Commons or shares: the trouble with worker ownership - and the debate that followed

'Commons or shares' came out in the Spring 2020 issue of Stir to Action magazine. The critical reply from The Democracy Collaborative appeared in the Autumn 2020 issue, along with my response which develops a political view of worker co-operation.

Commons or shares: the trouble with worker ownership

The sale of US craft beer maker New Belgium Brewing to the Kirin conglomerate by its worker owners has provoked in an outbreak of soul searching among people who believe employee ownership is central to a new, more equitable economy. It has reignited discussion of the difference between common ownership worker cooperatives and shares-based models in the US, UK and Canada, and has led to new calls for legislation on ‘indivisible reserves’ for worker-owned enterprises – a proxy for common ownership.

As a national-reach business in the market for craft beer, New Belgium was a poster child for advocates of ‘inclusive capitalism’. Jennifer Briggs, its ‘VP Human Resources’ for more than ten years, says “it was the combination of the employee ownership mindset, broad-based business literacy, critical thinking and attention to building a great culture, that catapulted us to the top”.

The furore around New Belgium reveals confusion about the nature and meaning of worker ownership, even among people who think about it a lot. Among those who don’t, it looks like a religious argument about a minor difference of emphasis, concerning a small industrial sector – and who cares about workers anyway? But for new economy and worker activists, it’s important because it’s about being careful where they put their energy.

‘Ownership’, like ‘democracy’, is a word packed with conflicting interpretations, but often used as if it has universally shared meaning. The economist Elinor Ostrom articulated a view of collective management of common resources as ‘stewardship’. In the 1970s and 80s, a similar concept underpinned a wave of worker cooperative formations in the UK, as well as a new law - the Industrial Common Ownership Act of 1976. Co-ops like Suma, Calverts, Unicorn, and new worker coops in technology and other sectors, are ‘owned’ by their worker members in this collective sense of stewardship. It describes the form of corporate possession, but also extends to cultural assets such as the sense of job ownership, solidarity practice and social mission 

Typically in this type of enterprise, a worker does not need to ‘buy in’ when they join; and they receive no payout when they leave. Although there is no legal provision in for ‘indivisible reserves’ - as there is in countries with codified legal systems like France, Spain and Italy - on dissolution they must pass any residual assets to another common ownership co-op, or to a sympathetic collective body. Unlike a charity or a Community Interest Company, this ‘asset lock’ is voluntary, in the spirit of the first co-operative principle; it can be undone by a decision of a supermajority of worker members. That happens rarely. On the whole, such co-ops have an ethos of honouring the social contract between previous and present generations of worker members, by passing collective ownership of the enterprise to the next – hopefully in better shape.

Employee ownership through direct allocation of shares to individuals, or the holding of shares in a trust for employee benefit, leans into a different idea of ownership: one which is more transactional and individualised, because it implies the right of the current owner to dispose of the owned thing as they see fit, and to profit from the disposal. This is the model of New Belgium, which used an Employee Share Ownership Plan (ESOP) - a key feature of the US employee ownership system. Of course, as in any other actual example of ownership, the right of the owners of ESOP shares in New Belgium to dispose at will was hedged with internal and external regulation. In practice, as long as the firm was a profitable going concern, the ESOP built up a supercharged and ‘tax efficient’ retirement fund for employee members. The Kirin deal simply induced them to cash out early.

The handwringing over the loss of New Belgium is in some ways strange, because it’s just the latest in a string of such sales in the US and Canada. The experience in the UK is similar. Firms like John Lewis - a supertanker among the UK’S small fleet of employee owned businesses - have sailed a steady partnership course for decades. But in Wales, where Wales Co-operative Centre facilitated many worker buyouts through trusts and shares in the 80s and 90s, most of the converted firms ended up back in conventional private ownership within a few years. Why does this surprise?

At the surface level, worker co-ops and employee ownerships have a lot in common, because they  give workers equity in the enterprise. According to sympathetic researchers, this correlates with higher levels of productivity and profitability, better work conditions, greater business durability, and more industrial peace. If you could walk down a high street where 40% of the firms were worker coops, 40% employee owned, and 20% family businesses, what wouldn’t be to like?

Yet on another level, they diverge sharply. To generalise: worker cooperatives come out of and align with the workers and social movements; contest capitalism; and ‘prefigure’ a classless and solidarity-based social system. Employee ownerships come out of the quest for legacy by philanthropic owners; favour a more stable and efficient capitalism; and are comfortable with present social relations inside and outside the workplace.

In reality, things are more blurred – especially if you look outside the Anglophone countries. Once again, who cares? If you think workers are the only social class with both motive and latent power to overturn the present system, the answer may be clear. Yet even in the cooperative movement, there’s a strand of opinion that doesn’t regard worker co-ops as legitimate, since they ‘only’ benefit workers. On the other side, some advocates of share based models say common ownership just keeps workers down, by promising them endless labour in exchange for a threadbare utopian fantasy. To paraphrase one business conversion expert – a person with a foot in both camps - ‘I don’t lose sleep if the workers cash out, and the business goes back into private ownership. They got a wedge of money from the deal, which they wouldn’t have otherwise.” Looked at this way, both models of ownership hold out the prospect of ‘jam tomorrow, not today’ for workers, but with share ownership just getting there a bit quicker.

It gets more interesting when we move from the question of ownership to that of control, both of the enterprise and in terms of accountability to the wider social movement. We’ve seen that share ownership appears to confer greater powers of disposal to the worker, and maybe it does when the question is whether to flog the business. In practice, however, employee owned firms often keep significant ownership in the hands of the legacy shareholders, and they almost always preserve the mode of command-and-control, with layers of professional management directing workers at both the strategic and day to day level.

This may be explained by the philanthropic origins of many employee owned businesses. Owners find it harder to give away the idea that they possess special knowhow than they do some or most of their shares. In the words of Bob Moore, former owner of Bob’s Red Mill Natural Foods in Oregon, a large and profitable ESOP: “nothing about the new arrangement will change a thing. I may have given them the company, but the boss part is still mine”.

In general, the idea is that a financial stake in an employee-owned business in itself will spark the worker loyalty and extra productivity that gives the company its edge. Yet we know that in most jobs, money isn’t the only or even the main motivating factor for workers. Successful worker cooperatives embody lifelong skills development, a culture of equality, the opportunity for workers to collectively self-manage their working lives, and support for life outside the workplace. When they achieve this, they also increase efficiency by reducing the need for executive managers, whose principal function in any firm is to maintain discipline, and whose services are generally expensive.

Employee ownerships are often keen to amplify what they see as their ownership advantage with management initiatives aimed at getting a deeper level of buy-in from employees, using systems theory and business school ideas to wring out the extra juice. All this management is, of course, costly. Worker cooperatives are more likely to be able to assume commitment and dispense with the hoodoo. Their disadvantages mostly stem from problems around capital – the lack of which defines their members as workers in the first place.

The conclusion might be that both forms get a business advantage by being able to retain skilled workers and thus build build a base of expertise, resulting in higher productivity, but that they do this in different ways. In worker co-ops, which have developed some of the most advanced applications of practical democracy anywhere, collective self-determination reaches well beyond the realm of ‘corporate governance’, into the everyday process of production.

Employee ownerships and worker co-ops also have a different take on information and transparency. To work well, co-ops have to practice true ‘open book’ management, with almost all information available to members, on the basis that ‘if you don’t have the information, or can’t use it, then you aren’t in control’. By contrast, information culture in many employee ownerships amounts to giving members an annual update of their financial ‘pot’, running quality circles - the old suggestion box with bells on - or implementing ‘nudge’ measures to improve worker performance. At the launch of the ‘1 Million Owners’ campaign – Co-operatives UK’s joint initiative with the Employee Ownership Association - the boss of a London PR company spoke with pride about how her employee-owned business has become more transparent. “Everyone has access to all the information. Except of course sensitive things, such as how much each of us earns.”

None of this might matter, except that mistaking employee ownership for worker cooperation, or conflating them, leads to wasted effort on the part of activists - boosting business narratives that have no real meaning for us, or exhausting us in the pursuit of misguided policy innovations. The future of worker cooperation lies in the hands of workers, to whom, wherever they are, the tools and experience of present and past worker cooperation need to be made meaningful and available. That’s a hard task, which can’t be achieved with top-down initiatives or novel legal and tax frameworks.

It’s true that organisations rarely change their culture in any important way. When preparing this, I asked if anyone could give me an example of a worker co-op that converted to an employee ownership, or vice versa. There weren’t any. But in truth, there are probably quite a few enterprises that embody elements of both, and don’t worry about it – like Lembas, the wholefoods merchant in Sheffield that has equal pay, practices collective management, calls itself a co-op, does serious community engagement, and hacked the employee ownership trust model years ago.

Which is the more unlikely vision: a mixed social economy populated by cheerful consumers and contented workers, or the hegemony of a new social and economic order based on principles of equality and sustainability? The revolutionary horizon is indistinct, yet probably closer than we think. So the difference between a holistic, class-centred perspective on worker ownership and control, and a reformist, bloodless one is relevant. Meanwhile, let’s keep up the pressure for higher wages and better conditions.

SW

Reply to Commons or shares: the trouble with worker ownership by Jessica Rose and Marjorie Kelly, The Democracy Collaborative

It hurts when employee ownership loses a champion, as with the sale of New Belgium Brewery to “Big Beer.” New Belgium was a B-Corporation, deeply committed to sustainability, and employee owned via an ESOP (a U.S. trust structure that holds company shares). Now that’s all at risk. Reflecting on the sale, Sion Whellens returns to an age-old debate: is employee ownership via shares worthy of attention from new economy activists? Or should we focus on cooperatives, with potentially more revolutionary potential?

Whellens suggests this may seem like a narrow religious debate—we couldn’t agree more. While New Belgium’s decision was disappointing, we understand it may have needed the distribution potential of this larger company to survive. Unlike a typical corporate sale, this one brought long-time employees six-figure payouts.

Still, it wasn’t a perfect outcome: We’d all prefer employee ownership in perpetuity. But as a movement we need to ask ourselves – is our aim perfection or impact? We argue for impact.  

The revenue of all U.S. worker cooperatives adds up to $550 million. Revenue at a single Bay Area ESOP called Recology is more than twice that at $1.2 billion. This waste hauling and recycling firm is fully owned by its 3,000 workers and pays garbage truck drivers family-supporting wages far above the median for this occupation – because without absentee investor owners, there’s more wealth for employees. And their vision of a world without waste has made San Francisco a leader in diverting trash from landfills.  

Compare Recology to CERO, a scrappy worker co-op that has also embraced a zero-waste future: CERO recycles 80 tons of food waste per week, employs seven, and has revenues of about $700,000. In five years, this democratic company hopes to employ 35 and recycle a million tons of food waste annually: a nontrivial contribution. But as a co-op, it is more difficult to raise the kind of capital that has allowed Recology to go to scale.

Both Recology and CERO are worthwhile enterprises, and CERO may offer more meaningful worker governance. But is CERO having a more profound impact than Recology on people and the planet? Either way, is this a useful argument?

We think not. Social entrepreneurs today can select from a diverse menu of legal entities and governance models, to structure a firm that is positioned to raise capital, operate in a competitive and tax-efficient manner, and express a unique social mission. The fact is, broad-based ownership of any kind is a radical and transformative paradigm. Additionally, decisions of firm structure at the individual level are primarily technical, not ideological.

Ownership matters

As Marjorie demonstrated in her books Owning Our Future and The Making of a Democratic Economy, our system of capital ownership—driven by the principle of maximizing returns to capital — underpins an extractive economy that serves the few, not the many, and is blind to damaging impacts on workers, communities, and the Earth. 

But ownership is just one dimension of enterprise design and does not reflect the full solution. What we need is a massive shift to a generative, democratic economy that puts people and planet ahead of profit maximization. To do that, next generation enterprises needed in the new economy must combine broad-based ownership models with beneficial purpose. Currently, neither the cooperative nor the ESOP structure requires the incorporation of social purpose.

In a 2019 report, we looked at purpose-driven firms (like B Corporations) that were employee owned and not. We found that the best firms—those that provided quality jobs and sustainable environmental outcomes—were both employee owned and purpose driven. Some were worker cooperatives, others were ESOPs. All were producing materially better social and ecological outcomes than their peers.  Among the “the best of the best” was Recology.

At The Democracy Collaborative, we support broad-based ownership in many forms, including public ownership. Our aim these days is to frame the COVID-19 crisis as an opening to create a radically different kind of economy, employing a variety of beneficial forms. We raise the critical question: Who will own the economy post-virus? Will we have an Amazon recovery where only absentee-owned mega-corporations remain after half of all small businesses close?

There is another path, in which a more democratic, just, multi-racial economy is elevated. Public holding companies could preserve local business, eventually passing ownership to employees or the community.  When big companies are bailed out, the public could require beneficial purpose and an ownership stake.

What’s needed today are large steps toward a massive transition in enterprise design – and helping the public understand the difference between broad-based ownership versus elite, extractive ownership. It’s past time for quibbling about co-ops versus share ownership. Far too much is at stake.

Marjorie Kelly is the executive vice president and senior fellow at The Democracy Collaborative. Kelly has been a long-time critic of shareholder capitalism and is leading The Democracy Collaborative’s work on next generation enterprise design.

Jessica Rose is the CFO and director of employee ownership programs at The Democracy Collaborative. Her work focuses on alternative finance and cutting-edge market-based solutions to inequality. 

 Response: why ownership doesn’t matter

‘Commons or Shares’ enquired into the potential of typical employee-owned and cooperative enterprises by looking at their origins – broadly speaking, philanthropic action and workers self-organisation. Far from arguing for sterile ‘purity’, I noted that both types can boost the living standards of workers. We don’t need to cherry pick to find worker-owned firms of both types, big and small, that do great things.

Jessica and Marjorie mainly object to my conclusion that worker cooperation is a better focus for the energy of ‘new economy activists’ because of its emancipatory potential. I’ll explain why, but first will respond to their defence of ESOPs and other “broad-based ownership models with social purpose, including public ownership”.

Their narrative about what distributed ownership is ‘good for’ doesn’t address working class existence as such, but is only concerned with changing the social purposes of entrepreneurship. In this story, new economy leadership can be about almost anything other than ending the domination of capital itself. Social enterprise, green recovery, responsible investing, integrating migrants, the liberation of women, global justice, taking advantage of the opportunities presented by COVID or reviving the American Dream of a ‘multi-racial economy’ can all be part of the mix.

CERO might indeed look scrappy, compared with Recology. In reality they are both part of a small cohort, competing with the networks of red-in-tooth businesses that dominate regional and global production and distribution. The answer, for The Democracy Collaborative, is to expand the sector by having more access to capital and changing the policy environment. Capital is so central that they can even be ‘understanding’ about the New Belgium sale – not because it might have been a smart tactical move on the part of the workers, but because they needed the distribution clout of a global company to survive. And so it goes round in a circle - a circle revolving around capital.

To re-centre the discussion on workers, we have to go back to basics on capital. What is it? And how does worker cooperation – in its different forms – create the tools for a practical and theoretical critique of capitalism?

Capital is always and everywhere dependent on living labour, even as this labour develops an increasingly complex and globally cooperative character. Capital flees from the 'insubordinate power of labour', but it can only flee in the direction of its further socialisation. In the 20^th century we might have used Fordism in North America as an instance of this social formation; today we might talk about the global reach of Amazonism.

Sometimes, capital appears to be nothing more than a money ‘thing’ that some people have access to, and others don’t. But capital is not in fact money, or only money. It’s the fetish for a set of social relations that enables the profits from yesterday’s production to reproduce itself as further profits, which it can only do by further exploiting labour. To do this, the conditions have to be right. Law, politics, ideology, police, managerial elites, financial policy instruments and armies are needed in different proportions at different times, to enable the process to continue. Capital then appears to be the unquestionable precondition for social production, even more vital than the human beings who created it. We have a society organised not for the reproduction of human life, but for the reproduction of capital.

The point is that capital and workers have an intrinsically antagonistic relationship, and that workers hold the practical keys to unlocking the question of why capital appears to create wealth, rather than workers themselves. To do this, we need to start by breaking down the arbitrary divisions – for instance between ‘skilled’ and ‘unskilled’, ‘white collar’ and ‘blue collar’, ‘intellectual’ and ‘manual’, 'productive' and 'reproductive' work – that stand in the way of collectively realising our power to create everything we need or want, without exploitation or overwork, and without burning the house down.

If we develop the tools to do this, we can also deal with deranged relationships like racial oppression and partriarchy. I wrote in ‘Commons and Shares’ that the worker co-op sector in North America and the UK has roots in currents such as the C20th ‘new left’, ecology, feminism, anti racism and gay liberation. In opposition to capital, none of those forces has the same structural antagonism as the working class - but if you want to see where work is being done to demystify and deconstruct such divisions, cooperatives are one place to look. The best examples have a culture of tackling the hyper division of labour, alienated work and social hierarchy, as part of their everyday practice.

Cooperation between workers for themselves, rather than for capital, doesn’t only happen in worker cooperatives. Nor will we build the new economy ‘one co-op at a time’, because the stakes are so high. It’s in this sense that the forms of ownership don’t matter, compared to changing the form of work itself, and the social relation that defines it; none of the current modes of ownership is likely to survive a rupture with capitalism.

Such a break would come at the point ‘policy’ runs out of tools to defend the rate of profit, and the working class has had enough. It will be global and fast moving. As we move closer to it, creating bridges of collective action and enquiry between worker co-ops and workers unions, solidarity networks and defence organisations is vital.

SW