b h a g . n e t visual and conceptual exchange b h a g . n e t
Union Cooperatives and Democracy
John Clay delivered the following speech, in German, before a live audience on 14 March 2017 at the European Center for Art and Industrial Culture, Voelklinger Huette World Cultural Heritage Site in Voelklingen, Germany as part of a series titled "We are the Firm: Conceptual Workshop on Economic Democracy."
Good evening. Thank you for being here tonight.
Business is income. Income is crucial to the lives of the owners and the employees of a firm. It is how we and our nation prosper, now and for the future. If we have no power to govern the institution which is the source of our income, then we have no power to govern our future. Not only co-determine, but actually govern.
The majority of Americans today have little or no power to govern our future. Economist Thomas Piketty has demonstrated that the top 10 percent of the adult population own 70 percent of all capital in the USA, and the bottom 50 percent share among themselves only 5 percent of all capital. 1
And we no longer govern our political future. Martin Gilens of Princeton University and Benjamin Page of Northwestern University show in a statistical study that the wishes of average American citizens today "appear to have a near-zero impact upon public policy" in the USA and that "even when fairly large majorities of Americans favor policy change, they generally do not get it." Instead, the study shows that the nation's laws reflect the wishes of economic elites and business organizations. Owners govern. 2
As we saw in tonight's film, Mondragon has created successful firms where all govern and prosper together because all are owners of the institution which is the source of their income and each owner has one vote. Listen. This is democracy: We own, we govern, we prosper together.
Labor unions too can help employees share in the prosperity of a firm by bargaining with owners for better wages and giving employees limited governing power through codetermination.
In the USA, the United Steelworkers Union has joined with Mondragon to combine the strength of employee ownership and labor unions by calling for the creation of union cooperatives. These are employee-owned cooperatives whose employees are covered by a collective bargaining agreement.
I will talk more about that. But first I want to thank the Weltkulturerbe Völklinger Hütte and our sponsors for inviting me to lecture at this beautiful theater at this special place. In 1965 more than 17,000 people worked here, at the Voelklinger Huette steel mill. Think about the dramatic industrial landscape you walked through this evening. Can you imagine thousands of your friends and neighbors walking on the walkways, operating the machines, driving forklifts and trucks?
Their work created value which was paid to the owners in profits and to the employees in wages. And when the owners and the employees spent their money at other Voelklingen businesses, that made Voelklingen a stronger city.
Governing the firm
Now the steel mill is closed. Operating a firm is difficult and many difficult decisions have to be made.
Who decides whether a plant, or even the firm as a whole, will stay open or will close? Who decides how much of the firm's value goes to the owners in profit and how much goes to the workers in wages?
The owners decide. Ownership is a longstanding source of governing power which is deeply rooted in the laws and beliefs of nations around the world.
Where there is a collective bargaining agreement, the employees can participate in some decisions. But the rights of employees under codetermination do not equal the rights of owners. The right of owners to govern what they own is indisputable. By contrast, the right of employees to govern by contract and law what they do not own is always vulnerable to dispute.
Owners govern, and that is why the Mondragon model is important.
Imagine that you and fifty other persons are employee-owners of a cooperative firm in Saarland or Moselle which manufactures precision-crafted steel tools. All employees have equal governing power under the rule that each person casts one vote. And all have the real governing power of ownership. It is real democracy because it combines the formal power of equal votes with the real power of ownership. If the firm is profitable, you can help decide whether to invest the surplus in higher wages or in expanding the firm. This is democracy: We own, we govern, we prosper together.
Now imagine you are an employee of a conventional firm whose shares are traded on the stock exchange. Employees have no right to govern unless they are covered by a collective bargaining agreement or own shares in the firm. Your codetermination rights do not equal the governing rights of owners. To gain more say in decisions, you purchase as many shares as your pay allows, but in a conventional firm the governing power is unequal under the rule that one share casts one vote. The chief executive officer is paid 150 times what you are paid and so can buy 150 votes for every one vote that you can buy. Your wages will never purchase enough shares to govern. In a conventional firm, the wealthy govern. This is not democracy. 3
The power of owners compared to employees
Now you might ask: Don't working people own their own brains and bodies which are the source of their income? Yes, but here is the key: Labor must combine with capital to produce economic value. This combination is the institution we call business. People who own capital and their body can always do business. Capital and one body makes a one-person firm. But persons without capital cannot do business and must ask owners of capital to let them work. This is why we must own the institution which is the source of our income and not merely our body.
For more than 150 years in the USA and Germany, labor unions have achieved important victories by organizing workers to bargain collectively with owners of capital. But it has been a difficult history of temporary victories and too many defeats. A small number of business owners can exercise more influence within their firms and within the politics of their city or nation than can a large number of non-owners. Owning the institution which is the source of our income means owning a piece of the economy, and this wields more power in society than owning merely our body. 4
In the USA and Europe today, the power of owners in society is increasing while the power of employees and labor unions is decreasing. Capital owners' share of national income in Germany increased from 23 percent in 1970 to 27 percent in 2010, in France from 24 to 31 percent, and in the USA from 21 to 29 percent, while employees' remaining share of national income falls in each case. 5
The share of German employees who are labor union members has been cut in half since 1980, according to the Organization for Economic Cooperation and Development, and the share covered by collective bargaining agreements has fallen from 70 percent in 1995 to 60 percent today. The share of US employees who are labor union members has been cut by two-thirds since 1970, and the share covered by collective bargaining agreements is about 15 percent today. Collective bargaining coverage in France remains high at 90 percent. 6, 7, 8
There is hope that combining the power of employee-ownership with labor unions can build a more prosperous future for working people, for labor unions, and for cooperatives where all are owners and each owner has one vote. This is democracy: We own, we govern, we prosper together.
Governing the nation
We have talked about governing firms, but what about nations? In any institution, there is the formal power of voting and the real power of ownership. In the nation, you, like every citizen, have formal governing power under the rule that each person casts one vote. But if you do not own the firm which generates your income, then you do not have the real governing power which comes from owning a piece of the economy. High collective bargaining coverage in Germany and France depends heavily on a framework of laws, and laws can change, as Gilens and Page found in their study of US policy, if the owners of the economy want it.
Our schools teach us that in a democracy the people govern, but real life is more ruthless than that. When you talk to your member of parliament, they are examining you and estimating how much of the economy you own or control.
Just as the owners govern the firm, so too the owners govern the nation. The men who signed America's Declaration of Independence in 1776 were owners. They were farmers and merchants and artisans who owned the firm which generated their income. And if we today wish to share in governing, with real power to make decisions about our work and the laws of the city and the nation, then we must become owners. This is democracy: We own, we govern, we prosper together. 9, 10, 11
How can union cooperatives help us?
In 2012 the United Steelworkers, Mondragon, and the Ohio Employee Ownership Center published a how-to guide called "Sustainable Jobs, Sustainable Communities: The Union Co-op Model." A union cooperative is an employee-owned cooperative whose employees are covered by a collective bargaining agreement, and who believe everyone has a right to govern the institution which is the source of their income. 12
Beyond improving the daily lives of working people, the union cooperative can inspire new membership in labor unions and cooperatives. It can cultivate a shared agenda and new opportunities for labor unions and cooperatives to build political coalitions together.
Employee-owned cooperatives can be large with thousands of employees or small with just a few employees, and even very small companies can become union cooperatives. By law in Germany, firms as small as five employees can form a works council of at least one member and can request to join a labor union.
What are the opportunities in the Saarland and Moselle?
Working people who want to own the source of their income can join together to start up a new union cooperative firm which supplies products or services to the steel, automotive, information technology, or other industries. Research by economist Erik Olsen shows that the survival rates of employee-owned cooperatives are equal to or greater than conventional firms. 13
The goal of the union cooperative is 100 percent employee-ownership, with each employee owning an equal share. The employee owner can purchase their share in full or can have a portion of each paycheck deducted until the share is paid in full.
If other investors are necessary, as is likely in capital-intensive industries like manufacturing, then the model recommends investment by institutions who understand cooperatives and labor unions. These institutions might be credit unions, cooperatives, foundations, or government.
There are opportunities for conversion of conventional firms into union cooperatives. A business owner who is retiring but has no children to take over the firm may be happy to sell the firm to the employees. Conversion of existing firms is less risky than starting a new firm.
Conversion also can rescue a distressed firm which is in danger of closing or moving overseas. If the state government is considering whether to intervene, then the advocacy of the labor union can help convince the government that action is needed and that employee ownership, perhaps in partnership with foundation or state ownership, is the right solution.
What lessons can be learned from the USA?
Out of 5.8 million firms in the USA, about 30,000 are cooperatives and about 300 are employee-owned cooperatives. Ten years after the union cooperative model was conceived, there are about 10 union cooperatives in the USA. What success there has been is mostly due to the heroic efforts of a few local labor union activists in Cincinnati and Denver. 14, 15, 16
I mentioned that the share of US labor union members has been cut by two-thirds. Following the November 2016 elections in the USA, the Republican Party's control of all three branches of federal government—the presidency, the congress, and the courts—will now speed the decline. One union cooperative in Cincinnati wrote bylaws to explain how to operate if there are no longer any labor unions in the USA.
The important lesson is that the United Steelworkers Union could have massively mobilized to recruit workers from failed strikes or failed union organizing efforts to start their own union cooperatives, and could have mobilized to teach all their members the importance of owning union cooperative firms. Instead the United Steelworkers Union published the Union Co-op Model how-to guide and a website but little more than that.
The important lesson is that many US labor unions remain blind to their impending disappearance from the American economy. The important lesson is that we in the USA waited too long to rescue labor unions, too long to rescue democracy, too long to learn that democracy is more than just a vote, that democracy requires the power of ownership. The important lesson is that it may be too late for America.
There might still be time for Germany and France and Luxembourg.
If we today wish to share in governing, with real power to make decisions about our work, our wages, and the laws of the city and the nation, then we must become owners. This is democracy: We own, we govern, we prosper together.
1. Piketty, Thomas. Capital in the Twenty-First Century. Trans. Arthur Goldhammer. Belknap Press, 2014, page 248.
2. Gilens, Martin and Benjamin Page. "Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens." Perspectives on Politics, September 2014, Vol. 12, No. 3. American Political Science Association 2014, pages 564-581.
3. Kelly, Marjorie. The Divine Right of Capital: Dethroning the Corporate Aristocracy. Berrett-Kohler Publishers, 2003.
4. Dulles, Foster Rhea. Labor in America: A History. 1949. 3rd Edition. New York: Thomas Y. Crowell Company, 1966.
5. Piketty, Thomas. Capital in the Twenty-First Century. Trans. Arthur Goldhammer. Belknap Press, 2014, page 222.
6. StatExtracts, Trade Union Density. Organization for Economic Co-operation and Development. Webseite http://stats.oecd.org/Index.aspx?DataSetCode=UN_DEN.
7. Logan, John. "Union Recognition and Collective Bargaining: How Does the United States Compare With Other Democracies?" Berkeley, California: UC Berkeley Center for Labor Research and Education, 2009. See laborcenter.berkeley.edu/union-recognition-and-collective-bargaining-how-does-the-united-states-compare-with-other-democracies/.
8. Silvia, Stephen. Holding the Shop Together: German Industrial Relations in the Postwar Era. Cornell University Press, 2013, pages 146, 227.
9. Egnal, Marc and Joseph Ernst. "An Economic Interpretation of the American Revolution." William and Mary Quarterly, 3rd Ser., Vol. 29, No. 1 (January 1972), pages 3-32. See vi.uh.edu/pages/buzzmat/egnal.pdf.
10. Nash, Gary B. The Urban Crucible: Social Change, Political Consciousness, and the Origins of the American Revolution. Cambridge, Massachusetts: Harvard University Press, 1979.
11. Clay, John. "Union Cooperatives and Economic Democracy: An American Perspective." June 5, 2014. See www.arbeitskammer.de/aktuelles/veranstaltungen/nachbetrachtungen-2014/nachbetrachtung-ak-thema-wirtschaftsdemokratie-wegweiser-zu-mehr-mitbestimmung-kopie-1.html.
12. Witherell, Rob, Chris Cooper, and Michael Peck. "Sustainable Jobs, Sustainable Communities: The Union Co-op Model." United Steelworkers International, Mondragon, Ohio Employee Ownership Center, 2012. See assets.usw.org/our-union/coops/The-Union-Co-op-Model-March-26-2012.pdf.
13. Olsen, Erik. "The Relative Survival of Worker Cooperatives and Barriers to Their Creation." In Advances in the Economic Analysis of Participatory & Labor-Managed Firms, Volume 14, pages 83-108. Emerald Publishing Group, 2013.
14. 2014 SUSB Annual Data Tables by Establishment Industry, US & states, totals. US Census Bureau. See www2.census.gov/programs-surveys/susb/tables/2014/us_state_totals_2014.xlsx.
15. Deller, Steven et al. "Research on the Economic Impact of Cooperatives." University of Wisconsin Center for Cooperatives, 2009. See reic.uwcc.wisc.edu/.
16. "Union Co-ops." Cincinnati Union Cooperative Initiative. See www.cincinnatiunioncoop.org/union-co-ops/.
© 2017 John Clay