On Scaling Worker Co-ops

Photo by Nathan Kelly on Unsplash

America proclaims to be the land of the free, but as workers, we are far from it. Workers ultimately do not drive the decision-making of corporations— business-owners and shareholders do. Our choice, instead, is limited to choosing between exploitative roles. Roles like underpaid service work that grind us down to the bone, or soul-draining corporate jobs that desensitize us to the perpetual harm inflicted in the name of profit. Pick your flavor. Refusal to choose means facing the grueling experience of unemployment— an experience that threatens our basic survival needs while attacking our very sense of self because somehow, we aren’t “hardworking” or “talented” enough. America mocks us with the illusion of self-determination, but all of the choices are rigged.

I wanted to write this piece because worker cooperatives present a clear structural change to this extractive corporate system. In a worker co-op, workers themselves own the means of production, rather than wealthy outside investors. This means they can drive the decision-making— spearheading the vision, choosing core values, and enabling key projects. There are approximately 1,300 worker cooperatives in the US. Some of my favorites include ReDelicious, a vibrant food co-op that transforms food waste into community wealth, and Dupont Coffee Collective, a beloved coffee joint down the street.

But how can these examples be applied at scale? What would it look like for co-ops to exist as the status quo?

External Pressures vs. Internal Contradictions

Many of the commonly cited challenges to worker co-ops are not issues with the model itself but pressures applied by the broader system of capitalism co-ops must compete in.

Challenge: Funding & Legal Barriers

Take, for example, the challenges of acquiring startup capital. Investors are incentivized to fund a business because they get a stake in controlling the company, obtaining legal ownership through shares. However, worker co-ops do not provide the same incentive. Workers are the ones owning the shares, not outside investors. In a capitalist system where the majority of funding is controlled by these outside investor, this becomes a major barrier, blocking co-ops from acquiring the resources necessary to scale and take strategic risks.

These pressures do not signify that worker cooperatives themselves are inherently ineffective at building democratized economic power. Rather, they illustrate the pervasive oppression of an economy overtaken by capitalism.

Challenge: Insider Outsider Dilemma

However, there are inherent incentive risks within the worker co-op model worth critically evaluating. One of the these is the insider outsider dilemma. Imagine a coffee roasting co-op making $300k a year in profit. There are 5 worker-owners at the co-op and they each take home $60k. As demand increases, the founding members consider hiring 5 new employees. However, if they allow those employees to share ownership of the company that means dividing the profit 10 ways. This would essentially halve their salaries.

They can avoid this by pausing hiring, but that would prevent them from their original goal of expanding. So they decide to bring on the new folks as “employees” rather than “worker-owners.” This means they can pay them a fixed salary instead of splitting their ownership of the company. For Richard, one of the founding members who just had a kid, this is especially important. He cannot risk cutting his pay because his family depends on it.

This example illustrates the inherent dilemma: expanding ownership dilutes the shareholder power of the insiders (worker-owners) so they choose to gatekeep access to outsiders (employees). The consequences is this effectively creates a “labor aristocracy.” The worker-owners are incentivized to underpay and oppress the employees and rewarded with profit.

Towards Solution: Co-op Federations & Shared Infrastructure

The Mondragon Cooperative is the largest worker co-op in the world. Operating in Basque County of Spain, it employs over 80,000 employees, 80% of which are worker owners. What is especially impressive is that it involves more than 200 smaller cooperatives, effectively functioning like a “village” or federation of co-ops. Additionally, the federation has developed its own banking and insurance infrastructure, as well as its own training and apprentice programs through Mondragon University.

Mondragon’s success can inform a model helping worker co-ops overcome both external pressures & inherent contradictions. The establishment of its own banking infrastructure innovatively circumvents the challenge of acquiring outside investments to expand. LABORAL Kutxa (originally Caja Laboral), acts as the financial backbone of Mondragon. It pools together savings from the cooperatives’ surpluses, alonside additional funds from the residents of Basque county, providing a consistent source of low interest venture funding to scale member co-ops. It is also jointly owned by workers at the bank and representatives from the cooperatives it serves.

The creation of this shared infrastructure enforces unity and solidarity across its network of coops. Member coops are required to pool a portion of their profits in LABORAL Kutxa so that during economic downturns, highly profitable co-ops can subsidize those taking losses and act as a buffer. Regarding the challenge of legal barriers, this also allows for sharing of knowledge and technical assistance between member co-ops.

In this manner, Mondragon is able to tackle the insider-outsider problem. In order to participate in the federation and access shared infrastructure like the cooperative bank, members are required to follow a set of principles, one of which is Open Admission. Member coops are not allowed to discriminate in the admission of worker-owners, and must allow anyone who accepts the Principles. This also means establishing a highly structured, step-by-step pathway to transition into a worker-owner, including a 6 month probationary period and regular supervisor evaluations. At any given time, at least 80% of workers at Mondragon are required to be worker-owners.

Additionally, because the federation of co-ops within Mondragon are in solidarity with one another, workers have mobility to switch between roles at different organizations based on need or for personal growth. When applying to switch positions, workers credentials and history are transferred over. The process has been described to be as simple as transferring campuses at a university— an internal relocation rather than a job hunt. During economic shocks or cooperative downsizing, Mondragon’s internal insurance system, Lagun Aro, will actively relocate workers to other co-ops. Mondragon also provides job training through Mondragon University, which is often fully funded and coordinated by the co-op. Thus, this mobile body of workers breaks through siloes and builds solidarity. The idea of an “insider” or “outsider” disintegrates because any of the workers could cycle between multiple co-ops int their lifetime. The flourishing of the other becomes the flourishing of the self.

Conclusion

What Mondragon teaches us is that within a capitalist system, worker co-ops cannot scale in isolation. Cooperatives must form villages and federations, sharing infrastructure, resources and knowledge with one another. This can look like building more cooperative banks to break down funding barriers, insurance systems to prepare for economic shocks, and shared education programs to help workers grow and innovate, focusing on building a culture of mutual aid rather than competition.

It’s easy to dismiss all of this as idealistic, but what I’m writing about is a reality that already exists. The Mondragon cooperation is far from perfect, but already proves that co-ops can scale across tens of thousands of workers. And it’s not just Mondragon— there are over 250,000 worker co-ops in the world, presenting over 11 million worker owners. Organizations like the International Cooperative Alliance, NCBA, and CCA are exchanging knowledge between coops all over the world.

If America were truly free, people would work for what they loved. To choose to labor out of care rather than extracting from one other in the name of survival. Our labor is sacred. It is what we do to survive, but it is also a profound life force that we pour ourselves into, shaping the temporal world in our passing existence. How could we treat it with so much indifference?

Ultimately, is that not the most important guiding principle of all?

That we may labor for what we love.