also went through an economic crisis and then, as now, that pain generated a number of economic experiments. Historians talk about that period when Hoover was president from the crash in October 1929 until March of 1933, before Roosevelt came in. Nothing was being done by the national government because of the ideology of the Republicans at the time, which was to let the market take care of things. So communities began experimenting because they had to. In California and Alaska, people started pooling their money to take care of seniors, because there was no safety net.
When Roosevelt came in and the politics changed, there was a new opening for new solutions. They looked at those experiments in Alaska, California and elsewhere, and they scaled it up and turned it into the Social Security system. The Tennessee Valley Authority (TVA) ame out of efforts for rural electrification. There were many other local experiments that became part of the fabric of the country at the highest level.
STEPHANIE: What are some examples of the initiatives that you and other groups have created in Cleveland?
TED: The Cleveland Foundation, the oldest community foundation in the country, came to us and said, We know you’re not from Ohio, but we like your ideas about the basis of a new economy that’s more equitable, more inclusive, more place-focused, more sustainable environmentally. Would you come here to Cleveland and help us create a strategy? They gave us a grant, and I headed up a team that worked for about six months to devise a new form of economic development strategy for Cleveland.
Most economic development in cities is a partnership between local businesses, mostly large businesses, and the city government. Usually business is the priority and the relationships tend to be based on subsidies and tax benefits as incentives to attract them from another city. The problem is that companies aren’t very loyal. When those tax breaks go away in six or seven years, they get up and move somewhere else. So economic development tends to be a zero sum game.
We at the Democracy Collaborative suggested that instead of trying to attract businesses to leave other cities and throw their people out of work, let’s leverage the resources we already have that are underutilized. Many cities have a legacy of a strong manufacturing base and what are called anchor institutions that persist over time – large hospitals, universities, cultural centers – what economists call “sticky capital.” They’re rooted in the community, while most businesses come and go.
They spend a lot of money – $3 billion in goods and services in just three of these institutions. Let’s work with them to drive contracts locally, put the money in the community and put people to work, create businesses that are linked to those contracts, and so forth. That became the basis of the Evergreen Cooperative Network.
STEPHANIE: What role does democracy play in the cooperative and these other initiatives?
TED: The idea of democracy in the workplace is very, very important to the future of the country. The problem is that no one’s born knowing how to be a democratic actor. We have to learn the arts of democracy. I remember when we actually taught civics in school, but that’s no longer the case and is a detriment of the country. But there are a lot of other places you can learn about democracy, or the lack of it. One of those is in the workplace.
In most companies, we tend to hang our democratic rights at the door when we punch in. We’re there for eight or nine hours and we’re working for someone else. It’s a very top-down, hierarchical system. We don’t have a stake in the company, we work for someone else and we don’t really have democratic participatory rights.
A worker cooperative is a very different kind of company. Every person who works in the company has an equal share of the company. In Cleveland, Ohio we’ve created two very large scale industrial laundries that provide goods and services to the hospitals. Every person who works in there either has one share of the company or is on a trajectory to be voted into the company and become a shareholder. This means the workers who work in the company can elect members of the board of directors. They determine who gets accepted into the company. They have access to the open-book financial management so they can see how their company is doing. They can vote themselves profit shares over time.
Another benefit is that it addresses the problem with companies leaving the city. If 50 or 100 people own the company they work in, it’s very unlikely they will get together and say, let’s send our jobs to Phoenix and cash out.
Another reason cooperatives work well is that is a good way to provide jobs for people who’ve been left out of the economy. For many people, it’s very difficult to be part of the economy – people who have been unemployed for years, or who are on public benefits, or who’ve dropped out of school in eighth grade, or a single mom, or someone who’s come out of prison – it’s very difficult for them to get into the economy, and if they can, they usually get a very minimal wage.
When we created Evergreen, our mantra was a job alone is not enough. If you’re hiring someone from a really asset-poor background, you need to not only pay them a living wage, you need to find a way to supplement their income so they can start to build their own household wealth. In a worker co-operative, outside investors aren’t siphoning off profit. The profits stay in the company and workers get bonuses. For example, the laundry workers in the Evergreen Cooperative who’ve been there the longest received a bonus this year of $5,000. In a community where the median household income is $18,500, that can be a life-changing amount of money.
STEPHANIE: How does the Evergreen Cooperative recruit their fellow employees to ensure they are reaching out to the people who can benefit most from the structure?
TED: There’s such a desperate need for work in our community. When we opened the laundry a number of years ago, we didn’t advertise, we just opened the facility. But this was one of the only new businesses that had come into the community in years. Within one month of opening, we had 500 people apply for work. They now work with a group called Towards Employment, which is a community nonprofit. Their tag line is “From Poverty to Paycheck.” It trains workers from the local neighborhoods to be ready for this experience, and we’ve had a very, very good experience with them.
STEPHANIE: What would you want people to most understand about cooperatives?
TED: One thing people often assume is, “well, these worker co-ops are kind of nice, almost cute. But they can never really get to scale.” So one thing I’d want people to know is that cooperative forms can really move to substantial scale.
The best example is the Mondragon Cooperative in Spain, in the Basque country. They built their first co-op in the 1950s with five people in it. Today, they are a network of over 100 worker cooperative businesses producing over 20 billion euros in yearly revenue, employing about 75,000 worker owners and members of the co-op. They’re the seventh largest corporation of Spain, with the third largest bank that they own. So it’s really moved to scale.
In the United States, we’re not as big in this sector as many other countries. The largest co-op in the country is Cooperative Home Care Associates in the Bronx. They’re 30 years old and they have about 2500 workers, so it’s a substantial company.
The other thing I’d want people to know is the principle is very important: In a country like the United States, the primary thing that drives our decision-making in our form of capitalism is the rights of capital. By capital I mean the money that investors own in a company. Labor’s in second place, and is simply considered a cost on the balance sheet.
When our economy gets into trouble, like a recession, or an individual company gets in trouble, we cut labor costs because the value and priority is to maximize the profits for shareholders. Get rid of as much labor as possible to preserve this kind of “divine right” of capital.
In a worker cooperative, labor is in first place over capital. It’s not that the capital’s not important, but the rights of labor and keeping people employed are what drive decision-making. So in Mondragon, when they have a problem in a company and need to close it, they don’t just let everybody go, they absorb the workers into more successful cooperatives in the network. The point is to keep people employed, not maximize the value to investors. So it’s a very, very different principle.
That’s one of the principles we talk about in the Democracy Collaborative, we talk about a “democratic economy”. Labor is in first place in our decision-making over the rights of capital, and broadening ownership is inherently more democratic and stabilizing.
We’ve been sold this mythology about business: large corporations are more efficient; if people work in co-operatives, they’ll lose their incentive; what really makes the economy run is entrepreneurship; if we just grow the economy, the benefits will trickle down to those who are most in need.
In fact, the data show over and over again that alternative forms of businesses, more democratic enterprises, are actually more stable, more productive, fail at a much lesser rate than the other kinds of companies. If you look at the continuum of what we call “community wealth building institutions and mechanisms”, we have co-ops, employee stock ownership plans, land trusts.
One example is the subprime mortgage crisis. Cleveland was one of the cities that was targeted. There are still 15,000 abandoned houses that need to be taken down because people were sold these bogus mortgages and they went under. During the crisis, the default rate in community land trusts where the land is owned by a public-benefitting corporation was less than 1/10th what it was for traditional bank finance mortgages.
In terms of employee ownership, there’s a great deal of academic study of co-ops, especially employee stock ownership plans. During the recession, employee-owned companies shed labor at far less than 1/10th of what the corporate sector did because of their commitment to keep people working. The buildup of retirement accounts in an employee-owned company compared to a similar company in the same sector but traditionally owned is—for the workers is more than 2-and-a-half to one, the workers’ retirement accounts are that much bigger. Of course, there’s more satisfaction, there’s more productivity.
STEPHANIE: What is the Healthcare Anchor Network?
TED: Well, we don’t have a national health service in this country. What we have is a system that consumes close to 20% of our gross domestic product, and costs continue to escalate, but there’s a very interesting development that my organization’s been highly involved in.
It wasn’t long ago when hospitals and health systems all over the country didn’t take their local communities into account at all. Their business model was to passively receive sick people and try to make them better, but it’s much more advantageous all the way around if they create healthier populations that don’t need to use their services all the time. This is called intervening in the social determinants of health.
It’s often said that your zip code has a greater impact on your health than your genetic code. Only about 20% of what makes up the health of a community in our country is related to the quality and access of healthcare. The rest is the social determinants of health: income levels, housing, the local environment. In Cleveland, Glenville is a neighborhood I lived in until recently. It is an African-American neighborhood, mostly low-income, and the average life expectancy for a man there is 68 years. Eight miles due east in a white suburb, the average life expectancy for a man there is in the mid-80s. That’s a very significant difference in life expectancy.
We realized a few years ago that a number of health systems started to get serious about this and wanted to change their business model to benefit their community. We created something called the Healthcare Anchor Network. It has 45 of the largest health systems in the country involved in it. Together they have about 1.2 million employees, $50 billion of annual purchasing, $150 billion of endowments and so forth. We work with them to localize all that economic activity to create healthier communities so that people are healthier. They’re creating local jobs like in Evergreen where the hospitals are customers of the cooperative businesses, investing in housing in their communities, creating low-interest loan funds for local businesses owned by women and minorities so they can expand and hire more people, so it’s really a way to take these anchor institution assets and deploy them for the benefit of the community.
This whole idea is growing very rapidly and is playing out in communities all over the country. We have 45 systems in the Healthcare Anchor Network, and they represent more than 1/10th of all the hospitals in the country. There are about 5,000 hospitals in total nationally, and they represent 600 of them. Similarly, we have a network of urban-based universities that are doing the same kind of thing.
Ultimately we will need something beyond these individual systems doing the right thing. We actually need a national system in which they can participate, but it is night and day from what they were doing just five or six years ago.
STEPHANIE: The Democracy Collaborative was asked to participate in an experiment in Preston, England. How is that going?
TED: Preston is one of the most interesting “next system” community wealth strategies that I’ve seen and participated in. It’s a city that was poorer than Cleveland when I first visited in 2013. It was called the suicide capital of England because of the level of despair, the lack of jobs, alcoholism, and so forth.
Now, they’re leveraging all of the different assets that they have at their command – the city council, the University of Central Lancashire, the housing authorities, and so forth – and they’re moving all their contracts back into the city to bring money to the economy. So far, about $100 million of money that used to leave their system is coming back in.
They also created an incubator for new cooperative businesses that the university is helping to jumpstart so they’ll have a cooperative economy. They’re building a public bank that will be capitalized by the reserves of the city and the County of Lancashire. They’ve taken a hundred million pounds of public employee pension funds that used to go to things like hedge funds and invested it locally in Preston. So they’re building layer after layer. The end result is that in just six years, Preston was listed by PricewaterhouseCoopers as the most improved city in England in 2019.
STEPHANIE: The mythology around our hyper-capitalist economy is so strong, what will it take for these sorts of projects to get a foothold in our system in the U.S.?
TED: We need to understand that we’ve got a systemic crisis on our hands, and it requires a systemic approach. We live within a system, a political economy. In our country it’s called capitalism or some people say it’s casino capitalism or hyper capitalism, or the neo-liberal economic order. In order to bring about the kind of world we want, we need to stop thinking that it’s simply a question of who gets elected. It’s very important that we vote, and I vote every time I can, but it’s not simply a question of better policy. If we don’t start to deal with things right at the heart of the system, and change that, then we’re never going to get to where we want.
The biggest impediment we have is not the power of the large corporations that will fight to hold onto what they have. That is a problem, and there needs to be a political movement to challenge that power, but ultimately the problem is our own lack of imagination. The problems look so big, the challenges so huge, a lot of us just give into despair. Somebody said our problems are way too big to allow us to be pessimists. We’ve got to get our ambition up that a new system, a new order is possible.
On the back of the dollar bill, the founding fathers put a phrase novus ordo seclorum, which is the new order of the ages now begins. That’s what they thought America was at that time. We need to get our ambition up to something like that.
STEPH: What are the next big, bold steps that you believe could get us where we need to be?
TED: First of all, on the ground level we need to start to deploy not just cooperatives, but also land trusts, social enterprises, public banking, a whole range of initiatives that can contribute to the rebuilding of our communities.
We also need to get ready for the next big financial crisis and collapse. Economists on the right and left are all saying it’s coming. Banks are over-leveraged and bigger than ever. The last time this happened with the 2008 crisis, the Federal Reserve Bank stepped in and used quantitative easing to create three trillion dollars to bail out the banks, along with AIG, the insurance company, General Motors, and others. At that point, the American public owned these entities because they were socialized by the U.S. government. The problem is that once those companies recovered, our government gave them right back to their original owners.
What do we do the next time the banking crisis happens? Are we just going to do the same thing? Or are we going to step in and maybe take these banks into public ownership?
At the Democracy Collaborative our paper The Crisis Next Time discusses a new approach to deal with financial crises. We need to work at the grassroots level as well as the national policy level.
STEPHANIE: These are big changes that need to happen and I think it’s difficult for people to see how these massive changes can come to fruition.
TED: This is what Dr. King said about bending the arc of history toward justice. What we’re talking about is bringing the principles of democracy to the economy. We’re talking about fundamental change to our political economy and transformation in terms of who owns this economy in the largest empire, if you will, in the history of the planet. These things don’t happen fast. We’re talking about 20, 30 years of evolutionary change. Some immediate changes can be made, but we need to stay in this for the long haul.
We’ve been educated to think that there are only two choices: You either like centralized state socialism like they used to have in communist countries, or you like this hyper-capitalism dominated by giant corporations like we have. What we’re arguing is, no, no, no, there are many different ways of approaching this. Rapid changes can be made, as the case of Preston shows, like some of the things we’ve done in Cleveland show.
It will ultimately require the kind of experiments we’ve been talking about; it will require forming a new political base of power that can challenge the large concentrated corporate interests. The labor unions are down to 6% of workers, so we need a new base of collective power. We need really new, innovative outside-the-box proposals, that’s why the Green New Deal is so interesting. We need a fundamental reorientation.
So it’s a very exciting time. There are certain times when ideas really matter in the grand mix of things, and I think this is one of those times.